Coverage Gaps New Auto Repair Shop Owners Find

Many repair shop coverage gaps sit around the customer's car. The garagekeepers coverage that pays for customers' cars may have too low a limit, may pay only when the shop is at fault, and may skip hail, a car taken by an employee or a solvent spill. Many can be spotted by reading the policy forms against how your shop really runs and, where a carrier offers the cover, addressed with an endorsement, a higher limit or a separate policy. Written for a week-one review of an inherited program. The full coverage list is in insurance after you buy an auto repair shop.

The short answer

Garagekeepers (coverage for customers' cars in your care) is a gap trade writers often flag: limits are scheduled per location, a deductible applies per car, and one 2013 trade article quoted a broker saying shops are often underinsured there.
The form and the causes of loss both matter. Legal liability garagekeepers pays only when the shop is legally liable. Direct options pay whether or not the shop is at fault, for the causes of loss shown on the schedule.
The standard Insurance Services Office (ISO) garagekeepers endorsement excludes faulty work, defective parts, contractual liability and theft or conversion by the shop's own employees.
A spill or release at the shop is generally a pollution question, and the garage form excludes much of it. Card data is another gap that is easy to miss.
Some gaps come from the deal, not the policy: the wrong named insured, vehicles off the schedule, or contracts that ask for terms the policy lacks.

Which gaps do new owners of repair shops find?

Use this table as a list of questions for the carrier or broker. Whether any item is a gap for you depends on your forms.

Common repair shop coverage gaps and fixes
Gap	How it shows up	How to spot it	Usual fix
Garagekeepers limit too low	A fire or theft involving many customer cars exceeds the limit	Compare the scheduled limit per location with the most cars on site	Raise the limit, or reduce cars held outside overnight
Legal liability form only	Hail, theft or vandalism with no shop fault leaves the customer's car unpaid	Look for the direct coverage option on the schedule	Ask about direct primary or direct excess
Causes of loss narrower than the risk	Hail or flood damage to cars on the lot	Read the causes of loss named on the garagekeepers schedule	Ask about Comprehensive instead of Specified Causes of Loss
Faulty work and defective parts	Brake or steering repair fails after the car leaves	Read the garagekeepers exclusions and the products and completed operations limit	Confirm liability limits; ask the carrier in writing whether redoing the work is covered, since it may be treated as business risk
Employee takes a customer's car without permission	An employee drives a customer's car off the lot and wrecks or keeps it; garagekeepers excludes theft or conversion by the shop's employees	Ask whether any crime form reaches customers' vehicles at all	Get the broker's answer in writing; add or widen crime coverage if needed; tighten key and test drive controls
Pollution at the site	Parts washer solvent or used oil release	Look for pollution exclusions on the liability and garage forms	Ask about separate site pollution coverage; read the lease
Equipment and tools	A lift motor or compressor fails; tools are stolen from a truck	Look for equipment breakdown and inland marine	Add the coverages; schedule high-value tools
Card and customer data	The point-of-sale system is compromised and card numbers are copied	Ask whether any cyber coverage exists and what the card processor requires	Ask the broker about cyber coverage; confirm the shop's processor duties with its acquirer
Deal-created gaps	Wrong named insured, new vehicles off the schedule, contract terms missing	Compare the named insured, vehicle schedule and contracts with the policies	Endorse the policies to match the business you bought

Why can the cover for customers' cars (garagekeepers) fall short?

Garagekeepers covers damage to a customer's car or its equipment while it is in the shop's care for service, repair, parking or storage. Under the standard ISO endorsement, the limit is scheduled per location, and a deductible applies to each customer's car. A broker quoted in a 2013 trade article described a five-bay shop holding 10 to 15 cars with a $60,000 limit that would fall short after a fire. That is one broker's illustration, not a typical limit, but the pattern is the point: compare the limit with the value of the cars that can be on site at once.

The form matters as much as the limit. Garagekeepers can be written three ways:

Legal liability pays only when the shop is legally liable, usually through negligence. Insurance Journal reports that it is the most common choice.
Direct primary pays whether or not the shop is at fault, as primary coverage.
Direct excess pays regardless of fault, but only after other collectible insurance.

A second choice sits beside the form: which causes of loss the coverage names. In the ISO endorsement the options are Comprehensive (any cause except collision or overturn), Specified Causes of Loss (fire, lightning or explosion, theft, mischief or vandalism) and Collision (the customer's car hitting an object, or overturning). A policy written on specified causes would not obviously respond to hail, so check both the form and the causes shown on the schedule.

A hypothetical example. A hailstorm hits on a Friday while 12 customer cars wait outside for service. Say their combined value is $180,000 and the garagekeepers limit is $60,000 on a legal liability basis. If the shop was not negligent, a legal liability form may owe nothing. A direct primary form could respond whether or not the shop was at fault, if hail is among the causes of loss the policy covers, and only up to the limit and after a per-car deductible, subject to the form's maximum deductible for one event. For a buyer with a Small Business Administration (SBA) loan, even a loss the shop does not legally owe can become a goodwill decision, because customers whose cars were damaged on your lot may expect you to make it right, and that cost comes out of cash that services the debt. Weather, theft and vandalism are the losses where the form and the causes of loss decide who pays. Whether any particular loss is covered depends on the policy wording and the endorsements.

Details of the line are on the garage and garagekeepers page.

What does garagekeepers coverage leave out?

The standard ISO garagekeepers endorsement excludes liability assumed by contract, theft or conversion (taking or using the car as their own) caused by the shop, its employees or its shareholders, defective parts or materials, and faulty work the shop performed.

Faulty work. If a customer rear-ends someone after a brake repair and claims the repair was bad, injuries and damage to other property are generally a products and completed operations question (claims that arise after finished work leaves the shop) under liability, which has its own aggregate limit. Whether the cost of redoing the repair is covered depends on the wording and may be treated as business risk. See product liability review for new owners.
An employee driving off in a customer's car. Because theft or conversion by employees is excluded, ask whether any crime coverage would respond. Whether a crime form reaches a customer's vehicle, and whether an unauthorized joyride that ends in a wreck counts as theft, depends on the wording. Ask the broker to confirm in writing. Read employee theft for new owners and the crime coverage review.
Contract indemnity. A fleet customer's service agreement may push liability onto the shop. Have the broker read the insurance side of the clause and ask your attorney about the legal terms before you sign. Our guide to contracts, licenses and bonds covers this.

Is a spill or release at the shop covered?

Often not. Garage and general liability forms commonly exclude pollutants at premises you own, occupy or rent, at waste sites and in the handling of waste. The ISO garage form's exception for fuels, lubricants and fluids from a vehicle's own normal functioning applies to its covered-auto exclusion, so do not assume it reaches oil, solvent or antifreeze spilled or handled inside the shop. Carriers handle this differently by state, so ask your broker how carriers in your state treat repair shop pollution exclusions.

Stand-alone site pollution programs for small auto servicing businesses exist in the specialty market, so ask the broker whether one fits your shop and what it excludes. Fines and penalties are often a separate question, so do not assume they are covered. Your lease may also say who pays for cleanup. Read pollution coverage for new owners and exclusions that quietly kill coverage.

Are tools, equipment, card data and lost income covered?

Equipment breakdown and tools that travel are often separate from commercial property, and whether technician-owned tools are covered depends on the policy (see inland marine and equipment review). Business income coverage needs direct physical loss at the premises, not the loss of a key technician or fleet customer (see business interruption when the owner was the business).

Card data is the other gap that is easy to miss. A shop that takes cards holds customer details, and its security duties come from the card brands and its processor, not one federal law. State breach notification laws may also apply, so ask your attorney. Ask whether any cyber coverage exists and what it excludes, since cyber forms are often claims-made (they respond to claims first made while the policy is in force). The cyber coverage review explains what to look for.

How do you find these gaps in a week?

Ask for the documents first. A declarations page lists coverages and limits but not exclusions, so request the full forms and the endorsement schedule. See declarations page versus the full policy.

Request five years of loss runs for general liability, garagekeepers, workers' comp and property.
List the highest number of customer cars you hold at once, and compare it with the garagekeepers limit and deductible.
Ask whether garagekeepers is legal liability or direct, which causes of loss the schedule shows, and why.
Check the named insured and the vehicle schedule against the entity and trucks you actually own.
Ask whether any pollution, equipment breakdown, crime or cyber coverage exists, and read the exclusions.
Match your lease, lender and customer contracts against the endorsements on the policies.
Put the results in a one-page memo for your lender and investors: gaps found, cost to close each, and who owns the fix.

The same documents also answer whether the seller was underinsured: see was the seller underinsured? If the gap list changes your numbers, ask deal counsel and your lender what needs to be reported before the next covenant report. Morrow can review inherited policies, flag gaps and request quotes, and carriers decide any new terms.

Keep reading

Frequently asked questions

Which insurance gap should a new repair shop owner check first?

Trade articles quoting brokers often point to garagekeepers, where the limit, the form and the causes of loss decide whether customers' cars are paid for after a fire, theft or storm. Compare the scheduled limit with the most cars you hold at once, and ask whether coverage is legal liability or direct and which causes of loss it names.

Does garagekeepers cover a bad repair?

Under the standard ISO endorsement, no. It excludes faulty work and defective parts. Injuries or damage to other property after the car leaves are generally a liability question, and the cost of redoing the work may be treated as business risk. Check your own wording and ask the carrier in writing.

If an employee takes a customer's car, who pays?

The ISO garagekeepers endorsement excludes theft or conversion caused by the shop's employees, so the question goes to crime coverage and its terms. Crime wording varies on customers' property and on vehicles, so ask the broker to confirm in writing whether it would respond.

Does my liability policy cover an oil or solvent spill at the shop?

Often not. Garage and general liability forms commonly exclude pollution at premises the insured owns, occupies or rents. Ask about separate pollution coverage and read your lease for who pays for cleanup.

Are technician-owned tools covered?

It depends on the policy. Property and inland marine forms differ on tools, and high-value items are often scheduled. Ask your broker in writing whether technician tools are covered and for how much.

References

Just bought a business? Get your insurance reviewed.

Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.

Request a review Check a contract

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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.

Coverage Gaps New Auto Repair Shop Owners Find (and Fix)