July 1, 2010
Summary: 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, 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 insured's garage, 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 garage 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 03 10 is available for adding garagekeepers coverage to policies with other forms of commercial auto liability coverage; business auto and motor carrier. See Business Auto Endorsements for more information on this endorsement.
Garagekeepers Declarations—Covered Autos
Subject to separate, per location limits, garagekeepers insurance covers liability for damage to covered automobiles. Coverage is provided for causes of loss as selected on the declarations: comprehensive or specified perils and, or, collision.
Covered automobiles are designated under the garagekeepers insurance section of the declarations by use of symbol "30." That symbol relates to "autos left with you for service, repair, storage or safekeeping." Note that the definition of "auto" on the garage coverage form includes land motor vehicles of any description, trailers or semitrailers. Nevertheless, farm implements or mobile equipment dealers should be insured for their bailee-type exposure under an equipment dealers floater. See Equipment Dealers Coverage.
The current garage coverage form, under symbol 30, states that "customers" includes employees of the named insured and members of employees' households; so there is coverage for the autos of employees and others as long as they are in the role of customers, i.e., paying for the services performed on their autos. If an employee of the insured garagekeeper is repairing his own auto for free, just using the garage premises, and that auto is damaged, the garagekeepers coverage will not respond to the loss.
Automobiles in the insured's custody for the specified purposes of servicing, storing, parking, repairing, or "attending" within the concept of garage operations are covered regardless of location (within territorial confines). As is explained later, garagekeepers limits relate specifically to location, but coverage is not affected by the circumstances of the site of the accident.
Since the specified causes of loss are listed with no further definitions they are subject to the broadest reasonable interpretation the insured can apply to them (consistent with the exclusions set out in the form). For example, pilferage of parts from an automobile can be seen as theft—subject, however, to a deductible provision and exclusions discussed below.
Comprehensive insurance applies to loss from any cause except collision. However, collision of an automobile following its theft is commonly treated as a comprehensive loss because theft is the proximate cause of the collision damage.
Collision of the automobile with a bird or animal, or with a missile or falling object is treated as a collision loss. Note that the physical damage portion of the garage coverage form includes a separate agreement placing such losses—along with glass breakage—under comprehensive. The absence of a similar agreement in the garagekeepers provisions clearly points to the drafters' intent to place such incidents under garagekeepers' collision protection.
The garage insured's protection for damage arising out of use of an automobile servicing hoist is under GKLL collision—subject to the collision deductible—if GKLL collision is purchased.
Section III — Garagekeepers Coverage
A. Coverage
1.We will pay all sums the "insured" legally must pay as damages for "loss" to a "customer's auto" or "customer's auto" equipment left in the "insured's" care while the "insured" is attending, servicing, repairing, parking or storing it in your "garage operations" under:
a.Comprehensive Coverage. From any cause except:
(1)The "customer's auto's" collision with another object; or
(2)The "customer's auto's" overturn.
b.Specified Causes of Loss Coverage. Caused by:
(1)Fire, lightning or explosion;
(2)Theft; or
(3)Mischief or vandalism.
c.Collision Coverage. Caused by:
(1)The "customer's auto's" collision with another object; or
(2)The "customer's auto's" overturn.
Analysis
The garagekeepers coverage applies to both automobiles and to automobile equipment while the insured is" attending, servicing, repairing, parking, or storing" it in the course of "garage operations."
The wording of the agreement lends itself to a broad interpretation in some respects. For example, coverage applies to an auto or auto equipment that is "left" in the insured's care. The word "left" as defined in Webster's desk dictionary means "to permit to be or remain subject to another's action or control." Because there is no implication that the customer must physically withdraw or depart from the scene in order to relinquish control, GKLL coverage applies if a customer remains on the insured's premises while the car is being repaired. Moreover, this definition of "left" can resolve any question of what happens if the GKLL insured turns the customer's car over to another shop for work (an antique auto restorer hires a specialty shop do the interior work, for instance). GKLL covers the insured for damage inflicted by the restoration shop just as if the vehicle were in the GKLL insured's own shop.
The insuring agreement's use of the word "attending," ("to look after: to take charge of") a customer's auto can certainly apply to a towing situation. The insured is looking after, or taking charge of an auto in one facet of garage operations in that circumstance. In addition, the customer has "left" the car in the control of the insured while it is being towed.
The phrase "we will pay all sums . . . as damages for loss," leaves itself open to the broadest interpretations. For instance, if a covered auto is stolen while in the insured's care, the policy can be made to respond not only for the worth of the vehicle, but also for whatever loss of use claim the customer can sustain.
Section III — Garagekeepers Coverage (Cont'd)
A.Coverage (Cont'd)
2.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 "loss" 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 for a coverage when the Limit of Insurance for that coverage has been exhausted by payment of judgments or settlements.
Analysis
The garagekeepers insured has defense coverage in the liability insurance language, referring to the "right and duty" of the insurer to defend, with the customary reservation of the right to settle claims expediently. As to settlement of claims, note also the special provision within the limits clause (below) permitting the insurer to pay a claimant fully, irrespective of the deductible of the garagekeepers form, looking to the insured for reimbursement of the deductible amount.
Section III — Garagekeepers Coverage (Cont'd)
A.Coverage (Cont'd)
3.Who is an Insured
The following are "insureds" for "loss" to "customer's autos" and "customer's auto" equipment:
a.You.
b.Your partners (if you are a partnership), members (if you are a limited liability company), "employees", directors or shareholders while acting within the scope of their duties as such.
4.Coverage Extensions
The following applies a Supplementary Payments. We will pay for the "insured":
a.All expenses we incur.
b.The cost of bonds to release attachments in any "insured" against the "insured" we defend, but only for bond amounts within our Limit of Insurance.
c.All reasonable expenses incurred by the "insured" at our request, including actual loss of earnings up to $250 a day because of time off from work.
d.All court costs taxed against the "insured" in any "suit" against the "insured" we defend. However, these payments do not include attorneys' fees or attorneys' expenses taxed against the "insured".
e.All interest on the full amount of any judgment that accrues after entry of the judgment in any "suit" against the "insured" we defend; but our duty to pay interest ends when we have paid, offered to pay or deposited in court the part of the judgment that is within our Limit of Insurance.
These payments will not reduce the Limit of Insurance.
Analysis
The statement about who qualifies as an insured is clear cut and straightforward, causing no problems.
The "extensions" are equally self explanatory. Except for the cost of bail bonds, an unlikely expense under GKLL, the supplementary payments of this section duplicate the extensions agreements of garage liability coverage; see Annotated Garage Liability Section II.
Section III — Garagekeepers Coverage (Cont'd)
B.Exclusions
1.This insurance does not apply to any of the following:
a.Contractual Obligations.
Liability resulting from any contract or agreement by which the "insured" accepts responsibility for "loss." But this exclusion does not apply to liability for "loss" that the "insured" would have in the absence of the contract or agreement.
b.Theft.
"Loss" due to theft or conversion caused in any way by you, your employees or by your shareholders.
c.Defective Parts.
Defective parts or materials.
d.Faulty Work.
Faulty "work you performed".
2.We will not pay for "loss" to any of the following:
a.Tape decks or other sound reproducing equipment unless permanently installed in a "customer's auto".
b.Tapes, records or other sound reproducing devices designed for use with sound reproducing equipment.
c.Sound receiving equipment designed for use as a citizens' band radio, two-way mobile radio or telephone or scanning monitor receiver, including its antennas and other accessories, unless permanently installed in the dash or console opening normally used by the "customer's auto" manufacturer for the installation of a radio.
d.Any device designed or used to detect speed measuring equipment such as radar or laser detectors and any jamming apparatus intended to elude or disrupt speed measuring equipment.
3.We will not pay for "loss" caused by or resulting from the following. Such "loss" is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the "loss":
a.War, including undeclared or civil war;
b.Warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents; or
c.Insurrection, rebellion, revolution, usurped power, or action taken by governmental authority in hindering or defending against any of these.
Analysis
Garagekeepers insurance rules out coverage for the following:
Liability by agreement: If any insured enters into a contractual agreement to be responsible for loss covered by the policy, the insurance company withdraws its coverage as respects that agreement. The exclusion does not apply to liability for loss that the insured would have regardless of the presence of any contract or agreement;
Theft by an insider: This particular exclusion refers to theft or conversion by the named insured, employees, or shareholders. The exclusion applies to loss caused "in any way" by theft or conversion;
Defective parts and faulty work: There is no coverage for defective parts or materials or for faulty work performed by the named insured. Injury or damage to customers and their property is a liability matter and can be covered under that portion of the policy, subject to any applicable exclusion, of course;
Sound reproducing or receiving equipment: Loss to tape decks or other sound reproducing equipment is excluded unless the equipment is permanently installed in a covered auto. Likewise, sound receiving equipment—CB or two-way radios, telephones, or scanning monitor receivers, including antennas and other accessories—are not covered unless permanently installed. Under no circumstances, though, is there coverage for loss to tapes, records, or other devices used with sound reproducing equipment. The ambiguity of the term "permanently installed" makes the exception about tapes, records, etc. necessary since they are items that are easily susceptible to theft. (Endorsement CA 99 59 03 10 may be used to amend the permanently installed condition. See Garage Policy Endorsements.)
Radar: The garagekeepers insurance does not apply to equipment designed or used for the detection or location or jamming of speed measuring equipment such as radar. This is a standard exclusion on any policy related to auto exposures.
War: This exclusion is now becoming a standard exclusion on insurance policies due to the rise of terrorism attacks and is meant to prevent any coverage for such attacks.
C.Limits of Insurance and Deductibles
1.Regardless of the number of "customer's autos", "insureds", premiums paid, claims made or "suits" brought, the most we will pay for each "loss" at each location is the Garagekeepers Coverage Limit of Insurance shown in the Declarations for that location. Prior to the application of this limit, the damages for "loss" that would otherwise be payable will be reduced by the applicable deductibles for "loss" caused by:
a.Collision; or
b.With respect to Garagekeepers Coverage Comprehensive or Specified Causes of Loss Coverage:
(1)Theft or mischief or vandalism; or
(2)All perils.
2.The maximum deductible stated in the Declarations for Garagekeepers Coverage Comprehensive or Specified Causes of Loss Coverage is the most that will be deducted for all "loss" in any one event caused by:
a.Theft or mischief or vandalism; or
b.All perils.
3.Sometimes to settle a claim or "suit", we may pay all or any part of the deductible. If this happens you must reimburse us for the deductible or that portion of the deductible that we paid.
Analysis
It is necessary for the insured to set an adequate limit for the garagekeepers exposure. The limit is shown on the declarations page and applies to each location, minus the applicable deductible chosen. However, there is neither a manual rule nor a policy provision dictating that the same limits must apply to all locations where the insured does business. In fact, the insured's declarations schedule allows the insured to apply not only different limits, but also different causes of loss and deductibles at each location, as desired. Of course, the underwriting rules of a particular insurer as well as the rating structure will have a bearing on the insured's choice of options.
Under comprehensive or specified causes of loss coverages, loss by theft or loss by vandalism or mischief is covered subject to a deductible for each covered auto and is further subject to a maximum deductible for all such loss in any one event. Premium discounts based on variable deductible amounts are featured in the garagekeepers section of the state exception pages of the commercial lines manual.
The collision deductible applies to each covered automobile, regardless of the number of cars involved in a collision loss. If an improperly parked automobile rolls down an incline, for example, and sideswipes four customers' automobiles, the collision deductible applies to the loss on each.
The coverage of the standard garagekeepers policy protects the named insured garage owner from the consequences of legal liability for damage to customers' cars. Yet, consumers can be accustomed to having bailees make good for loss or damage to customers' goods without regard to legal liability. They take umbrage at a garage owner who does not offer the same response.
There is a way for the garage owner to buy back "goodwill" coverage. The insured has the option of purchasing direct coverage for the garagekeepers exposures. If the insured chooses that option, garagekeepers coverage applies to customers' cars and auto equipment without regard to the legal liability of an insured, although this approach is handled a bit differently, depending on whether the insured has chosen the direct-primary or direct-excess option.
Choosing the option of direct coverage calls for a selection to be made. Is the direct coverage to apply on a direct-primary or a direct-excess basis? If the direct-primary option is selected, the garagekeepers premium is increased and coverage for damage to a customer's car by a covered cause of loss is provided without regard to the legal liability of the named insured or any other insured; the garagekeepers coverage becomes primary. If the direct-excess option is chosen, the insured's garagekeepers premium increases a bit less and coverage for damage to a customer's car will be provided over any other collectible insurance. The direct-excess option notes that garagekeepers coverage itself remains applicable on a legal liability basis, but the excess coverage is not dependent on the legal liability of the named insured or any other insured for the loss to the customer's auto. As an example: the customer has physical damage coverage on his auto. He takes his car to the insured's garage for service and, through no fault of the insured, the car is damaged. The customer has his own auto policy pay for the damage but has to pay a $500 deductible. If the garage has purchased direct-excess insurance under his GKLL coverage, the insured can then pay the customer the $500.
Questions arise from time to time about the interrelationship of the dealer's direct-primary coverage with the owner's insurance. If two policies promise primary coverage, property adjusting traditions call for the two insurers to prorate the loss; if one has a different deductible from the other, the one with the lower amount picks up the difference. A general condition on the garage coverage form calls for pro rata payments if the coverage forms are on the same basis, either excess or primary.
It has been suggested that the interests of the two parties, garage and customer, are different and that therefore there cannot be overlapping insurance. The interests, in fact, are the same. The garage owner has no interest at all in the customer's property except for protecting the customer's interest. Loss to the customer's property is otherwise uninsurable to the garage owner. The loss payment issued by the garage insurer can presumably be by draft payable to both parties as interests appear.
Selection of the direct coverage option by the garage insured does not relieve the customer's insurer of its obligation under its policy to its insured. Nor does the selection eliminate the legal liability coverage as the basis of garagekeepers coverage. Having paid its loss on the customer's car (or having paid its share of the loss if the garagekeepers is also primary), the customer's insurer is free to take whatever action it deems suitable against the garage to recover its loss. The GKLL insurer is obliged to defend its insured in such an event.