6.2 Part A Liability and Supplementary Payments

What Part A Covers

Part A - Liability Coverage is the heart of the PAP. It pays damages for bodily injury (BI) and property damage (PD) for which an insured becomes legally responsible because of an auto accident. It also provides a duty to defend the insured against any suit seeking such damages, even if the suit is groundless, false, or fraudulent.

The insuring agreement is broad and open-perils in structure: it covers liability arising out of the ownership, maintenance, or use of any auto or trailer, subject to the exclusions. The defense obligation is in addition to the policy limit — defense costs do not erode the limit of liability.

A critical settlement rule: the insurer's duty to defend ends when the limit of liability has been exhausted by payment of judgments or settlements. Once limits are paid out, the insurer can withdraw.

Split Limits vs. Combined Single Limit

Part A limits are written one of two ways. Exam questions test your ability to read and apply each.

Split Limits

Written as three numbers, e.g. 25/50/25 (in thousands):

Worked example: An insured with 100/300/50 limits causes an accident injuring three people for $150,000, $90,000, and $60,000, plus $70,000 in property damage.

• Person 1: claim $150,000, capped at $100,000 per-person limit.
• Person 2: $90,000, under the $100,000 cap, paid in full.
• Person 3: $60,000, paid in full.
• BI subtotal: $100,000 + $90,000 + $60,000 = $250,000, under the $300,000 per-accident cap, so all paid.
• Property damage: $70,000 capped at $50,000.
• Insurer pays $300,000 total; the insured personally owes the remaining $50,000 BI + $20,000 PD = $70,000.

Combined Single Limit (CSL)

A single dollar amount, e.g. $300,000 CSL, applies to all BI and PD combined per accident with no per-person sublimit. Using the same losses ($300,000 BI + $70,000 PD = $370,000), the insurer pays the full $300,000 and the insured owes $70,000. CSL offers more flexibility because no single claimant is sub-capped.

When reading a split-limit problem, always apply the per-person BI cap first, then test the per-accident BI cap against the sum of the already-capped per-person amounts, and finally apply the separate PD cap. The PD limit never shares dollars with the BI limits. A frequent distractor adds all damages together and applies a single number — that is CSL behavior, not split-limit behavior. Knowing which limit structure the question describes is half the battle.

Supplementary Payments

Part A pays certain costs in addition to the limit of liability. These do not reduce the amount available to claimants:

• All defense costs and attorney fees the insurer incurs.
• Up to $250 per day for loss of earnings (not other income) due to attendance at hearings/trials at the insurer's request.
• Premiums on appeal bonds and bonds to release attachments, and a bail bond up to $250 arising from an accident.
• Interest accruing on a judgment after entry until the insurer pays/tenders its limit.
• Other reasonable expenses incurred at the insurer's request.

Key Part A Exclusions (Traps)

A classic trap: an insured driving a friend's car genuinely believing he had permission is covered; a teen taking a car the family told him not to use is not (no reasonable belief of permission).

The Out-of-State Coverage Provision

Part F contains an out-of-state coverage rule that interacts with Part A limits. If an accident occurs in a state whose compulsory or financial-responsibility law requires higher limits than the policy carries, the PAP automatically increases the limit to meet that state's minimum. It also provides any required no-fault or similar benefit if the policy does not already. This prevents an insured from being underinsured simply by crossing a state line, and examiners test it as an automatic, no-extra-premium expansion.

Defense Inside vs. Outside the Limit

A key PAP feature: the insurer's duty to defend is in addition to the liability limit — defense costs do not erode the limit of liability, unlike many commercial liability forms where defense is inside the limit. The duty to defend ends when the insurer has paid out the applicable limit in settlements or judgments.

Worked Split-Limit Example

A 50/100/25 PAP insured causes an at-fault crash injuring two people ($60,000 and $30,000) and damaging a $20,000 vehicle.

This illustrates why the per-person cap, not the per-accident cap, is what bites first. A CSL of $100,000 would instead let the full $100,000 apply across all injuries and the property claim with no separate per-person sublimit, often producing a better result for a single severe injury.

Tested Liability Exclusions Recap

Intentional injury, liability while using a vehicle as a public/livery conveyance (ride-share without endorsement), business use of vehicles other than private passenger autos, vehicles owned but not on the policy ("owned-but-not-insured"), and racing are excluded — frequent distractor sources.