WHY UNDISCLOSED DRIVERS AND “PERSONAL USE” OF DEALERSHIP AUTOS MAY COST YOU MORE THAN THE PREMIUM YOU PAY
If you have every person who may use your dealership auto listed as a driver on your garage policy, you can probably stop reading now. Before you stop, remember, this includes those you describe as independent contractors. If you or anyone else uses your vehicles for anything other than your dealership business, you better keep reading also.
Are you aware of the fact that your insurance company has the right to void your policy when you omit or withhold material information from them? Material information is info that would have caused the company to not issue the policy or increase the premium. Not listing a driver is material to the issuance of your policy.
What does voiding your policy mean? It is as if you had no policy ever issued. No policy equals no coverage.
Every employee and officer of your company must be listed on your garage policy, whether or not they drive a company vehicle. This includes managers, sales persons, mechanics, lot boys, runners, detailers and office/clerical personnel. Be careful. If you have some people working for you, but are attempting to consider them to be independent contractors, you may be very sad when one of them is involved in an accident and your policy won’t cover you. In addition, you must not just assume that family members or acquaintances are automatically covered. They are NOT automatically covered.
As part of your hiring process, have the prospective employee bring a copy of their driving record with them to their interview. Each county will have at least one office that will provide this to any driver. If there are violations or accidents on the motor vehicle report, you may want your insurance agent to review the driving record before hiring someone. Because of privacy laws, the insurance company or your insurance agent cannot obtain a motor vehicle report prior to you hiring them. Hiring them and then checking their driving record puts you at additional risk when you terminate them due to their driving record. This risk is one not covered by insurance, unless you have Employment Practices Liability Insurance.
Coverages not automatically covered under a garage policy are Drive Other Car and Broadened PIP. Under a Personal Auto Policy, if you borrow a neighbor’s car, your personal insurance travels with you and protects you even if the neighbor had no insurance at all. Under a personal policy, your PIP coverage entends to cover you and every family members residing with you, whether they are a passenger in a vehicle or even when struck by a vehicle while they are walking. These are some very powerful benefits that are not included in a garage policy. These benefits can usually be added for any employees that you choose for an extra premium.
Sometimes a dealer will drive a car from his inventory to and from home just like it was his own private car. This may or may not be OK to the company. Do not assume that you are automatically covered for personal use. Some dealers even like to provide a vehicle for a manager or a salesman. This is really the kind of thing you must tell your agent about before it happens. This problem rears its ugly head when that company vehicle is driven by a friend of the salesman or a wife or child who is not specifically named on your garage policy. Call your agent and see if its OK to furnish vehicles for use outside work. Then if it is acceptable to the company, add them to your policy. You could face some major lawsuits if something happened and the company decided that you had not disclosed all drivers. Garage coverage is generally a business type of coverage. Using it to avoid buying a personal policy may put you out of business.
You may believe that a person who drives just once in a while is really not a regular driver and doesn’t need to be disclosed to your insurance company. Don’t be fooled. If you let anyone borrow or use a car, make sure they are covered by talking with your agent.
Read your policy. There are endorsements issued by some insurance companies that ONLY cover the drivers that are listed on the endorsement.
If you buy a bunch of cars from the auction and then grab every warm body you can find to car-pool over there and then have everybody drive a car back, you should be sure that everyone involved is listed on your policy. If any of them are excluded because of a bad driving record, you are at your own risk if they drive. If a casual friend happened to just be there and he drove a car for you, he could possibly be OK, unless he was there regularly and you used him regularly as a driver. That person should be added to your policy.
Always disclose every employee, independent contractor and anyone else who may use one of your vehicles. Also disclose personal use of vehicles by anyone, including you.
The additional premium will be small compared to the financial misery you may incur.
You've Had a Loss That Will Close Your Business. How Will Your Business Survive?
Something you rarely consider when buying insurance is the possibility of a claim occuring that would be serious enough to close you down for a period of time. Think about it. The local paper reports your office burned down last night. You rush down to the lot to survey the damage, thinking “thank goodness I just paid our fire insurance premium”. You get there and nothing is left where the building was standing. You are pretty sure your insurance limit is high enough so that it will rebuild your building and replace your personal property, but what are you going to do in the meantime?
There are customer’s payments due. Where are they going to pay? Who are they going to call? Your salesmen had several deals they were going to close this week which cannot happen now, as several cars suffered fire and smoke damage. Your employees want to know if they will be paid on Friday. You overhear some of them say they are looking for other jobs. Your floor planner offers his sympathy, but does not offer a payment extension on this month’s payment. What about your mortgage company? Insurance company? The Sales Tax office? They still expect their payments. Will this be the end your business you have worked so hard to build?
Let’s Look at Business Income and Extra Expense Insurance .
Business income insurance (also known as business interruption insurance) is an important but often misunderstood coverage. Some business owners don’t even know it exists.
It is designed to replace profits lost and expenses that continue as a result of a covered loss. This coverage provides much needed dollars to pay continuing expenses such as payroll, rent, utilities, property taxes, mortgage interest, rent, equipment leases, other contracts that you cannot cancel, property taxes on your location and more.
According to several independent surveys, 43% of businesses never reopen after a serious loss and of the ones that do reopen, 28% close in 3 years. Business income coverage increases a business’ ability to survive a serious loss.
What about additional expenses you may have while shut down? Extra Expense coverage would pay the additional cost of setting up a temporary operation. Would you be able to have a mobile office trailer delivered to your location to use while repairs were made to your own building? How long would that take to get it delivered and set up? What about getting the telephone company, electric company and cable company to provide service to this temporary office?
But wait, there’s more. What if you cannot remain at your location while rennovations are being done? Will you have to completely shut down? Would you be able to rent a location to conduct business? Would you have to pay more for this short term lease? Would you be allowed to display vehicles at this temporary location? How much money do you think you would lose because your potential customers and current customers do not know where you are? How much advertising will you have to do to help them find you?
What Should I Do Now?
- Have a DISASTER RECOVERY PLAN in place before somethings happens. There are many resources available, but YOU should first THINK about your business being closed and what you might need to do to minimize the impact of lost revenue. There are probably several things you can do to prepare that don’t cost much money.
Looks for ways to reduce the potential for loss. Up-to-date fire extinguishers, proper storage of flamables and other risk reduction techniques are inexpensive, but effective ways to reduce the risk of fire and explosion.
Add Business Income and Extra Expense coverage to your property policy.Try as you might, you can’t eliminate all risks. This coverage makes the difference as to whether your business will survive.
Now Let’s Recap:
What is included in Business Income and Extra Expense Coverage?
- Covers the profits that would have been earned based on previous financial records had the loss not occurred.
- Covers continuing expenses, such as salaries, rent and utilities that must be paid even though your business is closed.
- Covers extra expenses needed to operate at your current location or operating in a temporary location while repairs to the permanent location are completed.
Additional Considerations for Business Income Insurance
- Coverage limits should be sufficient enough to cover the amount of time to rebuild the permanent business space. Most business owner underestimate the time needed to get open again. Every day of closure requires additional coverage. Do not underestimate this time-frame. It is critical to your survival.
While commercial property insurance helps rebuild your real estate and replace contents, business income and extra expense helps ensure that your business will survive the time it takes to get you reopened. What good does getting your building rebuilt and your contents back, if your employees (including your best salesperson, mechanic and title clerk) have gone to work for your competitor or your building is in foreclosure?
Business Income and Extra Expense coverage can help you change all that. Imagine your banker stopping by to see how soon you will reopen and do you need any more money, since you are making all your payments. Imagine your employees helping during the process to get the business back up and how upbeat they are because they are all getting paid. Imagine going home for dinner and sitting down with your family and telling them that you’re only a week away from your SECOND Grand Opening. Imagine the smiles on their faces. And yours.
Garage Insurance is a specialized insurance policy for motor vehicle dealers. Insurance policies are not easily understood by businesses and even insurance agents. Garage policies are even less understood because most agents don’t see that many. Any agent can give it his or her best shot to provide this policy, but that can often lead to the dealer ending up with a policy that doesn’t meet their needs. Many dealers have ever heard of False Pretense coverage and most have not added to their dealers policy.
The garage policy was developed to provide comprehensive liability coverage to protect both the general liability and automobile liability exposure using only one policy in order to prevent gaps and overlaps. The garage policy contains premises liability, products liability, and automobile liability coverage. It also includes physical damage protection to vehicles owned by you, the dealer. Your inventory is the lifeblood of your dealership.
As the owner of an vehicle dealership, it is critical to be aware of the risks that your business faces on an everyday basis. You may want to think about a risk that doesn’t happen everyday, but can be damaging to a dealer, nonetheless.
You have purchased Dealers Physical Damage Coverage (Comprehensive and Collision) for your inventory. When is the last time you thought about the consequence of your voluntarily parting with a covered auto by trick, scheme, or under false pretenses? What about you acquiring an auto from a seller who did not have legal title? Are you covered for this type of loss? Not unless you have added False Pretense Coverage to your policy. Have you heard of it? False pretense is a coverage that has been available for more than 40 years. However, not all insurance agents know that this coverage can or should be added to a dealer’s insurance program.
False Pretense coverage for dealers is an endorsement which can be added to the garage policy and changes the coverage in the physical damage section of the policy, often referred to as Dealers Open Lot coverage or dealers physical damage. False Pretense gives the dealer two kinds of protections. One from unscrupulous sellers and the other from unscrupulous buyers. Let’s look at both kinds of risks.
False Pretense protection adds loss for a covered auto that you own, caused by the fact that someone dishonestly sold you a car that they don’t really own. Picture the loss you will absorb if you purchase a car with a fraudulent title. The true owner tracks the car to your lot and demands that you return it to them. Or worse, if you have already sold it and your customer comes back to you to collect the value of the car you sold them with a bad title that they had to turn over to the true owner.
This is how a scam can be carried out. The perpetrator buys a late model car, say a Chevrolet, from a junkyard. The perp steals an identical late model Chevrolet. After switching the vehicle identification numbers from the junker to the stolen vehicle, the perp trades in the stolen car using the title and ID numbers from the junker. Upon reporting the loss to its insurer, the auto dealer learns that there is no coverage for this type of loss. It is not theft, as he “voluntarily parted” with the car due to the fraudulent scheme. It would have been covered if False Pretense coverage had been added to the dealership’s garage insurance program.
Running in the other direction, you could experience a loss if someone causes you to voluntarily part with a vehicle by using a trick, scheme or other false pretenses. Someone comes into your dealership and is interested in one of your cars. He wants to take it on a test drive with his wife. He gives you a copy of his driver license and insurance card. You allow them to go on this test drive without someone from the dealership going with them. They never come back. Now you realize you have been tricked and want to recover your vehicle or your losses but the thief is long gone. You find out that the driver license and insurance card are fake, and the car that they drove up in had also been stolen. What are you going to do? Voluntary Parting is not theft and is not covered by your Dealers Open Lot coverage, unless you have False Pretense coverage.
There are a number of schemes that attempt to prey on used car dealers in this way. You might be savvy enough to avoid most of them, but false pretense protection is usually very inexpensive to add to your dealers garage insurance policy. Take the safe way out and consider adding false pretense to your garage policy now.
Big Mistakes Companies Make on their Workers Compensation Insurance
By Steve Hall, CWCP, CWCA, CRIS, PHR
Workers comp is a big expense for most companies. Most companies don’t know just how much more they “actually” pay, than what they “could” pay.
Many businesses could reduce their worker comp insurance costs by 20 to 50% with a very modest effort. Why don’t they?
Here are the main reasons I see every day for failure to take control of their company’s workers comp costs:
They believe that the rates are the same with every company.
In Florida (and several other states), the rates are set by the Insurance Department for all insurance companies. So technically, the “rates” are the same for all companies, BUT the final premiums you pay are NOT (those are the ones that come out of your checkbook). That is due primarily to the experience modification factor (Mod) each business has applied to their premium. We’ll talk more about the Mod later.
Accidents happen. There is nothing I can do about that.
I hear this all the time. If you believe this, I guarantee that you are paying much more than you should. That is because the ultimate claim cost is influenced dramtically by the actions (or inactions) taken by the employer (YOU) including returning injured employees to work as soon as medically possible.
No doctor relationship
Your choice of medical provider has a real impact on the ultimate costs you will pay for your workers comp. Some states allow the employer to choose the medical provider where you send your injured employees. Florida is one of those states. Developing a relationship with medical providers is one of the most important pieces to an effective workers comp program. The doctor can make or break the claim. Just because your doctor is listed in your insurance company’s listing, doesn’t make them the right choice for you.
The claim starts with hiring
You would be surprised at how many claims are actually “hired”. Do you screen applicants for their physical ability to do the job you are hiring them to do? Many claims occur within the first 90 days of employment. Many of those are employees who were not capable of doing the job. A routine medical exam may have eliminated that employee from becoming another claim in your loss experience. For about $100 or less, our employers are able to do a medical and drug screening to prevent the wrong employee from becoming one of your statistics.
Remember the Mod I referred to above?
The Mod is a factor (percentage) applied to workers comp premium for every business whose premium exceeds $5,000. Your Mod starts at 1.00 and goes up or down based on your claims experience. The Mod is the way the workers comp system penalizes businesses who have claims. It also rewards businesses who have no claims and those that have claims, but manage their claims well.
The Mod is really a financing mechanism for paying for claims. What companies don’t realize is that THEY really pay for their claims through this Mod formula. Let’s say you have a $10,000 claim. Your insurance company pays the $10,000. The next year your Mod increases due to the claim and you are charged $25,000 additional over the next 3 years. As you can see, YOU really paid for the claim, the insurance company just financed it for you. If you went to your bank and they told you they were going to charge you 50% interest, you would walk out. That’s exactly what happened in the above example.
Once a business realizes THEY are paying for their own workers comp claims, they become much more interested in learning how they can influence these costs.
What can I do?
“All the things I listed above sound good, but I’m trying to run a business. I don’t have time to do all these”.
I must tell you that there is some effort involved on your part. I can also tell you that in every case I have been involved in, the effort has been rewarded handsomely. ROI’s on this effort and expense often exceed 5 to 1.
Here’s what you can do:
1. Hire a workers comp expert
Any agent can sell workers comp. Not all understand the real opportunities to reduce your costs. Find one that you think may know something and begin a dialog to find out what they know (or don’t know).
2. Find out where your program currently is and where it could be
Knowing where you currently are and finding out how low your costs could be gives you a good map for improvement. A workers comp expert will be able to define this in concrete numbers.
3. Priortize your efforts
Maybe everything can’t be done right now. Some parts may be more important to you than others.
With guidance from your expert, pick the ones that will make the most difference in your business.
The key is to START NOW.
Sure, it takes a little work, but remember that 5 to 1 ROI!
It is really not as hard as it may sound, when you have proper guidance. There is an initial learning curve and there will be challenges along the way, as not all claims go by the book. Finding the right advisor to help you,teach you and help manage your program is critical to the success of your program and will help you avoid the mistakes that most companies make year after year.
Steve Hall is a Certified Work Comp Professional, Certified Work Comp Advisor, Construction Risk Insurance Specialist and a Professional in Human Resources. Hall is the agency principal at East Coast Insurors, Inc and has a dedicated workers comp and injury management division known as CompCorrect. Hall focuses on the education, training and implementation of programs designed to reduce the number, duration and costs of occupational injuries, reduce risks and increase employee productivity for employers.
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