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Auto InsuranceFor a lot of my car dealership owners, driving a demo is a part of their life and for some, a part of their wife's life as well.

A demo would be described as a vehicle out of the inventory that is driven on a day to day basis by an owner (or wife of), GM, controller, etc.

Now, have you heard the saying "It's what you don't know that can hurt you the most?" Well, this may be one of those times.

When driving a demo, most rely upon that demo as their only mode of transportation and don't have another personal auto or a personal auto policy (PAP).

They drive the demo as if it's not only their business vehicle, but as if it were their personal auto as well.

No problem, right? I mean, it's known that this is your only vehicle; therefore, you use it like you would use any vehicle that you normally drive — including taking it to the store, picking your kids up, driving it on vacation, etc.

Would it concern you if you found out that while driving the demo for personal use, you're not covered? Maybe "shock" would be a better description.

Well, stand by.

You see, in the unendorsed (that means, unchanged) ISO Garage Coverage Form (this is the insurance form most used among insurers), the insuring agreement states the insurer will "pay all sums" an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which the insurance applies, caused by an "accident" and resulting from "garage operations" involving the ownership, maintenance or use of covered "autos."

"Garage Operations" is defined by the policy as the "ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations." Additionally, "Garage operations" includes the ownership, maintenance or use of the "autos" indicated in Section I of this coverage form as covered "autos." "Garage operations" also include all operations necessary or incidental to a garage business. The question to be asked then is: does "use" of an "auto"alone impart coverage and, if not, what constitutes operations necessary or incidental to a garage business?

In many states, courts adhere to the strict interpretation that all of the sentences in the definition of "garage operations" are used conjunctively. Therefore any "use" must be for operations "necessary or incidental" to the business. If personal use is not considered necessary or incidental to a garage business, then no coverage exists. New York is a prime example. See, e.g., Lancer Ins. Co. v. Marine Motor Sales, Inc., 2010 N.Y. Misc. LEXIS 2532 (Sup. Ct., Queens Co. 2010). There are other decisions in NY to same effect. Assuming all other criteria are met for coverage, if a dealer auto in NY is being used for purely personal use at the time of an accident (such as going to dinner after hours or picking up children from school) it is NOT a covered loss in the view of many courts there. Courts in other states may take a broader approach to the determination, but coverage for personal use is not guaranteed in any state under an unendorsed ISO Garage policy. And there are no ISO endorsements available to add back that coverage.

OK, so how about our home state of Texas? How do the courts interpret coverage here?

There is at least one good case in point in Texas suggesting that purely personal use is not covered under a garage policy. It involved a much older form of policy, however. In Continental Ins. Co. v. Colston, 463 S.W.2d 461 (Tex. Civ. App. 1971), the court reversed a post-trial judgment and rendered a new judgment in favor of an insurance company, finding that there was no evidence supporting the jury's finding that the use of the subject automobile was necessary or incidental to garage operations. Specifically, the court stated, "[W]e are convinced that Thompson's use of the Vernor car on the occasion in question was purely personal, not even incidental to or of any possible benefit to Ken Moore Ford Sales, Inc., the 'named insured.' In particular, we are convinced that his use of the Vernor car was not shown to have been 'operations' of the business of his employer or 'operations incidental thereto.'" Colston, 463 S.W.2d at 464-465. Because the court found that the garage policy in question did not contemplate such "purely personal" use, the court reversed the judgment and rendered judgment in favor of the insurer. Id.

Now, don't jump out of the building just yet, as I've experienced that most underwriters and adjusters aren't aware of this potential gap and think that personal use is covered. Some assume that if the policy shows symbol 1 which is defined as providing liability for "all autos," that somehow that means "all use" but that's not what the way the policy reads.

In summary, if you want to be sure your covered, obtain a personal insurance policy that provides coverage on any vehicle you drive for personal use.

Southwest Commercial Insurance offers a wide range of commercial auto insurance policies across Texas. Call us at (512) 771-6091 for a free commercial auto insurance quote.

Thanks to the folks at V3 Insurance for providing some of this content.
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