Automotive Repair Shop Insurance: What You Need to Know

Not only is it a significant expense, but the wrong decision could have extreme consequences as it relates to the protection of your assets. Therefore, it is very important to make an informed decision on who you select as your business insurance provider for your mechanical or collision repair shop. Some critical items to consider are:

1. 1. Insurance Representative
      1. Are they an agent/broker?
      2. Are they a direct employee of the insurance carrier?
   2. What is the financial strength of the insurance company (A.M. Best rating)?
   3. Are they a specialist in your industry, or more of a generalist?
   4. Do they offer customized coverage for your industry?
   5. Do they offer loss prevention services to proactively help mitigate any future claims?

As a business owner, you have many exposures to consider. Those exposures include, but are not limited to:

• • Building
  • Contents
  • Employee Tools
  • Business Income
  • Liability
  • Garagekeepers
  • Umbrella
  • Crime
  • Business Automobile
  • Workers’ Compensation

Protecting Your Shop’s Building

When it comes to your building coverage, it is very important to make sure your insurance provider performs a replacement cost appraisal on your buildings. This makes certain that they are insured to value in the event of a total loss and helps make sure you don’t encounter a coinsurance penalty in the event of a partial loss. A coinsurance penalty happens when you insure your property for less than the required percentage of its value (typically 80% or less). If you end up insuring your building for less than the required percentage, your insurance company could reduce the payout on a claim, leaving you responsible for covering the difference out of pocket. When reviewing your building coverage, the insured value of your building should reflect the replacement cost, rather than the market value of the building.

Inventory Your Business’ Contents

When it comes to your contents (also referred to as business personal property), it is always important to create a Statement of Values (SOV) on an annual basis to be certain that your contents are insured to value. A Statement of Values is a document that contains a list of all of your business property (such as equipment, calibration tools etc.), and the value of each item. This helps an insurance provider ensure you have the right amount of coverage and helps you as a business owner maintain an accurate inventory of your owned property.

Employee Tool Coverage Is a Must Have

It’s very important to carry coverage for your employees’ tools. If your employees’ tools get stolen or damaged in a fire or a windstorm, your employees will not be able to work, and the business will immediately suffer. If you work with a carrier who specializes in the automotive industry, they should be able to add this coverage at the limit you need for a very low premium amount.

Secure Business Interruption Coverage

Make sure your policy provides adequate coverage for business income (sometimes referred to as business interruption). This provides coverage for the gross profit and ongoing expenses should you need to close as a result of an insured loss. Ideally, this should be provided on an actual loss sustained basis for 12 months. You will want to make sure that your policy covers employee wages for the entirety of those 12 months, as some policies limit this to just 60 days. If you are not able to pay your employees, you could lose them, and replacing them could be very difficult.

Essential Liability Coverages

Your policy should also provide coverage for general and garage liability, to cover any third-party claims resulting from your negligence. This would typically include coverage for:

• • Bodily Injury
  • Property Damage
  • Premises/Operations (slips, falls, etc.)
  • Products/Completed Operations Liability (injury resulting from services provided)
  • Personal Injury (slander, libel, etc.)
  • Contractual Liability
  • Employee Benefits Liability (errors/omissions related to your employee benefits program)
  • Mechanic’s Errors & Omissions
  • Employment Practices Liability (wrongful termination, discrimination, sexual harassment, etc.)

Your auto repair shop policy should also include garagekeepers coverage. This provides coverage for physical damage to customers’ cars that are in your care, custody, or control. Garagekeepers coverage can be written in 3 different ways:

• • Legal Liability – Coverage is provided when you become legally liable for damage because of your negligence. (For example: you collide with a parked car while test driving a customer’s auto.)
  • Direct Excess – Coverage is provided if you are legally liable for damage. And coverage is provided even if you are not legally liable, and when the customer has no collectible insurance or carries coverage with a substantial deductible.
  • Direct Primary – Coverage is provided regardless of your negligence or legal liability. (For example: your customer’s auto is vandalized while locked in your fenced, lighted lot.)

For a deeper dive into the difference between garagekeepers and garage liability,  you can learn more at our blog article dedicated to this topic.

Umbrella Coverage: Your Backup Plan

Umbrella coverage steps in when your primary insurance policy limits are exceeded. This can occur because of severe injuries, catastrophic damage, or even lawsuits. Umbrella insurance provides an extra layer of protection for your business, to help ensure you are covered for substantial claims. When purchasing umbrella coverage, you will first and foremost want to make sure you purchase adequate limits. This will vary depending on the size and scope of your operation. You will also want to be sure to obtain the umbrella coverage from the same carrier that is insuring your other liability exposures to maintain consistency and concurrency.

What Now?

This is a good starting point as you evaluate your decision as to where and from whom to purchase your auto repair shop’s business insurance. Intrepid Direct Insurance is always happy to provide a complimentary review of your shop’s current insurance policy to confirm you have everything that you need.