12.2 Commercial Auto Liability and Physical Damage

Covered Autos Liability

The liability insuring agreement (Section II) states the insurer will pay all sums an insured legally must pay as damages because of bodily injury (BI) or property damage (PD) caused by an accident and resulting from the ownership, maintenance, or use of a covered auto. The insurer also has the right and duty to defend. Defense is provided in addition to the limit and ends when the insurer has paid the applicable limit through settlement or judgment.

The trigger phrase "ownership, maintenance, or use" is broad on purpose, and the courts read "use" to include loading and unloading. So an injury caused while goods are being unloaded from a covered truck can be an auto claim, not a premises claim.

The limit may be written as a combined single limit (CSL) - a single dollar amount per accident for all BI and PD combined - or, less commonly in commercial auto, as split limits (per-person BI / per-accident BI / per-accident PD). A CSL of $1,000,000 is more flexible than split limits of 250/500/100 because the full amount is available for any mix of injury and damage in one accident.

Supplementary Payments

These are paid ABOVE the liability limit and do not erode it:

Exam trap: Bail bonds are limited to $2,000 and loss of earnings to $250/day - these exact figures are frequently tested. Med-pay and physical-damage deductibles are NOT supplementary payments.

Because supplementary payments sit outside the limit, a $1,000,000 CSL policy can actually pay more than $1,000,000 on a single claim once defense costs and post-judgment interest are added. This is a favorite distractor: a question may ask the maximum the insurer could pay and expect the candidate to recognize that defense is not capped by the limit.

Physical Damage Coverages

Section III offers three physical-damage options, each requiring a symbol and limit:

• Comprehensive - all direct and accidental loss EXCEPT collision and overturn (covers fire, theft, vandalism, glass, flood, hail, falling objects, animal strikes).
• Specified Causes of Loss - a cheaper named-peril alternative: fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, and vehicle sinking/derailment. It is NOT all-risk.
• Collision - loss caused by the covered auto's collision with another object or its overturn.

Glass breakage, animal contact, and falling-object damage may be treated as Comprehensive (not collision) at the insured's election so the collision deductible is avoided.

Loss Settlement and a Worked Numeric

Physical damage is settled at the lesser of the actual cash value (ACV) of the damaged property or the cost to repair or replace, minus the deductible. ACV equals replacement cost minus depreciation, so an older truck with high mileage settles for far less than its original price even if undamaged parts cost the same.

Worked example. A box truck has an ACV of $40,000. It is involved in a collision; the repair estimate is $28,000. The collision deductible is $1,000.

• Compare ACV ($40,000) to repair cost ($28,000): the lesser is $28,000.
• Subtract the $1,000 deductible: $28,000 - $1,000 = $27,000 paid.

If the truck were a total loss (repair $45,000 > ACV $40,000), the insurer pays the ACV minus deductible: $40,000 - $1,000 = $39,000. The insurer will not pay more than ACV, which prevents the insured from profiting on a loss.

Note that the deductible applies per occurrence to each covered auto, so a multi-vehicle fleet loss can trigger several deductibles. Towing after a covered loss is paid separately, and glass may be repaired without a deductible under some glass options.

Key Exclusions

Covered Autos Liability excludes, among others:

• Workers compensation and employer's liability obligations.
• Bodily injury to an employee of the insured (covered by WC instead).
• Care, custody, or control - property of the insured or in the insured's care (cargo needs a separate motor truck cargo policy).
• Pollution from transported or handled materials (broad pollution exclusion, with narrow exceptions for certain fuel-system discharges).
• Expected or intended injury, contractual liability beyond an insured contract, and racing.

The care-custody-or-control exclusion is the reason a trucker hauling freight needs a separate motor truck cargo policy: the BACF will pay for damage the truck causes to a third party's parked car, but not for the cargo riding inside the insured's own trailer. Likewise, the employee-injury exclusion routes worker injuries to workers compensation, preventing double recovery and keeping auto liability focused on third parties.

Physical Damage Coverage Types

A deer strike or hailstorm is comprehensive, not collision — the classic distinction. Specified Causes of Loss is a budget option naming perils (fire, theft, flood, etc.) instead of open-peril comprehensive.

Worked Physical-Damage Settlement

A covered truck with an ACV of $40,000 is totaled; the collision deductible is $1,000. The insurer pays $40,000 − $1,000 = $39,000, and takes salvage. If repairs would cost $45,000 (more than ACV), the insurer declares a total loss and pays ACV minus deductible rather than repairing. Commercial auto physical damage settles at ACV, not replacement cost — a frequent numeric trap.