Car Wash Insurance After You Buy: What to Confirm

A car wash needs one coverage that a generic small business package often leaves out: garagekeepers, which is built for damage to customers' cars while they are in your care. A standard liability policy generally does not pay for a customer's car on your conveyor. Property, equipment breakdown, business income and workers' compensation then need to be written for the entity that now owns the wash. This guide is for the buyer who just closed on a conveyor, in-bay automatic or self-service wash and wants to know what should be in force and what to confirm first.

The short answer

The gap that catches many new owners: a standard general liability policy generally does not pay to repair a customer's car while it is in your care, custody or control. Garagekeepers coverage exists for that exposure.
A tunnel earns money only while the conveyor and controls run, so equipment breakdown and business income deserve as much attention as the building.
Workers' compensation is the other big line. Hourly crews work around moving machinery, wet floors and chemicals, and the seller's claims history usually follows the business to you.
Your lender and, if you lease, your landlord set minimums of their own. Read the loan documents and the lease insurance clause before you accept the seller's limits.
In an asset purchase the seller's policies do not simply transfer to you. In a stock or membership purchase they stay with the entity, but each insurer still needs to be told. Confirm in writing what is in force, in whose name, and when it renews.

What insurance does a new car wash owner need?

Start from the exposures, then match each to a policy. This is a working list for a typical staffed wash. An unattended in-bay automatic is a different risk from a conveyor tunnel with a crew of twenty.

Car wash exposures and the coverage that usually responds
What can go wrong	Coverage that usually responds	What to confirm on the policy
A customer's car is damaged while in your care	Garagekeepers (stand-alone, an endorsement to commercial auto, or part of a garage policy)	The basis (legal liability, direct primary or direct excess), the limit, and whether the limit applies to each location or in total
A customer or bystander is hurt on the premises (for example a slip) or other property is damaged	Commercial general liability, with an umbrella over the scheduled underlying policies	Whether the umbrella schedules the policy that responds to a car an attendant moves, and that limits meet your lease and loan
An employee is hurt	Workers' compensation	The class code, the payroll estimate, and that the ownership change was reported
A conveyor, motor, controller or dispenser fails	Equipment breakdown	Whether it is built into the property form or separate, and the limit for controls
Fire, storm or vandalism damages the building or tunnel	Commercial property	Replacement cost or actual cash value, lender clauses, and who insures the building if you lease
The wash closes after covered physical damage	Business income and extra expense	The waiting period (many standard forms start after 72 hours) and how long payments last
Wash water, acids or separator sludge reach the ground or a storm drain	Pollution legal liability, most often considered for owned sites and for leases that require it	What the liability policy excludes and whether a separate policy fits
Member names, plates or card data are exposed	Cyber liability	The retention and which notification costs are included
Staff bring pay, tip or workplace claims	Employment practices liability (EPLI)	Whether wage and hour defense is excluded or limited

Vehicles you own, portable equipment and cash handling add commercial auto, inland marine and crime coverage. Our companion guides cover the gaps new car wash owners find and what moves the price.

Who pays when a customer's car is damaged in my wash?

Many standard general liability forms exclude damage to property in your care, custody or control. Garagekeepers coverage is the policy built for that gap, and a customer's car on your conveyor is the clearest example. Courts tend to read the exclusion's words broadly, and whether a given loss falls inside it depends on the facts and on the carrier's form.

Trade sources describe three garagekeepers bases, and carriers name them differently:

Legal liability. Pays only when the wash is legally at fault. A no-fault loss pays nothing.
Direct primary. Pays regardless of fault, and pays first, ahead of the customer's own insurance.
Direct excess. Pays regardless of fault, but only after the customer's own insurance.

Ask which basis the seller's policy uses. Do not assume a limit is typical, because published figures conflict and limits are often chosen for each location. Also ask in writing which policy responds when an attendant drives a customer's car onto the conveyor, because the answer turns on the exact forms. For the product itself, see garagekeepers coverage.

A hypothetical example. An attendant at an express tunnel puts a customer's sport utility vehicle in drive instead of neutral just before it reaches the track. The vehicle leaves the track, dents two other customers' cars and damages part of the building. Three questions follow:

Which policy pays the two customers, and does it pay only if the wash was at fault?
What does the property policy do for the building and the equipment?
How many days is the tunnel down?

Each answer sits in a different policy.

Severity can be far higher than property damage. Trade press reported a 2013 Texas incident in which a runaway vehicle killed a bystander. So ask which liability policy would respond to a bystander injury from an attendant-driven car, what its limit is, and whether the umbrella sits over it. See reviewing umbrella and excess liability.

Does the seller's insurance carry over to me?

It depends on how the deal was structured, and your deal counsel should confirm the legal details.

You bought the company (stock or membership interests). The legal entity is the same, so its policies, claims history and the approvals it holds stay with it, though some issuers still want notice of the new owner. Claims-made lines such as management liability, employment practices and cyber often have change in control wording, so read each policy. Workers' compensation has its own reporting rule, covered below.
You bought the assets into a new company. Policy rights and duties generally cannot be transferred without the insurer's written consent, so your new entity usually needs its own policies in force at closing.

For a car wash, three policies deserve a fresh look at closing: garagekeepers (often written as its own form, with a limit that may be set for each location), workers' compensation, and the property schedule for the tunnel equipment.

Workers' compensation runs on its own track. Many workers' compensation policies require you to report an ownership change to the insurer within 90 days (state bureau rules differ), and the seller's experience rating usually follows the business in either deal type. See workers' comp, payroll and class codes for a car wash, and for the general decision keep the seller's insurance or start over.

A quote, an application or a certificate is not coverage. A policy is in force only after the carrier binds it, and a certificate only summarizes what the policy says.

What will my lender and landlord expect to see?

Retail car wash customers do not usually ask for insurance certificates, so the demands usually come from lenders, landlords and franchisors.

Lender. For Small Business Administration (SBA) 7(a) loans, the SBA's current rulebook calls for property (hazard) insurance on pledged assets for loans over $50,000, and the credit memo must address liability coverage. The rulebook sets no minimum liability limit and does not require the lender to be an additional insured, but individual lenders often ask. If the loan is secured by tunnel equipment, expect a lender's loss payable clause on that policy. Details are in contracts, licenses and bonds for a car wash and SBA lender insurance requirements.

Landlord. On leased land the landlord usually insures the building and you insure your equipment and contents. The lease usually sets the additional insured and certificate terms; see lease insurance requirements for new owners.

What should I confirm in my first 30 days?

Four facts about your site change this list most: whether you own or lease the land, whether you sell fuel or run a store, how large your membership program is, and how many people work on site. Work through the list with your broker or the carriers, and get each answer in writing.

Named insured. Does every policy name the entity that now owns the wash, and every location?
Garagekeepers. Which basis, and what limit (and does it apply to each location)?
Equipment breakdown and business income. Are controllers and conveyor drives covered, and does the income figure reflect your actual sales, including recurring membership billing?
Property valuation. Are the building and tunnel equipment insured at replacement cost, not at the purchase price or the seller's old numbers?
Workers' compensation. Was the ownership change reported, and what is the current experience modification (a multiplier from your claims history, where 1.00 is the baseline)?
Loss runs. Request five years for every line and read the open claims. See how to read loss runs.
Safety records. Ask for the written lockout and tagout program, chemical safety data sheets and training logs.
Certificates. Which did the seller issue to the landlord or lender, and do they still match the policies?

Programs built for the seller may stop short in a few places: garagekeepers written on a legal liability basis only, no equipment breakdown for the controls, a business income figure that ignores membership billing, and no cyber coverage for the member list. The gaps guide takes each in turn. The page on your insurance plan for the first 90 days puts the list on a calendar.

If you want a second set of eyes on what the seller left in place, Morrow can review the policies and flag what looks thin for a wash. New terms depend on carrier underwriting.

Keep reading

Frequently asked questions

Does my general liability policy cover a customer's car damaged in my wash?

Often not. Many standard general liability forms exclude damage to personal property in your care, custody or control, and a customer's car on your conveyor is the classic example. Garagekeepers coverage is designed for it. Check the exclusions and endorsements on your actual policy.

Is garagekeepers insurance required by law for a car wash?

Rules vary by state and city, so confirm locally. The bigger driver is usually your contracts: a lender, landlord or franchisor may require it. Check those documents, and ask your broker which basis your policy uses (legal liability, direct primary or direct excess).

Do I need new policies if I bought the company's stock or membership interests?

Not necessarily new policies, but you should tell each insurer about the ownership change and confirm the policies still fit. Many workers' compensation policies require reporting within 90 days, and some other policies have change in control wording. If you bought assets into a new company, you generally need your own policies in force at closing.

What should I check on my property policy for the tunnel equipment?

Check that the conveyor, controller and dryers are listed at replacement cost, whether equipment breakdown is included or separate, and who insures the building if you lease. The lender may also require a loss payable clause on the equipment.

My in-bay automatic has no employees. Do I still need all of this?

Less may apply, but not nothing. With no staff on site, workers' compensation may matter less, while garagekeepers, property, equipment breakdown and liability for customers and vehicles still do. Read the policy wording and your lease and loan clauses, because they set minimums regardless of how many people work on site.

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.

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