In connection with the decision as to which vehicle to buy, dealerships frequently allow potential purchasers to test drive a vehicle before making a purchase. Because test driven vehicles are frequently pushed beyond what would be called for in a leisurely drive, accidents during test drives are not unusual. Car dealerships and their insurance companies routinely seek to hold vehicle test drivers, customers, and other permissive users of the dealers’ vehicles liable for physical damage to the dealers’ vehicles and damages to third parties resulting from the negligent operation of the dealership vehicle. Unfortunately, the rules with regard to which coverage is primary for first-party and third-party claims are complex and depend on a nuanced comprehension of case law, statutes, and insurance policy language. They do not lend themselves to black or white answers. When the negligence of a test driver or other permissive user causes damage to the dealership vehicle, a third person, or other property, the owner’s insurance carrier may have subrogation and/or indemnity rights to recover the damages from the permissive user and/or his or her carrier. Knowing when you can and cannot subrogate is indispensable to any successful auto subrogation program.
MWL routinely handles garage liability and garagekeepers’ subrogation claims dealing particularly with bailment liability, damaged vehicles during repairs, vehicle test drivers, customers, and other permissive users of the dealers’ vehicles liable for physical damage to the dealers’ vehicles. This includes garagekeepers’ subrogation resulting from loss to a customer’s auto left in the insured’s care, custody or control, as well as garage liability subrogation involving garage operations other than covered autos, garage operations, and damage to covered autos.
Whether a dealership can subrogate against permissive users for damage they cause to a dealership vehicle has not been directly ruled on in many states. That means that the firm which has the most experience it can draw from other states which have made such a determination usually win. The “majority” rule in the jurisdictions which have ruled on this issue states that the owner of a car who has allowed a permissive user to operate his vehicle, can subrogate for property damage caused by the permissive user’s negligence, provided that the permissive user does not qualify as an “insured” under the collision coverage of the dealership’s policy. In determining which policy is primary, both the dealership’s policy and the customer’s/test driver’s policy must be carefully reviewed. There is no longer a standard garage policy, so the terms of the dealership policy must be examined carefully.