Rules for applying auto liability deductibles

Coverage Q&A: Does the deductible apply to both indemnity and expense or just the indemnity?

This week’s coverage Q&A reviews auto liability deductibles and legal expenses.(Credit: Digiphoto/iStockphoto.com)

Every claim is different, and some insurance policies can be difficult to interpret for unique situations. FC&S Expert Coverage Interpretation, the recognized authority on insurance coverage interpretation and analysis for the P&C industry, makes it simple to find credible answers to your complicated coverage questions. Analysis brought to you by our FC&S experts. 

Editor’s Note: While not a common practice, ISO does make it possible to issue an auto liability policy with a deductible. The form is not specific on the application of the liability deductible when it comes to legal expenses, and this week’s question deals with that very issue.

Question: In the ISO Coverage Forms CA 03 01 & CA 03 02, Part A: Liability deductible, states “the damages resulting from any one “accident”….

The liability deductible is $50,000. A claim settles for $20,000 and there was $10,000 in attorney expense associated with the defense of the insured. Does the deductible apply to both indemnity and expense or just the indemnity (loss)? Do we collect $20,000 or $30,000 as part of the deductible?

— New Jersey Subscriber

Answer:

According to ISO rule 98, the liability deductible applies only to the loss portion of the claim and not the expenses incurred by the company, which would include the defense costs. Therefore, the deductible should be applied only to the amount of the auto claim.

To dive further into the answer of this week’s coverage Q&A, please log into your FC&S Expert Coverage Interpretation account.

Related:

Recommended Stories