Garage owners – and we’re not talking about homeowners with a garage, rather businesses that center on auto repair or other auto related services – are subject to unique liability exposures as a result of their daily business operations.
While owning/operating this type of business requires commercial general liability coverage, there is also an added risk of loss to a customer’s property while in the garage’s care, custody and control. Basically, if someone leaves their car with you…they expect it be returned without damage!
There are two specific coverage forms that relate to this type of business operation. They are “Garage Liability” and “Garage Keepers Legal Liability.” Let’s look at the basic differences between these two insurance options.
As discussed above, a garage operation requires coverage for basic commercial general liability, just like any other business would need.
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 garage 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.
The Garage Liability section of your commercial insurance policy pretty much squares you away for your liability exposure for the operations of your business. But a garage insurance policy providing only this coverage leaves some serious gaps in your program.
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, which is your responsibility to protect other people’s “stuff” when it’s in your possession. Enter Garage Keepers Legal Liability coverage.
Garage Keepers Legal Liability
Keeping others people’s property in your care, custody and control is referred to in the insurance world as being a “bailee.”
So if you run a business in which people leave their property with you for any period of time, you are legally responsible for any damage that occurs to their stuff while you have it.
Any reasonable person would expect to be compensated if their car was destroyed in a fire while it sat at the mechanics garage over the weekend, right?
Bailee coverage is typically excluded on commercial liability policies, including the basic Garage Liability policy discussed above.
The average commercial insurance policy is designed to only cover insured businesses’ property and liability exposures, not the property of other people…
Garage Keepers Legal Liability can be described as “property” insurance for your client’s property, and is designed to add this typically excluded bailee coverage.
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. But what about damages for which your company is not technically liable?
For example, what if a thief were to break into your garage and steal an airbag and stereo out of one of your client’s cars? Your company is not legally liable for the actions of a criminal – therefore your insurer may decline to pay the claim for the loss.
Well, sometimes in the business world, perceptions carry more value than reality. Do you think you’d save the client relationship by telling him/her that you’re sorry, “but there’s nothing I can do since I didn’t personally damage your car?”
Good luck with that.
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.
Using the example above, you tell your client to file a claim on their own car insurance policy and your commercial policy will pay for anything that exceeds their policy limits. You lose the customer forever and expect to see a few tweets and Facebook posts about how awful your company is!
If that is uncomfortable to read, let alone say to a client, you may want to purchase Direct PRIMARY coverage.
Direct Primary Coverage
With the Direct Primary coverage option on your garage policy, your insurance 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.
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.
Every company has different coverage forms and every claim is unique. Your best bet is to purchase the best available coverage and go on about your business…literally!