Automobile dealers perform various operations related to leasing, selling and maintaining vehicles. These professionals may operate independently and secure their entire inventory of vehicles through private auctions, but most partner with larger corporations and manufacturers to offer specific vehicle brands and types (e.g., cars, trucks, recreational vehicles or motorcycles). Automobile dealers typically conduct their operations from properties equipped with expansive outdoor lots, indoor showrooms, repair garages, storage areas and administrative offices.
Common tasks among automobile dealers include hiring, training and managing vehicle salespeople, service technicians and financial officers; keeping an adequate inventory of vehicles and spare parts; purchasing and maintaining garage tools and equipment; overseeing vehicle sales, maintenance and financing operations; addressing any complaints regarding vehicle quality and repair services; and upholding compliance with applicable vehicle safety and financing requirements.
Automobile dealers have a number of risks to consider, including property concerns, employee-related issues and liability exposures. As such, it’s crucial that they protect both themselves and their operations against possible losses by securing proper insurance. Keep reading for an outline of common exposures within the automobile industry and associated coverage considerations.
Common Exposures for Automobile Dealers
Here’s a breakdown of key exposures automobile dealers may face in their operations:
- Property—Automobile dealers tend to operate out of owned or leased commercial buildings. In addition to storing a large inventory of vehicles and parts on-site, these professionals often leverage several types of tools and equipment (e.g., jacks, hoists, air compressors, computerized diagnostic tools, welding torches, drills, saws, grinders, wrenches, pliers, ratchets and screwdrivers) to provide repair and maintenance services. They also usually keep other valuable items and materials (e.g., computers, printers, sensitive workplace records, cleaning agents and fuel tanks) in their administrative offices and storage areas. Unfortunately, unexpected events—including fires, inclement weather, theft, vandalism and vehicle-related accidents—may result in this property becoming damaged, stolen or destroyed, leaving automobile dealers with significant recovery expenses. Apart from recovering their affected property, these professionals may experience business interruptions (e.g., temporary closures and delayed or canceled services), compounding related losses.
- Occupational safety—Even if automobile dealers take proper precautions to protect their employees at work, job-related injuries and illnesses can still happen. Common occupational ailments in the automobile sector include musculoskeletal disorders due to performing repetitive tasks; cuts, scrapes and puncture wounds stemming from the use of sharp tools; burns from grease fires or contact with hot vehicle parts; slips and falls due to hazardous walking surfaces; eye or skin irritation from the splashing of vehicle fluids and flying debris; entrapment and amputation injuries due to the use of high-powered equipment; struck-by injuries from fallen objects; and bodily trauma resulting from vehicle-related accidents. If their employees get injured or become ill on the job, automobile dealers could be held responsible for their workers’ subsequent hospital bills, treatment expenses and lost wages.
- Employment practices—Automobile dealers must maintain a fair and supportive workplace with equal opportunities for employees to succeed, free from the risk of retaliation for voicing any employment concerns. If these professionals contribute to a hostile work environment by participating in or permitting discrimination and harassment or taking adverse employment actions (e.g., discipline, lack of promotion or termination) against employees without reasonable cause, they could face costly legal action from disgruntled employees and potential regulatory penalties from employment agencies.
- Employee dishonesty—Because automobile dealers often store financial documents at their properties and keep valuable inventory and equipment on-site, they may face elevated crime exposures, namely theft and vandalism. While these crimes could stem from external threats, they may also arise due to dishonest or discontented employees. In particular, disgruntled employees or former staff may abuse dealer resources, steal vehicles or certain parts, destroy equipment, manipulate financial documents, commit money fraud or engage in other criminal acts for vindictive purposes or their own personal gain. These incidents could leave automobile dealers to recoup any lost funds, missing inventory or damaged equipment.
- General liability—If any third parties (e.g., customers, suppliers or passersby) experience injuries or damage on automobile dealers’ properties or due to their operations, these professionals could be held liable for the associated losses. For example, a supplier may file a lawsuit against an automobile dealer if they slip and fall when visiting the professional’s property to make a delivery. Alternatively, a customer may sue an automobile dealer if they get injured by another vehicle on the professional’s property or their own vehicle gets damaged while being serviced or stored on-site.
- Product liability—Automobile dealers have a responsibility to ensure the vehicles they lease, sell and service are in good condition and safe for their customers to drive. If these professionals provide defective vehicles or conduct faulty repairs, affected customers could be more susceptible to accidents behind the wheel, potentially resulting in severe property damage, serious injuries and, in some cases, devastating fatalities. In these cases, automobile dealers could be held liable for the associated losses, prompting costly lawsuits.
- Professional liability—Automobile dealers are required to provide reliable assistance when helping customers enter financing agreements for leased or purchased vehicles. If these professionals make mistakes when completing such agreements (e.g., leaving errors on loan applications), customers could encounter reduced credit scores and rejected loans, impacting their ability to secure their desired vehicles. Consequently, automobile dealers could be held responsible for customers’ related losses.
- Environmental—Vehicles rely on a range of substances to run efficiently, including fuel, engine oil and hydraulic fluid. As a result, automobile dealers may store large containers or tanks of these substances on-site. While these substances are important, they can be toxic to humans and the environment. If an automobile dealer fails to store these substances safely, disregards spilled substances or neglects to address vehicles that start leaking such substances, they could pollute the environment by creating runoff that contaminates public soil and water. Any parties who fall ill or are otherwise harmed by such contamination could sue the automobile dealer for their related losses.
- Cyber—Many automobile dealers are increasingly relying on digital systems and software to store sensitive workplace records (e.g., employee payroll details and customers’ financial information), keep track of vehicle and part inventory, and schedule vehicle repairs and maintenance. Yet, amid growing cyberthreats, using such technology could make these professionals more vulnerable to data breaches, ransomware incidents and other digital attacks. Following such events, automobile dealers could experience prolonged business interruptions and encounter many costs related to notifying impacted individuals, recovering lost or damaged data and technology, handling associated legal ramifications and reputational losses, and implementing additional cybersecurity measures to prevent future incidents.
Coverage Considerations for Automobile Dealers
To help address their exposures and potential losses, auto body repair shop owners should consider the following types of coverage:
- Commercial property coverage—This coverage can help pay the resulting repair or replacement costs if an automobile dealer’s commercial property—such as their physical building, vehicles and parts, tools or equipment—gets damaged, stolen or destroyed due to a covered event.
- Commercial auto insurance—Such coverage can help reimburse costs stemming from an automobile dealer or their employees’ involvement in an accident while operating a company vehicle.
- Inland marine coverage—If an automobile dealer’s tools, equipment or other property gets damaged due to a covered event while being transported or temporarily stored off-site, this coverage can help reimburse the associated repair or replacement costs.
- Business interruption insurance—Such coverage can help compensate an automobile dealer’s typical operating costs (e.g., business income, commercial mortgage and tax payments, lease and loan expenses, and employee payroll) if they are forced to temporarily close their doors due to direct physical damage caused by a covered event.
- Workers’ compensation coverage—If an automobile dealer’s employees get injured or become ill on the job, this coverage can help pay those workers’ hospital bills, treatment costs and lost wages.
- General liability insurance—This coverage can assist if an automobile dealer is held legally or financially liable for injuries, harm or damage to another party or their property.
- Garage keepers liability coverage—Such coverage can help pay for losses from a customer’s vehicle getting damaged by a covered event while being serviced or stored on an automobile dealer’s property.
- Professional liability insurance—Also called errors and omissions insurance, this coverage can help reimburse expenses resulting from a customer alleging that an automobile dealer provided poor guidance or made mistakes while completing financing agreements for a leased or purchased vehicle.
- Product liability insurance—Such coverage can help pay for costs related to an automobile dealer being held liable for leasing or selling defective vehicles or conducting faulty repairs.
- Environmental liability coverage—If an automobile dealer unexpectedly emits pollutants during the course of their operations, this coverage can help reimburse cleanup expenses and legal defense costs from related lawsuits.
- Commercial crime insurance—Also known as fidelity insurance, this coverage can help reimburse an automobile dealer for losses caused by employee dishonesty and other business-related crimes.
- Cyber liability coverage—Such coverage can assist with certain first- and third-party expenses that may result from an automobile dealer experiencing a data breach, ransomware attack or other cyber incident.
- Employment practices liability (EPL) insurance—In the event that an automobile dealer is faced with employee lawsuits alleging workplace discrimination or harassment, wrongful termination or discipline, or failure to employ or promote, EPL coverage can assist with the associated defense costs.
- Umbrella and excess coverage—If an automobile dealer’s claim costs exceed the limits for their primary liability policies, this coverage can increase those limits. Furthermore, umbrella policies can help broaden existing policy coverage.
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