Whether you are just getting started or have been in the business for years, many people are not aware that the state minimum liability will not cover their own inventory. Let me clarify that just a little, it will cover you driving an inventory vehicle, but it will only pay damages to others (bodily injury and property damage) and will not repair the inventory vehicles themselves. If you want them to be fixed, you will need Dealer’s Open Lot.
I often get asked why this is not a required coverage by the state. The short answer is that the state does not care if your vehicles get fixed or not, their job is to protect the general population from damages. Dealer’s Open Lot is not free and adds a cost to the policy, a cost that most dealers opt not to pay for. It would be wrong for the state to require this coverage when the only one impacted by not purchasing it would be the dealer themselves.
Let us go down the path that you have decided to purchase the coverage for your inventory, there are two coverage options: Reporting Form and Maximum Value. Most carriers only offer the maximum value option, but when available, the Reporting Form offers more flexibility. Let me explain how these two options works so you can be prepared when purchasing the coverage.
Reporting Form bases the coverage off the average value of inventory over the twelve-month period. For example, there are a few months out of the year where it is busy and you have $200,000 in inventory, quiet months where it is only $150,000, but in general the inventory value is around $175,000 you would purchase the Dealer’s Open Lot for $175,000 and then once a month (every month) you complete a form and report what the inventory is at that time. As long as you promptly report every month if you have a claim and have inventory of $210,000 there will be no negative penalties to the claim. Furthermore, at the end of the year the reports will be averaged, and the coverage amount that your premium is based on could be lower if the average is in fact lower than originally set!
Maximum Value is much more stringent as it has a 100%coinsurance clause. This means that you must insure the lot to the maximum value you may have in inventory at any time. Failure to do so could result in a penalty should you have a claim. Let’s take the example above and say that you insure the lot to the $200,000 but have a claim on one vehicle. The first step the adjuster will do is to ask for your inventory list to make sure you satisfied the terms of the policy. If at the time your inventory is $210,000 you only insured to 95% and did not satisfy the clause. Since you did not hold up your requirement, the insurance company will only pay 95% of the claim to the vehicle.
Dealer’s Open Lot is a valuable coverage and important to understand. I am sure that after reading this it has brought up more questions in trying to understand your coverage. I encourage you to discuss any questions you have with your agent so that you can be correctly covered in the event of a claim.