Garage Insurance

Garage owners are subject to unique liability exposures as a result of their daily business operations. There is not only financial risk from a general liability standpoint, i.e. the day to day operations, but the risk of loss to a customer’s property while in the garage’s care, custody and control.

As a result, insurers have responded by offering a few different coverage types within their policies, which are referred to as “sections.”

A Garage Policy is designed to package the available coverage to ensure you are adequately insured against as many financial losses as possible. The two major sections; Garage Liability and Garage Keepers Legal Liability, are the subject of this article. Let’s look at the difference between the two.

Garage Liability

A garage operation requires coverage for basic commercial general liability, referred to in the policy as Garage Operations – Other Than Covered Autos.

This is your slip-and-fall liability, covered under premises and operations, as well as your products and completed operations coverage. To be clear, this portion of this particular coverage section is your bodily injury and property damage coverage (both caused to “others”). No tricky guidelines or rules here.

Additionally, your company may require auto coverage for tow truck operations or any other auto your company uses; owned, non-owned or hired, for its day-to-day operations. Remember, the average commercial operation may not require business auto coverage (picture a dentist’s office). These exposures may be unique to a garage operation. This coverage is referred to as Garage Operations – Covered Autos.

The definition of the “covered auto” portion of this coverage section is often expanded to cover vehicles that may not fit the definition of an “auto” on a typical commercial auto or personal auto policy.

For example, the “autos” may not have to be designed for use on public roads and may not make a reference to the “mobile equipment” clause in the business auto policy. This means you may have coverage for machinery used in your daily operations…depending on your specific policy language.

The Garage Liability section of your policy pretty much squares you away for your liability exposure for the operations of your business. Your property is insured and you are covered for bodily injury and property damage claims that may arise out of your ownership and operation of the garage. A garage insurance policy providing only this coverage leaves some serious gaps in your program though.

What about the property of others that is left in your care, custody and control? Perhaps you operate an auto service center that requires your customers to leave their vehicles on your property overnight or for weeks at a time. Let’s look at another coverage section available in the Garage Policy that is designed to insure you against this type of loss.

Garage Keepers Legal Liability

Keeping “others” property in your care, custody and control is referred to in the insurance world as being a “bailee.” Bailee coverage is typically excluded on commercial liability policies. Your insurance company aims to cover your property (business property coverage is purchased) and your liability exposures…not the property of others. Garage Keepers Legal Liability can be described as “property” insurance – although, it is designed for the property of others.

The Garage Keepers Legal Liability section of your Garage Policy is designed to “buy back” this typically excluded bailee coverage. Basically, it adds coverage for the property of “others” while you have it. A dry cleaning service is another example of a business that would require bailee coverage. If they destroy someone’s tuxedo, they will be expected to pay for the resulting damages…whether their fault or not.

This type of coverage creates a potential problem for business owners, as it is designed to cover them against financial losses to customer’s property for which they are LEGALLY LIABLE. So what can go wrong that would require coverage for damages you may not be legally liable for?

Imagine if property damage occurred to your customer’s vehicle while in your care, custody or control. However, what if your garage was not legally liable? Maybe a thief scaled a barbed wire fence and stole a stereo out of a vehicle. Your garage would not be (technically) legally liable for the loss, as you were not negligent by any means… perhaps you took every “reasonable” precaution to make sure the vehicles were protected while your shop was closed for the night.

According to the policy language, there would be no coverage for the loss. You can probably guess how your customer would feel about having to absorb the loss out of their own pocket…and how your company’s reputation may suffer. Insurers have developed coverage options to protect you against this possible scenario.

Enter Direct Excess and Direct Primary coverage options under the Garage Keepers Legal Liability section of your Garage Policy. Both coverage options would apply to a covered loss regardless of whether or not your garage was legally liable for the damages. Let’s look at the difference between the two.

Direct Excess Coverage

The Direct Excess coverage form would respond to a covered claim ONLY for damages to the owner’s vehicle that exceeds the total coverage amount of their own policy.

For example, if the vehicle owner has an in-force personal auto policy that provides physical damage coverage of $25,000, the Direct Excess coverage would only pay money for a covered claim that EXCEEDS the $25,000. Damage totaling $25,000 or less would not be covered by the garage.

If the total property damage amounts to $75,000, the garage policy would respond by paying the additional $50,000 ABOVE what the vehicle owner’s policy would cover.
You can see how the vehicle owner may still be upset with your garage, as their insurance company is in the hook for the policy’s physical damage coverage limit. There is another option however…

Direct Primary Coverage

With the Direct Primary coverage option on your garage policy, your insurance (the garage policy) would share the loss with the vehicle owner’s insurance company, which may greatly reduce the amount of an insurance claim filed on the vehicle owner’s own policy.

An example of a shared loss may look like this; the vehicle owner sustains damage to their vehicle in the amount of $25,000. The vehicle owner’s insurance company may pay $12,500 and the garage policy may pay $12,500. Of course, how the losses are split is left up to the policy language on your garage insurance policy. Either way, this option is more comprehensive and may serve to protect your goodwill to the customer and save your company’s reputation.

Garage Keepers Legal Liability, as discussed above, is technically property insurance, so expect to have to pay an insurance deductible for any filed claims. Additionally, the garage owner has to choose a “property damage limit,” which can be a somewhat elusive amount, as there may be fluctuations in the number and type of vehicles kept on the lot at any given time.

The best estimate for the property damage for this section of the policy is to calculate the average value and number of vehicles on the lot. If the garage typically has 5 vehicles valued at as much as $20,000 in their care, custody or control you would want a minimum of $100,000 in available coverage in case all vehicles are destroyed in one event (think tornado). Of course, if your garage specializes in collector vehicles or exotic sports cars, you may need substantially more coverage.

As with any insurance coverage, it is recommended you discuss the details of your particular policy with your insurance agent or insurance company to verify coverage.