Auto repair shops provide a broad range of services for customers, mainly repairing and maintaining vehicles. Shops are responsible for completing the work correctly and without introducing errors because negligent work that results in a car accident may leave the shop liable for the damages. Accidents and lawsuits put pressure on a small business’s finances; however, insuring the various risks protects the business from financial hardships.
Related: Guide to starting an auto repair shop
Auto repair shops are exposed to several risks; some of those risks include:
- Faulty work
- Employee injury
- Fire damage
- Damage or loss to specialized equipment
- Environmental contamination
Faulty Work
Automotive repair shops have significant liability exposure for claims resulting from faulty, incorrect, and neglectful work. Sometimes these claims occur because the employees have inadequate training, but other times, the incidents occur due to negligence.
Another liability issue arises from using defective replacement parts. Defective parts can lead to vehicle failures that may result in car accidents and injuries. In addition to defective parts, an auto repair shop can get into trouble by incorrectly passing a vehicle for emissions. For instance, if the shop passes a customer’s vehicle for emissions and that vehicle then causes an accident, the auto repair shop could be held responsible.
Employee Injury
Auto repair shop employees are at risk of injuries with common injury claims resulting from slips and falls—especially on slippery floors. Technicians have added injury risks. One of which involves working with tools that cause electric shock. Another hazard includes burns, cuts, and lacerations from working with customers vehicles, engines, and moving parts. Back injuries, joint injuries, and muscle strains are also problematic for employees who work in tight or uncomfortable positions.
Further, some employee injuries occur over time. Examples include hearing loss from the loud work environment and skin or respiratory issues from working in areas concentrated with hazardous substances and fumes.
Fire Damage
Fire is a hazard for auto repair shops, primarily because the shop uses flammable materials like petroleum products and motor oil. In addition to the flammable materials, the shop has several sources of fire, including smoking, damaged wiring, and sparking equipment.
The building’s electrical system can be a fire hazard if it is overloaded with too much electricity. For example, auto repair shops utilize many types of electrical equipment, and if the building’s electrical capacity is insufficient, the shop risks a fire starting. Any sparking equipment and damaged electrical cords or outlets are fire hazards and should be replaced immediately.
Damage or Loss to Specialized Equipment
Auto repair shops use specialized and custom equipment that is costly and challenging to replace. At times, technicians may use equipment off-site for diagnosing and repairing vehicles, putting the equipment at risk. For example, equipment traveling between sites has increased exposure to theft, loss, or breakage. Additionally, many technicians use their tools at work, which the shop may be responsible for if the employee’s tools are damaged, stolen, or lost.
Environmental Contamination
Auto repair shops use hazardous chemicals and fluids, such as gasoline and motor oil. These substances can contaminate or pollute surrounding areas, causing extensive damage. For example, hazardous fluids may spill or leak from storage containers, contaminating the soil and groundwater.
In addition, hydraulic lifts with underground tubing can leak over time and contaminate the surrounding soil. Other environmental concerns include potential air pollution if hazardous chemicals catch fire and improper disposal of fluids, tires, and parts.
Insurance is a beneficial aspect of business plans to protect assets from harm in the event of a loss. Because auto repair shops have different layers of risk, they should consider the following insurance policies:
- Garage liability insurance
- Workers’ compensation insurance
- Property insurance
- Inland marine insurance
- Environmental impairment liability insurance
Garage Liability Insurance
Garage liability insurance (also referred to as garage keepers insurance) is similar to general liability insurance and protects an auto repair shop from bodily injury or property damage lawsuits that occur because of the shop’s completed work. If they provide incomplete or incorrect work, the shop can be held responsible for resulting injuries and property damage. This insurance coverage is especially valuable if the shop’s negligent work results in an expensive multi-car accident.
A general liability policy covers injury and property damage liability claims, including the following claim costs:
- Medical bill payments
- Property damage repairs
- Legal defense costs
- Settlements
Workers’ Compensation Insurance
A workers’ compensation policy offers coverage for employee injuries. An auto repair shop should consider this policy because it covers auto mechanic injury expenses and protects the shop from potential lawsuits.
Following an accident, the resulting expenses can quickly add up, putting financial pressure on the employee and the business. However, this mechanic insurance policy offers a wide range of coverages, including medical expenses, lost income, ongoing care, rehabilitation care, disability income, and funeral expenses. A well-rounded workers’ compensation insurance policy is an excellent option to protect auto repair shops with employees.
Commercial Property Insurance
Due to the high risk of damaging fires, property insurance is a core insurance policy to consider. Business property insurance policies cover business-owned structures and property (i.e., materials, tools, equipment, and inventory). The structures and property are protected from several perils, including:
- Fire
- Wind
- Hail
- Theft
- Vandalism
- Water damage from leaking pipes
Business-owned structures are often expensive assets that need ample coverage. A property insurance policy covers rebuilding and repairs for structures up to an agreed limit. Some important factors of structure coverage are the coverage limit and the deductible limit. The coverage limit should be adequate for a complete rebuild in a total loss. Additionally, the deductible should be set at a reasonable limit that is payable in the event of a claim.
Business property coverage is the other portion of property insurance. This aspect covers items, equipment, and tools the business owns; however, it does not cover employee-owned items (such as an employee’s tools). Like structure coverage, the property insurance policy covers business property up to an agreed limit.
Inland Marine Insurance
Inland marine insurance policies offer tailored coverage to protect the shop’s valuable equipment. Coverage follows the equipment where it goes, meaning that whether the technician uses the equipment in the shop or off-site, the policy covers it. Inland marine policies also insure employee tools that are not owned by the business.
Often, shops use expensive and hard-to-replace equipment—especially custom equipment. So, an inland marine insurance policy is another key policy to have. An inland marine insurance policy covers the following perils:
Environmental Impairment Liability Insurance
Spills and cleanup incidents are expensive, and any resulting liabilities or fees add to the cost. However, auto repair shops can help protect their finances with environmental liability insurance.
An environmental impairment liability policy offers protection for claims of damage or injury because of the shop’s usage, storage, or disposal of hazardous substances. This liability policy covers the cost of property damage repairs, medical bills, cleanup costs, and legal expenses.
How Much Does Insurance Cost for an Auto Repair Shop?
Auto repair shops vary in their specific insurance needs. For example, an auto repair shop that rents space likely does not need structure coverage. In this case, the business owner can purchase a property insurance policy that covers business property but not the structure. In contrast, an auto shop with multiple owned buildings will need generous structure coverage.
Generally, insurance companies consider a business’s coverage requirements and loss risks to determine the pricing. Some examples of factors that may influence insurance costs include the following:
– The size and condition of business-owned structures
– The condition and value of equipment and tools
– The number of employees on the payroll
– Training and certification requirements for technicians
– Any previous or current lawsuits or insurance claims
The best method to determine costs for auto repair shop insurance is to contact multiple insurance companies for a quote. By calling various companies, you will be able to compare coverage amounts and prices, and often, companies will bundle policies, discounting the price.
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