Originally published in Canadian Auto World Magazine. Republished with permission.
You’re looking to buy a car – perhaps it’s your very first. Like most Canadians, you’ll probably follow best practices for buying a car: do research on what type of vehicle is the best option for you, including completing a test drive to get a feel for how it handles on the road.
But what happens if you get into a fender-bender while on a test drive? Or worse, what if someone is seriously injured as a result of the collision? Who pays for any damage to the vehicle or to people who are injured? What if you don’t even have auto insurance yet?
Dealership Insurance Coverage
On the face of it, a registered commercial dealer bears most, if not all, of the responsibility for physical damage done to one of their vehicles during a test drive. As the owner, the dealer is the party with an interest in the vehicle, not the test driver. As the Insurance Bureau of Canada has said: lend someone your car and you’re lending them your insurance too. Therefore, the dealer’s insurance would be responsible for the cost of any physical damage to the vehicle caused if the test driver is involved in an accident.
This test driving insurance is part of a basket of policies called the OAP 4 Ontario Garage Automobile Policy [ pdf ], approved by the Superintendent of Financial Services for use as the standard Garage Automobile Policy on or after June 1, 2016. This Policy provides coverage for many parts of a dealership’s business and operations - including dealer vehicles and customers’ vehicles while being serviced. Paying premiums for this insurance is part of their cost of doing business.
A Statutory Condition of garage policies is that the insured shall not “permit any other person to drive or operate the automobile unless the Insured or other person is authorized by law to drive or operate it.” According to a research briefing on test drives and automobile dealers by Marsh, only about 80 per cent of dealerships require a prospective customer to show they have a valid licence. The absence of a valid licence usually means no insurance coverage.
Ontario’s Statutory Accident Benefits Schedule (SABS)
Similarly, dealerships must have insurance coverage if a driver (or another person involved in an accident with the vehicle) is injured during a test drive, even if that driver is at fault. However, if the test driver had their own auto policy, Accident Benefits would be paid by that insurer. If the test driver was uninsured at the time of the accident, the dealership’s insurance would pay out any such claims.
The Cost of Doing Business: A Recent Example
The owner of a GTA dealership told us he recently had to deal with the aftermath of an accident during a test drive. The test driver, with an employee of the dealership in the car, ran a stop sign and was sideswiped by another car. Fortunately, the only damage was to the vehicles.
Although the dealer “appealed to the test driver’s conscience and asked him to pay out of pocket or draw on his own insurance to cover these damages” since he was clearly at fault, the test driver refused. The dealer consulted legal representation about whether he could sue the test driver, but was advised that without evidence (like a waiver) that the driver had knowingly assumed liability for any damage he caused, a lawsuit would not end favourably.
What About Those Liability Waivers?
Some dealerships have tried to minimize their risk and mitigate their responsibility by asking prospective test drivers to sign waivers acknowledging that the test driver accepts responsibility for any damage that occurs during a test drive. The owners of other dealerships, like the one we spoke to, suggested these waivers often dissuade people from taking a test drive, and therefore result in fewer sales. In short, the potential to recoup damages in the rare event of an accident doesn’t outweigh lost sales opportunities.
Test drive waivers are not common in Ontario at the moment. Without an industry standard in use, each dealership that asks test drivers to sign waivers will likely provide documents with different wording.
Courts sometimes find waivers valid and enforceable for things like recreational activities. Would test driving qualify as such an activity? Any challenge to their validity would require analysis of the particular wording a dealership used and the circumstances surrounding its signing. Should you sign on the dotted line? As a general practice, you should not sign a liability waiver unless you are comfortable assuming the risks involved with an activity, and if you do sign one, you should carefully read and understand what you are signing.
Garage insurance can be a big expense for automobile dealerships, and if dealers are able to reduce their need to make claims, it can keep their costs down. These dealerships might be able to keep the costs of their vehicles down as a result - just make sure that what you might save on a new vehicle purchase doesn’t outweigh the damages you may assume by waiving a dealer’s liability.
And above all, drive safely!