What Is Garage Liability Insurance?

Does your client’s business handle customers’ vehicles – e.g., repair shops, auto dealerships, service stations, etc.?  

Garage Liability insurance is a combination of General Liability and Auto Liability. It protects against potential liabilities for businesses in the automotive space including premises liability, auto liability, accidents during test drives and third-party bodily injury/property damage as a result of a repair that went wrong.  

However, the actual work performed exclusion does apply. If, for example, a mechanic performs an oil change and leaves the oil cap off, causing the oil to leak, leading to engine damage, the resulting property damage would be covered under the liability, but the oil, oil filter, and oil cap would not be covered. The insured would be out of pocket for the actual work performed.

A single incident can result in significant damages – and even lawsuits – that could potentially ruin a business. Therefore, it’s critical to have proper insurance in place.

Auto dealerships, repair shops, tow truck companies and similar businesses need Garage Liability insurance to cover property damage and bodily injury resulting from their daily operations. 

It’s important to educate your clients. Garage Liability alone will not protect the insured from comprehensive and collision losses on the customers’ autos while in the insured’s care, custody and control. 

Garage Liability alone will not protect the insured from physical damage losses on his inventory of autos held for sale. To cover these exposures, the insured needs to consider Garagekeepers coverage for customers’ autos, and dealers physical damage (sometimes referred to as DOL – Dealers Open Lot coverage) for autos held for sale on the lot.

• Dealers Physical Damage (Dealers Open Lot) – Provides physical damage coverage for owned and consigned autos – dealer inventory.  There is a 100% coinsurance requirement, so all Dealers Open Lot limits must be insured to value.  There are weather restrictions in certain states and each insurance carrier has wind/hail/flood weather guidelines for coastal and hail prone states. Higher deductibles may be required for wind/hail/flood, or these perils may be excluded.  Theft restrictions, such as higher deductibles or exclusions, may apply if the lot is not fully fenced and locked.

• Garagekeepers Insurance – This optional, add-on insurance protects your client if they (or their employees) are responsible for physical damage of a customer’s vehicle while it’s in their care, custody and control. This is above and beyond a standard Garage Liability policy and covers things like fire damaging a vehicle onsite at their business. This policy also covers employees while they are test-driving the customer’s vehicle. There are 3 types of Garagekeepers coverage to choose from:
  • Garagekeepers Legal Liability: provides coverage if the insured is legally liable for the damages to the vehicle(s).  This is the most common form of Garagekeepers coverage offered and is the least expensive. 
  • Garagekeepers Direct Primary: provides the broadest coverage available as it will pick up claims even if the insured is not legally liable (such as hail/storm damage).  However, some carriers will restrict the wind/hail/flood coverage in certain areas and may exclude theft if there is no lot protection. This is the most expensive form of Garagekeepers coverage. 
  • Garagekeepers Direct Excess: provides secondary coverage for losses that the insured is not legally liable for.  It will respond after the vehicle owner’s insurance. The vehicle owner will report the loss to their personal auto insurance carrier, and the direct excess will reimburse the customer for their deductible. However, if the insured is found legally liable, this coverage will respond on a primary basis.

• Other Optional Coverages –
  • Premises and/or Auto Med Pay 
  • Fire legal
  • Broadened Coverages, which includes fire legal and personal injury protection; Dealers Errors & Omissions
  • GL class codes for related operations, such as parts sold but not installed or gasoline sales
  • Drive Other Car Coverage
  • False Pretense

What types of insurance does my client’s business need?

Many businesses in the automotive space are torn between getting Garage Liability and Garagekeepers insurance. Often, these businesses need both.

Consider: Your client owns a repair shop. A customer brings in a vehicle that’s making a strange sound. The mechanic takes it for a test drive to determine the issue.  During the test drive, he hits another vehicle, damaging the customer’s car he’s driving, as well as the car he hits.  Additionally, he injures the other driver.  The other vehicle and its driver are covered by the Garage Liability policy.  The customer’s vehicle is covered by the client’s Garagekeepers policy.

How much will my client need to spend on these policies? 

The premium amount varies, because each business owner’s specifics are different.  A repair shop with a recent claim of $40,000 will likely pay more than another shop that’s never filed a claim. The insurance cost will depend on numerous factors, including the type of business, previously filed claims, the number of employees, their driving records, the location of the business, and the level of onsite security.