Get a quote on Business Insurance
As a car dealer, there are many hazards that could affect your business. Unforeseen incidents such as a storm that damages vehicles for sale or a customer suffering an injury at your premises could have a serious impact on your business. It’s critical to consider purchasing a comprehensive business insurance package that will provide financial protection in the event of an unexpected lawsuit or catastrophe.
What insurance coverage do I need for my car dealership?
There are many types of insurance coverage to consider, but these policies are particularly relevant to car dealers:
Commercial Property Insurance
Commercial property insurance covers the value of your business property, including buildings, furniture, computers, equipment, supplies, and other property. If an unexpected disaster strikes your car dealership, repairing or replacing your damaged property can be costly. Commonly covered causes of loss include fire, storms, hail, explosion, water damage, and vandalism.
Example:
- A severe storm knocks down a tree near your showroom, shattering several windows and damaging your walls. Commercial property insurance would provide funds for the repairs to your building.
Because car dealerships sell high-value property, they may need a specific type of insurance known as dealers’ open lot insurance to cover the value of their inventory, including new and used vehicles for sale, demo vehicles, and service vehicles.
Business Interruption Insurance
As a car dealer, you depend heavily on your showroom and service center being open to customers. If property damage forces your business to close temporarily, you may lose out on income, while still having to pay fixed operating expenses like rent, utilities, and payroll. Business interruption insurance, also called business income insurance, is commonly added to a commercial property policy in order to provide coverage for loss of income and operating expenses related to property damage.
Example:
- An explosion in your service center causes a fire that severely damages your commercial building. You must temporarily close your dealership while your property undergoes repairs. Business interruption insurance will cover your losses in income and operating expenses while you are temporarily closed.
Dealers’ Open Lot Insurance
Dealers’ open lot coverage, also known as dealers’ physical damage coverage, covers physical damage to the vehicles in your inventory. Since car dealerships often store vehicles outside, there is a higher risk that they could be damaged or destroyed by a variety of hazards, including fire, lightning, hail, theft, or vandalism. Dealers’ open lot coverage typically provides protection from these risks as well as damage from collisions or vehicle overturns.
Example:
- Vandals break the windows of several of the used cars you have for sale in your dealership’s lot. Your dealers’ open lot insurance would cover the damages.
General Liability Insurance
General liability insurance protects your company from claims of third-party bodily injury, property damage, personal injury, and advertising injury. Since car dealers are frequented by many prospective car buyers, there’s always a chance that an injury or accidental property damage will occur. Incidents such as a customer tripping or slipping and falling are common, and your business could be held liable if customers hurt themselves.
General liability insurance also provides coverage for injury or damage caused by your products and completed operations. For a dealer, this can come into play if a used car or car part you sell ends up causing injury or damage to a customer.
Examples:
- Bodily injury: On a rainy day, a customer slips and falls on a wet floor at your dealership, fracturing his wrist. Your general liability insurance would cover medical costs and legal fees if the client sues.
- Property damage: One of your salespeople accidentally spills coffee onto a customer’s laptop, damaging it beyond repair. General liability insurance would cover the damages.
- Products and completed operations: A car bra accessory that you sold to a customer ends up damaging the paint on his car. General liability insurance would cover the damages.
Garage Liability Insurance
It’s important to note that general liability insurance commonly excludes injury or damage that results from garage operations. If your dealership operates a garage for servicing or repairs, garage liability insurance can provide coverage for accidental third-party injury or property damage that arises from your garage operations.
Example:
- A customer slips and falls on a puddle of oil while walking through your repair garage. His arm is broken. Your garage liability insurance would cover his medical bills and provide funds for legal fees and any resulting settlement if he sues.
Excluded from this coverage, however, are vehicles that are under your care, custody, or control. This would include customer cars that have been left with your business for service, storage, or repair. In order to cover customer vehicles, you’ll need garagekeepers insurance.
Garagekeepers Insurance
Garagekeepers insurance protects the value of your customers’ vehicles while they are stored on your premises. If your dealership runs a service department, this is a key coverage. If an unexpected disaster damages a customer’s vehicle while it is in your care, garagekeepers insurance will reimburse you for the damages.
Example:
- Lightning strikes your service center, causing a fire that damages a number of customer vehicles being stored overnight. Garagekeepers liability insurance would cover the loss.
Commercial Auto Insurance
Commercial auto insurance is a critical coverage for car dealers since employees may drive demonstration models and customers frequently test drive vehicles. If an employee or customer is in an accident while driving one of a dealers’ vehicles, commercial auto insurance can provide coverage for physical damage to vehicles, third-party bodily injury, and property damage.
Example:
- An employee is showing a customer a car, and he takes the customer out for a quick demo ride. While making a turn on a residential road, your employee does not see a bicyclist in his blind spot. He crashes into the bicyclist, who suffers a broken arm. Your commercial auto insurance would cover any damages.
Commercial Crime Insurance
Commercial crime insurance provides funds to reimburse you for losses caused by theft, robbery, fraud, forgery, burglary, and other crimes. This coverage applies both to crimes committed by outside parties and crimes committed by your own employees. For-sale vehicles may be kept on an outdoor lot and may be vulnerable to theft. Since car dealers frequently handle large financial transactions, they are also at risk for forgery, fraud, and employee dishonesty. Commercial crime insurance can provide financial protection from crime-related losses.
Example:
- Over the course of several years, an employee of your dealership stole $20,000 by writing fraudulent checks. Your commercial crime insurance would reimburse you for the loss.
Workers’ Compensation Insurance
Workers’ compensation insurance covers employees’ medical expenses, lost income, and rehabilitation costs if they suffer a work-related injury or illness. Workers’ comp also provides financial benefits for an employee’s dependents in the case of a work-related employee death. This coverage is legally required in almost all states, and there may be serious fines or penalties for companies that do not purchase it. For auto dealers, operating a service center or automatic car wash increases the risk of employee injuries, so it’s important to ensure that you have adequate coverage.
Example:
- While repairing a customer’s car, one of your mechanics sustains a serious burn. Workers’ compensation insurance would cover her medical fees.
Errors and Omissions Insurance
Errors and omissions insurance protects your dealership from claims of mistakes or negligence in your professional work. If one of your employees makes an error when filling out loan paperwork, transferring titles, or reporting vehicle history, customers could sue your dealership. If a customer feels that they were misled by an advertisement or lied to about the condition of a vehicle, they could also sue. Errors and omissions insurance can provide financial protection from lawsuits brought by clients who believe you have been negligent.
Example:
- A customer who purchased a car from your dealership discovers that a mistake was made in the loan paperwork, causing them to pay a much higher interest rate. The customer sues your dealership. Your errors and omissions insurance would cover your legal fees and any resulting settlements.
Additional Coverages
- Cyber liability insurance can cover financial losses that result from cyber events such as data breaches, hacking, viruses, denial of service attacks, and more. This is an important coverage to consider for car dealers since they often rely on electronic data and may store customers’ financial information. A breach of this data can be a serious liability.
- Pollution liability insurance covers third-party bodily injury, property damage, cleanup costs, and legal defense that results from pollutants released by your company. For auto dealers with a service department, the presence of fuel, motor oil, coolant, solvents, and other hazardous waste can lead to significant exposure.
- Inland marine insurance provides financial protection for your business property that does not remain at a fixed location and is not covered by a standard commercial property insurance policy. For car dealers, this could include vehicles being transported, valuable papers and records, vehicles stored in off-site lots, and other movable property.
- A business owner’s policy (BOP) can be a great choice for small and midsize car dealerships. It combines general liability, property, business income, and extra expense coverage into a single package, which is often cheaper than purchasing comparable coverage separately.
Pricing and Quotes
Pricing for car dealer insurance will vary based on the type of insurance coverage and the risk profile of your business. Insurers consider factors such as:
- Business size
- Industry
- Location
- Number of employees
- Claims history
Businesses with higher risks will have higher premiums than those deemed lower risk. For example, a car dealer with a history of frequent claims will face higher premiums. Premiums also rise as you increase the limits of insurance. Different insurance companies have different models for rating risks, so it is worth comparing pricing across different insurers.
In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer coverage for car dealers:
| Provider | General Liability | Professional Liability | Business Owner's Policy |
|---|---|---|---|
| Embroker | ?? | ?? | ?? |
| CoverageSmith | ?? | ?? | ?? |
| CoverWallet | ?? | ?? | ?? |
| Hiscox | ?? | ?? | ?? |
| Thimble | ?? | ?? | ?? |
Final Word
Car dealerships could be held liable for many significant risks. From accidental customer injuries to the possibility of damage to cars on your lot or to customers’ cars in your care, there are many incidents that can have a major impact on your company’s finances. It’s a good idea to consider your business’s needs and purchase insurance that will financially protect you in the event of an unforeseen catastrophe or lawsuit.
