We recently took a close look at why automotive dealerships need to have an Errors & Omissions (E&O) policy in addition to the other basic coverages we’ve examined. It’s important to foster a sense of trust with your customers and the community at large and E&O can preserve that trust when honest mistakes are made.
Before we delve into what’s NOT included in E&O insurance, let’s review what it’s meant to do and how it protects the dealer.
E&O insurance is a specialized policy that shields businesses (in this case, a car dealership) from claims arising from professional negligence, omissions, or mistakes in the service provided. Due to the nature of complex transactions that dealers do involving numerous parties, it’s easy to make the kinds of errors that can result in grave financial consequences.
We Know What It Is…What is NOT Covered?
As we mentioned before in our deep-dive into E&O policies, there may be some exclusions that surprise you but all of these scenarios are able to be covered through other insurance policies that are commonly available to dealerships and we’ll note them along the way -
- Bodily Injury or Property Damage: A solid General Liability Insurance policy will help offset any costs if someone gets injured on the dealership property or if there is any property damage involving vehicles in inventory.
Example - A customer test driving a vehicle gets into an accident causing injuries to themselves or others.
- Theft: Self-explanatory. If cars on the lot are stolen, your Comprehensive policy will cover this loss and reimburse for the value of the vehicles stolen.
- Work-Related Injury/Illness: E&O won’t touch this either. If an employee gets hurt on the job or becomes ill due to something in the workplace, Workers Compensation Insurance will step in to help the employee.
- Data Breach or Other Cyber-Related Issues: For this scenario, even if you suspect a mistake was made that caused the breach, E&O will not cover it. Cyber Insurance is a must these days for any businesses that collect or handle sensitive personal information.
- Illegal Acts or Purposeful Wrongdoing: Unfortunately there is always a chance that you have someone on staff that thinks they can outsmart their dealership and try something unethical for financial gain. E&O, much to some people’s surprise, will not cover this.
Example - An employee deliberately sells a faulty vehicle to a customer, concealing its documented defects or negative history. Believe it or not, this still happens.
- Discrimination or sexual harassment: Always a legal action that can have serious consequences for a dealership, both tangible and intangible. Poor behavior, unethical treatment of staff, unwanted sexual advances…what was ignored in decades past is no longer tolerated and can cause a dealership to lose their good reputation and thousands or even millions of dollars in claims payouts if found liable.
Dealers are starting to add Employment Practices Liability insurance to help covers these costs because E&O will not.
- Breach of Contract: E&O policies have common exclusions for breaches of contract or other violations of agreements made with customers.
Example - A dealership fails to deliver a vehicle to a customer by the promised date due to unforeseen supply chain issues. The customer sues the dealership for breach of contract. While this scenario may be rare, it’s worth noting that E&O wouldn’t cover the defense of a lawsuit like this.
If you’re seeing a pattern here, good. E&O policies cover instances where an employee makes an honest mistake or error in the course of doing their job but not when it’s willful or involves physical issues like property damage, theft, injuries and employment-related claims.
Keep in mind that if your dealership is wondering if E&O is really necessary, remember that it’s a ‘claims-made’ policy meaning that coverage must be in place at the time a claim is made. If it’s not, it won’t be covered and could be exposing themselves to greater financial exposure than you need to.
If you are looking to add this policy or looking to change commercial insurance providers, give us a call here at DealerSure and let us see how we can add E&O coverage as well as others designed to protect your store.
We’re willing to bet we can beat what you currently have, too.