Legal liability coverage
Also called Legal liability basis or legal liability option
Definition
Legal liability coverage pays for damage to customers’ property in your care only when your business is legally responsible for it, such as through negligence.
Legal liability coverage is the most common way to insure customers’ property you’re holding, and you’ll see it most in garagekeepers insurance. It pays when your business is at fault. If the damage wasn’t your fault, it generally doesn’t pay, even though the property was in your shop.
How it works
When a customer’s car is damaged while you have it, the question is who was legally responsible. Under legal liability coverage, the policy can help pay for the damage, and for your defense, when the shop’s negligence caused it. Think of a tech backing a car into a post, a fire from careless welding or keys left in an unlocked car that’s then stolen.
When the damage comes from something the shop couldn’t reasonably prevent, like hail or a break-in despite good security, the shop may not be legally liable, and the policy may not pay. The customer is then left to claim on their own auto insurance, if they carry the right coverage.
The alternative is direct coverage, which pays regardless of fault. It costs more, but it spares customers from filing their own claims, which can matter for your reputation.
Why it exists
General liability policies usually exclude property in your care, custody or control, which includes customers’ cars. Legal liability coverage fills that gap for the damage you’re responsible for. All of it remains subject to the policy’s terms, limits and exclusions.