CLASSIFYING RISK
By Linda D. Ferguson, CPCU
Changes from the 9/02 edition still being sorted out
With the 09/02 edition of the ISO Garage Coverage rules ...
garage risks are no longer eligible for coverage.
My car was having problems. Although the front brakes had been replaced and the emergency brake adjusted, something was not quite right. My dilemma centered on where to go for repairs. Should I head to the dealership or would a repair shop be a better choice? That made me think about a recent ISO coverage change.
Dealership service operations and a repair shop provide similar services, so it is logical that both types of operations would be insured using the same insurance contract. This was the case until September 2002. But with the 09/02 edition of the ISO Garage Coverage rules, a few things changed. Although the name of the policy continues to be the Garage Policy, garage risks are no longer eligible for coverage. Actually the form should be called the Dealers Policy because only dealerships are eligible.
Where does this leave the operations that used to be on the Garage Policy? They now must move to the ISO CGL policy. All automobile repair, service and maintenance operations that are not a direct part of a dealership are required to be written on the CGL.
The ISO Garage Policy now permits only automobile, truck, trailer and recreational dealerships to be on the policy. Mobile equipment dealerships and all repair and service operations that were once part of the Garage Policy must be rated as part of the CGL policy. This major change occurred in the 09/02 edition of the ISO Garage pages, and the impact continues to be felt as states and companies gradually adopt this change.
The Commercial General Liability Classifications that are used are:
Automobile Repair or Service Shop - 10073
Automobile Repair Shops - Self Service - 10075
Automobile Quick Lubrication Services - 10072
Gasoline Stations - full service - 13453
Gasoline Stations - self-service - 13454
Gasoline Stations - self and full service combined - 13455
Car Washes - self service - 10368
Car Washes - Other than self service - 10367
The Commercial General Liability codes were added in 1997, so for more than five years there have been several choices regarding coverage. ISO even developed a Market Segment group just for the auto repair operation. The change in the Garage Policy eligibility with the 09/02 of the rules removes the choice and places all nondealer garage risks in the CGL.
Why should any of this really matter--rating is rating, isn't it? Yes, and no. In a perfect world, the premium matches the exposure exactly. However, perfection isn't here yet so when a change occurs, the average will work out but the individual risks can witness significant swings.
The first change is that the basis of premium is per $100 in payroll under the Garage form. In addition, this is a capped payroll. The maximum average per employee per week is $100, plus each active proprietor and officer is added in at $100 per week. The basis in the General Liability is per $1,000 in gross sales except for gasoline stations which are based on per 1,000 gallons. There is no capping allowed. Whenever a code changes premium bases, the impact can be substantial until equilibrium is restored. The new bases may be more accurate in reflecting the exposure, but impact on the premium could be substantial.
Another change is that the medical payments are part of the CGL with no additional charge. The Garage Policy required a separate charge and a separate endorsement. It is important to remember that the old garage medical charge could be selected for the auto, the garage or the combined operation.
All of the discussion in this column has focused on the premises liability--what about the auto coverage? The interesting thing about auto service operations is that the auto coverage has always been rated based on the actual vehicles as opposed to the dealership method. Therefore, the auto vehicle rating does not change with this revision. BUT the coverage form does. Instead of using the Garage Policy, the Business Auto Policy must be used.
Wait a minute! If the Garage Policy can't be used, then what about the Garagekeepers coverage? A garage still has customers' vehicles to consider. ISO has taken this into consideration with coverage endorsement CA 99 37, Garagekeepers Endorsement that can be added only to the Business Auto Policy. The rating and the coverage is the same if the coverage is part of the Garage Policy or part of the Business Auto Policy.
Talking about coverages, is there a significant difference between the coverages being offered under the two forms? There are differences, but the significance depends on the loss. Nothing is really significant until the loss occurs and it was covered under one form and not covered on the replacement form. PF&M compares the ISO CGL to the ISO Garage and also compares the ISO Business Auto Policy to the ISO Garage Policy. (See PF&M Section 222.3-1 and PF&M Section 222.3-7). These two comparisons should aid in determining the extent of coverage change.
At the end, I had to make a decision, too. The emergency brake stopped working entirely and my niece's home had a steep driveway. If I wanted to visit, the car had to be fixed. Since there was an outstanding recall notice that needed to be addressed, the dealership won out in the end. Choices are not always easy, but sometimes the choice is eliminated, leaving only one option. The important thing is to be aware of the change, understand the implications and then take active steps to prevent coverage gaps and unnecessary premium increases. *