12.2 Commercial Auto Liability and Physical Damage

Section II – Covered Autos Liability Coverage

The BAP promises to pay all sums an insured legally must pay as damages because of bodily injury or property damage caused by an accident and resulting from the ownership, maintenance, or use of a covered auto. The insurer also has the duty to defend, and defense costs are paid in addition to the limit of insurance.

Commercial auto liability is normally written with a Combined Single Limit (CSL)—a single dollar amount (e.g., $1,000,000) that applies to all bodily injury and property damage from one accident combined. This contrasts with personal auto's split limits (e.g., 100/300/50).

Who is an insured (the omnibus clause)

• The named insured for any covered auto.
• Anyone using a covered auto you own, hire, or borrow with your permission—the omnibus clause.
• Exceptions: the owner of a hired/borrowed auto (other than you or a partner), employees using their own autos (except certain situations), and someone in the auto-selling business are generally not insureds.

Supplementary payments include bail bonds up to $2,000, the cost of bonds to release attachments, and up to $250 per day for lost earnings when the insured attends a hearing or trial at the insurer's request.

Worked example – split limits vs. CSL

An accident causes $90,000 BI to driver A, $250,000 BI to driver B, and $60,000 PD. Compare two policies:

Split limits 100/300/50: Per-person BI cap is $100,000—so A's $90,000 is fully paid, but B is capped at $100,000 (not $250,000). Per-accident BI cap of $300,000 is not exceeded. PD cap is $50,000, so $60,000 PD is paid only to $50,000. Total paid = $90,000 + $100,000 + $50,000 = $240,000.

CSL $300,000: All BI and PD share one $300,000 limit. Total claim is $90,000 + $250,000 + $60,000 = $400,000, paid only to $300,000. The CSL pays more here ($300,000 vs. $240,000) because it is not subdivided by person or by injury type—a frequent exam contrast.

Section III – Physical Damage Coverage

Physical damage is written per covered auto on the schedule. The three options are:

• Comprehensive – all direct loss EXCEPT collision and overturn (fire, theft, glass, hail, vandalism, animal strike, flood).
• Specified Causes of Loss – a cheaper named-perils version (fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, vehicle sinking/collapse of bridge); it does NOT cover glass breakage or hitting a bird/animal unless added.
• Collision – the covered auto's impact with another object or its overturn.

A per-auto deductible applies to comprehensive and collision (commonly $500 or $1,000). The most paid is the lesser of the actual cash value (ACV) or the cost to repair/replace with like kind and quality, minus the deductible.

Worked example – ACV settlement and deductible

A covered truck with a $500 collision deductible is in an at-fault collision. Repair estimate is $14,200; the truck's ACV just before the loss was $11,000.

Because the loss is settled at the lesser of ACV or repair cost, the truck is a total loss (repair $14,200 exceeds ACV $11,000). The insurer pays ACV $11,000 minus the $500 deductible = $10,500, less any salvage value retained.

Key traps: (1) the deductible does NOT apply to towing or to a fire/lightning/theft loss when Specified Causes of Loss is written for those perils with no deductible; (2) the BAP physical damage transportation expense pays up to $20 per day, $600 maximum for a stolen private passenger auto, beginning 48 hours after the theft.

Business Auto Conditions and Other-Insurance Rules

Section IV of the BAP contains the Business Auto Conditions, which decide how the policy behaves after a loss and how it stacks against other coverage. The most-tested items:

• Duties in the event of accident, claim, suit, or loss — prompt notice, cooperation, and (for physical damage) protecting the auto from further loss.
• Other insurance — for any covered auto you own, the BAP is primary; for any hired or borrowed auto, the BAP is generally excess over the owner's coverage. This own-vs-borrowed split is a frequent exam item.
• Two or more coverage forms or policies — if the same loss is covered by two policies issued by the same insurer, the insurer pays no more than the highest applicable limit.
• Loss payment – physical damage — the insurer may pay for, repair, or replace the auto, or return stolen property and pay for damage.

Pollution, War, and Key Liability Exclusions

Section II liability is broad but carves out exposures handled elsewhere:

Exam cue: An employee injured in a company vehicle while working is excluded from the BAP liability section — that claim belongs to workers compensation, not the auto policy. The BAP liability exclusion for employee injury and the WC policy fit together with no overlap, which is exactly the relationship examiners test.