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Why privately-held dealerships should have Directors and Officers coverage

Why privately-held dealerships should have Directors and Officers coverage

Most Dealers believe Directors and Officers coverage is only necessary for publicly-traded entities. Because the predominance of Dealerships are privately owned, they feel there is little or no exposure to Management Liability claims.

However, private companies risk suits from competitors, governmental bodies, creditors, and even shareholders. Owners, Board Members, and Senior Management may find themselves embroiled in litigation without insurance coverage. These situations are expensive both in time and legal fees.

Let’s look at two examples of litigation that can result from the proposed sale of a Dealership. First, a transaction that did not finalize.

Dealership transactions all begin with a tremendous sense of optimism. Terms are negotiated by Counsel, approvals requested from Manufacturers, and closing dates are set.

Yet, inevitably, something always seems to change on the way to the closing table. Sometimes, it is an inventory valuation that comes into question, causing a disagreement on a relatively small dollar amount to grow into a major issue that endangers the entire transaction.

Both parties can get really sensitive about small issues, we’ve all seen it happen. Even the most well-planned transaction can collapse minutes before the documents are to be signed.

But, it’s what happens months after the sale has fallen apart that can cause financial pain.

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Steven P. Gibson is the President of Dealer Risk Services, Inc., a Florida-based firm that provides insurance expertise to the Automotive Industry. He can be reached at sgibson@dealerriskservices.com and 321-733-6253.

Automotive Buy Sell Report is the first website and weekly report to give participants in the automotive dealership buy sell industry a place to find news and information regarding the purchase, sale and valuation of automobile dealerships, and state-by-state listings of Resources.


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