Garage Liability Section III—Archived Article

November 2002

Garagekeepers Legal Liability Insurance

Summary: An owner or operator of an automobile repair shop, storage garage, or parking lot who keeps customers' automobiles for storage or repair and makes a charge is a “bailee for hire.” A bailee for hire receives personal property of others (“bailors”) and the bailee is then compensated for caring for it.  As both parties hope to benefit from this arrangement in the garage, the bailment might also be aptly termed a “bailment for mutual benefit.” No matter what the bailment is called, it is well established that the owner or operator of a garage can be held legally liable (regardless of signs to the contrary posted throughout the premises) for loss or damage caused by failure to exercise the care required of a bailee. Once the bailee relationship is established, the bailee must exercise ordinary or due care to safeguard the property and may be called upon later to prove that this care was afforded. Because garage liability insurance excludes coverage for damage to property of others in the care of the insured, including garage customers' property, a need for separate coverage of this significant exposure is readily apparent. The need can be satisfied by purchasing garagekeepers coverage (section III of the garage coverage form).

Need for Garagekeepers Liability Coverage

Most customers have automobile comp or collision, usually both, on their own cars. Their insurance will respond to damage wherever the car is located and regardless of who may be responsible for it. However, when a customer's car is damaged or destroyed while at the repair garage, service station, or parking lot, the customer is more than likely to expect the garage operator to restore it. It is a matter of maintaining customer good will the same as it is in other “bailee for mutual benefit” establishments like dry cleaners, watch and jewelry repairers, appliance repair shops, and so on.

Another imperative is also at work in the garagekeeper's scenario. It is keyed directly to the earlier comment about most customers having insurance on their own cars.  As the insurers of those customer's cars are well aware of the obligations of a “bailee” and not at all reluctant to approach a garage owner for recovery of loss to an auto while in the care of the garage, garagekeepers legal liability insurance (GKLL) is usually a standard component of the insuring program of auto operations with bailment exposures.

Insureds should be cautioned that the standard GKLL coverage responds only when the insured is found to be legally liable for damages—or when defense costs have to be undertaken to disprove the legal liability charge. If the insured wants, the standard GKLL agreement can be amended to provide direct physical damage coverage on customers' automobiles, either as primary or excess.  When this is done, the interplay of the direct coverage owned by the customer and that of the garage can be confusing.  The “other insurance problem” is discussed at the end of this article.

Endorsement CA 99 37 10 01 is available for adding garagekeepers coverage to policies with other forms of commercial auto liability coverage; business auto, truckers, and motor carrier. See Business Auto Endorsements for more information on this endorsement.

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