Risk Management
Oh Baby, Baby It's A Wild World
By Roger Beery
As insurance premiums continue to climb, many dealers will be tempted to look at programs that offer a lower cost. Before I go any farther, please do not assume that I am suggesting that the most expensive program is always the best. Even with higher prices, companies still compete. However, since all policies are not created equally, we must pay attention to the cost / benefit of coverage and price. Even in this market, you can get lucky and find that your low bid also has the broadest coverage. We are also seeing some new carriers show up on the scene and some new carriers for old programs. Be careful. I am very hesitant to buy any program until I can read the policies.
Even though most insurers have policy forms with the same names, they are not the same. Depending on the specifics of any claim, there still can be big gaps. The points covered in this article are details, some might even call it hair-splitting, but if it's your claim that's not paid, it's monumental.
Some states have enacted laws that state that the dealer owes customers the same respect as employees. This means a customer could sue the dealer for sexual harassment or discrimination. Many policies will not extend coverage into this arena. We expect to see more of these claims in the future.
Some policies differ on the issue of what triggers a claim. In the area of Errors and Omissions, this can get complex. Some policies are triggered by the act. As an example, issuing an incorrect odometer statement. Other policies are triggered when the claim or suit for the false odometer statement is made. If you were to switch from a policy triggered by a claim to one triggered by an act, you could have a coverage problem. Let's say our false statement was issued on March 1, you switched policies on June 1 and a suit came on October 1. The suit triggers the expired policy and the new policy is triggered by the act. The claim would not be paid by the new policy because the act occurred before it was issued and the old policy won't pay because the suit came after it expired.
In the past year, I have dealt with a number of dealers who have been dissatisfied about their claim payments as they relate to employee tools. This is especially true when the tools claim is part of a larger event like a major fire. There are two reasons for this problem. First, dealers do not properly value their employee tools. They are expensive. A mechanic can easily have $30,000 to $40,000 worth of tools and boxes and often, even more.
The second problem is with the policy itself. Some policies have low per-employee limits, but the bigger problem seems to be with co-insurance. Only one major dealer carrier (I usually don't name companies in this article) includes co-insurance with tool coverage. This means that if you are underinsured at the time of the claim, you will be penalized when they adjust the claim. Sometimes the penalties can be substantial if there is a major fire in a large dealership.
We have discussed many times the pros and cons of claims made and occurrence policies especially in Employment Related Practices coverage. To make a long story short, if you change from a Claims Made to an Occurrence form you will need to buy a "Tail" or an Extended Reporting Period endorsement. The hows and what ifs of "Tails" are usually spelled out in the policy. Some policies state that the Company must offer a Tail only if the insurance company cancels or non-renews. As a result, the dealer is left with few options but to take a big risk or stick with a policy they don't want.
Some of the newer policy forms provide coverage for increased costs of construction due to changes in law or ordinance. This can become a big-ticket loss area if your building is older. In some areas you may have to retrofit your entire building even if only 20% is destroyed. The standard insurance policy won't pay for the retrofit to the undamaged portions. The amounts of coverage offered in the newer policies vary wildly and should be checked out.
This brings me to my next point: Sublimits. Sublimits are those limits in the policy that are less than the full limit. If your policy has a $1,000,000 limit but the Errors and Omissions coverage is only $250,000, that's a sublimit. Other areas to look for sublimits are Employment Related Practices, False Pretense (Trick & Device) and Business Income. One carrier limits the Extra Expense portion of the Business Income coverage to a mere $25,000. Given the right set of circumstances, this can be devastating.
As you can see there is a lot of coverage hidden in these details. One last tip; read the policy and if it reads one way don't let anyone tell you it won't work that way if you have a claim. Believe me, adjusters read the policies! Just ask a few of the dealers who have been stung with co-insurance in their employee tool claims.
Roger Beery is president of Austin Consulting Group Inc., a firm specializing in dealer insurance consultation. rbeery@dealeronline.com
