The Importance of Keeping Your Insurance Policies

You should keep all former garage policies with your liability, property, comprehensive and other coverages. Plaintiffs’ attorneys are increasingly utilizing the legal doctrine of equitable tolling to circumvent statutes of limitations that might otherwise bar legal actions against dealers. This doctrine can be used by a court to allow the presentation of a stale claim if the wrongdoing of the defendant or other extraordinary circumstances prevented a plaintiff from knowing about the claim earlier. This “discovery rule” has been legislatively enacted by many states with respect to claims for fraud by providing that the statute of limitations does not commence until the plaintiff discovered or should have discovered that he or she has a claim.

The possibility of becoming a defendant in a case involving a transaction that is many years old is the main reason for keeping all former insurance policies. Using equitable tolling, a plaintiff may allege that the statute of limitations did not begin to accrue on a claim that is well beyond the statute of limitations until he or she learned of the dealership’s wrongdoing. If the court rules that equitable tolling applies, the statute of limitations will not bar the case. The dealer will be forced to defend the case that arose years before. And this can become very serious when it is a class action that may include thousands of customer claims for five, ten or even more years.

Under most garage policies, the insurance company owes the dealer a duty to defend and perhaps indemnify against a covered claim that arose during its coverage period. Even though the claim is asserted years later, the dealer can request coverage for defense and indemnification. That request, if made expeditiously after knowledge of the existence of the new complaint, will probably implicate the coverage of the old policy. And if it is a class action for claims that span a number of years, each policy during each year during could be involved.

A dealer may have the opportunity to seek separate defense coverage and indemnification for each policy year. That is important where there are strict limits under each policy of the amount that will be paid out for defense coverage and indemnification. In essence, the dealer can “stack” the coverage to take advantage of each year’s coverage limit for defense and/or indemnification in a class action lawsuit.

You are not likely to be in a position to put in a claim for coverage if you don’t recall who your insurer was when you sold the car and you don’t have the policy. As an initial matter, you must know who the insurance company was during a period covered by the lawsuit and your policy information so that you can make a claim. If the claim is denied because the insurance company claims it is stale or for some other reason, then you will need your policy so that you can consult with your attorney to determine whether the insurance company is acting properly within its scope of duties.

So what does this mean to you as a dealer? 

Get a complete insurance policy every time. When you sign up for a new policy, or when you renew, you generally won’t receive the full, new policy for months. Make sure that you follow-up and get your policy.

Keep your insurance policies. Have a digital copy of each policy made and save the hard copy and the digital copy where you keep your important organic documents. 

When you receive a claim, decide what insurance may apply. Don’t just assume if you get a claim today that your present insurance carrier is the one to put on notice. If the claim arose from actions several years ago, the insurance carrier at that time is probably the one whose policy is implicated. When you get a claim, make sure you put the appropriate carrier on notice.

Err on the side of caution. If you make a claim improperly, the insurance company will just deny it so there is no downside to submitting a claim to a former carrier who may not be liable for coverage. But if you fail to make a claim that you should have made, you may face the defense by the insurance company that it was prejudiced by your failure to promptly report a claim, possibly justifying a refusal to provide coverage. Therefore, if you are unsure who should be put on notice of a claim, put all potentially liable prior insurance carriers on notice for all coverage periods alleged in the lawsuit. That is especially the case in a class action where the class period may extend for a substantial duration.