Key Points when Considering Garage Keepers Insurance

What is Garage Keepers Insurance?

To make an informed decision about purchasing insurance for a car dealership, garage, or auto repair shop; first you need to know exactly what Garage Keepers Insurance is. Garage Keepers Insurance is designed to protect a garage business for loss to a customer’s auto when it is left in the care and supervision of the business. Think of this as protection for auto repair shops, garages, and car dealerships looking to block more risk when it comes to attending, servicing, repairing or storing autos in their garages or on their premises. Here are three aspects to consider when determining whether to buy this coverage and if so, what limits you need.

Car, Mechanic, Automobile, Service, Repair, Auto

The Differences Between Garage Keepers and Garage Liability?

A Garage Liability Insurance is a specific type of insurance policy. A Garage Keepers Policy protects clients against damage to a customer’s vehicle including fire, theft, extreme weather, and vandalism. This policy, however, does not cover damage that occurs from things like faulty workmanship, parts or out-of-date warranties. The policy covers garage and auto body shops for both bodily injury and property damage. This type of a liability insurance policy is designed to protect incidents that involve ownership, maintenance, or use of locations for garage business operations. Some carriers offer the ability to extend liability for cardealerships to cover all autos on a car lot. This would include both cars to be sold and cars having maintenance performed.

Don’t forget to ask about Limits, Deductibles and a few other details

During the buying process, every business owner must decide what type of deductible and the limit they are comfortable with. This decision will determine what the business pays for annual premium and how much the insurance carrier will pay out in the event of a claim. Two things to be aware of when deciding on this coverage is if the policy is Comprehensive or if the policy has Specified Causes of Loss. Comprehensive coverage covers the damage to a customers auto from any cause. Often there are a few exceptions that commonly include the auto’s collision with another object or the auto’s overturn. A garage keepers liability policy that is the specified causes of loss are cheaper compared to comprehensive policies, but they do not cover damages cause dby fire, lightning, or explosion; theft; or mischief or vandalism.

Coverage for these policies can be sold with two deductibles. One applies to each vehicle and the other applies to each event. Having an extended conversation with your insurance agent is a great way to determine if you need this policy and if so where your limit should be. The size of a businesses facility, the revenue of your business, and how many vehicles the business commonly has in possession will all determine the amount of liability needed by any particular business.

What Types of Liability are Covered?

There are three main types of liability covered by a Garage Keepers Policy. Those three types of liability are

Legal Liability
Direct Primary
Direct Excess

Legal Liability

Legal Liability is the most common form of liability that cuases a business to file a claim on a Garage Keepers Liability Policy. This typoe of claim deals with damage to a clients claim because of negligence by the insured. An example of this is when a mechanic is involved in an accident while test driving a vehicle.

Direct Primary

DIrect Primary Liability covers the customers vehicle regardless of liability. When a loss occurs that is not the fault of the insured (the business), this type of liability kicks in to cover the loss. Weather related damage and theft are the two most frequent reasons for this type of claim.

Direct Excess

Direct Excess is very similar to direct primary, but only pays in excess of any other collectible insurance. This type of policy is much cheaper to secure, but does come with the business taking on an additional portion of the losses when a large claim occurs.

Motor, Metal, Vehicle, Machine, Part

Exclusions to Consider

Before pulling the trigger on any insurance policy, a business owner needs to have a full undertanding of the exclusions involved with any policy they are purchasing. Common included exclusions for a Garage Keepers Insurance Policy include: theft by an employee, defective parts, faulty work, mobile radios, scanners, radar detectors, CD players, speakers or any equipment not permanently installed in the vehicle.

Auto Repair Shops

Direct Primary vs Legal Liability for Auto Repair Shops

The difference between Garage Liability Coverage and Garagekeepers Coverage is the difference between liability insurance and physical damage insurance. The first (liability insurance) covers the insured’s liability for operations, autos, and the second (physical damage insurance) covers damage to customer’s vehicles at auto repair shops. All garage risks need both coverages to properly insure their loss exposures.

Auto Repair Shops

A Garage Keeper’s Legal Liability policy is intended to cover damage to an auto held in their care, custody, or control while it is on consignment for sale or you are servicing, repairing, parking, or installing equipment into the vehicle. Direct Primary Coverage provides coverage even if the loss is not the insured’s fault and is not legally liable. On the surface, this seems relatively easy to understand.

For Example, a customer’s locked vehicle is in a fenced and locked yard. There is adequate lighting in the yard and the vehicle alarm is armed. The electronics are ripped from the vehicle and there is $25,000 in lost equipment and damage. Although you are clearly not negligent – and not legally liable – the claim is submitted to my insurance carrier.

With Direct Primary Coverage, the customer – the owner of the vehicle – is paid no matter whose fault it was. You have a happy customer again and your insurance paid for everything. Well that is great until renewal time, when we can assume that the insurance company will raise the Garage Liability premium by a substantial amount because of the claim. That $25,000 claim typically will continue to affect your premiums for three years.

If you had purchased Legal Liability Coverage, the owner of the vehicle would have had to submit the claim to his own insurance company. Your insurance company would not pay anything on the claim – after all, it was not your fault, you were not legally responsible for the damage – thereby saving you thousands in renewal premium increases.

What is the best option to take? If you have repeat customers that represent a significant part of your business, than Direct Primary Coverage may be the best choice. However, if you do business with thousands of different people and have no significant relationship with them, then Legal Liability Coverage may better suit you.

To recap. Garagekeepers insurance refers to coverage for the cars left in your care, custody or control. Direct primary garagekeepers pays for the loss whether you are legally obligated to do so or not and legal liability garagekeepers only pays out if you are legally responsible for the loss. As a result, direct primary garagekeepers coverage is usually more expensive than legal liability garagekeepers coverage. Both of these options have their positives and negatives. Talk it over with your insurance agent and then make a decision on what you feel is the best for your business. Think long-term vs short term on the cost of the policy. Once you take cost out it will help you determine which is actually the best option.

Garage Liability Insurance vs. Garage Keepers Coverage

The difference between Garage Liability Insurance Coverage and Garage Keepers Coverage is the difference between Liability Insurance and Physical Damage Insurance. The first covers the insured’s liability for operations and autos. The second covers damage to a customer’s vehicle. All businesses with garage risks need both coverages to properly insure their loss exposures.

A typical garage business has an auto exposure, both owned, non-owned and hired. These businesses also have risks related to premises/operations, contractual and products/completed operations exposures. Rather than writing two separate policies, the Garage Policy allows a business to combine the coverages into one all encompassing Insurance Policy. A Garage Policy is a combination Business Auto Coverage form and a Commercial General Liability Coverage form. Garage liability insurance is an absolute necessity for the owner of a car dealership, a local mechanic, a tire dealer or a company doing oil changes. These policies are for employers who make a living working on cars. These programs can also apply to companies installing stereos or satellite radios. Business owners should not make the mistake of believing Garage Liability Insurance covers the loss of a customer’s auto while in your care. A separate Garage Keeper’s Policy or an addendum to the garage (service center) policy already in place must be added.

Garage Keeper’s Coverage

Under the Garage Keeper’s Coverage, there are two options for the auto service operator to consider. One is called direct excess coverage. This policy pays up to the value of the destroyed vehicle above the owner’s coverage. The other type of coverage is direct primary coverage, where the service owner’s carrier shares the loss with the car owner’s insurer.

Garage Liability Insurance

If you own or operate a business that has a repair center and the repair center has a fleet of tow trucks or dispatched repair vehicles, those assets are covered under Garage Liability Insurance. However, if the customer car is sitting outside waiting for service, or inside on a lift, they are not covered. This is the reason why you need a keeper clause for the protection of your business. Please note that most Garagekeeper’s Policies excludes loss to non-factory installed sound equipment.

Garage Liability Insurance providers may become extremely discriminatory regarding the requirements for getting the insurance, such as strict loss prevention or risk management efforts by the auto service owner. To cut costs and keep premiums lower, indemnity companies are often refusing to underwrite such things as wind and hail damage for company and customer vehicles. Tolerance by insurers for multiple incidents at a garage is limited. These are things a business owner should keep in mind when purchasing insurance. Partnering with an experienced independent insurance agent is the best way to determine how your business should best proceed when purchasing this type of insurance coverage.

Make sure every employee and officer of the company is on the policy. Coverage is usually only afforded to the locations and drivers listed on the coverage. Employees that get a DUI or go over their point allowances may be excluded from driving privileges and non-company drivers need to be discussed with the agent.

Getting and keeping garage liability insurance can be daunting. Proper night lighting, well landscaped grounds, well maintained signage and windows as well as a freshly painted exterior as well as clean floors and bathrooms inside can make or break a policy being approved.

My Insurance Question is a creation of The Insurance Shop LLC. The Insurance Shop was formed in 2005 and over the course of a decade and a half they have developed relationships with more then two dozen carriers. Those carriers allow their agents to get the best value on commercial insurance for many different industries. If you are ready for a new look at your coverage, give us a call at 800-800-4864.