Property damage liability provides coverage for amounts you become legally responsible for paying another person as a result of damage to that person’s vehicle or other property in an accident that was all or partially your fault. You will be covered only up to the amount of coverage, or “policy limit,” that you purchase. Again, the higher the coverage, the higher the premiums.
California Vehicle Code §16056(a) requires that every auto insurance policy contain a minimum of $5,000 in property damage liability coverage. This minimum amount is not adequate for most people, since even a minor accident can cause damage requiring repairs well in excess of this amount. You can be held personally responsible for the entire loss, so if your liability coverage is not enough to cover the damage, either the other party or her insurance company may take legal action to recover the difference from your personal assets.
Suppose you are commuting to work one day on the freeway and your cell phone goes off. You look down for a second and when you look back at the road, traffic is stopped in front of you. You hit the rear of the 2009 Mercedes Benz in front of you and that causes the Mercedes to rear end the 2005 Acura in front of it. You are legally responsible to the owners of the Mercedes and Acura for all of the economic losses arising from the damage to their vehicles.
The cost of repair for the front and rear of the Mercedes is $7,500. The cost of repair of the Acura is $3,000. In addition, the Mercedes had to be towed at a cost of $250, stored at the tow yard at a cost of $500, and the owner had to rent a car for two weeks at a cost of $1,000. For a relatively minor collision, you have become legally responsible to pay the other car owners a total of $12,250. If your liability coverage is limited to $5,000 or even $10,000, your personal assets are exposed to collection by the other party.
Even if the other party’s insurance pays for his losses, the insurance company then has a right of “subrogation,” meaning the insurance company has the legal right to sue you for any amounts they have paid. Many insurance companies will exercise that right. In the end, if you are not adequately insured, you may have to pay the difference between the damages caused to the other drivers and your liability coverage out of your personal assets. Generally speaking, the more assets you have, the more liability coverage you should purchase to protect those assets.
