12.2 Commercial Auto Liability and Physical Damage

Commercial Auto Liability

The BACF liability insuring agreement promises to pay sums the insured legally must pay as damages because of bodily injury or property damage caused by an accident and resulting from ownership, maintenance, or use of a covered auto. The insurer also pays the cost of defense, and like the CGL, defense costs are paid in addition to the limit of insurance.

Commercial auto is almost always written on a Combined Single Limit (CSL) — one dollar figure covers both BI and PD per accident. This contrasts with the split limits common on personal auto.

Split Limits vs. Combined Single Limit — Worked Example

A split limit is shown as 100/300/50: $100,000 per person BI, $300,000 per accident BI, $50,000 PD. A CSL of $300,000 is a single bucket.

Worked claim: an at-fault insured injures three people ($90,000, $90,000, $90,000 = $270,000 BI) and causes $40,000 property damage.

• Under 100/300/50: Each person capped at $100,000, so all three BI claims pay in full ($270,000) but are capped at the $300,000 per-accident BI cap — paid $270,000. PD pays $40,000 (under the $50,000 cap). Total $310,000.
• Under $300,000 CSL: BI + PD = $310,000 but the single bucket is $300,000 — insurer pays $300,000, insured owes $10,000.

Trap: Students assume CSL is always more generous. Here the split limit paid more because each sublimit had room. CSL is broader only when one category would otherwise blow its sublimit.

Physical Damage Coverages

Physical damage on the BACF has three options entered by symbol:

• Comprehensive — all direct loss except collision and overturn (fire, theft, glass, hail, animal strike).
• Specified Causes of Loss — a named-peril cheaper alternative (fire, lightning, explosion, theft, windstorm, hail, flood, mischief, vehicle sinking/derailment). No coverage for road hazard or hitting an animal.
• Collision — overturn or impact with another object.

Physical damage is settled at Actual Cash Value (ACV) or cost to repair, less the deductible. ACV = replacement cost minus depreciation.

ACV and Deductible — Worked Example

A delivery van with a $1,000 collision deductible is totaled. Replacement cost is $40,000; the adjuster applies 30% depreciation.

• ACV = $40,000 − (0.30 × $40,000) = $40,000 − $12,000 = $28,000
• Less deductible: $28,000 − $1,000 = $27,000 paid

Trap: The deductible applies to the ACV settlement, not to the replacement cost. Comprehensive losses such as theft of the whole vehicle also pay ACV; glass breakage may be written with full-glass (no deductible) coverage by endorsement.

Supplementary Payments and Covered Pollution

Like the PAP and CGL, the BACF pays supplementary payments in addition to the limit: all defense costs, the cost of bonds to release attachments (up to the limit) and appeal bonds, up to $2,000 for bail bonds, prejudgment and postjudgment interest, and up to $250 per day for the insured's lost earnings while attending trial at the insurer's request.

Commercial auto carries a narrow grant of covered pollution cost or expense. Pollutants that are upset, overturned, or released from a covered auto are covered only when the pollutants are being transported as cargo or are needed for the auto's normal operation (fuel, lubricants). Pollution from cargo not in transit, or from a stationary tank, is excluded — a frequent trap pairing with the MCS-90 discussion in the trucking section.

Out-of-State and Other Insurance — Worked Logic

The BACF includes an out-of-state coverage extension: if a covered auto travels into a state with higher compulsory limits, the policy automatically increases to meet that state's minimum. This protects a Kentucky-based fleet driving through a state with a higher financial-responsibility floor without a separate filing.

On other insurance, the BACF is primary for autos the insured owns and excess for hired or borrowed autos. Picture a Kentucky landscaper who borrows a friend's trailer-equipped truck: the friend's personal auto policy is primary, and the landscaper's BACF sits excess above it. Exams test this ordering by asking which policy pays first; the answer turns on ownership, not on who was driving.

Towing, Transportation Expense, and Limits Reinstatement

Two automatic extensions ride along with physical-damage coverage. Towing and labor can be added for private-passenger covered autos, paying a small scheduled amount per disablement for roadside labor performed where the vehicle stops. Transportation expense pays up to $20 per day, $600 maximum for substitute transportation after a covered comprehensive theft, beginning 48 hours after the theft and ending when the auto is returned or the insurer pays the loss.

Unlike an aggregate-limited liability policy, commercial auto liability limits are per-accident and reinstate after each loss — there is no annual cap that erodes as claims are paid. Physical-damage limits are the lesser of ACV or cost to repair, minus the deductible, per occurrence. The exam contrasts this with the CGL's eroding aggregate; remember that an at-fault fleet can have many separate auto accidents in a year without exhausting a shared limit.

Kentucky Application

A Kentucky-domiciled fleet must satisfy the state's compulsory auto rules, and the BACF's out-of-state extension keeps it compliant when its trucks cross into states with higher limits. Because Kentucky is a no-fault (choice) state under the Motor Vehicle Reparations Act, commercial autos registered here carry basic reparation benefits (PIP) unless the entity has properly rejected the no-fault system; an exam item set in Kentucky will expect you to recognize that PIP attaches to the business auto by default.