Garage liability and garagekeepers coverage

Garage liability covers a repair shop's, dealer's or parking operator's legal liability for bodily injury and property damage from its garage operations, including the autos it owns or uses. Garagekeepers coverage is a separate part of the policy that pays for damage to customers' vehicles while they are in your care, custody or control. Neither the commercial general liability policy nor a standard business auto policy gives a garage this combination, which is why the ISO Garage Coverage Form (CA 00 05) exists.

Why the CGL and business auto policy leave gaps

A shop or dealership straddles two exposures. Premises and operations claims, such as a customer slipping on oil in the service bay or a lift failing, look like CGL claims. Claims from driving autos, such as an employee crashing a customer's car on a road test, look like auto claims. The standard commercial general liability form excludes injury and damage arising from the ownership, maintenance, use or entrustment of autos, and it excludes damage to personal property in the insured's care, custody or control. A customer's car in your bay is exactly that. See Care, custody and control: why the CGL won't pay for property you hold for how that exclusion works.

A standard business auto policy (CA 00 01) covers the autos you own, hire or borrow, but it does not cover the premises and operations hazards of running a garage, and the customer vehicles you hold are not your property to insure. Mixing a CGL with a business auto policy and hoping the pieces meet is a common way for gaps to appear. The garage form is designed to put the pieces under one coverage part.

The Garage Coverage Form

The ISO Garage Coverage Form, CA 00 05, is the standard form; one trade source lists the current edition as 10 13. Carrier-specific and program forms vary. It has two main sections that matter here.

Garage operations liability

Liability coverage pays damages for bodily injury or property damage caused by an accident and resulting from garage operations. In practice the form splits into two parts:

• Garage operations other than covered autos. Premises and operations exposure, much like a CGL. According to a trade summary, the form includes products and completed operations, so work you performed on a vehicle is part of the picture. Check how your carrier treats repair failures, such as a brake job that fails after the customer leaves, because some programs address products and completed operations in a separate policy or endorsement.
• Garage operations covered autos. Liability from the ownership, maintenance or use of the autos the declarations list as covered, using the form's covered auto symbols. See business auto coverage symbols explained: what each number covers and Hired and non-owned auto (HNOA) coverage: what it covers and who needs it for how symbols and non-owned vehicles interact.

Who is an insured matters at a dealership. Employees using covered autos are insureds, and customers test-driving a dealer's vehicle may be insureds, subject to what insurance they have of their own and the form's wording. State financial responsibility laws also affect test drives, so ask your broker how your policy treats them.

Garagekeepers coverage

Garagekeepers coverage is an optional coverage within the garage form. It covers damage to customers' vehicles, and sometimes their contents, while the vehicles are in the insured's care, custody or control for service, repair, storage or safekeeping. You choose the causes of loss (comprehensive, specified causes of loss, collision) and the basis. According to a trade summary of the form, there are three bases:

The difference is more than technical. A lightning strike, a hailstorm or a thief who breaks a fence may not be your fault. Under legal liability coverage the insurer can say you were not negligent and pay nothing, which does not help a customer-relations problem or a bailment claim. Direct coverage pays the customer's car even when you did nothing wrong. Direct excess costs less, but the customer's own insurer pays first, and that insurer may then pursue you through subrogation.

Who needs what

Industry profiles for Auto repair shop insurance and Auto dealer insurance list further coverages. Dealer licensing agencies in many states require surety bonds or proof of insurance, so check your state; see license and permit bonds: who needs one and how they work.

Dealers also face dealers physical damage coverage for vehicles in inventory and on the lot. The comprehensive and collision coverage on inventory carries a limit tied to inventory values, so ask how the policy values inventory. A trade source notes exclusions often apply to diminution in value or loss of market after a repair, so read what the form says about damaged and repaired inventory.

What drives the price

Garage policies are rated on the size and nature of the operation. Common rating bases include the number of employees and principals, payroll or receipts, the number and type of vehicles used for the business, and the values of customer vehicles you hold or inventory. Underwriters also look at loss history, road test and valet rules, who has keys, lot security and lighting, fire controls in the shop, and driver screening. Underwriters often ask for the maximum number and value of customer vehicles on the premises at one time, so count honestly. If the limit was set for 30 cars and a backlog puts 80 on the lot, the shortfall is yours.

A worked example (hypothetical)

Say a six-bay repair shop holds up to 20 customer vehicles overnight. A fire starts in a neighbor's building and spreads to the shop's lot, damaging 12 cars worth $210,000 in total.

• With legal liability garagekeepers coverage, the shop's insurer asks whether the shop was negligent. If not, nothing is owed under that basis, and each customer turns to their own auto insurer. The shop faces upset customers and possible claims over the cars.
• With direct primary coverage, the shop's insurer pays regardless of fault, subject to the policy's limit and deductible. If the limit per location is $150,000, the shop owns the remaining $60,000 shortfall.
• With direct excess coverage, customers' own comprehensive pays first and the shop's policy pays the gaps, such as customers' deductibles.

The figures are invented to show how the basis and limits interact; they are not typical.

Buying checklist

1. Confirm whether your coverage is a true garage form or a combination of CGL and business auto, and where the gaps are.
2. Choose garagekeepers causes of loss and basis (legal liability, direct primary or direct excess) deliberately.
3. Size the garagekeepers limit by the maximum value of customer vehicles on the premises at one time, and consider whether it applies per location.
4. Check road test, loaner, shuttle and test-drive rules, and who is an insured when a customer drives.
5. Ask how repair failures and completed work are covered.
6. Review pollution exposures: used oil, solvents and refrigerants. The garage form does not replace a pollution policy; see pollution liability insurance and the pollution exclusion.
7. Verify dealer bonds, E&O and licensing requirements with the state agency.
8. Revisit limits at renewal, since vehicle values have risen and a lot full of newer cars can exceed an old limit.

Key takeaways

• The ISO Garage Coverage Form combines garage operations liability, covered auto liability and optional garagekeepers coverage, which the CGL and standard business auto policy do not do together.
• Garagekeepers covers customers' vehicles in your care, custody or control; the basis (legal liability, direct primary or direct excess) decides whether you are paid when you are not at fault.
• Size the garagekeepers limit to the most customer vehicles you hold at one time, not an average day.
• Test drives, road tests, loaner cars and valets create driver and insured-status questions to settle before a loss.
• Policies and state licensing rules vary, so a broker who writes garage accounts should review the form.