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Avoiding Gaps in Auto Dealers Coverage Form

Published: Feb 01, 2015

Businesses that are eligible for an auto dealers coverage form sometimes have operations that may not be covered by the auto dealers coverage form.

The liability insuring agreements of the General Liability Coverages (Coverage A and Coverage B) of the auto dealers coverage form agree to pay damages caused by an accident and resulting from auto dealer operations.

"Auto dealer operations" is a defined phrase meaning the ownership, maintenance or use of locations for an auto dealership and also includes all operations necessary or incidental to an auto dealership. This definition begs the question: What activities are contemplated in an auto dealership, and what do the words "necessary" and "incidental" mean?

Unfortunately, the auto dealers coverage form doesn't answer these questions. Numerous court cases have addressed this question, at least with regard to "garage operations" under the old garage coverage form, and yet there is no consensus from one jurisdiction to the next.

Consider the following operations commonly seen at auto dealerships: beverage and snack bars; auto parts sales; machine shop operations; gift and novelty sales; boat repair.

Agents should use a risk management approach when working on an auto dealership account. Picking up current policies and quoting current coverages simply is not a good idea. The first step in risk management is to identify the insured's exposures to loss—personally inspect the premises, complete risk questionnaires, and analyze the insured's financial statements. These methods help identify exposures that may not be covered by the standard unendorsed auto dealers coverage form and may need either an endorsement or a separate CGL policy for proper coverage.

See technical report Closing Gaps in Auto Dealers Coverage Form.