7.3 Part A – Liability Coverage

Insuring Agreement

Under Part A – Liability Coverage of the Personal Auto Policy, the insurer agrees to pay damages for bodily injury or property damage for which an insured becomes legally responsible because of an auto accident. These damages may also include prejudgment interest awarded against the insured. The insurer also has the right and duty to settle or defend any covered claim or suit seeking those damages. Defense costs paid by the insurer are paid in addition to the policy's liability limits, meaning they do not reduce the amount of liability coverage available for covered damages.

The insurer's duty to settle or defend a claim is not unlimited. Under Part A – Liability Coverage, the duty to settle or defend ends once the Part A limit of liability has been exhausted by payment of damages to the injured party. The insurer is also not required to defend or settle any claim or suit that is not covered under the policy. This means defense coverage applies only when the claim falls within the terms of the Personal Auto Policy.

Part A Insureds

Under Part A – Liability Coverage, the Personal Auto Policy defines who qualifies as an insured for liability purposes. This definition is important because Part A coverage applies only when the person or organization seeking coverage qualifies as an insured under the policy. An insured under Part A includes:

• The named insured or any family member for the ownership, maintenance, or use of any auto or trailer. This may include family members who are not licensed drivers.
• Any person using your covered auto with permission. This means a permissive user may qualify as an insured while operating a covered auto.
• Any person or organization legally responsible for an insured's acts or omissions involving your covered auto, but only when the legal responsibility arises from conduct that is covered under Part A.
• Any person or organization legally responsible for the acts or omissions of the named insured or a family member involving an auto or trailer that is not your covered auto, but only if that person or organization does not own or hire the auto or trailer.

Supplementary Payments

When the insurer provides a defense for a covered claim under Part A – Liability Coverage, the policy also provides certain supplementary payments. These payments are made in addition to the limit of liability, meaning they do not reduce the amount available to pay covered damages. Supplementary payments include:

• Up to $250 for the cost of bail bonds required because of a covered accident, including bail bonds related to traffic law violations arising out of the accident
• Premiums on appeal bonds
• Interest that accrues after a judgment is entered in any suit defended by the insurer
• Up to $200 per day for the insured's loss of earnings because the insured is required to attend trials or hearings at the insurer's request
• Other reasonable expenses incurred by the insured at the insurer's request

Part A Exclusions

Many exclusions found throughout the Personal Auto Policy are designed to keep coverage within the policy's intended purpose. The PAP is meant to insure the personal use of eligible vehicles, not every possible auto-related exposure. As a result, exclusions help clarify when coverage does not apply, especially when a vehicle is used for business, racing, public or livery transportation, or other activities that require different or more specialized insurance.

Part A – Liability Coverage contains several exclusions that limit when the Personal Auto Policy will respond to a liability claim. These exclusions help keep coverage focused on the personal use of eligible autos.

Liability coverage is not provided for:

• Intentional injury or damage caused by any insured. The policy does not cover an insured who intentionally causes bodily injury or property damage.
• Property owned or being transported by an insured. The policy does not cover damage to property that belongs to an insured or is being transported by an insured.
• Property rented to, used by, or in the care of an insured. This exclusion applies to property in the insured's care, custody, or control. However, an exception applies for damage to a residence or private garage.
• Bodily injury to an employee of an insured when the injury occurs during the course of employment by that insured. However, a domestic employee may be covered if Workers' Compensation coverage is not required or available.
• Liability arising out of the use of a vehicle as a public or livery conveyance. A public conveyance provides transportation services to the general public, while a livery conveyance transports people or property for a fee. Examples include taxi services and driving for a ride-sharing app.
  • This exclusion does not apply to a share-the-expense car pool, where the occupants share reasonable operating expenses, such as gas.
• Liability involving the auto business. Coverage is excluded for an insured who is employed or engaged in the business of selling, repairing, servicing, storing, road testing, or parking motor vehicles designed mainly for use on public roads.
  • An exception applies when the vehicle is being used by the named insured, the named insured's spouse, a family member, or a partner or employee of one of these individuals.

Example

M's spouse, R, is a mechanic. While test driving M's car, R causes an accident. Because R is M's spouse, the exception to the auto business exclusion applies, and coverage may be provided under M's Personal Auto Policy.

However, assume R's coworker test drives M's car and causes an accident. In that situation, coverage is excluded under M's policy. The coworker is acting in the auto business as a bailee, so coverage should be provided by the auto business's commercial insurance rather than by M's Personal Auto Policy.

Liability coverage is also excluded for the following exposures:

• Business use of a vehicle, other than farming or ranching. Coverage does not apply to liability arising out of the use of a vehicle while the insured is employed or engaged in a business.
  • This exclusion is intended to prevent the Personal Auto Policy from covering commercial auto exposures. However, coverage is given back for the use of private passenger autos, pickups, vans, and owned trailers used with those vehicles.
• Use of a vehicle without a reasonable belief of entitlement. Coverage does not apply when an insured uses a vehicle without a reasonable belief that they are entitled to do so.
  • However, family members are considered to have a reasonable belief of entitlement when using your covered auto.
• Liability covered by a nuclear energy liability policy. The Personal Auto Policy does not provide liability coverage for bodily injury or property damage that is covered under a nuclear energy liability policy.

Liability coverage is also excluded for the ownership, maintenance, or use of certain vehicles that fall outside the intended scope of the Personal Auto Policy. Coverage is not provided for:

• Vehicles with fewer than 4 wheels, such as motorcycles, or vehicles designed mainly for use off public roads, such as ATVs or farm tractors
  • This exclusion does not apply when the vehicle is being used in a medical emergency. It also does not apply to trailers or to non-owned golf carts.
• Vehicles owned by the named insured but not insured under the policy
• Non-owned vehicles furnished or available for the regular use of the named insured or a family member, such as a company car regularly provided for personal or work use
• Vehicles located inside a racing facility for the purpose of competing in, practicing for, or preparing for a race or speed contest

Limit of Liability

The Part A – Liability Coverage limit of liability may be selected by the insured, subject to the minimum requirements established by state law. Each state sets minimum auto liability limits that must be carried for the insured to be considered financially responsible. The Part A liability limit may be written as either split limits or a combined single limit. When liability coverage is written with split limits, the coverage is divided into three separate limits:

• A per person limit for bodily injury
• A per accident limit for bodily injury
• A per accident limit for property damage

The bodily injury limits include damages for the injured person's cost of care, loss of services, and death resulting from the accident.

Insurance in Action

The Nelsons' Personal Auto Policy is written with split liability limits of 50/100/25. This means the policy provides up to $50,000 per person for bodily injury, up to $100,000 per accident for all bodily injury claims combined, and up to $25,000 per accident for property damage.

One evening, while driving home from dinner, the Nelsons hit a patch of ice while turning a corner. Their vehicle collides with another car and also damages a fence. Four people in the other car are injured, and each person has $30,000 in bodily injury damages. The other car has $20,000 in property damage, and replacing the fence costs $10,000.

Each injured person's damages are below the $50,000 per person bodily injury limit. However, the total bodily injury damages equal $120,000, which exceeds the $100,000 per accident bodily injury limit. As a result, the insurer will pay only $100,000 for bodily injury, leaving $20,000 unpaid under the policy.

The total property damage equals $30,000: $20,000 for the other car and $10,000 for the fence. Because the policy's property damage limit is $25,000 per accident, the insurer will pay only $25,000 for property damage.

Any defense costs the insurer incurs in defending the Nelsons are paid in addition to the liability limits and do not reduce the amount available for covered damages.

When liability coverage is written as a combined single limit, one total limit applies to each accident. This limit is the maximum amount the insurer will pay for all covered damages arising out of that accident, regardless of whether the damages involve bodily injury, property damage, or both. Unlike split limits, a combined single limit does not separate coverage into individual bodily injury and property damage limits. Instead, the full limit is available to respond to any covered combination of bodily injury and property damage claims, subject to the policy terms.

Example

An insured has a Personal Auto Policy with a combined single limit of $60,000. The insured causes an accident that results in $30,000 of bodily injury damages to one person, $20,000 of bodily injury damages to another person, and $10,000 of property damage to the other vehicle.

The total damages equal $60,000. Because the policy is written with a combined single limit, the entire $60,000 limit may be used to pay any combination of covered bodily injury and property damage arising out of the accident.

Unlike split limits, the combined single limit is not subject to a separate per person bodily injury limit.

The limit of liability shown in the Declarations is the maximum amount the insurer will pay for a covered accident. This limit does not increase because multiple people, vehicles, or claims are involved. The stated limit is the most the policy will pay regardless of the number of:

• Insureds seeking coverage
• Claims made as a result of the accident
• Vehicles or premiums shown in the Declarations
• Vehicles involved in the accident

If a loss qualifies for coverage under more than one part of the Personal Auto Policy, the insurer will not make duplicate payments for the same loss. This condition prevents the insured from receiving more than the actual amount payable simply because more than one policy part may apply.

Out of State Coverage

Each state establishes its own minimum liability insurance requirements for Personal Auto Policies written in that state. Because these requirements vary, one state may require higher liability limits than another. To address this difference, Part A – Liability Coverage includes an out-of-state coverage provision. When a covered auto is being used outside the state where it is principally garaged, the policy will automatically adjust to meet certain legal requirements of the state where the auto is being operated. If that state's compulsory insurance law or financial responsibility law requires a higher liability limit than the one shown in the Declarations, the policy's limit of liability will automatically increase to meet that required minimum. This increase applies without an additional premium while the covered auto is being used in that state.

The out-of-state coverage provision also applies to other auto coverages required by the state where the covered auto is being used. This means the policy may automatically provide certain required coverages, even if those coverages are not required in the state where the vehicle is normally garaged. For example, some states require Personal Injury Protection (PIP) coverage, also known as no-fault insurance. PIP helps pay certain medical and related expenses after an auto accident, including expenses incurred by the insured, without first requiring proof that another party was negligent. Not every state requires or offers PIP coverage. However, if a covered auto is being driven in a state that requires PIP, the Personal Auto Policy will automatically provide that coverage at the minimum limits required by that state.

Financial Responsibility

When the Personal Auto Policy is certified as future proof of financial responsibility, the policy will conform to the applicable financial responsibility law to the extent required. This means the policy will provide the coverage necessary to satisfy the legal requirements associated with the certification, but only to the extent required by that law.

Other Insurance

If other liability insurance also applies to the insured auto, the insurer will pay its share on a pro rata basis. Pro rata means the insurer pays only the proportion of the loss that its policy limit bears to the total limits of all applicable insurance. In other words, each applicable policy contributes according to its share of the total available coverage.

Example

Assume two policies apply to the same property damage liability loss. Insurer A provides a $90,000 property damage liability limit, and Insurer B provides a $30,000 property damage liability limit.

Together, the applicable limits total $120,000. Insurer A's share is $90,000 of the $120,000 total, or 75%. Insurer B's share is $30,000 of the $120,000 total, or 25%.

Therefore, Insurer A is responsible for 75% of the covered property damage loss, and Insurer B is responsible for 25%.

If Insurer A's coverage applies but is not collectible for any reason, Insurer B does not become responsible for Insurer A's share. Insurer B remains responsible only for its 25% pro rata share of the loss.

Any liability coverage the Personal Auto Policy provides for a vehicle the insured does not own applies as excess coverage. This includes coverage for a non-owned vehicle used as a temporary substitute for a covered auto. Excess coverage means that any other insurance applying to the non-owned vehicle pays first. The insured's Personal Auto Policy responds only after the other applicable insurance has been used, subject to the policy's terms and limits.