Garagekeepers liability insurance protects your firm against claims that result from damage to vehicles owned by your customers. As the following example demonstrates, this coverage is important if your company repairs, services, stores, or parks other people's autos.
Art owns a small auto repair business called A-1 Auto Service. He employs two mechanics, Bill and Ed. One day, a customer named Susan drops off her pickup truck so the shop can install a new alternator. Bill completes the work and then prepares to take the truck for a test drive. He is backing the vehicle out of the bay when he accidentally collides with a car Ed is driving into a second bay. That vehicle belongs to Frank, another customer. Both vehicles sustain body damage.
Art notifies Susan and Frank about the accident and subsequently pays the cost of repairing the damage to their vehicles. A-1 Auto Service is insured under general liability and commercial auto policies. Art isn't sure which policy will cover the repair costs so he submits claims to both insurers. He's dismayed when both deny coverage.
The insurers cite the care, custody or control exclusion in their respective policies. The exclusion precludes coverage for property damage to property in the insured's care, custody or control. The claims aren't covered by either policy because the vehicles were in the repair shop's custody when the damage occurred.
Art could have protected his shop against claims arising from damage to customers' vehicles by purchasing garagekeepers coverage. This coverage may be added to a commercial auto (or motor carrier) policy via an endorsement. It is designed for businesses that take custody of customers' vehicles in order to park, store or perform work on them. Examples are valet parking services, auto repair shops, body shops, and auto glass shops.
Garagekeepers Liability Coverage
Garagekeepers liability insurance covers sums you must legally pay as damages for loss to a customer's auto (or its equipment) left in your care while you are attending, servicing, repairing, parking or storing it in your garage operations. This term means the use of locations for the purpose of a business of selling, servicing, repairing, parking or storing customer's autos. Three coverage options are available:
- Comprehensive. Covers damage to a customer's auto from any cause except the auto's collision with another object or the auto's overturn
- Specified Causes of Loss. Cheaper than comprehensive coverage. Covers damage caused by fire, lightning, explosion, theft, mischief or vandalism.
- Collision. Covers damage to a customer's auto caused by its collision with another object or the auto's overturn
The coverages described above are the same options provided under auto physical damage coverage. However, garagekeepers insurance is a third-party (liability) coverage while auto physical damage insurance is a first-party (property) coverage.
When your auto insurer provides garagekeepers insurance, it has a duty to defend you against suits covered by the policy. The policy includes coverage for Supplementary Payments, which pay costs your insurer incurs to defend you against covered claims. These costs are covered in addition to the policy limit.
Garagekeepers liability typically excludes claims or loss involving any of the following:
- War, warlike action, insurrection, etc.
- Theft by you, your employees or shareholders
- Liability assumed under a contract
- Defective parts or materials
- Faulty work
- Tape decks, CD players, and similar equipment not permanently installed in the vehicle
- Radar detectors
Limits and Deductibles
The most your insurer will pay for each loss at each location is the garagekeepers limit of insurance minus the applicable deductible. Comprehensive or Specified Causes of Loss coverage may include two deductibles: one that applies to each vehicle and an "each event" deductible, which is the most that will be deducted for all loss in one event. The collision deductible applies to each vehicle.
Direct Coverage or Legal Liability
Garagekeepers coverage normally applies on a legal liability basis. That is, it covers loss to customers' vehicles only if you are legally liable for the damage. In the A-1 Auto Service scenario described above, the business is clearly liable for the damage to the customers' autos because the damage was caused by A-1 employees' negligence.
Customers' vehicles could be damaged by perils that occur regardless of fault. An example is a tornado. Your business would not be legally liable for vehicle damage caused by a tornado, which is considered an Act of God. Nevertheless, you might choose to pay for the damage as a gesture of goodwill. The damage would be covered by your garagekeepers insurance if you have purchased direct garagekeepers coverage. Direct insurance covers damage to customers' vehicles whether or not you are legally liable for the loss.
Direct Excess or Primary
Direct coverage may apply on a primary or excess basis. Direct primary coverage provides first-line coverage for damage to customers' autos in your custody regardless of your liability. When your garagekeepers insurance provides direct coverage, the customer need not file a claim under his or her own auto policy.
Direct primary coverage can be expensive. A cheaper alternative is excess direct coverage. It affords secondary coverage for losses for which you are not legally liable. Coverage is excess over any collectible other insurance. For instance, suppose a customer's vehicle is insured for comprehensive coverage under his personal auto policy. If the vehicle is destroyed by a tornado while in your custody, the customer's comprehensive coverage will apply first. If the customer has no comprehensive coverage, your direct excess coverage will pay the loss.