The single, most compelling question, you will ask in an auto accident: How much will my auto insurance company ante up if I am involved in an accident? How about if your car is involved in an accident? Or you are driving someone else’s car? Or someone is driving your car without permission?
This section of the fault-based auto policy we are evaluating tells you what the company will pay for when the accident is at least to some degree your fault and under what circumstances. This is divided into personal injury and property damages. Before going into the policy agreement for liability coverage, though, there are some additional important terms to know and understand. (See “Understanding Your Fault-Based Auto Insurance Policy: Policy Definitions” for definitions that apply to the entire policy.)
Definitions used in this part only
These are definitions that apply only to the liability section of the fault-based policy. Most of them seem like common words but they are not necessarily self-explanatory when it comes to your auto policy.
Insured person or persons:
- you or a relative;
- any person using your insured car;
- any other person or organization with respect only to legal liability for acts or omissions of:
- any person covered under this Part while using your insured car, or,
- you or any relative covered under this Part while using any car or utility trailer other than your insured car or if the car or utility trailer is not owned or hired by that person or organization.
Agreement
The agreement is the section of your fault-based policy that tells you in very general terms, what the insurance company will pay for and in what situations. The agreement has many requirements, limitations and exclusions, so make sure you read all of the information. This is the agreement in our sample fault-based policy for liability coverage:
We will pay damages, other than punitive or exemplary damages, for which any insured person is legally liable because of bodily injury or property damage arising out of the ownership, maintenance or use of a car or utility trailer.
We will defend any suit, through an attorney of our choice, which alleges such bodily injury or property damage and seeking damages which are payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent: but we may make such investigation and settlement of any claim or suit as we deem appropriate.
We have no duty to defend or indemnify any insured person in any criminal proceeding |
Now, the liability agreement in English.
Fist paragraph: The first paragraph in the box above says that if, as a result of using, maintaining, or even just owning your car or utility trailer, you are responsible for causing property damage to someone else’s property or bodily injury to
another person, the insurance company will pay for those damages. The company will not
pay if the other party sues you for punitive or exemplary damages, i.e., those damages awarded in a lawsuit as a punishment and example to others for malicious, evil or particularly fraudulent acts.
Example A
Suppose you’ve had too much to drink and you run a red light and hit a taxi. The police site you for your third DUI. The taxi driver and passenger are both injured. They both make claims with your insurance company for damages. The taxi driver wants his taxi fixed (property damage). The driver has seen a chiropractor for back injuries (bodily injury). The passenger has cuts and bruises and was seen in the emergency room (bodily injury). Since you were responsible for causing all this damage, your insurance company will pay to make these people “whole” (repair their bodies to pre-accident status) and for the taxi to be fixed. If, because you were DUI, the taxi driver decides to sue you for punitive damages, your insurance company will not pay for that portion of any award.
Example B
What if you lend your car to your neighbor to run an errand and he backs into another car in the parking lot at the supermarket, causing property damage but no injuries? Will your insurer pay? Your insurance company will pay for the property damage because it is your car, even though you weren’t driving it.
Second paragraph: This paragraph is especially valuable because it imposes on your insurance company the duties to defend you. This means that if you are sued over the accident, your insurance company will pay for a lawyer to protect your interests. The one caveat is that your insurer gets to choose the lawyer, not you, and they get to investigate and settle the claim, whether you want them to or not. You do not get to bargain in either instance. That said, the lawyer represents you.
Third paragraph: The third paragraph indicates that if you are accused of a crime, you are out of luck. Your auto insurer will not defend you in criminal court and will not ante up any money to you or on your behalf as a result of that crime. For example, if you have an accident and are cited for felony DUI, your insurance company will not defend you for the DUI in criminal court and will not cover any fines you are obligated to pay. They will only defend you for the damage you caused to people and property in the collision.
Additional Payments
In addition to paying for the damage you or your vehicle caused as a result of an accident, the insurance company will cover some other expenses. The policy wording says:
As respects an insured person, we will pay, in addition to our limit of liability:
(1) all costs we incur in the settlement of any claim or defense of any suit;
(2) interest on damages awarded in any suit we defend accruing after judgment is entered and before we have paid, offered to pay, or deposited in court that portion of the judgment which is not more than our limit of liability;
(3) premiums on appeal bonds and attachment bonds required in any suit we defend. But, we will not pay a premium for attachment bonds that is more than our limit of liability;
(4) up to $250 for the cost of bail bonds required because of an accident, including related traffic law violations. The accident must result in bodily injury or property damage covered under this policy;
(5) loss of earnings up to $50 a day, but not other income, when we ask you to attend trials or hearings;
(6) expenses up to $1,000 incurred by you within the first 24 hours after the accident for immediate medical and surgical services for others necessary at the time of the accident as a result of bodily injury covered by this Part;
(7) any other reasonable expenses incurred at our request. |
Most of the “Additional Payments” language is self-explanatory, but there are a couple of items that need elaboration.
(3) An appeal bond is a bond you file with a court that guarantees payment of a money award Thus, if the court’s judgment goes against you in your auto liability case, you can initiate an appeal of the judgment by forking over an appeal bond, which essentially “stays” the execution of the judgment. An appeal bond guarantees that you will pay the original judgment (sometimes with interest) if your appeal fails or is denied.
An attachment bond is more confusing because it is the opposite of what it sounds like. It actually refers to a bond, which is used to dissolve or sever an attachment placed on property in a court judgment, so as to free up the property for sale.
(6) Expenses up to $1,000 incurred by you within the first 24 hours refers to medical care you paid for out of your own pocket to help a person who suffered bodily injury as a result of the accident.
Exclusions (What is Not Included in Liability Coverage)
Exclusions are what the policy will not cover, even if you are legally liable for it. The following are common exclusions; those that are not self-explanatory are clarified below.
This coverage does not apply to liability for:
(1) bodily injury or property damage arising out of the ownership, maintenance or use of a vehicle when used to carry persons or property for a charge. This exclusion does not apply to shared-expense car pools;
(2) bodily injury or property damage caused intentionally by or at the direction of any insured person;
(3) bodily injury or property damage with respect to which any person is an insured under nuclear energy liability insurance. This exclusion applies even if the limits of that insurance are exhausted.
(4) bodily injury to an employee of an insured person arising in the course of employment. But, coverage does apply to a domestic employee unless benefits are payable or are required to be provided for the domestic employee under a workers’ compensation law or similar law;
(5) bodily injury or property damage arising out of automobile business operations. But, coverage does apply to the ownership, maintenance or use of your insured car in automobile business operations by you, a relative or anyone associated with or employed by you or a relative in the business;
(6) bodily injury or property damage arising out of the ownership, maintenance or use of any vehicle other than your insured car by any person employed or otherwise engaged in a business other than the automobile business;
(7) damage to property owned or being transported by an insured person;
(8) damage to property owned by, rented to, or in the charge of an insured person except a residence or private garage;
(9) bodily injury or property damage arising out of the ownership, maintenance, or use of any motorized vehicle with less than four wheels, unless this policy is specifically endorsed to include such a motor vehicle;
(10)bodily injury or property damage arising out of the ownership, maintenance or use of any vehicle, other than your insured car, which is owned by or furnished or available for regular use by you or anyone living in the same household in which you live, except that this exclusion will not apply to a private passenger car, utility car or utility trailer owned by a relative and insured by us while it is being operated by you.
(11) bodily injury to any insured person or liability for bodily injury to any insured person whenever the ultimate benefits of that indemnification accrue directly or indirectly to any insured person.
(12) The use of any motor vehicle while operated in any race or speed contest;
(13) Liability assumed under any contract or agreement.
| Clarifications
The number in parentheses corresponds to that numbered statement in the box above.
(1) If you are running a taxi service or an airport shuttle, for example, and charging people for your driving services, you will not be covered under your auto policy if you have an accident and you cause bodily injury or property damage. You might be covered if you have a separate business vehicle policy, but this personal auto policy won’t cover you. A personal auto policy will not cover you if you are running a business operation and receiving money.
(5) Automobile business operations is defined by the policy as the business or occupation of selling, repairing, servicing, delivering, testing, road-testing, parking, or storing motor vehicles (see definitions above). For example, if you are parking a customer’s car that you were repairing in your auto body shop, and cause damage to it or to another vehicle, or injury to a person, this policy will not cover you for the damage. If, however, you were driving your own insured car at your repair shop and caused an accident, then you are covered.
(6) This one seems complicated but is actually simple. Someone who is employed by you or connected to your business (that is not an automobile business operation) and who is driving a car that is not your insured vehicle, is not covered. For instance, if you own a clothing store (which is obviously not an automobile business) and your sales employee drives his own vehicle to run an errand for you and has an accident, your liability insurance will not cover the damage he caused.
(8) Unless it is the insured person’s own residence or private garage that is damaged, damage to other property owned or rented or in the charge of an insured person is not covered under the liability section of the policy. For example, should you lend your car to your daughter, and she drives through the garage door of the rental property you own a few blocks from your residence, that damage would not be covered here. You’d have to look to your homeowner’s insurance and possibly other liability insurance your daughter might have.
(10) This one basically means that your liability insurance does not cover damages for bodily injury to insured persons under the policy. In other words, if you are injured in an accident, you cannot have your medical bills paid under the liability section of your policy. You would have to look for coverage under the Medical Payments section. Or, you may recover from your own private health insurance provider.
Limits of Liability
The limits of liability refer to the dollar amounts up to which you are covered. These limits appear on the Declarations sheet that accompanies your policy. That is the page that lists all of your coverages, what the limits are, the deductibles, any discounts you qualify for and how much your premium is for each coverage listed.
The limits of liability shown in the Declarations apply subject to the following:
(1) the bodily injury liability limit for “each person” is the maximum limit of our liability for all damages, including consequential damages sustained by other persons, including but not limited to loss of services, loss of consortium, wrongful death, and emotional distress, which result from bodily injury sustained by one person in any one occurrence;
(2) subject to the bodily injury liability limit for “each person,” the bodily injury liability limit for “each occurrence” is the maximum for bodily injury sustained by two or more persons in any one occurrence;
(3) the property damage liability limit for “each occurrence” is the maximum for all damages to all property in any one occurrence.
We will pay no more than these maximums regardless of the number of vehicles described in the Declarations, insured persons, claims, claimants or policies, or vehicles involved in the occurrence. Any amount payable under this coverage to or for an injured person will be reduced by any payment made to that person under the Uninsured Motorists Coverage of this policy. |
Clarifications
What the limits of liability section in the fault-based auto insurance policy is telling you is that there are no circumstances under which the company will pay out more than those dollar amounts specified in the Declarations per individual or per accident, no matter how many people are injured and no matter how much property is damaged. In other words, the maximum is the maximum.
Example
Suppose you “roll” through a stop sign and hit another vehicle in the intersection, badly damaging the other car and injuring the driver and his two passengers. Your policy limits for liability are 25/50/10 on your declarations sheet, which means that you have $25,000 coverage for one injured person, $50,000 coverage for all injured persons, and $10,000 coverage for damage to all property. The driver and the two passengers’ medical and other expenses plus general damages (pain and suffering) total well over $50,000. The car you hit was totaled and the value is determined to be $14,000. Do you have enough insurance to cover everyone and everything? No! The insurance company will pay up to the maximum limits--$50K for the injuries, and $10K for property damage. You could be on the hook for the rest. The moral of the story is, carry as much insurance as you can afford.
The last line in the box above is talking about Uninsured Motorist coverage (or UM coverage). Here is a scenario where this might come into play. Let’s say you are driving your car and you come to a sudden stop for no reason in the middle of the road, perhaps to consult a map. Then you are rear ended by another vehicle and that driver and car carry no insurance. Your passenger, George, is injured. The other driver is at fault for hitting you, but you may bear some of the responsibility for stopping in the middle of the road for no reason. What is George to do about his medical expenses? The Uninsured Motorist coverage on your policy (which is covered in another article in this series) will pay up to the limits you carry for that coverage. The rest may be covered, in part, by your liability insurance, since you were at least partially at fault for causing the accident. Anything paid out under the liability coverage, however, will be reduced by what was paid under the uninsured motorist coverage. Note that George will also be able to use the medical payments coverage on your policy to pay some of his medical bills.
Overlapping Liability Insurance Policies
The last section in the liability coverage portion of the fault-based auto policy talks about what happens if there is other insurance available that applies to the loss. Here is the wording of the Other Insurance section:
| If there is other applicable auto liability insurance on a loss covered by this Part, we will pay our proportionate share as our limits of liability bear to the total of all applicable liability limits. Any insurance afforded under this Part for a vehicle you do not own, however, is excess over any other collectible auto liability insurance. |
Clarification/Examples
If you have a second automobile insurance policy that covers the same vehicle, this first policy will pay a portion, but not the entire amount to cover the loss.
Let’s say, for example, that you have a policy that covers your car, and your spouse has a separate policy that covers her car and lists yours, as well. If your limit of liability for property damage is $15,000 and hers is $10,000 and the property damage you caused is $10,000, your insurance will not pay the whole amount, but will pay the proportionate amount (percentage) of your limit of liability to the entire limit from both policies together. Your limit for property damage is $15,000 plus the limits on your spouse’s policy, $10,000, totaling $25,000. The proportion, then, is $15K (yours) over $25K (yours and your wife’s) or 60%. Your policy will cover 60% of the damages, or $6,000. Your spouse’s policy will be expected to cover the other 40%, or $4,000. Don’t worry about the math—your insurance company will know how to figure it out.
The second sentence in the box above sounds confusing because why would your insurance cover anything for a car you don’t own? Imagine, however, that you borrow your friend’s car and you have an accident and it’s your fault. Your friend’s liability insurance will cover the damages up to his policy limits, but if the damages are in excess of those limits, your policy will kick in (“is excess over”) and cover the rest up to your policy limits.
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