LGT's Profit Sense

Obtaining appropriate insurance coverage may be the first and only step dealerships take when it comes to their company's insurance policy.  As policies expire, deleting or shredding the old policy may be practice out of habit, and the dealership may never think of that policy timeframe or documentation again until it may be too late.  This article addresses the importance of retaining expired policies and the types of situations that dealerships would need to produce the expired policy if an unfortunate circumstance was ever to arise.

Situations for Expired Insurance Policies

Employee dishonesty, such as embezzlement, often appears in the news but a dealership may never believe this actually could happen at their company.  Despite the dealership's best intentions and trust placed in their staff, situations of employee dishonesty may come when least expected.  Most insurance coverage will cover employee dishonesty through the commercial crime or theft policy.  However, such cases of employee dishonesty can span multiple years and require the dealership to have adequate support for the proof of insurance coverage when the instance occurred.

For example, a situation where an employee is embezzling funds from a dealership is uncovered during a current year audit.  Once the employer and auditor have dug into the fraud in more detail, they determine that it spread over a total of five years.  However, the insurance policies covering the four years before the audit have since expired.  Naturally, the dealership's first action is to make a claim under their insurance policy, assuming they have coverage under the commercial crime or theft policy.  However, they may not be aware of a requirement to provide previously expired insurance policies covering a year an instance occurred in conjunction with their active policy.  Not retaining these expired insurance policies to prove coverage can potentially cause significant delays to an insurance payout or even a lack of payout.

Employment practices liability insurance (EPLI) is another policy for a dealership to consider retaining expired policies.  These types of policies protect dealerships from employee claims indicating a violation of their legal rights.  For instance, most EPLI policies cover any sexual harassment claims made by employees.  As with employee dishonesty, sexual harassment claims may come years after the incident occurred and require a dealership to produce the expired policy to prove adequate coverage during that timeframe.

Retention for Best Practices

It is best practice to retain these expired policies in either paper or digital format when it comes to occurrence-based situations that could potentially span more than a year.  Having expired insurance policies readily available that can prove adequate coverage when a claim occurred can save your dealership time and money when it comes to an insurance payout.  Additionally, this will eliminate the need to work with and rely on your insurer to pull expired documents from prior years. It is better safe than sorry when it comes to document retention.  Make this a point of emphasis at your next manager meeting to start retaining the appropriate level of documents today before a need arises.