The terms garage liability and garage keepers can be an issue not only for clients, but most agents and CSRs also find it just as confusing.  Automotive repair shops, Auto Body shops, Lube and Oil shops, Emission or Smog Testing facilities, and Car Dealers have some similar exposures when it comes to insurance.  Garage liability coverage and garage keepers liability coverage are two.  

Before getting into the actual contract, consider the following example:

“A customer who purchased a vehicle from you brings it back to the lot with a mechanical issue. Your mechanic takes the vehicle for a test drive to see what’s going on, and in the process, hit’s another vehicle. He totaled the other vehicle and injured its driver. He also totaled the customer’s car he was test-driving. The other vehicle and its driver are covered by the garage liability policy, the customer’s vehicle is covered by the garage keepers”.

The answer is not that simple. Start with a basic definition of garage liability. The coverage is, in a sense, the equivalent of combining a business auto form with a commercial general liability form including products and completed operations.

The “Garage Coverage Form, CA 00 05,” has been revised several times, however, the basic architecture hasn’t changed. Examine Section II (Liability) and Section III (Garage keepers).

Section II – Liability Coverage

Section II of the form is broken into two parts: garage operations other than covered autos, and garage operations covered autos.

The intent of the policy is to cover bodily injury or property damage caused by an accident arising out of garage operations. The policy defines garage operations as the ownership, maintenance or use of locations for garage business. It also includes the ownership, maintenance or use of the autos. The types of autos covered are defined in Section I, but for an auto dealer, you typically cover all owned autos, as well as non-owned autos used in the garage business (normally vehicles being worked on or stored).

The definition broadens the scope of coverage by adding a “catch-all” phrase. It states: “Garage operations also include all operations necessary or incidental to a garage business.” This wording is often open to interpretation by insuring carriers.

Also look at the definition of auto. This definition is simpler but still broad. The policy states, “Auto means a land motor vehicle, trailer or semi-trailer.” Unlike the CGL and business auto forms, there’s no reference to the auto being licensed for use on public roads, no reference to its number of wheels, mobile equipment or anything else.

With all this ambiguity and far-reaching language, what could go wrong?

Enter the exclusions. Exclusion No. 6 is the care, custody or control exclusion. It excludes property damage involving: (d) Property in the insured’s care, custody or control. Reading that exclusion, it becomes obvious that there is a problem with the customer’s vehicles. Any vehicle left with the garage business for repair, storage or even involved on a simple test drive is not covered based on this exclusion.

Keep in mind that third-party claims caused by the customer’s vehicle are covered, the vehicle itself is not.

Section III – Garage keepers Coverage

Garage keepers coverage is an optional line offering protection to the garage business for loss to a customer’s auto left in the insured’s care, custody or control. The policy clarifies that by saying, “while the insured is attending, servicing, repairing, parking or storing it in your garage operations.”

All garage keepers intends to accomplish is to buy back the coverage lost in the care, custody or control exclusion under the liability portion of the garage form.

Garage keepers coverage offers three options:

1. Legal Liability This is the most common. The protection applies to a customer’s vehicle damaged due to the insured’s negligence – such as the mechanic wrecked the customer’s car while test driving it or the customer’s vehicle was left unlocked and unattended after hours.

2. Direct Primary This form covers the customer’s vehicles regardless of liability. In a loss caused by no action of the insured such as a weather loss, or a theft although the vehicle was adequately protected, the direct primary garage keepers pays.

3. Direct Excess This is the rarest option, although it’s the best, maybe from the garage’s perspective. Is it really the best from the customer perspective? The form affords protection to an insured for the loss to a customer’s vehicle regardless of liability, just as direct primary does. The difference is in the event of the insured or garage having no liability, the form will only pay in excess of any other collectible insurance.

Summary on Garage Keepers Coverage

Although legal liability is the most common coverage offered for garage keepers, buyer be aware! Reputation plays a strong role in the profitability of a repair shop businesses. A positive reputation and customer experience can go a long way to enhancing profits. Direct Primary may be the way to go, because there’s no legal requirement for liability on behalf of the insured. With direct primary, the insured handles the issue. Think of this scenario- customer’s car is properly secured, but is stolen and destroyed, anyway, causing a $60,000 loss of the vehicle. Would you as the insured or shop owner prefer to expend numerous hours and possibly your own money to validate the fact that you’re not responsible to pay the customer’s loss, because you have a legal liability policy? Or would you prefer to have the claim handled by your Direct Primary insurance, keeping your customer whole, saving you time and resources?

If this sounds confusing, we’ll help you understand it better. Give us a call today, 775-261-1633 and we’ll go through your options with you.

Additional Forms and Endorsements

On-hook coverage: Protects customer’s vehicles while they are being towed by the insured business.  Covers the expense of repairing or replacing a vehicle in the insured’s care, custody, and control.   For businesses that have towing available, whether a tow service, dealer or mechanic, on-hook coverage is a necessity. 

Dealers Drive-away Collision Coverage: is an endorsement for a garage policy that broadens collision coverage for automobiles being transported or driven from point of purchase or distribution to delivery destination.  If this coverage is omitted, your dealership is only protected if the distance is less than 50 miles.  Drive away collision coverage will provide guaranteed collision coverage, no matter the distance driven.  This coverage will save you time, money, and provide peace of mind.

False Pretense Coverage: Protects against losses resulting from theft by deception, such as when someone obtains possession of a vehicle by misrepresenting themselves.  Unreturned test drives and fraudulent checks used to purchase vehicles are two examples.  Another, could be unintentionally purchasing a vehicle without obtaining a legal title.  False Pretense coverage can help your dealership recover money from these fraudulent methods.

Hired Auto Coverage: Extends coverage to vehicles that the insured business rents or borrows for business purposes.   

Non-Owned Auto Coverage: Provides coverage for vehicles that the insured business does not own but that are used in its operations, such as employees’ personal vehicles used for business purposes.