If you rely on a company-owned or leased car, truck, or other vehicle for business purposes, commercial auto insurance is an important coverage to consider. Though the biggest potential financial losses in an auto accident usually come from third-party bodily injury and property damage lawsuits, damage to your own vehicles can still cost you tens of thousands of dollars. If you are a small business owner with limited capital, a large auto repair bill or, in the worst case, a totaled car, can be a tough pill to swallow.

The property component of commercial auto insurance, also known as Physical Damage Coverage, protects the value of your covered vehicles. If you hit another car, have your vehicle stolen, or a tree falls on your truck, Commercial Auto Physical Damage Coverage can ensure that you are protected from the costs it will take to repair or replace your vehicle.

What does Commercial Auto Physical Damage Insurance cover?

Commercial Auto Physical Damage Insurance covers the cost to repair or replace your vehicle in the event that it is damaged or stolen. Physical Damage Coverage comes in three forms:

Collision Coverage

Collision coverage pays for physical and mechanical damage to your vehicle when it hits or is hit by an object or another vehicle, or when the vehicle is overturned. Collisions can occur between other cars or stationary objects like walls, trees, poles, and more.

Examples:

• You are driving the company van to a client’s home. On the way there, a stray cat runs in front of your van. You swerve to avoid the cat and end up crashing the van into a light pole. Your collision coverage will pay for the costs to repair the van.
• Your employee takes the company truck out to the job site. On the way, he gets into a fender bender with another car on the highway. Your collision coverage will pay for the costs to repair the company truck.

Comprehensive Coverage

Comprehensive coverage pays for any losses to your covered vehicles that are not covered by collision coverage. Common causes of loss include:

• Theft
• Vandalism
• Flooding
• Fire
• Windstorm
• Hail
• Hitting a bird or animal
• Falling objects or missiles
• Glass breakage*

*Glass breakage may also be covered under collision coverage if the breakage occurs due to a collision or overturn.

Examples:

• During a heavy storm, a tree branch falls onto one of your company trucks, causing damage to the hood. Your comprehensive coverage will pay for the costs to repair the hood.
• Your company sedan is stolen from the parking lot. After a few weeks, the police find your car at the bottom of a nearby ravine. The car is a total loss. Your comprehensive coverage will pay for the value of your vehicle before it was stolen.

Specified Causes of Loss Coverage

Specified causes of loss coverage is a more limited version of comprehensive coverage. This coverage specifies the risks covered, rather than offering broad, all-risks coverage, and it is also generally less expensive, given the narrower scope of coverage. Causes of loss that are covered include:

• Fire, lightning, or explosion
• Windstorm, hail, or earthquake
• Flood
• Mischief or vandalism
• The sinking, burning, collision, or derailment of any vehicle transporting the covered vehicle

How do insurance companies calculate your vehicle’s value?

Before you receive an insurance payout, your insurer will estimate the true value of your car before the accident or loss incident. To do so, insurers consider your vehicle’s Actual Cash Value (ACV), which takes the original cost of the vehicle and factors in depreciation over time and the physical condition of your vehicle. Insurers won’t pay for damages exceeding the ACV. If the cost to repair your vehicle is more than the value of your car prior to the loss, your insurer will only pay up to the ACV.

When considering Commercial Auto Physical Damage Insurance, it’s important to keep in mind the ACV of your vehicles. Since all vehicles lose value over time, it may not make financial sense to purchase coverage for older vehicles.

Example:

• An employee of yours is out on delivery in a heavy snowstorm and gets into a five-car pile-up. The company truck suffers heavy damage, and the estimate to repair it comes in at $20,000. The value of the vehicle prior to the accident is only $7,000, so your insurer only compensates you for the $7,000.

What vehicles are covered by Commercial Auto Physical Damage Insurance?

Depending on your policy, you may choose to purchase coverage for all of the vehicles you own or only certain types. Additionally, you have the option of specifying coverage for owned, hired, or non-owned vehicles. “Hired” means vehicles that you lease, hire, rent, or borrow, and “non-owned” means vehicles that you do not own, lease, hire, rent, or borrow (e.g., an employee’s personal car).

What are the key exclusions of Commercial Auto Physical Damage Insurance?

Though many forms of damage are covered through Commercial Auto Physical Damage Insurance, there are a number of exclusions you should be aware of. Excluded causes of loss include:

• War or military action
• Nuclear hazard
• Racing, demolition contest, or stunting activity
• Wear and tear, freezing, mechanical or electrical breakdown
• Blowouts, punctures, or other road damage to tires
• Diminution in value

Also generally excluded from Physical Damage coverage are:

• Tapes, records, discs or other similar audio, visual, or data electronic devices
• Speed-measuring equipment, like radar detectors, or jamming equipment, like laser jammers
• Electronic equipment that reproduces, receives, or transmits audio, visual, or data signals

Final Word

Commercial auto insurance is an important consideration for any business that regularly relies on company-owned or leased vehicles. The Physical Damage portion of commercial auto insurance helps to safeguard the value of your vehicles and ensure that you can continue to keep your business running if anything should happen to your covered vehicles. If you hit another vehicle, if your vehicle is damaged in a wildfire, or if your vehicle is simply stolen, Commercial Auto Physical Damage Insurance can provide the financial protection you need to keep your business running.