Whether you’re a new dealership about to open or an established store that is looking for a better deal on your standard commercial insurance coverages, it can be overwhelming to figure out exactly which coverages are best for your unique situation.
We’ve looked at many of the more common insurance coverages dealers must have but one that sometimes gets overlooked or is viewed as a less of a priority is Errors & Omissions insurance (AKA - Professional Liability Insurance). To make it easy, we’ll just go with E&O for now…
What is E&O insurance?
Some of the most common users of this insurance are contractors, real estate agents, accountants, or other service providers.
E&O insurance will help protect your dealership from any legal claims of negligence, misrepresentation, mistakes, and/or inaccurate advice given to your customer. This policy is there to provide coverage to your dealership if your employee makes an error that costs significant monetary damages to the customer.
Simply put, this helps in case someone really goes off the rails and makes a mistake that is most likely to result in being sued. That’s why this protection is critical to dealers of any size, new or franchise, established or brand new.
What Exactly Does E&O Insurance Cover?
There are 4 primary areas of where E&O commercial insurance cal protect your dealership -
Lemon Law Coverage - No car buyers like having to deal with a car that has mechanical issues that keep recurring and it’s a PR nightmare for the dealer that sold them the car. Many states have ‘lemon laws’ to protect consumers from having to shoulder the costs of endless repairs. If they purchase a car that has repeated, unfixable problems, they have the statutory right to return the ‘lemon’ to the dealership.
Even though the manufacturer is ultimately responsible for the return and replacement of the ‘lemon’ vehicle, dealers often have obligations if they are named in a lawsuit as well and this coverage will help protect them financially in that case.
Truth in Lending Statute Coverage - Dealers that have had less-than-honest F&I personnel that don’t fully disclose interest rates or other information the customer has the right to know will surely put their dealerships in jeopardy. E&O insurance will help with damages to an error or omission that causes a breach in the Truth in Lending Act of the Consumer Credit Protection Act which requires dealership personnel to accurately disclose annual interest rate and loan term to customers.
This disclosure helps customers be able to comparison shop other financial institutions for a better deal and not knowing this upfront can result in lawsuits that E&O insurance is designed to help defend against.
Odometer Statute Coverage - reporting mileage properly is always a hot button issue and can run a dealership afoul of the Federal government but E&O insurance can protect your dealership from a failure to comply with the Title IV Odometer Requirements of the Motor vehicle Information and Cost Savings Act (that’s a mouthful) as well as and local or state odometer reporting laws.
This coverage will address any unethical practices of manipulating odometers and ‘rolling back’ high mileage vehicles to make them more attractive to buyers. The advent of digital odometers has actually made this a bit easier to perpetrate and while there are more ways to verify actual mileage (like checking an independent data source like a vehicle history report), this still presents a potential financial impact to the dealer that is caught doing this.
Prior Damage Disclosure - States across the US have varying statutes requiring dealers to disclose prior damage through the vehicle history or other supporting information. This coverage will protect your dealership against any losses due to negligent acts, errors and omissions resulting from non-compliance with these laws pertaining to the car’s prior history.
In a competitive used car market, it’s unfortunate but this is still happening in the industry and customers will usually not hesitate to hold the dealer responsible in court.
Next up we’ll discuss what’s NOT covered in E&O commercial dealer insurance…and there may be some exclusions that surprise you.
If you’re a dealership owner and are thinking of leveling up your commercial insurance policy to cover a more broad range of scenarios like the ones we talk about here, reach out for a comparison of your existing policy with what we can offer.
DealerSure is here to make shopping for your dealership insurance fast, easy, and cost effective both for commercial insurance and for your customers who need a better insurance option when buying their car..