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Insurance Essentials for Auto  Collision Repair Shops

Car Crash

Important Considerations in Choosing an Agent to Service Your Auto or Truck Repair Business

Knowledge of the Industry

Experienced Staff

Fast Certificate Processing

Claims Representation

Billing & Finance Options

Support Backup

Access to Multiple Markets

What types of coverage are important to consider?

Auto Collision Repair and Paint & Body Shops

Garage Liability

Garage Keepers Liability

Dealer Physical Damage

Mechanical Breakdown

Loss of Business Income

Employer Practices Liability

Hired & Non-Owned Auto Liability

Personal & Advertising Injury

Mechanic’s E & O


The operations hazards are those exposures occurring during business operations such as providing protection against third partly liability losses form driving a non-owned vehicle.  Premises liability protects against trip and fall claims at the described location.  But garage liability claims often occur after the work is preformed and the vehicles is released to the customer.  This exposure typically falls under completed operations but may occur as a result of a product sold that is deemed to be defected, hence product liability is generally also afforded. Other liability exposures include personal and advertising injury, however these exposures are typically added back by endorsement.  

How is the cost of these policies determined?

Garage liability policies are most often rated based on payroll, however sales may be a factor.  Payroll is often calculated on a percentage of time each employee works during the week then multiplied by the number of weeks worked in the year.  An example would be if a full timer was to work the entire year; their payroll would be 100% or $ 100/week times 52 weeks amounting to $ 5200.  This number is added to the other employees to determine the aggregate payroll.  If there are four full time employees and one part time, the figures may look like this:

4 F/T’s x $ 5200 each = $ 20,800 + 1 P/T @ $ 2600  =  $ 23,400 total.  This amount is then multiplied by a factor set by the carrier to determine the garage liability premium.  Note, this amount generally does not include the garage keepers liability exposures or any liability insurance relating to the sales or operations of owned or hired vehicles.  

Garage keepers liability insurance is most often rated by the aggregate value being insured usually broken down by the amount of comprehensive and a separate amount for the collision.  Any owned vehicles, such as a station car or a tow truck is rated by the usage, the year, make, and model, value, radius, etc.  Dealer and transporter plates can be calculated by the number of plates, or some other factor.

An umbrella policy typically adds an additional layer of liability coverage over the underlying or base limits.  A follow form umbrella generally matches the coverage including the limitations and exclusions whereas an excess liability policy defines what is covered which can deviate from the underlying policy

Commercial Auto and Tow Truck Insurance

Auto and truck insurance provide coverage for liability, uninsured motorist, no-fault protection, and coverage for the physical damage to the fleet. Also worth considering are rental hire and non-owned liability, rental reimbursement, and glass.  Many shop owners utilize station vehicles and tow trucks.  In addition, transporter and dealer plates are frequently used to transport customer cars and sell parts and vehicles to the public, between shops, and to the salvage yards.  

Generally vehicle insurance is covered under a separate form or policy. The rating is determined by classification, type, year, make & model, usage, radius of operation, value, driver information, location, among other factors.  It is especially important to determine the limits of liability when insuring tow trucks and dealer and/or transporter plates.  Most state DMV’s have specific limits of liability required.   

Commercial Property

Similar to commercial general liability policies, commercial property policies typically cover perils on a named basis.  Therefore it is important to determine what risks are prevalent to the establishment.  These policies are generally written on either a basic, broad, or special basis. The first two defines which perils are covered, while the latter covers all direct physical losses except for the exclusions.  Again it is important to determine every aspect of what perils are inherent to the business.  

An auto body shop typically owns equipment needed for frame straightening and painting which may cost a considerable amount of money to replace.  Other equipment may include the mixing machines for the paints and clear coats, the compressors, lifts, spray booth, pneumatic tools, inventory, and computer diagnostic equipment.  It is important to periodically review the equipment list to ensure a proper amount of coverage is provided to replace the equipment in the event of a loss.  Certain factors should be considered in determining the value such as the recoverable methods, the total values, an itemized breakdown by classification, the deductible, and the coinsurance clause.  

Settlement options describe the recovery method to be used prior to the loss and is typically on either a replacement cost or actual cash value basis.  However, an agreed or stated amount can be offered to provide a predetermined settlement amount.  If depreciation is a concern, it is generally recommended that a settlement option which does not drastically depreciate the described items.  

Machinery & equipment can often be scheduled by classification.  Heavy or mobile equipment is often excluded on a standard business personal property form, hence it prudent to schedule this equipment usually as a separate floater with its own limits.  Often times, this allows for greater flexibility and control with the insurance costs and coverage.  Another advantage of itemizing the equipment is the ability to specify the perils of coverage by category.  It is difficult for large machinery to be stolen, however, hand and pneumatic tools as well as parts often grow feet as the expression goes, therefore covering the smaller items on a special form including theft and the heavy equipment without it, offers the shop owner the ability to save money on the insurance cost while protecting the items from perils based on their needs.  

Loss of Business Income & Extra Expense or BI & EE

Business owners policies most often offer loss of business income (previously termed business interruption) on an ‘Actual Loss Sustained’ basis (ALS) subject to the terms, conditions, and exclusions of the policy.  Generally the coverage pays for the continuing operating expenses and net profits before taxes due to a loss caused by a covered peril (read policy form).  This coverage is usually granted for a period of one year.  On the other hand, the commercial package policy requires a specific monetary limit scheduled and a time period or term listed such as a period of three months.  Coverage is determined by the type of form selected such as basic, broad, and special for both the BOP as well as the CPP.  

Extra Expense provides for payment due to a covered loss to help mitigate the claim such as with the loss of business income.  This may include the rental of a temporary location and the cost to transfer the contents to the location to help resume operations quicker than if no measures were taken.  It may also include the payment for temporary help to expedite business operations.  

As with most retail businesses, sporting goods stores derive most of its income from walk in traffic therefore it is important to properly protect against the monetary loss of income due to a claim that can shut down the operations.   

Workers’ Compensation & Statutory Disability Insurance Read more>>

All states have workers’ compensation laws that require organizations to provide coverage or a means to pay for it’s employees claims in the event of an on the job injury or illness.  Please refer to the insurance department or the department of labor in the state for which the business operates and the employees are located or work in. Statutory disability may also be required which provides coverage for off the job injuries and illnesses.

By William F. Schaake, CIC, CRM © 2012 All rights reserved

Insuring Auto Body Shops

The important elements of insuring a collision repair shop include covering the equipment, such as the frame straighteners, mixing machines, compressors, lifts, hand tools, paint & inventory, spray booth; the building and outside structures; the vehicles, including the tow trucks and customer owned autos; the loss of income; and the liability and workers’ comp exposures.  

Garage Keepers’ Liability - Protecting the Customers’ Cars

Damage may be caused to customers’ autos while in the care, custody, and control of the repair shop.  This exposure can be covered by a Garage Keepers Liability Form or policy.  The two components of GKL include collision and comprehensive.  The later can be on a specified cause of loss, naming which perils are covered, or on an ‘all risk’ basis defined by its exclusions. Collision is often the key exclusion.  

Garage Keepers is further defined by the legal liability of the shop maintaining the vehicle.  If it is deemed that the repair facility is not legally liable, many shop policies would deny the claim if the Garage Keepers form is written on a ‘legal liability’ basis.  Claims resulting from acts of God, or when the work is completed and the vehicles is released, even if it remains on the shop property could result in a claim denial if it is determined that the shop owner did everything prudent to protect from the loss.  On the other hand ‘direct primary’ would ordinarily respond to the claim regardless of fault, providing the coverage is within the terms and limits of the policy.  

This above distinction is important as many shops work on vehicles for larger entities that may not carry their own physical damage coverage, such as car dealerships. An example would include the following:

A vehicle owned by a neighboring car dealer was given to the collision shop to touch up minor scratches on the car’s hood. The restoration was completed and vehicles was parked outside the collision shop waiting for the dealer to pick up.  A truck traveling on the adjacent highway veered off the road and side swiped the customer’s vehicle.  It was determined the fault to be 100% of the truck driver.  If the form was written on a legal liability basis, more than likely the claim would be denied. However, direct primary would more than likely respond and if the settled, the carrier would subrogate against the offending truck operator.   

Garage Liability & Umbrella Insurance

Garage liability insurance provides coverage to help protect the financial interest of the shop against third party liability losses. These losses would typically result from negligent acts or accidents.  Generally the scope of coverage extends to the operation of the business, the premises it occupies, the products it sells, and the work performed after it’s completed also known as completed operations.

Auto Collision & Body Repair

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