Topics Covered:

Covered Autos Liability Coverage

Insured definition

Coverage extensions

Liability exclusions

Liability limits

Covered Autos Liability Coverage

 1.Coverage

a.We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies caused by an “accident” and resulting from the ownership, maintenance, or use of covered “autos”.

We will also pay all sums an “insured” legally must pay as a “covered pollution cost or expense” to which this insurance applies, caused by an “accident” and resulting from the ownership, maintenance, or use of covered “autos”. However, we will only pay for the “covered pollution cost or expense” if there is either “bodily injury” or “property damage” to which this insurance applies that is caused by the same “accident”.

     We have the right and duty to defend any “insured” against a “suit” asking for such damages or a “covered pollution cost or expense”. However, we have no duty to defend any “insured” against a “suit” seeking damages for “bodily injury” or “property damage” or a “covered pollution cost or expense” to which this insurance does not apply. We may investigate and settle any claim or “suit” as we consider appropriate. Our duty to defend or settle ends when the Covered “Autos” Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements.

 Analysis

 The central liability insurance agreement of the auto dealers coverage form is basically the same as other liability policies. The insurance company promises to pay up to policy limits in response to the legal liability of the insured because of bodily injury or property damage occurring while the policy is in force.

 The insurance company expressly has “the right and the duty” to defend the insured against liability claims but, also expressly, the defense obligation does not extend to a lawsuit seeking damages for bodily injury (BI) or property damage (PD) to which the insurance does not apply. For example, a claim for damages arising out of the use of a covered auto in an organized race does not activate the promise to defend because coverage for such an incident is specifically excluded. Refusal to defend, does however, put the insurer in some legal jeopardy and such refusal is not lightly undertaken.

 As an example, in Davis v. United Fire & Casualty Co., 400 N.E.2d 984 (Ill. App. 1981) for example, the policy applied to the use of nonowned automobiles in the operation of a garage and the claim concerned a garage-owned wrecker in a collision with the claimant. The insurance company denied coverage and the insured subsequently defended the suit himself, and lost. The case before an Illinois appellate court centered on the obvious fact that the insurance company had not offered its insured a defense and the case was remanded for still more litigation on whether the insurer owed a defense. To all appearances, the claim was outside the coverage of the policy, but that did not save the insurance company from costly legal expense.

 The insurance company has complete authority to investigate—and to settle—any covered claim without consultation with the insured. And payment of the limit of insurance noted in the policy ends the insurer's defense obligation.

 Note that this section of the auto dealers coverage form does not contain clauses about prior knowledge on the part of an insured about bodily injury or property damage that occurred before the policy inception. The prior notice paragraphs are in reaction to the Montrose Chemical Corporation decision from California, and such clauses are now an integral part of the liability policies furnished by ISO. The clauses in CA 00 25 can be found in the general liability coverage section.

 Another of the auto dealers form's liability insuring agreements is the insurers promise to pay all sums that an insured legally must pay as a covered pollution cost or expense. The cause must be accidental and result from garage operations involving the ownership, maintenance, or use of covered autos. Basically, this insuring agreement deals with certain clean up costs that the insured has to pay in response to the accidental release or dispersal of pollutants from a vehicle's operating systems or by an off premises auto accident. See Business Auto Definitions for more detail on covered pollution costs.

 Insured Definition