12.2 Commercial Auto Liability and Physical Damage

Covered Autos Liability (Section II)

The BAP liability agreement pays sums the insured is legally liable to 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 duty to defend, and defense costs (attorney fees, court costs, post-judgment interest) are paid in addition to the limit — they do not erode it. Once the applicable limit is exhausted by judgments or settlements, the duty to defend ends.

The form contains supplementary payments similar to the CGL: it pays up to $2,000 for bail bonds, the cost of bonds to release attachments, reasonable expenses the insured incurs at the insurer's request, and up to $250 a day for lost earnings while assisting the defense. It also adds out-of-state coverage extensions that automatically raise the limit to meet a higher compulsory limit in another state where a covered auto travels.

Commercial auto liability is most often written with a single Combined Single Limit (CSL) — one dollar amount applies to all BI and PD per accident. A CSL of $1,000,000 means up to $1M responds regardless of how the claim splits between injury and property, eliminating the per-person and per-accident sublimits that can trap an insured under split limits.

Exclusions to Know

Section II contains exclusions the exam loves to test. Liability does NOT apply to: expected or intended injury; obligations under workers compensation or similar laws; bodily injury to an employee of the insured (the employers liability / fellow-employee exclusion — that belongs in WC); and property damage to property owned, rented, or in the insured's care, custody, or control.

It also excludes pollution from a covered auto (subject to a narrow restoration via the Pollution Liability – Broadened endorsement), liability assumed under contract except for an insured contract, and use of a covered auto while it is being prepared for, used in, or practicing for racing.

The care-custody-control exclusion is why a business that parks customers' cars needs garagekeepers, and the employee-injury exclusion is why auto liability never doubles as workers compensation.

Split Limits vs. Combined Single Limit

Some insureds carry split limits, expressed as three numbers (e.g., 100/300/50):

Worked Example – CSL Advantage

A covered truck causes an accident injuring one person ($250,000) and destroying property ($120,000). Under 100/300/50 split limits: BI pays the $100,000 per-person cap (not $250,000) and PD pays the $50,000 cap — total $150,000 paid, leaving $220,000 uninsured. Under a $1,000,000 CSL: the full $370,000 is paid because one pool covers both. This flexibility is why most commercial fleets buy CSL.

The lesson is that split limits create THREE separate caps that can each leave a gap, while a CSL exposes the full limit to any combination of BI and PD. On the exam, when split limits are given, always test each claimant against the per-person cap first, then test the total injuries against the per-accident cap, then test property damage against its own cap — paying the lesser at each step.

Physical Damage (Section III)

Physical damage covers loss to the covered auto itself in three perils:

• Comprehensive — all causes EXCEPT collision/overturn (fire, theft, glass, animals, vandalism, flood).
• Specified Causes of Loss — a narrower named-peril option (fire, lightning, theft, windstorm, flood, mischief) for older vehicles; cheaper than comprehensive.
• Collision — impact with another object or overturn.

Losses are settled at Actual Cash Value (ACV) or cost to repair/replace, whichever is less, minus the deductible. ACV is replacement cost minus depreciation — the depreciated market value of the vehicle at the time of loss, not its original price. The BAP also includes glass repair without a deductible if the insured chooses repair over replacement, plus a transportation expenses extension (typically $20/day up to $600) after a covered theft of the entire auto, and towing for private passenger autos.

Worked ACV Example

A delivery van with a $200 comprehensive and $1,000 collision deductible is in a collision. Repair estimate $14,000; ACV $11,000. The insurer pays the lesser — ACV $11,000 — minus the $1,000 collision deductible = $10,000 paid as a total loss. Note the comprehensive deductible is irrelevant here because the peril was collision; the deductible that applies is the one tied to the peril causing the loss.

Commercial Auto Liability Coverage

The BACF liability insuring agreement pays sums the insured becomes legally obligated to pay as damages for bodily injury or property damage caused by an accident and resulting from ownership, maintenance, or use of a covered auto, and it provides a defense. Insureds include the named insured for any covered auto and anyone using a covered auto the insured owns, hires, or borrows with permission (with exceptions for the owner of a hired/borrowed auto and certain employees using their own vehicles). Like the CGL, defense costs are paid in addition to the limit.

Physical Damage: Comprehensive, Specified Causes, and Collision

Physical damage mirrors the PAP's structure with commercial labels. Comprehensive covers any direct loss except collision and overturn (theft, fire, flood, glass, vandalism, animal strikes). Specified Causes of Loss is a cheaper named-peril alternative (fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, vehicle sinking). Collision covers loss from impact with another object or overturn. Each is written per the covered-auto symbol and is subject to a deductible. Glass breakage can be handled under comprehensive without a deductible if the insured elects.

Towing, Limits, and Loss Settlement

The BACF can add towing and labor for light vehicles and pays physical damage losses at the lesser of actual cash value or cost to repair/replace, less the deductible, never exceeding the limit. Liability is usually written as a combined single limit per accident covering both bodily injury and property damage, simplifying multi-claimant allocation. Recognizing that defense is outside the limit, while physical-damage payment is capped at ACV less deductible, lets candidates resolve mixed liability-and-damage fact patterns.