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Closing Gaps in Auto Dealers Coverage Form

Published: Feb 01, 2015

Auto dealers were left behind other business owners when the old garage coverage form was developed as a specialty product. The newer auto dealers coverage form solves many - but not all - the problems.

The auto dealers coverage form combines many features of the Business Auto Policy and the Commercial General Liability Policy into a single contract to accommodate auto dealers with virtually inseparable exposure to auto and general losses. But some coverage features in those two policies are not included in the auto dealers coverage form.

As a result, coverage for auto dealers is more restrictive than coverage for other businesses that are eligible for the BAP and CGL policies. Agents need to be on their toes when placing liability coverage on auto dealers and either offer broader coverage or explain the limitations if broader coverage is not available or not desired.

See technical report Avoiding Garage Gaps in Auto Dealers Coverage Form.

Solving Auto Dealers Coverage Problems

Liability gaps in the auto dealers coverage form related to premises and operations exposures are easily closed if the same insurance company is willing to issue a separate CGL on your insured for a minimal premium. The separate policy would provide your insured the same liability features that are available to other types of businesses. You can avoid duplicate coverage or stacked limits by attaching form CG 21 00 (Exclusion - All Hazards In Connection With A Designated Premises) to the CGL policy and form CA 25 07 (Locations and Operations Not Covered) to the auto dealers coverage form. The exclusions in both policies could be limited to bodily injury and/or property damage for which the other policy provides coverage.

There is one gap in the auto liability coverage provided by the auto dealers coverage form compared to the business auto policy. When Symbol 29 is used, a non-owned auto must be used in connection with the dealership business described in the Declarations. This is a key distinction from the BAP where the limitation for Symbol 9 applies to autos used in "your business" rather than any particular business described in the Declarations. In addition, the BAP applies to non-owned autos used in an individual named insured's personal affairs. Endorsement CA 99 54 (Coverage Auto Designation Symbol) can be used to close this gap by defining non-owned autos in the same way as they are described in Symbol  of the BAP.

Risk Management

Because auto dealers are subject to many more coverage gaps than are other types of businesses, agents always should use the risk management approach when working on a 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 the producer identify exposures that may not be covered by the standard unendorsed auto dealers coverage form and may call for either an endorsement or a separate policy. For some exposures, such as leasing or racing operations, coverage with a specialty market may be the only way to close gaps.