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Texas Insurance Law Changes - Temporary Vehicles or Loan Cars

Ann Mullen

Ann Mullen

President at Mullen Insurance Agency, Inc. - Garland, Texas

I have been asked on more than one occasion: “Why is Mullen Agency such an avid TIADA supporter?”  My answer is always the same, “Because they work hard for the Texas Independent Auto Dealer industry in providing education and behind the scenes in working toward a fairer business atmosphere for dealers.”

An example of their success is the change in the Texas Insurance Code Chapter 1952.  If you have ever lent a car or provided a loaner vehicle and the borrower had an at-fault accident, you have likely experienced the liability headaches associated with the practice.  Even if you haven’t had personal experience with the perils involved, a knowledgeable garage insurance agent has mentioned them to you on multiple occasions.  

Some garage insurance policies exclude coverage for losses due to loaner vehicles provided by independent auto dealers and, in some cases, repair shops.  Others require the dealer to have iron-clad, acceptable, lease agreements in place to protect both the dealer and the insurance carrier.  If an insurance company discovers a dealer is routinely lending vehicles, a common response is either immediate coverage restrictive endorsements, policy cancellation or non-renewal. 

The risk to the carrier is, of course, unknown exposure.  The ‘borrower’ or ‘over-night’ test drivers’ driving record is unavailable to the insurance company and there is no guarantee that only that driver will operate the vehicle.  My experience includes too many claims where an unknown driver wrecked the car, had no effective insurance in place and the dealer is left to pick up the pieces because he still owns the car. 

Even if the borrower were driving the vehicle and had some sort of personal auto insurance, the responsible party remained unclear.  Under the non-amended insurance code, too much room was left for discussion in determining the liability coverage, i.e. primary, excess or none at all.  Add to that cloudy field the restrictive personal auto insurance policies now issued in Texas and we have a recipe for an insurance claim nightmare..

Should Independent Auto Dealers Have Loaner Cars?

Before I go any further, let me say, “I do not endorse or encourage loaner cars or over-night test drives for independent auto dealers. In the rare circumstance that may happen, the dealer should have an ironclad lease agreement to protect himself. Additionally, the dealer needs to speak with his/her agent to be sure there is a complete understanding of the risk under their specific insurance contract.”

However, it is not only loaned and/or borrowed vehicles that fall into the area of whose insurance is responsible in the event of an at-fault accident.  Routine test drives also pose a possible costly conflict when determining who pays the bill.  That is, they did until recently!

TIADA supported legislation during the 86th Legislature to assist dealers in limiting their insurance exposure when they verify that their customers have personal auto insurance before allowing them to drive dealer-owned vehicles.  With the changes in Texas Insurance Law mandated with the passage of SB 1737, the climate has been modified and improved for Texas Independent Auto Dealers.  The new provisions to the Texas Insurance Code, Chapter 1952, require that a Texas personal auto policy provide the primary liability coverage for a temporary – substitute vehicle used during the policy term.

When Does the New Insurance Law Take Effect?

Although the law is broadly effective September 1, 2019, the internal requirements are such that amending of in-force personal auto policies is not required.  Additionally, any policy issued between September 1, 2019 and December 31, 2019 may, but is not required to, include the temporary vehicle coverage until it renewal date.  For instance, an annual auto policy purchased in November, 2019, may or may not include the additional protection; when that policy is renewed in November, 2020 it must include the temporary vehicle coverage.  Every personal auto policy written and/or renewed as of January 1, 2020, must include the new protection as outlined below:

  • The named insured in the personal auto contract; and
  • Any resident relative of the insured and licensed operator residing in the household except for an individual who is not covered on a named driver policy.
  • The contract’s liability limits must be available for this required coverage.

Texas Insurance Code Ann…1952.060 includes the following language:  A temporary vehicle includes a vehicle that is loaned or provided to an insured by an automobile repair facility for the insured’s use while the insured’s vehicle is at the facility for service, repair, maintenance, or damage or to obtain an estimate and is: A. In the lawful possession of the insured or resident relative of the insured; B. Not owned by the insured, any resident relative of the insurance, or any other person residing in the insured’s household; and C. Operated by or in the possession of the insured or resident relative of the insured until the vehicle is returned to the repair facility.

A word of caution: In spite of the new law, dealers must remember every time a dealer-owned vehicle is driven, the dealer’s business is exposed to loss.  It doesn’t matter whether the dealer is the driver, an employee, a customer, a family member or an acquaintance, the car is titled to the dealership and the business always takes the bulk of the risk. 

Know your protection, verify every driver’s license and insurance coverage and be pro-active in protecting yourself and your business.  Garage policies provide coverage for uninsured customers while test-driving up to the state mandatory limits of $85,000 CSL.  It is important that you carry the liability limits necessary to protect your assets and be up-front with your insurance agent as to your business practices.

If you have specific subjects or insurance concerns you want highlighted or discussed here, please let me know at amullen@mulleninsurance.com

If you’d like additional information on insurance for your business including garage insurance or would like to request a quote for your business, please visit https://mulleninsurance.com/#Insurance-quote or give us a call at 972-681-6297.

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