Car dealerships face unique risks because they sell high-value property. Dealers’ Open Lot Coverage is a critical type of insurance coverage that provides car dealers with financial protection if the vehicles they hold for sale are physically damaged or stolen.

What is Dealers’ Open Lot Coverage?

Dealers’ Open Lot 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. Vehicles stored in indoor locations are also at risk for damage. Dealers’ open lot coverage provides financial protection from these risks as well as damage from collisions or the vehicle overturning.

Example: 

• Vandals break windows of several cars parked in your dealership’s lot. Your Dealers’ Open Lot Coverage would cover the damages. 

What is covered by Dealers’ Open Lot Coverage?

Dealers’ Open Lot Coverage covers physical damage to your dealership’s autos, including new and used vehicles for sale, demonstration vehicles, and service vehicles. Types of vehicles covered could include personal passenger vehicles, RVs, motorcycles, and more. There are two main portions of Dealers’ Open Lot Coverage: collision coverage and coverage for losses other than collisions.

Collision coverage will reimburse you if a covered vehicle is damaged by a collision with another vehicle or object or by being overturned. 

Example: 

• While test-driving a car, a customer accidentally backs up into a wall, damaging the car. Your collision coverage would pay for repairs. 

For losses other than collisions, you can choose between comprehensive coverage, specified causes of loss, or fire and theft coverage.

Comprehensive coverage will provide funds for any cause of loss that is not specifically excluded and is not covered under collision.

Specified causes of loss coverage will provide funds for specific incidents as defined in the contract. Fire, lightning, windstorm, hail, explosion, flood, earthquake, theft, and vandalism are all common specified causes of loss. 

Fire and theft coverage covers vehicles if they are damaged or lost as a result of fire, lightning, explosion, or theft. 

False pretenses coverage is typically excluded from Dealers’ Open Lot Policies, but coverage can often be added by endorsement, depending on the insurer. If you have this coverage, it will protect from losses caused by situations such as someone selling you a car they don’t actually own or tricking you into allowing them to take a vehicle.

What is the coinsurance clause in Dealers’ Open Lot Coverage?

When you purchase Dealers’ Open Lot Coverage, insurers typically include a coinsurance requirement, which requires you to insure 100% of the value of your inventory. If you insure less than 100% of the value of your vehicles, the insurer will reduce the amount they will pay for a claim by the same percentage. For example, if you insure 80% of the value of your inventory, the insurer will only pay for 80% of any claim that arises. 

Example: 

• You have insured 70% of your inventory. Several vehicles on your dealership’s lot are damaged by a severe hailstorm. The loss totals $100,000. Because you have only insured 70% of the value of your inventory, your insurer will only pay $70,000.

Since the exact value of a dealership’s inventory changes as cars are sold and new models arrive, it’s important that you keep your inventory values accurate. There are two common methods of establishing inventory values for Dealers’ Open Lot Coverage.

Monthly reporting requires you to report the exact value of your current vehicle inventory to your insurer every month. 

Non-reporting requires you to calculate the maximum value of your inventory when the policy begins. It’s important for dealers that choose this option to state the highest possible value of their inventory. If the maximum value is too low, you could end up paying a coinsurance penalty if you suffer a loss. 

What are the limits of Dealers’ Open Lot Coverage?

Limits of insurance are the maximum amount the insurer will pay for a loss. In Dealers’ Open Lot Coverage, there is typically an overall limit of insurance as well as a per-vehicle limit, which is the maximum amount the insurer will pay for each damaged vehicle. It’s important to make sure that the per-vehicle limit on your policy is high enough to cover the full value of each of your vehicles. Otherwise, your insurance payment would be less than the value of the vehicle, even if you have insured 100% of your inventory.

Dealers’ Open Lot policies also often include separate limits for losses of vehicles in transit and stored at other locations. If you store inventory at another location, you’ll need to ensure that you have sufficient coverage for those vehicles. 

What are the key exclusions of Dealers’ Open Lot Coverage?

It’s important to note that Dealers’ Open Lot Coverage often excludes losses caused by false pretenses. This includes situations where you acquire an auto from a seller who does not have a legal title or where someone tricks you into voluntarily giving up a car. However, insurers may allow you to add false pretense coverage to your policy by endorsement. 

Other common exclusions from Dealers’ Open Lot Coverage include: 

• Damage caused by war, military action, or nuclear hazards
• Covered autos that are leased or rented to others (unless the vehicle is rented to a customer while you are repairing or servicing their vehicle)
• Losses caused by racing, demolition contests, or stunting activities
• Devices for playing audio or video or storing data (such as CDs, DVDs, or tapes)
• Radar or laser equipment or jamming devices
• Audio equipment that is not permanently installed
• Losses caused by wear and tear, mechanical or electrical breakdown, freezing, or road damage to tires

Does Dealers’ Open Lot Coverage include a deductible?

Yes, Dealers’ Open Lot Coverage typically includes a deductible—a portion of the loss that you are responsible for paying before the insurer begins coverage. It’s important to understand that Dealers’ Open Lot Coverage usually features a deductible for each damaged vehicle. 

Many policies also have a maximum deductible for a single loss event, so if a disaster affects a large number of cars, you would not have to pay a deductible for each affected vehicle. Make sure to consult with your insurer to confirm exactly how the deductible applies to your policy or your company could find itself paying more than expected. 

Example: 

• A fire causes severe damage to 30 cars for sale at your car dealership. You have a per-vehicle deductible of $800. However, your maximum deductible for a single loss is $8,000. This means that you only have to pay a deductible of $8,000 for this loss, instead of paying a deductible of $800 for each car, or $24,000 in total. 

What types of insurance do car dealers need?

In addition to Dealers’ Open Lot Coverage, there are a number of types of insurance that car dealers should consider. As well as the standard insurance coverages that most companies need, there are several types of insurance that are specifically designed for the automotive industry: 

Garage liability insurance provides coverage for accidental third-party bodily injury and property damage resulting from your garage operations. Third-party bodily injury and property damage caused by garage operations are typically not covered by other types of insurance, so it’s important to obtain garage liability insurance to protect your business if someone is injured or property is damaged as a result of your garage operations.

Garagekeepers insurance covers customers’ vehicles while they are in your care. This is a key coverage for dealerships that operate service centers and car washes. If a customer’s car is damaged or destroyed while it is being kept at your business location, garagekeepers insurance will provide compensation for the loss. 

The garage coverage form is a standard form commonly used by insurers to provide several types of coverage for automotive businesses. Depending on the insurer, car dealerships may be able to purchase Dealers’ Open Lot Coverage, garage liability insurance, and garagekeepers insurance together in a single package through this form. 

Final Word

When you operate a car dealership, it’s crucial to protect the value of your inventory. Dealers’ Open Lot Coverage is a specialized form of insurance that provides physical damage protection for vehicles you hold for sale, service vehicles, and demonstration vehicles. If your inventory is damaged or destroyed by unexpected events such as a fire, storm, theft, or vandalism, it could be financially devastating for your dealership. Dealers’ Open Lot Coverage provides funds to help you survive unexpected disasters.