A common rationalization for some dealers to be less than diligent in their compliance efforts is “my insurance will cover any claim”. Well, that theory took a serious hit recently when a federal judge agreed with two insurance companies that denied coverage in lawsuits against a large public auto group. The court found that since the dealerships’ employees “intentionally misled” customers, the insurers were within their rights in refusing to cover the claims.
A little history is in order. The auto group had been named as a defendant in at least three lawsuits concerning its sales to consumers of window etch. The suits alleged that the dealerships had failed to disclose that the price of the etch product was included in the amount of financing they obtained and that employees told purchasers and lessees that they had to purchase etch in order to obtain financing. In addition, plaintiffs alleged that the dealers provided them with forms with blank prices and the prices were not disclosed in any of the transaction documents.
The Insurance companies had issued the dealer group at least three separate liability policies, and each of the policies included an Auto Dealer Enhancement Package that provided liability coverage for sums an “insured legally must pay as damages arising from an occurrence because of an alleged or actual negligent act or error or omission by an insured resulting from a violation of truth-in-lending laws.”
The dealer group alleged that the types of claims and allegations made in the underlying suits fell within the scope of coverage provided in the Auto Dealer Enhancement Package. The insurance companies disagreed.
Here’s why: liability policies typically cover only the negligence of the insured, and will not apply to results of willful or intentional acts by the insured. Common exclusions from insurance policy coverage can include:
- Intentional wrongful acts
- Illegal or dishonest acts
- Intentional or knowing violation of any law, regulation, statute or ordinance
- Gaining of any profit or advantage to which you are not legally entitled
- Claims arising out of false advertising or misrepresentation in advertising
- Antitrust, unfair competition, restraint of trade, unfair or deceptive business practices, or violations of any consumer protection laws
- Claims against you that are brought by or on behalf of any federal, state or local government agency
- Claims arising out of any wrongful act committed with the knowledge that it was a wrongful act
- Claims arising out of the same wrongful act or series of continuous, repeated or related wrongful acts, alleging the same or similar facts
In finding for the insurance companies, the court stated “fraudulent misrepresentations and nondisclosures were done intentionally with the full knowledge of and at the direction of the principals of the dealer as a 'pattern and practice' of doing business."
Now when you think about it, there are any number of compliance missteps that may be considered “intentional” under the above guidelines. A few that come to mind are payment packing, bait & switch advertising, price gouging, failure to sell at advertised price, falsifying credit applications – you get the picture.
Here’s the bigger picture: by training employees to operate compliantly and ethically, the dealership’s exposure will be greatly limited, but more importantly, customers will be happier, and sales will increase. I recently read this comment from a student enrolled in Automotive Career Training at the College of Auto Management that really hit the nail on the head:
”First allow me to say that this course is definitely essential to the growth of the automotive industry as whole! I am in my 6th year in the industry. In that time I have been a sales consultant, floor manager, and an internet manager but at no point in time was I approached or sat down and discussed the ethics laws of how to rest assured that my practice was legal or law abiding. This leads you to believe that all is fair as long as the customer agrees and consents - whether they understand or not is not really my problem or concern.
Personally this course helped me draw the line between a great salesman and a crafty con artist per se. Just because you can get customers to say yes doesn't mean you did a good job selling them a vehicle. You could have done a great job of deceiving them during the whole process. After going through this course, I realized that a lot of practices that I thought were "the car business" actually are not. As a person who prides himself on honesty and integrity, this course has opened my eyes to true accountability on what is legal and what is not legal (since the customer most likely doesn't know and the dealership may not teach you).
Also I know that this course will separate me from other candidates who do not have the knowledge. I know that I am an asset to a company and their practices in the case of an audit or any accusations that may face them knowing that me as an employee, on any level, am well familiar with the laws and legal practices of the industry. So they can rest assured that I will not put their dealership on "the 6 o'clock news".
I plan to take this knowledge and use it how it should be used! Help build trust for my dealership, build stronger relationships with customers, and advance my career the right way. Learn how to sell opposed to mislead. Thank you for offering this knowledge.”
So I ask this simple question: is it better for dealers to spend their time worrying about whether their insurance company will pay a claim if they get caught up in a compliance lawsuit or train their people to think like the gentleman above? It seems to me that the answer is obvious.
In my humble opinion, the Good Hands People dealers should be focused on is not an insurance company - but the people who serve their customers every day. The rest will take care of itself.