05
November
2025

Could This Happen to You?

Auto dealers face risks like repair negligence, loaner vehicle liability, and repossession issues. Proper documentation, insurance coverage, and risk management are essential.

Could This Happen to You?

Over the years, I have had some pretty serious “bet the company” lawsuits brought to my attention. I am sharing them here because each of them is a “real life” example of the daily risks faced by this audience, some of which aren’t very obvious. These aren’t necessarily “compliance” focused, but do a good job of illustrating how important it is to identify risks and manage your business accordingly. Every person reading this article should ask themselves whether they're vulnerable to these types of risks.

A Repair Nightmare
In the first case, a used car dealer did some repairs on a vehicle it had recently sold and financed. Several months later, that vehicle was involved in a catastrophic collision that resulted in severe injuries to the driver and others. The used car dealer was sued based on the theory that the repairs were negligently performed and directly resulted in the accident.

This fact pattern can happen to any mechanic or repair facility. It’s the risk that’s taken in providing that kind of service. So what can be done to protect the business? First, how good a job is the business doing in keeping track of the specific services it provides and every repair item being performed on the vehicle? How thorough are the notes on a test drive done after repair? What documentation exists? You can be assured that the plaintiff’s lawyer will be picking apart every note in the system, each part that was used, and will also want to depose the mechanic, so the level of detail is going to be scrutinized.

Secondly, this is the type of case that emphasizes the importance of having adequate liability insurance in place. Hopefully, the coverage is sufficient to provide the dealer/repair facility with a legal defense and also cover any damages if the plaintiff were to prevail. I can’t emphasize enough how important it is to conduct a regular assessment of your insurance coverage and make sure it is sufficient to cover catastrophic events such as this.

Providing a “Loaner” Vehicle
The next matter involves a dealer that provided a “loaner vehicle” to a customer that brought a vehicle in for repairs under a limited warranty. While the company doesn’t usually provide such a “loaner”, it did in this case because repair parts were on back-order. The customer took the “loaner” and then allowed a child (of legal age) to drive it. That child had a collision that resulted in serious injuries and a fatality.

The plaintiff’s lawyer, looking for any pocket it could find to cover the claim, sued the dealer as the owner of the “loaner vehicle”. Fortunately for this dealer, it had a strong process when providing a “loaner”, including verifying that the customer carried its own liability and property damage insurance and having the customer sign a document stating that the customer would be the only one operating that vehicle. That document may very well be the difference between the dealer being able to get out of the case versus being stuck in a legal quagmire.

Here again, the subject of sufficient insurance coverage is important to consider. It’s imperative that each business understand its insurance coverage and what acts are covered and are either not covered or excluded from coverage. I’ve seen instances where a dealer took on unacceptable risk because it was operating on the incorrect assumption that events would be covered under a certain policy. I encourage my clients to sit with their insurance agent once a year and discuss various circumstances that can present risk and identify whether current insurance covers such an event. It’s vital that the insurance agent fully understands the operations of the business. This is especially important for dealers that also have a related finance company, because the type of risks that may present themselves can be very different.

Repossession Gone Wrong
The last case I’ll mention involved an unfortunate repossession. During the repossession agent’s towing of the vehicle, it had a collision with another driver that resulted in serious injuries to that driver. Again, the plaintiff’s lawyer was looking for deep pockets and sued the creditor along with the repossession company.

As a best practice, a creditor should have a contract with every repossession agent that requires the agent to make certain representations and warranties, requires adequate insurance, and contains clear indemnity provisions. In the case brought to my attention, though, the agreement didn’t say much more than “you’ll repossess and we’ll pay you”. Also, although the agent had started out with sufficient coverage, over time it dropped its coverage amount to where it’s now likely to be insufficient to cover the entire claim and you can bet that the plaintiff’s lawyer will be looking to collect from the creditor’s company.

Conclusions
I don’t share these stories as a scare tactic or to sound alarmist. I do so because these are the kinds of risks that prudent business owners will prepare for ahead of time. It’s important to look at all aspects of your business and identify both likely and even unlikely scenarios and question whether there are proper controls and protections in place. Taking that proactive approach will not only serve to better protect your business, it will help you sleep at night.

As seen in our Magazine

Categories: Dealer News Stories

Steve Levine

Steve Levine

Steve Levine is an auto finance lawyer with over 30 years of experience protecting car dealers and finance companies. He is an owner and Chief Legal and Compliance Officer of Ignite Consulting Partners, which offers guidance on compliance, operations and best practices. He has also published two books, Winning the Fight: A Guide to Protect Car Dealers and Counterpunch: Compliance Strategies for Car Dealers which are both available on Amazon. Or contact info@IgniteCP.com to learn more. Please follow Steve on X @LawyerLevine for compliance and industry related content.

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