To an upfitter, the Product Liability portion of the General Liability policy is of utmost significance. Once a vehicle leaves your facility, your product represents your name, reputation and livelihood. It’s important to ensure it’s underwritten correctly and that your agent and underwriter understand exactly what you do, so there are no surprises at the time of a claim or audit.
While reviewing policies for commercial vehicle industry companies, I have found an alarming amount of misclassification on General Liability policies of which Product Liability is a part. The two most common issues are incorrectly rating upfitters as either auto/truck repair facilities or incorrectly rating them as vehicle dealers.
The correct classification for an upfitter is Insurance Services Office (ISO)1 classification 51250. It is defined as follows_
- ISO GL classification code 51250 – Auto & Truck Body Manufacturing_ Automobile, bus or truck body manufacturing includes the following process to suit customer’s need. Unit can be built either as special or stock body to fit chassis. Metal is received. Templates are laid out to mark size and shape. Material is cut by burning or shears. Shaping is done by heating and hammering, power brakes and rollers. Fabricating includes clamping, dogging, heating, hammering, tacking, welding, grinding, cleaning and painting.
One incorrect classification for upfitters is ISO classification 10073. It is defined as follows (definition has been abbreviated for space):
- ISO GL classification code 10073 – Auto Repair or Service Shops_ This classification includes automobile repair work that ranges from the changing of a tire to a complete engine overhaul. Skilled mechanics are employed by these repair centers to repair ignition systems, mufflers, brakes, automatic and manual transmissions, and other mechanical repairs. These repair centers may operate as a specialty repair shop dealing primarily in one type of repair, such as transmissions, radiators, mufflers, brakes, etc., or if large enough, may offer a variety of mechanical repair services, as well as vehicle inspections.
- This classification also contemplates automobile paint shops, body shops as well as specialty risks performing rustproofing operations, including those risks applying spray-on bedliners to pickup trucks.
- Code 10073 contemplates those risks, which are not trailer dealers that perform trailer repair work, including the installation of trailer hitches on vehicles.
While the auto repair class may describe a few operations in an upfitting shop, it does not contemplate the essence of the work performed by an upfitter, which is the manufacturing of bodies/equipment and/or installation of the equipment to the chassis. In fact, the auto repair class doesn’t contemplate chassis work of any kind. It’s important to note, however, many insurance agencies will agree that companies installing only aftermarket accessories (light bars, ladder racks, etc.) are appropriately classified as 10073/auto repair.
Another incorrect misclassification I have seen is to classify an upfitter who has a dealer’s license as a dealer ONLY. This is a common error because a typical dealer’s policy automatically includes the incidental repair facility within the dealership (such as oil changes, small dent repair, etc.). But, as stated previously, upfitters are not properly classified as a repair facility. In this scenario, the dealership and the upfitting operation should be rated separately.
You may be wondering how this misclassification affects you. First, most General Liability policies have a clause for misrepresentation. This allows the insurer to cancel your policy mid-term in the event they were not adequately informed of your operations either by you or your agent. The only other time an insurer has the right to cancel mid-term is for non-payment of premium.
Second, in the event of a claim, an adjuster may note that the operations described on the policy and/or application for coverage differ from your actual operations. In this situation, the claim would likely be paid, but could result in subsequent problems.
If, for example, your policy shows you as a repair facility, and you have a claim regarding a body you installed onto a chassis, the insurer would be made aware of the discrepancy. This could mean non-renewal, a sizeable increase in premium or even a mid-term cancellation.
As we move away from the soft insurance market of the past decade toward a hardening market, the need for proper classification becomes more important. Insurers are reviewing risk with more scrutiny. Agents are required to provide a clearer picture of the client’s operations and pricing is increasing to reflect these changes.
The current insurance climate encourages you to understand your policy and review it thoroughly with your agent for accuracy. This can help prevent a possible problem, which could not only cause unnecessary frustration, but cost additional premium dollars.
1 Insurance Services Office (ISO) is a provider of, among other things, regulatory and underwriting data which is used by insurance companies across the United States. Nearly all insurers use ISO classification data when underwriting a risk.