12.2 Commercial Auto Liability and Physical Damage
Key Takeaways
- Covered Autos Liability pays sums the insured is legally obligated to pay for bodily injury or property damage caused by an accident and resulting from ownership, maintenance, or use of a covered auto; it is typically written with a single Combined Single Limit (CSL).
- Supplementary payments — defense costs, up to $2,000 bail bonds, post-judgment interest, and up to $250/day loss of earnings to attend trial — are paid IN ADDITION to the liability limit.
- Physical Damage offers Comprehensive (all loss except collision/overturn), Specified Causes of Loss (named perils, cheaper), and Collision; comprehensive and collision each carry a per-vehicle deductible.
- Physical damage loss is valued at the lesser of actual cash value (ACV) or the cost to repair/replace, minus the deductible; the insurer may also repair, replace, or pay cash.
- Pollution, expected/intended injury, workers compensation, employee bodily injury, and care/custody/control of property are key liability exclusions; wear and tear, freezing, and mechanical breakdown are physical damage exclusions.
Covered Autos Liability
Section II – Covered Autos Liability pays all sums an insured legally must pay as damages because of bodily injury or property damage 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, and that duty ends when the limit is exhausted by judgment or settlement.
Commercial auto liability is usually written with a Combined Single Limit (CSL) — one dollar amount applying to all bodily injury and property damage from one accident, rather than split limits. A $1,000,000 CSL means up to $1,000,000 for any combination of BI and PD per accident.
Supplementary Payments
These are paid IN ADDITION to the liability limit, so they do not erode the insured's protection:
- All defense costs and expenses the insurer incurs.
- Up to $2,000 for the cost of bail bonds.
- The cost of bonds to release attachments.
- Up to $250 per day for the insured's actual loss of earnings to attend hearings or trials at the insurer's request.
- All reasonable expenses the insured incurs at the insurer's request.
- All costs taxed against the insured and post-judgment interest on the entire judgment.
Key Liability Exclusions
| Exclusion | Reason |
|---|---|
| Expected or intended injury | Insurance covers accidents, not deliberate acts |
| Workers compensation / employer's liability | Belongs on the WC policy |
| Employee bodily injury (fellow employee) | Co-employee injuries excluded |
| Care, custody, or control | Property of others in the insured's charge (use cargo/inland marine) |
| Pollution | Limited buy-backs only; broad pollution excluded |
| Handling of property before loading / after unloading | Outside the use of the auto |
Physical Damage Coverages
Section III – Physical Damage insures the insured's own covered autos. Three options exist:
| Coverage | What It Insures | Deductible |
|---|---|---|
| Comprehensive | Any direct loss EXCEPT collision or overturn (fire, theft, glass, hail, animal, vandalism, flood) | Yes, per vehicle |
| Specified Causes of Loss | Only named perils — fire, lightning, explosion, theft, windstorm, hail, flood, mischief, vehicle sinking/derailment | Often no deductible or low |
| Collision | Loss from the auto striking another object or overturning | Yes, per vehicle |
Specified Causes of Loss is a narrower, cheaper substitute for comprehensive — it covers a fixed list of perils only and notably does NOT cover animal collisions, glass breakage, or falling objects unless caused by a listed peril.
Loss Settlement and Valuation
Physical damage loss is valued at the lesser of the actual cash value (ACV) of the damaged property or the cost to repair or replace it with like kind and quality, minus the deductible. ACV reflects depreciation. The insurer may pay cash, repair, or replace.
Worked example: A delivery van with an ACV of $24,000 is totaled in a covered collision; the collision deductible is $1,000. Repair would cost $30,000, so the loss is settled at ACV. Payment = $24,000 − $1,000 deductible = $23,000. If instead the van suffered $6,000 in repairable damage, payment = $6,000 − $1,000 = $5,000.
Comprehensive includes a $1,500 limit on electronic equipment not permanently installed unless scheduled, and glass breakage may be settled without a deductible if the insured elects to repair rather than replace.
Split Limits and the CSL Comparison
While commercial auto is usually written CSL, candidates must still understand split limits because older policies and some states express minimums that way. A 25/50/25 split limit means $25,000 per person for bodily injury, $50,000 per accident for all bodily injury, and $25,000 per accident for property damage. The per-person cap applies first; if three people are injured at $20,000 each, the policy pays all three ($60,000) but is capped at the $50,000 per-accident BI limit, leaving the insured exposed for $10,000.
A CSL of $100,000 in the same accident would pay the full $60,000 with room to spare, which is why commercial buyers prefer the single combined limit — it cannot be split-capped per person or between BI and PD.
Towing, Storage, and Loss-of-Use
The physical damage section pays the cost to return a stolen covered auto and to repair resulting damage. The insurer also pays up to a stated amount per disablement for towing and labor at the place of disablement when the insured elects that coverage. For a private passenger auto rented to replace a covered auto, the form may reimburse loss-of-use expenses the insured is legally liable to pay to a rental company, subject to a daily and aggregate cap — distinct from the optional Rental Reimbursement endorsement, which pays for the insured's own substitute vehicle.
Two or More Coverage Forms and Other Insurance
When the insured has two policies issued by the same insurer applying to the same loss, the form pays only the highest applicable limit, not the sum. For liability, the Business Auto form is primary for owned autos and excess for hired or non-owned autos when other collectible insurance exists. Physical damage on a hired auto is excess over any other collectible insurance. These coordination rules are frequent exam fodder because they determine which policy pays first when a borrowed or rented vehicle is involved.
A covered truck with an ACV of $40,000 is destroyed in a covered collision. Repair would cost $52,000 and the collision deductible is $2,000. What does the insurer pay?
Which payment under Covered Autos Liability is made IN ADDITION to the policy limit?