Every workshop, panel shop and dealership holds other people's vehicles. A customer drops a car off on Monday, you work on it through the week, and it sits in your yard overnight with a key on a hook in the office. For the time it is in your hands, you are responsible for it. If it is stolen, burnt, flooded, dented by a runaway forklift or driven through a roller door by an apprentice, the owner will look to you, not to their own insurer, to put things right. Garage keeper's liability is the cover designed for exactly that moment.
The term is old, but the exposure is very current. Cars are worth more than they were a decade ago, hybrids and EVs carry battery packs that cost as much as a small car, and customers are far less forgiving when a vehicle they rely on goes missing. This guide explains what garage keeper's liability covers, how it differs from the rest of a motor trade policy, where the gaps tend to appear, and how to set limits that match what is actually sitting on your premises.
What Garage Keeper's Liability Actually Is
Garage keeper's liability is the legal and insurance term for your responsibility for customer vehicles while they are in your care, custody or control. Legally, you are what is known as a bailee. A bailee is someone who has temporary possession of goods that belong to someone else, and the law expects a bailee to take reasonable care of them. When a customer hands over their keys, a bailment arises, whether or not any paperwork is signed.
The insurance side follows the legal side. A garage keeper's section pays for loss of or damage to customer vehicles while they are in your custody, and it generally covers the cost of defending a claim as well. It is usually written as a specific section within a motor trade policy, sometimes labelled customers' vehicles, bailee's liability or vehicles in your care. The wording varies between insurers, but the underlying idea is the same: the policy responds because you are legally liable, not because you own the vehicle.
That distinction matters. Your own stock is covered under the stock section because you own it. A customer's car is covered under the garage keeper's section because you are answerable for it. Mixing the two up is one of the most common sources of confusion at claim time, and it leads to the next point.
How It Differs From Stock and Public Liability
Business owners often assume that public liability will respond if a customer's vehicle is damaged at the workshop. In most policies it will not. Public liability typically excludes damage to property in your care, custody or control, precisely because that exposure is meant to be picked up elsewhere. A customer's car inside your workshop is property in your care, so the claim falls away from public liability and lands on the garage keeper's section, or on nothing at all if that section was never purchased.
The same logic applies in the other direction. If a customer's vehicle is damaged by your faulty workmanship, for instance an engine that fails because oil was not refilled, the loss arises from the quality of the work rather than from custody of the vehicle. That belongs to professional indemnity, or in some policies to a faulty workmanship extension. Garage keeper's liability deals with the vehicle being lost or damaged while you hold it. It does not deal with whether the repair itself was done properly.
In practice a single incident can touch several sections. A car left on a hoist that slips damages the vehicle, which is a garage keeper's matter, and it also injures a technician, which is an employer's liability and public liability matter. Understanding which section responds to which part of the loss is what stops an unpleasant surprise after the event.
The Situations That Generate Claims
Garage keeper's claims are rarely dramatic in origin. They tend to come from ordinary working days going slightly wrong.
Theft from the premises is the most obvious. A vehicle taken from the yard overnight, or keys lifted from an unsecured key cabinet and the car driven away, is a straightforward bailee loss. Insurers will look closely at how the vehicle was secured, where the keys were kept and whether alarm or monitoring conditions were met.
Fire is the second major category. Workshops hold fuel, solvents, batteries, welding equipment and compressed gas. A fire that starts in one bay can destroy every customer vehicle on the site in a matter of minutes. The aggregate matters here, and we return to it below.
Damage in the course of work covers the everyday mishaps. A vehicle dropped from a hoist, a bonnet closed on a cracked windscreen, a trolley jack through a sill, a panel scratched while being moved inside the shop. Individually these are modest claims. Collectively, over a year, they are the bulk of claim numbers in many workshops.
Driving incidents occur when staff move customer vehicles around the yard, take them for road tests, or collect and deliver them. A road test that ends in a collision is damage to a customer vehicle while in your custody, though whether it falls under garage keeper's liability or road risk cover depends on the wording. Many policies expect road risk to be in force when a vehicle is being driven on a public road, so check that the two sections are aligned and there is no gap between them.
Weather and flood complete the picture. A storm that damages a car under a leaking awning, or flooding in a low-lying yard, can produce multiple simultaneous claims. Underwriters will want to know whether you are in a flood-prone location and where customer vehicles are parked.
Setting the Limit: Peak Day, Not Average Day
The single most useful thing a workshop owner can do with this cover is to set the limit correctly. Insurers typically apply two figures: a limit for any one vehicle, and an aggregate limit for all vehicles in your care at any one time or location.
The per-vehicle limit needs to reflect the most valuable vehicle you realistically handle. A workshop that services entry-level hatchbacks has a different requirement from one that regularly handles late-model European SUVs, large utes or electric vehicles. If your highest-value customer vehicle is worth ninety thousand dollars and the per-vehicle limit is sixty thousand, you will carry the shortfall yourself.
The aggregate needs to reflect your peak count. Count the vehicles on site on your busiest day, not your typical day, and multiply by a realistic average value. A body shop with twenty cars in various stages of repair at an average value of thirty thousand dollars is holding six hundred thousand dollars of other people's property. If a fire takes the whole yard, an aggregate of two hundred thousand will pay a third of the loss.
It is also worth thinking about where vehicles physically sit. Some policies set separate limits for vehicles inside the workshop, vehicles in the yard, and vehicles held at an off-site storage location. A yard that overflows onto a neighbouring property or a leased lot may fall outside the insured premises unless that location has been declared.
Wording Points That Matter
Policies that look similar on the schedule can behave very differently at claim time. These are the points worth asking about before you renew.
Whether the cover is written on a legal liability basis or a direct damage basis. Legal liability wording pays only where you are legally liable, which means that if the customer's vehicle is damaged by something that was not your fault, such as a storm or a fire with no negligence on your part, the insurer may argue you are not liable and decline the claim. Direct damage or all-risks wording pays for damage to customer vehicles regardless of fault. The second is considerably more useful, and a conversation with your adviser on which one you have is time well spent.
Whether security conditions apply. Many policies require keys to be removed from vehicles and stored in a locked cabinet overnight, or require a monitored alarm outside business hours. A breach of those conditions can reduce or void a theft claim. The conditions are usually reasonable, but they need to be known to the staff who actually lock up.
Whether the vehicle is covered while being driven. Some wordings cover the vehicle only while stationary on the premises. Others extend to movements within the yard, test drives, or collection and delivery. If your business does any of these, confirm that the cover follows the vehicle.
Whether consequential costs are included. A customer whose car has been stolen from your yard will want a replacement vehicle while the claim is resolved. Some policies include a hire car allowance, others do not. Where they do not, the cost sits with you or becomes a dispute.
How excess is applied. A single excess per claim is common, but some policies apply a higher excess to theft, to specific vehicle classes, or to vehicles above a value threshold. A fifty thousand dollar vehicle with a five thousand dollar excess leaves you absorbing a meaningful share of a smaller claim.
Whether the cover includes the vehicle's contents. A customer's laptop on the back seat, tools in the tray of a ute or a child seat in the rear are generally personal effects. Most policies exclude or sub-limit these. A clear sign at reception and a line on the job card stating that personal belongings are left at the owner's risk is a sensible practice, though it is a supplement to insurance, not a replacement.
The Role of Terms and Paperwork
Insurance is the backstop, but how you manage the customer relationship affects both the frequency and the outcome of claims.
A clean job card that records the vehicle's condition on arrival, odometer reading, existing damage, and what the customer has asked for gives you a reference point if there is a later dispute. Photographs on drop-off, taken on a phone and attached to the job record, cost nothing and settle most arguments about pre-existing marks.
Written terms of trade can set out how long a vehicle may be left after a job is complete before storage charges apply, who bears the risk for vehicles left outside business hours, and that personal belongings are not covered. In New Zealand, businesses selling to consumers must be careful that terms do not conflict with the Consumer Guarantees Act or the Fair Trading Act. Exclusion clauses that attempt to remove liability for your own negligence are unlikely to be enforceable against a consumer, and relying on them in place of cover is a risky strategy. Terms are useful for clarity, not as a substitute for insurance.
Key control deserves its own mention. A numbered key tag system, a locked cabinet, a sign-out register for road tests and a rule that keys never stay in vehicles overnight will reduce theft exposure more cheaply than almost any other measure. They also strengthen your position with an insurer, who will ask how keys are managed if a vehicle goes missing.
Special Situations Worth Declaring
Several scenarios sit outside the normal assumptions of a garage keeper's section and are worth raising with your adviser.
Electric and hybrid vehicles carry high-voltage batteries that are both expensive and, in rare cases, a fire risk. Some insurers apply different terms or sub-limits to EVs in the workshop, and charging vehicles on site may require specific conditions. If you service or repair these vehicles, the cover needs to say so explicitly.
Vehicles held for storage are a different risk from vehicles in for service. A classic car stored for a customer over winter, or a vehicle awaiting parts for several months, may fall outside a policy built around short-term repair work. Declare it, and ask whether a storage-specific extension is required.
Vehicles awaiting insurance assessment are common in collision repair. They are often written-off or part-dismantled, their value is uncertain, and they may be held for weeks. Confirm how your insurer treats them and whether the limit covers their agreed or market value.
Trade plate and road test usage should be disclosed, as should any practice of delivering vehicles to customers. A driver collecting a vehicle from a customer's home is exposing that vehicle to road risk in a way that on-premises cover does not address.
Finally, if your premises are shared, leased or located in a multi-tenant complex, ask whether the insured location extends to common areas and whether another tenant's negligence, such as a fire in the neighbouring unit, affects your cover.
What Drives the Premium
Garage keeper's liability is priced on the exposure it represents. Underwriters consider the typical and peak value of vehicles in your care, the type of work you do, with spray painting and welding raising fire risk, the physical security of the premises, your claims history, and the way keys and vehicles are managed. The policy basis, legal liability or direct damage, also moves the price, with the broader wording costing more.
Businesses that can show a documented key policy, monitored alarm, CCTV coverage, fire detection suitable for the work done and a clear job-card process generally obtain better terms. These are not expensive measures, and the improvement in premium and claim outcomes often pays for them within a couple of years.
Cheapest is rarely cheapest. A policy that saves a few hundred dollars by using a low per-vehicle limit, a legal liability wording, and a restrictive security warranty can cost tens of thousands at the first serious claim.
A Practical Checklist
Before your next renewal, work through a short list. Count your peak vehicles and their combined value and compare it with the aggregate limit. Identify your most valuable customer vehicle and compare it with the per-vehicle limit. Ask whether the wording is legal liability or direct damage. Read the security conditions and confirm your staff can actually meet them. Check how test drives, deliveries and yard movements are treated. Confirm whether EVs, stored vehicles and vehicles awaiting assessment are covered. And ask whether a hire car allowance is included.
If the answers raise questions, that is a useful outcome. Each gap found before a loss is a gap you can close for a modest cost, whereas each gap found afterwards is yours to fund.
Getting the Right Cover
Garage keeper's liability is not an optional extra for any business that handles customer vehicles. It is the section that protects your balance sheet from the most common and most visible kind of loss in the trade. The detail is in the limits, the wording and the conditions, and a specialist adviser who writes motor trade business every day will know which insurers offer sensible terms on each.
If you would like your current cover reviewed, or you are setting up a workshop and want the structure right from the start, use the enquiry form to get a quote and we will connect you with a specialist motor trade adviser. All advisers we refer to are Registered Financial Service Providers who work with the insurers active in this class. Questions can also go to hello@cover4you.co.nz.