Why False Pretense Coverage is Necessary for Garages

For car dealers across the country, something like garage insurance is already somewhat confusing and problematic. It’s an unusual sort of coverage that dealers need, but insurance agents need to be able to convey its importance. What’s more, insurance agents need to be stressing the importance of false pretense coverage, which helps to close the gaps left over by dealer physical damage policies.

Unfortunately, there are less dealers who have heard of false pretense coverage than who have heard of it, much less supplemented their current insurance with it. Here’s why your auto dealer clients need to hear more about false pretense coverage.

What is False Pretense Coverage?

This kind of policy addition is helpful in covering areas that a regular dealer physical damage policies don’t. False pretense gives the dealer two kinds of protections: scrupulous sellers and unscrupulous buyers.

The main use of false pretense coverage is to provide protection against loss for a covered auto in a garage or on a lot. Typically, it’s inexpensive to add to an existing dealers garage insurance policy. False pretense endorsements negate the false pretense exclusion. The coverage, in general, applies to loss of covered automobiles that result from the insured’s being tricked and swindled in a transaction.

Say someone takes a car for a spin from an auto dealership, testing the vehicle out, but they don’t come back. They can then turn around and sell the vehicle under a title that is not their own and cause legal issues. If the insured got anything from the transaction, say an amount of cash or trade-in car, it should be factored into figuring the loss.

When a car was stolen the insured lost the value of the car originally sold to the buyer. This is because they have to replace it with a different car, which means more out-of-pocket hits for the dealership. This highlights the rule that property damage happens when the damage is discovered.


False pretense coverage has some requirements tied to it. In order to apply under the first part of the endorsement, loss by trick or scheme, the insured must have had legal title to the covered auto before the loss. Also, the insured must make every effort to recover the covered auto when it is finally located. Insurance agents and the insured should discuss particulars about what falls under the category of efforts to recover vehicles so nothing is left up to assumption.

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