6.2 Part A Liability and Supplementary Payments

Part A: Liability Coverage

Part A is the heart of the PAP and the most heavily tested coverage. It pays sums an insured becomes legally responsible to pay because of bodily injury (BI) or property damage (PD) arising out of the ownership, maintenance, or use of an auto. Part A includes a critical duty to defend the insured against any suit seeking covered damages — and that defense cost is paid in addition to the limit of liability.

The insurer's duty to settle or defend ends when the limit of liability has been exhausted by payment of judgments or settlements.

Split Limits vs. Single Limit

Liability limits are written two ways. The exam expects you to apply both:

• Split limits — three numbers, e.g., 100/300/50 ($1,000s): $100,000 BI per person / $300,000 BI per accident / $50,000 PD per accident.
• Combined Single Limit (CSL) — one number, e.g., $300,000, available for BI and PD combined per accident, with no per-person cap.

Worked example (split limits 100/300/50): An at-fault insured injures three people — claims of $120,000, $90,000, and $60,000 — and causes $70,000 in property damage. The per-person cap is $100,000, so the first claim pays $100,000 (not $120,000). The others pay $90,000 and $60,000 = $250,000 total BI, under the $300,000 per-accident cap. Property damage is capped at $50,000 (not $70,000).

Total paid in the worked example: $100,000 + $90,000 + $60,000 = $250,000 BI, plus $50,000 PD, for $300,000 — the injured persons absorb the $20,000 and $20,000 excess, and the insured personally owes the uncovered $20,000 PD. This is the single most common Part A numeric on the exam: apply the per-person cap first, then the per-accident cap.

With a $300,000 CSL on the same facts, BI + PD = $340,000 of damages but the policy pays only $300,000 total — no per-person sublimit applies, so a single severely injured claimant could receive far more than $100,000.

Supplementary Payments (Paid in Addition to the Limit)

Part A pays the following on top of the liability limit — a frequent trap because candidates assume these erode the limit. They do not:

Memorize the $250 bail bond and $200/day loss-of-earnings figures — both are tested verbatim.

Why Supplementary Payments Matter

The reason supplementary payments are tested so heavily is the dollar consequence: because defense, bonds, interest, and lost-earnings reimbursement sit outside the limit, an insured with a $100,000 per-person limit could see the insurer spend far more than $100,000 in total once defense costs are added.

A question that asks "how much can the insurer pay in connection with this claim" expects you to add the damages (capped by the limits) plus the uncapped defense and the scheduled supplementary amounts. Conversely, a question asking how much is available "to pay the judgment" wants only the liability limit, because defense does not reduce it.

Two-Wheelers, Trailers, and Other Coverage Wrinkles

Part A automatically extends to a trailer owned by the insured and to a non-owned auto driven by the insured or a family member, but on a non-owned auto the coverage is generally excess over any other collectible insurance on that vehicle. The form excludes vehicles with fewer than four wheels, so a motorcycle needs its own policy. When an insured rents a car on a trip, Part A liability follows on an excess basis; this is why agents often advise declining only the liability portion of a rental-counter waiver while still considering the physical-damage portion.

Putting the Numeric Method Together

For any Part A liability problem, apply this fixed sequence: (1) identify whether limits are split or CSL; (2) on split limits, apply the per-person BI cap to each injured person first; (3) sum the capped BI amounts and apply the per-accident BI cap; (4) apply the separate PD cap to property damage; (5) remember the insured personally owes any excess over the limits, and that defense and supplementary payments are added on top, not subtracted. Following this order avoids the most common mistake - applying the per-accident limit before capping each person - which produces an answer that is too high.

Key Part A Exclusions

Liability coverage does not apply to:

• Intentional injury caused by an insured
• Damage to property owned or being transported by an insured
• Property rented to, used by, or in the care of an insured (with limited exceptions)
• Bodily injury to an employee of an insured during employment (workers' comp territory)
• Use of a vehicle as a public or livery conveyance (ride-share for hire) — note share-the-expense car pools are NOT excluded
• Using a vehicle without a reasonable belief of being entitled to do so
• Vehicles with fewer than four wheels or designed mainly for off-road use (with stated exceptions)

Other Key Part A Exclusions

The form also excludes liability while the insured is employed in the automobile business (selling, repairing, servicing, parking) using a customer's vehicle, and liability arising from other business use of a vehicle other than a private passenger auto, pickup, or van. There is also an exclusion for an insured using a vehicle furnished or available for regular use that is not the covered auto - this prevents the policy from quietly insuring a second car the insured drives every day but never listed. Knowing this "furnished for regular use" exclusion explains why a household with an unlisted second vehicle has a serious coverage gap.

Out-of-State Coverage and Financial Responsibility

Part A includes an out-of-state coverage provision: if an insured drives into a state with higher compulsory liability minimums than the policy carries, the PAP automatically increases the limits to meet that state's requirement, and if the state operates a compulsory no-fault or similar law, the policy provides the minimum required benefits.

The policy also contains a financial responsibility clause stating that when the PAP is certified as proof of financial responsibility, it will comply with the law to the extent required. These provisions make the PAP portable across state lines without the insured buying separate coverage, a frequently tested convenience.

How Defense and Settlement Authority Work

The insurer's duty to defend is broad - it must defend any suit seeking covered damages even if groundless, false, or fraudulent - but the insurer also has the right to settle any claim or suit as it deems appropriate. Because defense costs are supplementary (outside the limit), the full liability limit remains available for damages.

Once the insurer pays the limit in judgments or settlements, both the duty to defend and the duty to pay further supplementary costs end. Candidates should connect this to the per-person/per-accident math: the supplementary payments and defense are extra, so a $300,000 per-accident limit can pay $300,000 in damages plus separately funded defense, bail, and interest.