Claims and lawsuits don’t always come from accidents in the Commercial Auto line of business. Commercial Auto is a complex line and includes Business Auto, Garage/Auto Dealers, Truckers (now defunct) and Motor Carriers policies. There are multitudes of additional coverage endorsements produced by both ISO and insurance carriers. When you consider the sheer number of insurance carriers, if each were to develop and implement only a handful of their proprietary forms to add to ISO’s Commercial Auto, Motor Carrier or Garage/Auto Dealers policies, you’re talking literally thousands of forms open to interpretation in the event of a loss.
So, it’s not hard to see why frequent coverage disputes occur…sometimes the placement of a comma changes the meaning of coverage and leads to disputes. Additionally, intentional acts and other incidents (not accidents) lead some to file a claim or lawsuit when often there is no merit or reason to do so. The deep pocket syndrome attracts claims and lawsuits and it takes expert knowledge to help defend these. Here are some examples:
Bad Faith Claims – These occur when an insured or claimant alleges that the insurance company acted in a way that was unfair. These could range in extremes from timeliness of handling the claim to outright egregious claims actions against the claimant. Assuming a reputable carrier handles the claim in a professional manner and discounting egregious actions for a moment, bad faith can be alleged from a simple denial of a claim. If for example after the proper due diligence was conducted there was no coverage trigger i.e. no Bodily Injury or Property Damage to trigger coverage, the insurer has every right to deny the claim if the facts show there was a reasonable basis to deny the claim. Of course, that may not stop the claimant from filing a Bad Faith claim whether there was merit or not…some claimants reach for payment whether actual coverage existed or not. It should be noted that bad faith often is defined by law of any given state. In this case, an auto accident didn’t cause the claim, the refusal to accept that there was no coverage on the policy led to a bad faith claim.
Auto Accident Injuries – In a previous article I discussed monetary injury type claims i.e. Title Errors & Omissions. However, the big claim could come from a terrible auto accident in which a person or several persons were injured. I’ve seen cases resulting in multi-millions of dollars from severe accidents.
Things that come into play when defending some of these are: Was the driver a permissive user? Was Negligent Entrustment involved i.e. was the owner of the vehicle who permitted the person using their vehicle aware of that person’s poor driving history or their inability to drive a vehicle safely? Was the vehicle maintained properly? Was the driver experienced and familiar with the equipment? What were the driver hiring practices? Was the size, weight, use and garage location of the vehicle reported properly on the application? Was the vehicle under coverage suspension? Was the driver of the vehicle an insured on the policy? What was the underwriter’s intent? There are a host of issues one needs to think about in either defending or filing a claim for injuries.
Product Liability – Let’s briefly discuss product liability on automobiles, particularly involving auto dealers. Let’s say the dealer sold you an allegedly defective vehicle, similar to the one in the news from Toyota with the accidents occurring from allegedly stuck and defective gas pedals. If that vehicle then was involved in a major auto accident is the dealer liable?
Well, technically manufacturers, distributors, retailers and other suppliers of products are in the chain and therefore responsible for those products under the law but in reality, we would look to the manufacturer in this case, particularly if the vehicle was defective from the factory. In all likelihood the dealer would be sued along with the manufacturer and the Garage / Auto Dealer ‘s product liability portion of their policy could respond to defend the dealer until such time that the manufacturer agreed to assume liability.
Typically, under the dealer agreement with the manufacturer, liability would shift to the maker of the product where under the Indemnification portion of the contract, the manufacturer assumes liability. Exceptions may include dealer modifications to the vehicle outside the scope of the agreement.
Coverage Disputes – These occur often and typically result in a lawsuit or out-of-court settlement to reach agreement. As mentioned above, many coverage forms are developed at the company level involving at least Product Management, Legal, Claims and Underwriting so consistency and uniformity is lacking across the industry in policy language on a variety of proprietary forms. I was once involved in a $16M case where coverage disagreements were the core of the issue. I was also involved in the past in developing language where the placement of a comma was discussed for twenty minutes!
Diminution in Value – Commonly known as DIV, this issue is also the source of many disagreements and disputes on first party losses, i.e. To the insured’s vehicle. DIV is the perceived or actual loss in market value of an auto after it has been repaired following a loss. DIV is excluded by most Commercial Auto policies and without a positive grant of coverage via a buyback, the owner of the vehicle is out of luck in most states with the exception of Georgia where by law, coverage is mandatory.
Class Action – This is where a group or “class” that have suffered the same injury or damage sues a person or business. I have been asked for my opinion on class action lawsuits as to whether coverage applies or not and of course, if no coverage, generally the case will not succeed. In one case, it was alleged that the auto dealer was negligent in charging certain document fees that did not apply. When you think of the sheer number of vehicle purchase transactions in a year or other period of time, it is not difficult to envision class action lawsuits emerging from either simple deal transactions or one honest mistake repeated over hundreds of times.
Washed Titles – When a vehicle is totaled (the cost to repair outweighs the value of the vehicle), the title is so marked or branded. Similarly, if the vehicle is damaged by being submerged in a flood, often it has to be crushed. This is partly because many of the vehicle’s electronics, electrical and sensors are housed on the floorboards. It only takes 13 to 15 inches of water to enter some vehicles depending on the model so often the car is totaled when damaged by flood. Many manufacturers require this. The title is thus branded as irreparable (junk or flooded).
Now this leaves the criminal element to do what is called “title washing” where they transfer the branded title to another state that does not have as stringent standards. That’s how vehicles damaged in hurricane Katrina end up in other states like AZ or NV with either new or re-branded titles. I’ve seen claims where the criminal took the cowling with the VIN from a junkyard and registered and insured it as an actual vehicle then later reported it stolen.
Is the dealer liable if they sold you a vehicle with a “washed title”? Does their Title Errors & Omissions coverage protect them? Were they aware the title had been washed? Title E&O generally protects the dealer for mistakes made when recording the lender, not title washing. Intentional acts are not covered. Unintentional acts can trigger coverage for at least defense costs depending on the allegation.
Odometer Tampering – This is the act of “rolling back” the odometer to lower the mileage thus making the vehicle more attractive for a sale. Does this occur? Less often today than in the past but one never knows. If the dealer intentionally tampered with the odometer, there would be no coverage for the dealer since intentional acts are not covered. If the dealer unknowingly accepted a trade where the odometer had been tampered in violation of any odometer statutes, this optional coverage could trigger on behalf of the dealer.
Summary: So we can see that it doesn’t always take a physical accident to trigger coverage . In some cases, a simple allegation is enough to at least trigger defense coverage. In others, the unwitting violation of a statute (Titles) may involve the Commercial Auto policy. Yet in others, if your claim has no merit on the policy, a Bad Faith claim can put the insurance carrier on defense.
This article discusses issues of general interest and does not give any specific legal or business advice pertaining to any specific circumstances. Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.
This article reflects the opinions of the writer based on actual insurance company experience developing and providing insurance for various industries and does not provide legal advice or provide specific advice for any particular circumstances.
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