The past several months we have seen some interesting policy quirks. Knowing this information may help you be certain that you have the right insurance coverage for your operation and are paying what you expect to pay.
Aggregate auto inventory deductibles – The aggregate deductible for your vehicle inventory normally only comes into play when you suffer a catastrophic loss such as a hurricane, tornado and of course, hail. Usually the aggregate deductible is applied per event across all locations on the policy. One hailstorm – one aggregate deductible. Lately we have seen a few policies written such that each location with a separate address carries its own aggregate deductible. In some cases a per-location aggregate deductible is offered when other carriers are offering no aggregate deductibles at all. The bottom line is that if your vehicle inventory quote includes an aggregate deductible you need to be clear whether the aggregate deductible is applied per occurrence on a blanket basis over all your vehicle inventory or per occurrence and per address.
Verify your policy and rates – Dealers, like most insureds, have a tendency to put their policies in the file the minute they hit the desk. The accounting department usually assumes the rates on the reporting form are correct. When audits are questioned, it’s typically the dealership’s input that’s questioned, not the rates used to calculate the insurance company’s bill for additional or return premiums.
However, mistakes are made on policies and reporting forms. The most common mistakes are the result of your premium and coverage negotiations. Things just get lost in translation. So here are some tips for getting what you bought.
First, keep track of all the changes you have negotiated from the initial proposal. Once the policies are issued, sit down with the agent and have him/her point out each item individually. As far as reporting forms go, we recommend that you get a copy before the policy is issued. Fill in the first month’s form with the rating variables you supplied to the agent. Take the monthly premium and multiply it by twelve months. Did you get an annual premium equal to your quote? If not, you need to have a conversation.
Insurance companies usually perform annual audits or have you report monthly. However, some insurance companies do not show the rates they use to determine any monthly premium adjustments. You are entitled to this rate information and we recommend that you secure these rates at the policy inception. This can be hard because a few carriers seem reluctant to give this out. Once you get the rates, go through the same exercise recommended above for a normal reporting form.
Minimum property deductibles – This issue most often applies to dealers on the gulf and east coast where windstorm coverage is hard to come by and is sometimes purchased separately. In these cases it is not unusual to see a percentage deductible and a minimum deductible. The percentage deductible is some percentage of the claim subject to a minimum of, let’s say, $100,000. A problem can arise if the minimum deductible is per building, which it often is. If your dealership has a few smaller buildings insured on your property, these buildings could be virtually uninsured. Your $100,000 outer building could have a $100,000 windstorm deductible. Be very careful with windstorm coverage and have your agent fully explain the deductible structure.
Buy-here, pay-here lending liability – It is becoming more common to see exclusions in Employment Practices policies related to discrimination related to financing, in any form. As we’ve discussed in previous articles, any employment practices policies you buy should extend coverage for discrimination and harassment to “third parties.” This means anyone who is not a current, past or future employee, including customers. Sexual harassment claims made by customers, while not an everyday occurrence, do happen. But what I want to focus on here are discrimination claims related to financing. If a dealership is named in a suit alleging lending discrimination, they are often released because it is the lender, not the dealer, who may be engaged in the discriminatory practice. But if you have a buy here – pay here lot, you are the lender and any discrimination allegation would be against the dealership. Also be on the lookout for class action or group suit exclusions. Even if suits related to financing are not excluded, if the suit comes as a class action suit, your claim could still be excluded.