How Does Garage Liability Insurance Factor In When Third Parties are Involved?

If you own a local and independent auto shop, you may not always have the resources your customers are looking for. Sure, you can change tires, oil, and maybe even replace the transmission. But what about other services your customers request such as new upholstery, a new radiator or alignments? It’s difficult to turn customers away because you rely on their business. As a solution, you may outsource certain work to third party vendors that are too complicated and expensive for your local shop. However, have you ever thought about what happens when a third party vendor you work with damages the customer’s car? Who pays for the damage? Does the vendor or does it come out of your garage insurance? Let’s take a look at a specific scenario:

Let’s say you outsource a job to partner, and this job involves your partner repairing the radiator. They finish the job and give you back the customer car. A few weeks later, this customer crashes their car due to a malfunction that was committed while the car was in the hands of your partner. So who does this fall on? If you have garage liability insurance, your coverage will normally kick in if the customer suffers an injury during the crash. Since they trusted you with their vehicle, your insurance will receive the claim.

However, you should shift the burden of these claims to the party to whom you outsourced the work. This is a three step process:
1)    Execute a hold harmless agreement with the shop performing the work wherein they agree to indemnify and hold you harmless for all claims arising out of their negligence.

2)    Request that you be added as an additional insured to their policies whereby suits filed against you, as in the example above, can be transferred to the other shop’s insurance carrier who will be responsible for providing your defense and paying any claim on your behalf.

3)    Request a certificate of insurance to evidence that steps one and two have been completed and so that you will know which insurance carrier to contact for claims and their policy numbers you will need as reference.

At Wolpert Insurance & Risk Management we know how confusing things can get when you own an auto garage. Massachusetts is not always an easy place to own a business, so we want to make sure you’re getting everything you need at all times. Give us a call today to learn more!

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