Garage Liability Insurance
Garage Liability policies are designed to cover vehicle dealerships for third-party liabilities and property damage. Other common terms for this type of coverage are Auto Dealer Insurance, Garage Insurance, Garagekeepers, and Garage Policy.
There is not a one size fits all policy for auto dealerships. These policies are a unique combination of a commercial liability form and an auto policy. Jet agents work with each car dealer to tailor the proper coverage for inventory and to protect from liabilities.
What Does a Garage Liability Policy Cost?
Garage Liability insurance prices range from $500 to over $5,500 for small to midsize dealerships and is heavily dependant on the coverage “mix”. A dealer can choose one or a combination of the following coverages: Garage Liability, Auto Coverage, and Garagekeepers Coverage. Each coverage greatly affects the premium rate if added.
|Classification||Average Premium Range*|
|Total Garage Policy Coverage||$1,050-$5,500|
*Prices shown are based on several factors including, but not limited to, ownership, employees, liability limits, inventory, security, and location. Rates do not constitute an offer of coverage and are subject to change at any time. Rates may fall outside average ranges shown here due to exceptional risk factors.
Insurance carriers base the premium on many factors including, but not limited to: number of owners and employees, motor vehicle records of owners (including family members) and employees, liability limits, number of vehicles and dealer plates, value of inventory, location, distribution, and lot security.
What Does a Garage Policy Cover?
For a car dealership, coverage is dependent on what policy forms the dealer selects to have. The three major areas of coverage, Garage Liability, Auto Physical Damage Coverage, and Garagekeepers, are broken down below.
Garage Liability Coverage – Protection for Third Party Damages
When it comes to liability, auto dealers should be most concerned with the risks that arise from vehicles up for sale and vehicles used in relation to the dealership.
Whether on a test drive, bringing a car back from auction, or moving a car around the lot, there is a risk to injure another person or damage others property. Garage Liability financially protects the dealership against lawsuits that emerge from these perils and the associated legal costs.
Let’s explore an example of when this coverage is needed. Frankie, an auto dealer, needs to put gas into a car that is for sale on the lot. While driving the car to the gas station, Frankie rear ends another truck. The damages to the truck and the person in the truck are covered by the auto liability section of Frankie’s policy.
As mentioned earlier, dealers are often required to include family member’s information on their application for garage liability. Dealers may find this part of the application process odd, but the insurance companies are aware that it is a common occurrence for cars from the lot to end up being driven by a dealer’s significant other and/or their children. The liability of the family members driving vehicle inventory is covered, but be forewarned, it will just cost more if there are teenagers getting behind the wheel.
Vehicles used in connection with the dealership also have liability coverage on the typical garage policy. This includes service vehicles and autos used by employees, owners, and family members in conjunction with the auto business. For instance, Frankie’s employee, Finley, drives her car from Frankie’s dealership to auction. Finley drives her car through the front of the auction. Damage to the auction’s facility is covered by the garage liability policy.
Liability coverage for the dealership’s physical location is an add-on option available per request. The coverage is meant to financially protect a dealership from injury to customers and damage to customer’s belongings while on the lot. Banks and landlords may require a tenant vehicle dealer to have this coverage in place for the bank or landlords own protection.
An example of liability for the physical location could go like this: Charlie wants to buy a car at Frankie’s lot. While on the lot, Charlie slips on oil and injures an arm. Charlie sues the dealership, and Frankie’s insurance company pays for the claim and the legal costs through the premise liability coverage.
Auto Physical Damage Coverage – Insuring a Dealer’s Inventory
This coverage protects the dealer’s inventory from any physical damages incurred. Auto coverage is for the dealers inventoried autos and coverage can be extended to vehicles for sale via consignment or on a floor plan.
There are two main types of physical damage coverage under Auto Coverage: Comprehensive Coverage and Collision Coverage.
Comprehensive coverage refers to damage caused by theft, vandalism, fallen objects, flooding, etc. For instance, one of Frankie’s vehicles has been stolen off the lot. The stolen car would be covered under the comprehensive auto coverage.
Collision coverage protects against damage to the dealerships vehicle that occurs from collision with another object or vehicle. For example, our dealer Frankie is driving a car on the lot and crashes with another driver. The collision coverage would pay for the damage to Frankie’s vehicle.
The two coverages are often paired together, though it is important to note that they do not cover all vehicle issues. Regular mechanical problems are not under either of these coverages.
Garagekeepers – Coverage for Customer’s Vehicles
Garagekeepers coverage can be added to a garage policy and is meant to cover any damages to a customer’s vehicle while in the dealership’s possession. Garagekeepers is offered in three different forms:
- Legal Liability – Protection that applies when a customer’s vehicle is damaged due to negligence of the insured.
- Direct Primary – Safeguards the customer’s vehicle no matter the liability, specifically loss incurred by weather, theft, etc. Negligence does not need to be proven.
- Direct Excess – This coverage is secondary to the customer’s vehicle insurance, up to the value of the vehicle. If the customer does not have physical damage coverage on their auto, then the Direct Excess would become primary and cover the damages.
For example, Charlie’s car needs service and Charlie takes it to Frankie’s dealership. Charlie’s car is sitting on the lot waiting to be worked on. Frankie is driving another vehicle on the lot and slams into Charlie’s car. The garagekeepers policy would cover the costs to fix up Charlie’s car.
It is important that all employees and officers of the company are listed on the policy as drivers. Only drivers and locations listed on the policy are afforded coverage if a customer’s vehicle is damaged. Smaller auto dealerships rarely carry a garagekeepers policy, as they do not have customer’s vehicles on their lot for any long period of time. Tow truck drivers and auto mechanics are more inclined to purchase garagekeepers insurance.
What Garage Liability Doesn’t Cover
There are certain items not covered under a garage policy. These are typically purchased as a separate policy:
- Faulty workmanship
- Employee injuries
- Contents within customer vehicle
Who Needs a Garage Policy?
Even though garage liability is not a requirement in all states for auto dealers and repair shops, it is best practice to obtain this coverage. Businesses that should consider a garage policy are:
- Auto Dealerships
- Auto Body Shops
- Vehicle Service Stations
- Trailer Dealerships
- Motorcycle Dealerships
- Motorhome Dealerships
- Oil Change and Lube Shops
- Detailing Shops
- Tow Truck Operators
What Happens If I Get a Claim on My Garage Policy?
If a claim is filed on your garage policy it is important to address the matter immediately.
Some claims can be handled by dealing directly with the claimant and addressing the issue. A factor to consider when addressing the claim filing should be claim size vs. deductible on the policy.
Should the insurance company get involved, the insured should refer to the policy document which contains a page with information on who to contact in the event of a claim. The insurance company has a duty to defend the policy owner and will handle all matters. It is in the best interest of the insured to be prompt and forthcoming with all requested details.
If negligence is proven on the insured’s part, the insurance company will not cover the customer’s losses, leaving the insured responsible to pay for losses sustained.
What Other Coverages Does a Car Dealer Need?
Vehicle dealerships coverages vary from state to state, but all states require a motor vehicle dealer bond, which will depend on the dealership type and/or the amount of vehicles being sold. Dealerships with employees will need workers compensation insurance.