Carwash owners and operators must ask themselves if their operations need garage keepers liability insurance. This may seem like a simple question to pose to an insurance agent, however, the answer is fairly complicated. In order to properly answer this question, we first must look at the typical commercial general liability (CGL) policy, specifically regarding the exclusions for this type of policy.
General liability exclusions
General liability policies contain some version of the following exclusion for property damage: “Exclusion j.4. — excluded from coverage is any property damage to personal property that is in the care, custody or control of the insured.” This immediately alerts a carwash of a potential problem with a customer’s car. Any customer’s vehicle in your care, in your custody or under your control is not covered for damage by the general liability policy. This means that if, at any point in the wash cycle, your customer exits his or her vehicle or the wash takes control of the vehicle, this exclusion would immediately take effect, and the general liability policy would not pay for any damage to that customer’s vehicle.
Since the exclusion applies only to personal property in an insured carwash’s “care, custody or control,” the question immediately becomes: What constitutes “care, custody or control”? The bad news is that no “one size fits all” answer exists to this question.
For example, the Supreme Court of Arkansas articulated that in a general way, the word “care” has reference to temporary charge; “custody” implies a keeping or guarding and a necessity for an accounting; and “control” refers to power or authority to manage, superintend, direct or oversee (Hardware Mut. Cas. Co. v. Crafton, 350 S.W.2d 506 (Ark. 1961)).
The state of Illinois requires a two-pronged test as follows: The “care, custody or control” exclusion precludes insurance coverage if a two-pronged test is met. One, the property was “within the possessory control of the insured at the time of the loss;” and two, the property was “a necessary element of the work performed” (Essex Ins. Co., v. Soy City Sock Co., William E. Phillips Co. Inc., and Federal Ins. Co.; 503 F. Supp. 2d 1068 (U.S. Dist. 2007)).
Generally speaking, the exclusion is interpreted that even if the customer remains in the vehicle, such as in an exterior-only, conveyor wash system, the carwash is assumed to have taken “control of the vehicle.” This condition essentially views the customer riding through as a spectator in an exterior-only wash. Once the driver is discharged from the conveyor process and takes back full “control” of his or her vehicle, the carwash is thereby released from the control.
Garage keepers insurance considerations
Regardless of what state your carwash is located in, your customer has a reasonable expectation that his or her car will be returned in at least the same condition as it was when you gained control of it. Thus, if your wash operation includes your employee taking control of your customer’s vehicle, no matter how brief, an additional coverage known as garage keepers insurance should be incorporated as part of your total insurance coverage.
Once this coverage is added, your carwash would be protected for most sources of loss that could damage a customer’s automobile.
Garage keepers insurance is generally written with a policy limit based upon the maximum replacement value of customers’ vehicles in your control at any given point in time. Any damages covered would be subject to a deductible similar to a personal auto policy (comprehensive and collision).
Additionally, this coverage is commonly written in two different formats: legal liability and direct primary.
- Legal liability: This is the most common format. The protection only applies to a customer’s vehicle damaged because of the insured’s negligence — for example, if an employee ran into something while moving the vehicle. This form would be most commonly used for the majority of carwash operations and is also the most cost-effective coverage.
- Direct primary: This form covers the customers’ cars regardless of liability. In a loss caused by no action of the insured, such as a theft, although the vehicle was adequately protected, the direct primary garage keepers insurance pays.
When determining if your wash operation requires garage keepers coverage, review the entire carwash cycle and evaluate if your wash would take care, custody or control of a customer’s vehicle at any point. Work with an insurance agent thoroughly versed in carwash operations to make sure you choose the best type of garage keepers coverage for your operation.
Dan Tharp is the vice president of sales for The Insurancenter. He can be reached at DTharp@theinsurancenter.com for additional information.