Garage Liability Insurance Policy and the Co-Insurance Requirement Explained
- Sloan Cox
- Sep 24
- 4 min read
Understanding Garage Liability Insurance
What Is Garage Liability Insurance?
Garage liability insurance is a specialized form of business liability coverage designed for companies in the automotive sector. Unlike standard commercial liability insurance, this policy specifically covers risks related to operating a garage, dealership, repair shop, or service station. It helps protect against lawsuits, property damage, and bodily injury claims arising from daily operations.
For instance, if a customer slips in the repair bay or if a mechanic’s work inadvertently damages a client’s vehicle, a garage liability policy ensures financial protection.
Who Needs Garage Liability Coverage?
Not every business requires garage liability insurance, but it is essential for those handling vehicles regularly, including:
Auto dealerships (new and used)
Repair shops and mechanics
Tow truck companies
Service stations and quick-lube shops
Customization and body shops
Key Features of a Garage Liability Policy
Some of the common protections include:
Third-party injury coverage – protects when a customer or visitor is injured.
Property damage liability – covers damage caused to another person’s property.
Products and completed operations – applies to services rendered and parts installed.
Legal defense costs – covers attorney fees and settlements.
Coverage Inclusions Under a Garage Liability Insurance Policy
Third-Party Bodily Injury
If a customer suffers an injury within your business premises—say, slipping on oil—this coverage takes care of medical bills and potential lawsuits.
Property Damage Coverage
Protects against damages caused by your business operations, such as a mechanic accidentally damaging a customer’s car while test-driving it.
Products and Completed Operations
Even after services are completed, issues can arise. If faulty repair work causes an accident later, this coverage helps safeguard your business.
Exclusions You Should Know
A garage liability policy doesn’t cover everything. Key exclusions include:
Employee injuries (covered under Workers’ Compensation)
Damage to customers’ vehicles (covered under Garage Keepers Insurance)
Intentional misconduct
The Importance of Garage Liability for Auto Businesses
Why Auto Dealers and Repair Shops Need It
With the high-risk environment of auto businesses—tools, heavy machinery, moving vehicles—the chance of accidents is significant. Garage liability ensures businesses stay financially protected from unexpected claims.
Real-Life Examples of Covered Claims
A customer trips over an air hose and sues the garage.
A mechanic’s faulty brake repair leads to an accident.
A dealership test drive results in damage to another vehicle.
Co-Insurance Requirement in Garage Liability Policies
What Is Co-Insurance in Insurance Terms?
Co-insurance is a cost-sharing requirement in insurance where the policyholder agrees to maintain coverage equal to a percentage (commonly 80% or 90%) of the property’s total value. Failure to meet this requirement results in penalties during claim settlement.
How Co-Insurance Applies to Garage Liability Policies
In garage liability policies, co-insurance ensures businesses maintain adequate coverage relative to their risks. If underinsured, businesses may have to bear part of the loss even if the claim is within the policy limits.
The 80/20 Rule and Its Impact
Many insurers follow the 80% rule, meaning you must insure at least 80% of the total value of your garage operations. If you fall short, the insurer may only pay a proportionate amount of your claim.
Risks of Not Meeting the Co-Insurance Requirement
Underinsurance Penalties Explained
If a business is underinsured, insurers may apply a co-insurance penalty, reducing claim payouts proportionately.
Claim Settlement Reductions
For example, if your garage’s total value is $1,000,000 but you only insured it for $500,000 under an 80% co-insurance clause, the insurer may pay only a fraction of your claim.
How to Calculate Co-Insurance for Garage Liability
Step-by-Step Calculation Process
Determine the total value of the property/business.
Multiply that by the co-insurance percentage (e.g., 80%).
Compare the required coverage with the actual coverage purchased.
If actual coverage is lower, apply the formula:
Claim Payment = (Actual Coverage ÷ Required Coverage) × Loss Amount
Common Mistakes Businesses Make
Undervaluing property or operations.
Failing to update coverage after expansion.
Assuming general liability is enough.
Comparing Garage Liability vs. Garage Keepers Insurance
Key Differences in Coverage
Garage Liability – covers bodily injury and property damage to third parties.
Garage Keepers Insurance – covers customers’ vehicles in your care.
Which One Do You Need?
Most auto businesses need both policies for complete protection. A dealer without Garage Keepers Insurance could face massive losses if customer cars were stolen or damaged.
Tips for Choosing the Right Garage Liability Insurance Policy
Working with an Insurance Broker
Our experienced insurance brokers can help tailor coverage based on your risks and ensure co-insurance compliance.
Policy Limits and Deductibles
Always balance affordability with adequate coverage. Low premiums may mean low limits.
Reviewing Policy Endorsements
Endorsements add customized protections, like coverage for additional operations or employee dishonesty.
FAQs on Garage Liability Insurance and Co-Insurance
1. Is garage liability insurance mandatory? Not legally, but most lenders, landlords, and state regulations require it.
2. What happens if I don’t meet the co-insurance requirement? Your claim payment will be reduced proportionately, leaving you to cover the remaining loss.
3. How is Garage Liability different from General Liability? General liability is broader, while garage liability is tailored to auto-related businesses.
4. Can I combine Garage Liability and Garage Keepers Insurance? Yes, many insurers bundle them for comprehensive protection.
5. How do I know if my business meets co-insurance requirements? Work with an insurance professional to evaluate property values and operations.
6. Does garage liability cover employee accidents? No, that falls under Workers’ Compensation insurance.
Conclusion: Protecting Your Business with the Right Coverage
Garage Liability Insurance, when paired with Garage Keepers Insurance, forms the backbone of financial protection for auto-related businesses. However, the co-insurance requirement ensures that businesses maintain sufficient coverage levels to avoid penalties. By understanding how co-insurance works and calculating the correct coverage, garage owners can avoid costly surprises at claim time.
For more details on insurance compliance and how we can assist your business, Contact us today at 813-398-0104. For Auto Dealer Bonds visit https://www.cox-insurance.com/quote-portals