In the used-auto market, liability exposures can lurk around every corner — from test drives gone wrong to customer slip-and-falls on a wet lot. For insurance retailers advising dealers, emphasizing the importance of used car dealer insurance is critical. This specialized coverage helps protect inventory, personnel, and operations from costly losses.
Top Garage Liability Risks for Used Car Dealerships
Used car dealerships face risks that extend beyond standard business operations. Recognizing these exposures helps insurance retailers guide clients toward the right protection.
Customer Injuries
With many visitors walking the lot each day, there’s an elevated risk of slip-and-fall accidents. Hazards such as cracked pavement, slick entryways, or cluttered walkways can result in serious injuries and costly claims.
Test-Drive Accidents
Test drives add a distinct exposure because liability depends on who’s at fault. When a prospective buyer causes a crash, their own auto insurance typically responds up to policy limits. If another motorist causes the crash, that driver’s insurance should respond.
The dealership can share liability for test drives where its own negligence is involved — such as releasing a recalled or poorly maintained vehicle — or when a salesperson’s actions contribute to the loss. Some dealers also use liability waivers that shift more responsibility to the driver.
Property Damage
Dealers also need to consider property damage risks, including weather, theft, or vandalism affecting vehicles on the lot, as well as damage to customer belongings while on-site.
Repair Work
Liability also extends to faulty repairs and reconditioning work. If repairs fail or create new hazards, a dealer could face claims for negligence and resulting damages.
Risk-Mitigation Strategies for Dealerships
While dealerships cannot eliminate all risks, they can reduce exposures and demonstrate proactive safety measures. Here are some best practices you can recommend to your dealership clients.
- Clear test drive protocols: Require valid licenses, have staff accompany drives, and stick to safe, predetermined routes.
- Lot safety: Ensure regular inspections, proper lighting, and visible signage to reduce trip-and-fall hazards.
- Employee training: Train staff to understand safe vehicle handling, customer interactions, and reporting procedures.
- Identity verification: Research shows that over 4% of IDs scanned in auto transactions are fraudulent, and synthetic identity fraud in the auto finance industry has grown by 38% year over year. Dealerships can reduce these risks by verifying customer information before test drives, watching for fake IDs or pay stubs, and controlling access to vehicles and keys.
- Recordkeeping: Keep detailed records of all repairs and inspections to help protect against allegations of negligence and provide evidence of diligence.
For additional strategies, see our article with insurance tips for new and used car dealers.
The Role of Used Car Dealer Insurance
Risk-management strategies are essential, but insurance is the backbone of dealership protection. Standard liability coverage often excludes risks tied to vehicle operations, which is why tailored used car dealer insurance is necessary.
Garage liability insurance specifically covers third-party injuries and damages from dealership operations, including test drives and on-lot incidents. Broader protection may also include garagekeepers coverage for vehicles in the dealer’s care, as well as property and errors and omissions coverage.
Closing the Gaps in Dealer Protection
Liability exposures are part of doing business for used car dealerships, but they don’t have to threaten a dealer’s financial stability. Safety protocols, training, and documentation can reduce risks, but the right coverage ensures a strong backstop when incidents occur.
Insurance retailers can play a vital role by connecting clients with specialized solutions like Aegis General Insurance Agency’s used car dealer insurance. Get in touch with us to explore how you can help your clients secure the coverage they need.
FAQ About Garage Liability Insurance
What does garage liability insurance cover?
It typically covers bodily injury and property damage to third parties from dealership operations, such as accidents during test drives or customer slip-and-fall incidents.
Who’s responsible for a test-drive accident: the used car dealer or the driver?
Liability in a test drive depends on who is at fault: the driver, another motorist, or the dealership. A dealership may be responsible if it allowed a recalled or unsafe vehicle on the road or if a salesperson’s actions contributed to the crash. Many dealers carry fleet or garage liability coverage to address these situations and to fill certain property-damage gaps. Some also require liability waivers.
What’s the difference between garage liability and general liability insurance?
General liability protects against premises risks like slips and advertising injury. Garage liability is tailored to vehicle-related operations such as test drives and service work.
About Aegis General Insurance Agency
Aegis General Insurance Agency — Specialty Dealer Division strives to create a leading underwriting and distribution franchise in the program insurance market. We’ve bridged the gap between agents and client payments with our efficient ACH payment system. Partnering with us gives agents the advantage of ACH payment capability, allowing for direct billing through the firm. Call us today at (866) 429-1638 to find out how you could partner with K2 to offer top-tier insurance coverages and modern features to your clients.
