12.2 Commercial Auto Liability and Physical Damage
Key Takeaways
- Covered Autos Liability Coverage pays sums the insured legally must pay as damages for bodily injury or property damage caused by an accident and resulting from ownership, maintenance, or use of a covered auto, plus the cost to defend.
- Supplementary payments under the BACF include defense costs, up to a $2,000 bail bond, premiums on appeal bonds, post-judgment interest, and up to $250 per day for lost earnings while attending trial at the insurer's request.
- A combined single limit (CSL) is one dollar amount per accident for both bodily injury and property damage, while split limits use a per-person/per-accident BI limit and a separate PD limit (for example 100/300/50).
- Physical Damage offers Comprehensive (all causes except collision/overturn), Specified Causes of Loss (a named-peril alternative), and Collision; each is written subject to a deductible and pays the lesser of ACV or cost to repair.
- Common physical damage extensions include transportation expense (rental) of up to $20 per day to a $600 maximum after a covered theft, and a $3,000 sublimit for electronic equipment not factory-installed.
Covered Autos Liability Coverage
Section II of the BACF promises to pay 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 right and duty to defend the insured, and defense costs are paid in addition to the limit of insurance.
Who is an insured? The named insured for any covered auto; anyone using a covered auto the named insured owns, hires, or borrows with permission (with key exceptions, such as the owner of a hired auto); and anyone liable for the conduct of an insured, but only to the named insured's limit.
Supplementary payments
Paid in addition to the limit:
- All defense costs and expenses
- Up to $2,000 for the cost of bail bonds
- Premiums on appeal bonds and bonds to release attached property
- Reasonable expenses the insured incurs at the insurer's request, including up to $250 per day for lost earnings while attending a hearing or trial
- All interest on the full judgment that accrues after entry of the judgment
- Up to $250 for the cost of bonds to release attachments
Trap: these payments do not reduce the limit of insurance, so a $1,000,000 CSL still pays $1,000,000 in damages even after thousands in defense costs.
Limit structures: CSL versus split limits
A Combined Single Limit (CSL) is one amount per accident applied to BI and PD together. If the CSL is $1,000,000, that single bucket pays any mix of BI and PD up to $1,000,000.
Split limits show three numbers: BI per person / BI per accident / PD per accident. A 100/300/50 limit pays up to $100,000 to any one injured person, up to $300,000 for all BI in one accident, and up to $50,000 for PD.
Worked example: With 100/300/50, an accident injures three people with claims of $120,000, $90,000, and $60,000, plus $70,000 of vehicle damage.
- Person 1: capped at $100,000 (per-person limit)
- Person 2: $90,000 paid in full
- Person 3: capped because the $300,000 per-accident BI limit is reached ($100,000 + $90,000 + $110,000 would exceed; the third claimant collects only the remaining $110,000 room, here their $60,000 is paid in full and the cap is not hit)
- BI paid: $100,000 + $90,000 + $60,000 = $250,000 (under the $300,000 cap)
- PD: capped at $50,000 of the $70,000 loss; insured owes the $20,000 excess
Physical Damage Coverage
Section III offers three coverages, each with a deductible and each paying the lesser of the actual cash value (ACV) or the cost to repair or replace:
| Coverage | Insures against |
|---|---|
| Comprehensive | All direct loss except collision and overturn (fire, theft, glass, flood, hail, vandalism, animal strike) |
| Specified Causes of Loss | Named perils only: fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vehicle sinking/derailment |
| Collision | Impact with another object and overturn |
Comprehensive is broader and costlier than Specified Causes of Loss. Glass breakage, hitting a bird or animal, or falling objects can be claimed under Comprehensive rather than Collision at the insured's option, which can avoid a collision deductible.
Extensions: after a covered theft of the entire auto, transportation expense pays $20 per day up to $600, beginning 48 hours after the theft. Permanently installed electronic equipment is covered, but equipment not factory-installed (and aftermarket sound/communication gear) carries a $3,000 sublimit unless scheduled.
A covered truck with an ACV of $42,000 is damaged in a collision; the repair estimate is $46,000. The Collision deductible is $1,000. How much does the insurer pay?
Under the Business Auto Coverage Form, the insurer pays $8,000 in defense costs and a $1,500 bail bond while defending an insured whose liability limit is a $500,000 CSL. The jury awards $500,000 in damages. What does the insurer pay in total?
Physical Damage Options on the BACF
Commercial auto physical damage parallels personal auto but uses distinct terminology and a third middle option:
| Physical Damage Coverage | What It Covers |
|---|---|
| Comprehensive | All causes of loss except collision and overturn (fire, theft, glass, animal, flood) |
| Specified Causes of Loss | A named-peril alternative (fire, lightning, explosion, theft, windstorm, flood, etc.) - cheaper than Comprehensive |
| Collision | Impact with another object or overturn |
Each is written subject to a deductible and pays the lesser of ACV or the cost to repair or replace. The Specified Causes of Loss option is the exam's middle ground: it is broader than collision-only but narrower (and cheaper) than Comprehensive because it lists its covered perils rather than covering all non-collision causes.
Limits and Supplementary Payments
Business Auto liability is usually written as a Combined Single Limit (CSL) - one dollar amount per accident covering both bodily injury and property damage with no internal split - though split limits (e.g., 100/300/50) are available. The CSL is favored commercially because it gives maximum flexibility in allocating a mixed BI/PD loss.
Supplementary payments are paid in addition to the limit and mirror the personal auto list with higher figures: defense costs in full, bail bonds up to $2,000, appeal-bond premiums, post-judgment interest, and up to $250 per day for the insured's lost earnings while attending trial at the insurer's request. Physical-damage extensions add transportation expense (rental) of up to $20 per day to a $600 maximum after a covered theft, and a $3,000 sublimit for electronic equipment not permanently installed by the manufacturer.
A commercial vehicle is stolen and recovered burned. The policy carries Comprehensive coverage. How is this loss classified and paid?
Hired and Non-Owned Liability in Practice
Most commercial-auto liability gaps involve vehicles the business does not own. Hired auto liability (Symbol 8) covers autos the firm leases, hires, or borrows, and non-owned auto liability (Symbol 9) covers employees' and others' autos used on company business. A delivery firm that rents trucks at peak season relies on Symbol 8; a company whose sales staff drive their own cars on company errands relies on Symbol 9.
These matter because an employee's personal auto policy is primary for their own car, but if that limit is exhausted in a serious on-the-job accident, the company can be sued as the employer (vicarious liability). Non-owned auto liability protects the business entity in that situation - it does not repair the employee's car. A frequent exam scenario presents an employee causing a serious crash while running a company errand in their own vehicle, and asks which coverage protects the employer: the answer is the business auto policy's non-owned auto liability, sitting excess of the employee's personal coverage.