Professional Liability Insurance: A Safety Net for Your Dealership
Mistakes happen! And if a dissatisfied customer believes your dealership did not meet its professional standards, you can be sued.
What Does Professional Liability Insurance Cover?
Professional liability insurance, also known as errors and omissions coverage, helps protect your dealership from claims of negligence, mistakes, misrepresentation, and inaccurate advice. Essentially, this policy provides coverage to your dealership when you or an employee make a mistake or an error costing a significant amount of money to your customer. The most common claims for negligent violations include truth in lending laws, odometer statutes, and lemon laws.
Truth in Lending Statute Coverage
This coverage applies to damages due to an error or omission causing a breach in the Truth in Lending Act of the Consumer Credit Protection Act. This federal law requires dealerships to accurately disclose certain information, such as annual interest rate and loan term, to customers. This makes it easier for consumers to comparison shop for loans and safeguards from misleading or unfair practices on the part of lenders.
Odometer Statute Coverage
This offsets damages arising from a failure to comply with Title IV Odometer Requirements of the Motor Vehicle Information and Cost Savings Act and local state laws on the same subject. It addresses unethical practices of manipulating speedometers and “rolling back” high mileage vehicles to make them more attractive to prospective buyers. Although these practices are not common today, this coverage is still available.
Lemon Law Statute Coverage
Nobody likes having to deal with car problems, especially when it keeps recurring. Fortunately, many states have “lemon laws” to protect consumers from eating the cost of these seemingly endless repairs. If a customer purchases a defective vehicle with repeated, unfixable problems, they have the statutory right to return the “lemon” to the dealership for failure to perform adequately. These types of claims are passed to the manufacturer, but dealerships still have obligations when sued to defend themselves.
Prior Damage Disclosure Statute Coverage
Various statutes across the United States require dealers to disclose a vehicle’s history and information. This coverage protects your dealership against losses due to negligent acts, errors, or omissions resulting from non-compliance with federal or state statutes that pertain to the disclosure of prior damage to a sold vehicle.
What is Not Covered by Errors & Omissions Insurance?
Be aware that professional liability insurance does not cover every type of liability claim. For example, it will not help your dealership with these kinds of claims:
- Bodily injury or property damage: A general liability insurance policy will help offset the costs if someone injures themselves on your business premises or you damage someone’s property.
- Work-related injuries or illnesses: If an employee gets injured or sick on the job, you will need a workers’ compensation insurance policy.
- Data breach: You will need cyber insurance if your business loses confidential or sensitive information about your customers.
- Discrimination or harassment in the workplace: Getting employment practices liability insurance can help cover these claims.
How Does Professional Liability Insurance Work?
Many carriers write a professional liability insurance policy on a claims-made basis with a retroactive date and extended reporting period. The retroactive date means incidents that happen on or after a specific date in your policy are eligible for coverage. The extended reporting period helps cover claims filed within 30 to 60-days.
How Much Does Professional Liability Insurance Cost?
Your professional liability insurance cost is unique to your dealership. When you consider the potential cost of accidental mistakes to your dealership, paying an insurance premium is worth your effort, comfort, and money. Factors that can impact your policy include:
- Business Risk
- Type of Business
- Business Size
- Years in Business
- Coverage Limits
- Claims History
Lower your costs by training your employees, reviewing your contracting system for quality control, and communicating with customers regularly about any issues to ensure satisfaction.
Protect Your Dealership
Without professional liability insurance, the cost of claims can be extremely expensive and often put your dealership at risk of closing. At Dealer Risk Services, we recognize the unique challenges and exposures you face and offer the right products and services to safeguard your dealership. To learn more, contact an agent or request a quote.