Final answer:
Garage keepers liability insurance provides coverage for auto repair garages against the liability of vehicle damage due to fire. Enhanced security and fire sprinkler systems can reduce the insurance cost and minimize risk of fraud.
Step-by-step explanation:
The coverage that would provide protection for the liability of an auto repair garage to owners of vehicles destroyed in the garage by fire is known as garage keepers liability insurance. This insurance specifically covers the operations of auto repair shops and similar businesses. When a customer's vehicle is damaged under the care of the garage, whether from fire, theft, vandalism, or collision, the policy helps to pay for repairs or replacement. It is beneficial for garages to have a minimum level of security and fire sprinkler systems to reduce insurance rates and protect against potential losses. Moreover, insurance companies try to reduce moral hazard through monitoring, such as requiring annual inspections of fire and security systems, and through investigating to prevent insurance fraud.