Garage Owners’ Insurance – New Appleman on Insurance Law Library Edition, Chapter 68

Garage Owners’ Insurance – New Appleman on Insurance Law Library Edition, Chapter 68

By Mark M. Hogewood, Member, Wallace, Jordan, Ratliff & Brandt, L.L.C.

This chapter discusses the Garage Policy available to garage owners for their particular insurance needs and risks.  As reflected in Section 68.01, the Garage Policy is geared toward the unique third-party liability exposure and first-party loss risks faced by car dealers, mechanics, vehicle service facilities, parking garages and other garage owners.  The standard Garage Policy offers multiple coverages, with the primary ones being: liability (see Section 68.03[1]), garagekeepers (see Section 68.03[2]), physical damage (see Section 68.03[3]), and uninsured/underinsured motorist ("UM/UIM") coverage (see Section 68.03[4]).

Car Mechanic Working on Brakes

Whether a particular coverage applies to an underlying liability claim or first-party loss is often dependent on whether the vehicle involved is a "covered 'auto.'"  Under this concept integral to garage policies, the vehicle must be an "auto" as defined in the policy and that definition differs from some other automobile policies (see Section 68.02[1]).  Further, as discussed in Section 68.02[2], the Garage Policy has 11 different categories of "covered 'autos,'" each with a particular description.  Section 68.02[3] analyzes how the policy handles coverage for vehicles acquired after the inception of the insurance contract.  With regard to garagekeepers coverage, the newer version of the Garage Policy bases coverage on "customers autos" rather than "covered 'autos'" (see Section 68.03[2][b][i]).

The Garage Policy typically offers liability coverage for both accidents involving "covered 'autos'" and accidents involving "garage operations" that do not relate to "covered 'autos.'"  Under either of these types of liability coverages, the fortuity doctrine is memorialized in that there must be an underlying "accident."  The policy requires that the accident cause "bodily injury" or "property damage."  Although the "bodily injury" definition is the same one in the standard commercial general liability ("CGL") policy, "property damage" is defined more broadly than in the CGL policy.  On its face, the standard Garage Policy also requires, whether or not "covered 'autos'" are involved, that the underlying "accident" result from "garage operations."  However, insureds have successfully argued that the underlying "accident" need not arise out of the garage business as long as the "accident" involves a "covered 'auto.'"  Section 68.03[1][a][ii] highlights courts' different interpretations as to the breadth of "garage operations."

Both the policy limit under the liability coverage provided in the Garage Policy as well as the potential insureds under that coverage section are dependent on whether the underlying "accident" related to "covered 'autos'" or not.  The Declarations pages delineate the policy limit between these types of coverages and typically provide per "accident" limits.  The policy often prohibits stacking of those liability limits.  If the underlying liability case involves "covered 'autos,'" the potential insureds are much broader than if the case does not.  As reflected in Section 68.03[1][c][i], permissive users of certain vehicles, including customers of the named insured, can potentially qualify for liability coverage.

The liability coverage provided by the Garage Policy is limited by certain exclusions.  Several of these exclusions are similar to the exclusions within the CGL policy.  Those include the "expected or intended injury" exclusion, pollution exclusion, and business risk exclusions that attempt to preclude coverage for alleged damage to the insured's work or product.  Liability coverage is also barred in certain situations in which damage is to a leased vehicle, or the underlying "accident" occurs outside a specified radius from the insured's place of operation.  Section 68.03[1][d][iii] addresses the "care, custody, or control" exclusion through which coverage under the liability section of the Garage Policy is precluded when damage occurs in a bailment context.

The Garage Policy's garagekeepers coverage section addresses this bailment-related risk inherent in many garage owners' businesses.  Although the liability coverage section excludes coverage for bailments, an essential purpose of the garagekeepers coverage section is to provide such bailment-related liability protection.  There are three types of garagekeepers coverage: comprehensive, specified causes of loss, and collision.  For all three, there must be an underlying "loss" to a third party.  Section 68.03[2][b][ii] addresses the differences between the fundamental concept of "loss" in the garagekeepers section and "accident" in the liability section.  Similar to the liability coverage under the Garage Policy, garagekeepers protection requires that the "loss" arise from "garage operations."

The policy limits available for garagekeepers coverage are specified on the Declarations pages.  Moreover, the potential insureds for this type of coverage are more limited than the insureds for "covered 'auto'" liability coverage.  Section 68.03[2][e] deals with the exclusions to garagekeepers coverage.  Under these exclusions, liability arising from the breach of contractual obligations or theft is not covered.  In addition, garage carriers have crafted exclusions for "defective parts or materials" and "faulty work" performed by the insured to avoid coverage for business risks.

Physical damage coverage under the Garage Policy provides first-party insurance for the policyholder.  It, like garagekeepers coverage, is available in three different forms: comprehensive, specified causes of loss, and collision.  For the coverage to apply, there must be an underlying "loss" to a "covered 'auto'" or its equipment.  As with the other coverage types, physical damage coverage is excluded in certain circumstances.  The most litigated exclusion likely is the "false pretenses" exclusion discussed in Section 68.03[3][c][ii].  Although loss from theft can be a covered loss, the false pretenses exclusion bars coverage in which the vehicle is taken through trickery.

Garage owners often have the option to purchase uninsured/underinsured motorist coverage through the Garage Policy.  The standard Garage Policy does not provide the coverage in its body but it is typically added via endorsement.  As discussed in Section 68.03[4], jurisdictional differences in both case law and statutes dictate that the practitioner be very cautious in the UM/UIM analysis.  In particular, different jurisdictions may establish a hierarchy of coverage order (i.e., which coverages are primary and which coverages are excess).  Furthermore, financial responsibility laws may require that UM/UIM coverage be provided even though the endorsement itself may attempt to limit such coverage.

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Mark Hogewood is a member of Wallace, Jordan, Ratliff & Brandt, L.L.C.  His practice is primarily in the area of civil litigation with an emphasis on corporate and insurance defense, as well as insurance coverage litigation. He joined Wallace, Jordan, Ratliff & Brandt in 1997.  He is a member of the Alabama State Bar, the Alabama Defense Lawyers Association, the American Bar Association, and the Defense Research Institute. Mark is an adjunct professor of insurance law at Cumberland School of Law at Samford University.  He is also a frequent speaker at seminars related to insurance coverage.

The author wishes to express his gratitude to his legal assistant Robin Rogers for her invaluable help in the preparation of this chapter.

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  • 07-21-2013

Is it advisable to cut my insurance policy during winter when my car is almost in the garage for almost 3 months?