Performance & Hotrod Business February '14

Issue link:

Contents of this Issue


Page 85 of 99

BUSINESS Insurance companies recognize that performance, hot rod and restoration shops operate very differently from other repair shops, and have a much lower loss ratio. (Photo courtesy Ringbrothers) also based on sales," he says. "Basically, you can always buy insurance, but you'll pay better based on how you run your business and how much attention is paid to safety, risk management, things like that." Insurance companies also pay close attention to whether or not the mechanics in a shop are certified. Automotive technician training is changing. In the past, accreditation for high school and vocational schools was based on subject areas offered, such as brakes or electronics. The new model is based on three skill levels including Maintenance and Light Repair, Automobile Service Technician and Master Auto Service Technician. Although a license is not mandatory for auto mechanics (except that MVAC technicians need to be trained and EPA certified); there is growing acceptance of certification programs administered through the National Institute for Automotive Service Excellence (ASE). High Risk Hazards Geographically, the highest risk areas are flood zones and high-crime areas. "Building location can make a large difference," says Klinger. "Obviously, certain parts of large cities are much more prone to crime and vandalism than a rural area or small town where the crime (rate) is much less overall." Insurance companies obviously want to see situations with less risk; fewer hazards pose less risk. While fire, theft, flood, earthquake, wind—and human error—are all considered common hazards, federal, state and local programs generally cover flood and earthquake damages, as well as forest fire and hurricane damages. "When we issue a policy to a business, all of the losses you mentioned are covered, 84 n Performance & Hotrod Business PHBFEB.indd 84 n including human error," says Klinger. "It is important to note that 'human error' does not include faulty work caused by an employee such as scratching the paint when installing a piece of trim or incorrectly mixing paint that causes defects down the road. 'Human error' means faulty work caused by an employee that causes a different type of loss such as the wheel coming off due to improper installation, which would fall under completed operations and would most likely be covered under the Commercial General Liability Policy. Physical damage to vehicles, theft of tools, vehicles stored outside and human error are the most common types of losses." Protection of the business and the building is usually not covered during floods and earthquakes, although customers' cars are protected by most policies. These situations are where limits of liability and exclusions come into play. Hail is another risk in some areas, which can be exacerbated if a shop, in order to make room during working hours, happens to have its customers' cars parked outside. To insure against theft, the cars come in at night, but the insurance inspector wants to know how the shop reacts when a storm is coming in the daytime. They call the situation a "Congregation of Assets" that are at risk. (Of course, a similar situation arises when all the cars are inside and a fire breaks out.) Another big thing any insurance company looks at is spray-painting and finishing. If a shop does that kind of work, it needs a properly ventilated spray booth that has proper electrical, lighting and a fire suppression system. From the insurance company's perspective, lacking those things is a deal breaker. They will not insure. Period. On the other hand, if a shop uses a paint shop down the road, the insurance company will be interested in who's protecting the vehicle while the paint shop has it, as well as how it's transported to the paint shop. And, if the car burns up while at the paint shop, the customer will still hold the restoration shop responsible. Insurance companies call that situation Risk Transfer. Generally, it's not a problem, but documentation will be necessary to add the restoration shop to the paint shop's policy in those situations. Customer Cars Garage Keepers insurance is for customer cars. Insurance rules in every state say that once the car is in the shop, it's in the Care, Custody and Control of the shop and it's the shop's responsibility. "Many shop owners think it doesn't matter whether they have a car in their care and are under the impression that they don't have to insure them," Heckman says. "That's a fallacy. If a customer brings a car that's insured into a shop and something happens, the customer can submit a claim under his policy and his insurance company will pay the claim." The term for what that insurance company will do next is called Subrogation. "What happens is they will go to the shop owner and demand payment, saying something like, 'We paid him. You're responsible; you pay us.'" Although customers should know to insure their own car, shops should be clear about what their policies are and aren't. "It is very important for shop owners to have a contract with their customers that includes specific insurance language," Klinger says. "The owners should be expected to keep primary insurance coverage on their vehicle in addition to the shop owner having Garage Keepers coverage." There are two levels of Garage Keepers coverage: Direct Primary and Legal Liability. A Direct Primary policy covers damage to the vehicle regardless of who is at fault; whereas a Legal Liability policy only covers when the shop is liable for the damages (and not "Acts of God"). February 2014 1/3/14 12:21 PM E Q P D S P 2 a T t r m

Articles in this issue

Links on this page

view archives of THE SHOP - Performance & Hotrod Business February '14