Whose insurance pays when you crash during a test drive?

Gina Roberts-Grey
Whether you’re shopping for a new or used car, chances are you’re going to take a test drive. Even though most drivers are on their best behavior behind the wheel during a test drive, accidents still happen. And accidents mean auto insurance claims. But whose insurance will pay -- yours or the car dealer's?
When a customer test drives a vehicle, the dealer’s insurance typically covers crash damage, consumer advocate S.E. Day says. Vehicles are covered under a dealership’s general liability policy, which typically states the vehicle must be driven under certain conditions like test drives for customers.
Day says a dealer must ask for and photocopy a current, valid driver’s license for anyone taking a test drive. If a dealer fails to do that, its insurer may not cover a damaged test-drive car.
“A new car isn’t on a car insurance policy unless the dealer titles the vehicle in the name of the dealership as the registered owner on record with the state," Day says.
States require dealers to carry a certain amount of liability and property insurance coverage in order to get a business license. For instance, New Jersey requires a certificate of insurance reflecting liability coverage for $100,000 to $250,000 for bodily injury and $25,000 for property damage.
“The dealer probably won’t go after the test driver's insurance company because the dealer allowed the person to test drive the vehicle for sales purposes,” Day says.
Dan Weedin, an insurance and risk management consultant, says the auto dealer’s insurance is “on the hook” for damage to the test-drive car, as well as property damage caused by that car and damage to other cars.
However, if the test driver shows negligence, such as running a red light, the driver's auto insurer may come into play, Weedin says. If a claim is paid on the driver's insurance, that person's insurance rates likely would go up.
“Insurability could also be in jeopardy, because the at-fault accident would go on the driver’s record and be there for at least three years," Weedin says. "If they were to get in a subsequent accident, the accident could rear its ugly head in both rates and insurability."
Still, the auto dealer's insurance typically takes priority over the driver's insurance.
Fortunately, no one's insurance was used when K.S. Brooks of Spokane, Wash., crashed the car she was test driving in 2005.
“The front seats had been removed from the car, and I was sitting on a milk crate because they wanted to make sure I wanted the car before they put the new seats in," Brooks recalls. "I took a sharp turn and the milk crate fell over, and so did I, losing control of the car.
"The whole thing was quite comical but embarrassing and somewhat stressful at the same time. Luckily, the damage was minor. The worst of it was a dent in the passenger door where the car hit a very large rock as it went into a snow bank.”
The dealer repaired damage to the car on its own before she drove it off the lot.

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