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Preventing Liability Through a Loaner Fleet Contract

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SHOP STATS: Sharp Auto Body   Location: Island Lake, Ill.  Operator: Louie Sharp  Average Monthly Car Count: 45  Staff Size: 11  Shop Size: 5,000 sq ft; Annual Revenue;$1.2 million  

Over the course of many years, Louie Sharp has invested $50,000–$60,000 for every car in order to create a fleet of courtesy vehicles for customers at his shop, Sharp Auto Body.

But while it required a hefty investment, he also made roughly $30,000 in return each year through charging the insurance company directly for the loaner expense during the time of repair.

That loaner fleet has been a crucial component of Sharp growing from working in his four-car garage with only $500 in his toolbox, to now operating a $1.2 million shop.

But it wasn’t until Sharp’s insurance agent pointed out a gaping hole in his process that he realized that investment could come to a screeching halt should the customer get into an accident while driving one of the loaner vehicles.

The reason? He didn’t have a loaner fleet contract for customers to sign. And without that contract, his business was at risk should he be sued.

Despite most of the process happening over a period of time, Sharp hit a road bump when he realized that, in order to have a loaner fleet, the shop needed to be properly protected from liability.

In order to save the shop from a lawsuit and losing valuable revenue, Sharp honed a loaner fleet contract.

The Backstory

Sharp has had loaner vehicles for his customers for roughly 20 years, he says. The shop is located in Island Lake, Ill., which is a small town of 10,000 people. The town might be small but Sharp’s business has reached all the way to Chicago and Madison, Wis., he says.

People in the town have work commutes of up to an hour or two. And when the residents want to purchase more than groceries, they have to pass the surrounding farms and travel at least two miles away.

So, he saw a need to provide a backup vehicle for his customers who might be stuck losing their only car.

The shop started with one vehicle and now has roughly 10 available at a given time. Over time, Sharp has made his fleet with dark colored cars, like gray and blue, and uses all Chevy Malibus or four-door vehicles. All vehicles are free of charge to the customers. Sharp only asks his customers to bring the vehicle back with a full tank of gas and clean the car.     

Out of his staff, he has two part-time drivers who only transport customers’ damaged vehicles back and forth from the shop to their residences and then pick up loaner vehicles.

He says the ideal place to keep the car is right in front of the office because it provides the best visibility.


The Problem

At first, the shop did not have or see a need for a loaner fleet contract with customers, Sharp says. He didn’t even know it was a step involved in the process. But once the shop started to get more than two vehicles and build up the fleet, he says it became imperative.

Sharp was encountering customers using the car, getting traffic tickets and then billing the shop because the vehicle used in the traffic incident was his car.

Sharp went to his insurance agent and laid out his plan. And the first thing his agent told him was, “You need to make a legal contract.”

Without a contract, the shop owner could be responsible for millions of dollars if an accident happened. While shop owners are able to take time to vet their staff, they do not have time to make sure the customer is trustworthy with the vehicle.

That was 16 years ago, he says. It took Sharp a few years to fine tune and perfect the language in the contract so it can stand the test of time.


The Solution

Now, along with the help of Eric Swanson, vice president and counsel for Aleckson Insurance, the shop has formed a binding contract that has needed little to no tweaks since it was created in the early 2000s. The contract states that in case of an accident, the customer’s personal insurance company will pay for repairs.

The language in the contract illustrates in simple terms that the customer’s insurance will be the primary insurance on the vehicle, with Sharp Auto Body covering liability insurance.

There is a separate second page dedicated to some other “tricky” areas, Sharp says. After a few years of having loaner vehicles and experiencing tolls on Illinois roads rise from roughly 30 cents to $1 or $2 and a $150 fine or more, Sharp knew he needed to outline what happened if the customer was driving a loaner car and ran through a tollbooth or red light camera.

The contract language specifies that the shop will keep the customer’s credit card on file in case of a toll fine or traffic fine, call the customer if the shop receives a ticket and charge the customer’s credit card.

Credit cards are not the only information on file. The customer needs to present a driver’s license and insurance card. The shop then validates that the customer is at least 19 years of age or older and has valid, current documents. A customer needs to have full rental car coverage in order to use a loaner vehicle, Sharp says.

“If you only have liability coverage, we can’t let you use one of our loaner vehicles,” he says.

And, the team can take a look into the shop’s management system to find when a customer used a loaner vehicle and their documented information at the time. The team set up a file to store the information under the ProfitNet management system field called “rental car company.”

The only service the team does not offer a loaner car for is for detailing, Sharp says. Even if the repair is a minor mirror fix, though, the shop will offer a car.


The Aftermath

Since creating a contract, Sharp has had some pushback from customers’ personal insurance companies, who are angry that the customer’s insurance is used for a shop loaner vehicle. He will send them the contract that the customer signed. After each insurance agent reads through the contract and learns the customer’s insurance coverage is liable for the damage, Sharp has never experienced further trouble.

And at the end of the day, the service benefits not only the customer, but expands the shop’s business reach, as well. Despite being in a rural suburb of Chicago, Sharp’s shop can reach a clientele all the way through Madison, Wis., by the service of his porters picking up cars and dropping off vehicles.

Ultimately, Sharp has noticed that by providing the customer with a service that will not cause problems with their insurance company and will save them from even leaving their house, he is able to maintain a customer retention rate of roughly 80 percent.


The Takeaway

A loaner fleet not only aids the shop in closing the repair jobs on the spot, it also enables the owner to put their clientele in a safe vehicle while their car is repaired.

“It’s easy,” Sharp says. “There are a lot of greats ways to differentiate yourself in the market but this is a way to add a service for your client at little or no cost to your business.”


Expert Advice: Ins and Outs of a Loaner Fleet Contract

“Not many repairs are worth the lawsuit,” says Eric Swanson, vice president and corporate counsel for Aleckson Insurance.

To prepare for the possible legal battle, Swanson shares more tips to set up a loaner fleet and make sure the shop is legally well protected.

The standard liability coverage a shop owner should take is $1 million, Swanson says. Then, he recommends an umbrella policy. Since a loaner fleet is the most likely cause of catastrophic liability for a shop, he says he usually recommends a $2 million umbrella liability limit.

 A good loaner fleet contract will also make the customer’s liability coverage the primary insurance.

Swanson says owners also need to put thought into the type of vehicle the shop uses for the fleet. High-performance or difficult-to-drive vehicles should be avoided.

A maintenance program is also a must, he says. Proper maintenance can prevent future mishaps.

Lastly, train employees to turn away customers if they do not meet the criteria and standards you have set in your contract.


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