What is garage keepers insurance and why is it important?

November 16, 2024

Garage Keepers Insurance is a type of coverage specifically designed for businesses that are responsible for customers’ vehicles while they’re in the business's care, custody, or control. This type of insurance is essential for companies in the automotive service industry—such as auto repair shops, body shops, towing companies, and car dealerships—where customers’ vehicles are regularly parked or stored on the business premises.

What Garage Keepers Insurance Covers

Garage Keepers Insurance provides protection for physical damage to a customer’s vehicle while it’s in the business’s possession. Coverage is generally offered in three main types:

  1. Comprehensive: Covers damage to customers’ vehicles from non-collision events, such as fire, theft, vandalism, or weather-related damage.

  2. Collision: Covers damage to customers’ vehicles resulting from collisions or accidents, regardless of fault.

  3. Specified Perils: Covers specific named perils, such as fire, theft, or vandalism, but usually at a lower premium than comprehensive coverage.

Garage Keepers Insurance can be either on a primary basis (where it pays first, regardless of other insurance) or excess basis (where it only pays after other available insurance has been used).

Why Garage Keepers Insurance is Important

  1. Protects Against Costly Claims:

    1. If a customer’s vehicle is damaged while in the care of the business, the business could face substantial costs to repair or replace the vehicle. Garage Keepers Insurance helps cover these expenses, preventing the business from paying out of pocket for customer vehicle damage.

  2. Limits Liability for Negligence:

    1. Customers entrust their vehicles to businesses with the expectation that they’ll be safe. If a vehicle is damaged due to the business’s negligence—such as an employee error or a security lapse—Garage Keepers Insurance helps cover the cost, reducing the business’s financial liability.

  3. Enhances Customer Trust:

    1. Having Garage Keepers Insurance demonstrates to customers that the business is prepared to take financial responsibility if something happens to their vehicle while it’s in the business’s care. This builds trust and reassures customers that their property is protected.

  4. Covers a Range of Potential Risks:

    1. Vehicles in a garage's care are vulnerable to a variety of risks, including fire, theft, extreme weather, and even accidents caused by employees moving vehicles. Without Garage Keepers Insurance, any damage from these incidents would likely be a direct financial burden to the business.

  5. Essential for Certain Business Types:

    1. Auto repair shops, detailing businesses, body shops, and valet services frequently handle customers’ vehicles. For these businesses, Garage Keepers Insurance is often necessary to secure contracts and operate legally. Many commercial leases and contracts require businesses to carry this type of insurance to mitigate risk.

Example of Garage Keepers Insurance in Practice

Consider an auto repair shop with a customer’s car parked on its lot overnight. If a storm causes a tree branch to fall on the car, or if the vehicle is vandalized, the business’s Garage Keepers Insurance would cover the repairs (under comprehensive or specified perils coverage). Without this coverage, the repair shop would have to pay for the damages out of pocket or face a lawsuit from the vehicle owner.

Key Considerations When Purchasing Garage Keepers Insurance

  1. Level of Coverage:

    1. Businesses should evaluate the types of risks most relevant to their operation. For example, a business in an area prone to theft may prioritize comprehensive coverage, while one that frequently moves vehicles may need collision coverage.

  2. Policy Limitations and Deductibles:

    1. Garage Keepers Insurance policies have specific limits and deductibles that apply to each claim. Choosing limits that match the average value of customer vehicles and deductible levels that the business can afford is essential.

  3. Additional Insured Endorsements:

    1. If the business leases space or works in partnership with other companies, they may be required to add these parties as additional insureds on the policy. This extends coverage to other parties who may be liable for incidents involving customer vehicles.

  4. Primary vs. Excess Coverage:

    1. Businesses should decide whether they want primary coverage, which responds immediately in case of a claim, or excess coverage, which only applies after other insurance policies are exhausted. This decision often depends on the business’s risk tolerance and budget.

Summary

Garage Keepers Insurance is critical for businesses that store, repair, or service customer vehicles, as it covers the cost of physical damage to those vehicles while they’re in the business’s possession. This type of insurance not only protects the business financially but also fosters trust and ensures regulatory compliance, making it an essential coverage for any auto-related operation.