12.2 Commercial Auto Liability and Physical Damage

Covered Autos Liability Coverage

Section II promises to pay all sums an insured legally must 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 are paid in addition to the limit of insurance. Liability is normally written as a Combined Single Limit (CSL) — one dollar amount applying to BI and PD combined per accident.

Who is an insured (the omnibus clause):

• The named insured for any covered auto
• Anyone using a covered auto the named insured owns, hires, or borrows, with permission (permissive use)
• Anyone liable for the conduct of an insured, but only to the extent of that liability

Exam trap: Employees are NOT insureds while using their own autos on company business under the basic form. Employee-owned autos require symbol 9 plus the proper coverage; even then the employee is generally not an insured — only the named insured is protected. The Employees as Insureds endorsement (CA 99 33) is added to extend insured status to employees.

Supplementary Payments and Coverage Extensions

In addition to the limit, the form pays supplementary payments: defense costs, up to $2,000 for bail bonds, the cost of bonds to release attachments, reasonable expenses incurred at the insurer's request (including up to $250 per day for lost earnings), and post-judgment interest.

Liability coverage also extends to out-of-state exposures, automatically increasing limits to meet another state's compulsory financial responsibility minimums and adding any required no-fault benefits.

Key liability exclusions to memorize:

• Expected or intended injury
• Contractual liability (except an insured contract)
• Workers compensation / employer's liability / fellow employee
• Care, custody, or control of property
• Pollution from autos (largely excluded; narrow exceptions)
• Handling of property before/after it is on the covered auto

Physical Damage Coverage

Section III provides three physical damage coverages on the autos for which a physical damage symbol is shown:

Glass breakage, hitting a bird/animal, and falling objects may be treated as Comprehensive (not Collision) at the insured's option. The loss settlement basis is Actual Cash Value (ACV) or cost to repair/replace, whichever is less, minus the deductible.

Worked ACV example: A 5-year-old box truck is destroyed. Replacement cost new is $60,000; depreciation is 40%. ACV = $60,000 × (1 − 0.40) = $36,000. With a $1,000 Collision deductible, the insurer pays $36,000 − $1,000 = $35,000.

Towing and the Deductible Application

The form includes towing and labor coverage for private passenger autos only, paid up to the per-disablement limit shown (commonly $50-$75) with no deductible, but only where labor is performed at the place of disablement.

Deductible trap: The physical damage deductible applies per accident, per auto — not per policy. If three covered autos in a fleet are damaged in one storm, a separate Comprehensive deductible applies to each unit. However, if the same auto suffers both a covered Comprehensive and a Collision loss in one accident, only the larger of the two deductibles is applied (the deductible reconciliation provision).

Worked example: A hailstorm damages 4 vans, each with $1,500 in damage and a $500 Comprehensive deductible. The insurer pays ($1,500 − $500) × 4 = $4,000 total; the insured absorbs $500 × 4 = $2,000 in deductibles.

Covered Autos Liability — Who and What

The Business Auto Covered Autos Liability insuring agreement pays sums the insured is legally liable to pay for BI or PD caused by an accident from ownership, maintenance, or use of a covered auto, and provides the duty to defend. An insured under liability includes the named insured for any covered auto and anyone using a covered auto with permission, with exceptions (the owner of a hired/borrowed auto, employees using their own autos except as scheduled, etc.).

The form pays defense in addition to the limit and includes Supplementary Payments (bail up to $2,000 for the BAC form, loss of earnings up to $250/day, bonds, post-judgment interest).

Physical Damage Coverages — The Three Buckets

Physical damage on a commercial auto mirrors personal auto but uses commercial terminology:

• Comprehensive — all direct loss except collision and overturn (fire, theft, glass, flood, vandalism, animal strike).
• Specified Causes of Loss — a named-peril, cheaper alternative to comprehensive: fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief/vandalism, and sinking/colliding/derailment of a transporting conveyance. It does not cover glass breakage or animal strikes unless they accompany a listed peril.
• Collision — upset of, or impact with another object.

Glass, Towing, and the Deductible

A tested mechanic: glass breakage can be covered under comprehensive without applying it to collision, and the insured may elect to have safety-glass repair without a deductible. Each physical-damage coverage carries its own deductible per auto, per loss; comprehensive and collision deductibles are separate. Towing and labor is an add-on for private-passenger-type vehicles. Hired-auto physical damage and loss of use (rental reimbursement) for hired autos are common extensions.

Worked Physical-Damage Loss

A scheduled truck (ACV $40,000) is totaled in a collision; collision deductible $1,000. Recovery = ACV minus deductible = $39,000, capped at the stated amount or ACV, whichever is less. If the same truck were stolen, the loss would route to comprehensive with its own deductible — illustrating why collision and comprehensive carry separate deductibles.