Garage Coverage Form and Garagekeepers Liability

The Garage Coverage Form is a unique insurance product designed specifically for the automotive industry. Unlike standard commercial auto or general liability policies, the Garage form combines elements of both to address the specific risks faced by businesses such as franchised and non-franchised auto dealers, repair shops, service stations, and parking facilities.

For the Auto Insurance Exam, it is critical to understand that this form is a "package" policy. It prevents coverage gaps that might occur if a business tried to piece together separate liability and auto policies. However, the most important distinction you must master is the difference between Garage Liability and Garagekeepers Liability.

For a broader look at how these policies fit into the overall landscape of vehicle protection, see our complete Auto exam guide.

Section II of the Garage Coverage Form provides Liability Coverage. This is very similar to a combination of Commercial General Liability (CGL) and Business Auto Coverage. It covers the insured's legal obligation to pay for bodily injury or property damage caused by an accident arising out of 'garage operations.'

Key aspects of Garage Liability include:

• Premises and Operations: Coverage for accidents occurring at the place of business (e.g., a customer trips over a tool in the repair bay).
• Products and Completed Operations: Coverage for injury or damage resulting from faulty parts sold or defective work performed (e.g., a wheel falls off a car after a tire rotation).
• Automobile Liability: Coverage for the ownership, maintenance, or use of covered autos.

It is important to note that Garage Liability specifically excludes damage to property in the care, custody, or control of the insured. This is why Garagekeepers coverage is necessary.

Garagekeepers coverage is a Bailee coverage. A bailee is someone who has temporary possession of someone else's property for a specific purpose (like repair or storage). This section covers the insured's liability for damage to customer vehicles and their equipment while in the insured's care for servicing, repair, parking, or storage.

There are three primary ways this coverage can be applied:

• Legal Liability: The most common form. It only pays if the garage is legally negligent (e.g., a mechanic leaves the keys in the ignition and the car is stolen).
• Direct Primary: Pays for damage regardless of fault. If a hail storm damages all cars in the lot, this covers the customers' vehicles even though the garage owner wasn't 'negligent.'
• Direct Excess: Pays for damage regardless of fault, but only for amounts over what the customer's own insurance covers.

This section provides coverage for the garage's own vehicles. For an auto dealer, this is essentially inventory insurance. It covers the vehicles held for sale against perils like collision, fire, theft, or vandalism.

Coverage is typically handled on either a Reporting Form basis (where the dealer reports inventory values monthly) or a Non-Reporting basis (a fixed limit of insurance). This ensures that as a dealer's inventory fluctuates, they remain properly protected without overpaying for premiums.