Who’s Minding the Store – Liability Settlements by Insurance Carriers and Their Impact on Dealers

By Denise Branch

Dealers spend millions of dollars each year on liability insurance.  In exchange for steep premiums, dealers trust their liability carriers to represent their interests against claims of injury, property damage and wrongdoing.  But what really happens when a dealer presents a claim to their carrier?  Is a thorough investigation into the alleged injuries, damages or wrongdoing conducted?  Is an attorney consulted who specializes in the particular area of harm? Will the dealer be given an opportunity to authorize settlement offers and terms?

If you cannot answer any of the above questions, or if any of the above questions is answered in the negative, you could be wasting a significant amount of money year after year on insurance premiums.

The amount of claims paid out on a policy each year are termed losses by the insurance carrier.  These “losses” have a direct correlation on premium rates and loss ratios are typically reviewed for premium determination for dealers in five year increments.  That means if a carrier pays a customer $100K on a slip and fall claim, that slip and fall will be factor in your premium rate calculation for the next five years.

To mitigate these losses, dealers must be diligently involved in their claims.  A solid claims reporting process should be utilized and continued involvement in the claim should be maintained to ensure all defenses to claims are lodged.  Dealers have the right to, and should demand from their carrier the ability to authorize all settlement offers, terms and payments. At a minimum, dealers should request a claims review with their carrier on at least a quarterly basis to determine how and on what basis their claims are being paid. And when negotiating your policy terms, be sure to inquire as to whether or not the policy will allow you to choose your lawyer in defense of claims or lawsuits against you.  Carriers often underestimate the necessity of industry specific knowledge in defending claims of harm.

You may think you should not need to be this hands on with your claims.  After all isn’t that what you pay the insurance company to do?  No, its not.  You don’t pay your insurance carrier to keep your premiums down.  Keeping premiums low is the job of the dealer, not the carrier.  After all, insurance is a business and premium is profit.   

If you have questions about your liability policy or how to structure an effective claims process, reach out to your dealer lawyer for assistance.