The Problem:
Kareem ran a luxury car repair workshop and took pride in his flawless reputation. One day, one of his mechanics was working on an expensive Porsche. Due to a moment of carelessness, the mechanic made a critical mistake that severely damaged the engine—costing tens of thousands of dollars. Kareem was upset but not overly worried. He had been paying premiums on a comprehensive business general liability policy for years, believing it was designed for exactly such situations.
The Legal or Administrative Situation:
Confidently, Kareem filed a claim with his insurer to cover the cost of repairing the Porsche’s engine. The response, however, was a complete shock: the claim was denied. The insurer cited a clause known as the “Care, Custody, or Control Exclusion” (CCC). Claims adjusters explained that a general liability policy is designed to cover damages your business causes to third-party property (for example, if you accidentally crashed a client’s car into a building wall), but it specifically excludes damages to property you are actively working on.
Legal or Financial Insight:
“The ‘Care, Custody, or Control’ exclusion is standard in most general liability policies. To fill this gap, businesses that handle customer property—such as auto repair shops, jewelry stores, or dry cleaners—need specialized coverage known as Bailee’s Coverage, or in the case of auto shops, Garagekeepers’ Liability Insurance.”
The Outcome and Lesson:
Kareem found himself personally responsible for the full cost of the engine repair. He had to pay a massive sum out of the company’s funds, which severely impacted cash flow and strained a relationship with a major client. He learned the hard way that “general liability” doesn’t mean coverage for everything.
“This is why any business handling customer property must understand that a standard general liability policy does not protect against damages to the property you are working on. It covers consequential damages, not direct damages to the item in your care.”
How to Avoid This Situation:
If your business takes custody or control of customer property for any reason, contact your insurance agent immediately to ask specifically about Garagekeepers’ Liability Insurance or Bailee’s Coverage. Never assume your general liability policy is sufficient. Having the right coverage is a critical investment to protect your business from a single costly mistake.
Sources:
- Insurance Information Institute (III) – explaining different types of business insurance coverage.
- International Risk Management Institute (IRMI) – articles on the Care, Custody, and Control Exclusion.
- Guides from major commercial insurers such as Chubb and The Hartford, emphasizing the importance of Bailee’s Coverage for specialized businesses.