by Ed Sneineh

This articles discusses the different coverages that are available for used car dealers. Certain coverage or limits discussed here may be suitable for the used car dealers in Illinois. There are thousands of used car dealers in Illinois with about 700 registered used car dealers in the City of Chicago. Coverage types and limits may vary according to state.

Generally speaking, used car dealer insurance is expensive because of the fact that the insurance company has no idea of who will be sitting behind the wheel during test drives. Also, liability coverage limits for used car dealers are higher than those in personal auto insurance. In the State of Illinois used car dealers must maintain a minimum liability limits of $100,000 for bodily injury per person, $300,000 for bodily injury per accident, and $50,000 property damage per accident (100/300/50). The State of Illinois does not require more than the statutory limits of  $20,000 bodily injury per person, $40,000 bodily injury per accident for the uninsured motorist.

The following is a list of mandatory and optional coverages that owners of used car dealerships need to consider as they shop for insurance coverage.

AUTO LIABILITY: Provides protection for the used car dealer in the event of being sued because of an auto accident. As mentioned earlier there is a minimum limit in each state, and the State of Illinois requires 100/300/50 from all used car dealers. This coverage is almost always included as part of the GARAGE LIABILITY.

GARAGE LIABILITY: Provides protection for liability resulting from the maintenance and the ownership of the garage  (ie because of ownership/use of a Covered Auto, and because of "Other than Covered Auto.")  Basically Garage Liability provides protection for the premises (ie slip and fall) and for auto accidents. Again, Garage Liability limits for used car dealers must be maintained at 100/300/50 in Illinois.

DEALERS OPEN LOT: Provides physical damage coverage on vehicles that are owned by the dealer. Physical damage coverage includes Collision Coverage (if/ when vehicle collides with another object, or overturn) and may also include one or more of the following coverages: (1) Comprehensive or other than collision coverage which encompasses all other losses resulting from anything other than collision, (2) Specified Cause (less coverage than in 1) which includes certain coverages specified in the policy such as fire, lightning, explosion, theft, windstorm, hail,  flood, mischief and vandalism; or [3] Fire and Theft (less coverage than 2). Insurance companies may set coverage limits per vehicle (for example, the policy may contain a limit of $25,000 per vehicle, maximum 275,000 for the lot.) This limit may be a problem for certain dealers that sell expensive vehicles.

Coinsurance Clause: This is the percentage which will determine if you are fully covered on a partial loss. If your policy states that your coinsurance is 90%, then the coverage on the Dealer Open Lot listed on your policy must be 90% or higher of the actual value of your inventory, in order for the insurance company to pay your loss in full.

Example: An SUV was a total covered loss with a value of $35,000. If your policy states that you have 90% coinsurance, and your actual inventory was $300,000 at the time of the loss, then you need $270,000 (90% X 300,000) for you to be 100% covered on that loss. Let us assume that your policy has only $200,000 coverage on dealer open lot. These numbers mean that you had only 74% coverage of the amount you were supposed to have (200,000/270,000). In that case, the insurance company will pay you only about $25,900 for the lost SUV (35,000 X 74%), without considering any deductible.

Coinsurance Clause is meant to penalize people who purchase less than what they actually have or the Under-insureds (some hope to save money by getting less insurance?) Lower coinsurance percentage is better for customers, and have higher premiums too.

GARAGE KEEPERS LIABILITY: The need for this coverage is based on whether or not a particular used car dealer does repair/ body work on vehicles that are not owned by the dealership. This coverage is similar to the DEALER OPEN LOT coverage, but the coverages goes to the vehicles that are not owned by the dealer, but are in the dealer possession.

FALSE PRETENSE: Covers losses of vehicles if the dealer is voluntarily scammed or cheated. For example, if someone comes to test drive a vehicle (with the approval of the dealer) and they run away with it then the loss would be covered under this coverage.

BONDS: Used car dealer bonds are required from new dealerships for a limited time, in order to guarantee that the dealer will stick to state laws pertaining running used car business.

E & O COVERAGES: Certain errors and omission coverages related to the operations of used car dealers may include: Truth in Lending/Leasing Liability (negligently  breaking the law related to lending), Federal Odometer and Prior Damage Disclosure Liability (losses resulted from the negligently  breaking the law of odometers,) and Title Errors and Omissions (coverage for losses resulting from negligent preparation of titles.)


Other Coverages: Like all other businesses, used car dealers may need additional coverages such as:

Property Coverage: May include coverage on the building, office equipment, etc.

Business Auto: Needed if used car dealer owns a specific vehicle for services (such as tow truck).

Workers Compensation: To cover all work related injuries of employees.

Other coverages may also include business interruption, employee dishonesty, umbrella coverage, signs, crimes and robberies.
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