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What is Property Damage Liability Coverage?

what is property damage liability

When anyone buys a car and plans to drive it on the roads and highways, they must buy liability insurance before the state will allow them to get a tag. Certainly, most everyone knows this but not everyone knows what liability insurance is.


First of all, liability insurance is not about your injuries or your vehicle, it is about injuries to a third party or damage to a third party’s property. It is a method your state uses to make sure you can pay for damages that you could be liable for in the event you are in an at-fault accident.


Unless you carry liability insurance, you will have to pay injury and property damage expenses out-of-pocket which for most people, would be financially devastating. In an attempt to avoid this and the many lawsuits that would certainly result, your state will have set minimum liability limits that you must carry if you plan to register and tag your vehicle.


What does Property Damage Liability Cover?


Property Damage Liability covers you for damage you cause to another person’s (third party) property. This means any type of property, not just their vehicle. Accidents are not always vehicle versus vehicle. There are many accidents reported every year where a vehicle owner hits property like homes, fences, trees and shrubs, telephone and power poles, and even stores.

When you hit people it falls under your Bodily Injury Liability coverage, when you hit property, it’s covered under Property Damage Liability coverage. This coverage is required no matter what. Your only option is in choosing the amount or limits you purchase but even that is controlled by your state because they will select your minimum limit of coverage for you.

If you’re a first-time driver or new to your state, you can determine your minimum liability requirements online by visiting the Insurance Information Institute or your state’s department of motor vehicles.


Are the minimum Property Damage Limits Enough?


The minimum liability limits set by each state differ by state and appear to be arbitrary. Unless you are in a minor finder-bender, the minimum liability limits in any state will most likely leave you financially exposed if you are in an at-fault accident and liable for the resulting property damage to a third-party.

Here’s why the minimum limits are inadequate. Although some states have higher bodily injury liability limits than others, their minimum limits for property damage liability are $25,000 or less in every state.

$25,000 may seem adequate to most people but consider the following:

  • The average price of a new car in 2019 is typically over $25,000 your property damage coverage also reimburses the other driver for rental expenses.
  • Many accidents involve multiple cars and if found liable, you will be responsible for damage to all of them.
  • There are more luxury cars and expensive SUVs on the road than ever before which means your property damage claim could be $60,000 or more, even if the car you hit is not a total loss
  • In most states, your property damage liability must also cover state taxes if the injured party has to purchase a new vehicle.


How a Property Damage Claim can get seriously Out of Hand?


After spending about 20 years selling home and auto insurance, I have personally dealt with many car insurance claims that have gotten out of hand. Here are a few examples that most people never hear about (names are changed to protect the insured).


Orange Grove Catastrophe


newly planted orange trees


John owns a Jeep Cherokee and lives in central Florida in an area with many acres of orange groves. John’s hobby was to race up and down the dirt roads in the orange groves during the off-season when typically no one was out there. One sunny Saturday morning while screaming down a road in a nearby orange grove, John lost control of his Jeep and took down a row of about 25 newly planted orange trees before he could stop.

John did the right thing and tracked down the grove owner and agreed to have his auto insurance company call to settle the claim for the damaged and uprooted trees.

When John spoke with his agent he was shocked to find the grove owner invoiced the insurance company for the following damages:

  1. The cost to purchase new trees and the labor involved to plant them
  2. The estimated loss of orange production over the next 5 years
  3. The estimated loss of orange sales to retail and wholesale markets
  4. The cost to replace the sprinkler drip heads at the base of each tree.

Fortunately for John, he carried $100,000 property damage limits (10 times the state’s minimum) and did not have to pay out-of-pocket for the claim.


U-Haul and you Might Pay


u-haul truck

My client Randy had received a great job offer with a big tech company in California if he would agree to move west. Since Randy was young and had very few belongings besides his clothes and car, he decided to rent a U-Haul truck and tow his vehicle to make the move from the east coast to the west coast. Everything happened so fast that Randy forgot to check with me about insurance on the truck.

When the clerk at U-Haul asked if he wanted to purchase the U-haul insurance for about $25 a day, Randy declined because he had “full coverage” on his new Ford Explorer. The clerk didn’t seem to care one way or the other and didn’t spend two minutes warning Randy how things could go wrong.

While pulling into a gas station about half the way to California, the brakes went out on the truck and Randy had to run over two gas pumps in order to miss other people who were gassing up at the time.

The police were called by the station manager and Randy was ticketed for failing to have his vehicle under control. Randy provided his insurance information to the manager and then called in the claim to his car insurance company the next day.

While talking with the claims adjuster, Randy learned that two gas pumps would have to be replaced at $15,000 each but the gas station would have to be closed for three days since the pumps had to be shipped to the manager and then installed by a technician from the company.

In Randy’s case, he elected a $50,000 property damage limit which was double the minimum required by the state, however, the claim against the insurer was close to $60,000 which left Randy having to pay the balance out-of-pocket. Randy was responsible for the loss of the expensive equipment and the loss of income of the gas station for the three and a half days they were forced to close.


Don’t Take Chances with Minimum Liability Limits


When most insurance shoppers hear the agent warning them against minimum limits, they typically think the agent is looking for a higher commission, and in some cases that may be true. However, state insurance regulators are not concerned about your injuries or damages to your car if you are in an at-fault accident. Why would you assume that they would care whether or not you purchase adequate liability limits? They are only concerned about each car owner following their arbitrary rules and coughing up the annual fee for their vehicle tag.


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