12.2 Commercial Auto Liability and Physical Damage

Liability Coverage

BAP Liability Coverage pays sums the insured is legally obligated to pay as damages for bodily injury or property damage caused by an accident and resulting from 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 — they do not erode it.

Commercial auto is almost always written with a single Combined Single Limit (CSL) — one dollar amount applying to BI and PD combined per accident (e.g., $1,000,000 CSL). This contrasts with the split limits common on personal auto.

The coverage trigger is an accident that results in BI or PD and arises from the ownership, maintenance, or use of a covered auto. Continuous or repeated exposure to substantially the same conditions counts as one accident. Liability is per accident, not per claimant, so the CSL is the most the insurer pays no matter how many people are hurt in one occurrence.

Split Limits vs. CSL — Worked Example

Suppose an insured carries split limits of 100/300/50 (per person / per accident / property). An at-fault accident injures three people ($90,000, $120,000, $70,000) and causes $60,000 in property damage.

• Person 1: $90,000 (under the $100k per-person cap) → pays $90,000
• Person 2: $120,000 capped at $100,000 per person → pays $100,000
• Person 3: $70,000 capped at $100,000 per person → pays $70,000
• BI subtotal $260,000 is under the $300,000 per-accident cap → all paid
• Property: $60,000 capped at $50,000 → pays $50,000

Total insurer payout = $310,000. A single $1,000,000 CSL would have paid all $320,000 of the loss because there are no internal sublimits — illustrating why commercial buyers prefer CSL.

Supplementary Payments and Covered Persons

In addition to the limit, BAP liability pays supplementary payments: all defense costs, up to $2,000 for bail bonds, the cost of appeal bonds and bonds to release attachments, reasonable expenses the insured incurs at the insurer's request (including up to $250 per day for lost earnings), and post-judgment interest.

The insured for liability includes the named insured, anyone using a covered auto with permission (a permissive user), and anyone liable for that conduct.

Key exclusions are: employees using their own autos (covered only via non-owned symbols), the fellow-employee exclusion for injury to co-workers, expected or intended injury, contractual liability beyond an insured contract, workers compensation obligations, care-custody-control of property, and pollution from transported cargo. These mirror the CGL exclusions and are a steady source of exam questions, so learn the short list rather than memorizing the full policy text.

Physical Damage Coverage

Physical damage is written in three optional parts: Comprehensive (other than collision), Specified Causes of Loss (fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism — a named-peril cheaper alternative), and Collision.

Each is subject to a deductible per auto per occurrence. The most the insurer pays is the lesser of the actual cash value (ACV) or the cost to repair, minus the deductible. ACV = replacement cost minus depreciation.

Comprehensive is the broadest physical-damage option: it covers any direct, accidental loss except collision and overturn. Collision covers impact with another object or overturn. Note the overlap rule: glass breakage, hitting a bird or animal, and falling objects may be claimed as comprehensive (so collision is not triggered and the lower comp deductible applies), unless they occur during a collision. Wear and tear, freezing, mechanical breakdown, and tire failure (unless caused by a covered peril) are excluded.

ACV / Deductible Worked Example

A covered box truck with an ACV of $42,000 is damaged in a covered collision. Repair estimate is $31,000; the collision deductible is $1,000.

• Loss is partial (repair $31,000 < ACV $42,000) → settle on repair cost.
• Pay = $31,000 − $1,000 deductible = $30,000.

If instead the repair estimate were $48,000 (a total loss exceeding ACV), the insurer pays ACV $42,000 − $1,000 = $41,000 and may take the salvage. Trap: the deductible applies once per occurrence per auto — a hailstorm damaging five fleet vehicles triggers five deductibles, not one.

Two valuation wrinkles appear on the exam. First, a stated-amount clause caps recovery at the lower of stated amount, ACV, or repair cost — it is not agreed value, so a vehicle stated at $50,000 but worth $42,000 still settles at $42,000. Second, towing and storage after a covered loss are paid in addition to the limit, but diminution in value (lost resale value of a repaired vehicle) is generally not payable. Anchor every physical-damage settlement to the lesser-of rule first, then subtract the deductible.

Who Is an Insured and the Comprehensive/Collision Split

The Business Auto Form's Who Is an Insured provision is broader than the PAP: it covers the named insured for any covered auto, anyone else while using a covered auto the named insured owns/hires/borrows with permission (with key exceptions such as employees using their own autos, the auto owner who loaned a hired auto, and someone in the auto business), and anyone liable for the conduct of an insured. This permissive-user breadth is why a delivery driver's negligence in a company truck reaches the employer's policy.

On the physical-damage side, the form mirrors the PAP split: Collision pays for impact with another object or overturn, while Comprehensive (other than collision) pays for fire, theft, vandalism, glass, flood, and animal strikes. A separate Specified Causes of Loss option offers a cheaper, named-peril alternative to comprehensive (fire, lightning, theft, windstorm, etc.) for insureds who want catastrophe protection without full open-peril cost. Losses are settled at ACV or cost to repair, whichever is less, minus the deductible.