12.2 Commercial Auto Liability and Physical Damage

Covered Autos Liability Coverage

Under Section II, the insurer agrees 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. This trigger language — ownership, maintenance, or use — is the same concept tested on personal auto, but the named-insured rules are broader because a business has many drivers.

The insurer also has the right and duty to defend any insured against a suit seeking covered damages, and defense ends when the limit of insurance is exhausted by payment of judgments or settlements. Because defense is provided in addition to the limit, a covered claim that runs up large legal fees does not erode the dollars available to pay the injured party until a judgment or settlement is actually paid.

The coverage also responds to pollution in a limited way and includes a covered pollution cost or expense definition, but broad pollution losses are excluded and must be insured separately. Exam questions rarely go deep on pollution but expect you to know it is sharply restricted under the auto form.

Who is an insured

The omnibus clause in commercial auto is broad:

• The named insured for any covered auto.
• Anyone else while using, with permission, a covered auto the named insured owns, hires, or borrows — with key exceptions (the owner of a hired/borrowed auto, employees using their own autos in the named insured's business unless it is a covered auto, someone in the auto-trade business, etc.).
• Anyone liable for the conduct of an insured, but only to the extent of that liability.

Trap: an employee driving his own car on company business is generally not an insured under the employer's covered-auto liability unless Symbol 9 (non-owned) is in force; employers buy hired-and-non-owned coverage precisely to fill this gap.

A second common trap involves the owner of a hired or borrowed auto: the rental company or friend who lent the vehicle is expressly excluded from being an insured under the named insured's policy. Likewise, partners (in a partnership) and members (in an LLC) are not insureds for autos they own personally but use in the business unless those autos are scheduled. Read the who-is-an-insured list closely, because exam questions frequently swap one excluded party for a covered one and ask you to spot the difference.

The form also covers liability assumed under an insured contract, mirroring the contractual-liability concept from general liability. If the named insured signs a lease or service agreement that shifts another party's auto liability onto it, the policy can respond — an important point for businesses that routinely sign hold-harmless wording with customers and vendors.

Limits: CSL vs. split limits and supplementary payments

Commercial auto is normally written with a Combined Single Limit (CSL) — one limit (e.g., $1,000,000) applies to all BI and PD from any one accident, with no separate per-person cap. Split limits (e.g., 100/300/50) can be used but are less common.

Worked split-limit example. Limits of 100/300/50. A covered auto injures three people: $80,000, $120,000, and $60,000, plus $70,000 property damage.

• Per-person cap $100,000: person 1 gets $80,000; person 2 capped at $100,000; person 3 gets $60,000 → BI subtotal $240,000, within the $300,000 per-accident cap, so all $240,000 is paid.
• Property damage capped at $50,000 → insurer pays $50,000 of the $70,000.
• Total paid: $290,000.

Supplementary payments (defense costs, premiums on appeal/attachment bonds, bail bonds up to $2,000, and up to $250 per day for the insured's lost earnings while attending trial) are paid in addition to the limit of insurance.

When the CSL is used, the entire limit is available to whatever mix of bodily injury and property damage a single accident produces — there is no separate per-person sublimit to strand a portion of the coverage. That flexibility is why commercial buyers favor the CSL: a multi-claimant accident is paid from one pool. Under split limits, by contrast, money allotted to property damage cannot be borrowed to satisfy a large bodily-injury verdict, and vice versa, which is exactly the trap the worked example below illustrates.

Physical Damage Coverage

Section III offers three options, each selected per auto and subject to a deductible:

• Comprehensive: loss from any cause except collision and overturn — fire, theft, vandalism, glass breakage, falling objects, hail, contact with a bird or animal.
• Specified Causes of Loss: a narrower, cheaper named-peril option covering fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, and vehicle sinking/derailment — but not glass breakage or animal strikes unless you also carry comprehensive.
• Collision: impact with another object or overturn.

Settlement basis. Physical damage is paid at the lesser of Actual Cash Value (ACV) of the damaged auto or the cost to repair or replace with like kind and quality, minus the deductible. ACV is generally replacement cost minus depreciation, so an older vehicle recovers less than its original price.

Worked ACV example. A truck with ACV $30,000 is totaled; deductible $1,000. The insurer pays $30,000 − $1,000 = $29,000. If repairs were estimated at $26,000, the insurer would pay the lesser figure ($26,000 − $1,000 = $25,000).

A single deductible applies per covered auto per loss. For comprehensive, loss by fire or lightning is frequently written with no deductible, while theft and collision carry the stated deductible. The form also offers towing and labor, transportation expenses after a covered theft, and a glass-breakage option that lets the insured repair rather than replace glass without a deductible, all of which fine-tune the physical-damage recovery.