12.2 Commercial Auto Liability and Physical Damage

Section II - Covered Autos Liability Coverage

The BACF liability insuring agreement 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 as in the CGL, defense costs are paid in addition to the limit of insurance - they do not erode the limit.

Commercial auto is typically written with a single combined limit (CSL) - one dollar amount that applies to the total of bodily injury and property damage per accident. A $1,000,000 CSL means up to $1,000,000 is available for any combination of BI and PD arising from one accident. This contrasts with the split limits (e.g., 100/300/50) more common on personal auto.

Split limits vs. combined single limit - worked example

Assume an accident produces: Driver A bodily injury $90,000; Driver B bodily injury $250,000; property damage $60,000.

Under a 100/300/50 split limit:

• Driver A BI: paid in full ($90,000 < $100,000 per person)
• Driver B BI: capped at $100,000 per person (loses $150,000)
• BI per-accident cap is $300,000; combined paid BI = $190,000, within cap
• PD: capped at $50,000 (loses $10,000)
• Insurer pays $90,000 + $100,000 + $50,000 = $240,000; insured owes $160,000 out of pocket.

Under a $300,000 CSL:

• Total claim = $90,000 + $250,000 + $60,000 = $400,000
• Insurer pays the full $300,000 with no per-person or per-category sublimits
• Insured owes $100,000. The CSL is more flexible because it has no internal caps.

Who is an insured for liability

The named insured is covered for any covered auto. Permissive users (anyone using a covered auto you own, hire, or borrow with permission) are also insureds, with key exceptions:

• The owner of a hired or borrowed auto is NOT an insured (unless it is a trailer connected to a covered auto).
• An employee using their own auto or a non-owned auto is generally NOT an insured for that auto (only the named insured is, via symbol 9).
• Auto dealers / persons in the auto-selling business using your covered auto are excluded.

Key liability exclusions

• Expected or intended injury
• Contractual liability (except an "insured contract")
• Workers compensation / employer's liability obligations
• Fellow employee injuries
• Care, custody, or control of property
• Pollution (with narrow exceptions)
• Handling of property before/after it is moved by mechanical device other than the covered auto

Section III - Physical Damage Coverage

Physical damage protects the covered auto itself. Three coverage options:

• Comprehensive - all direct and accidental loss EXCEPT collision and overturn (e.g., fire, theft, vandalism, glass, animal strike, flood, falling objects).
• Specified Causes of Loss - narrower and cheaper; covers only fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief/vandalism, and vehicle sinking/derailment.
• Collision - impact with another object or overturn.

Glass breakage, hitting a bird or animal, and falling objects/missiles may be treated as comprehensive (not collision) at the insured's option. Physical damage is written subject to a deductible per covered auto.

Actual Cash Value (ACV) and a total-loss numeric

Physical damage loss settlement is based on the lesser of the actual cash value (ACV) of the damaged property or the cost to repair/replace it, minus the deductible. ACV = replacement cost minus depreciation.

Worked example: A 5-year-old box truck has a replacement cost of $60,000. Annual depreciation is estimated at 12% per year (straight-line, capped at the truck's value).

• Depreciation = $60,000 x 12% x 5 = $36,000
• ACV = $60,000 - $36,000 = $24,000
• Truck is a total loss; collision deductible = $1,000
• Insurer pays $24,000 - $1,000 = $23,000.

Note: physical damage is not subject to coinsurance - that penalty belongs to commercial property, not auto.

CSL vs. Split Limits Strategy

Commercial auto is usually written on a combined single limit because one pool covering all bodily injury and property damage per accident is more flexible than split limits with internal per-person and per-category caps. The exam often gives one catastrophic injury against a split limit to show how the per-person cap strands a large claim, then asks which structure better protects the insured - the answer is the CSL. Work the split-limit math in three passes: cap each BI claimant per person, cap the BI total per accident, then handle PD against its own limit.

Who Is an Insured - The Owner Trap

Permissive users of a covered auto are insureds, but the owner of a hired or borrowed auto is not an insured under the named insured's policy, and an employee using their own car is covered only for the company via symbol 9, not for the employee's vehicle. Auto-trade businesses servicing the insured's auto are also excluded. A scenario describing a rental-car company or a lessor seeking coverage under the lessee's BACF is testing this owner exclusion.

Physical Damage Has No Coinsurance

A recurring cross-line trap is applying coinsurance to a commercial auto physical-damage loss. Auto physical damage pays the lesser of the vehicle's actual cash value or the cost to repair with like kind and quality, minus the deductible, with no coinsurance penalty - that concept belongs only to commercial property. Comprehensive covers everything except collision and overturn, specified causes of loss is the narrow named-peril option, and collision covers impact and overturn. A deer strike is comprehensive; swerving and hitting a tree is collision.

Settle the peril classification first, then apply the single deductible to the loss payment, never to the limit.