In dealer-to-dealer transactions, dealerships don't need to verify proof of liability insurance before releasing vehicles, the court ruled. Photo credit: AUTOMOTIVE NEWS ILLUSTRATION
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Four years ago, Jonathan Elmore was driving his 1996 Chevrolet Cavalier to deliver newspapers when he ran a stop sign. He pulled in front of another car at an intersection, killing himself and his passenger, Craig Armstrong.
Who should be held liable? The dealership that sold the car at an auction six months earlier, Armstrong’s estate claimed.
Armstrong’s estate argued that Martin Dodge-Jeep-Chrysler in Bowling Green, Ky., should be held liable because it hadn’t demanded proof of insurance from the auction house or the used-car store that bought the vehicle, a violation of Kentucky’s requirement that dealers verify proof of insurance before handing over a vehicle. The dealership argued that the requirement didn’t apply to wholesale transactions, only retail.
And because the retitling process wasn’t properly followed, the vehicle was still titled in the dealership’s name.
But this month, the Kentucky Supreme Court ruled that dealerships don’t need to verify proof of liability insurance before releasing vehicles in dealer-to-dealer transactions such as auction sales.
The ruling came in a unanimous decision that Martin Dodge-Jeep-Chrysler and its insurer can’t be held liable in a wrongful death suit involving the Cavalier that the store sold at auction, even though the dealership still had title when the wreck occurred.
Dealers accurately assumed that wholesale transactions did not require insurance verification, Clayton Patrick, legal counsel for the Kentucky Automobile Dealers Association, told Automotive News.
If the court had ruled in favor of the estate, “a lot of dealers would have had to change their practices to comply,” Patrick said.
Guy Hughes, Martin’s lawyer, said requiring dealerships to check for insurance before releasing a vehicle to another dealership “would bring everything to a screeching halt.” For example, he noted many sellers and buyers don’t appear at auctions.
State law requires licensed dealers to carry liability insurance, Hughes added.
In November 2013, Martin took the Cavalier in trade and consigned it for sale at a dealers-only auction. DeWalt Auto Sales, a used-car store in Bowling Green, Ky., bought the car on Dec. 6 and sold it on Jan. 20, 2014, to Elmore, who provided proof of insurance. Under state law, a dealership that accepts a vehicle in trade or buys a vehicle for resale doesn’t need to obtain a title certificate but must notify the clerk of the county where it’s located of the transaction within 15 days.
Martin issued a check to the Warren County clerk for the dealer-assignment fee on Dec. 26, 2013 — after the deadline — and delivered title transfer paperwork to the auction house on Jan. 24, 2014, according to court documents.
But the original title apparently never made it from the auction house to the used-car store, and the used-car store never notified the country clerk of the sale to Elmore, according to Hughes. So the car was still titled in Martin’s name at the time of the crash.
Armstrong’s estate contended that Martin’s failure to notify the county clerk within 15 days made the store the legal owner of the Cavalier for liability purposes.
Although Martin filed its notification late to the county clerk, the delay was excusable because it occurred before the accident, the court said. The court also rejected the plaintiff’s argument that the titling mishap made Martin the vehicle’s legal owner and ruled that proof-of-insurance requirement is irrelevant in wholesale transactions.
Matthew Baker, lawyer for Armstrong’s estate, said he has asked the Kentucky Supreme Court to reconsider the case.