The designation of covered autos is a function of the use of the appropriate symbol on the declarations page. For most auto dealers, symbol “22″ can be used to indicate coverage on all owned autos. Symbol “23″ limits coverage to owned private passenger autos and symbol “24″ reverses the arrangement so that coverage applies only on autos other than private passenger vehicles. Symbol “27″ can be used by nondealers to indicate coverage on scheduled autos. Dealers can use symbol “27″ also, if they have scheduled autos used by outsiders (e.g., by a school for driver training, by the garage owner's minister, etc.).

The symbols are shown opposite the appropriate coverages on the declarations page. For example, if an auto dealer insured desires $250 deductible collision insurance on all owned autos and on two scheduled autos, the entry opposite collision coverage should be symbols “22″ and “27.” Note that symbol “22″ is used even if the dealer intends that the collision insurance apply only to a specific subgroup within the all-owned-autos category. Perhaps only used cars, demonstrators, and service vehicles are to be insured against collision damage. The auto dealers” supplementary schedule (CA DS 07) is the place for entering that distinction. All owned autos must first be made subject to being covered autos before a subgroup can be singled out as the owned autos intended for coverage.

The auto dealers” supplementary schedule is a form that must be attached to the garage coverage form declarations when the form is used to write an auto dealer garage risk (other than a trailer dealer); there is another supplementary schedule, CA DS 08, for a nondealer or trailer dealer risk. Whether the insured is an auto dealer or not, the supplementary schedule is required, as noted, even though the insurer may amend the arrangement and format of the schedule to serve its own policy preparation needs and procedures. However, if the arrangement or format is altered, the major items of the supplementary schedule must be kept in the same order because of specific references in the garage coverage form.

Interests to be covered by physical damage insurance must be carefully designated in the auto dealers” supplementary schedule in item 7. Such interests are shown separately as to new cars and used autos, demonstrators, and service vehicles. For each category — new or used — and for each peril, the insured must elect coverage for 1) cars that are owned outright by the insured dealership, 2) cars in which an outside creditor has an interest, with the coverage being for the insured dealer's equity only, 3) cars in the same situation but with insurance covering the interest of both the named insured and any creditor named as a loss payee, and 4) consigned automobiles with the interest of the owners automatically covered along with that of the named insured.

Though this device presents the insured with a multiplicity of possible combinations, most insureds —particularly if values are to be reported —should be encouraged to keep the selection to the simplest and most narrow range. Otherwise the possibility of misreporting and consequent disappointment following a loss is multiplied in the same proportion. When the garage coverage form does not cover all interests, the insurance company's liability is limited to the same proportion of a loss that the amount of the designated interest bears to the value of the damaged automobiles at the time of loss.

Whatever the symbol and whatever the interest covered, only autos are insured. Dealers will sometimes accept other property in trade for an automobile — a boat, for example — and may even report the value of the property as another unit in their inventory sitting on the lot for sale. Though the garage policy's definition of “auto” is quite broad, only a land motor vehicle or trailer qualifies for coverage.

Automobiles of others that the insured has for sale on consignment are eligible for physical damage coverage, too. The appropriate entry on the declarations page is symbol “31.”

Analysis

Section IV may be used to write comprehensive coverage (“comp”), specified causes of loss coverage, or collision coverage. The comprehensive agreement promises to pay for direct and accidental loss to covered automobiles from any cause except collision (or) overturn. If comprehensive insurance is selected, glass breakage, loss by missiles or falling objects, and colliding with a bird or animal will be treated as comp claims instead of collision. If comprehensive is not applicable, the impact between covered auto and falling object or between covered auto and bird or animal reverts to what it actually is, collision, and whatever coverage is applicable to collision damage applies to the incident.

If it is to the insured's advantage to recover for glass breakage as collision, the insured may do so. Comp and collision may each be subject to a deductible. This option under the garage coverage form for the insured allows glass breakage that occurs in a collision to be treated as part of the collision insurance claim, all subject to only the collision deductible.

The specified causes of loss are listed in the form: fire, lightning, or explosion, theft, windstorm, hail, earthquake, flood, vandalism or mischief, and the transportation peril of “sinking, burning, collision, or derailment” of any conveyance (including boats and aircraft) transporting an insured auto.

Note that smoke damage or smudge from a malfunctioning heater on the premises is not covered by specified perils. Also, except for flood, water damage is not included in specified causes of loss coverage. Nor is loss caused by falling aircraft. Though the incidence of damage to automobiles by any of these perils is undoubtedly rare, they represent valid points of consideration in the insured's decision between specified causes of loss and comprehensive perils coverage.

Also, if the insured is an auto dealer, the coverage for loss by collision or upset of a transporting vehicle does not apply. For loss to covered automobiles in the course of transportation, it is immaterial to coverage if the transporting vehicle is owned or hired by the insured or by another.

If the insured prefers, specified causes of loss coverage can be replaced by a special endorsement, CA 25 04, that modifies the perils selection in various ways. For a more detailed description see Garage Policy Endorsements.

Collision is, of course, the other major peril the insured can choose to include in physical damage protection. The coverage agreement specifies that the term refers to overturn of the covered auto as well as its collision with another object. For more information on collision, see What is Collision.

The current garage form now has the loss of use expenses coverage that is also present on the business auto coverage form. And, CA 00 05 also now pays up to $20 per day for transportation expenses instead of the previous $15 figure. For more information on this item, see Business Auto Form—Physical Damage Coverage.

Analysis

The nuclear and war exclusions speak for themselves — and they are absolute, eliminating coverage regardless of any contributing cause or event.

The second part of the exclusion section addresses such common issues as leased or rented autos (not covered except if the rental is to a shop customer, covering for the period while the customer's auto is in the insured's charge for service or repair) and using insured autos in organized races, stunts, demolition derbies, and so on. An impromptu race thought up by dealership employees is not “organized” and it is therefore an example of an event that this exclusion does not reach.

Media for use with audio, visual, or data electronic equipment are not covered and neither are radar detectors or other types of fuzz busters. These exclusions are a part of the second set along with one directed at “electronic equipment…that receives or transmits audio, visual, or data signals.” Permanently installed sound equipment and accessories are excused from the exclusion so long as it is designed to be operated only (“solely”) by use of the power from the auto's electrical system. The exclusion also does not apply to any other electronic equipment that is necessary for the normal operation of the covered auto or the monitoring of the covered auto's operating system.

Exclusion 3 is unique to auto dealers. Nondealers might seek to have it removed from their policies on the grounds that such an exclusion is not a feature of the business auto policy. Exclusion 3 is the so-called “trick and device” exclusion.  A covered auto is not insured for the loss resulting from the named insured's being tricked into parting with it. An employee, acting under the authority of the named insured, may similarly part with a covered vehicle, to the same uninsured effect. Insurance covering this exposure is available by means of an endorsement to the garage policy. The insurance is called false pretense coverage and it is reviewed separately. See False Pretense Insurance.

Four exclusions pertain only to insureds who are auto dealers.

There is a flat exclusion of the prospective profit of the insured. This includes loss of market value or resale value.

A dealer has forty-five days in which to report acquisition of a new location for business.  After that, coverage ceases if not reported.

As already mentioned under specified causes of loss coverage, damage caused by or resulting from the collision or upset of a transporting conveyance is excluded. Any dealer whose exposure in this area is such as to cause concern should consider purchasing collision coverage. Blanket collision insurance will respond to most such losses — but see the next exclusion.

Any collision coverage does not apply to a “drive away” exposure when the distance from point to point in the acquisition-distribution chain is more than 50 road miles. “Drive away” refers to movement of dealer's stock of autos, not general over the road operation of vehicles by insured and employees. The term can apply equally to autos the dealer delivers to a purchaser and to those picked up in trade. Drive away collision insurance can be used to buy back the coverage taken away by the exclusion. Endorsement CA 25 02 covers this gap — see Garage Policy Endorsements.

Diminution in value is excluded. This is done in order to shore up the fact that physical damage coverage is for “loss” to a covered auto, that is, direct and accidental loss or damage to the auto. Diminution in value is simply not looked upon by the insurer as direct physical damage to the covered auto and that is what is meant to be covered under this part of the garage form. This particular exclusion avoids a creative application of the word “loss” to a bad business deal. Also, dealers need business income insurance to cover loss of income flowing from damage to the business's stock in trade.

Part 6 of the section IV exclusions duplicates some physical damage exclusions in the business auto coverage form (see Garage Policy Endorsements). These eliminate coverage for:

1. Loss by wear and tear, freezing, and mechanical or electrical breakdown. All property will wear out. In the absence of proper maintenance, it will freeze or break down. Such occurrences hardly represent risk at all so they are barely insurable by traditional standards. However, when losses in the nature of wear and tear, breakdown, etc., are caused by a peril that is insured under the policy, there is coverage. If a thief causes mechanical damage while racing away with an auto, this exclusion will not detract from the insured's recovery under the theft peril for all related damage.

2. Loss to tires by blowout or puncture or ordinary road damage. There is coverage, however, for tire damage that is caused by other insured loss. If there is insurance for collision damage and a collision causes tires to rupture, the tire damage is insured as a collision loss.

Analysis

Whatever physical damage insurance applies to covered autos, it applies without regard to where they are located at the time of loss. Nevertheless, “covered location” is an important element of coverage because limits are required to be established for each site where covered autos are kept. Because rates vary with building types and with lots (standard, i.e., fenced and secured as prescribed in the CLM, or nonstandard), each such site is treated as a separate location for coverage purposes. Most insureds probably have at least two locations — in the building and on an open lot — at their main premises. A separate limit is called for in the supplementary declarations for dealers at each such location.

Coverage at unnamed locations applies for forty-five days, and ceases if such locations are not reported within that period of time. This forty-five-day limit is expressed in the form of an exclusion (above) applicable to insureds who are dealers. Nondealers — who may, even so, occasionally have covered autos for sale — are not subject to the same constraint in the matter of reporting a new storage location. By the same token, nondealer insureds are much less likely to have the exposure. Or, if the limit set for autos at unnamed storage locations of a non dealer is a high one, the underwriter is notified thereby that special circumstances may be at work and can act accordingly.

A limit of liability must be indicated in the supplementary schedule to govern in case of loss at any location that is not named. The setting of a limit for unnamed locations — permanent or temporary — allows the underwriter some gauge of the possible additional exposure beyond the major exposure at named locations. This limit does not affect premiums. Consequently, the only consideration is that it be adequate — and as accurate as possible within reasonable expectations.

If limits are established for automobiles at named locations and at additional unnamed locations, only one other situation remains where the insured is apt to have an exposure — automobiles in the course of transportation. This exposure is covered by entry of another limit in the supplementary declarations respecting cars in transit. This limit, too, has no bearing on premium. It simply puts the underwriter on notice as respects the maximum possible transit loss. The limit must be adequate to avoid disappointment for the insured in case loss occurs.

Analysis

For auto dealers only, the comprehensive or specified causes of loss coverage deductible applies only to loss caused by theft or mischief or vandalism. A single deductible applies per occurrence for damage to all autos.

If the insured is shown in the declarations as something other than an auto dealership, the comprehensive coverage deductible does not apply to loss caused by fire or lightning.

Reports of values for insureds that are shown in the declarations as auto dealerships may be made monthly or quarterly. The option must be taken in advance and the appropriate box in the auto dealers” supplementary schedule is checked to indicate which method is to be used. Actual cash values and interests for the preceding report period must be reported on or before the 15th day of each month or of each quarter.

There is the equivalent of a full reporting or honesty clause, limiting recovery to that proportion of loss that the last reported actual cash value bears to the true actual cash value as of the date of the report. This is on a per location basis. If the first required report is delinquent, the insurer's liability is held to 75 percent of the limit shown for the location. Note that these provisions are close in language and intent to reporting provisions in property insurance forms.

Per-location reporting requires special attention. As noted earlier, most auto dealers will have at least two locations at their main premises—the values stored inside a building being subject to a different rate and premium from those on an open lot. However, the insured's records may reflect total values in a lump sum at each premises and the temptation might be to report values that way as well. Unless special arrangements have been made and coverage applies on a blanket basis at each premises or at all premises, the insured must be certain that the value reports reflect the policy locations accurately. An insured with a $50,000 limit at location 1 (inside) and a $200,000 limit at location 2 (open lot) who reported, for example, $100,000 inside and $100,000 outside as an arbitrary division to simplify the reporting of total values at the site should expect major difficulties in a loss adjustment. If, for example, the real values on the open lot were $150,000 when the insured reported $100,000, the insured will recover for open lot loss in the same proportion, i.e., ten-fifteenths. This would be true even if the insured could show that the report was accurate as to total values (200,000) or even if it developed that the insured paid more premium than accurate reports would have justified. Simply, the insured recovers in the same proportion that the reported values at each location bear to the actual values at each location.

It is important for the insured to understand that the periodic reports of values do affect physical damage premiums. The principle is well established in terms of reporting forms generally that a report showing values greater than the limit established in the policy does not effect an increase in that limit; however, the insured is obliged to pay premium on the basis of the higher (reported) values. Thus, any time an insured finds values at a particular location exceeding — or even approaching — the policy's limit for that location, the insurance company should be instructed to increase the limit. Though receipt of the inflated report puts the insurance company on notice that values are exceeding the limit, or they may soon do so, the insurance company has no obligation (or authority to increase the limit unilaterally.

Another point in connection with reporting forms generally; it is quite possible for an insured to have a loss that is completely covered even though the amount is greater than any value ever reported. Reports reflect values on hand as of the last day of the reporting period. They reveal little about the values that may be at that location at any other time. Suppose, for example, an insured has a limit of $200,000 at one location and values that range between $125,000 and $175,000. If the insured has such control over inventory that it is always at low ebb on or near the reporting date, reports may never show values in excess of $125,000-$135,000. Yet, if a loss occurs when inventory is at its peak, the insured could have a recoverable loss of $170,000-$175,000. As long as the insured reports values accurately and honestly on the appointed date, and the limit of insurance is adequate, any amount of loss up to the limit is recoverable.

What value to report for sales demonstrators and executives” autos is sometimes a question. Should values be adjusted downwards with each report to reflect depreciation from usage? Probably so, but only after a thorough discussion with the underwriter. A dealer may have two autos of equal value in terms of dealer cost, but one is kept in storage awaiting sale while the other is used as a demonstrator. The insured anticipates that the demonstrator will be sold at a marked down price but the book value of both autos in terms of their cost to the dealer may stay the same. (Profits, recall, are not insured.) If the insured reports equal values on both autos in each report and consequently pays the same premium on both autos, a loss adjustment with depreciation as a consideration on the demonstrator may leave the insured complaining of inequitable treatment. In short, if the loss adjuster is prepared to apply a usage depreciation to dealers cost in computing a loss to a demonstrator then the insured should be encouraged to apply the same depreciation factor to the value of the unit with each report.

The value of cars used by officers, salespersons, and others (though privately stored at the homes of the users or elsewhere) must be included in the total of values reported at the main sales location. Values at unnamed locations are included in the total for the main sales location also.

If coverage is written on a nonreporting basis, there is, in effect, a 100 percent coinsurance clause. It is set forth in the limits of insurance paragraph.

The clause refers to two distinct figures—(1) the limit of insurance set out in the declarations and (2) the total value of all covered autos. The latter obviously includes automobiles at unnamed locations, in transit, etc., as well as those at named locations. If, (1) is less than (2) the insured will be penalized in case of any loss, total or partial.

It is thus most important to make the limits of liability for named locations high enough to include the value of whatever automobiles the insured may expect to have in transit or at newly acquired locations.

By way of example, suppose a $5,000 loss occurs while limits of liability at named locations are $75,000, but the total value of covered autos at the time of the loss is $150,000. In this case, the loss would be settled for 50 percent of 5,000. Perhaps the insured acquired the added values on the same day as the loss; there is no device in the policy for an automatic increase of limits during a grace period. The percentage is determined by dividing the limit by the actual total values when the loss occurred.