6.2 Part A Liability and Supplementary Payments

Part A - Liability Coverage

Part A is the heart of the auto policy and the most-tested section. It pays damages for bodily injury (BI) and property damage (PD) for which an insured becomes legally responsible because of an auto accident. It is third-party coverage: it pays others, not the insured's own injuries or vehicle. Part A also includes the insurer's duty to defend the insured against any covered suit, even if the suit is groundless, false, or fraudulent.

Split limits vs. combined single limit

Liability limits are written one of two ways, and you must be able to read both:

• Split limits are shown as three numbers, e.g., 100/300/50 (in thousands). The first number is BI per person, the second is BI per accident (all people), the third is PD per accident.
• Combined single limit (CSL) is one number, e.g., $300,000, that applies to the total of all BI and PD in one accident with no per-person sub-limit.

Worked example - split limits 100/300/50: A covered driver injures three people (claims of $80,000, $120,000, $60,000) and causes $70,000 of property damage. The policy pays:

Worked split-limit calculation

The insurer pays $240,000 in BI (Person 2 is capped at the $100K per-person limit) plus $50,000 PD = $290,000. The insured personally owes the remaining $20,000 (Person 2) and $20,000 (PD) = $40,000. A combined single limit of $300,000 would have paid the full $260,000 BI + $70,000 PD up to $300,000, i.e., $300,000, leaving only $30,000 uncovered.

Why the per-person cap is applied first

The ordering of the calculation is the part students miss. Always apply the per-person BI limit to each injured person individually first, then sum the capped amounts and test that sum against the per-accident BI limit. Never add the raw claims and apply the per-accident limit directly - that shortcut hides the per-person cap and produces a wrong answer.

In the example, Person 2's $120,000 claim is reduced to $100,000 before the accident aggregate is even considered. Because the capped BI total ($240,000) stays under the $300,000 per-accident limit, no further reduction occurs on the BI side. Property damage has no per-person split; it simply caps at the third number, $50,000 per accident, regardless of how many vehicles or objects were damaged.

Key Part A exclusions

The exam tests exclusions heavily. Part A does not cover:

• Intentional injury or damage caused by an insured
• Damage to property owned by, rented to, used by, or in the care of the insured (your own garage door is not covered)
• An insured using a vehicle without a reasonable belief of permission
• Liability arising from the public or livery conveyance (carrying persons or property for a fee), except enrolled share-the-expense car pools or volunteer transport network reimbursement
• A vehicle the insured owns or has available for regular use that is not the covered auto (the non-owned car must be truly occasional)
• Liability while employed in the auto business (selling, repairing, parking) - this is the garage exposure

Supplementary Payments

Supplementary Payments are paid in addition to the Part A limit of liability, so they do not erode it. They include:

• Up to $250 for the cost of bail bonds required because of an accident
• Premiums on appeal bonds and bonds to release attachments in any suit the insurer defends
• Interest accruing after a judgment in a suit the insurer defends
• Up to $200 per day for loss of earnings (not other income) for attending hearings or trials at the insurer's request
• Other reasonable expenses incurred at the insurer's request

Memorize the two dollar figures: bail bonds $250, loss of earnings $200 per day. These are classic fill-in-the-blank questions.

How Part A Defends and the Out-of-State Provision

Part A pays both damages the insured is legally liable for and the cost of defense, and the exam tests the relationship between the two.

• Defense is in addition to the limit: the insurer's duty to defend ends only when it has paid the limit in settlements or judgments. Defense costs do not erode the liability limit (unlike many commercial claims-made forms).
• Out-of-state coverage: if the insured drives into a state requiring higher limits or compulsory coverages (like no-fault PIP), the PAP automatically increases to meet that state's minimums - the insured is never under-covered simply by crossing a state line.

Exam trap: Under the PAP, Supplementary Payments and defense costs are paid on top of the limit, so a $100,000 liability limit can pay $100,000 in damages plus defense and supplementary payments. A common wrong answer subtracts defense from the limit.

Permissive Use and the Liability Trigger

Liability follows the insured (named insured, family members, and anyone using the covered auto with permission). A friend driving with permission is an insured; a thief is not. This permissive-use rule is why lending your car extends your liability coverage to the borrower.