12.2 Commercial Auto Liability and Physical Damage

Liability Coverage and Limits

Under Covered Autos Liability Coverage, the insurer pays sums the insured becomes legally obligated to 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 has the duty to defend, and defense costs are paid in addition to the limit of insurance.

Most commercial auto policies use a Combined Single Limit (CSL) — one limit (for example, $1,000,000) that applies to bodily injury and property damage combined for any one accident. This contrasts with personal auto's typical split limits (e.g., 100/300/50). A CSL gives the insured maximum flexibility because the full limit is available regardless of how the loss splits between injury and property damage.

Supplementary payments are paid outside the limit: all defense costs, the cost of bonds to release attachments (up to the limit) and appeal bonds, up to $250 per day for the insured's lost earnings while attending trial at the insurer's request, and post-judgment interest. The BACF also adds an out-of-state coverage extension that automatically increases limits to meet a higher financial-responsibility law in another state and adds any compulsory no-fault or UM coverage that state requires — so a truck registered in a low-limit state is not stranded when it crosses into a high-limit state.

Worked Example: CSL vs. Split Limits

An accident produces $250,000 in bodily injury to one person and $80,000 in property damage.

• Split limits 100/300/50: The insurer pays $100,000 (per-person BI cap) + $50,000 (PD cap) = $150,000. The insured personally owes the $150,000 + $30,000 = $180,000 uncovered.
• CSL of $300,000: The full $250,000 BI + $80,000 PD = $330,000 demand is paid up to the single $300,000 limit — the insurer pays $300,000, leaving only $30,000 uncovered.

The CSL absorbs far more of the loss because a single pool of money serves both injury and property damage. This is why commercial buyers prefer CSL.

Common liability exclusions to memorize: expected or intended injury; contractual liability (with exceptions for insured contracts); workers compensation and employer's liability obligations; bodily injury to an employee of the insured (the workers comp domain); care, custody, or control of property (handled by garagekeepers or inland marine); pollution from autos; and the use of an auto in a prearranged racing or speed contest.

The fellow-employee exclusion bars one employee from suing the employer's auto policy for injuries caused by a co-worker — an exclusion that mirrors the workers compensation exclusive-remedy concept. "Completed operations" and "loading and unloading" overlaps with the CGL are also carved out so the two policies do not pay twice for the same loss.

Who Is an Insured

The BACF defines insureds broadly:

1. The named insured for any covered auto.
2. Anyone else while using, with the named insured's permission, a covered auto the named insured owns, hires, or borrows — except certain excluded users.
3. Anyone liable for the conduct of an insured, but only to the extent of that liability.

Exclusions to "insured" status include: the owner or anyone else from whom the insured hires or borrows a covered auto (except a trailer); the named insured's employee using a vehicle the employee owns; and someone using the covered auto in an auto business (sales, service, repair, parking) unless that business is the named insured's. A trucker borrowing the named insured's trailer is still an insured — the trailer exception preserves coverage.

Physical Damage Coverages

Physical damage insures the insured's own covered autos and comes in three forms:

• Comprehensive — direct and accidental loss from any cause except collision or overturn (fire, theft, vandalism, flood, hail, falling objects, animal strike, glass breakage).
• Specified Causes of Loss — a narrower, cheaper named-peril alternative covering only fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief or vandalism, and the sinking/burning/collision/derailment of a conveyance transporting the auto.
• Collision — loss from the covered auto striking another object or overturning.

Glass breakage, hitting a bird or animal, and falling objects may be treated as Comprehensive at the insured's option, avoiding a Collision deductible.

Physical damage carries its own set of exclusions and extensions. Excluded are wear and tear, freezing, mechanical or electrical breakdown (unless caused by theft of the covered auto), and road damage to tires (unless coincident with other covered loss).

The form provides two useful extensions: transportation expenses of up to $20 per day to a maximum of $600 for a stolen private passenger auto (running from 48 hours after the theft until the auto is returned or the insurer pays), and a loss-of-use expenses provision for hired autos the insured is contractually obligated to pay. Always read whether a deductible is per-auto or per-occurrence; the BACF applies the deductible separately to each covered auto in a single accident.

Loss Settlement and Experience Rating

Physical damage losses are settled at the lesser of Actual Cash Value (ACV) or the cost to repair or replace, minus the deductible. ACV is replacement cost less depreciation.

Worked ACV example: A box truck with an ACV of $42,000 is destroyed; repair would cost $48,000. The Collision deductible is $1,000. The insurer pays the lesser amount (ACV) less the deductible: $42,000 − $1,000 = $41,000.

Experience rating: Larger commercial fleets are experience rated. The insurer multiplies the manual (base) premium by an experience modification factor (mod). A mod below 1.00 means better-than-average losses and a credit; above 1.00 means a debit. Example: manual premium $20,000 × mod 0.85 = $17,000 — a $3,000 credit for favorable loss history.

Worked debit example: A trucking fleet with poor loss history earns a mod of 1.25. Manual premium is $48,000. Final premium = $48,000 × 1.25 = $60,000, a $12,000 surcharge driven by frequency and severity of past claims. The mod is calculated from the ratio of the insured's actual losses to expected losses for a business of its size and class, so an insured can lower its mod over time with loss-control programs, driver training, and telematics. Experience rating rewards safety, which is why fleet safety managers watch the mod closely — a 0.15-point swing can mean tens of thousands of dollars annually.