Commercial Auto Program Coverage Guide

Donald S. Malecki, David D. Thamann

• Publisher: The National Underwriter Company
• Year: 2013
• ISBN:
  9781939829276
• Topic: Business
• Subtopic: Insurance
• Index: Business

From this single, clear, convenient resource, you receive a straight forward, annotated walkthrough of all three 2013 ISO Commercial Auto Program policy forms: » Business Auto Coverage Form » Motor Carrier Coverage Form » Auto Dealers Coverage Form » And Analysis of the Important Endorsements to All Three Forms The complete, October 2013 versions of all three Forms are included in the book—so you're working with current primary source Forms, Endorsements, and analyses. In addition to the annotated walkthrough of all three ISO Commercial Auto Policy Forms and complete examination of key Endorsements, renowned experts and respected authors, Donald S. Malecki, CPCU, and David D. Thamann, J.D., ARM, CPCU, have included a valuable, final section entitled "Issues." The all-new "Issues" section provides powerful, practical guidance on: » Additional Insureds » Scope of "Any" Auto » The Meaning of "Occupying" a Vehicle » E&O Coverage for Auto Dealers » Automatic Coverage for Additional and Replacement Vehicles » What Qualifies as "Use" of an Auto » PLUS—Key Situational Questions & Answers Three Reasons You Need Commercial Auto Program Coverage Guide: 1. You can't make important decisions based on analyses of out-of-date forms 2. You don't want to deny yourself the guidance so many professionals rely on 3. You do want to save time by using one, convenient and reliable resource

Section III: Auto Dealers

Chapter 19: The Auto Dealers Coverage Form

Chapter 20: Covered Auto Designations

Chapter 21: Covered Autos Liability Coverage

Chapter 22: Garagekeepers Coverage

Chapter 23: Physical Damage Coverage

Chapter 24: General Liability Coverages

Chapter 25: Acts, Errors, or Omissions Liability Coverages

Chapter 26: Auto Dealers Coverage Form Conditions

Chapter 27: Definitions

Chapter 28: Endorsements

Chapter 19

The Auto Dealers Coverage Form

Introduction

The auto dealers coverage form (CA 00 25 10 13) is the title of the new form filed in place of the garage coverage form. The garage form was withdrawn by the Insurance Services Office (ISO). This garage form was revised a number of times since its introduction in 1910, prior to its withdrawal.

The reason the garage liability policy was revised in 1978, from its archaic language approach, was to make the coverage provisions easier to read and understand and more personable by referring to the insurer as “we” and the named insured as “you.” It was with this revision that numerical symbols were introduced to designate which autos were considered to be covered autos. Also, coverage for “garage operations” included both operations necessary or incidental to a garage business and liability arising from the ownership, maintenance or use of covered autos.

Continuing the goal of flexibility, it was with the 1980 revisions where the structure of the garage policy was again changed, this time to accommodate both dealers and non-dealers. For garage dealers, it was necessary to combine the features of a policy jacket, a garage liability coverage part and the dealers physical damage coverage part. For repair shops, service stations and parking lots (non-dealers), it was necessary to combine the policy jacket, garage liability coverage part, the comprehensive and basic automobile liability coverage part, and the automobile physical damage coverage part. It was said that the key to flexibility of this policy was the use of a revised declarations page, and the introduction of two supplementary schedules, one for dealers and other for non-dealers.

Why Another Change Now?

What may beg a question here is why, after thirty-three years, is the garage liability policy all but history? Actually, it was in 2002 that ISO announced it was withdrawing its garage coverage form for other than auto dealers. At that time, this announcement undoubtedly made a lot of underwriters and claims people happy. Of course, the fact that this coverage form was available did not mean an underwriter had to issue it. Without an independently filed form, and to remain competitive, many underwriters had no choice but to issue the standard ISO garage coverage form to inquiring auto dealers and non-dealers. (In retrospect, many underwriters probably should not have accepted this type of business, since it has been a thorn in the side of many, particularly the part relating to covering auto liability exposures.)

The problem of covering autos under the standard garage liability policy in combination with non-auto garage operations coverage has persisted for decades. Many owners of repair shops, and service stations are not good risk managers when it comes to auto liability exposures. These policies have been an opportunity for these businesses to forgo the purchase of personal auto policies and rely on the garage policy to cover the entire family whose driving records were sometimes so bad as to qualify them for named driver exclusions.

It is uncertain what ISO’s rationale is for withdrawing the garage coverage form, as it was known to exist since 1980, but had it not been withdrawn, it might have required an amendment, because several courts have found an ambiguity that has caught the eye of some attorneys who have capitalized on making something out of nothing. More specifically, the argument is that if the auto accident in question does not come under the Garage Operations—Covered Autos part of Section II—Liability, then it must come under the Garage Operations—Other Than Covered Autos part of the liability coverage insuring agreement, and sometimes under both coverages.

This problem can be best explained by referring to the case of Rinehard, et al. v. Anderson, 985 S.W.2d 363 (1998), which involved a sole proprietor of a service station who, while operating a van he owned, struck and killed a pedestrian. At the time of the accident, the service station owner (defendant) carried a personal auto policy covering the van issued by Allied Insurance Company for a limit of $50,000 per person. He also maintained a garage liability policy issued by Cincinnati Insurance Company, which provided a single limit of $300,000 in coverage for claims involving covered autos.

When the named insured (defendant) sought defense from Cincinnati insurance Company under the garage policy, it was denied, because the policy only applied to covered autos and the vehicle in question was not a covered auto because it was covered by the policy of Allied Insurance Company. The plaintiffs nonetheless argued that the van was a covered auto, because it was a hired auto or nonowned auto. Alternatively, they claimed the van was covered under the garage operations—other than covered autos provision, because its use was incidental to the operations of the service station at the time of the accident.

While the Missouri Court of Appeals found the argument that the van was a hired auto or nonowned auto to be without merit, it thought coverage was possible under the part of the policy dealing with garage operations other than covered autos, because coverage applied to all operations necessary or incidental to a garage business. The way the court viewed the situation, if a non-covered auto were used in an operation necessary or incidental to the garage business, it would be reasonable for the insured to believe that coverage would come within this coverage provision. The court also stated that if the insurer had intended to exclude coverage for any auto that was not a covered auto, it could and should have so stated.

Thus, instead of wording the garage operations—other than covered autos insuring agreement part to read that coverage applies for liability resulting from garage operations other than the ownership, maintenance or use of covered autos, it could have said instead, “resulting from garage operations other than the ownership, maintenance, or use of ANY automobile”. Failing to do so, the court said, an auto that is not a covered auto would then seem to fit within the coverage provision dealing with garage operations—other than covered autos.

Another case that held for coverage is Farmers Alliance Mutual Insurance Company v. Reeves, 775 P.2d 84 (1989). The named insured operated a garage and truck rental business. One of the rental trucks was transferred to the garage because it needed maintenance or repair. Two young boys, while trespassing on the property started the truck and moved it in some manner, injuring one of the boys. The named insured, against whom claim was made, claimed that the insurance on the garage operations covered the accident. The insurer disagreed, maintaining that the truck was not a covered auto. The trial court ruled for coverage. In affirming the trial court’s decision, the Colorado Court of Appeals held that the policy clearly contemplated coverage for garage operations involving other than covered autos.

Eligibility and New Format under ADCF

Those entities eligible for coverage under the auto dealers coverage form (ADCF) are franchised and non-franchised motor vehicle and trailer dealers. More specifically, these two kinds of dealership can involve private passenger, trucks or truck-tractors, motorcycles, recreational vehicles, other self-propelled land motor vehicles, and those dealers involved with residence or commercial trailers. Prior to the 2002 ISO revision, those also eligible were repair shops, service stations, parking lots, and other garage-type businesses.

A franchised dealership is one who is authorized by one or more manufacturers of vehicles to sell and service their vehicles under the manufacturers’ names and trademarks. In other words, what gives the dealership this authorization is a franchise agreement between it and the manufacturer. A non-franchised dealer, on the other hand, has no formal agreement with a manufacturer and essentially sells used vehicles of all trade names.

Those garage businesses not eligible for the ADCF will need to purchase a business auto policy for their auto insurance, a commercial general liability policy for their premises, operations, products and completed operations coverages, and garagekeepers coverage for loss or damage to vehicles while in their care, custody or control.

The new format of the auto dealers coverage form consists of five sections. They are briefly mentioned here and discussed in depth in this book.

Section I—Covered Auto Coverages. This section includes coverages for liability, garagekeepers, and auto physical damage. The title of the insuring agreement is covered autos liability coverage, with the insuring agreement said to be nearly identical to the insuring agreement of the ISO business auto coverage form (CA 00 01). Garagekeepers coverage is based on the named insured’s legal liability for loss to autos of customers or customer auto equipment left in the named insured’s care while the insured is attending, servicing, repairing, parking or storing autos in the named insured’s auto dealer operations. Auto physical damage coverage offers coverage for loss to a covered auto or its equipment against (1) comprehensive, (2) specified causes of loss, and (3) collision, whichever of the foregoing or combination are selected.

Section II—General Liability Coverages. This tracks closely with the current commercial general liability coverage form. Coverage applies to bodily injury, property damage, and personal and advertising injury offenses.

Section III—Acts, Errors or Omissions (E&O) Liability Coverages. Another way to describe this section is coverage against auto dealers errors or omissions liability coverage, or auto title errors or omissions and lemon law violations. This is an optional coverage that many auto dealers purchase in light of the exposures dealing with the failure to comply with various statutes, such as those involving odometers, lemon law, and prior damage disclosures. As pointed out later, the case law makes the purchase of this coverage desirable. The problem is that the sublimit offered by insurers is not usually high enough.

Section IV—Conditions. The conditions are the ground rules to which both the insurer and insured must abide. These conditions are comprised of two parts. The first part has loss conditions and the second part has general conditions. Despite all of these condition, it is still necessary to attach the common policy conditions (IL 00 17).

Section V—Definitions. Whenever a term within the text of the coverage form appears in quotes, it signifies that the term is defined. If the same term that is defined also appears in the policy without quotes, the only resolution is to treat it as being ambiguous, which means that the provision in question is construed against the drafter. There are 25 definitions under this section.

Auto Dealers Declarations

The auto dealers declarations (CA DS 26 10 13) consists of twenty-three pages and nine items and is one of the four essential parts necessary to comprise a complete policy; the other parts are the insuring agreements, exclusions, and conditions. (Together, all four parts comprise the acronym D-I-C-E.) The basic purposes of the declarations are to identify the parties (such as the named insured, insurer and the producer), the coverages purchased, the limits, and any applicable endorsements.

Item one of the declarations lists the names of the insurer, producer, and named insured and its address. The policy period is shown along with the previous policy number, if the policy being issued is a renewal. The form of business, i.e., corporation, partnership, limited liability company, individual or other also has to be checked off. Sometimes it is necessary to check more than one such person or entity as named insureds, ...