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What Is Commercial Liability Auto Insurance?

Kimberlee Leonard
Kimberlee Leonard
business.com Contributing Writer
Nov 08, 2021

If you use vehicles in the operation of your business, you'll need commercial auto liability insurance.

When you have vehicles that are used for business purposes, you are at risk of road incidents that can lead to serious liabilities. If you don’t have the right insurance, your business could be on the hook for those liabilities. This is why you need a commercial auto liability insurance policy. This business insurance policy helps absorb the financial impact of at-fault accidents involving your business vehicles.

What is commercial liability auto insurance?

Commercial auto liability insurance is a component of an auto insurance policy that pays up to a policy limit for bodily injuries and property damage in at-fault accidents. Commercial auto liability insurance covers the same types of liabilities as personal liability auto insurance, except the policy is rated for the risk of commercial vehicles. 

For example, let’s say a florist has a delivery truck that it uses to bring bouquets to recipients. This means the delivery truck is used for business purposes and needs commercial auto liability insurance, not personal auto liability insurance. If the delivery driver rear-ends another car at a stoplight, the commercial liability policy would pay for the damages to the other vehicle and any injuries to the other vehicle’s driver and passengers. Payments will not exceed policy limits.

Did you know?Did you know? A general liability insurance policy doesn’t cover damages and injuries caused by a commercial vehicle incident. General liability insurance covers claims from third parties injured on your business premises.

Is commercial auto liability insurance required by law?

Liability insurance is required by law in most states. If your vehicle is designated for commercial use, it must have commercial liability auto insurance. However, there are some exceptions. For example, if you use your personal vehicle for some business activities, as Realtors often do, then your personal auto policy may allow a special “for business pursuits” designation that will cover you when the auto is used for work. 

If you live or do business in one of the few states that don’t require liability insurance for vehicles, such as New Hampshire and Virginia, it’s important to know that drivers or business owners are still liable for the damages an accident causes. If the accident were severe enough, a person or business could become financially devastated trying to cover the costs. 

Bottom LineBottom line: Most states require liability insurance on all commercial vehicles. Even if your state doesn’t require commercial auto liability insurance, you should strongly consider it, as a claim could put you out of business.

What is covered by commercial auto insurance?

When you buy commercial auto insurance, you are first and foremost buying liability coverage. The liability coverage amounts required may vary from state to state, with many insurance carriers setting minimum policy amounts. For example, Nationwide requires a minimum of $100,000 in commercial auto liability coverage per vehicle. 

If your coverage were $100K/$300K/$100K, your protection would look like this:

  • The first $100,000 is the cap for injuries to any one person in the accident.
  • The $300,000 is the maximum paid for all persons involved in the accident. 
  • The last $100,000 is the maximum the policy would pay for property damage in the accident. 

Let’s take a look at an example with these sample limits. Assume three people are injured in an accident, with injury expenses costing $110,000, $90,000 and $100,000. The total amount of the injuries is $300,000, so it’s covered by the cap. However, the per-person limit is $100,000, which means the first person isn’t covered for the extra $10,000 – and they could sue you for the difference. 

This is why Nationwide and other insurance carriers recommend having at least $500,000 in coverage, and going as high as $1 million on commercial auto policies. 

These are some other coverages you should consider including in your commercial auto insurance policy:

  • Collision coverage: This pays for damage to your work vehicle when you are in an at-fault accident. It can repair or replace the vehicle, depending on the extent of the damage. 
  • Comprehensive coverage: This pays for damage to your work vehicle in an incident other than a collision. Covered incidents include theft, vandalism, fire, hail and a tree branch falling on the vehicle. 
  • Uninsured/underinsured motorist coverage: When you are hit by another vehicle that doesn’t have enough – or any – collision coverage, you’ll be covered for your medical expenses as well as damage to your vehicle up to the coverage limits. 
  • Rental car coverage: When your work vehicle is out of commission because of a covered accident or claim, rental car coverage will help cover the costs of renting a vehicle until your primary vehicle is fixed.

What is not covered by commercial auto insurance?

While a commercial auto insurance policy can be very robust, it doesn’t cover everything. The following are not included coverages in commercial auto insurance. 

  • Medical expenses: This may vary from state to state, but most policies don’t cover the medical expenses of passengers in or the driver of the vehicle. Workers’ compensation usually covers medical expenses if the injured parties are employees.
  • Contents: Your vehicle’s contents, such as deliverables and inventory, aren’t covered by commercial auto insurance. For this, you’ll need inland marine insurance. 
  • Non-owned vehicles: Commercial auto insurance will not provide coverage to employees’ vehicles used for work purposes. For this type of coverage, look into a non-owned auto policy. 
  • Rental repairs: If you are in an accident in the rental vehicle, you are not covered for repair expenses to that vehicle. 

TipTip: To find the best liability insurance provider for your business, get a few quotes to compare prices and coverage.

Does a commercial auto policy include liability insurance?

The primary purpose of a commercial auto policy is to provide liability insurance. As such, every commercial auto policy will have some level of liability coverage within it. Other coverage types are optional. 

However, the minimum coverage amounts may not be enough to absorb the financial ramifications of accidents. Business owners should consider increasing limits or adding a commercial umbrella policy to their insurance portfolio. 

How much coverage do you need?

It’s hard to gauge just how much coverage a business will need. While most insurance carriers have minimum amounts, the minimum may not be enough for all business owners. When considering how much liability coverage you need, consider the following. 

  • Size of the vehicle: Larger vehicles can do more damage, even in minor accidents. It’s wise to increase liability limits on bigger, heavier vehicles to ensure you have enough protection. 
  • Annual revenues: The more money you make, the more of a target your business will be for a lawsuit after an accident. As your business grows, so should the amount of liability coverage that you maintain.
  • Large driver pool: While you should vet all drivers in your company for good driving records, the more drivers you have, the more risk there is for a more significant accident. 

Commercial auto liability and out-of-state travel

Your business’s travel needs are an essential consideration when choosing business insurance

When you buy commercial auto insurance, you’re buying it in the state in which your vehicle is registered. This is where the DMV will check that you meet the minimum insurance requirements. But many vehicles are driven across state lines in the course of work. In these instances, the insurance policy’s coverage territory comes into effect. 

Most insurance carriers will extend coverage throughout the U.S. so that you have the same coverage limits wherever you go. Some carriers may limit coverage out of the state, however, so it’s best to check with your provider to see how coverage works with your policy.

Some carriers may also extend coverage to Canada and Mexico. If so, you won’t need to get international coverage for cross-border commutes. Again, these coverage nuances are carrier-specific, and you should check with your provider if you think you need this type of coverage.

Image Credit:

Pra-chid / Getty Images

Kimberlee Leonard
Kimberlee Leonard
business.com Contributing Writer
Kimberlee has spent the past 20 years either directly involved in insurance and financial services or writing about it. She’s a former Series 7 and 65 license holder and former State Farm agency owner. As a small business insurance expert, her work can be found on Fit Small Business and Thimble.