A South Carolina dealership will try again to force its insurance companies to defend it in a 2007 lawsuit alleging that it and hundreds of other dealerships in the state collected illegal administrative fees.
U.S. District Judge Margaret Seymour ruled that policies issued to Fred Caldwell Chevrolet in Clover, S.C., do not cover the store's defense and indemnification expenses because the lawsuit accuses it of intentional wrongdoing.
Adam Neil, a lawyer in Columbia, S.C., who represents Fred Caldwell Chevrolet in the insurance dispute, said he intends to ask Seymour to reconsider her ruling, adding that it "would potentially have implications for other dealerships and their insurers."
Fred Caldwell Chevrolet is among more than 200 dealerships across the state named in the 2007 group lawsuit. The plaintiffs claim that the dealerships conspired to deceive customers through a pattern of wrongful activities centered on the administrative fees.
For example, the complaint alleged that the stores misleadingly portrayed the fees as mandatory and deliberately placed them on a separate line on the invoices with legitimate mandatory fees for taxes, tags and title. It also sought damages for civil conspiracy, refunds and an injunction.
Bradford Martin, the Greenville, S.C., lawyer representing Fred Caldwell Chevrolet in the group suit, said the plaintiffs lost the one case that already went to trial. Six other dealerships are awaiting trials or arbitration, he said, and the rest -- including claims against Fred Caldwell Chevrolet -- have been stayed.
Fred Caldwell Chevrolet had asked Graphic Arts Mutual Insurance Co. and Utica Mutual Insurance Co. to defend and indemnify it. Graphic Arts Mutual was its general liability insurer under a policy that included auto dealers' errors and omissions liability (ADEOL) coverage. Its affiliated company, Utica Mutual, issued the umbrella policy.
The insurers denied coverage and asked for a court ruling that they weren't obligated to cover the claim.
In siding with the insurers, Seymour said the ADEOL endorsement covers negligence for failing to comply with truth in lending, financing disclosure and lease disclosure laws but that the group suit didn't allege lending or leasing disclosure violations.
Seymour also rejected Fred Caldwell's argument that the sale and financing of vehicles are parts of one ongoing transaction within the ADEOL provision.
In addition, the policies exclude "any dishonest, fraudulent, criminal or intentional act," she said, and that's what the plaintiffs have charged the dealership with.
Richmond, Va., attorney Elizabeth Skilling, who represents the insurers, said: "The court said the [ADEOL] endorsement means what it says. It's not intended as a catch-all."
She also said that "a fair number" of the dealers who were sued "probably received denials" of coverage as well, adding: "It's a favorable ruling for insurance companies who issue this type of endorsement."
She and dealership lawyers Neil and Martin all said they are unaware of similar insurance litigation involving any other dealerships.