12.2 Commercial Auto Liability and Physical Damage

Covered Autos Liability

Covered Autos Liability is the third-party section. The insurer pays sums the insured legally must pay as damages for bodily injury (BI) or property damage (PD) caused by an accident and arising out of ownership, maintenance, or use of a covered auto. It also pays defense costs and settles claims at its discretion.

Defense is provided in addition to the limit until the applicable limit of insurance has been exhausted by payment of judgments or settlements - a key distinction from liability forms where defense erodes the limit.

Combined Single Limit vs. Split Limits

Most business auto policies carry a combined single limit (CSL): one dollar figure applies to all BI and PD from any one accident.

• CSL example: A $1,000,000 CSL absorbs a $700,000 BI claim plus a $250,000 PD claim in the same accident, totaling $950,000 - all within the single $1,000,000.
• Split limit example: A 100/300/50 policy pays up to $100,000 per person, $300,000 per accident for BI, and $50,000 for PD. If three people suffer $120,000, $90,000, and $80,000 in injuries, the per-person cap reduces them to $100,000, $90,000, and $80,000 = $270,000, which is under the $300,000 per-accident cap, so all $270,000 is paid.

Physical Damage Coverages

First-party physical damage insures the insured's own covered autos. Three perils may be selected, each with its own deductible:

Specified Causes of Loss (SCOL) is a narrower, cheaper alternative to Comprehensive. A firm cannot carry both SCOL and Comprehensive on the same auto - SCOL is for budget-minded insureds who want named-peril protection only.

Worked Loss Settlement

A box truck with an actual cash value (ACV) of $42,000 is destroyed by hail. Collision deductible is $1,000, Comprehensive deductible is $500. Hail is an other than collision peril, so Comprehensive applies.

• ACV $42,000 minus the $500 Comprehensive deductible = $41,500 paid.
• ACV is replacement cost minus depreciation; the BACF settles at the lesser of ACV or the cost to repair, never new-for-old unless an endorsement says so.

Supplementary Payments

Paid above the liability limit, supplementary payments include:

• All defense costs and investigation expense.
• Up to $2,000 for bail bonds required because of an accident.
• Premiums on appeal and release-of-attachment bonds.
• Up to $250 per day for the insured's actual loss of earnings to attend a trial or hearing at the insurer's request.
• Post-judgment interest on the entire judgment.

Common Exam Traps

Other Covered Autos Coverages

Beyond core liability and physical damage, the form can activate first-party coverages, each shown on the declarations only when a limit is entered:

Split-Limit Worked Example

A 250/500/100 policy means $250,000 per person, $500,000 per accident for bodily injury, and $100,000 for property damage. Two pedestrians are hurt - $300,000 and $180,000 - and a parked car suffers $40,000 damage.

• The first injury is capped at the per-person figure: $300,000 reduced to $250,000.
• The second injury, $180,000, is under the per-person cap and paid in full.
• BI subtotal $430,000 is within the $500,000 per-accident cap, so all $430,000 is paid.
• Property damage $40,000 is within the $100,000 PD limit and paid in full.
• Total paid: $470,000.

A single $1,000,000 combined single limit would have absorbed the same loss in one undivided pool with no internal sublimits - the practical reason most commercial buyers prefer a CSL.

Worked Commercial-Auto Loss Settlement

Liability under the Business Auto form pays sums the insured is legally obligated to pay as damages for BI/PD caused by an accident and resulting from ownership, maintenance, or use of a covered auto, plus a duty to defend (defense costs are outside the limit, like the PAP supplementary payments). A single Combined Single Limit (CSL) is typical — e.g., $1,000,000 covering all BI and PD per accident.

Physical damage mirrors the PAP: Comprehensive (OTC), Specified Causes of Loss (a narrower named-peril option: fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, vandalism, vehicle collapse of a bridge — but not ordinary collision), and Collision. The insurer pays the lesser of ACV or repair cost, minus the deductible.

Worked example: a covered truck (ACV $42,000) is damaged; repair estimate $30,000; collision deductible $1,000. Repair < ACV, so the insurer pays repair cost less deductible = $29,000. Had the repair exceeded ACV, it would be a total loss paid at ACV minus deductible.

Coverage Extensions and a Key Trap

The form adds supplementary payments, out-of-state extensions, and limited coverage for newly acquired autos (report within 30 days). Trailers in tow are picked up for liability.

Exam trap — "Specified Causes of Loss" is not Comprehensive. A vehicle damaged when an animal runs into it is covered under Comprehensive but not under Specified Causes of Loss (which lists perils and does not include animal contact). Likewise, rental reimbursement and towing require separate coverage, and mobile equipment that is self-propelled and not subject to registration is excluded from auto and belongs under CGL instead — a classic auto-vs-CGL boundary question.