What Is a Loaner Vehicle Agreement?
The purpose of a loaner vehicle agreement is to outline the specific terms and conditions under which a service provider, typically a dealership or repair shop, provides a temporary vehicle for use by a customer while their own vehicle is being serviced or repaired. Such agreements are crucial in the automotive industry, where it’s common for customers to be without their vehicles either for maintenance or following an accident requiring collision repair.
The loaner vehicle agreement serves multiple purposes, both for the service provider and the customer. From the service provider’s perspective, it helps protect their interests by clearly defining the duration of the loan, limiting their liability in the event of damage, and ensuring that the customer assumes responsibility for the vehicle during the loan period. Additionally , it enables service providers to maintain a professional relationship with their customers by providing a temporary solution to the inconvenience of being without a vehicle.
For the customer, the loaner vehicle agreement provides clear guidelines on the use of the temporary vehicle, including mileage limitations and restrictions on its use, ensuring that the vehicle remains in good condition during their use. It also serves as a record of the vehicle’s existing condition before the loan period, helping to prevent any disputes over damages that may have occurred during the loan.
In summary, loaner vehicle agreements are an essential aspect of the automotive service industry, providing a win-win solution for both service providers and customers. By clearly outlining the terms of use for the temporary vehicle, both parties can be assured that their interests are protected.
Key Components of a Loaner Vehicle Agreement
The essential components of a loaner vehicle agreement are as follows:
Terms of Use: Outlines the specific use of the vehicle for loaner agreements. Are they to be used only for service customers or are they also provided to potential customers? Manufacturers typically do not permit their vehicles to be used as loaners except in the context of a manufacturer’s promotional program.
Insurance Requirements: Identifies the insurance coverage to be maintained for the loaner vehicles and the legal liability between the dealership and manufacturer. Some manufacturers provide turnkey financing vehicles where they maintain all insurance and handle all claims resulting from an accident. In these situations, the loaner vehicle agreement is very simple and is usually a waiver and release of the dealership, and its employees, with some reference to the manufacturer’s policies.
Liability Clauses: Another issue that is considered in loaner vehicle agreements is whether the dealer is liable for claims that may be made against a loaner vehicle driver. This is especially important for dealers that permit their vehicles to be used by their employees because many times the employee’s personal insurance excludes work-related accidents. In this case, the dealer’s insurance would be primary and would provide the most coverage. In any event, the dealer’s insurance would be primary if the accident occurs on company time or the employee was using the vehicle for business purposes. Further, if the dealer permits its employees to use the loaner vehicles for personal reasons, then it may even be necessary to add coverage under the manager’s liability policy.
Duration of Use: It is very important to identify the period of time the vehicle will be used as a loaner vehicle. This is especially important for tax purposes because these vehicles represent income to the dealership and a manufacturer’s-provided vehicle offered at no charge is a fully taxable fringe benefit. It is important to note the duration of the use so that the dealership can allocate the personal-use portion of the cost of the benefit. This provision is also important for casualty loss provisions. In the event the vehicle is lost and must be replaced, the documents should indicate who will replace the vehicle and the time period for the replacement.
Legal Issues in Loaner Vehicle Agreements
When entering into a loaner vehicle agreement, both parties ought to carefully consider the specific laws and regulations applicable to their transaction. In many cases, the terms and conditions of the agreement may be governed by state law, local law, and/or municipal regulations. For this reason, whenever entering into a loaner vehicle agreement, both parties should consult a licensed and experienced attorney in their jurisdiction to ensure legal compliance and protection from potential liability.
Set forth below are a few potential legal considerations that both the dealer and the customer should review prior to signing a loaner vehicle agreement:
Certain jurisdictions require that dealers obtain a bond to issue loaner vehicles. Certain states and municipalities may restrict the type and conditions of insurance that must remain in effect during a loan period. Dealers may be restricted or prohibited from lending vehicles without OEM approval. Home states may limit the number of loaner vehicles that may be issued by one dealer on a daily, monthly, or annual basis. Some states require that loaners be properly inspected before being offered to customers. Insurance policies covering loaner vehicles may be subject to an audit and inspection at any time by the carrier. Certain insurance providers may only cover loaner vehicles if the customer is a registered driver and occupant under the dealer’s policy. Insurance providers continually change the terms of their policies. This means that certain provisions – such as the number of loaner vehicles that may be covered in a single contract – may vary with each renewal.
How to Draft a Clear and Effective Loaner Vehicle Agreement
Loaning out vehicles isn’t without its own set of risks. As you can probably guess, there are bound to be volunteers and employees who have their share of accidents and injuries on the road while using your vehicle. Not to mention if you have more than one employee who uses the same vehicle, it can open the door to a multitude of liability and conflicts. This is why it’s important to have a loaner vehicle agreement in place that’s specific to your company’s needs. When drafting a loan agreement for your organization, keep the following tips in mind:
Put your expectations in writing. It’s important to be specific when it comes to making your expectations known to your employees. Does the car need to be returned by a certain time? Is there a weight limit on the amount of people who can ride in it at once? What restrictions do you have for transporting children? All of this should come into play when you’re writing your policies. In addition to being specific, make sure the contract contains clear language and is simple enough to understand — if you can’t understand it easily, there’s a chance your employees won’t understand it either. Make sure the loaner vehicle agreement covers every aspect of the loan. For example, if your organization has only one vehicle available for a loan, it can be difficult to juggle how to schedule usage — especially if parents want to both pick up and drop off their children at the same time. A clear agreement can help eliminate the potential for conflict.
Detailing the parameters. In addition to details regarding the usability of the loaner vehicle itself, the agreement can also be used to detail how drivers should handle potential maintenance issues that may arise. Your employees should understand that while they should take care of the vehicle as if it were their own during their period of use, they’re also responsible for reporting any potential safety issues immediately. Other details you should consider including are how paid or unpaid leave fits into the scenario, as well as the procedure you would like them to follow if they rear-end someone while using the loaner vehicle. While accidents may be rare, you should still outline the steps you expect all employees to follow should something like this occur. Lastly, it’s important to get personalized legal advice from an attorney to ensure you create a detailed loaner vehicle agreement that reflects the unique needs of your organization.
Mistakes to Avoid in Your Loaner Vehicle Agreement
One of the most significant risks when a shopper takes a loaner vehicle is a failure on the part of the dealership to account for the vehicle while it is out on loan. Many times, particularly when during the off season or when demand for vehicles is low, the dealership may "forget" to keep the same level of care on the vehicle as it would if it was in the showroom. Avoiding the standard practice of using a vehicle log to track the location of the vehicle and those who have it is one area where dealerships fall short. In doing so, the dealership may have difficulty establishing all aspects of the loaner vehicle’s history. Another common mistake occurs when the dealership neglects to use a detailed loaner vehicle agreement. These agreements should be standardized in the dealership’s loaner program and should include space for a loaner date , mileage at time of loan, return date, return mileage, signature of the driver, and name and number of sales manager in charge of the loaner, as well as spaces for any scratch or damage notes. Forms that are filled out electronically are also acceptable, though the dealership should ensure that the software being used also serves the purpose of tracking the loaner vehicle’s history. When in doubt, a salesperson and sales manager should complete a spot inspection of the vehicle with the customer in the presence of a manager before the loaner leaves the dealership. This will help to identify pre-existing damage. Once the vehicle is returned, the dealership can compare the current condition to that of the spot inspection and determine whether the customer is liable for any damage.
Case Studies and Examples in Loaner Vehicle Agreements
One of the best examples of how loaner vehicle agreements have been effectively utilized is found in a case known as Adams v. Bullara, Inc. In this Tennessee case, a significant injury was suffered in a collision while driving a loaner vehicle after the plaintiff’s leased vehicle was undergoing repairs. The dealer, through its service manager, had the customer sign a loaner agreement which contained all of the necessary elements to be enforceable. As a result, the plaintiff was limited to recovering under the vehicle damage or collision coverage part of his personal automobile policy.
A prime example of a dealer mishandling a loaner vehicle agreement arises from a case in New Jersey known as Gigger v. Hope Auto Co. In this case, the customer was not made to read a loaner vehicle agreement and did not sign one. When the customer was seriously injured, the courts refused to enforce an indemnity clause which would have passed the responsibility for the accident onto the customer. The lesson from this case is that while proper mechanics can allow for a dealer to have an enforceable loaner vehicle agreement, "one size fits all" provisions are not appropriate. In this case, the dealer had removed a vehicle from their inventory and therefore was using it on a customer basis. The court ruled that it was an impermissible attempt to pass liability to the consumer for it being placed in an unsafe situation.
The final example comes from the case of Duce v. Riley Chevrolet, Inc., out of California. In this case, the plaintiff signed a loaner vehicle agreement and was in an accident while using the loaner vehicle. The dealer was sued based upon the accident while using the loaner vehicle. Even though the plaintiff had the ultimate responsibility, the dealer would have been also in violation of the unfair billing and collections act in California if the jury had found that they were the "owner" at the time of the accident. Since the dealer entered into a proper loaner vehicle program with an enforceable agreement, the dealer successfully defended itself.
Emerging Trends in Loaner Vehicle Agreements
The future of leased or loaner vehicle agreements appears to be headed toward an emphasis on data collection. It is not hard to imagine a day when manufacturers require dealers to keep a "black box" in their vehicles to track driving patterns. Such technology could be used to give an accurate picture of how the vehicle has been used, in addition to miles driven and routes taken. This could have ramifications for any future role for "low mileage discounts," repair credits, or extended warranty programs. The dealer, in effect, would be relieving itself of paper and record keeping. On the downside, "too much information" is never a good thing. For example, what will the manufacturer do with the information? Will they share it with law enforcement? Will they be able to charge the dealer more for the cost of this technology?
Another area to watch is the role that dealer-specific software will play . For instance, Service Lane staff will typically ask customers to sign a statement that the loaner vehicle was in a "damaged" state (no bumper, etc.). However, the dealer’s computer system may note that the work was not done until a week later, at which time, there was no longer a loaner. While on its face, this system makes sense, it could create liability for the dealer without him or her even knowing.
There may be legislation in the form of a "statute of repose" that governs the amount of time that may pass before a claim arises after a vehicle leaves a dealership. Specifically, we could see one week, six months, one year, two years, etc. A statute of repose could place an end to ambiguity for consumers and dealers trying to determine if it is more feasible to proceed through litigation, arbitration, or other dispute resolution methods.