If you're opening an auto repair shop in Texas, you're probably getting conflicting advice about insurance. One person tells you workers' comp is mandatory, another says Texas doesn't require it at all, and your landlord is asking for a certificate of liability insurance before you can sign the lease. So what's actually required?
Here's the truth: Texas has some of the most unique insurance requirements in the country, especially when it comes to workers' compensation. Let's break down exactly what you need to know to operate legally and protect your business from financial disaster.
The Workers' Compensation Question: To Subscribe or Not?
Texas is the only state in the country where workers' compensation insurance is optional for private employers. That means you can legally operate your auto repair shop without it. But before you celebrate what sounds like a cost savings, understand what you're giving up.
When you carry workers' comp, you get something incredibly valuable: legal protection from employee lawsuits. If your mechanic throws out his back lifting an engine, workers' comp covers his medical bills and lost wages, and in exchange, he can't sue you. If you don't have coverage, that same mechanic can take you to court and potentially win a judgment that could bankrupt your business.
If you choose to operate as a non-subscriber (without workers' comp), you're required to file an annual notice with the Texas Department of Insurance using form DWC005 by the end of April each year. You also need to post notices in your workplace and provide written notification to every new employee that they're not covered. This isn't optional paperwork—it's a legal requirement.
There are two important exceptions. If you're bidding on government contracts, you must carry workers' comp for employees working on those projects. The same goes if you're doing construction work. For everyone else, it's a business decision—but one you should make carefully after consulting with an insurance professional.
General Liability and Garage Liability: Not Required, But Essential
Texas doesn't require auto repair shops to carry general liability insurance, but that's a bit like saying you don't legally need to lock your front door. Sure, it's not required, but it's not a smart risk to take.
General liability insurance covers you when a customer slips on oil in your waiting area and breaks their ankle, or when your technician accidentally damages a customer's car while moving it in the shop. These aren't hypothetical scenarios—they happen in auto repair shops every day. Without coverage, you're paying those claims out of pocket.
Garage liability insurance is even more specific to your business. It covers incidents that occur while vehicles are in your care, custody, or control—like if a fire breaks out and damages several customer vehicles, or if a car is stolen from your lot. Most industry experts recommend liability limits between $1 million and $5 million depending on your shop's size and the value of vehicles you typically work on.
Here's where the rubber meets the road: even though Texas doesn't require these coverages, your landlord probably will. So will many of your wholesale parts suppliers. And increasingly, customers want to see proof of insurance before they'll leave their vehicle with you. The law might not require it, but the market does.
Commercial Auto Insurance: When It's Actually Required
If your shop owns or operates any vehicles—whether it's a tow truck, a parts delivery van, or even a courtesy shuttle—Texas law requires you to carry commercial auto insurance. The minimum coverage is $30,000 per person for bodily injury, $60,000 per accident for bodily injury, and $25,000 for property damage. Alternatively, you can carry $85,000 in garage liability insurance.
Don't try to cover business vehicles under personal auto policies. Insurance companies will deny claims if they discover you were using a personally-insured vehicle for business purposes. The premium difference isn't worth the risk of having a major claim denied.
Licensing Requirements You Can't Ignore
While we're talking about requirements, let's address licensing. To operate a motor vehicle repair business in Texas, you must obtain a license from the Texas Department of Licensing and Regulation (TDLR) under Texas Occupations Code, Chapter 2301. The TDLR oversees consumer protection laws for auto repair services and enforces requirements around written estimates, pricing transparency, and truthful advertising.
You'll also need local permits from your city or county. These vary significantly depending on where you're located. Houston, Dallas, Austin, and other major cities have their own requirements for auto repair facilities, often including zoning approval, building permits, and business licenses. Don't skip this step—operating without proper local permits can result in fines and even forced closure.
You also need to comply with environmental regulations from the Texas Commission on Environmental Quality (TCEQ). Auto repair shops generate hazardous waste—used oil, antifreeze, batteries, solvents—and there are specific rules for how you store, handle, and dispose of these materials. Violations can result in hefty fines and cleanup costs.
How to Get Started
Start by talking to an insurance agent who specializes in garage coverage. They can help you understand the specific risks your shop faces and design a policy that actually protects you. Don't shop purely on price—the cheapest policy is usually the one with the biggest gaps in coverage.
Next, contact TDLR to begin the licensing process. Make sure you understand all the consumer protection requirements, because violations can result in license suspension or revocation. Check with your local city or county government about permits and zoning requirements—this is something you need to do before you sign a lease or start renovations.
Finally, if you decide to operate as a non-subscriber without workers' comp, make absolutely certain you understand the lawsuit risk you're taking on. Many shop owners find that the peace of mind and legal protection of workers' comp is worth the premium, especially as they grow and hire more employees. Your decision should be based on a clear-eyed assessment of your risk tolerance and the advice of legal and insurance professionals who understand your specific situation.
