6.2 Part A Liability and Supplementary Payments

The Part A insuring agreement

Part A - Liability is the core of the PAP. The insurer promises 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" signals fault-based (tort) liability: the insured must owe damages, usually through negligence, before Part A responds.

Part A also creates a duty to defend. The insurer will settle or defend any suit asking for those damages as it considers appropriate, and the duty ends when the insurer has paid out the limit of liability. The duty to defend is broader than the duty to pay: an insurer must defend even groundless, false, or fraudulent suits if the allegations could fall within coverage.

Split limits versus Combined Single Limit

Liability limits are written one of two ways:

• Split limits show three numbers, e.g. 100/300/50 (in thousands): $100,000 BI per person, $300,000 BI per accident, $50,000 PD per accident.
• Combined Single Limit (CSL) shows one number, e.g. $300,000, available for BI and PD combined in any mix.

Worked split-limit example. Policy is 100/300/50. The insured is at fault; three pedestrians suffer BI of $120,000, $90,000, and $70,000, and a parked car sustains $60,000 PD.

• Pedestrian 1: capped at the $100,000 per-person limit (insured owes the extra $20,000).
• Pedestrians 2 and 3: $90,000 and $70,000, both under $100,000, so paid in full.
• BI total paid = 100,000 + 90,000 + 70,000 = $260,000, within the $300,000 per-accident cap.
• PD: $60,000 loss but the $50,000 PD limit caps payment at $50,000.
• Insurer pays $310,000; insured personally owes $30,000 ($20,000 BI + $10,000 PD).

Combined Single Limit illustration

Using the same accident under a $300,000 CSL: the single pool covers all BI and PD together. Total claims are 120,000 + 90,000 + 70,000 + 60,000 = $340,000. The CSL pays the full $300,000, and the insured owes $40,000. The CSL is more flexible because no single claimant is sub-capped by a per-person limit, which is why a serious single-victim accident often fares better under a CSL than under split limits with a low per-person figure.

Supplementary Payments

Supplementary Payments are paid in addition to the limit of liability, so they do not erode the amount available to claimants. The PAP lists:

Because defense costs and these payments sit outside the limit, a question that adds defense expense to the limit to argue exhaustion is using a trap.

Part A exclusions

Key liability exclusions to recognize:

• Intentional injury caused by an insured.
• Liability assumed under a contract (some contractual liability is excluded).
• Use of a vehicle as a public or livery conveyance (taxi/ride-for-hire), with a share-the-expense carpool exception.
• Vehicles used in the auto business (repair, sales, service) by employees.
• Damage to property owned, used, or transported by the insured (use a separate policy).
• A vehicle owned by the named insured but not listed on the policy, and similar regular-use non-owned vehicle situations.
• Use in racing or speed contests on a track.

Out-of-state coverage and the single-limit-per-accident rule

The PAP includes an out-of-state coverage provision: if an accident occurs in a state requiring higher liability limits or a compulsory benefit (such as no-fault) than the insured carries, Part A automatically increases to meet the other state's minimum. This protects an insured driving across state lines without buying separate coverage and is a common scenario answer.

The Limit of Liability condition also states that the limit is the most the insurer pays regardless of the number of insureds, claims made, vehicles or premiums shown, or vehicles involved in the accident. So if two listed autos and three insureds are involved in one accident, the per-accident limit is not multiplied. A question that stacks limits across vehicles for a single accident is testing this anti-stacking-of-limits language directly.

Reading the duty-to-defend exhaustion point

Because defense is owed in addition to the limit, an insurer can pay the full $300,000 limit to settle and still have spent, say, $40,000 defending the suit, none of which reduced the claimant's recovery. The insurer's defense obligation ends once it tenders or pays the applicable limit; after that it is not required to keep defending.

Keep three numbers separate on the exam: the limit of liability (caps damages paid), Supplementary Payments (paid above the limit), and defense costs (paid above the limit until the limit is exhausted). Mixing these three is the single most common Part A error, so re-classify each dollar in a question before computing the insurer's total outlay.

Supplementary Payments Detail

Part A's defense and supplementary payments are paid in addition to the limit of liability, which is why a large defense bill does not erode the money available to pay the claimant:

When a question notes that defense costs are eroding the limit, the answer is usually that it is not a PAP — that erosion pattern describes a claims-made liability or some commercial forms, not Part A.