Bought an Auto Repair Shop? Insurance to Check First

A repair shop holds other people's cars, and a standard general liability policy usually does not cover them. Confirm five core coverages are in force for the entity that now runs the shop: garagekeepers (for customers' cars), shop liability, property and equipment, workers' compensation and commercial auto. Written for new shop owners, including search fund CEOs and borrowers with a Small Business Administration (SBA) loan.

The short answer

A shop holds customers' cars, and standard general liability excludes damage to property you are holding for someone else. Garagekeepers coverage is the piece most new owners should verify first.
Liability for test drives and shop operations is a different coverage from protection for the customer's own car. Many shops need both.
Property, equipment and business income coverage matter. One carrier says fire is among its most common and most expensive repair shop claims, and a closed shop still has payroll and loan payments.
Workers' comp usually responds when technicians are hurt on lifts, with heavy parts or around chemicals, subject to the policy and state law. In states that follow National Council on Compensation Insurance (NCCI) rules, an ownership change generally must be reported to the insurer within 90 days.
A quote, an application or a certificate is not coverage. Confirm what is bound, in whose name and from which date.

What is the core insurance an auto repair shop needs?

Think of the shop as a set of exposures, then match each one to the coverage that usually responds. The table is a map, not a quote. What a policy actually pays depends on its forms and endorsements, so check the wording on the policy you inherited.

Core coverage by shop exposure
Exposure	Coverage that usually responds	What to confirm first
A customer's car in the bay or on the lot	Garagekeepers coverage	Limit compared with the most cars on site at once, deductible per car, which causes of loss are covered
A test drive or other road accident	Garage liability or business auto liability	Which covered-auto symbol applies (customers' cars you test drive are not owned autos); who counts as an insured driver; whether loaners and shop trucks are covered autos
A repair that fails after the car leaves	General or garage liability, products and completed operations	Separate aggregate limit; whether redoing the work is covered depends on the wording and may be treated as business risk, so ask the carrier in writing
Fire, theft or storm at the shop	Commercial property	Lifts, compressors, scan tools, parts and tires listed at current replacement cost
Equipment breakdown, tools that travel	Equipment breakdown, inland marine	Whether technician-owned tools are covered at all
A shutdown after a covered loss	Business income	Waiting period, and the fact that it needs direct physical damage
A technician injury	Workers' compensation	Class code, payroll estimate, experience mod, ownership change report
Shop trucks, loaners, parts runs	Commercial auto	Vehicles and drivers on the schedule; titles in the new owner's name
A solvent or oil release	Pollution coverage, often separate	Pollution exclusions in the liability form
Card data, cash and employee theft	Cyber and crime	Whether any form reaches customers' vehicles or card data, and the limits and reporting deadlines

Do the seller's policies still protect you after closing?

Before you test the policies, decide whether they are still yours. It depends on how the deal was structured, so ask deal counsel and the carriers before you assume. In a stock or membership interest purchase, the legal entity stays the same, so its policies usually continue, but change of control terms and reporting duties can apply. In an asset purchase, your new entity usually needs its own policies in force at closing.

These are the questions behind keeping the seller's insurance or starting over and who covers old claims in a stock or asset deal. A broker review of the declarations pages, forms and loss runs is how most buyers answer them. Morrow does these reviews and can request quotes, though any new terms depend on carrier underwriting and nothing is covered until the carrier binds it.

Is a general liability or businessowners policy enough for a repair shop?

Usually not by itself. Standard liability forms exclude damage to property in the insured's care, custody or control, so a customer's car left with the shop typically falls outside a plain general liability or auto liability form. The Insurance Services Office (ISO) Garage Coverage Form combines liability for garage operations with garagekeepers coverage. ISO also offers garagekeepers as an endorsement for other auto businesses.

Many independent shops are insured another way: a general liability policy or a businessowners policy (BOP) plus separate garagekeepers and auto coverage. A BOP generally does not cover autos. Which structure the seller used tells you what to check first, so ask for the declarations page and the list of forms and endorsements behind it, not only the summary.

Garage liability and garagekeepers are two coverages, not one. If a technician test drives a customer's car and hits another vehicle, garage liability usually answers for the other driver's injuries and car, and garagekeepers usually answers for the customer's car. The outcome depends on the forms, fault and limits. Read more on garage and garagekeepers coverage and the auto repair insurance overview.

What makes fire and property risk different in a repair shop?

Carriers name the same fire hazards again and again. One carrier's loss-control guidance for repair shops lists these:

Oily rags that can heat and ignite, and solvent-based brake and carburetor cleaners.
Service pits where fuel vapors collect, and static when transferring flammable liquids.
Stored tires, leaking hydraulic fluid from lifts, and welding and grinding.
Unattended battery charging, damaged electrical cords, and spray painting without a properly designed booth.

The same carrier says fire is among its most common and most expensive repair shop claims, though it does not publish counts.

Property coverage matters for another reason. Under the standard ISO building and contents form, property is valued at actual cash value unless an optional replacement cost coverage is shown on the declarations. A lift or alignment rack bought years ago can be worth far less on paper than it costs to replace. See commercial property insurance for how valuation and coinsurance work.

A hypothetical example. A buyer closes on a six-bay shop. In week three, solvent-soaked rags in an open bin ignite overnight. The fire damages the shop's contents and several customers' cars waiting for service.

Four questions decide how the loss plays out:

Are the lifts, scan tools and parts listed at replacement cost?
Does the garagekeepers limit stretch to the cars on the lot that night, after the per-car deductible?
Does the policy carry the lender's loss payable wording, which protects the lender's interest in damaged collateral?
How will payroll and loan payments be met while the shop is closed? The standard ISO business income form starts after a 72-hour waiting period.

None of those answers comes from a certificate. They come from the policy.

What should you confirm in the first few weeks?

Work through this list in order. It turns an inherited program into one you have actually checked.

First-weeks insurance checklist for a new shop owner
Step	What to do	Why it matters
1. Named insured	Confirm the policies name the entity that now owns the shop	A policy that lists only the seller can leave your company outside it. See wrong named insured after an acquisition
2. Full forms	Ask the carrier for the complete policy forms and endorsement list	A declarations page does not show exclusions
3. Garagekeepers sizing	Compare the limit with the highest number of customer cars you hold at once	One 2013 trade article quoting a broker says this is where shops are often underinsured
4. Workers' comp report	Report the ownership change to the insurer, generally within 90 days in NCCI-rule states (confirm your state's rule)	The rating organization decides how experience carries over. A recalculated mod can apply back to the date of the change, and failing to report can be treated as evasion of experience rating
5. Lender terms	Get the lender's written insurance list and confirm the endorsements are on the policies	SBA rules generally require hazard insurance on pledged collateral for loans over $50,000, and equipment and inventory collateral generally must be insured at full replacement cost with a lender's loss payable clause. Lenders add their own terms. See SBA lender insurance requirements
6. Landlord and customers	Compare lease and fleet contract insurance clauses with the policies	A certificate is not an endorsement. Our guide to contracts, licenses and bonds covers this
7. Loss runs	Request five years of loss runs for every line	They show the claims history you inherited. See how to read loss runs

The insurance checklist for buying a business and the first 90 days guide put these steps on a calendar.

What does the seller's program often leave out?

A seller's program may have been right for the seller and still be thin for you, because your volume, lender, contracts and plans differ. Two items worth checking first are garagekeepers limits sized to your own peak number of customer cars and pollution coverage for solvent or used oil spills, since the ISO garage form reviewed excludes many pollution events at premises the insured owns, occupies or rents. Equipment breakdown, employee theft of customers' cars and card data are also worth a check. Our guide to coverage gaps new shop owners find walks through each one, and what drives insurance cost for a repair shop covers price.

Keep reading

Frequently asked questions

Does my general liability policy cover customers' cars in my shop?

Typically not. Standard liability forms exclude damage to property in the insured's care, custody or control. Shops usually close that gap with garagekeepers coverage, either inside a garage policy or as an endorsement. Check your own wording, because forms and endorsements vary.

What is the difference between garage liability and garagekeepers?

Garage liability responds to claims by other people, such as another driver hurt in a test drive accident. Garagekeepers responds to damage to a customer's vehicle while it is in your care. They are separate coverages, and many shops need both.

Do I have to tell the workers' comp insurer that I bought the shop?

In states that follow the National Council on Compensation Insurance (NCCI) rules, the policy generally requires the employer to report an ownership change within 90 days, whether or not the business currently has an experience mod. Rules differ in independent bureau states and in state fund states, so confirm with your insurer.

Does my lender care about my shop insurance?

Yes. SBA loans over $50,000 generally require hazard insurance on pledged collateral, with limited exceptions for some smaller loans, and lenders write their own insurance terms into the loan documents, including liability. Ask your lender for its insurance requirements in writing and compare them with your policies.

What should I ask the seller's broker for in week one?

The full policy forms and endorsement schedule, five years of loss runs for each line, the garagekeepers schedule with the cars-on-site basis, and the workers' comp class codes and payroll estimate. A declarations page alone does not show exclusions.

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.

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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.

Just Bought an Auto Repair Shop? What Insurance Do You Need?