A dealership's garage liability policy doesn't cover an accident caused by a service customer driving a loaner vehicle, the Louisiana Court of Appeal ruled, leaving the customer's auto liability insurer responsible for defending a crash victim's lawsuit.
The case highlights the need for dealerships to "always check that customers using/borrowing their vehicles have insurance of their own in place," said Glen Mercer, a lawyer for Southern Chevrolet-Cadillac's insurer, Federated Mutual Insurance Co.
According to court documents, customer Cynthia Price was driving a loaner when she ran a stop sign and rear-ended a vehicle driven by Donald Ardoin in 2014. Ardoin sued Price and her insurer, State Farm Mutual Automobile Insurance Co., but not the dealership, which is in Alexandria, La. Southern's garage policy provided $500,000 worth of coverage, while Price's policy provided only the minimum $15,000 required by Louisiana law.
After State Farm rejected Ardoin's offer to settle for its policy limit, he sought bad faith penalties, exposing Price to higher liability. State Farm then sued to compel Southern's insurer, Federated Mutual, to cover Price.
The appellate court ruled that Federated isn't liable because its garage policy covers only customers who lack other insurance or whose other insurance is below the state's compulsory minimum.
"State Farm and Price sued Federated in an effort to avoid the bad-faith claim by finding coverage under the dealership's policy," Mercer said. "They have been unsuccessful."
Ardoin's lawyer, Benjamin Lowe, of Baton Rouge, said that unless there is a further appeal, "we will drive this matter towards trial."
A State Farm spokesman said: "We respectfully disagree with the court's decision and are currently evaluating next steps."