Auto Dealer Insurance - Garage Policy: What’s Behind All the Auto Dealer Lawsuits and Claims?

TASA ID: 3378

Auto dealers are often targets for lawsuits.  Why?  After a home purchase, your vehicle is likely the second highest purchase you will make.  Americans love their automobiles and often treat them with sentimental value.  They park their shiny cars away from others in the parking lot.  They wash and detail them meticulously and drive them proudly and with great regard.  So, it's not difficult to understand why consumers become so passionate when something goes wrong...or appears to have gone wrong.  Let's see why:

Buyer's Remorse - I've seen cases where buyers sued the dealer because they didn't like the cup-holders in the vehicle!  The claim is that they were deceived and never would have bought the car.  In another case, a consumer brought her car in for repairs and left that afternoon with a brand new vehicle purchase.  Several days later, she sued the dealership, claiming it took advantage of her bi-polar disorder to coerce her into buying a brand new car that she never wanted.  Are these legitimate causes for action?  Mostly no...these are simply people looking to unwind the deal.  Are these covered by the Garage or Auto Dealer policy?  Not unless the policy contains some sort of add-on Product Defense-only coverage.  There's no accident or injury.  The policy will not respond unless coverage is triggered by some means such as legal liability or wrongdoing which results in Bodily Injury or Property Damage.  In the above cases, what is the injury?  No one got hurt.  There was no accident.  These are what we term "buyer's remorse" type claims.  The dealers get sued and have to spend money hiring attorneys to defend themselves, and unless they have the specialty defense-only coverage mentioned above, they are on their own since the unendorsed garage or Auto Dealer policy will not respond. 

Damage Claims - Your vehicle is damaged in an accident or from an act of nature.  Should your insurance carrier pay you new for old?  Some people are adamant that they should have that bumper replaced with a brand new OEM part.  If your vehicle was five years old...wouldn't a used part suffice to replace the used part?  Or perhaps your vehicle was damaged in a hailstorm.  Should the hood be replaced with a brand new one?  Not necessarily.  The insurance carrier and dealer can often use legitimate Paintless Dent Repair (PDR) vendors to "massage" out the little dents at a much lower cost than a brand new hood.  And why not if the end result is that the hood is repaired at a much lower cost and still looks brand new?  The consumer is back in the same position as s/he was prior to the loss.  These incidents often lead to disputes which we can defend based on the clear policy language which provides Actual Cash Value (ACV) coverage.   

False Pretense - There are incidents where thieves use more brainy approaches to steal vehicles if brawn doesn't work. Posing as potential car buyers, thieves can often just drive the vehicle away, steal the key, make duplicate keys, distract salespeople etc. to steal a vehicle.  Is this covered by the Garage policy?  Maybe and maybe not.  Did the dealer voluntarily part with the vehicle?  Was a check given to the dealer that later bounced?  Was it an inside job?  These are all important questions in determining coverage.  Additionally, what if the dealer wrongfully accuses someone of stealing a vehicle?  This can lead to another type of lawsuit, Personal Injury.

Lemon Law - most states have a version of the Lemon Law.  For example, in California it's called the Song-Beverly Consumer Warranty Act.  It basically provides consumer protection if after a reasonable number of repair attempts, the dealer cannot meet the terms of an express warranty... actually, it is ultimately the manufacturer's responsibility.  Lemon Law claims are often passed back to the manufacturer, but the dealers still have obligations when sued to defend themselves until the case is accepted by the manufacturer.  Often, the lawsuit is so broad as to sweep around the Lemon Law and somehow bring the dealer into the case, when in many instances, the dealer committed no wrongdoing whatsoever, and the plaintiff was just looking to unwind another deal or be completely unreasonable.  

Prior Damage Disclosure - Various statutes across the US require dealers to disclose whether the vehicle being sold has prior damage.  The amount of damage required to be disclosed varies, so, if for example, the damage requirement is 5% of the manufacturer's suggested price, and the repair is only 4%, the dealer rightfully declines to disclose but gets sued anyway once the buyer finds out.  Perhaps the dealer was not aware of the prior damage.  What if only the glass was damaged and the law didn't require the dealer to disclose it.  These often result in unreasonable lawsuits which may or may not be the subject of a coverage dispute on the Garage policy.  The policy must contain specific coverage in order to respond to these claims.  Often, even with this coverage, there will be a dispute.  I've seen cases where prior owners or repair shops negligently repaired or failed to repair vehicles that were later traded in.  In one case, the dealer sold the traded vehicle, which was subsequently involved in an accident where the airbag failed to deploy.  The resulting injury was the subject of a nasty lawsuit.  Who is responsible?  If the dealers were not aware of the defective airbag, are they liable?

Test Driving - Are customers covered on the dealer's policy in the event of an accident and lawsuit where they were test driving a dealer auto?  I was asked for my opinion in a case once where the customer, test driving a dealer auto, had an accident and claimed rights under the dealer's Garage policy as an "insured."  The Garage policy specifically states that the customer is not covered.  Often this gets back to interpretation of the policy language, state laws and the definition of a "customer."  Is a customer someone who brings his/her vehicle into the dealership for repairs or is it a potential buyer test driving an auto?  What was the underwriting and coverage intent? 

None of the above touches on yet another major aspect of auto dealer claims:  auto liability claims for injury or damage as a result of an accident.  In other articles we will deal with lawsuits arising from the following:

     Bad Faith Claims

     Auto Accident Injuries

     Product Liability

     Coverage Disputes

     Diminution in Value

     Class Action

     Washed Titles

     Odometer Tampering

This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.

This article may not be duplicated, altered, distributed, saved, incorporated into another document or website, or otherwise modified without the permission of TASA.

This article reflects the opinions of the writer based on actual insurance company experience developing and providing insurance for the dealer industry and does not provide legal advice or provide specific advice for any particular circumstances.