How much Garagekeepers Limit is Enough?
I wrote in an earlier blog about Garagekeepers Coverage is coverage for damage or destruction to customer’s cars left in the insured’s care, custody, or control. As such many businesses may have a need for such coverage beside the auto repair shop and car dealership. In fact, many retail businesses may have a very real exposure if they have a private parking lot or offer valet parking services. There are 3 options for those clients to choose from. Beyond that the question remains how much garagekeepers limit needs to be purchase?
Before we start looking into the limits, I want to point out there has been a change in how ISO provides limits for garagekeepers coverage. In the past, coverage for event other than a collision was offered in 2 layers. First, there was a limit issued for each vehicle. The coverage was restricted to that limit as the most the coverage would pay for any one vehicle. A second limit is applied as an aggregate for any single event.
Garagekeepers coverage as provided by CA 99 37 no longer includes a per vehicle limit. Rather there is only one event aggregate limit. However, some companies may still utilize manuscriptal coverage which may still include a per vehicle limit.
As almost with anything to do with insuring commercial ventures, there is no simple answer or formula to follow in determining an appropriate limit. The amount of limit will vary based on the scope of the insured’s operations. There are some factors which need to be considered before digging into make the calculation, such as where the unsured is located, where are the customers stored, and the level of control they exert over their patrons’ vehicles.
Consider the lower end of the spectrum. Consider an auto repair shop which is a tenant located in a strip shopping center. Their customers park in a public parking lot used by all the tenants of the shopping center. The repair shop has relatively limit responsibility or control beyond controlling the access to keys for the security of vehicles in the public parking lot. Generally, speaking more responsibility passes on to the landlord in this case. Of course, there will be a point when the customer’s vehicle will be pulled into the repair shop to be worked on and the car will be considered fully within the repair shop’s car, custody, or control.
Contrast that with a repair shop which is a standalone building with their own parking lot. Once the car and keys are left with the repair shop, they responsibility for the protecting those vehicles transfers to the repair shop.
In these two examples the catastrophic exposure differs. In the first example, they are likely limited to damage of vehicles while they are moved around or inside the bays to be worked on. Whereas the second has a greater responsibility for vehicles parked outside. Hence, the second example may have a larger potential loss exposure than the first as they are responsible for all customer cars receiving service or awaiting service in their parking lot while the first example is responsible only for cars within their work bays. The theory being the more cars or vehicles they are responsible for the greater limit they need.
Another factor affecting the limit needed is the types of cars or vehicles the repair shop works on. There are repair shops which specialize on high end vehicles or expensive vehicles rather than the ordinary run-of-the-mill vehicles. With higher average per unit value there will be a need for a higher garagekeepers limit to reflect a greater total expected loss exposure.
Based on these points of logic, one may jump to the assumption that the appropriate limit can be calculated easily enough by multiplying the maximum number of vehicles they can be responsible for times an average value of vehicle they work on. In theory that may be the limit they should purchase as it is the maximum exposure.
But it still may not be the appropriate limit. When you sit down to think about it there are 3 likely perils that will cause a garagekeepers loss and those are fire, theft, and collision. One may consider the catastrophic perils such as severe storms, floods, and earthquakes, but the likelihood of the repair shop being held responsible for damage caused by a severe storm is not likely. Unless of course they selected the “Direct Primary” trigger over legal liability as the policy responds to any damage without regard to whether the insured has any responsibility, in which case taking the maximum exposure approach might be the right way to go.
When you consider the 3 main perils likely to produce a garagekeepers loss, the exposure changes from the potential outlook. When you think about theft the exposure is basically a single vehicle incident. When you consider collision, possibly a 2 or 3 vehicle incident. However, given the nature of a repair shop operation, you aren’t like to have vehicles moving at a high rate of speed while being jockeyed around the premises. Hence, the level of damage is likely limited requiring less limit to deal with the loss exposure.
That leaves us with fire which Is where most of the large loss potential enters consideration. How many vehicles will or can be exposed in a single event. It is highly conceivable to consider all vehicles located inside the premises as subject to a single fire event and should be considered in determining a limit. For example, assuming a garage has 4 bays in their garage one can assume they need a limit to cover loss of 4 cars. If they work on ordinary private passenger vehicles a limit of $120,000 (4 x $30,000) might be deemed appropriate.
However, if they have a private lot, one may consider vehicles stored outside the garage potentially exposed to a fire as well. The fire may spread to cars stored close to the building, or fire trucks may cause damage when they arrive to fight the fire.
In the case parking garages, in theory all vehicles parked in the garage may be exposed to a single fire event possibly producing a need for a very high limit. However, traditional COPE (construction, occupancy, protection, & exposure) will have a significant effect or a realistic level of exposure. For example, a concrete garage with an acceptable sprinkler system is not likely to have a major multi vehicle event. Furthermore, with appropriate private protection in place, they are less likely to be legally liable for damage. Rather than using the maximum capacity as the critical component to determine a limit, perhaps using the number of vehicles per floor may be a better component to use in calculating a garagekeepers limit.
In closing, there is no one singe formula to determine what is the appropriate garagekeepers limit a risk should carry. It is import we apply common sense in working with our clients while considering various aspects of their garage business. If we consider all the relevant factors, we can make some logical arguments to structure the coverage. In doing so we can come up with a limit that makes sense providing the appropriate level of protection while controlling the cost of insurance.
In closing, there is no one singe formula to determine what is the appropriate garagekeepers limit a risk should carry. It is import we apply common sense in working with our clients while considering various aspects of their garage business. In doing so we can come up with a limit that makes sense providing the appropriate level of protection while controlling the cost of insurance.