A driver has a PAP with a single liability limit of $50,000. If a pedestrian BI is $37,000, a display window is $3,000, a sports car is $10,000, and legal defense costs are $1,500, how much would the policy pay for the total loss?

• A. $51,500
• B. $37,000
• C. $40,000
• D. $50,000

Answer: (A)

The main idea is that a single liability limit caps the amount the insurer will pay to third parties for bodily injury and property damage arising from one accident, while defense costs are handled separately. Here, the bodily injury to the pedestrian is 37,000 and the property damage consists of the display window (3,000) and the sports car (10,000), which together amount to 13,000. Add those up and the total paid to claimants would be 37,000 + 13,000 = 50,000, which uses up the policy’s liability limit. Defense costs, which total 1,500, are covered by the insurer as a separate expense and do not come out of the amount paid to claimants. Therefore, the policy would pay 50,000 to the claimants plus 1,500 in defense costs, for a total of 51,500. The key point is that defense costs can be considered in addition to the damages covered by the limit, yielding the 51,500 total.