Understanding Your Car Insurance Liability Coverage

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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Regardless of what type of auto insurance policy you have, your plan will contain language about what your coverage is when you are liable for damage to another person or vehicle. Liability insurance coverage limits vary across different types of auto insurance policies, so when shopping for car insurance, it is important that you understand what the plan says about covering your liability after an accident.

TIP: You can choose an insurance plan that provides you with greater liability protection, but will pay more for increased coverage. Before purchasing a plan, compare your car insurance quotes and select the amount of coverage that you are comfortable with at a price you can afford.

Liability Agreement In Your Car Insurance Policy

Your car insurance policy will detail the situations where the insurance company will either pay for damages you cause or defend you in a lawsuit. Although the liability car insurance details differ across types of auto insurance coverage, you can expect your agreement to go over some common points:

  • Your car insurance company will pay damages owed if, by way of your vehicle, you are responsible for causing property damage to property or bodily injury to another person unless you were engaged in malicious, evil or particularly fraudulent acts.
  • In the event you are sued over the accident, your insurance company will pay for a lawyer to protect your interests. If you have your insurance company defend you, your insurer gets to choose the lawyer. Consequently, they get to investigate and settle the claim if they deem appropriate, whether you want them to or not.
  • Your auto insurer will not defend you in criminal court and will not pay for damages you cause while engaged in criminal conduct.

Maximum Dollar Amounts Covered by Your Car Accident Insurance Policy

The limits of liability refer to the dollar amounts up to which you are covered. These limits appear on the declarations page that accompanies your policy, and it is important that you understand the extent to which you are covered. Typically, liability limits are associated across three categories:

  • Maximum injury damage per injured person
  • Maximum damage for all injured persons combined
  • Maximum damage to all property involved in the accident.

If you choose a policy that pays up to $25,000 per injured person, $50,000 for the total number of injured persons combined (meaning you are fully protected for up to 2 people), and $10,000 for all property damage then your Declarations Page will reflect this coverage as 25/50/10. Your policy limits are a hard cap; the insurance company will not pay above the amount your policy indicates. Increase them if you feel that you need to!

TIP: Your state will require you to carry minimum liability coverage. Know what this minimum is, and increase your coverage as you desire.

Additional Liability Payments Covered by Your Car Insurance Policy

The insurance company will also cover some other expenses that are incidental to paying damages or defending you in a lawsuit. Different types of auto insurance policies will cover different costs, but generally your policy will include coverage for the following:

  • Costs incurred in the settlement or arbitration of claims
  • Interest on any award accumulated before the insurance company pays the damages
  • Premium payments on an appeal bond or attachment bond. An appeal bond is a bond you file with a court that guarantees payment of a money award even though you appeal the judgment. If the court’s judgment goes against you in your auto liability case, you can initiate an appeal of the judgment by paying an appeal bond, which essentially stays the execution of the judgment. An appeal bond guarantees that you will pay the original judgment (sometimes with interest) if your appeal fails or is denied. An attachment bond is more confusing because it is the opposite of what it sounds like. It actually refers to a bond, which is used to dissolve or sever an attachment placed on property in a court judgment, so as to free up the property for sale.
  • A small amount of money for bail if the accident was the result of a minor traffic law violation for which you were arrested, and a small daily stipend for any days you miss work due to trial or other legal proceedings.
  • Expenses up to $1,000 incurred by you within the first 24 hours such as medical care you paid for out of your own pocket to help a person who suffered bodily injury as a result of the accident.

Exclusions to Your Liability Coverage

Exclusions are what the policy will not cover, even if you are legally liable for it. A typical car insurance policy will exclude the following from its liability coverage:

  • Bodily injury or property damage caused by ownership, maintenance, or use of a vehicle transporting people for a charge
  • Bodily injury or property damage caused intentionally
  • Bodily injury to one of your employees incurred during the course of employment that are covered by worker’s compensation.
  • Bodily injury or property damage arising at an automobile business (mechanic, dealership, etc), unless your use of your own car causes the accident. So, if you move or use a customer’s car and cause damage, you are not covered.
  • Bodily injury or property damage caused by someone who is employed by you or connected to your business (that is not an automobile business operation) and who, in the course of doing work for you, causes an accident in a car that is not your insured vehicle.
  • Bodily injury or property damage caused by a vehicle with less than four wheels
  • Damage to property owned, rented, or transported by you, except a residence or a private garage.
  • Bodily injuries to you or someone else named in the policy
  • Bodily injury or damage caused during a race or speed competition.

TIP: Your car insurance company can, and will, refuse to pay for damages you are liable for if the details of the accident fit under one of the exclusions. You need to be aware of the exclusions to your coverage and avoid the circumstances that will cause them to apply, or get additional car liability insurance.

Overlapping Liability Insurance Policies

The last section in the liability coverage goes over a situation where there is other insurance available that applies to the loss. If you have a second automobile insurance policy that covers the same vehicle, this first policy will pay a portion, but not the entire amount to cover the loss. There are two situations to keep in mind:

  • You cause an accident in a car owned by a family member, but not in the car your insurance policy covers. In this case your insurance company will pay a proportionate share of the damage caused.
    • EXAMPLE: You have a policy that covers your car, and your spouse has a separate policy that covers her car which lists yours, as well. If your limit of liability for property damage is $15,000 and hers is $10,000 and the property damage you caused is $10,000, your insurance will not pay the whole amount even though it is under the limit set by your policy. Instead, the company will pay the proportionate amount (percentage) of your limit of liability to the entire limit from both policies together. Your limit for property damage is $15,000 plus the limits on your spouse’s policy, $10,000, totaling $25,000. The percentage that your $15K policy makes up in this case is 60%. Your policy will cover 60% of the damages, or $6,000. Your spouse’s policy will be expected to cover the other 40%, or $4,000. Your insurance company will do all of the math for you, just be aware that this is the system they will use when two insurance policies come into play.
  • You cause an accident in a car you are borrowing from someone not in your family. In this case, the math is much simpler: the insurance company representing the person from whom you are borrowing the vehicle will pay damages up to the coverage limit in their policy, and your insurance company will pay any excess up to your policy’s coverage limit.

You will have a lot of control over how much liability coverage you want to pay for. Go to the Free Advice quote center to find pricing for the liability coverage you need

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