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Garage Liability or Garagekeepers? Part I

Garage liability? Garagekeepers? Do you know the difference between these terms? If not, you’re not alone. They tend to be confusing, at best. Not only for your clients, but for most agents and CSRs as well.

In a nutshell, the difference between garage liability coverage and garagekeepers coverage is the difference between liability insurance and physical damage insurance. The first covers the insured’s liability for operations and autos, and the other covers damage to customers’ vehicles. All garage risks need both coverages to properly insure their loss exposures. The basics apply to dealerships as well as service risks.

Think of it this way:

A customer who purchased a vehicle from your client brings it back to the lot with a mechanical issue. A mechanic takes the vehicle for a test drive to see what’s going on, and in the process, hits 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 garagekeeepers.

Now, while this seems pretty cut and dried, the intricacies in the different forms, wording and interpretations is where confusion can set in.

For the purposes of this blog, we’re going to take a little deeper dive into garage liability. We’ll do the same for garagekeepers in Part II of this series.

Garage Liability

Garage liability insurance is an absolute necessity for your auto clients.

By the very 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. Although the “Garage Coverage Form, CA 00 05,” has been revised several times, the basic architecture hasn’t changed.

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.

Auto

Also consider 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, the number of wheels, mobile equipment or anything else.

Insureds

Insureds for covered autos include the named insured, permissive users, and anyone liable for the acts of an insured. Insureds do not include the owner of a borrowed or hired auto, employees while using employee owned vehicles, someone working in an auto business, dealer’s customers (unless they have no available insurance) or a partner while using a vehicle owned by the partner. Insureds for the garage operations other than autos include the named insured, and the named insured’s partners, employees, directors or shareholders while acting within the scope of their duties.

Exclusions

Now, for the exclusions. Excluded from coverage would be: expected or intended injury, contractual liability (except “insured contracts”), workers compensation, employee indemnification and employer’s liability, fellow employee, leased autos (except autos rented to customers when servicing their vehicles), as well as care, custody or control. Also excluded from coverage is: pollution, racing, watercraft or aircraft, defective products, work you performed, loss of use, products recall, war, and liquor liability. Note “personal injury” or “advertising injury” coverages would have to be added by endorsement.

Pay close attention to Exclusion No. 7 – 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 customers’ 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, while the vehicle itself is not.

Stay tuned for Part II: Garagekeepers. In the meantime, if you have questions or would like to submit a submission, send a message to info@uigusa.com or call 800.385.9978.

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