Auto repair shops and auto body shops both have a unique situation where they are in charge of others’ vehicles. They need general liability coverage AND they need coverage in case a vehicle in their charge gets damaged or stolen. They also have to drive vehicles from one area to another, and they have to test-drive vehicles on the street.
Then there is the issue of business property, which may include tools and equipment belonging to the owner and also to the mechanics, who often have to purchase their own. With respect to liability coverage, they need the usual general liability. Add to that they need auto liability coverage for when they drive a vehicle.
Garage keeper’s liability
There is a specific type of coverage called garage keepers liability. This is a type of bailee’s coverage (coverage for others’ property within your care, custody, and control,) that protects the vehicles that a shop is working on. There are 3 types:
Garage Keepers Legal Liability: say a vehicle is stored while being worked on. If it is vandalized or burned down, Garage Keepers Legal Liability will require that the garage keeper be deemed legally liable before insurance will pay. That often means an investigation and possibly a lawsuit. You know that unfortunately, an insurance company will do what it can to show that the garage keeper was not liable.
Garage Keepers Direct Insurance: If it is Direct Excess, then it comes into play only after the vehicle owner’s own comprehensive or collision coverage pays out. And they may not because the vehicle was not under the owner’s care and control at the time.
Garage Keepers Direct Primary: It is the best coverage, which pays out first without respect to the vehicle owner’s coverage.
Garage Keepers Liability must cover all the vehicles in the shop, just in case. The application asks how many vehicles might be in the shop at a given time, the maximum number and the average number, and then, what is the average value of vehicles being worked on.
How does this type of insurance work?
For years I insured a shop that specialized in Porsche automobiles. They did take in the occasional Jaguar or Mercedes, but always high-end vehicles. That was an expensive policy. Premiums go up as the coverage gets better and agents who either don’t know the difference or just want to bring in a lower price to make a sale may promote to buy now pay later car insurance and obtaining the legal liability coverage.
I have run across garages that were insured that way, and early on I encountered one who had a burglary with damage to a vehicle. Since the building was locked and the keys were locked, the garage owner was deemed to have taken all necessary precautions and was not liable, and the vehicle was not paid for. Imagine if the entire building burned and all the vehicles being worked on were destroyed. If the fire was not the fault of the garage keeper, there would be no payout.
Let’s not forget that some repair and body shops also buy and sell vehicles. In that case, Dealer’s coverage needs to be placed. When an agent goes to see a prospective garage client, he should bring a comprehensive checklist to make sure he or she does not miss anything important. Just as importantly, it is incumbent on the agent to educate the prospect on the different coverages and potential losses. You may not get the business, but you must do your due diligence.
