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Revisiting Best Practices to Avoid Prior Undisclosed Accident Damage Claims

Robert Ebin /
KPA F&I

The past year has been a time like no other in the automotive world. Dealers have been handling novel issues on what seems to be a daily basis.  Throughout these uncertain times, however, dealers have also been combating an age-old foe in the industry: customer complaints regarding purported undisclosed prior accident damage. Believe it or not, there is still a constant influx of calls we receive on the Hotline about this very topic. Accordingly, in 2021, like in years prior, minimizing complaints about undisclosed prior damage is still one of the most relevant and important subjects.

If you are a dealer, you know that prior undisclosed damage claims seem to start the same way. An angry customer who bought a used car from you two or three years ago just tried trading in the vehicle to another dealership and received a low-ball offer because the vehicle’s current Carfax report shows prior accident history. The customer claims that this is the first he has heard about the previous accident. In looking back at his deal file, you notice that the vehicle history report your dealership ran on the vehicle does not mention the prior accident. You then run a current report, which confirms the customer’s assertion of reported prior accident history. Despite your best efforts to satisfy the customer, a few days later, your dealership receives a demand letter from a local law firm representing the customer. What can be done to help prevent this from happening?

Information-Gathering Procedures

The first line of defense for dealers is to have air-tight procedures to gather as much information as possible about a vehicle before offering it for sale to the public. Much of this occurs during vehicle inspections and upon obtaining vehicle history reports. For a full discussion about taking a vehicle in on trade, please read the following article: “What’s Hot on the Hotline—Taking Vehicles In On Trade.”

Recall that California requires that a dealer retail a “safe” vehicle, or in other words, a vehicle that meets the requirements of Division 12 of the Vehicle Code. [See Vehicle Code § 24007]. Thus, dealers perform a used vehicle safety inspection to determine whether a vehicle meets these requirements. However, this safety inspection also provides an opportunity to thoroughly inspect the vehicle for evidence of prior damage.  Many dealers I have spoken to take this opportunity to paint gauge or visually inspect the vehicle’s exterior for signs of body filler (i.e., Bondo) and/or repainting, which are tell-tale signs of prior damage.

Regarding vehicle history reports, as you know, they provide detailed information concerning a vehicle’s history, including prior accidents/damage. It is a best practice for your dealer to always run a vehicle history report during the process of taking a vehicle into inventory.  (Remember, you are also required to run a National Motor Vehicle Title Information System [NMVTIS] report pursuant to California Vehicle Code section 11713.26.) However, a step that we highly recommend, and one that many dealers miss, is to run an additional vehicle history report on the date of the sale. Vehicle history report vendors like Carfax and AutoCheck constantly update their databases, and, occasionally, the data these companies have about a vehicle is not up to date when you run the initial vehicle history report. Sometimes it can take months before accident damage is added to a vehicle’s history, which frequently leads to situations where accident history will not show up on the initial report but will show up on a report ran a month or two later. Especially for vehicles that have been sitting in inventory for a while, running that second vehicle history report is crucial for the disclosure process and can save future headaches.

Staff Communication Training

Communication Between Sales Department and Customers

When buying a used vehicle, many customers will ask, “Has this vehicle been in an accident?” This is a bit of a loaded question because, firstly, what is even considered an accident? Does backing up into a pole in a parking lot count? How about if that same incident is reported to the police or insurance? Also, inspecting a vehicle can only tell you so much, and depending on the type and location of repaired damage, it might be impossible to discover the prior damage during an inspection without disassembling the vehicle, which isn’t going to happen during reconditioning. Therefore, there is no way to say with certainty that a used car has never been in an accident.

Accordingly, we recommend that all employees who interact with customers be trained to respond to the question by saying, “I don’t know.” Salespeople should also avoid making statements such as, “The car is in pristine condition,” “It’s a gem,” “It’s as good as new,” or “It’s like new.” In my experience, a well-trained sales staff who knows how to address this question properly can prevent many customer complaints. 

Communication Between the Sales and Service Departments

There are times, however, where service department personnel do detect prior damage during a vehicle inspection. I have often come across this situation where the prior damage has been noted on the repair order, yet this information never makes it to the sales department before the vehicle is sold.  Dealer staff must be trained to keep open lines of communication between the service and sales departments to prevent this from happening.  Remember, even though many people in the automotive industry see service and sales as two separate operations, they are normally considered the same entity by the general public (and in court). Therefore, the sales department will likely be held accountable for any information that the service department knows about a vehicle, regardless of whether the sales department has actual knowledge of that information.

Documentation

Having good documentation is always crucial for dealers. After dealer personnel run a vehicle history report on the date of sale, always have the customer sign it to evidence that the customer reviewed it and received a copy.  If the report shows that the vehicle has been in an accident or sustained damage, assuming the dealer still chooses to retail the vehicle, have the customer initial next to the statement of prior accident/damage in addition to signing the report (many dealers also opt to highlight this statement on the report). 

If the vehicle history report is clean (i.e., there is no statement of prior accident/damage), but the dealership nevertheless knows the vehicle sustained prior material damage, you should disclose the damage on a damage disclosure form. We recommend using a Material Damage Disclosure- Used Vehicle form (LAW Form No. LAWCA-DMGDSCL-U, available through Reynolds and Reynolds). 

Finally, when a vehicle history report is provided to a customer, we recommend having documentation showing that the customer acknowledges a third-party service provider provided the report and the dealership is not responsible for any errors in it. The customer should also expressly acknowledge that no dealership employee promised that the vehicle has not been in an accident or sustained prior damage and that information regarding such damage can be added to the vehicle history report after the fact. Conveniently, the most recent version of the Used Vehicle History Disclosure form from Reynolds and Reynolds (LAW Form No. LAWCA-UVHD-EX19) incorporates these acknowledgements:

Questions?

If you have any questions regarding this, or any other situation that may arise in your sales or service departments, hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or hotline@autoadvisory.com.

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