Home > Auto Dealers Insurance Guide > Garagekeepers Legal Liability/Dealers Open Lot

This page is part of the broader Auto Dealers Insurance Guide, which helps you navigate the various insurance needs for your dealership. Garagekeepers legal liability insurance is essential for any business handling customers' vehicles. It complements other coverages such as Garage Liability and Commercial Liability and Workers Compensation to provide comprehensive protection for auto dealers.

Garage keepers liability insurance may be an optional cost for garage owners, but that doesn't mean that it's not important. It helps protect customers’ vehicles that are stored on a business’ premises for almost any reason. Cars are a major investment, and most owners expect them to be protected while in your care. Understanding how this coverage works can help you make better decisions for your business.

Do You Know What Happens?

Let's say you own a used car dealership where a customer buys a car from you. After they've had it for several days, they bring it back and say that there's something wrong with it. Your on-site mechanic decides to test it out by taking it for a spin around the block, where they manage to hit another car and total both vehicles.

Do you know who's responsible for what? Do you need to cover all costs out of pocket? Will insurance pay for all of it? If so, what kind of insurance and whose? Will it be some combination of the two?  Get in touch with a local, qualified insurance expert who can help you. 

Many businesses that keep customers’ cars on site are not fully sure how coverage works in a claim like this. You do not want to find out after a car has already been damaged that you do not have the right protection in place.

What Is Garage Keepers Liability Insurance?

This is a type of coverage offered to businesses that take custody of customers’ vehicles. It is designed to help protect a customer's vehicle—cars, motorcycles, vans, trucks, etc.—when they need to be stored temporarily (garaged), parked, serviced, or test-driven. Whether it is a criminal that breaks into your garage or a covered weather event that causes damage to vehicles on site, the policy can help the business assume financial responsibility for the damage without putting its future at risk. It generally covers the car for the time the business has it, whether they are repairing it, driving it, or storing it.

Depending on the business type, different types of specialized coverage may be available. Some examples include parking garage insurance, auto repair shop insurance, and motorcycle repair shop insurance, to name a few. These are often built around the same basic garage keepers liability concept but tailored to specific operations.

Customers put a lot of trust into a company when they leave their car somewhere, and they expect to receive it back in the same condition as when they dropped it off, aside from the work requested. Without the right precautions, owners may find themselves paying for damage out of pocket, losing customers, and risking their reputation in the community.

What Does It Cover?

Typically, garage keepers liability coverage helps pay legal costs for a business if it is accused of damaging a customer's car while the vehicle is in its care, custody, or control. If there is a negligence lawsuit, owners can generally look to their garage keepers liability insurance to help with covered legal fees and covered damage to the vehicle, subject to policy limits and terms. Negligence accusations are common when it comes to garage operations, so this is a primary reason that a garage keeper may need to use this coverage.

Policies may also be written on a direct primary or direct excess basis:

• Direct primary: The garage keepers policy responds first, even if the customer has their own auto insurance. Coverage can apply to certain events even when there was no reasonable way to prevent the loss, such as some weather-related damage or theft from a properly secured facility, subject to policy terms.
• Direct excess: The customer’s insurance pays first, and the garage keepers liability insurance helps pay what is left over (if covered) after that insurance responds, up to the garage keepers policy limits.

For example, say your commercial insurance or the customer’s auto policy covers about 75% of the damages that happen after a covered weather event. Garage keepers liability insurance written as direct excess may help with the remaining covered amount so the owner can repair or replace vehicles and get back to business as soon as possible. This backstop is one of the most reassuring features of garage keepers liability insurance for many owners.

Coverage details, limits, and options vary by insurer and by state, so it is important to review your policy carefully and work with a licensed agent to understand what is and is not covered for your specific operation.

Who Needs Garage Keepers Liability Insurance?

Any business that takes custody of customers’ vehicles, even for a short time, may need garage keepers liability insurance. This can include repair shops, body shops, dealerships, detailers, valet services, parking garages, and towing companies.

Common Exclusions or Limitations:

Coverage may not apply in cases of gross negligence or intentional acts. It's crucial to understand your specific policy has exclusions based on the business’s operations or particular incidents.

Frequently Asked Questions

Who needs garage keepers liability insurance?

Any business that takes custody of customers’ vehicles, even for a short time, may need garage keepers liability insurance. This can include repair shops, body shops, dealerships, detailers, valet services, parking garages, and towing companies.

How is garage keepers liability different from general liability insurance?

General liability insurance usually covers bodily injury or property damage to others, but it often excludes damage to property that is in your care, custody, or control. Garage keepers liability is designed specifically to address damage to customers’ vehicles while you are responsible for them.

Does garage keepers liability cover test drives and road testing?

Many policies can be written to cover vehicles while they are being driven by your employees for business purposes, such as test drives or road testing after repairs, subject to policy terms and any applicable auto liability coverage. Always confirm with your agent how your policy handles these situations.

Are theft and vandalism covered under garage keepers liability?

Theft and vandalism can be covered causes of loss under many garage keepers policies if reasonable security measures were in place, but coverage depends on the specific policy form and any exclusions. Review your policy or speak with your agent to understand how these risks are handled.

How can I get garage keepers liability coverage for my business?

You can typically add garage keepers liability to a business auto or garage policy through a licensed insurance agent. They can help you estimate the value of vehicles in your care and choose limits and options that fit your operations.

Still have questions? Talk to a local insurance expert.