• You’re in business – you need insurance, there’s no getting away from it.
• The policy/policies that you choose to buy depend entirely on your particular circumstances.
• To help you make an informed choice, read this article first.

Road Risks
Liability Insurance

Road Risks

The major difference between a private motor policy and a motor trade policy is that a private policy specifies the vehicle and the driver. A motor trade policy specifies the driver only, not the vehicle, so you can drive any vehicle for motor trade purposes - and you don’t have to take out separate policies for each vehicle.

A motor trade policy is a “blanket” policy that covers a motor trader to drive any vehicle “under his custody or control for motor trade purposes.” This is vital when a motor trader has several vehicles in his care - customers’ vehicles, demonstration use (including testing of customers’ vehicles and demonstration of vehicles for sale), stock vehicles for sale (including those either on a forecourt or standing on the highway) and the motor trader’s own vehicles.

The big question is: To what extent do you want to protect your and your customers’ vehicles?

• Third Party Only (TPO) insurance is the minimum legal requirement for vehicles to be driven on public roads. TPO insurance will only cover loss, damage or injury inflicted on a third party. If you have Third Party Only insurance, your own losses, damage or injury (apart from passengers) will not be covered. A Motor Trader therefore really needs extra protection for his vehicles above this basic Third Party requirement.
   
• Third Party Fire and Theft (TPFT) is a step-up from Third Party Only. TPFT pays out in the event of loss or damage to vehicles under the motor trader’s custody or control in the event of theft or fire, as well as to third party damage or injury claims. This is particularly relevant if vehicles are stolen and “torched”. The cost of TPFT cover is nowadays not significantly different to Comprehensive cover.
   
• Comprehensive (Comp) A Comprehensive policy includes the same cover as TPO & TPFT plus accidental damage to the vehicles that the trader owns or has care of. So if a customer’s vehicle is damaged in an accident while being tested, Comprehensive cover will cover the cost of the repairs.

Liability Insurance

The Office of Fair Trading (OFT) says that by far the greatest number of consumer complaints – over 29,436 annually – relate to second hand cars. What happens when things do “go wrong”?

A motor trader may be completely innocent of the charge laid against him or his business, but a disgruntled customer can still take him to court. The “burden of proof” in such cases relies heavily on the customer bringing the complaint but the legal defence costs for the trader can be huge, even if the case is not proven. And with the growth of “no win, no fee” legal services now available, the public is being encouraged to seek compensation for almost any mistake, whether innocent or intended.

• Public Liability insurance (PL) not compulsory for motor traders, is a necessity and is not expensive. If a motor trader operates from premises or invites customers into his workshop or garage, he owes them a duty of care – his liability or obligation - to them to provide a safe environment.

It doesn’t take much imagination to see a situation where a visiting customer trips over a jack, breaks a limb and then sues. Without PL insurance, the trader and his business could suffer.

When a motor trader undertakes work for a customer, he again has an obligation to carry out that work with a duty of care. For example, if he fits a new handbrake and that handbrake fails and causes damage or injury to the customer or another third party, he could be liable. As in all negligence cases, the defendant is innocent until proven guilty. The customer must prove that the motor trader was negligent but the cost of the motor trader’s legal defence could be enormous. Servicing and Defective Workmanship liability insurance, which is normally included in a Public Liability policy, would cover the motor trader’s defence costs and any damages or costs awarded if the case is proven. Liability insurance does not cover the cost of any fines imposed in the case, eg for breaches in health and safety.

• Product Liability (PL) insurance is another benefit of a PL policy. If a mechanic fitted a faulty part to a vehicle which is proved to have caused damage or injury to a third party, he or his business could be liable. Despite the fact that the part was at fault, the contract of sale was between the trader and his customer. The customer can therefore sue the mechanic – or his employer’s business - for compensation for injury or damage caused by the faulty part. The trader’s insurers would then sue the part manufacturer to recover any losses, if the case is proven.
   
• Employer’s Liability (EL) insurance is a compulsory legal requirement if you employ someone, even if it’s only a part-timer that paid a few pounds to wash the cars. The policy ensures that your employees are protected from death, injury or disease arising out of and in the course of their employment.