By Michael G. Charapp
Charapp & Weiss LLP
Dealers assume they are in the clear from personal injury or wrongful death suits when the statute of limitations runs out. However, when the statute begins to run is sometimes complicated, and that can lead to claims years later.
Take, for example, mesothelioma lawsuits. Many years ago, brake linings, gaskets, clutches, and other replacement parts contained asbestos. Technicians from as long ago as the ‘60s have been filing claims for asbestos-related mesothelioma. The lawsuits have included franchised dealers where the technicians never even worked under the theory that the dealers sold replacement parts that contributed to the plaintiff’s illness. Plaintiff attorneys will argue that the statute of limitations does not begin to run until the plaintiff is diagnosed or the plaintiff dies. As a result, a dealer may face a claim that is decades old.
In that circumstance, the dealer will want protection from the lawsuit, and that means indemnification. For a new car dealer, indemnification can come from two sources – its franchisor and its insurance company.
Franchisor Indemnification
With a franchisor, the indemnification is based on the dealer sales and service agreement. The agreement provides for coverage by the franchisor for a lawsuit alleging personal or property damages related to the products supplied by the franchisor. The indemnification provision of General Motors in its DSSA is typical:
17.4 Indemnification by General Motors
General Motors will assume the defense of Dealer and indemnify Dealer against any judgment for monetary damages or rescission of contract, less any offset recovered by Dealer, in any lawsuit naming Dealer as a defendant relating to any Product that has not been altered when the lawsuit concerns:
17.4.1 Breach of the General Motors warranty related to the Product, bodily injury or property damage claimed to have been caused solely by a defect in the design, manufacture or assembly of a Product by General Motors (other than a defect which should have been detected by Dealer in a reasonable inspection of the Product);
17.4.2 Failure of the Product to conform to the description set forth in advertisements or product brochures distributed by General Motors because of changes in standard equipment or material component parts, unless Dealer received notice of the changes prior to retail delivery of the affected Product by Dealer; or
17.4.3 Any substantial damage to a Product purchased by Dealer from General Motors which has been repaired by General Motors, unless Dealer has been notified of the repair prior to retail delivery of the affected Product.
If General Motors reasonably concludes that allegations other than those set forth in 17.4.1, 17.4.2 or 17.4.3 above are being pursued in the lawsuit, General Motors shall have the right to decline to accept the defense or indemnify Dealer or, after accepting the defense, to transfer the defense back to Dealer and withdraw its agreement to indemnify Dealer.
Procedures for requesting indemnification, administrative details and limitations are contained in the Service Policies and Procedures Manual under "Indemnification." The obligations assumed by General Motors are limited to those specifically described in this Article and in the Service Policies and Procedures Manual and are conditioned upon compliance by Dealer with the procedures described in the Manual. This Article shall not affect any right either party may have to seek indemnification or contribution under any other contract or by law and such rights are hereby expressly preserved.
If you receive a demand letter indicating an intention to sue, or you are served with a lawsuit relating to the products manufactured or distributed by your franchisor, seek indemnification immediately. How do you do that? Your franchisor’s process and perhaps even a form should be in its service manual, either in hard copy or online. Follow the instructions.
If you cannot find instructions, send a letter to your franchisor including as much detail as possible and attaching any letters, notices, and lawsuits. Specifically request indemnification.
There are two situations about which you should be conscious on indemnification.
- If you sell your dealership, be careful with any release of the franchisor that you sign. Often, a franchisor will require a selling dealer to sign a release. Make sure the release preserves your indemnification rights under your DSSA. Your company can be sued even if it is no longer a dealer. Do not surrender your protections.
- If you request indemnification, do not assume it will be granted quickly. Note the date you are served with the lawsuit. That will start the clock on your response. Notify your company attorney. It is possible your attorney will have to file a response to protect your company while the franchisor is reviewing your request for indemnification. Or you can seek indemnification from your insurance company.
Insurance Company Indemnification
Your insurance carrier may have to provide coverage and a defense, or just a defense, for a claim that may also be covered by franchisor indemnification. If so, you may want to notify your insurance company to protect your company while you await a franchisor decision.
Because a claim may result from events that are many years old, keep all former garage policies containing your liability, property, comprehensive and other coverages. 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 new complaint, will probably implicate the coverage of the old policy.
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. 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 the circumstances leading to the claim took place 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 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 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, 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 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.