Auto Service & Repair Shops

DOK insurance help

If your business is about providing auto repair, body shop, or other auto-related services, you know mistakes can be very costly. Although it is completely normal to make mistakes, especially since we’re all only human, when it comes to the auto repair industry, there are plenty of no-no’s.

No matter how good your technicians or mechanics are, mistakes can and will happen at some point. One problem with making mistakes in the auto industry is that it can be very costly. At the same time, it is unacceptable for customers to pay for service mistakes. When a consumer decides to take their business elsewhere, it means that a lifetime of business just walked out of your door.

Whatever automotive service you provide, you need business insurance to protect your assets from the risks associated with working mechanical magic or making repairs on people’s vehicles as any kind of error, injury, or damage can result in a costly claim or lawsuit. Garage Liability and Garage Keepers insurance may not be enough since it only has the minimum coverage to keep your business legal and can still leave open exposures for mechanic/technician errors.

To help you better understand what a standard Garage Liability and Garage Keepers insurance coverage offers, we have defined them for you.

General liability insurance

This policy provides coverage for incidents that happen on their property, such as an injury (eg. Customer slips and falls) or accidental damage that may occur from direct garage operations (whether to a customer or an employee) while on the premises.

Unlike most businesses with Commercial General Liability protection, auto garages have more risk since garage injuries tend to be more severe. Therefore, it is necessary to have specific policies tailored to the garage’s unique risks. Garage liability can as well provide coverage for any injuries or damages during road test drives and while storing vehicles during non-working hours.

Garage keeper’s legal liability

Garage Keeper Liability is an optional but recommended coverage for business owners that stores customers’ vehicles. The goal of this coverage is to offer you protection against damages caused to your customer’s vehicle while in your possession. Garage Keeper’s Liability is needed because it covers what garage liability excludes – autos in the business’ care, control or custody.

It does not cover damages that resulted from faulty workmanship, parts, or insufficient warranties. Basic garage keeper’s liability insurance also excludes coverage for the contents of your customers’ vehicles, such as things found inside their glove box or trunk and any non-factory stereo equipment.

You can, however, add an endorsement to your Garage Keeper’s policy to extend the coverage to personal property kept inside your customers’ vehicles. Garage Keepers’ liability insurance is usually sold with a garage liability policy, but it’s still a separate contract.

Garage keeper’s insurance offers three options:

  • Legal Liability – This is the most common type of Grage Keepers Liability which provides protection for customers’ vehicles when damaged due to the garage’s negligence. Here are some example scenarios:
    • A customer’s vehicle gets damaged while the mechanic is doing a test drive.
    • The garage left the convertible top down overnight and rain damages the client’s car.
  • Direct Primary – This provides coverage to the customer’s vehicle regardless of liability. Here are some example scenarios:
    • A weather event caused unpreventable damage to the client’s vehicle.
    • The garage was broken into and the customer’s vehicle got stolen or vandalized.
  • Direct Excess – Not a common purchase but can provide savings to the garage owner. It can cover for the garage’s loss to a customer’s vehicle regardless of liability, somewhat like what direct primary does. The difference they have is that if the garage has no liability for the loss, the policy will only pay the excess of any other collectible insurance.

What is the difference between Direct Primary and Direct Excess?

Without a Direct Primary or Direct Excess, the claimant (customer) must prove that the loss was due to the garage owner’s negligence in order to be paid under the garage keeper’s coverage. Since garage keeper’s liability covers physical damages, deductibles apply to covered losses.

The difference between direct primary coverage and garage keeper’s legal liability is that garage keepers provides coverage to a vehicle damaged due to the insured owner’s negligence and direct primary covers the vehicle regardless of fault unless it is specifically excluded by an endorsement.

Errors & Omissions (E&O)

For instances where the exclusions leave gaps in the coverage, an Errors & Omissions (E&O) policy can save a garage owner from litigation that could potentially ruin the business.

This policy provides coverage for damages the products your garage installs, or errors made by the mechanics doing the work on a vehicle before and after releasing the vehicle to the customer, such as human error.

  • Here are some examples:
    • A technician accidentally sands through a rear quarter panel that is unsalvageable and needs to be replaced.
    • When doing a simple tire rotation, the lug nuts were not tightened properly causing damage to the tire and requiring replacement.

Before purchasing an Errors & Omissions policy here are some factors you should consider:

  • Level or risk exposure – Are you garage owner and the sole technician, or do you have multiple technicians and mechanics working in the shop? What is the experience level of the technicians and mechanics working in the garage? Are certifications required?
  • Types of vehicles the garage services – Do you service exotic and/or luxury vehicles whose parts are costlier to replace?
  • Size of business operation – What is the business volume of the garage? Can your business survive a loss if there’s no coverage?

Most common insurance gaps in garage insurance policies:

  • Loss of equipment inside the customer’s vehicle (anything that is not permanently installed in the vehicle) such as radios, telephones, scanners, etc.
  • Alleged rolled-back odometers or misleading advertising that can lead to the possibility of lawsuits
  • Failure to disclose previous damage, submit correct paperwork to the DMV, or perform title search which can lead for the garage to be sued
  • Faulty work
  • Defective parts
  • Theft by an insured

Here are some ways to keep your premium down:

  • Talk to an agent and understand your risk. Like most businesses, owners are always looking for ways to cut down costs. However, most of the time, they end up cutting costs in places they don’t realize can be detrimental. And insurance premiums are one of them. Yes, lowering your policy limits to a minimum may save you up front but if you don’t fully understand your risk and what a loss can cost your garage, this might have a negative impact on the business with just a single occurrence. So, talking to an agent about your risk and options is key.
  • Always maintain safety standards in the garage. Maintaining safety practices is not only good for your garage’s environment and operations, in fact insurance companies like safety practices too. Make sure to hold regular safety workshops and make it mandatory for your staff to attend to. You should also set some limitations as to where your customers are allowed to dwell to avoid unnecessary injuries.
  • Set limits and deductibles wisely. Setting higher deductibles can bring your premium down.
  • If possible, pay your premium in lump sum. Many insurance companies give you a discount for paying in lump sum as compared to paying premiums monthly or quarterly.

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