IN THIS ISSUE: Insuring Your Dealership: Do I Really Need Garage Liability and Garagekeeper's Insurance? l The American Taxpayer Relief Act
By Michael R. Kelley, Esq.
Let’s assume that the night before, five service customers have dropped off their vehicles for service the next day. During the night, let’s assume further that these vehicles are severely damaged by vandals. Your customers are upset and they want to know what you’re going to do about it. The damage to the vehicles is in excess of $15,000 – not enough to break the bank, but enough to turn into your insurance company to see if you have coverage.
You know that you have Garage Liability and commercial property insurance. One of these coverages must take care of this kind of damage, you assume. That’s why you pay all of those insurance premiums every year.
But, after talking with your insurance broker and a representative of your insurance company, you learn that the vandalism to the customers’ cars is not covered under either your Garage Liability or commercial property coverages. They tell you that you would have coverage if you had purchased something called Garagekeeper’s insurance.
Garagekeeper’s insurance is designed specifically to provide coverage for theft of or damage to vehicles not owned by the dealership or on the floor plan, but are left in your care, custody or control. These vehicles include those dropped off for service or collision repair, or even customer vehicles on your business property during a customer test drive. Typical language looks like this:
We will pay all sums the insured legally must pay as damages for loss to a customer’s auto or customer’s auto equipment left in the insured’s care while the insured is attending, servicing, repairing, parking or storing it in your garage operations…
There are levels of coverage, so be careful when selecting the scope of coverage that is right for you. The basic coverage level applies only if the dealership or its agent or employees are at fault for the damage to the customer vehicles. Using our example above, this level of coverage could put you in the awkward position of wanting to obtain coverage for your customer and to help your bottom line, but not wanting to state or concede that you were negligent in failing to properly secure the cars so that they could not be vandalized. The next level of coverage applies to theft, vandalism, fire, explosion and lightning, and does not require that the dealership be at fault. The best level of coverage applies to any damage to customer vehicles left in the dealership’s control, with only a couple of exceptions, usually collision and overturn events. Be careful to choose the level of protection that best fits your needs.
As with most insurance, there are exclusions from coverage. For instance, there usually is no coverage for the following:
Liability resulting from an agreement to accept responsibility for a loss
Theft by dealership shareholders or employees
So, do you really need Garagekeeper’s coverage? Ultimately, it’s a business decision that every dealer has to make. If you have a large dealership operation and are comfortable assuming a level of self-insured risk, it is unlikely that the damages covered by Garagekeeper’s insurance would ever exceed $100,000 per year. The vast majority of claims will be relatively small. If you see insurance primarily as protection from large or even catastrophic losses, then this coverage is likely not necessary for you. If you prefer the protection against uncertainty bought for a regular premium, then this is a coverage that you should seriously consider.
Here’s a nightmare scenario. A dealership employee is driving the company roll-back to pick up a customer vehicle that is non-operable. On the way, the employee is in a bad accident in which a young family of three is killed. The dealership employee is okay, but the roll-back sustains significant damage and diesel fuel is spilled all over the accident scene. The estate of the family eventually sues the dealership and the employee for negligence in operation of the vehicle, failure to properly train the employee in use and operation of the roll-back, and seeks $10 million in damages. The local municipality sends you a bill for $10,000 in clean-up costs for the diesel spill.
The only good news in this horrendous scenario is that this is the reason you pay all of those premiums for your Garage Liability policy.
Garage Liability insurance protects the dealership and its agents and employees from third-party claims alleging bodily injury or property damage as a result of accidents arising from “garage operations” or the operation of dealership vehicles. Think of it as a combination of commercial liability and commercial auto coverage rolled into one policy, with a couple of important exceptions discussed below. Growing up in the auto business, and now devoting much of my professional life to insurance coverage issues, I am a big fan of Garage Liability insurance. For the most part, it is coverage designed specifically for the dealership industry, rather than a generic form used by many different industries and business types.
The typical Garage Liability policy is divided into two sections, one for liability arising from “garage operations” and the second for liability arising from covered autos. Typical language looks like this:
Garage Operations. We will pay all sums an insured legally must pay as damages because of bodily injury or property damage to which this insurance applies caused by an accident and resulting from “garage operations’’ other than the ownership, maintenance, or use of covered autos…
Garage Operations. Covered Autos. We will pay all sums an insured legally must pay as damages because of bodily injury or property damage to which this insurance applies caused by an accident and resulting from “garage operations’’ involving the ownership, maintenance, or use of covered autos…
The Garage Liability policy usually defines “garage operations” as the ownership, maintenance or use of locations for garage business and that portion of the roads or other accesses that adjoin these locations. It includes the ownership, maintenance or use of covered autos and all operations necessary or incidental to a garage business.”
The standard policy for Garage Liability also includes a level of protection for pollution liability that many other liability policies would exclude. It covers bodily injury or property damage arising from pollutants dispersed during the ownership, use or operation of a covered auto.
As you can see, this coverage was designed to respond to dealership liability of the kind outlined in our example above. It would provide a defense and pay any settlement or judgment up to the coverage limits arising out of the accident scenario. It would even cover the diesel spill.
There are a couple of features that pose a concern. The standard form for Garage Liability does not include personal and advertising injury coverage. Every commercial liability policy includes this coverage. In my view, it is important to have this coverage. Among other benefits, this coverage would apply to suits by a competitor that challenged your advertising as defamatory. I recommend that you add personal and advertising injury protection to your Garage Liability policy by endorsement.
Policy exclusions for Garage Liability include:
Expected or intended injury
Property in insured’s care, custody or control
Autos leased to others
Pollution claims related to garage operations not involving autos
This list of exclusions is not comprehensive and you should always read your own policy or obtain the advice of an insurance professional to determine whether any particular claim is or is not covered.
So, if you are in the auto dealer business, should you have Garage Liability coverage? In my view, the answer is an unequivocal “yes.” While there are a few holes that can be corrected with additional endorsements, Garage Liability coverage is essential for a dealership’s liability protection.
By Elizabeth P. Mulaugh, Esq.
The American Taxpayer Relief Act, passed by Congress over the new year and signed into law by President Obama on January 3, 2013, permanently extends all of the existing estate, gift and generation-skipping transfer (GST) tax laws, with the only change being an increase in the top rate of tax. Other highlights include:
The estate, gift and GST tax will continue with an exemption amount of $5 million, indexed for inflation after 2011 ($5,250,000 as of 2013).
The tax rate for transfers in excess of the exemption amount will be 40%, an increase from the prior top rate of 35%, but less than the 55% top rate that would have been imposed on transfers in excess of $1 million, had the fiscal cliff not been averted.
The so-called ‘portability’ provisions are also permanently extended, allowing surviving spouses to utilize the unused exemption of the previously deceased spouse.
Please contact any member of the Auto Dealer Practice Group to address how the new law may affect your estate planning.