What Insurance Gaps Do You Inherit With an Appliance Repair Company?

The gaps worth checking first sit around what you hold and what you promised: customers' appliances on the bench or in the van, tools that travel, the cost of redoing a bad repair, prepaid service plans and work the seller finished before closing. Standard policies often leave some of these out unless someone bought something extra, and which ones depends on the wording. This guide is for buyers who have read the seller's declarations pages and want to know what they do not show.

Where do the gaps tend to hide in an appliance repair company?

Read the table as a map of where to look. It is built from the way the work happens and the way the standard liability form is worded, so each row says where the gap hides and what a fix usually looks like. Whether any given policy has the gap depends on its own wording and endorsements.

Who pays when a customer's appliance is damaged in your shop?

A bailee is a person or business entrusted with another's property for repair or servicing. A customer's washer left for a bearing repair is property in your care, and standard liability forms exclude that. Your own property policy is written mainly for your property. Some commercial property forms treat other people's property in your care as part of business personal property, usually at or near the described premises, with valuation and coinsurance conditions that can differ from your own property, and little cover in a van. Others are narrower or exclude it. Whether yours responds, and up to what amount, is a wording question for the carrier, so ask to see the language.

A hypothetical example. A customer leaves a front-load washer at the shop for a bearing repair. A shop electrical fire destroys it and four other customers' units, five in all, worth $6,000 in total. The shop's property policy covers the bench, the parts and the building contents. Liability excludes customers' goods in the company's care. Whether the $6,000 is paid depends on whether the property policy extends to customers' goods and at what limit. Unless the owner bought a bailee's customers form or confirmed such an extension, some or all of it may fall on the company.

Appliances in the van are the same problem in motion, since goods in transit face crash and theft risk. For the underlying forms see the care, custody and control definition and the inland marine review. Then ask your broker to price a bailee's customers form sized to the most units you held at once in the last year.

What if the repair itself fails?

The standard liability form separates two things owners tend to blur. Damage that a failed repair causes to something else, like a house fire or a flooded ceiling, is what completed operations coverage is for. While the job is under way, damage to the particular part of the property you are working on is generally excluded. Once it is finished, the standard form generally excludes the cost of your own work, including parts you furnished. In practice a redo is the company's own cost. The core stack, including completed operations and its separate aggregate limit, is mapped in the first article in this group.

The standard form's "your work" language covers work done by you or on your behalf. In a stock purchase the company is the same, so earlier work is its own. In an asset purchase, work finished before closing is not automatically your covered work. The related term "your product" does reach goods sold by a business whose assets you acquired, so parts the seller sold may be treated differently from labor, and the carrier can tell you how the form treats both. Which policy answers depends on the deal structure, so ask deal counsel. A prior occurrence policy (one that responds to damage during its policy period) can answer for injury or damage during its period, whenever the claim is made, and damage that happens after closing falls to the policy in force then. Ask the seller for every policy from the last several years, not just the current one. See liability for work the seller did and who covers old claims in a stock or asset deal.

Diagnosis is a softer spot. A technician recommends replacing a refrigerator that could have been fixed, and the customer says the advice was wrong. That is often a pure money loss, which liability policies may not treat as property damage at all, and a professional services exclusion, where the policy has one (common in businessowners liability sections), would be a second hurdle. Whether a contractor's policy answers advice claims depends on its wording, so put the question to the carrier. A professional liability policy is usually claims-made (it covers claims reported while the policy is in force), so retroactive dates need care after a sale.

Does my policy cover a refrigerant release?

Federal rules from the Environmental Protection Agency (EPA) require technicians who work on equipment that could release refrigerant to be certified, and require recovery before opening or disposing of a small appliance, such as a household refrigerator. EPA lists some flammable refrigerants, such as propane and isobutane, as acceptable with use conditions in household refrigerators and freezers. The insurance questions are narrow. Does the liability policy's pollution exclusion reach a refrigerant release? Does the application ask about flammable refrigerant units?

That depends on the pollution exclusion and endorsements on your policy, and the answer is not the same from one carrier to the next. Ask the carrier in writing whether a refrigerant release counts as pollution and whether the application should mention flammable refrigerant units, and file the answer with the policy. Whether a regulatory fine is insurable is a separate question. Certification and recovery rules are covered in contracts, licenses and bonds.

Are prepaid maintenance plans insured?

If the seller sold annual maintenance plans, you may have taken on a duty to repair for each plan holder, depending on deal structure and what the purchase agreement says you assumed. An ordinary liability or property policy does not fund that duty, although some insurers sell service contract reimbursement coverage to plan sellers. Count the plans, check the deferred revenue and ask deal counsel who bears them.

In California, a plan that fits the statute's definition is a regulated service contract, and the contracts article covers the financial requirements for sellers. Other states treat plans differently, and some may treat them as insurance, so ask the state insurance department where you operate.

Do the vans and technicians I inherited come with gaps too?

Vans are where a new owner often finds mismatches. The seller may have titled them personally, a technician may drive a personal car to a call, or the schedule may list a van that was sold two years ago. General liability excludes auto, so anything missing from the auto policy is a gap. Review the commercial auto review and vehicles titled to the seller.

People gaps are quieter. A technician is alone in a home, so a customer may allege theft. Some crime forms may cover theft of a customer's property by an employee, through an insuring agreement option or an endorsement, depending on the form. Wording varies, so ask whether a customer's home counts as a covered location and whether a written contract with the customer is required. A technician's injury is a workers' comp matter, and one paid as an independent contractor can be pulled into premium at audit. Details are in workers' comp and payroll for appliance repair companies. Finally, an umbrella policy sits over general liability, auto and employers liability, not over professional liability, so check what is underneath it.

How do you check for these gaps quickly?

You do not need to read every page. Gather five items and ask the carrier or broker five questions.

1. Declarations pages and the schedule of forms for every policy.
2. Five years of loss runs, to see fire, water, vehicle and injury history.
3. The vehicle list with titles and the driver list.
4. An equipment and parts list, plus the highest count of customer appliances on hand in the last year.
5. The count of prepaid plans outstanding and any customer agreements with insurance clauses.

Then ask the carrier or broker:

1. Is completed operations included, and what is its aggregate?
2. Is there any cover for customers' goods in the shop or van?
3. How are tools covered off premises?
4. Does any exclusion touch professional advice or pollution as it relates to refrigerant?
5. Which policies from earlier years does the seller still hold?

Fifteen coverage gaps in owner-run businesses gives the general version. A Morrow review can run these checks against your documents and request quotes where it makes sense, and any new terms depend on carrier underwriting.

Keep reading

• Just Bought an Appliance Repair Company? What Insurance Do You Need?
• Contracts, Licenses and Bonds for Your New Appliance Repair Company
• 15 Coverage Gaps New Owners Find in Owner-Run Businesses
• Insurance Exclusions That Quietly Kill Coverage
• New Owner Review: Tools, Equipment and Inland Marine
• All guides for new business owners

Frequently asked questions

What coverage gaps do appliance repair owners miss most?

No public claim data for the trade was found, so no ranking is possible. Based on how the work is done and how standard forms read, the first things to check are cover for customers' appliances in your care, tools off premises, completed operations, vans and drivers, and the cost of redoing faulty work, which liability policies generally exclude.

Does insurance pay when I have to redo a repair for free?

Usually not. Standard liability forms exclude the cost of redoing work that was done incorrectly. What they are meant to answer is damage the failed repair causes to other property, if the policy was in force and written that way. Treat redo cost as a business cost and check the wording.

Is a refrigerant release covered by my liability policy?

That depends on the policy's pollution exclusion and any endorsements, and the answer is not the same from one carrier to the next. Ask the carrier in writing whether a refrigerant release counts as pollution and whether the application should mention flammable refrigerant units.

Are prepaid maintenance plans insured?

Not by an ordinary liability or property policy. They are an obligation to perform repairs. California regulates plans that meet its service contract definition, and other states differ, so ask your state insurance department and your attorney. Service contract reimbursement insurance exists for sellers of plans where it is offered.

How many customer appliances should a bailee's customers limit cover?

Ask for the largest number of customer units you held at once in the last year and the typical value per unit, then ask a broker to size the limit to that. Whether a form is available and at what price depends on the carrier.

References

• ISO: Commercial General Liability Coverage Form CG 00 01 12 07 (carrier-hosted copy)
• IRMI: Bailee
• IRMI: Care, custody, or control
• U.S. Environmental Protection Agency: Section 608 Technician Certification Requirements
• U.S. Environmental Protection Agency: SNAP, Substitutes in Household Refrigerators and Freezers
• Cornell LII: 40 CFR 82.156, Required practices (small appliances)
• California Bureau of Household Goods and Services: Electronic and Appliance Repair Dealer Registration Law (effective January 1, 2024)

This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.