1. Forms
2. CA
3. CA-25-03

What the Form Is

The CA 25 03 False Pretense Coverage endorsement is designed for use with the Auto Dealers Coverage Form (CA 00 25). Its primary purpose is to provide coverage for losses that occur when an auto dealer is tricked into voluntarily parting with a covered auto or acquires an auto from someone who lacks legal title. Standard auto dealer policies often exclude such losses, making this endorsement crucial for dealerships.

Classes of Business It Applies To

This endorsement is specifically tailored for auto dealerships. Real-world examples where this coverage would apply include:

• A customer purchases a vehicle using a fraudulent check or a stolen identity, and the dealer is unable to recover the vehicle or the funds.
• An individual trades in a vehicle that they do not legally own (e.g., a stolen vehicle or one with an undisclosed lien), and the dealer later loses the vehicle when the rightful owner or lienholder makes a claim.
• A dealer is deceived into releasing a vehicle to someone falsely claiming to represent a legitimate buyer or financial institution.

Special Considerations

Important points to note about the CA 25 03 endorsement include:

• Limit of Coverage: The endorsement typically provides a specific limit of coverage, often a base amount like $25,000, which can usually be increased for an additional premium.
• Exclusions: While it provides coverage for false pretense, there may still be exclusions. For instance, some versions might exclude losses if a bank or other drawee fails to make payment.
• Insured's Duties: The insured (the auto dealer) may be required to take reasonable steps following a loss, such as reporting the incident to the police and attempting to secure a warrant.
• Consignment Vehicles: Some versions of the endorsement may extend coverage to vehicles held on consignment.

Key Information for Agents and Underwriters

Agents and underwriters should consider the following when dealing with the CA 25 03 endorsement:

• Risk Assessment: The risk of false pretense loss can vary based on the dealership's location, sales volume, types of vehicles sold (high-value vehicles may present a greater risk), and internal controls for verifying customer identity and payment methods.
• Limit Adequacy: It's crucial to discuss appropriate coverage limits with the dealership, considering the average and maximum values of vehicles they handle. The standard limit may be insufficient for dealers selling high-end automobiles.
• Underwriting Guidelines: Underwriters will likely review the dealership's procedures for preventing fraud, such as employee training, verification of customer information, and protocols for handling suspicious transactions. A poor loss history related to false pretense may impact eligibility or pricing.
• Premium Impact: The premium for this endorsement will depend on the selected limit of coverage and the underwriter's assessment of the risk.
• Clarifying Coverage: Agents should ensure that the dealership understands what constitutes a 'trick, scheme, or false pretense' under the terms of the endorsement and any specific conditions or exclusions that apply.