You Are Probably Liable – for Everything …
John Van Horn
Parking industry professionals face unique insurance exposures. One obvious example is the liability for client’s vehicles. This is where Kathy Phillips comes in. Her company, Alliant Insurance Services, is one of the few, if not the only, insurance brokerage firms that specialize in parking operations.
“Insurance companies work off ‘standard forms,’” she said. “Businesses like retail stores and manufacturers fall into one standard form or another. Parking had no standard in the insurance industry that meets the needs of their exposures. About 20 years ago, I developed one,” said Phillips, First Vice President of the Driver Commercial Group at Alliant. “Insurance can be confusing at best, and with parking, most insurance agents simply don’t understand all the ramifications.”
The problem, she continued, is that a number of entities are involved. First, there is the facility owner. They probably have liability insurance that covers them in the event of a loss. Another crucial entity is the parking operator that runs the garage. They are not covered by the owner’s insurance. This is normally true even if the owner adds the operator as an “additional insured.”
The other issue is that owners are now adding a liability clause in their contracts with operators. These are becoming standard and actually place all liability, bodily injury and property damage, in the lap of the operator. Many operators don’t read the contract carefully and end up with all liability in the project, including that for the structure, design and other losses completely outside their control. They also may take liability (through the contract they sign with the owner) for existing conditions (such as pedestrian flow, crumbling concrete, bad plumbing).
Phillips said this concept of having the operator accept all liability from the owner is becoming popular with building owners, hospitals, municipalities and other entities with parking facilities.
When a business accepts a client’s property for service or storage, it assumes a legal responsibility known as bailment, Phillips said. Most parking operators are familiar with garage-keepers insurance. It is a special type of coverage that addresses the bailment exposure of parking companies.
This unique coverage can be written either as property or liability coverage, she said. When written as property, it is the primary coverage for damage to a vehicle on the premises, regardless of fault. When written as legal liability, the policy responds only in the event the operator was negligent in causing or allowing the damage. The best policies allow substantial flexibility in limits and deductibles to tailor the coverage for each individual risk, Phillips said.
Other unique exposures she noted include valet parking and shuttle services. Valet parking creates an exposure for the operation of non-owned automobiles. This liability includes responsibility for the vehicle itself and for its safe operation on public or private roadways. Shuttle service operation creates a legal responsibility for the safety of passengers. Shuttle operators are held to higher standards than ordinary businesses for such things as employee screening and training and vehicle maintenance.
“The studies done by insurance companies don’t take cars and parking into consideration,” Phillips said. “Most underwriters don’t like to step out of their comfort level and address these issues. So we had to develop the carriers, to educate them to the specific needs of the parking industry.”
Smaller operators think they are at a disadvantage with larger “self-insured” companies. “Not necessarily so,” said Phillips. “These companies really aren’t truly self-insured. To be a qualified self-insured company, one must file with the state department of insurance and post a bond. They must then have a separate third party loss/claim operation,” Phillips said. “The cost of doing this can often outweigh the cost of insurance.”
The insurance market for parking risks has been fairly volatile in recent years, and some operators have had difficulty obtaining adequate coverage on reasonable terms. This is particularly true for smaller operations, which are less likely to have formal loss control and training programs addressing areas such as employee hiring and facility security
The problem is that an insurance company measures two things: the frequency of the claims and the severity of the claims. Operators need to keep the frequency down as frequency leads to severity. Ninety-nine percent of all claims are preventable, Phillips said. Employee hiring is most important, followed by an active training program along with competent management.
Employees must understand that care needs to be taken, she said. They need to be trained in how to handle a customer’s vehicle and to keep a facility clean, secure and well lit. Simple things such as cleaning oil spots and replacing light bulbs can make a tremendous difference in frequency and severity, Phillips said.
Insurance policies have deductibles. This means that any loss below the deductible will be paid by the operator. The higher the deductible, the lower the insurance cost.
“Partner with your insurance company on risk management,” Phillips said. “Do an autopsy of each loss and find out how to prevent it in the future. That will keep your premiums down.”
Phillips spends her time crisscrossing the country holding seminars with operators and owners, trying to help them reduce their liability and, therefore, their insurance costs. Her company also provides “webinars” on the subjects of employee hiring, training, safety, OSHA, defensive driving and contracts, and has a separate department to handle human resources and loss control issues specific to the parking industry.
You can reach Kathy Phillips at KPhillips@alliantinsurance.com
Article Abstract from February, 2007