Commercial Auto Physical Damage Coverage

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Image courtesy of [Paul Thompson] / Getty Images.

While most states require vehicle owners to purchase auto liability coverage, auto physical damage coverage is optional. Still, many businesses elect to buy this coverage.

When you buy physical damage coverage you can elect to cover all vehicles you own or a subset of those vehicles, such as private passenger autos only. You can also elect physical damage coverage for hired autos. The covered auto designation symbols shown in the declarations indicate the types of autos that are covered for physical damage.

Should you buy physical damage coverage? The answer depends on the age, value and condition of your vehicles as well as the cost of physical damage insurance. Your agent or broker can help you decide if physical damage coverage is worthwhile for you.

Coverage Options

A commercial auto policy provides three options for physical damage coverage: Comprehensive, Specified Causes of Loss and Collision.

  • Comprehensive Coverage Covers loss to a covered auto from any cause other than a vehicle's collision with another object or the vehicle's overturn. Comprehensive Coverage is designed to dovetail with Collision Coverage. Most losses that aren't covered under Collision will be covered under Comprehensive. An example is a vehicle theft.
  • Specified Causes of Loss Covers named perils such as fire, lightning, explosion and theft.  This coverage is available for commercial autos (trucks and trailers) only, not private passenger type autos. It is a cheaper alternative to Comprehensive Coverage.
  • Collision Coverage Covers loss to a covered auto caused by the vehicle's collision with another object or the vehicle's overturn. The "object" with which an auto collides may be another vehicle or a stationary object such as a tree.

Falling Objects and Glass Breakage

Losses caused by flying missiles or falling objects are covered by Comprehensive Coverage.

Also covered are glass breakage and losses caused by a collision with a bird or animal. Here are  examples of losses that would be covered by Comprehensive Coverage:

  • A rock rolls off a hill and falls onto your pickup, which is parked nearby. The impact causes a large dent on the hood of your truck.  
  • A heavy pine cone falls onto the windshield of a private passenger vehicle you own, cracking the glass.
  • You are driving a company truck when a deer runs out in front of you. You slam on your brakes but are unable to avoid colliding with the deer. The impact damages the front of your truck.

If a vehicle of yours collides with another object (other than an animal) and glass breakage occurs, the glass breakage may be covered under Collision Coverage rather than Comprehensive Coverage. For example, suppose that an employee of yours is driving a company truck during a heavy rainstorm. The vehicle skids on wet pavement and runs into a tree. The truck's windshield is smashed and its right front fender is damaged.

Because a collision loss has occurred, you may choose to cover the broken windshield under Collision coverage. Both the windshield and the fender damage will be subject to one (Collision) deductible.

If you elected to cover the glass breakage under Comprehensive Coverage, two deductibles would apply. The glass breakage would be subject to your Comprehensive deductible while the fender damage would be subject to your Collision deductible.

Towing and Labor

Most commercial auto policies provide a small amount of coverage for towing and labor. This coverage applies to private passenger type autos only. The limit (typically $50 or $75) should be listed in the declarations.

Transportation Expenses and Loss of Use

Physical damage coverage includes two coverage extensions, Transportation Expenses and Loss of Use Expenses. To learn more about Loss of Use coverage please refer to this discussion of hired autos.

Exclusions

Physical damage coverage does not apply to a loss caused by any of the following:

  • War and related perils
  • Racing or stunting activities
  • Diminution in value
  • Wear and tear, freezing, mechanical or electrical breakdown.
  • Blowouts and other tire damage

The last two groups of perils (wear and tear, blowouts etc.) are excluded because they are considered maintenance issues. These exclusions do not apply to a covered auto that has been stolen.

Electronic Equipment

Modern vehicles contain a wide variety of electronic equipment. Some types of equipment are used to operate the vehicle. An example is an automatic braking system. Other equipment is used for navigation or entertainment purposes. Some types of gadgets (like radar detectors) are not covered.

Limits and Deductibles

With a few exceptions, physical damage coverage is not subject to a limit. Instead, your insurer will pay the lesser of the following:

  • the actual cash value of the damaged vehicle or equipment; or
  • the cost to repair or replace it.

If the cost to repair your vehicle exceeds its actual cash value, your insurer will likely declare the vehicle a total loss.

Each physical damage coverage is subject to a separate deductible. For instance, you may choose Comprehensive Coverage with a $500 deductible and Collision Coverage with a $1,000 deductible. You can reduce your physical damage premiums by increasing your deductibles.

A loss payment made by your insurer may include your deductible (your deductible may already have been subtracted). Alternatively, the insurer may calculate your loss payment without the deductible  and then send you a bill for the deductible amount.