There’s no such thing as garage liability!
This is a true statement. Well mostly true anyway. I bet if you polled most insurance agents about this issue, the majority would say garage liability is really a thing. Then they would say garage liability is better for most garage exposures. They would be wrong.
ISO has withdrawn its garage liability coverage for all but dealers. The primary garage liability product (CA 00 05) has not been supported or used by ISO for over 10 years. It wasn’t all that widely publicized, but within the last 20 years, ISO began migrating auto service and storage risks away from a garage product in favor of a combination general liability and business auto coverages.
As I think back, the gradual migration really made sense from coverage, rate and even conversion process perspective. Early 1980’s when ISO made a bold move from their 1973 policies and forms to the 1983 version, which forms the basis of the products currently in use today, there was widespread angst in insurance industry from all corners. It even brought agents and underwriters together.
The migration away from the garage product was so slow and seamless that many (probably most) people within the industry still don’t realize it happened. I find it amusing, I find people surprised to hear CA 00 05 (Garage Coverage Form) is no longer available. I suppose it is proof to the theory if change happens slow enough it’s hardly even noticed. I think a brief review of the migration will help us to understand why the change was needed and understand the simplicity of the solutions ISO applied.
The story began in 1983 when ISO was making the major conversion to the forms still in use today. The 1973 forms could be best be described as complicated and focused on an ala carte approach to insuring commercial risks. None of the policies or coverages were comprehensive in nature. Even within individual lines of coverage, insurance agents and underwriters structured insurance programs from scratch by adding this coverage and that coverage. For example, the general liability policy was a combination of premises and operations, contractual, independent contractors, products and completed operations, and personal injury coverage parts.
In 1983, ISO began to introduce the current form, calling it ISO Simplified. This name may seem to be a bit of an oxymoron when you think the policy language still manages to keep scores of coverage attorneys employed. But in retrospect, I learned to realize it wasn’t the policy language the term “simplified” was referring to. Rather, it was the approach to constructing a comprehensive commercial insurance program. “ISO Simplified” created what I like to describe as a modular approach. Rather than developing coverages within separate silos, coverages were designed to fit with each other. In addition, ISO Simplified forms were designed to fit with workers’ compensation forms to create a streamline approach to eliminate gaps and redundancy.
As with the pre-1983 policies and forms, ISO created a Garage Coverage Form. Just like its predecessor, the garage form was a stuck together package form including both general liability and business auto coverages. The new product also carried forward the same basic rating methodologies. Dealers were rated based on rating units which totaled various classes of employees and non-employees based on their likelihood to be driving insured vehicles. Non-dealer risks were all based on payroll. The form created was CA 00 05 to cover a variety of garage classes.
As developed, there were significant inherent flaws with the ISO garage program. Flaws creating both coverage and rating issues. Specifically, restricting coverage for to operations incidental and necessary to the garage business. The coverage form does not provide a direct definition of what is “incidental or necessary.” Therefore, it would leave open whether coverage would attach to ancillary operations.
For example, let us consider the classic service station which dots small towns in the Midwest. Traditionally the service stations would have a couple of bays where they perform repair work and out in front several gas pumps.
The Garage Coverage Form (CA 00 05) defines garage operations as “Garage operations" means the ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations. "Garage operations" includes the ownership, maintenance or use of the "autos" indicated in Section I of this Coverage Form as covered "autos". "Garage operations" also include all operations necessary or incidental to a garage business.”
Does the sale of gasoline, which probably amount to at least 50% of the total sales fall within the definition? One could argue because the level of sales is significantly high it is not contemplated to be covered. Of course, another argument could be made because the gasoline sales are located on location used for the garage location coverage could be imbued. I’ll let you develop your own opinion, but also caution you as one of our goals as underwriters and agents is to develop programs without ambiguity.
Which brings us to another flaw. Since the Garage Coverage Form was rated based on payroll, it failed to capture sufficient premium to adequately cove the additional exposure in this example. The problem gets even worse on some other classes such as parking lots, where the actual premises has a substantial flow of patrons, but very few employees. The result was a significantly underpriced product with little chance for long-term profit!
With these inherent flaws, there was a need for a solution to replace the CA 00 05. It was decided the Garage Coverage Form would be replaced. The choice was to use a combination of the General Liability and Business Auto Coverage Forms. After all, the policy language of the CA 00 05 was already based on those coverage forms. As we discussed in chapter 1, The Commercial General Liability and Business Auto Coverage Forms dovetail together for a seamless coverage program.
The policy language in the CG 00 01 and CA 00 01 provided the core of the solution for the Garage Coverage Form’s (CA 00 05) flaws. The General Liability Coverage Form (CG 00 01) was broad and could effectively handle all an auto service company’s premise, operations, products, completed operations, personal injury, and advertising injury exposures. ISO rating for the classes was proven to provide an excellent rating basis. The Business Auto Coverage Form (CA 00 01) was sufficiently broad enough and flexible enough to deal with any losses related to the operation of a motor vehicle.
The transition was slow. It was slow enough most people in the industry never even knew it was happening. In fact, a significant percentage of underwriters and agents still don’t know it happened!
In 1998, ISO began to promulgate and develop loss costs for classes that had historically been insured on the Garage Coverage Form (CA 00 05). In doing so, ISO created an alternate route to insuring auto service risks even though the industry was still geared to look to garage coverage for most risks that fell within the above classification.
In 2003, ISO ceased promulgating rates for service risks under their garage liability program. They continued to promulgate rates for auto dealers. This step forced insurance carriers to do one of three things. The first alternative would be to collect their own actuarial data for these rates and develop their own rates. Another alternative would be to continue to use the latest set of rates. The last would be to cut their ties to using a garage liability form for service risks. For the most part, standard carriers followed the third alternative. Many excess and surplus lines carriers have continued with garage liability programs and chose one of the first two alternatives.
Then in 2013, ISO withdrew the use of CA 00 05. They had pushed most of the admitted standard markets to the use of CG 00 01 and CA 00 01 for the service risks. In addition, the ISO published and began to use Garage Dealers Coverage Form (CA 00 22) for dealers. Thus, the transition and migration away from CA 00 05 was complete, except for those surplus line carriers, who were now on their own to keep their coverage form up to date.