Chapter 6 | Introduction to the Garage Coverage Form

Educational Objectives
Upon completion of this section, you should be able to:

  1. Describe the types of businesses covered by the Garage Coverage Form.
  2. Define the coverages provided by the Garage Coverage Form.
  3. Determine the premium for Dealers and Non-Dealers.
  4. Distinguish between a Franchised and Non-Franchised Dealer.

SPECIAL NOTE: PLEASE READ
EFFECTIVE JULY 1, 2002

Insurance Services Office, Inc. has announced through circular LI-CA-2001-273 that the garage liability program has changed to include only auto dealers in the program. Risks that were formerly eligible such as service stations, auto repair shops and parking garages now must be covered under the CGL program. These risks will need to purchase an auto policy to cover their auto exposures, whether they are owned or non-owned autos.

The following rules have been deleted from the Commercial Lines Manual, Division One - Auto (CLM):

Rule 51. Auto Service Operations Or Trailer Sales - Eligibility
Rule 52. Auto Service Operations Or Trailer Sales - Premium Development
Rule 53. Auto Service Operations Or Trailer Sales - Additional Provisions

As this change has not been accepted by all insurance companies, PAAS will continue to include the information referencing the Automobile Service Operations (Non-Dealers) within the course materials.

INTRODUCTION

The Commercial Auto Coverage Part can be used to address the liability exposures created by those businesses who may be in the business of:
  • Selling
  • Repairing,
  • Servicing, or
  • Garaging (Parking or Storing) Autos
These exposures are covered by the attachment of the Garage Coverage Form. Similar to other businesses, garage risks have a need for insurance protection for their premises. However, unlike other businesses, these risks also require protection for their automobiles. Because of this unique situation, the Garage Coverage Form has been designed to combine several coverages into one form. The coverages available are Garage Liability, Automobile Liability and Physical Damage, Garagekeepers coverage, and Auto Dealers Physical Damage. The following is a brief description of each of these coverages:
  • Garage Liability Coverage:
    The Garage Liability coverage is similar in nature to the coverage provided by the Commercial General Liability policy. It covers the legal liability for claims for bodily injury and property damage arising out of their business operations.
  • Automobile Liability Coverages:
    This Automobile Liability coverage can apply to the use of owned, non-owned or hired vehicles. This would include (if applicable) personal injury protection (no-fault), auto medical payments and uninsured motorist coverages.
  • Automobile Physical Damage Coverage:
    The Auto Physical Damage coverages are similar to what is covered by the Business Auto Coverage Form (comprehensive, specified perils and collision). It provides protection to the insured autos.
  • Garagekeepers Coverage:
    The basic Garage Liability coverage excludes damage to property of others in the insured's care, custody or control. The indent of Garagekeepers insurance is to pay for losses to a covered auto that may be in the insured's care, custody or control.
  • Auto Dealers Physical Damage Coverage - Dealers Physical Damage coverage is designed to cover the exposure of damage to a dealer's auto which are used in the business, as well as those on consignment or held for sale. Coverage can be obtained for comprehensive or specified perils and collision.
The Garage Coverage Form is flexible enough to respond to the insurance needs of garage operations; however, not all garage operations are alike. The Insurance Services Office has responded to the difference in the garage operation by creating two broad categories for providing insurance protection: dealers and non-dealers.

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DEALERS

The types of risks falling into this category would be: mobile home or motorcycle dealers, auto dealers, recreational vehicle dealers and truck or truck-tractor dealers. These concerns can be either a franchised or non-franchised dealer. A franchised dealer normally has an agreement with a manufacturer to sell a certain type of vehicle, i.e., Fords, General Motors, etc. A non-franchised dealer has no such agreement and is usually a used-car dealer.

CLASSIFICATIONS

To properly classify and determine the exposure for risks that fall into this category, the exposure base of total rating units was developed. Rating Units represent a person or part of a person and their connection with an insured vehicle. Because the rate per rating unit is high, it is important that a verifiable source be used to develop the correct number of rating units.

Under the Dealers Classification procedures two broad classes are available. These classes are:
  • Class I - Regular Employees.
  • Class II - Non-Employees
Below are the definitions for each grouping:
CLASS I - REGULAR EMPLOYEES - this includes all employees during the policy period, including part-time employees.
  • I(a) - Active owners, active officers, active partners, salespersons, general managers or service managers; any other employee whose principal duty involves the operation of autos or to whom a garage auto has been furnished. This class applies to both full or part-time workers.
  • I(b) - All other employees (such as, but not limited to, clerical and office employees). This class applies to both full or part-time workers.
CLASS II - NON-EMPLOYEES - Any individual, other than a person described in Class I, who is regularly furnished with a covered auto.
  • II(a) - All individuals such as (but not limited to) inactive owners, inactive officers, inactive partners, and family members of active or inactive owners, officers or partners who have regular use of, or are furnished, a dealer's auto and are under the age of 25.
  • II(b) - Same as Class II(a) except that this category applies to the individuals who are age 25 and over at policy inception.

AUDIT PROCEDURE AND VERIFICATION

Class I - Regular Employees

Salaried Employees:
Obtain the individual earning records for all persons employed during the policy term.

List each employee (and total remuneration) during the policy term.

Determine the number of weeks each employee worked during the policy term, the duties of each employee and the average number of hours worked per week.

Verify the total remuneration using a second source to ensure that all persons employed during the policy term are accounted for.

Non-Salaried Employees:
List all persons who work on a commission basis, usually salespersons, whose earnings do not appear in the payroll records.

Determine the number of weeks each employee worked during the policy term, the duties of each employee and the average number of hours worked per week.

Class II - Non-Employees
List all individuals such as, but not limited to, inactive proprietors, inactive partners, or inactive officers and family members of active or inactive proprietors, partners or officers who have regular use of, or are furnished, garage-owned automobiles.

Obtain an accounting of each furnished auto or set of dealer plates or tags to ensure that all Class II exposures have been developed.

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PREMIUM DEVELOPMENT


Class IA - Full time or Part time
Determine the number of proprietors, partners, or officers active in the business; also, salespersons, general managers and service managers.

List all other employees whose principal duty involves the operation of a covered auto or to whom a covered auto has been furnished. (Examples: car jockeys, tow-truck drivers, or an office manager furnished an auto for personal use.)

Multiply the number of persons developed above, who worked an average of twenty (20) hours per week, by the rating factor of 1.00.

Multiply the number of persons, who worked less than an average of twenty (20) hours per week, by the rating factor of .50.

If an employee is employed for only part of the policy term, determining the pro-rata factor for the period employed and multiply this by the appropriate rating factor (i.e., divide number of weeks worked by 52 weeks to determine pro-rata factor; then multiply by rating factor of 1.00 or .50, depending on whether the employee was full-time or part-time).

Class IB - Full Time or Part Time
Determine the number of all other employees not included in Class IA and multiply these persons by the rating factor of .40.

If employed less than an average of twenty (20) hours per week, multiply these persons by the rating factor of .20.

If employees are employed for a period less than the policy term, determine the pro-rata factor and multiply this by the rating factor of .40 for full-time employees and .20 for part-time employees.

Class IIA - Non-Employees
Determine the number of non-employees who are or were under the age of 25 at the inception of the policy and multiply each person by the rating factor of 1.15.

If furnished a garage-owned automobile for less than the full policy term, develop the pro-rata factor and multiply this by the rating factor of 1.15.

Class IIB - Non-Employees
Determine the number of non-employees age 25 or over at policy inception and multiply each person by the rating factor of .50.

If furnished a garage-owned automobile for less than the full policy term, determine the pro-rata factor and multiply this by the rating factor of .50.

Note: If there is more than one person having use of any vehicle, use the factor for the highest-rated person in determining the appropriate rating unit.

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Example:
The following problem is provided to assist you in understanding the rating units concept. It will allow you to see the details that are necessary in order to properly record and verify the information needed for an audit of an Auto Dealer.

Jacks New Car Inc. is a dealership located in Florida. Your company has written a Commercial Property Policy, providing Garage Liability coverage for the period 1/1/XX - 1/1/XX.

In addition to Jack, there are two other officers in the company (Harry & Joe). Through your interview and examination of the insured records, you have uncovered the name, wages, duties and employment status for each of the workers. You were also informed that some of the vehicles covered by the policy were being driven by relatives. Four employees were hired on a part-time basis (Fred, Calvin, Shirley and John), each working less than 20 hours per week.

Using the information provided, the TOTAL RATING UNITS for this insureds would be determined as follows:

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MISCELLANEOUS

Other Automobiles
Any garage-owned vehicle provided to other than Class I or Class II persons is to be separately classified as Code 7877 - Private-Passenger Automobiles or Code 7878 - Commercial Automobiles; the person or organization who is furnished an automobile should be indicated on the worksheet. An example is a car furnished to a high school driver training program.

Automobile Pickup and Delivery
If the exposure for a non-franchised dealer includes the pickup or delivery of automobiles beyond a 50-mile radius of the city or town where operations are conducted, a separate charge, per driver per trip, is made and charged to Code 7070. Refer to the applicable state rate pages for the chargeable amount.

The term radius in this context is a straight line from the point of purchase or distribution to the point of destination. It does not refer to road miles necessarily.

Trip is considered to mean a one-way journey per driver from the place of business or purchase to the point of purchase or business.

Example:
One driver drives a car for sale to the point of purchase, makes no sale, and drives back to the place of business - count as two trips.

Coverage is automatically provided for franchised dealers without an additional premium charge.

AUTO SERVICE OPERATIONS (NON-DEALERS)see special note at the beginning of Chapter Six
The automobile service operations (non-dealers) or trailer sales coverage is primarily designed for garage operations that may service or park automobiles. Included in this grouping would be repair shops, service stations, storage garages, public parking places, mobile home trailer dealers and tow-truck operations.

CLASSIFICATIONS
Only one classification and code apply per risk. The classification codes are as follows:

 

CLASSIFICATION

Repair Shops — risks primarily engaged in the repair of autos, including body, fender, radiator, ignition service and paint shops

Service Stations — risks primarily engaged in the servicing of autos (including car washes) and the sale and installation of auto accessories excluding major engine or body repair work

Storage Garages and Public Parking Places — risks primarily engaged in storing or parking autos

Mobile Home Trailer Dealers — franchised and non-franchised residence type

Commercial Trailer Dealers — franchised and non-franchised

Tow Truck Operators — risks exclusively engaged in operating tow trucks and not subject to any other classification in this rule.

CODE

 

 

7808


7810



7812


7820


7830

7815

 


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PREMIUM DEVELOPMENT (Rule 52)

The basis of premium is per $100 of payroll of all employees, subject to a payroll limitation of $100 per week average, with any part of a week constituting a full week. Paid vacations, holidays, sick days, commission, bonuses, etc. are also included. If an employee earned less than $100 per week average, include their entire payroll.

Non-dealers, because of the limited scope of their operations, usually have a relatively small number of employees at each location. Therefore, individual earnings records are considered a good source from which to obtain the audit information. All active executive officers, sole proprietors and partners are to be included at the fixed amount of $5,200 per annum.

Often non-dealers hire part-time workers to pump gas, park cars, etc., and pay these workers either off the books or through petty cash. It is important that the company representative include these workers based on what they are paid subject to the $100 per week average. Even though these workers are not on the payroll, they do present a liability exposure for which the company is entitled to a premium charge.

Example:
The following example is provided to help you comprehend the premium calculation necessary when developing the exposure for a Non-Dealer:
Andy Straub and Bill McNiff own a muffler and brake repair shop. It is a partnership, and both partners are active in the business. The following information has been developed as a result of a review of the insured's operations and records:
Name Duties Total Payroll Weeks Worked
John Smith

 

Harry Barnes

 

Miles Dobson

 

Stanley Forbes

 

Charlene Chance

 

Barbara Ferrano

 

Andy Straub, partner

 

Bill McNiff, partner
Shop

 

Shop

 

Shop (Part-Time)

 

Mechanic

 

Clerical/Cashier

 

Mechanic

 

Foreman

 

All Duties
$ 23,000

 

18,000

 

7,000

 

18,000

 

11,000

 

22,000

 

30,000*

 

30,000*

 

159,000
52

 

48

 

52

 

52

 

26

 

52

 

52

 

52


*Draws taken by the partners.

 

The basis of premium for this insured would be determined as follows:

 

 

Name #Weeks X Limitation

Actual

Chargeable
John Smith

 

Harry Barnes

 

Miles Dobson

 

Stanley Forbes

 

Charlene Chance

 

Barbara Ferrano

 

Andy Straub, partner

 

Bill McNiff, partner
52 X 100 = 5,200

 

48 X 100 = 4,800

 

52 X 100 = 5,200

 

52 X 100 = 5,200

 

26 X 100 = 2,600

 

52 X 100 = 5,200

 

52 X 100 = 5,200

 

52 X 100 = 5,200

23,000

18,000

7,000

18,000

11,000

22,000

30,000

30,000

5,200

 

4,800

 

7,000

 

5,200

 

2,600

 

5,200

 

5,200

 

5,200

 

36,000

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Important Point: One of the questions most frequently asked is whether "clerical office employees" should be included in the premium determination. Subject to a specific interpretation that may have been developed by your company, all employees should be included in the premium base.

ENDORSEMENTS

Dealers Drive-a-way Collision Coverage
This endorsement is used with the Garage Coverage Form. A condition of this endorsement is that the insured will report, either monthly or quarterly, the number of covered automobiles and their value, picked up or delivered if the points of such pickup or delivery is more than fifty road miles apart. The premium base for this coverage is per trip. The actual per trip rate being determined by:
  • The number of miles between origin and destination
  • The cost new of the covered automobile
Locations and Operations Not Covered
This endorsement is used with the Garage Coverage Form to indicate locations and operations not being covered by the policy. This endorsement should be reviewed so that exposures are not developed for these locations.

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