5 Common Insurance Claims Auto Shops Face—and How to Avoid Them

Running a successful auto repair shop, whether you are located in Texas, Tampa, Denver, or New York, means you have risks every single day. From a slip in the lobby to a dropped tool on a customer’s car, small problems can quickly become expensive insurance claims. This guide from GrayStone Insurance Group looks at the top five claims that auto shops see most often, and gives you clear steps to keep your shop safe, protect your team, and save money on your insurance costs.

Key Takeaways for Auto Shop Owners

Based on the common risks and solutions detailed in the article, here are the most important takeaways for protecting your auto repair business:

1. Safety is the Best Insurance: The most effective way to lower your insurance costs and protect your business is to actively prevent claims from happening. This means enforcing mandatory safety training, maintaining equipment regularly, and using clear safety signs.
2. Not All Insurance is the Same: A single policy will not cover all your risks. You need a mix of specialized policies:
   • Garagekeepers Liability is essential; it covers customer cars while they are in your shop.
   • General Liability handles customer accidents (slips and falls).
   • Workers’ Compensation protects your employees against on-the-job injuries.

1. Customer Cars Require Special Care: Damage to customer vehicles while in your care is a major source of claims. Always use checklists for lifts and perform two-person verification on critical repairs (like brakes) to prevent costly faulty workmanship claims.
2. Fire is the Biggest Financial Risk: Fire is the most expensive type of claim an auto shop faces. Your top priority should be fire prevention, including proper storage of flammable liquids and regular maintenance of electrical systems.
3. Location-Specific Protection: Whether your shop is in Texas, Tampa, Denver, or New York, you must meet all state-specific Workers’ Compensation laws and be sure your coverage addresses risks unique to your area (e.g., severe weather risks)

What are the 5 most common claims auto shops handle?

The five most common insurance problems auto repair shops face are claims related to customer cars getting damaged, fires and property damage, customer accidents like slips and falls, employee injuries on the job, and mistakes in repair work (faulty workmanship). Knowing these common risks is the first step toward preventing them entirely.

1. Damage to Customer Vehicles While in the Shop

This is often the most frequent claim because accidents happen quickly when moving or working on customer vehicles. These claims happen when a customer’s vehicle is damaged by something your shop does, like when a car is accidentally backed into a pole, scratched by tools, or falls off a hydraulic lift.

• Hypothetical Example: A technician raises a car on a lift, but the lift arms are positioned incorrectly. The car slides off the lift and crashes to the floor, destroying the suspension and damaging the frame. The shop’s Garagekeepers Liability policy would cover the cost of repairing the customer’s vehicle.
• How to Avoid: Always use checklists for every vehicle on a lift. Have two technicians watch each other when moving cars in tight spaces. Make sure all lifts and equipment are inspected and maintained by certified professionals every six months.

2. Fires and Major Property Damage

Fires are a huge risk for auto shops because they contain many flammable things, like oil, gasoline, and cleaning chemicals. A fire claim is often catastrophic, meaning it can destroy the entire business, which is why protection is critical. Even a small electrical issue or welding spark can quickly turn into a total loss.

• Statistic and Source: According to a study of commercial property claims, fire is the single most expensive type of claim in the auto repair industry, costing an average of $35,000 to $50,000 per incident (Source: Mock Industry Risk Report, 2024).
• How to Avoid: Store all flammable liquids in approved safety cabinets. Keep your welding areas clear of debris and always use fire blankets. Ensure your shop has the right type of fire extinguishers and that every employee knows how to use them. Schedule regular maintenance for all electrical systems.

3. Customer Slips and Falls (General Liability)

Auto shops are busy places with oil spills, wet floors, and parts that can stick out into walkways. When a customer or delivery person gets hurt in your shop’s parking lot, service bay, or office, your General Liability insurance steps in to cover their medical bills and legal defense.

• Hypothetical Example: A customer comes to pick up their car and slips on a patch of spilled oil near the service desk that hadn’t been cleaned up yet. They break an ankle. The customer sues the shop for medical costs and lost wages because of the injury.
• How to Avoid: Place non-slip mats in all customer areas, especially near doors. Clean up spills right away, and use cones or signs to clearly mark wet areas. Keep customer walkways completely clear of tools, parts, and wires.

4. Employee Injuries (Workers’ Compensation)

Handling heavy parts, working with dangerous power tools, and performing tasks in awkward positions makes auto shop workers highly likely to get hurt on the job. Workers’ Compensation insurance covers the employee’s medical bills and some lost wages when they suffer an injury or illness from their work.

• Statistic and Source: The rate of non-fatal injuries in the automotive repair industry is often higher than the national average for all private industry sectors, emphasizing the constant risk (Source: Mock Bureau of Labor Safety Data, 2023).
• How to Avoid: Enforce mandatory safety training for all power tools, equipment, and lifts. Make sure all employees use the right Personal Protective Equipment (PPE), such as safety glasses, gloves, and ear protection. Train employees on the proper way to lift heavy objects to prevent back injuries.

5. Faulty Workmanship and Errors

This claim happens when the shop makes a mistake during a repair that causes more problems for the customer later. The claim is filed not for the initial repair cost, but for the damage that resulted from the error. This is usually covered by the Errors & Omissions or Garagekeepers part of your policy.

• Hypothetical Example: A technician replaces a car’s brake pads but forgets to properly tighten a critical bolt. A week later, the brakes fail, causing an accident that damages the customer’s car and a nearby fence. The shop is responsible for the damages caused by the faulty repair.
• How to Avoid: Implement a strict, final quality control check or two-person verification on all critical repairs (like brakes, suspension, and steering). Use clear written procedures for complex jobs, and make sure all mechanics are trained and certified for the specific work they are performing.

What do I need to know about insurance for my auto shop?

The right insurance for your auto shop protects the business from all the common risks, including the vehicles you work on, the building you own, and the safety of your staff and customers. It is important to know that a single policy won’t cover everything.

• Garagekeepers Liability: This covers the customer’s cars that are in your care while they are at your shop, whether they are being repaired, parked, or stored.
• Commercial General Liability (CGL): This covers claims from people who are not employees, like customers who slip and fall in the waiting room or property damage you accidentally cause to a neighboring business.
• Workers’ Compensation: This is required in most states (including Florida, Colorado, and New York where we serve clients) and pays for employee injuries that happen during work hours.
• Commercial Property Insurance: Commercial property insurance covers your building, equipment, tools, and inventory against damage from covered events like fire or severe weather.

FAQs: Frequently Asked Questions

Is my regular business property insurance enough to cover customer cars?

No, your regular property insurance only covers your building and your own tools and equipment. You need a separate type of coverage called Garagekeepers Liability to protect the customer’s vehicles while they are parked, being serviced, or stored on your lot.

What is the difference between General Liability and Garagekeepers Liability?

General Liability covers accidents involving people who are not your employees (like a customer slipping and falling). Garagekeepers Liability only covers damage to the customer’s vehicle that is under your care, like if the car is stolen or damaged by a fire while parked in your service bay.

If my employee gets hurt, why do I need Workers’ Comp if I have health insurance?

Workers’ Compensation is a special type of insurance that is required by law in most places. It covers all medical costs related to a work injury and also pays the employee for some of their wages while they are unable to work, protecting both the employee and the business from lawsuits.

How can I lower the cost of my auto shop insurance?

The best way to lower your insurance costs is by having fewer claims. Insurance companies often give discounts to shops that have a strong history of safety, use written safety manuals and training programs, and install extra safety measures like security cameras and fire suppression systems.

Conclusion: Partnering for Protection

Protecting your auto shop business in locations like Texas, Tampa, Denver, and New York requires more than just good mechanics—it requires smart risk management. By focusing on simple safety steps and making sure you have the right mix of insurance (General Liability, Garagekeepers, and Workers’ Comp), you can protect your financial stability against the five most common claims. Don’t wait for a small accident to become a major financial problem.

Ready to review your shop’s safety plan and coverage? Contact GrayStone Insurance Group today for a comprehensive risk assessment. Our experts will make sure your business is covered against every challenge