Commercial Auto Liability Coverage

Traffic traveling through Holland Tunnel
Image courtesy of [Julian Starks] / Getty Images.

If your business uses autos, you need commercial auto liability insurance. This coverage is important because auto accidents can generate large claims against your firm. Such accidents may involve autos your company owns or vehicles it hires from a rental agency. Some accidents may involve vehicles your company uses but that are owned someone else (such as an employee).

Auto liability coverage is included in the standard ISO commercial auto form, which is the basis of most commercial auto policies.

The ISO auto form also includes physical damage coverage.

Insuring Agreements

Commercial auto liability coverage is provided via two separate insuring agreements (the insurer's promise to pay). The first applies to bodily injury and property damage. It covers damages assessed against an insured because of bodily injury or property damage caused by an accident. To be covered, the accident must result from the ownership, maintenance or use of a covered auto.

The second insuring agreement affords coverage for the cost of cleaning up pollutants. It covers pollution cleanup costs an insured is obligated to pay if the costs result from an auto accident. Again, the accident must result from the ownership, maintenance or use of a covered auto. Pollution cleanup costs are covered only if they result from an accident that also causes bodily injury or property damage that is covered by the policy. That is, if an auto accident results in pollution cleanup costs but does not cause bodily injury or property damage, the cleanup costs will not be covered.

Requirements for Coverage

For an auto liability claim to be covered, two requirements must be satisfied. First, the claim must be filed against an insured. That is, the person or company that is the subject of the claim or suit must qualify as an insured under the policy.

Secondly, the vehicle that caused the accident must be a covered auto.

Decisions you make when you buy a policy determine which autos are covered autos. For instance, you can choose to insure any autos (including owned, hired and non-owned autos) or just those your company owns. You can elect coverage for private passenger type autos only, commercial vehicles only, or both.

The types of autos that qualify as covered autos are indicated by numeric symbols listed in the policy declarations. These symbols are called covered auto designation symbols. A numeric symbol should appear in the declarations next each type of coverage you have purchased. For instance, the number "2" may appear next to liability coverage. This means that you have chosen to insure only autos your company owns.

Vehicles Covered Automatically

If you have purchased auto liability coverage, your coverage is automatically extended to include the types of vehicles described below. These vehicles are covered regardless of the symbol that appears next to liability coverage in the declarations.

  • Small Trailers Trailers designed for travel on public roads if they have a load capacity of 2000 pounds or less, whether you own the trailers or not
  • Mobile Equipment in Transit Mobile equipment while being towed or carried by a covered auto. An example is a forklift being transported to a job site on a truck you own that is insured for liability under your auto policy.
  • Temporary Substitutes A vehicle you borrow as a substitute for a covered auto that is temporarily unusable because it has been damaged, has broken down or is undergoing service or repair.

Defense Costs

If you or another insured is sued by a third party for injury or damage sustained in an auto accident, your insurer should pay the costs of defending you. These costs will not reduce your liability limit. The types of costs that are covered are outlined in a section called Supplementary Payments. These costs are very similar to those covered by the Supplementary Payments section of a general liability policy.

Out-of-State Extensions

What happens if you travel to a state that has different insurance requirements than your home state? Your auto policy will automatically extend your liability coverage to comply with local laws.

Most states have enacted compulsory insurance laws. These laws require vehicle owners to buy a minimum amount of auto liability insurance. Other states do not mandate the purchase of insurance. Instead, vehicle owners must demonstrate at the time of an accident that they have a specified amount of money available to pay damages.

The amount of insurance (or financial responsibility) that is required varies from state to state. If you purchased your state's minimum required limit and then travel to a state that has a higher minimum, your policy will provide the higher limit for the duration of your travel. This provision does not apply if you are a motor carrier.

The automatic extension also applies if you travel to a state with a no-fault lawor that mandates the purchase of uninsured and underinsured motorist coverage. Your policy will provide the minimum amount of coverage required by the state in which you are traveling.

Exclusions

Auto liability coverage is subject to a number of exclusions. Auto liability exclusions are explained in a separate article.