Less is more! At least with Garagekeepers Coverage
A while ago, I blogged about garage liability for repair shops as no longer being a thing. Which is true because Iso now uses a combination of general liability and business auto coverage (which improves coverage). But that isn’t what Garagekeepers Coverage is. Often the term Garagekeepers is interchanged with Garage Liability (which is now GL and AL). While both are a third-party coverage, Garagekeepers covers damage to automobiles of other in the garage operator’s care, custody, or control, which is excluded under both the general liability and business auto liability coverage forms.
An example of the difference between the two would be a mechanic taking a car they just worked on for a test drive. During the test drive, the mechanic rear ends another car at a traffic light. Damage to the car they rear ended is covered but not damage to the car they were driving. Nor is it covered under the physical damage portion of the auto policy as symbols 2, 7, and 8 don’t address customer cars in their control.
I suppose you could write a description using symbol 10 to cover customer’s vehicles in their care, custody, or control but there’s an easier way to do it. When ISO ceased covering repair shops on a garage form, they introduced Garagekeepers Coverage using form CA 99 37. The endorsement provides coverage historically included under the garage form. So, there’s no reason to recreate the wheel as ISO already took care of that.
But that is not what I want to talk about here, but I felt I needed to get that out of the way first to avoid some confusion over nomenclature.
What I want to talk about is insistence I saw from agents seeking coverage which was of no benefit for the insured for more premium. Yes, agents insisted upon coverage that would not improve protection for the client while increasing the premium they would pay, probably under the guise that broader is always better. They do so when they insist upon “direct primary” coverage over “legal liability” coverage.
Let’s backup a bit to talk a bit about the difference. The Garagekeepers Coverage Endorsement includes a coverage trigger for 3 different cases. The first is on a legal liability basis. This format covers the insured for all sums (subject to both a limit and deductible) they are legally obligated to pay for. That could be for not providing adequate security for a customer’s car stolen off their lot overnight. If the customer’s car is destroyed by an F4 tornado roars through town and destroys the car there is most likely not coverage unless for some reason the court holds them responsible for the force of nature and deemed them legally liable.
In contrast, “Direct Primary” provides coverage for damage to any customer’s vehicle whether the garage operator is responsible or not. In the case of the F4 tornado, Direct Primary Coverage would pay for the damage to the car whether the insured was responsible for the damage or not. Not only that, but Direct Primary Coverage would step in front of the vehicle owners own physical damage coverage to pay the claim.
You may be saying, “wow. That is great.” However, I have always advised clients and prospects to only buy coverage which benefitted them. Furthermore, it was always best to never extend coverage to others unless you must. After all, why should they pay money for insurance for someone else unless they are required to.
Here are the facts. The fact is if the insured is obligated to pay for the damage, then legal liability does the job. If the insured is not legally responsible for the damage, why cover it because it serves no benefit for the insured. It is our job to structure to protect the insured from financial harm and no one else.
Direct Primary needs to be looked at as basically a goodwill coverage for other parties. Hence, it should only be offered when there is a need for it. Those times are few and far between. I have on a rare occasion seen Direct Primary required in in contracts governing valet parking services, but for the most required contractually. There may be some instances because of the nature of the insured’s operations and/or clientele they feel there is a business need to extend goodwill protection to their customers, but I have yet to see one in my career.
There is a third option which I have occasionally fielded requests for called Direct Excess. Under this trigger Garagekeepers pays first on a legal liability if there is no other coverage, but if other coverage is available, it will be excess of any other coverage. I have yet to find any circumstance when this would be an acceptable option.
It is always important to remind we as insurance professional the primary goal in designing any insurance program is to provide both broad, yet cost-effective protection for the client. In the realm of Garagekeepers Coverage, legal liability coverage Let alone a situation where it is worth a 30% surcharge for Direct Primary Coverage and 15% surcharge for Direct Excess Coverage to extend coverage to other parties when not needed. Legal Liability Coverage provides protection the client needs at a significantly lower rate.
Is it garage liability or garagekeepers liability? Sometimes those terms are used interchangeably in conversations. However, they are 2 distinct coverages. If that isn’t bad enough I find many of us do not understand when or how to use the variety of trigger options. When should we cover on a direct basis or when is legal liability to appropriate way to go? In this week’s blog I try to create some clarity around the topic.