6.2 Part A Liability and Supplementary Payments

The Liability Insuring Agreement

Part A – Liability Coverage is the heart of the PAP and the most heavily tested part. The insurer agrees to pay damages for bodily injury (BI) or property damage (PD) for which any insured becomes legally responsible because of an auto accident. "Legally responsible" is the key phrase: liability coverage is third-party coverage that responds only when the insured is at fault and a duty to a third party exists. Damages can include prejudgment interest awarded against the insured.

In addition to paying damages, the insurer assumes the duty to defend any insured against any suit asking for such damages, even if the suit is groundless, false, or fraudulent. The insurer may settle any claim as it considers appropriate. The crucial exam point: defense costs are paid OUTSIDE (in addition to) the limit of liability and the duty to defend ends when the insurer has paid out the applicable limit in settlement or judgment.

Split Limits vs. Combined Single Limit

Liability limits are written one of two ways. Split limits are shown as three numbers, e.g., 100/300/50:

• $100,000 — maximum BI per person
• $300,000 — maximum BI per accident (all persons combined)
• $50,000 — maximum PD per accident

A Combined Single Limit (CSL) is a single dollar figure (e.g., $300,000) that applies to all BI and PD in one accident with no per-person cap.

Worked split-limit example. Limits are 100/300/50. An insured at fault injures three people — Aida ($120,000 in injuries), Ben ($90,000), and Carla ($60,000) — and causes $70,000 of property damage. Apply each limit:

The insurer pays $250,000 BI + $50,000 PD = $300,000 total. The insured personally owes Aida the uncovered $20,000 and the third party the uncovered $20,000 of PD.

Supplementary Payments

Part A pays the following Supplementary Payments in addition to — and over and above — the limit of liability, on behalf of an insured in a covered claim or suit the insurer defends:

1. Up to $250 for the cost of bail bonds required because of an accident, including related traffic-law violations.
2. Premiums on appeal bonds and bonds to release attachments in any suit the insurer defends.
3. Interest accruing after a judgment is entered in a suit the insurer defends (post-judgment interest).
4. Up to $200 per day for loss of earnings (not other income) because of attendance at hearings or trials at the insurer's request.
5. Other reasonable expenses incurred at the insurer's request.

Trap: These five items are NOT subject to the policy limit — they are extra. But the bail-bond cap is only $250 and the lost-earnings reimbursement is $200/day, and only for attendance the insurer requests. Memorize those two dollar figures.

Key Part A Exclusions

Liability coverage does not apply to, among others:

• Intentional bodily injury or property damage caused by an insured.
• Property owned or being transported by the insured; and property rented to, used by, or in the care of the insured (with a limited exception for a residence or private garage).
• Bodily injury to an employee of an insured during employment (workers comp territory), except a domestic employee not entitled to workers comp.
• Vehicles used as a public or livery conveyance (does not apply to share-the-expense car pools).
• Use of a vehicle without a reasonable belief of being entitled to use it (a special exception preserves coverage for a family member using your covered auto).
• Vehicles with fewer than four wheels or designed mainly for off-road use.
• A vehicle (other than your covered auto) owned by or furnished/available for the regular use of the named insured or a family member — this defeats coverage on a second car the insured drives every day but never insured.

Supplementary Payments Paid in Addition to the Limit

Part A supplementary payments are paid on top of the liability limit — they do not erode it, a favorite exam point:

• All defense costs and attorney fees (the insurer's duty to defend).
• Up to $250 for bail bonds arising from a covered accident.
• Premiums on appeal bonds and bonds to release attachments.
• Loss of earnings up to $200/day for attending hearings/trials at the insurer's request.
• Interest accruing on a judgment.
• Other reasonable expenses incurred at the insurer's request.

Trap: the insurer's duty to defend ends once the applicable limit is exhausted by payment of judgments or settlements. Defense costs themselves are supplementary (outside the limit), but the duty to defend stops when the limit is paid out.

Part A Exclusions and the Permissive-User Rule

Part A liability is broad but excludes predictable exposures. Key exclusions include intentional injury, property owned or being transported by the insured, property in the insured's care/custody/control (except a residence/garage rented to the insured), bodily injury to an employee (workers comp territory), using a vehicle as a public/livery conveyance (ride-share without an endorsement), using a vehicle without a reasonable belief of permission, and operating in the business of selling, repairing, or parking autos (garage operations).

Who is an insured for liability extends beyond the named insured to family members and any person using the covered auto with permission (a permissive user), plus any person/organization legally responsible for the covered auto's use by a covered person.

Exam tip: a friend who borrows the insured's car with permission is covered under Part A; someone who takes it without a reasonable belief of permission is not. Ride-sharing needs a specific endorsement.