What Is Garage Keepers Liability Insurance?

Businesses that handle customer vehicles face distinct risks and potential financial liabilities. Garage keepers liability insurance is a specialized coverage designed to protect businesses from losses if a customer’s vehicle is damaged while under their care.

Understanding Garage Keepers Liability

Garage keepers liability insurance protects customer vehicles, including their equipment and parts, when they are in the care, custody, or control of a business. This coverage differs from general garage liability insurance, which addresses broader business risks like customer injuries on the premises or damage to property not directly related to a customer’s vehicle.

The concept of “care, custody, or control” is central to this insurance. It means the business has taken responsibility for the vehicle, whether it is parked, being serviced, or during a test drive. If a customer’s car is damaged during this period, garage keepers insurance can help cover the financial losses.

What The Coverage Includes

Garage keepers liability policies cover damage to customer vehicles from various perils, including fire, theft, vandalism, and collision. This coverage applies to vehicles stored at the business premises, such as in a parking garage or repair shop, or while being moved by the business’s employees.

Two common coverage options are “legal liability” and “direct primary.” Legal liability coverage pays for damages only if the business is found legally responsible or negligent for the loss. For instance, if an employee causes an accident during a test drive, legal liability coverage would apply.

Direct primary coverage is broader, paying for damages regardless of fault or negligence. This means if a customer’s car is damaged by a natural disaster, such as a hailstorm or flood, while in the business’s care, direct primary coverage would still apply. Businesses often prefer direct primary coverage for quicker claim resolution and enhanced customer satisfaction, despite potentially higher premiums.

Typical Exclusions

While garage keepers liability insurance offers protection, it has specific exclusions. Damage from faulty workmanship or defective parts is typically not covered, as these issues are often addressed by other types of insurance, such as professional liability or product liability. Similarly, theft by an employee is usually excluded and falls under an employee dishonesty bond or similar policy.

Other common exclusions include personal items left inside the customer’s vehicle, such as cash, electronics not permanently installed, or other valuables; these are generally the responsibility of the customer’s personal insurance. Vehicles that are not explicitly under the business’s care, custody, or control at the time of damage are also excluded.

Businesses That Need This Coverage

Many businesses that routinely handle customer vehicles benefit from garage keepers liability insurance. Auto repair shops, car dealerships, and service stations require this coverage because they regularly store vehicles for service or sale.

Parking garages, valet services, and towing companies also need this insurance. Parking garages and valet services take custody of vehicles for storage and movement, while towing companies transport and temporarily hold damaged vehicles. Body shops, custom shops, and car washes also fall into this category, as they perform work on customer vehicles.