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Garage Keepers & Liability Insurance

Are you in need of Garage Keepers Insurance? The terms “garage liability” and “garage keepers” can be confusing, not only for clients, but also for most agents and CSRs.

Here's a basic example: A customer who purchased a vehicle from you brings it back with a mechanical issue. Your mechanic takes the vehicle for a test drive to see what’s going on and, in the process, hits another vehicle. He totals the other vehicle and injures its driver. He also totals the customer’s car he was test-driving. The other vehicle and its driver are covered by the garage liability policy, and the customer’s vehicle is covered by the garage keepers.

But, the answer isn't that simple. Let's start with a basic definition of garage liability. This coverage is, in a sense, the equivalent of combining a business auto form with a commercial general liability form, including products and completed operations.

The “Garage Coverage Form, CA 00 05,” has been revised several times; however, the basic architecture hasn't changed. Examine Section II (Liability) and Section III (Garage keepers).

Section II – Liability Coverage

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.

Exclusion No. 6 is 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 customer’s vehicles. Any vehicle left with the garage business for repair, storage, or even involved in 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, but the vehicle itself is not.

Section III – Garage Keepers Coverage

Garage Keepers coverage is an optional line offering protection to the garage business for loss to a customer’s auto left in the insured’s care, custody or control. The policy clarifies that by saying, “while the insured is attending, servicing, repairing, parking, or storing it in your garage operations.”

All the garage keeper intends to accomplish is to buy back the coverage lost in the care, custody, or control exclusion under the liability portion of the garage form.

Garage Keepers coverage offers three options:

  1. Legal Liability. This is the most common. The protection applies to a customer’s vehicle damaged due to the insured’s negligence – such as the mechanic wrecked the customer’s car while test driving it or the customer’s vehicle was left unlocked and unattended after hours.

  2. Direct Primary. This form covers the customer’s vehicles regardless of liability. In a loss caused by no action of the insured such as a weather loss, or a theft although the vehicle was adequately protected, the direct primary garage keeper pays.

  3. Direct Excess. This is the rarest option, although it’s the best. The form affords protection to an insured for the loss to a customer’s vehicle regardless

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