Study guide
5.2 Part A: Liability Coverage
Property & Casualty Insurance Exam
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1 Introduction
0.1 About the Property & Casualty Exam 0.2 How to Use This Course
2 Chapter 1: Insurance Fundamentals
1.1 Risk and Risk Management 1.2 Types of Risk 1.3 Principles of Insurance 1.4 The Insurance Contract 1.5 Policy Structure and Components
3 Chapter 2: Property Insurance Concepts
2.1 Property Coverage Basics 2.2 Perils, Hazards, and Exclusions 2.3 Valuation Methods 2.4 Coinsurance and Insurance to Value 2.5 Deductibles and Policy Limits
4 Chapter 3: Dwelling Policies
3.1 Dwelling Policy Overview 3.2 Dwelling Policy Forms (DP-1, DP-2, DP-3) 3.3 Dwelling Property Coverages 3.4 Dwelling Exclusions and Conditions
5 Chapter 4: Homeowners Policies
4.1 Homeowners Policy Overview 4.2 Homeowners Policy Forms (HO-2 through HO-8) 4.3 Section I: Property Coverages 4.4 Section II: Liability Coverages 4.5 Homeowners Exclusions 4.6 Homeowners Conditions 4.7 Common Homeowners Endorsements
6 Chapter 5: Personal Auto Policy
5.1 Personal Auto Policy Overview 5.2 Part A: Liability Coverage 5.3 Part B: Medical Payments Coverage 5.4 Part C: Uninsured/Underinsured Motorists 5.5 Part D: Physical Damage Coverage 5.6 PAP Exclusions 5.7 No-Fault Insurance and PIP
7 Chapter 6: Liability Insurance Concepts
6.1 Liability Insurance Basics 6.2 Negligence and Tort Law 6.3 Types of Legal Liability 6.4 Personal Umbrella Policies
8 Chapter 7: Commercial Property Insurance
7.1 Commercial Package Policy (CPP) 7.2 Building and Personal Property Coverage Form 7.3 Causes of Loss Forms 7.4 Business Income Coverage 7.5 Businessowners Policy (BOP)
9 Chapter 8: Commercial General Liability
8.1 CGL Policy Overview 8.2 Coverage A: Bodily Injury and Property Damage 8.3 Coverage B: Personal and Advertising Injury 8.4 Coverage C: Medical Payments 8.5 CGL Exclusions 8.6 CGL Limits and Conditions
10 Chapter 9: Commercial Auto Insurance
9.1 Business Auto Policy Overview 9.2 Covered Auto Designation Symbols 9.3 BAP Liability Coverage 9.4 BAP Physical Damage Coverage 9.5 Garage and Truckers Coverage Forms
11 Chapter 10: Workers Compensation
10.1 Workers Compensation Overview 10.2 Part One: Workers Compensation Insurance 10.3 Part Two: Employers Liability 10.4 Workers Compensation Exclusions 10.5 Other States and USL&H Coverage
12 Chapter 11: Other Commercial Lines
11.1 Inland Marine Insurance 11.2 Ocean Marine Insurance 11.3 Commercial Crime Insurance 11.4 Surety Bonds 11.5 National Flood Insurance Program 11.6 Professional Liability Insurance 11.7 Commercial Umbrella and Excess Liability 11.8 Boatowners and Personal Watercraft Insurance 11.9 Farm and Ranch Insurance 11.10 Mobile Home and Manufactured Housing Insurance 11.11 Title Insurance
13 Chapter 12: Insurance Regulations and Ethics
12.1 Producer Licensing 12.2 Producer Authority and Responsibilities 12.3 Unfair Trade Practices 12.4 Claims Settlement Practices 12.5 State Insurance Department 12.6 Penalties and Disciplinary Actions
5.2 Part A: Liability Coverage
Key Takeaways Explain This Topic AI
Part A provides third-party coverage for bodily injury (BI) and property damage (PD) the insured is legally liable for, and includes the insurer's duty to defend
Limits are written as split limits (e.g., 100/300/100) or as a Combined Single Limit (CSL); the split format is per-person BI / per-accident BI / per-accident PD
Supplementary payments — defense costs, up to $250 bail bonds, post-judgment interest, and up to $200/day for lost earnings to attend trial — are paid IN ADDITION to the limit
The duty to defend ends once the insurer pays the limit of liability through a settlement or judgment
State minimum limits are low and vary widely (Florida is among the lowest, Alaska's 50/100/25 is the highest minimum), and minimums are usually inadequate for serious claims
Last updated: June 2026
What Part A Covers
Part A — Liability Coverage is the heart of the PAP and the coverage states make mandatory. It is third-party coverage: it pays others when an insured is legally liable for an auto accident. Two damage categories apply:
- Coverage Pays for
- Bodily Injury (BI) Others' medical bills, lost wages, pain and suffering, and death claims
- Property Damage (PD) Damage to others' property — vehicles, buildings, fences, light poles
Part A combines both into a single insuring agreement and adds the insurer's duty to defend the insured against covered suits.
- How Limits Are Written
- Split Limits
The classic format is three numbers — BI per person / BI per accident / PD per accident . Read 100/300/100 as:
- $100,000 maximum BI to any one person
- $300,000 maximum BI for all persons in one accident
- $100,000 maximum PD in one accident
Worked example. You cause an accident, are at fault, and four people are injured. Limits are 100/300/100 .
- Claimant Proven BI Part A pays Uncovered gap
- Person 1 $150,000 $100,000 (per-person cap) $50,000
- Person 2 $80,000 $80,000 $0
- Person 3 $90,000 $90,000 $0
- Person 4 $50,000 $30,000 (only $30K of the $300K remains) $20,000
- Total BI $370,000 $300,000 $70,000
No one person can collect more than $100,000, and all BI together is capped at $300,000. PD has its own separate $100,000 limit and is not reduced by BI payments.
Combined Single Limit (CSL)
A CSL — say $500,000 — is one pool covering any mix of BI and PD with no per-person sub-limit. With a $500,000 CSL, a single badly injured claimant could collect the full $500,000.
- Feature Split Limits CSL
- Written as 100/300/100 $500,000
- Per-person BI cap Yes No
- Separate PD pot Yes No
- Flexibility Lower Higher
- Supplementary Payments — Paid in Addition
Part A also pays certain costs on top of the limit of liability:
- Supplementary payment Detail
- Defense costs Attorney fees, expert witnesses, court costs
- Bail bonds Up to $250 per bond from a covered accident
- Appeal/attachment bonds Premium for bonds (insurer need not apply for them)
- Post-judgment interest Interest accruing after a judgment
- Lost earnings to attend trial Up to $200 per day at the insurer's request
- Other reasonable expenses Incurred at the insurer's request
Defense example: limit $100,000; settlement $100,000; defense costs $30,000 — the insurer pays $130,000 total because defense is supplementary.
Duty to Defend
The insurer has the duty to defend any suit seeking covered damages — even a groundless or fraudulent suit — and may settle a claim as it sees fit. Crucially, the duty to defend ends when the insurer has paid the limit of liability through a settlement or judgment. After that, the insured pays his own defense.
State Minimum Limits
- State Minimum BI/BI/PD Note
- California 30/60/15 (effective 2025) Recently raised from 15/30/5
- Florida 10/20/10* *PD plus PIP; among the lowest
- Texas 30/60/25 The familiar "30/60/25"
- New York 25/50/10 Moderate
- Alaska 50/100/25 Highest minimum
Exam point: state minimums are a floor, not a recommendation. A single severe-injury claim can exceed $100,000, so producers should counsel limits well above the minimum.
Part A Exclusions (Highlights)
Part A does not cover intentional injury, damage to property the insured owns or is in the insured's care, bodily injury to an employee (workers' compensation responds), vehicles used as a public or livery conveyance (with a share-the-expense carpool exception), regular business use of non-covered vehicles, racing on a track, and vehicles with fewer than four wheels.
Who Is an Insured Under Part A
Part A's definition of insured is broader than many candidates expect. It includes "you" and any family member for the ownership, maintenance, or use of any auto or trailer ; any person using your covered auto with permission; any person or organization legally responsible for acts of an insured while using your covered auto (vicarious liability); and any person or organization legally responsible for the named insured's or a family member's use of a non-owned vehicle (other than the owner of that vehicle).
This is why an employer can be an additional insured when an employee uses the insured's covered auto on company business — and why the policy must coordinate carefully with commercial coverage.
How Part A Pays a Third Party
Part A does not pay the insured directly; it pays the injured third party (or defends and indemnifies the insured against that party's claim). A typical claim sequence: the third party demands damages, the insurer investigates, accepts the duty to defend, negotiates a settlement within the limit, and pays the claimant. If the case proceeds to trial and a verdict exceeds the limit, the insurer pays its limit and any covered supplementary payments, and the insured is personally exposed for the excess — a powerful argument for buying higher limits or a personal umbrella policy.
Out-of-State Coverage and Financial Responsibility
The PAP contains an out-of-state coverage provision: when an insured drives into a state that requires higher liability limits or a compulsory coverage the insured did not buy (such as no-fault PIP), the policy automatically adjusts to provide at least the minimum required by that state . This keeps the insured legal while traveling and is a tested nuance — the policy effectively reads in the other state's compulsory minimums so the insured is never short on the road.
Limit Selection in Practice
- Insured profile Reasonable Part A limit Rationale
- New driver, minimal assets State minimum to 50/100/50 Affordability while building a record
- Typical household, some assets 100/300/100 Common "100/300" baseline
- Higher net worth 250/500/100 + umbrella Protects assets from large judgments
Practical note: liability limits should reflect the assets a judgment could reach, not the value of the car. A driver with a paid-off old vehicle but a home and savings still needs substantial Part A limits, because Part A protects net worth, not the auto.