Bought a Towing Company? Insurance to Check First

A towing company needs four things insured: the trucks, the customers' cars on your hook and in your yard, the crews working beside traffic, and the yard and equipment you now own. The standard business auto form excludes other people's property in your care, so a customer's car on your hook is not an ordinary auto loss. Before you rely on the seller's program, check that each cover is in force for the entity that now owns the company: the buyer's new entity in an asset deal, or the acquired entity in a stock deal. This guide is for buyers of towing and recovery companies, including borrowers with a Small Business Administration (SBA) loan.

The short answer

Auto liability for the trucks is the base layer, but the standard business auto form excludes property in your care, custody or control, so a customer's car on the hook is not an ordinary auto liability loss.
Ask by name for on-hook cover (cargo on the hook) and for yard cover. The standard Insurance Services Office (ISO) garagekeepers endorsement does not use the words towing or on the hook in its insuring agreement.
Some states set floors for tow truck insurance. Texas, for example, sets per-truck liability and cargo minimums. These are floors, not recommended limits.
Report an ownership change to the workers' comp insurer, generally within 90 days. A late report can be treated as evasion, and a recalculated mod can reach back to the date of the change.
A quote, an application or a certificate is not coverage. Confirm what is bound, in whose name and from when.

What insurance does a towing company need?

Match each exposure to the coverage that usually responds. The table is a map, not a quote. What a policy pays depends on its forms and endorsements, so read the program you inherited.

Core coverage by towing exposure
Exposure	Coverage that usually responds	What to confirm first
A crash involving a wrecker or car carrier	Business auto, garage, motor carrier or truckers liability, depending on the program	Every truck and driver on the schedule, and a named insured that matches the entity holding the titles and the lender's collateral. See commercial auto insurance
A vehicle damaged while on the hook or on the bed	On-hook coverage, which may be separate or an endorsement on the auto or garage form	Which vehicles count, how they are valued, and what is excluded
A vehicle damaged, stolen or burned while stored in the yard	Garagekeepers coverage, or a similar yard form	Legal liability or a direct form (primary or excess), the limit against your busiest night, and the locations scheduled
A visitor slipping in the office or lot	General liability	That it is a premises policy and usually does not answer for driving or customers' vehicles
The trucks themselves	Auto physical damage	Lender's loss payable clause, and whether the wrecker body and winch are insured with the truck
Yard buildings, shop and tools	Commercial property, equipment cover	Replacement cost values, and how fences and outdoor property are treated
A crew member hurt near traffic or lifting	Workers' compensation	Class code, payroll estimate, experience mod (past-claims factor), and the ownership change report
Fuel or fluid released at a recovery or in the yard	Pollution cover (may need a separate policy or endorsement)	The pollution exclusion wording and what any pollution cover names
Release fees, cash, card terminals, employee theft	Crime and cyber	Employee theft wording and limits. See commercial crime insurance
Lost income after a fire or storm at the yard or shop	Business income cover	It pays for covered physical loss, after a waiting period (72 hours on the standard ISO form), and not for losing a rotation spot or a motor club account. See business interruption insurance
A serious highway crash or multi-vehicle recovery	Umbrella or excess liability	Which policies it sits over, and what contracts ask for

Why is a customer's car on the hook a different problem?

A towing company moves other people's vehicles for a living, and the standard forms were not written around that. The standard ISO business auto form excludes property damage to property owned or transported by the insured or in its care, custody or control. The garage coverage form has a care, custody or control exclusion too. See the glossary entry on care, custody and control.

Garagekeepers coverage is one way to insure a customer's vehicle left in your care. The standard ISO garagekeepers endorsement describes a customer's auto in the insured's garage operations, such as attending, servicing, repairing, parking or storing it. The words towing and on the hook do not appear in that insuring agreement. It also applies only to scheduled locations, so a second yard needs scheduling, and a car on a public road is a wording question. Ask your carrier whether a vehicle on your truck counts, and whether your program adds separate on-hook cover.

On-hook is a term in law as well as in policies. Florida requires an unauthorized operator at a crash scene to disclose in writing whether it has at least $300,000 of liability and $50,000 of on-hook cargo insurance, and Texas requires $50,000 of cargo insurance on certain tow trucks. The Texas figures are permit conditions and the Florida figures are disclosure wording, not recommended limits.

A hypothetical example. In the new owner's fifth week a strap fails and a customer's $40,000 sedan slides off the ramp. Business auto liability usually excludes property in your care, custody or control, and garagekeepers speaks to garage operations. On-hook cover, if the program has it, turns on its valuation, deductible and exclusions. If the program has none, the loss may sit with the company, so read the forms before a claim, not after.

What insurance minimums do states set for tow trucks?

There is no single national towing license, so insurance floors come from states, cities and agencies. Texas Occupations Code sections 2308.103 to 2308.105 set these minimums, cited here as an example.

Texas minimum insurance per tow truck, by tow type
Tow type	Minimum liability per truck	Cargo minimum
Incident management (a peace officer starts the tow)	$500,000	$50,000
Private property (a parking facility owner authorizes it)	$300,000	$50,000
Consent (the vehicle's owner or operator asks for it)	$300,000	None listed

The Texas Department of Licensing and Regulation (TDLR) adds paperwork conditions, including an exact name match between certificate and application and a 30-day cancellation notice to TDLR. The contracts, licenses and bonds guide lists the rest. Check your own state and city.

Floors may be low against a serious highway crash, which is where umbrella and excess liability comes in. Federal rules may also apply depending on truck ratings and trips, so ask your broker and counsel.

What can a seller's program leave out?

The seller's broker may have built a sound program for the seller's way of running the company. The question is whether it fits you. The coverage gaps guide for towing companies goes deeper on each.

On-hook cover. Does it exist, and which vehicles does it value how?
Yard cover. Does the limit match the most vehicles you can hold at once?
Pollution. What would it pay for fuel leaking from a wreck on your hook?
Employee theft. The standard ISO garagekeepers endorsement excludes theft by the insured's employees, so ask about crime wording.
Umbrella limits. State minimums and contract asks can differ widely.
Named insured. Policies may still list the seller. See wrong named insured after an acquisition.

What should you confirm in your first weeks as the owner?

Work through this list in order.

First-weeks insurance checklist for a new towing company owner
Step	What to do	Why it matters
1. Entity and policies	Confirm each policy names the entity that now owns the company	The seller's insurance generally cannot be assigned without the insurer's written consent
2. Full forms	Ask for the complete forms and endorsements for auto, on-hook and garagekeepers	A declarations page does not show exclusions. See declarations page versus full policy
3. Schedule check	Match the schedule to the trucks you run and the drivers you employ	Unlisted trucks and drivers cause surprises, and sold trucks cost premium. See removing vehicles and drivers you no longer have
4. State filings	Check certificates and filings against your regulator's rules, such as the Texas conditions above	A paperwork mismatch can cause a licensing problem even when the policy is sound
5. Workers' comp report	Report the ownership change to the insurer, generally within 90 days	A late report may be treated as evasion, and a recalculated mod can apply back to the date of the change
6. Lender terms	Get the lender's written insurance list and confirm the endorsements are on the policies	For SBA 7(a) loans over $50,000, SBA requires hazard insurance on pledged collateral (equipment at full replacement cost or maximum insurable value, with a lender's loss payable clause), with limited exceptions. Lenders can ask for more. See SBA lender insurance requirements
7. Customer and yard contracts	Compare each agency, motor club, fleet and lease insurance clause with the policies	A certificate is not the policy. See the contracts, licenses and bonds guide

For the general version, see your first 90 days of insurance after buying a business.

What do workers' comp and your lender add to the list?

In most states workers' comp premium is a state-approved rate per $100 of payroll for the class code, adjusted by your experience mod (a factor based on past claims), and a buyer usually inherits the seller's mod. The workers' comp guide for towing companies covers classes, audits and the ownership change report.

Lenders financing a towing company generally treat the trucks and equipment as collateral, so ask your lender how it treats them. Lenders want physical damage cover with the lender named, and SBA lenders must monitor required insurance for the life of the loan. Under a lender's loss payable clause, the lender's interest generally survives acts of the owner that would void the owner's own claim, so read it before you assume a claim check is yours.

See also what drives insurance cost for a towing company, and how to choose a broker for a towing company if you are choosing who reviews the program. Morrow can review the declarations pages, forms and loss runs you inherited and request quotes where it makes sense, though any new terms depend on carrier underwriting.

Keep reading

Frequently asked questions

Does my general liability policy cover customers' cars on my hook?

Usually not. General liability is a premises and operations policy, and claims from hauling vehicles are generally auto claims. The standard business auto form excludes property you own or transport or have in your care, custody or control. A car on the hook may be addressed by on-hook cargo cover or a garagekeepers form, depending on the wording, and the standard garagekeepers wording does not mention towing. Check your own policy.

Is garagekeepers the same as on-hook coverage?

No. They are related but different. The standard ISO garagekeepers endorsement describes a customer's auto in garage operations, and its insuring agreement does not mention towing or the hook. On-hook cover is usually described as cover for vehicles being towed, but its terms vary by carrier and form. Ask your broker which one your program has and what each covers.

Do the seller's policies carry over to me?

Not automatically. Policy rights and duties generally cannot be transferred without the insurer's written consent, so in an asset deal you usually need your own policies. In a stock deal the entity and its policies stay, but the insurer should be told about the ownership change.

What insurance does my lender require on the tow trucks?

It depends on the loan. For Small Business Administration 7(a) loans over $50,000, SBA requires hazard insurance on pledged collateral, with equipment insured at full replacement cost or maximum insurable value and a lender's loss payable clause, subject to limited exceptions. Lenders can ask for more, so get the requirements in writing.

How fast should I report the ownership change for workers' comp?

The policy generally requires the employer to report an ownership change to its insurer within 90 days. A late report can be treated as experience rating modification evasion, and a recalculated mod can reach back to the date of the change, so make it an early task.

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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