12.2 Commercial Auto Liability and Physical Damage
Key Takeaways
- Section II liability uses a combined single limit per accident for BI and PD by default.
- Insureds include the named insured, permissive users, and those vicariously liable — but not the owner of a hired/borrowed auto.
- Physical damage offers comprehensive, specified causes of loss, and collision, each with its own deductible.
- Glass breakage and animal/falling-object damage are paid under comprehensive, not collision.
- Physical damage is settled at the lesser of ACV or repair cost, minus the applicable deductible.
Section II — Covered Autos Liability Coverage
Under Section II of the Business Auto Coverage Form, the insurer pays all sums an 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. It also covers pollution caused by certain transported or otherwise covered substances and provides supplementary payments.
The form uses a single combined limit (CSL) by default — one dollar amount applies per accident to the total of bodily injury and property damage, unlike split limits common in personal auto. An insured with a $1,000,000 CSL has up to $1,000,000 for any single accident regardless of how the claim divides between BI and PD.
Who is an insured
- The named insured for any covered auto.
- Anyone using a covered auto the named insured owns, hires, or borrows, with permission.
- Anyone liable for the conduct of an insured, but only to the extent of that liability.
A key trap: the owner of a hired or borrowed auto is NOT an insured (e.g., the rental-car company), and employees are not insureds for autos they own unless symbols/endorsements extend it. Supplementary payments include defense costs, up to $2,000 for bail bonds, and the cost of bonds to release attachments.
Section III — Physical Damage Coverage
Physical damage covers direct damage to the covered auto itself and is written with ownership-based symbols (2, 7, 8). It has three coverage options:
- Comprehensive — all causes of loss except collision and overturn (fire, theft, glass breakage, hail, flood, vandalism, hitting an animal).
- Specified Causes of Loss — narrower, named-peril version (fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism). Cheaper than comprehensive.
- Collision — impact with another object or overturn.
Glass breakage, hitting a bird/animal, and falling-object damage may be claimed under comprehensive to avoid the collision deductible — a frequently tested point.
Valuation, deductibles, and a worked example
Physical damage losses are settled at actual cash value (ACV) — replacement cost minus depreciation — or the cost to repair, whichever is less, not to exceed the limit. Each coverage carries its own deductible; comprehensive and collision deductibles are separate.
Worked example: A box truck (ACV $40,000) is totaled in a collision. The policy has a $1,000 collision deductible.
| Step | Amount |
|---|---|
| ACV of truck | $40,000 |
| Less collision deductible | −$1,000 |
| Insurer pays | $39,000 |
If the same truck instead suffered $6,000 in hail damage (comprehensive) with a $500 comprehensive deductible, the insurer would pay $6,000 − $500 = $5,500, drawing on the separate comprehensive deductible.
Liability Exclusions and Pollution
Covered-autos liability carries exclusions the exam tests by name: expected or intended injury, contractual liability (with an insured-contract exception), workers compensation and employers liability, fellow employee injury, care, custody, or control of property, handling of property before/after it is on the auto, operations involving mobile equipment used as a tool, pollution (with narrow exceptions for fuel and products being transported), and racing.
The pollution treatment is nuanced: the form covers pollution that results from a covered auto accident involving fuel or fluids needed to operate the vehicle, but excludes pollution from cargo being hauled unless the broadened pollution coverage or an MCS-90 applies.
Physical Damage Options and Towing
Physical damage offers Comprehensive (all causes except collision and overturn), Specified Causes of Loss (a narrower named-peril version covering fire, lightning, explosion, theft, windstorm, hail, flood, mischief, and vehicle sinking/derailment), and Collision (impact or overturn). The form also provides towing and labor at the place of disablement (a small per-disablement amount for private passenger types) and transportation expenses / loss of use after a covered theft, subject to daily and aggregate caps.
A worked total-loss settlement pays the lesser of ACV or repair cost minus the deductible: a box truck with a $40,000 ACV totaled in a collision under a $1,000 collision deductible pays $39,000, while glass breakage from a thrown rock would be a comprehensive loss subject to the separate comprehensive deductible.
Who Is an Insured and the Employee Trap
Under covered-autos liability, the insureds are the named insured for any covered auto, anyone using a covered auto the named insured owns, hires, or borrows with permission, and anyone liable for the conduct of an insured to the extent of that liability. Two traps recur: the owner of a hired or borrowed auto (the rental company) is not an insured, and an employee using their own vehicle is not an insured for that vehicle under the named insured's owned-auto coverage unless Employees as Insureds (CA 99 33) is added.
This is why hired-and-non-owned coverage matters for any business whose staff drive personal cars on company errands.
Limit Structure and a Combined-Single-Limit Walkthrough
Commercial auto typically uses a combined single limit (CSL) for liability, paying all bodily injury and property damage from one undivided amount per accident, which simplifies the split-limit math of personal auto. Physical damage settles at the lesser of ACV or repair cost less the deductible, capped at the limit. The exam pairs these: a $500,000 CSL covers a multi-injury, multi-vehicle accident from one limit, while a totaled covered auto is a physical-damage claim settled at ACV minus the collision or comprehensive deductible.
Recognizing whether a stem asks about liability (CSL) or physical damage (ACV) is the first step to the right answer.
A delivery van's windshield is shattered by a rock thrown from a passing mower. The policy has comprehensive ($250 deductible) and collision ($1,000 deductible). How is the glass loss best handled?
A covered truck with an ACV of $52,000 is destroyed in a collision. The collision deductible is $2,000 and the limit exceeds ACV. What does the insurer pay?