It’s been a number of years since we looked at garage keepers and property and liability insurance. Seems like the health insurance issues have been holding the limelight, but things have changed in the property and liability areas as well. For the next few minutes we’ll review the basics. Why read this? It may very well save you premium dollars or heartaches related to claim surprises. Seems either is a great reason!

Many believe their property insurance liability covers their business operations as well. That might be true if we were discussing a simple business owner’s plan (BOP) for a small retail or service business. In our business, that isn’t the case. While many insurance companies may “package” their property coverage and their garage keepers, they are two separate and distinct contracts, and are totally unrelated.

Who needs property coverage? Everybody. Both the shop that owns its building (or the corporation in which it’s held) and the renter/lease. We’ll take a look at both:

Building owner: They have a vested insurable interest in the building, and fixtures that are theirs and any liability claims relative to the condition or use of the building or the grounds by other than an owner or renter. Claims might include damage due to vandalism, theft/burglary, fire and more.

Important to consider here in the wake of the recent Texas floods, as a general rule, floods are not a covered claim. For that, you will need a separate flood insurance policy. Other issues that may not be covered are mold, water seepage, sewer backup, war, terrorism and a host of others. You will find the exclusions in your policy. It is critical to understand them before a loss!

There are several choices available to you as you write the application for your new liability policy. How much, and if, to cover for glass breakage, signage vales and more. Your insurance pro is the best person to talk with here.

Over the years, I saw many businesses try to save money by undervaluing items such as glass in their policies to save premium. This may come around to bite you in the event of a claim. Even more dangerous is choosing a lowered liability maximum.

The liability maximum reflects the MOST an insurance company will pay in the event of a liability claim. Simply because your coverage isn’t adequate does not mean the person suing or the courts and jury will accept that amount. They are free to sue for, and award, what they feel is fair. Anything above the amount the insurance company limit will cover is yours to pay!

We’ll consider the math. Here’s an example:

Property policy limit: $500,000

Lawsuit initially: $1 million

Court & jury final: $710,000

Balance remaining: $210,000

Out of our property owner’s pocket: $210,000

In addition to not being a lawyer, and having no current knowledge of lawsuit settlements, it has been held that if our owner doesn’t pay, a lien of 20 years against the individual and the property may be filed. To parrot one famous line, that loud sucking sound you just heard is your retirement since your money just went away, and you won’t be able to accumulate savings or investments as long as the debt is open. One could declare bankruptcy, but that has a world of trouble all its own. In case you were wondering whether people file silly lawsuits, ask McDonalds about hot coffee in the lap. That was settled for $2.86 million before cooler heads prevailed and reduced the amount to $640,000. Think about that when you put a pot of hot coffee out!

Not is all lost however. To save yourself money, increase the predictable part of any claim, the deductible. That’s where the real savings is found. Take a look at how long it will take to save enough to offset a $5,000 deductible increase and it is often not very long at all. And that assumes you will have a claim. No claims and the money is in your pocket. In terms of liability you’ll find increasing yours or acquiring an excess liability policy to be a very modest increase in premium.

 Renter/lessee: Just because the building isn’t yours does not free you from insurance responsibility. You need a liability policy and coverage for physical damage. Often, your landlord may ask you to include them by name as an insurable interest. There are two endorsements to the policy that may be requested. The first is to add the landlord as “additional insured.” The second is as “named insured.” Either way, be wary of what these two endorsements affect and be sure to talk with your insurance pro and attorney before agreeing to anything.

The next broad area to discuss are garage liability and garage keepers insurance. Doctors have malpractice, engineers have errors and omissions insurance. Our version is garage keepers (GK). In short, it provides you coverage for a number of very important things. However, unless it is sold as a package, your GK may be separate of any garage liability. You need both if this is the case.

The GK policy basically covers damage to customer vehicles in the event of a loss. It does not cover theft by the insured themselves, faulty parts (so, no labor claim coverage) and other issues. Many people get confused by this coverage since it may be packaged as a part of a garage liability policy. But, a GK is for the customer’s cars.

Be sure to discuss with the insurance pro whether you tow vehicles yourself or hold contracts with other tow firms for your customers. Towing brings with it an entirely different level of risk. And, you’ll need to have appropriate tow liability as well.

In my years and in researching this article it seems the biggest GK issue has been the amount of coverage purchased. It is actually a simple thing to figure out. If your typical customer vehicle is worth $15,000, and you have on average 10 vehicles in the shop at any given time, your GK coverage would be $150,000. That’s the rub. In an attempt to save money shop owners have been known to underestimate this number. Or, more commonly, they simply don’t review their limits for a long time and the coverage becomes inadequate given new values.

For GK coverage, the Insurance Journal offers a discussion of the three kinds of policies available. You want the direct excess coverage if it’s available!

1. Legal liability: This is the most common. The protection applies to a customer’s vehicle damaged due to the insured’s negligence – such as the mechanic wrecked the customer’s car while test driving it or the customer’s vehicle was left unlocked and unattended after hours.

2. Direct primary: This form covers the customer’s vehicles regardless of liability. In a loss caused by no action of the insured such as a weather loss, or a theft although the vehicle was adequately protected, the direct primary garage keepers pays.

3. Direct excess: This is the rarest option, although it’s the best. The form affords protection to an insured for the loss to a customer’s vehicle regardless of liability, just as direct primary does. The difference is in the event of the insured having no liability, the form will only pay in excess of any other collectible insurance.

The garage-liability portion of the policy, or as a standalone policy, offers you coverage for liability issues not directly related to the vehicles in your care. From the parking lot to the waiting room and beyond, this is the policy that provides your liability coverage. Like all other insurance policies there are limits, deductibles, covered areas and exclusions. It is critical you understand all of them. This is also the job of your insurance pro in the policy design process.

A very practical approach to this entire insurance conundrum is to make yourself a chart with pencil (with a big eraser) and paper. Down the left side list all of the risks or areas needing insurance. A great place to start is to look over your current policies and see all that they cover. Then, when you are working with an insurance pro have them review your list and edit the items you noted. Would suspect that you may have not thought of more than a few. Then, check off each area as it appears in the proposed policy and your current policy. This accomplishes three things:

• Provides you with a quick reference that can be added to your file for future use.

• Helps to insure you have all of the coverages you need.

• Makes it much simpler to compare policies, and especially the premiums.

It’s important to remember one basic thing about insurance. It’s all statistics having to do with the law of large numbers. In other words, if I insure 100,000 garages and you insure 100,000 garages and they are all equally spread around the country and metro and rural areas, our claims will statistically end up about the same. So, if my premium is a lot less than yours, the only way that happens is if I only take the very best risks, or, more often the case, my policy is missing coverage compared to yours. A really great question for any insurance agent is simple, “Why is that policy some much less than the other? What is the difference in coverage?” It’s there somewhere. Best to know before the claim gets turned down.

Well, we have covered a lot of miles in this short article. I hope you feel like a better insurance consumer armed with all of this information. And better means you will enjoy a better value, with likely lower premiums.

One last strong suggestion is that you yank out that old insurance paperwork and review what you have, the limits and the coverages. Maybe more important, know the exclusions. Make your list as noted above. Then, pick up the phone and schedule some time with your insurance pro at their office to avoid interruptions. Finally, if your agent isn’t able to answer your questions or seems more confused than you may be, it’s time to find a new agent pronto!