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Reading Your Car Insurance Policy

Personal Auto Policy - Liability Section

Go to the beginning of this tutorial
How To Read Your Car Insurance Policy.

Follow along with
The example form being discussed below


The Liability section of the policy describes your coverages for Bodily Injury Liability and Property Damage Liability. What does Liability coverage do for you? If you injure people or damage their property in an auto accident, the damage will be paid for out of your Bodily Injury Liability and Property Damage Liability, respectively

Insuring Agreement

Section A describes in general terms what the insurance company will pay for. Included is injury to persons or their property as a result of an accident that you are legally responsible for. Also included over and above your stated policy limits are the legal costs incurred by attornies provided by the insurance company to defend you from lawsuits resulting from said accidents (Given the fact that legal defense costs can run into the many thousands of dollars, this is a significant benefit over and above your stated policy limits). Once a judgment or settlement is reached, the company will pay only up to the limits of your policy. Furthermore they will only perform these services or pay out these amounts if the claim against you is covered by your insurance policy.

Section B defines who is considered to be an insured when it comes to paying out Liability coverage claims. Insureds include - in Definition 1 - you and any family member (remember on the Definitions page we saw that ''you'' includes your spouse, and there are specific qualifications for someone to be considered a covered ''family member''), as well as anyone using your covered auto (Definition 2). Definition 3 is rather complex and best explained via an example: If you lend your car to a neighbor to go to a car show, and she causes an accident, your neighbor the driver is covered via Definition 2. The car show promoter is covered via Definition 3 should they be named in a lawsuit related to the accident. Definition 4 is similar to 3, but covers you in case you borrow a car not covered under your insurance policy, use that car to visit some event or other and you cause an accident. If a third party (the promoter of the event you are attending) is brought into the resulting lawsuit, they have coverage under your policy so long as they aren't the ones who own the car you were driving.

Simple, right?

Supplementary Payments

In Section A above, we were told how much the company would pay for different types of Liability claims against you. However there are a few other additional benefits to you that are listed in this section. These include

  1. Up to $250 in bail bond costs, provided the accident is covered under your policy.
  2. Payment on appeal bonds or bonds to release attachments
  3. Interest on any judgment against you that the company is defending you against, up to the point where they offer to pay the share of the loss that is required of them under the terms of the policy.
  4. Up to $200 per day for loss of earnings if you are required to attend hearings or trials at the company's request.
  5. "Other reasonable expenses" to an unspecified amount incurred at the company's request (keep careful records of your expenses!).

The payment of any of the above to you does not count against or reduce the Liability limits on your policy. These are additional expenses borne entirely by the insurance company.

Exclusions

A car insurance policy is what is known as an ''Open Peril'' policy, meaning everything that can happen to you is covered except what is on a very specific list of uncovered exclusions. That exclusion list is below (note this list covers only the Liability section, and each major coverage has its own list of exclusions).

  1. You are not covered for Bodily Injury or Property Damage Liability if you cause the accident or loss on purpose.
  2. You have no Property Damage coverage for your own property or for your own property that is being transported by you (insurance is to pay for damage you do to others, not for damage you cause to yourself. Also, property coverage is what homeowner's insurance is for. This exclusion prevents you from paying twice for the same coverage in two different policies).
  3. You have no Property Damage coverage for property rented to you, used by you or in your care. However this does not apply to a damaged residence or private garage. An example of this would be as follows: You are renting a home and you bump into your own garage door. As a home owner you would look to your homeowner's policy for coverage. But if you are a renter, coverage from your auto insurance policy should apply.
  4. You are not covered for Bodily Injury Liability if one of your employees is injured while working for you (thats what Workers Comp insurance is for). However if the injured employee is a domestic employee (i.e. a maid or nanny) then there is coverage unless workers' compensation benefits are required or available for that domestic employee.
  5. You are not covered for Bodily Injury or Property Damage Liability if your car is used as a ''public or livery conveyance'' ... translation: a taxi, bus or limo service. Cab drivers and the like represent much higher risk and there are special, commercial policies meant to take on that sort of risk. A car pool where for example everyone chips in for gas is exempt from this exclusion.
  6. You are not covered for Bodily Injury or Property Damage Liability while you are employed in the business of selling, servicing, repairing, storing or parking cars, trucks, vans, buses etc. This includes road testing and delivery.
    Examples:
    If you are a car salesperson and you are injured while on the job, your personal auto policy provides no coverage. Thats a job for your employer's workers compensation policy. The same goes if you are a mechanic: If injured on the job that risk is covered by workers compensation. If you are a valet parking attendant, same deal: Thats what workers comp is for. Just because you work with cars doesn't mean you have coverage on your ''personal'' auto policy. If on the other hand you are any of the above and are driving your covered auto on your lunch break to a burger joint, thats where your personal auto policy kicks in.
  7. You are not covered for Bodily Injury or Property Damage Liability while you are driving a vehicle in any business pursuit other than farming or ranching. Some lines of work require you to drive a vehicle that is inherently more hazardous than others. A fuel tanker or a garbage truck for example. However if your business requires the use of a regular private passenger car or van (with or without a trailer) this exclusion does not apply. This means someone like a traveling salesperson is not required to get a special commercial policy (although they must disclose their use of the vehicle on the insurance application if asked, and likely will pay a higher rate).
  8. there is no coverage if someone uses a car without a reasonable belief that they are entitled to do so. Translation: Stolen cars are not covered by insurance. If one of your ''family members'' uses a car owned by you then this exclusion doesn't apply.
  9. If you are an insured under a Nuclear Energy Liability policy, or your Nuclear Energy Liability policy has paid out all of its limits and you are thus no longer insured, your auto insurance is not available to fall back upon.
  10. There are additional exclusions based on the type of vehicle you own. Anything with fewer than four wheels is excluded. The idea being no motorcycles should be included on an auto insurance policy, and require a special policy designed for them. Similarly, if your vehicle is an off-roader (i.e. sand rails, dedicated dune buggies or dirt bikes) it too is excluded. Such vehicles require dedicated policies designed for their unique use profile. With that said, trailers and golf carts aren't excluded, and if you are operating one of these prohibited vehicles during a medical emergency, the exclusion doesn't apply.

NEXT: Part B - Medical Payments Coverage

IMPORTANT
We are describing an example car insurance policy. We are not describing YOUR insurance policy. If you want specific details on your insurance policy, read it completely and, if you have questions about what you see, consult your insurance agent.

Matt Robertson's small picture
Article by
Matt is the Managing Partner at Leland-West Insurance Brokers, Inc. He started with the firm while still a college student, way back in 1984. According to Matt his only remaining hobby is Motorsport ... because its all he can afford ("will work for tires"). Reach him at matt@lelandwest.com