12.2 Commercial Auto Liability and Physical Damage

Covered Autos Liability (Section II)

Under Section II, the insurer pays 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 duty to defend, and defense costs are paid in addition to the limit of insurance — they do not erode it.

Who is an insured

• You (the named insured) for any covered auto.
• Anyone using a covered auto you own, hire, or borrow with your permission (permissive use).
• Anyone liable for the conduct of an insured, but only to the extent of that liability.

Notable exclusions to the permissive-use rule: the owner of a hired/borrowed auto (other than you), and an employee using their own auto are generally not insureds under the basic form.

Combined Single Limit and Supplementary Payments

Commercial auto liability is almost always written with a Combined Single Limit (CSL) — one limit for BI and PD combined per accident. This contrasts with personal auto split limits (e.g., 100/300/50). A $1,000,000 CSL means the insurer pays up to $1 million for all BI and PD from one accident, regardless of how many people are injured or how the loss splits between injury and property.

Split-limit worked example

With a 250/500/100 split limit, an accident injuring three people ($200,000, $200,000, $300,000) and causing $40,000 PD pays: person 1 = $200,000; person 2 = $200,000; person 3 = capped at the $250,000 per-person limit, but the $500,000 per-accident cap also applies — total BI cannot exceed $500,000, so $200,000 + $200,000 + $100,000 = $500,000. PD pays the full $40,000. A $700,000 CSL would instead pay all valid BI ($700,000 available) plus PD from the single pot.

Physical Damage (Section III)

Physical Damage is first-party coverage — it pays for direct and accidental loss to the insured's own covered auto, regardless of fault. Three coverages are available:

• Comprehensive: All loss except collision and overturn (fire, theft, glass, hail, animal strikes, vandalism). Subject to a deductible.
• Specified Causes of Loss: A cheaper named-peril alternative — fire, lightning, explosion, theft, windstorm, hail, flood, mischief, vehicle sinking/derailment. No falling-object or glass-only coverage.
• Collision: Overturn or impact with another object.

Valuation and a coinsurance-style trap

The BACF settles losses at actual cash value (ACV) — replacement cost minus depreciation — or cost to repair, whichever is less, capped at the limit. There is no coinsurance on autos. Worked ACV example: a truck with replacement cost $60,000, 40% depreciation, ACV = $36,000. After a $1,000 collision deductible the insurer pays $35,000 if the truck is a total loss.

Exclusions, Hired-Auto Physical Damage, and Supplementary Payments

Section II liability excludes expected/intended injury, workers' compensation and employee injury (handled elsewhere), pollution from transported property, the care-custody-control of property of others (use cargo coverage), and racing. Physical Damage excludes wear and tear, freezing, mechanical breakdown, and electronic equipment beyond a small built-in limit.

Supplementary payments

Like the CGL, the BACF pays supplementary payments above the limit: defense costs, up to $2,000 for bail bonds, the cost of bonds to release attachments, reasonable expenses the insured incurs at the insurer's request (including $250/day for lost earnings), and post-judgment interest. These do not reduce the limit.

Hired-auto physical damage worked example

A firm rents a box truck and damages it in a covered collision. The repair is $8,000; the hired-auto physical damage deductible is $1,000. The insurer pays $8,000 − $1,000 = $7,000, but only if Symbol 8 physical damage was purchased — hired-auto physical damage is not automatic and must be added. Without it, the rental contract's damage waiver or the firm's own funds absorb the loss.

UM/UIM and Medical Payments on the Business Auto Form

Beyond liability and physical damage, commercial auto can add Uninsured/Underinsured Motorists (UM/UIM) and Auto Medical Payments. UM/UIM pays the insured's own damages when the at-fault driver has no or insufficient liability coverage; Auto Medical Payments pays medical bills regardless of fault. These are written by covered-auto symbol like the other coverages, and state law often mandates UM at limits matching liability unless rejected in writing.

Trap: Liability is third-party (pays others the insured injures); UM/UIM and Med Pay are first-party (pay the insured and occupants). Routing a third-party injury to UM, or the insured's own injury to liability, is a classic miss.

Permissive Use and the Fellow-Employee Question

Section II liability covers permissive users of a covered auto, but two parties are typically not insureds: the owner of a hired/borrowed auto (other than the named insured) and an employee using their own auto. The fellow-employee exclusion bars one employee's claim against another for on-the-job auto injuries (that belongs on workers' comp), though it can be deleted by endorsement.

Trap: Liability is third-party; physical damage (Section III) is first-party and has no coinsurance - it pays ACV or repair cost, whichever is less. Do not apply a coinsurance penalty to an auto physical-damage loss.