What Does Liability Coverage Pay For?
Liability = When YOU Are At Fault
This coverage protects you when your car is involved in an accident and YOU are legally responsible for hurting someone or damaging their property.
The Policy Will Pay For:
1. Bodily Injury & Property Damage
Pays for injuries to others and damage to their property due to an accident for which you are legally responsible.
Example: You run a red light and hit another car. You pay for their medical bills and car repairs.
2. Defense Costs
Pays for your legal defense as long as the policy covers the particular loss.
Important: Defense costs are paid IN ADDITION to the policy limits!
Defense Costs Example:
Key Point:
Defense costs do NOT reduce your policy limit. Even if they spend your full $100K on the claim, they STILL pay another $30K for legal defense on top.
3. Settlement Costs
Costs for settling or defending you as the insurer deems appropriate.
These costs END when the limits of insurance are exhausted.
Who Is an Insured Under Part A?
Key Concept:
Any person qualifies as an insured while using a covered auto, as defined in Part A - Liability Coverage. Click each category to see detailed examples!
Supplementary Payments
Bonus Coverage!
These are paid IN ADDITION to your liability limit. They don't reduce your coverage.
Bail Bonds
Cost of bail bonds required because of a covered loss
Appeal Bonds & Release Attachments
Premiums on appeal bonds and bonds to release attachments in covered suits
Interest on Judgment
Interest that accrues after the judgment has been entered
Lost Earnings
For assisting in legal proceedings (attending hearings, trials)
Other Reasonable Expenses
Other reasonable expenses incurred at the request of the insurer
Liability Exclusions - What's NOT Covered
Know These for the Exam!
The liability coverage will NOT pay for these situations. Click each one to see examples!
Ownership, Maintenance, or Use Exclusions:
These vehicle types are NOT covered under your PAP:
Motorcycles, scooters need separate policies
ATVs, dirt bikes, dune buggies
Vehicles you own but didn't add to policy
Unless you're the named insured maintaining it
Any racing facility or driver training
Vehicles designed for flight
Limits of Liability - Split vs Combined
Split Limit Coverage
Uses 3 dollar amounts, always expressed in this order:
1st Number: BI Per Person
Max for bodily injury for EACH person
2nd Number: BI Per Accident
Max for ALL bodily injuries in one accident
3rd Number: PD Per Accident
Max for property damage per accident
Example: 25/50/25
- $25,000 BI per person
- $50,000 BI per accident (all people)
- $25,000 property damage per accident
Combined Single Limit (CSL)
Uses 1 dollar amount for everything:
One Number Covers It All
Maximum coverage for ALL losses - regardless of number of people or amount of property damage
Example: $100,000 CSL
$100,000 total available for all BI and PD combined in one accident
Financial Responsibility
When the policy is used to satisfy any financial responsibility requirements, the policy will comply with the law to the extent required.
Out-of-State Coverage
What Happens If You Have an Accident in Another State?
If your covered auto is involved in an accident in any state or Canadian province OTHER than where your car is principally garaged:
If the Other State Has Higher Limits:
Your policy will provide the higher limits required by that state's financial responsibility law.
If the State Requires Certain Coverage for Non-Residents:
Your policy will provide at least the required minimum amounts and types of coverage.
No Duplicate Payments
No one is entitled to duplicate payments for the same loss.
Key Point:
Your limits don't change when you travel state to state. BUT if you have an accident, the limits adjust UP to meet the minimum limits of the state where the accident occurred (if those are higher).
Other Insurance Clause
If Other Insurance Exists:
If there is other insurance available to pay for a covered loss, the insurer will only pay its share of the loss.
The insurer's share = the proportion that its limit bears to the total of all available limits.
For Nonowned Vehicles:
The insurance will be considered EXCESS over any other collectible insurance.
Example: You borrow a friend's car. Their insurance pays first; your insurance only kicks in if their limits are exhausted.
Exam Trap Alerts
Split limits order: Always BI per person / BI per accident / PD. Never changes!
$250 bail bonds, $200/day lost earnings: Memorize these supplementary payment limits.
Defense costs: Paid IN ADDITION to policy limits (they don't reduce your coverage).
Rideshare exclusion: Uber/Lyft drivers are NOT covered while logged in - even without passengers!
Nonowned vehicle: Your insurance is EXCESS (pays after the car owner's insurance).
Carpool exception: Using car for carpool is NOT excluded (only commercial livery is excluded).