The automobile liability insurance under the garage form applies to sums that an insured legally must pay as damages because of BI or PD caused by an accident and resulting from garage operations involving the ownership, maintenance, or use of covered autos. See Garage Policy, for the symbols used to make the designation of “covered autos.”

Topics Covered:

Garage operations

Insured definition

Coverage extensions

Garage liability exclusions

Liability limits

Deductible

Garage Operations

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 1.”Garage Operations” – Other Than Covered “Autos”

a.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”.

We have the right and duty to defend any “insured” against a “suit” asking for these damages. However, we have no duty to defend any “insured” against a “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may investigate and settle any claim or “suit” as we consider appropriate. Our duty to defend or settle ends when the applicable Liability Coverage Limit of Insurance – “Garage Operations” – Other Than Covered “Autos” has been exhausted by payment of judgments or settlements.

b.This insurance applies to “bodily injury” and “property damage” only if:

(1)The “accident” occurs in the coverage territory;

(2)The “bodily injury” or “property damage” occurs during the policy period; and

(3)Prior to the policy period, no “insured” listed under Who Is An Insured and no “employee” authorized by you to give or receive notice of an “accident” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed “insured” or authorized “employee” knew, prior to the policy period, that the “bodily injury” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period.

c.”Bodily injury” or “property damage” which occurs during the policy period and was not, prior to the policy period, known to have occurred by any “insured” listed under Who Is An Insured or any “employee” authorized by you to give or receive notice of an “accident” or claim, includes any continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.

d.”Bodily injury” or “property damage” will be deemed to have been known to have occurred at the earliest time when any “insured” listed under Who Is An Insured or any “employee” authorized by you to give or receive notice of an “accident” or claim:

(1)Reports all, or any part, of the “bodily injury” or “property damage” to us or any other insurer;

(2)Receives a written or verbal demand or claim for damages because of the “bodily injury” or “property damage”; or

(3)Becomes aware by any other means that “bodily injury” or “property damage” has occurred or has begun to occur.

2.”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”.

We will also pay all sums an “insured” legally must pay as a “covered pollution cost or expense” to which this insurance applies, caused by an “accident” and resulting from “garage operations” involving the ownership, maintenance or use of covered “autos”. However, we will only pay for the “covered pollution cost or expense” if there is either “bodily injury” or “property damage” to which this insurance applies that is caused by the same “accident”.

We have the right and duty to defend any “suit” asking for such damages or a “covered pollution cost or expense”. However, we have no duty to defend any “insured” against a “suit” seeking damages for “bodily injury” or “property damage” or a “covered pollution cost or expense” to which this insurance does not apply. We may investigate and settle any claim or “suit” as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance – “Garage Operations” – Covered “Autos” has been exhausted by payment of judgments or settlements.

 Analysis

 The central liability insurance agreement of the garage coverage form is basically the same as other general liability policies. The insurance company promises to pay up to policy limits in response to the legal liability of the insured because of bodily injury or property damage occurring while the policy is in force; but of course, since this is a garage coverage form, the injuries and damage must arise out of an accident in the course of garage operations. “Garage operations” is a defined term and relates to the business premises liability exposure, to all operations necessary or incidental to a garage business, and includes the ownership, maintenance, or use of covered autos.

 The insurance company expressly has “the right and the duty” to defend the insured against liability claims but, also expressly, the defense obligation does not extend to a lawsuit seeking damages for bodily injury (BI) or property damage (PD) to which the insurance does not apply. A claim for damages arising out of the use of a covered auto in an organized race does not activate the promise to defend because coverage for such an incident is specifically excluded. Refusal to defend, does however, put the insurer in some legal jeopardy and such refusal is not lightly undertaken. In Davis v. United Fire & Casualty Co., 400 N.E.2d 984 (Ill. App. 1981) for example, the policy applied to the use of nonowned automobiles in the operation of the garage and the claim concerned a garage-owned wrecker in a collision with the claimant. The insurance company denied coverage and the insured subsequently defended the suit himself, and lost. The case before an Illinois appellate court centered on the obvious fact that the insurance company had not offered its insured a defense and the case was remanded for still more litigation on whether the insurer owed a defense. To all appearances, the claim was outside the coverage of the policy, but that did not save the insurance company from costly legal expense.

 The insurance company has complete authority to investigate — and to settle — any covered claim without consultation with the insured. And payment of the limit expressed in the policy ends the insurer’s defense obligation. The limit, incidentally, is expressed as a single limit for both bodily injury and property damage. If split limits are required, this can be accomplished by use of endorsement CA 99 38 01 87. (See Garage Policy Endorsements.)

 The garage form also contains the clauses about prior knowledge on the part of an insured about bodily injury or property damage that occurred before the policy inception. This is in reaction to the Montrose Chemical Corporation decision from California and such clauses are now an integral part of the liability policies furnished by ISO.

 CA 00 05 03 10 also applies to garage operations involving the ownership, maintenance, or use of covered autos. Covered autos under the garage form are based on the use of designation symbols; see Garage Policy.

 Another of the garage form’s liability insuring agreements is the insurers promise to pay all sums that an insured legally must pay as a covered pollution cost or expense. The cause must be accidental and result from garage operations involving the ownership, maintenance, or use of covered autos. Basically, this insuring agreement deals with certain clean up costs that the insured has to pay in response to the accidental release or dispersal of pollutants from a vehicle’s operating systems or by an off premises auto accident. See Business Auto Definitions for more detail on covered pollution costs.

 Insured Definition