Five scenarios every motor trader should consider before something goes wrong
When a customer’s vehicle is in your possession, the responsibility that comes with it can be far greater than many motor traders realise.
Whether a vehicle is being repaired, serviced, stored or prepared for sale, the question of who carries the risk when something goes wrong is critical.
Consider these five scenarios:
- A flood damages your customers’ vehicles while they are at your premises. Are you covered?
Imagine severe weather causes flooding at your premises and several customer vehicles are damaged. You have not been negligent, and you may even have taken reasonable precautions to protect the vehicles.
You may have disclaimers displayed around your premises and on customer documentation stating that vehicles are left at the customer’s own risk. But what happens when the customers demand that you pay for their losses – or, even worse, start threatening legal action or taking to social media?
Can you claim under your insurance for the damage to those vehicles? - Your contract makes you responsible for customers’ vehicles for “acts of God”. What happens when a major storm causes extensive damage?
You have contractually accepted liability for damage to customers’ vehicles arising from certain events, including what may be described as “acts of God”, regardless of whether you were negligent.
Then a severe storm hits and damages all the vehicles on your premises.
You turn to your insurance policy, expecting it to respond. However, the policy wording may exclude liability that you have assumed contractually.
Your insurer could therefore argue that the liability was created by your contract rather than by your negligence, leaving you potentially exposed.
Can you claim – or could the contractual liability exclusion leave you carrying the loss yourself? - What happens when a customer’s vehicle has no insurance?
A customer leaves their vehicle in your care, but the vehicle itself is not insured.
It is subsequently damaged while at your premises.
The customer expects you to pay for the repairs, but your own insurance may only respond in certain circumstances and may not automatically provide cover simply because the vehicle was in your possession.
If the customer has no insurance, where does that leave you? - What happens when the vehicle is worth far more than its normal market value?
Consider a classic, collector or highly modified vehicle that does not have a conventional retail value.
You may know that the vehicle is worth substantially more than its standard market value, but has the customer actually documented and agreed that value with their insurer? If the vehicle is damaged or written off, a disagreement over its value can quickly become a major problem.
If the vehicle does not have a published retail value, are you confident that the value will be accepted by the insurer – and ultimately by your customer? - You spend R250,000 preparing a vehicle for sale – but will your insurer pay you for it?
You purchase a vehicle on a stock value basis and invest significantly in preparing it for sale.
Perhaps you spend R250,000 on repairs, upgrades, modifications and cosmetic improvements. The vehicle is now worth considerably more than the amount you originally paid for it.
Then disaster strikes and the vehicle is written off.
Will your insurer reimburse you for the full amount you have invested, including the additional work, or will the settlement be based on the insured value or another basis of settlement?
Are you confident that your insurance will protect the investment you have made – or could you end up writing off the difference yourself?
The bigger question
These scenarios highlight an important point for every motor trader: having insurance does not necessarily mean that every loss involving a customer’s vehicle will be covered.
The wording of the policy, the basis on which liability is accepted, the value of the vehicle, contractual obligations and the circumstances surrounding the loss can all have a significant impact on whether a claim will be paid.
The real question is not simply, “Do I have insurance?”
It is:
“Does my insurance actually respond to the risks I have agreed to take on?”
For expert insurance advice and tailored cover, contact Lisa Swart from GVC Insurance Consultants on 083 643 0862 or email Lisa@gvcbrokers.co.za