Study guide
Casualty insurance pays on behalf of the insured when the insured is legally responsible for injury or damage to others, and it also covers certain first-party exposures like damage to your own car. This chapter covers the personal auto policy in detail, then builds out to commercial auto, the commercial general liability policy, workers compensation, and the specialty lines the exam samples from.
Personal Auto Liability: BI, PD, and Limit Structures
Part A of the personal auto policy is liability coverage. It pays damages for bodily injury and property damage for which an insured becomes legally responsible because of an auto accident, and it obligates the insurer to defend the insured, with defense costs paid in addition to the policy limits until the limits are exhausted by judgment or settlement. Bodily injury includes medical costs, lost income, and pain and suffering owed to others; property damage covers harm to others' vehicles and property, not the insured's own car. Every state imposes financial responsibility or compulsory liability requirements, but the minimum limits vary by state, so the exam tests structure rather than specific numbers. Split limits express coverage as three figures, such as 50/100/25: 50,000 dollars per person for bodily injury, 100,000 dollars per accident for bodily injury, and 25,000 dollars per accident for property damage. A combined single limit provides one amount, say 300,000 dollars, available for any combination of bodily injury and property damage in a single accident, which offers more flexibility when one badly injured claimant would exceed a per-person split limit. Work an example: Alicia, carrying 50/100/25, injures two pedestrians who are awarded 60,000 dollars and 30,000 dollars. The first recovery is capped at 50,000 dollars by the per-person limit; the second is paid in full; the total of 80,000 dollars sits under the 100,000 per-accident cap. Liability coverage also includes supplementary payments, such as bail bond premiums up to a small limit and reasonable expenses incurred at the insurer's request.
UM/UIM, Medical Payments, and Physical Damage Coverage
Uninsured motorist coverage, Part C, pays the insured's own bodily injury damages when the at-fault driver has no liability insurance or is a hit-and-run driver; underinsured motorist coverage responds when the at-fault driver's limits are too low to cover the insured's damages. Whether UM and UIM are mandatory, whether property damage is included, and how limits stack varies significantly by state; in most states insurers must at least offer UM coverage, and in many the insured may reject it in writing. Medical payments coverage, Part B, pays reasonable medical and funeral expenses for the insured and passengers injured in an auto accident, regardless of fault, up to a modest per-person limit; some states substitute or supplement this with personal injury protection under no-fault laws, which can add lost wages and essential services benefits. Part D, coverage for damage to your auto, is the physical damage section. Collision covers the upset of the covered auto or its impact with another vehicle or object, such as hitting a guardrail or another car. Other-than-collision coverage, commonly called comprehensive, covers almost everything else: fire, theft, vandalism, glass breakage, hail, flood, falling objects, and contact with a bird or animal. Striking a deer is other-than-collision; swerving to avoid the deer and hitting a tree is collision. Physical damage losses are settled at actual cash value or the cost to repair, whichever is less, subject to the deductible, and the coverage also applies to a non-owned auto the insured is using, such as a rental, subject to policy terms.
Who Is an Insured, Covered Autos, and Business Auto Basics
The personal auto policy defines its cast carefully. For liability coverage, an insured includes the named insured and resident family members for the ownership, maintenance, or use of any auto; any person using the named insured's covered auto with permission; and persons or organizations vicariously liable for a covered person's use. A covered auto includes vehicles listed on the declarations, a newly acquired auto reported within the time the policy allows, a trailer owned by the insured, and a temporary substitute vehicle used while a covered auto is out of service for repair. Personal auto policies exclude vehicles used to carry persons or property for a fee, an exclusion that matters for delivery and ride-sharing; many insurers offer transportation network endorsements, and treatment of ride-share gaps varies by state and insurer. Business exposures need the business auto coverage form. Its key device is the numbered covered auto symbols entered on the declarations, which define scope: symbol 1 grants the broadest coverage, any auto; other symbols narrow coverage to owned autos only, specifically described autos, hired autos, or non-owned autos such as employees' cars used on company business. A contractor like Ferris Plumbing might carry symbol 1 for liability, so the firm is protected whatever vehicle is involved, and narrower symbols for physical damage on owned trucks. The business auto form covers the named insured broadly and permissive users of covered autos, and it can be included as a coverage part in a commercial package policy.
Commercial General Liability: Coverages A, B, and C
The commercial general liability policy, the CGL, protects businesses against third-party claims. Coverage A pays damages because of bodily injury or property damage caused by an occurrence, defined as an accident, including continuous or repeated exposure to substantially the same harmful conditions. It embraces two major exposures: premises and operations, injuries arising from the insured's location or ongoing work, such as a customer slipping in a store aisle; and products and completed operations, injuries occurring away from the premises after a product is sold or work is finished, such as a cabinet installed by Reyes Millwork collapsing weeks later. Coverage B addresses personal and advertising injury, offense-based claims like libel, slander, false arrest, wrongful eviction, and copyright infringement in an advertisement. Coverage C, medical payments, pays medical expenses of third parties injured on the premises or from operations regardless of fault, a goodwill coverage with modest limits. The CGL carries a per-occurrence limit plus two aggregates: a general aggregate for most claims and a separate products-completed operations aggregate. The trigger matters greatly. An occurrence form covers injury that happens during the policy period, no matter when the claim is filed. A claims-made form covers claims first made during the policy period, generally for injury after a retroactive date; when a claims-made policy ends, an extended reporting period, or tail, can be purchased to capture claims filed later for injuries that occurred while coverage was in force. Claims-made forms are common where injuries surface slowly, such as pollution or professional exposures.
Workers Compensation, Crime and Bonds, Professional Liability, and Umbrellas
Workers compensation is a statutory, no-fault system: employers provide benefits for occupational injury and disease regardless of negligence, and in exchange the benefits are generally the employee's exclusive remedy against the employer. Benefit categories include medical expenses, typically unlimited; disability income, usually a percentage of the worker's average weekly wage subject to state maximums; rehabilitation; and death benefits for dependents. Benefit levels, covered employments, and whether coverage is compulsory for small employers are all set by state law, so the exam tests concepts, not dollar amounts. The standard policy pairs Part One, workers compensation, which pays whatever the state statute requires, with Part Two, employers liability, which covers employee suits that fall outside the statutory system, such as third-party-over actions. Commercial crime insurance covers first-party losses from employee theft, forgery, robbery, burglary, and computer fraud. Fidelity bonds specifically cover employee dishonesty. Surety bonds are different: a three-party agreement in which the surety guarantees to the obligee that the principal will perform an obligation, such as a contractor completing a project; if the surety pays, it seeks reimbursement from the principal, so a bond is closer to credit than insurance. Professional liability, or errors and omissions, covers financial injury from negligent professional acts, and its medical cousin is malpractice coverage; these are frequently written claims-made. Finally, umbrella and excess liability policies sit above underlying auto, CGL, and employers liability limits, providing high additional limits and, in the case of true umbrellas, sometimes broader coverage subject to a self-insured retention for claims the underlying policies do not cover.
Key terms
- Split limits
- — Auto liability limits expressed as three amounts: bodily injury per person, bodily injury per accident, and property damage per accident.
- Uninsured motorist (UM) coverage
- — Coverage paying the insured's bodily injury damages caused by a driver with no liability insurance or by a hit-and-run driver; mandatory status varies by state.
- Underinsured motorist (UIM) coverage
- — Coverage that responds when the at-fault driver's liability limits are insufficient to pay the insured's damages.
- Collision coverage
- — Physical damage coverage for a covered auto's impact with another vehicle or object, or its upset, settled at actual cash value less the deductible.
- Other-than-collision (comprehensive)
- — Physical damage coverage for perils such as fire, theft, vandalism, hail, flood, glass breakage, and contact with animals.
- Temporary substitute auto
- — A vehicle used with permission while a covered auto is out of service due to breakdown, repair, servicing, loss, or destruction.
- Occurrence
- — An accident, including continuous or repeated exposure to substantially the same harmful conditions, that triggers CGL Coverage A.
- Claims-made form
- — A liability form covering claims first made during the policy period, generally for injury occurring after the retroactive date; a tail extends the reporting window.
- Products-completed operations
- — The CGL exposure for injury or damage occurring away from the premises after products are sold or work is completed, subject to its own aggregate limit.
- Employers liability (Part Two)
- — Coverage for employee injury suits not covered by the workers compensation statute, packaged with the standard workers compensation policy.
- Surety bond
- — A three-party guarantee in which the surety promises the obligee that the principal will perform; the surety may recover its payment from the principal.
- Umbrella liability policy
- — A policy providing high limits above underlying liability policies and sometimes broader coverage subject to a self-insured retention.
Exam tips
- Practice split-limit math: cap each injured person first, then check the per-accident bodily injury total, then apply the separate property damage limit.
- Hitting an animal is other-than-collision; swerving to avoid it and hitting anything else is collision. This single distinction appears constantly.
- Map CGL letters to content: A is bodily injury and property damage from an occurrence, B is personal and advertising injury offenses, C is no-fault medical payments to third parties.
- Occurrence forms look at when the injury happened; claims-made forms look at when the claim is first made, bounded by the retroactive date and any extended reporting period.
- For workers compensation, remember it is no-fault and generally the exclusive remedy, with benefit amounts set by each state; do not memorize dollar figures.