12.2 Commercial Auto Liability and Physical Damage
Key Takeaways
- Covered Autos Liability pays sums the insured legally must pay for bodily injury and property damage caused by an accident and resulting from ownership, maintenance, or use of a covered auto, plus the insurer's duty to defend.
- Supplementary payments — defense costs, up to $2,000 for bail bonds, and up to $250 per day for the insured's loss of earnings to attend trial — are paid IN ADDITION to the limit of insurance.
- A combined single limit (CSL) is one dollar amount for BI and PD per accident; split limits state separate per-person/per-accident BI amounts and a separate PD amount.
- Physical Damage offers Comprehensive (all loss except collision/overturn), Specified Causes of Loss (named-peril, cheaper), and Collision; a deductible applies to collision and comprehensive but not to fire or lightning under specified-causes.
- Physical damage losses are settled at actual cash value (ACV) or cost to repair, whichever is less, minus the deductible; betterment and ACV depreciation are common exam math.
Covered Autos Liability (Section II)
The liability insuring agreement states the insurer will pay all sums an insured legally must pay as damages because of bodily injury (BI) or property damage (PD) caused by an accident and resulting from the ownership, maintenance, or use of a covered auto. The insurer also has the right and duty to defend any suit seeking those damages, even if groundless or fraudulent, and that duty ENDS when the applicable limit of insurance is exhausted by payment of judgments or settlements.
Who Is an Insured (Liability)
- The named insured for any covered auto.
- Permissive users — anyone using a covered auto the insured owns, hires, or borrows with permission.
- Anyone legally responsible for the conduct of an insured, to the extent of that liability (an employer liable for an employee's covered driving).
Carve-outs: the owner of a hired/borrowed auto is NOT an insured (a rental company is not an insured under your BACF), and an employee is not an insured while using the employee's own auto — Symbol 9 protects the employer's vicarious liability only; the employee's personal policy is primary.
Supplementary Payments — Paid In Addition to the Limit
These are paid ON TOP of the limit, so they never erode the policy limit:
| Supplementary Payment | Cap |
|---|---|
| All defense costs and investigation | No specific cap (in addition to limit) |
| Bail bonds (for accidents/traffic violations arising from a covered auto) | Up to $2,000 |
| Bonds to release attachments | Premium cost |
| Insured's loss of earnings to attend hearings/trial at insurer's request | Up to $250 per day |
| Other reasonable expenses at insurer's request | Actual cost |
| Post-judgment interest | In addition to limit |
Limits: CSL vs. Split Limits
- A Combined Single Limit (CSL) is one dollar amount that applies to BI and PD combined, per accident — for example, $1,000,000 CSL.
- Split limits state three numbers: per-person BI / per-accident BI / per-accident PD — for example, $250,000 / $500,000 / $100,000.
Worked split-limit example: Limits are $250K/$500K/$100K. An accident injures three people ($300K, $200K, $150K of damages) and causes $120K property damage. BI: the third person is capped at $250K per person, so claimants recover $300K(→$250K) + $200K + $150K = $600K, but the $500K per-accident BI cap limits total BI to $500,000. PD pays the $100K cap (loss was $120K) = $100,000. Total insurer payment = $600,000; the insured is exposed for the rest.
Physical Damage (Section III)
Three physical damage coverages may be selected:
- Comprehensive — all direct and accidental loss EXCEPT collision and overturn (covers fire, theft, vandalism, glass, flood, hitting an animal, falling objects). Broadest, includes a deductible.
- Specified Causes of Loss (SCL) — a cheaper named-peril option covering fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief or vandalism, and sinking/burning/collision/derailment of a conveyance transporting the auto. Fire and lightning losses carry NO deductible under SCL.
- Collision — loss caused by the covered auto colliding with another object or overturning. Always carries a deductible.
ACV and Deductible Math
Physical damage is settled at the lesser of the actual cash value (ACV) of the damaged property OR the cost to repair/replace, minus the deductible.
Worked example: A delivery van with an ACV of $28,000 is destroyed in a collision; the collision deductible is $1,000. The repair would cost $31,000, exceeding ACV, so the auto is a total loss. Settlement = ACV $28,000 − $1,000 deductible = $27,000.
Betterment example: A 5-year-old box truck needs a new $4,000 paint-and-body section. The adjuster applies 25% depreciation (betterment) because the new parts improve the truck: $4,000 × (1 − 0.25) = $3,000, then minus a $500 deductible = $2,500 paid.
Transportation Expense and Towing
After a covered comprehensive theft loss, the BACF automatically provides temporary transportation expense of up to $20 per day, $600 maximum, beginning 48 hours after the theft and ending when the auto is returned or the loss is paid. A separate towing and labor option pays for towing at the place of disablement (commonly up to $75 per disablement) for private passenger autos. Higher limits require the rental reimbursement endorsement.
Two or More Coverage Forms and Other Insurance
When the same loss is covered by two or more coverage forms or policies issued by the insurer, the insurer pays no more than the LARGEST applicable limit — not the sum. For OTHER insurance generally, coverage on a hired or borrowed auto is usually primary, while coverage on a non-owned auto is typically excess over any other collectible insurance. These priority rules decide which policy pays first when exposures overlap, a frequent exam scenario.
Business Auto Liability, Physical Damage, and the PIP/UM Add-Ons
The Business Auto Coverage Form (BACF) liability insuring agreement mirrors the personal auto Part A in function but is built around covered-auto symbols rather than scheduled vehicles. Liability pays sums the insured is legally obligated to pay for bodily injury or property damage caused by an accident and resulting from the ownership, maintenance, or use of a covered auto, and includes a duty to defend with defense costs paid in addition to the limit. The form uses a single combined single limit (CSL) for BI and PD rather than split limits, which simplifies the math examiners test.
Physical damage under the BACF parallels the personal lines split: Comprehensive (other than collision), Specified Causes of Loss (a narrower named-peril alternative covering fire, lightning, explosion, theft, windstorm, hail, flood, vandalism, and certain transit perils), and Collision. Specified Causes of Loss is cheaper than Comprehensive because it omits the open-peril breadth — a distractor candidates must catch.
The form is rounded out by required add-ons: in no-fault states a PIP endorsement applies, and Uninsured/Underinsured Motorists coverage is added by endorsement, following the same legally-entitled-to-recover logic as the personal auto policy.
An insured incurs a $30,000 judgment plus $8,000 in defense costs on a policy with a $25,000 CSL. How much does the insurer pay in total?
A covered truck (ACV $40,000) is stolen and never recovered. Comprehensive coverage applies with a $1,000 deductible. What does physical damage pay?