Dealer’s Open Lot Insurance
Car dealerships are unique types of businesses, and Dealer’s Open Lot policies have been developed for the specific risks involved.
Dealer’s Open Lot Insurance, also known as auto physical damage, physical damage or fleet coverage, is protection for your vehicles themselves – coverage for your inventory – the cars you own and hold for sale. Vehicles covered can include private passenger vehicles (autos, pickups, minivans, SUVs, etc.), RV units and other autos that are in a dealer’s inventory and are held for sale. Coverage is usually provided for used, new, demonstrators or service vehicles.
It is very important to examine and understand specified causes coverage.
In recent years many carriers have dealt with catastrophic losses from floods and hurricanes, so they closely control coverage. Work with your AutoRisk representative to go over Specified Causes coverage and ensure you have the coverage you need.
Dealer’s Open Lot coverage is generally divided into two parts:
1. Collision coverage pays for damage to a covered auto’s overturn or its collision with another object.
2. Losses other than collision that are covered depend on the policy and may include one of the following coverages. Be sure to read your policy to clarify specifics.
Comprehensive provides coverage to a covered vehicle from any cause of loss except collision coverage described above.
Specified causes provides coverage to a covered vehicle or its equipment caused by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism or the sinking, burning or derailments of any conveyance transporting the covered vehicles.
Fire and theft provides coverage to a covered vehicle or its equipment caused by lightning, explosion or theft.
False pretense provides coverage to a covered vehicle caused by someone who causes the dealer to voluntarily part with a covered auto by trick, scheme or under false pretense. It also covers the dealer acquiring a vehicle from a seller who did not have clear and legal title. An example of a false pretense claim is a test drive where the driver does not come back. Most policies exclude false pretense, although it can be bought through endorsement.
The Importance of Getting Coinsurance Right
It is tempting to think that when you have a certain amount of inventory insurance, and when a claim arises that’s less than the amount of insurance you carry, your carrier will pay all of your claim in full minus the deductible. This is not, however, the way that coinsurance works in Dealer’s Open Lot coverage.
Insurance companies generally require that dealers insure 100 percent of the value of their inventories. If you insure less than this, they will only pay a corresponding percentage of your claim.
For example, if the value of your inventory is $200,000 and you insure it at $100,000, the insurance company is only required to pay for 50 percent of your claim.
The most that will be paid for a loss to any single auto is the lesser of the actual cash value of the damaged or stolen property, the wholesale value of the property, the cost of repairing or replacing the damaged or stolen property or the limit indicated as the most that will be paid for any single auto based on the coinsurance formula.
1. Monthly reporting requires the dealer to send the insurance carrier a monthly report with the exact dollar value of vehicle inventory. There can be severe penalties if the dealer fails to submit reports to the carrier on a timely basis. After the first report is not received, the carrier will typically only pay 75% of a claimed loss – regardless of the limit on the declarations page. Monthly reporting is typically used to insure inventories valued more than $1,000,000.
2. Non-reporting requires the dealer to state the maximum value of the inventory on the premises during the policy term. For this option, it is important to pick the value of the inventory at its highest peak to avoid a coinsurance penalty. Under-estimation of value of inventory can raise the specter of co-insurance as well as any other penalties the insurer may levy in the event of a claim.
Limit per Unit, in Transit and Other Locations
It is important to ensure that the limit per vehicle—which is the maximum amount the insurance company will pay for each vehicle in the event of a loss—is high enough to avoid excessive loss in the event of a claim. The standard per-vehicle limit on the policy may be much lower than the value of each of your vehicles, so be sure to examine this value to ensure it is appropriate. Similarly, the in-transit limit may be too low if you have a portion of your inventory off site. Even when 100 percent of the value of the inventory is covered, the limit per vehicle applies.
What is Covered?
Dealer’s Open Lot Dealers Insurance is different from general liability or business property insurance.
Most dealers will get Open Lot coverage along with garage keepers and garage liability to take care of gaps in coverage. Each insurance company’s approach to Dealer’s Open Lot coverage will vary, so get an expert to help you.
Call an AutoRisk specialist to be clear on all the provisions of your policy