Commercial Auto Liability Insurance covers third-party bodily injury and property damage in an at-fault auto accident.
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Legal expenses, judgements, and settlement costs for automotive accidents can be financially damaging to your business. That’s why a key component of commercial auto insurance is coverage for Commercial Auto Liability. This form of liability insurance can protect your business from the financial impact of a lawsuit after an accident.
What does Commercial Auto Liability Insurance cover?
Commercial Auto Liability Insurance typically covers three types of damages caused by an accident involving a covered vehicle: bodily injury, property damage, and pollution cleanup. This coverage protects your business if you or one of your employees causes injury or damage to another party while driving and are deemed to be at fault for the crash. Most states require a minimum amount of liability insurance for registered vehicles.
Bodily Injury Liability – if you or an employee is at fault for causing an automotive accident in a covered vehicle that results in bodily injury to a third party, your Commercial Auto Liability Insurance will cover the costs of any financial damages, up to your policy limits. Covered costs include:
- Medical expenses
- Legal fees
- Loss of income
- Pain and suffering
- Funeral costs
- An employee at your plumbing company is driving a company van to a customer’s house. While making a right turn, the employee doesn’t see a bicyclist in his blind spot and ends up hitting the bicyclist. The bicyclist is knocked off his bike and suffers a broken arm. Your Commercial Auto Liability Insurance will cover the bicyclist’s medical expenses and any resulting loss of income if his broken arm impacts his job.
Coverage for bodily injury liability generally has different limits that apply to “per person” and “per accident” costs. For example, there might be a policy with a $100,000/$400,000 per person/per accident limit. With these limits, the most the insurance company will pay to each injured person in a crash is $100,000, and the most they will pay for all the people injured in the crash is $400,000.
- You own a construction company that specializes in remodeling old buildings. One of your drivers gets into a serious accident with another car while he is transporting lumber to your work site with a company truck. The driver of the other car is injured, and your employee is found to be at fault. The driver sues your company for medical damages totaling $150,000. Your Commercial Auto Liability Insurance has a bodily injury limit of $100,000/$600,000, which means your insurer will only cover $100,000 worth of bodily injury charges for the other driver.
Property Damage Liability – covers the cost of any lawsuit related to third-party property damage that was caused by you or one of your employees while operating a covered vehicle. Examples of common property damage costs covered by insurance include:
- Replacing or repairing vehicles or auto parts
- Replacing or repairing damage to buildings, mailboxes, fences, etc.
- Legal fees
- Loss of income if the damage you cause interrupts a business
- Moving debris
- You own a home cleaning service, and one of your employees drives a company car to a customer’s house for a scheduled cleaning. As your employee is arriving at the house, a stray cat runs in front of her car. She swerves to avoid the cat and ends up knocking over your customer’s mailbox. Your Commercial Auto Liability Insurance will cover the cost to replace the mailbox.
Coverage for property damage liability generally has a maximum limit your insurance policy will pay for all of the property that received damage in the accident. Along with your bodily injury limits, these split limits are generally stated as maximum bodily injury payment per person/maximum bodily injury payment per accident/maximum total property damage, e.g., $100,000/$500,000/$75,000.
Combined Single Limit (CSL) Liability – this option combines the coverage of bodily injury liability and property damage liability. Combined single limit liability coverage does away with split limits and has just one total maximum payout amount per accident.
- You own a pizza chain that promises hot pizzas delivered to your door in 30 minutes or less, or else your order is free. An employee is out on a delivery and is driving over the speed limit on an icy road. He ends up crashing his car into an occupied office building, causing $100,000 worth of property damage and $300,000 in bodily injury costs. Your insurance policy has a combined single liability limit of $500,000, so your insurer is able to cover the $400,000 total in damages.
The only downside of a policy with a combined single limit liability is that it is generally more expensive. However, the upside is that you are less likely to experience a gap in coverage.
Pollution Cleanup – if you or an employee is at fault for an accident in a covered vehicle that causes bodily injury or property damage, your Commercial Auto Liability Insurance will cover the costs of pollution cleanup due to the accident.
- An employee at your landscaping business finishes work at a client’s home and is about to leave. He gets into the company truck to drive away when he mistakes the accelerator for the brake pedal. He ends up damaging the fence in the client’s front yard, and the gas tank his trunk is punctured, leaking gasoline out onto the driveway and yard. Your Commercial Auto Liability Insurance will cover the cost to have the gasoline cleaned up.
What vehicles are covered by Commercial Auto Liability 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).
Your Commercial Auto Liability Insurance should automatically cover the following types of vehicles:
- Trailers with a load capacity of 2,000 pounds or less designed primarily for travel on public roads
- Mobile equipment while being carried or towed by a covered vehicle
- Any temporary “loaner” vehicle that you might use in place of an insured vehicle that is being repaired, undergoing service, or is otherwise unable to be used.
Most states require that you purchase some minimum amount of liability coverage for a registered vehicle. However, there are variations in coverage requirements between states. If your business takes you to another part of the country that requires a higher limit of insurance, your Commercial Auto Liability Insurance will temporarily award you enough coverage to meet the laws of that state.
- You own a business that sells custom painted pianos in Michigan. You receive an order from Toledo, Ohio for 10 space-themed pianos as part of a schoolwide initiative to improve music education. You will have to transport the pianos by truck to your customers. You have commercial auto insurance with the minimum liability limits required in Michigan ($20,000/$40,000/$10,000). In Ohio, the minimum limits are higher ($25,000/$50,000/$25,000). Your Commercial Auto Liability Insurance will meet the higher limits in Ohio while you are driving in that state.
Commercial Auto Liability Insurance also provides coverage for supplementary payments, which cover the cost the insurer pays to investigate claims and defend lawsuits against the insured. The coverage often includes:
- Insurer’s expenses
- Bail bonds
- Attachment bonds
- Reasonable expenses
- Court costs
- Judgment interest
Though Commercial Auto Liability will cover most instances of bodily injury or property damage, the costly nature of auto accidents means that insurance companies must make a number of notable exclusions. While you may not be able to receive coverage for some of these exceptions through your Commercial Auto Liability Insurance, there are often other avenues for coverage, including through other insurance types like general liability insurance or adding on specific protections via endorsements.
The primary benefit of Commercial Auto Liability Insurance is to protect your business from a potentially devastating lawsuit in the event of an auto accident. If you’re found to be at fault in an accident that causes bodily injury or property damage to a third party, any claims against your business could put your company at risk financially. The majority of states do require some degree of liability insurance for registered vehicles, so it’s important to understand exactly what coverage your commercial auto insurance is meant to provide and why you may need it. If your business relies heavily on company-owned or leased vehicles to do business, make sure you’ve setup the right safeguards to keep you and your employees protected in the event of an accident.