Dissecting the Garage Liability Policy
From an insurance perspective, every business has a unique set of exposures. Business owners within the automotive industry are undoubtedly different than manufacturers or owners of other retail operations. For Auto Dealers, Garage Liability Insurance protects your business from unwanted outcomes that may arise.
Garage Liability Insurance 101
Garage Liability Insurance originated by combining a General Liability policy with a Business Auto policy and adding a series of enhancements. It provides coverage for third-party injuries or property damages resulting from the daily operations of your garage business.
For example, if a customer slips and falls on an oil spill, this coverage pays for your legal defense and any medical bills the customer suffered due to the injury. Additionally, this policy covers damages if a vehicle owned by the business causes a collision with another car or structure, damaging the property.
Areas of Unique Exposure
For those within the Dealership Industry, unique areas of exposure exist. Therefore, your garage liability policy requires some additions to be complete.
First, there is the issue of Customers Units and the necessity to extend coverage to vehicles held by the Dealer. Thus, Garagekeepers coverage. It protects you if a customer’s vehicle is damaged while in the care, custody, or control of your Dealership. Additionally, it covers damages due to fire, theft, extreme weather, vandalism, or accidental damage such as a collision.
A standard Garage Liability policy includes this coverage, and it can be written on either a Direct Primary or Legal Liability basis.
Professional Liability Coverage
Next is the potential for lawsuits arising out of the Sales Transaction and the state and federal requirements surrounding proper disclosure. Hence, the Professional Liability section covering Truth in Lending/Leasing, Statute and Title and Prior Damage disclosure. This portion of the policy protects your business against lawsuits associated with negligence claims that result from mistakes arising out of the sales or titling transaction.
Garage policies are broad and designed to cover numerous issues, but not all possibilities. It is significant to note the gray areas in which coverage is either not defined or excluded. These are the areas that require a certain level of due diligence and examination.
Like most Liability Insurance policies, some exclusions are almost always present. Employment Practice Liability, Employee Dishonesty, Cyber, and Pollution are typically excluded and may easily be purchased separately. However, other areas such as coverage for potential suits against Directors and Officers may require more careful coverage review and scrutiny.
When in doubt, pursue the cost of a ‘’stand-alone’’ coverage policy. Potential duplicate coverage is always better than a lack of coverage or no coverage.
The following are a few exclusions you should note as you analyze your coverage and needs:
Racing is always excluded. But, what about sponsoring a track event or hosting a customer reception? What is the exposure? Plenty!
When something goes wrong at the track, folks get hurt, and the Plaintiff’s counsel will ensure everyone gets served. If there is a policy exclusion, that means No Coverage for Indemnity or Defense.
Unscheduled Properties Owned or Leased
The same is true for buildings, land, or rented warehouses. Just because you own or lease a property does not mean the Garage Liability policy will give any partial or complete coverage.
Being transparent with the carrier and requesting a listing of every location will ensure you know the “coverage answer” before the lawsuit arrives. If something cannot be covered under the Garage Liability policy, other avenues for coverage exist. These options may cost a few dollars, but you will have an Insurer and Counsel behind you in the courtroom.
Any Driver Exclusions
Always pay close attention to any Drivers excluded on the policy by the Insurers. Understand that excluded means there is no coverage, including defense coverage, for suits arising out of vehicle operation by those listed individuals.
For example, even though your technician or salesperson may be the ‘’best’’ at their job, allowing an excluded individual access to a vehicle can present real problems for the Dealership in a courtroom.
Pay Attention to Limits
As you examine your policy, pay close attention to the limits. Many coverage areas have limits for an Occurrence and an Aggregate. The Aggregate listed is the total amount of coverage for the policy year. So, any claim will ‘’dilute’’ the amount of coverage remaining. Note any mention of Aggregates you find in the policy.
Also, Defense coverage can be ‘’inside’’ or ‘’outside’’ the policy limit. This is important because ‘’defense inside the limit’’ means your available insurance for any one occurrence includes Indemnity and Defense. Defense coverage ‘’outside the limit of insurance’’ is always preferable.
Secure the Most Comprehensive Program
Finding the best Garage program and managing the cost is a challenge and will depend on several factors, especially in a volatile insurance market.
Claims and Premiums
It is critical to understand your claims to secure the most comprehensive program at a competitive price. While underwriting may seem like a complicated process, it is quite simple. The carrier develops a historical Loss Pick – also known as Expected Losses. These are the anticipated claims you will have during the upcoming year based on past losses. From there, the carrier projects a premium applying a loss ratio that is profitable to their company. It is typically 30 to 35 percent. Lastly, the carrier checks with their filed rates for that state to ensure the number is within their filing. Voila – the Premium!
Utilizing the same exercise and mapping out claims, you can accurately project your premium. Additionally, you will gain an in-depth understanding of the driving forces behind the claims and learn how to control insurance costs by limiting those claims. Recognizing the relationship between your claims and premiums is the cornerstone of taking control of your insurance program. It sounds complicated, yet it is the first step in developing a sound Risk Management approach.
Risk Management Strategy
Implementing the proper Risk Management program and marketing your Garage Liability program involves the following steps.
- Develop a Request for Proposal (RFP). It is a ‘’living document’’ that changes from year to year as your business evolves.
- Identify the Marketplace. Research and approach the different Insurers from various regions of the country.
- Present your Dealership. Invite the underwriters for an on-site visit, allowing the rare opportunity to get “into the field.” It will significantly help the negotiation process.
- Explore Options. The larger the premium, the more options that are available.
- Look to Loss Sensitive programs to reduce premiums. Note, this is ONLY an effective strategy when your Risk Management policies and procedures are firmly in place. Large Deductibles, Retros, and even Captive programs can provide a tremendous return of premium.
- Start Early. Begin the process 120 days or more before your renewal date. Insurance is an enormous item on the financial statement. It deserves attention year-round.
You are in the Driver’s Seat
For your Dealership to be financially successful, it is critical to have the proper protection and fill in any risk exposure gaps. An understanding of the coverage nuances within your Garage Liability policy, coupled with a sound Risk Management approach, will put you in the driver’s seat with your Dealership Insurance program for years to come. Now is the time to review all policies and act now!