Dealership Physical Damage Coverage
This coverage typically provides protection for owned autos, motorcycles, trucks and trailers owned by the dealership and held for sale. In most cases, the coverage extends to other “land motor vehicles” like golf carts, scooters and construction equipment.
It can be extended to cover other vehicles on a dealer’s lot that may be under a floor plan or on consignment. The classes of vehicles to be covered will be notated within the policy declarations. It is important that a dealer review their policy to determine what vehicles are covered.
The policy will almost always offer coverage for “Collision” losses. In addition to collision, a policy will normally have either “Comprehensive”, “Specified Perils/Specified Causes of Loss” or simply “Fire and Theft”. “Comprehensive” is essentially all risk coverage protecting the vehicle for anything that may happen to it unless the incident is specifically excluded in the policy. “Specified Perils” covers exposures listed by name in the policy such as fire, theft vandalism, wind, hail and flood. “Fire and Theft” coverage limits claims to just fire and theft.
It is critical that you, the insured, understand this part of the Dealer’s Physical Damage coverage. In recent years, many carriers have had poor results due to catastrophic losses caused by floods and hurricanes and to counteract this, they only offer “Fire and Theft” so they don’t have to pay claims for weather related loss.
The policy will carry a deductible for the loss which is subtracted from the amount of the claim. In the event of a collision loss, the deductible will apply to each vehicle for each occurrence. The deductible for “other than collision” is assigned per vehicle but will normally be limited to a maximum per loss, often 5X. In states where weather related losses are prevalent such as my home state, Florida, this maximum per loss (or aggregate) may be removed when relating to weather and the deductible applies to each and every vehicle.
The coverage may be written on a reporting form or non-reporting form. When available on a reporting form, the premium carries a considerable discount.
The reporting form requires the insured to file reports with inventory values on a timely basis (within 15 days from end of reporting period) either monthly or quarterly. There are severe penalties if the insured neglects to submit reports to the carrier. If the first report is not received, then the insurance carrier will only pay 75% of what they would have paid for the loss—regardless of the limit shown on the declarations page. In the event the insured doesn’t report or under-reports, coinsurance will apply. I will explain coinsurance below.
The non-reporting form requires that the insured submit the MAXIMUM value of all vehicles that will be on the premises at any one time during the policy term. If the insured has given a lower value than is on the premises at the time of the loss, again, coinsurance will apply, and the insured will be penalized.
An insured is required to carry 100% of insurance to value meaning they must insure all vehicles they own under this coverage form. If the dealer purchases an inadequate limit, a coinsurance penalty applies. The easiest way I’ve found to explain how this penalty applies is a formula of “did over should”. The carrier takes the limit the client “did” purchase and divides that by the amount the client “should” have purchased. Let’s say a dealer buys a policy with $100,000 of dealer’s physical damage coverage. During the policy term, a $10,000 car is stolen. While settling the claim, the insurance carrier determines the dealer actually owned $200,000 of inventory at the time of the loss. The formula would be $100,000 (“did”) divided by $200,000 (“should”) which calculates out to 50%. The carrier applies this percentage to the amount of loss and then subtracts the deductible offering the dealer only $4,000 for the $10,000 vehicle. It is important to note that the inventory is based on the dealer’s cost plus any reconditioning expense and not the retail value.
Drive Away Collision Limitation
The garage policy limits collision coverage to 50 miles for autos being driven or transported from point of purchase or distribution to their destination. This exclusion applies if the distance is greater than 50 miles even if a collision occurs within the 50-mile radius. Driveaway collision coverage deletes this distance exclusion and affords coverage for the pick up or delivery of vehicles to or from a point greater than 50 miles from the dealership. This exclusion does not apply to third party liability coverage. Liability protection applies anywhere in the continental U.S., Canada and U.S. Territories.
The policy states that “voluntary parting” with a vehicle under trick, scheme or false pretense is not considered theft. In the event you “voluntarily” hand over a vehicle to someone for any reason, including a test drive, if the vehicle is not returned, it is not covered. In addition to “voluntary parting” being excluded, acquiring a vehicle from someone who doesn’t have legal title is also excluded under theft. In order to have protection in both of the described situations, False Pretense Coverage would need to be purchased.