When someone is injured due to another party’s negligence, such as in a car accident, premises liability incident, or medical malpractice case, one of the most critical factors affecting recovery is the defendant’s insurance policy limits.
Understanding the scope of available insurance coverage can make the difference between a fair settlement and an inadequate one. For claimants and attorneys, policy limit investigations are an essential step in determining how much compensation may realistically be available and in developing an effective litigation strategy.
This article provides a comprehensive overview of policy limits, their legal basis, methods, and strategic implications for both claimants and their attorneys.
Understanding Policy Limits
An insurance policy limit is the maximum amount an insurer is obligated to pay under a policy for a covered claim. For example, an auto liability policy with limits of $100,000 per person / $300,000 per accident means the insurer will pay up to $100,000 for one person’s bodily injury and up to $300,000 total for all injuries in one accident.
Policy limits may apply separately to:
- Bodily injury and property damage
- Per-incident vs. aggregate coverage
- Primary, secondary (excess), and umbrella coverage
For a claimant, understanding these limits is crucial because recovery from the insurer generally cannot exceed the policy’s maximum, no matter how severe the injury or how high the damages.
Why Policy Limit Investigations Matter
Policy limit investigations serve several vital purposes:
Case Valuation: Knowing the available coverage helps plaintiffs and attorneys determine whether to settle early or pursue litigation.
Settlement Leverage: If an insurer refuses to disclose policy limits and later fails to settle within them, it could be exposed to a bad faith claim for the full judgment amount.
Strategic Decisions: Identifying multiple policies—such as employer coverage, additional insureds, or umbrella policies—can expand the pool of available compensation.
Client Expectations: Attorneys can more accurately advise clients on realistic recovery potential.
Efficient Litigation: Early knowledge of coverage helps avoid unnecessary litigation costs when policy limits are clearly insufficient.
Legal Basis for Requesting Policy Information
The rules governing disclosure of insurance policy limits vary by state jurisdiction and type of claim. However, most jurisdictions recognize that claimants have a legitimate interest in knowing the defendant’s insurance coverage.
Some key examples:
California: Under California Insurance Code §791.13 and case law, an insurer may disclose policy limits with the insured’s consent or if required by law. However, in practice, insurers often disclose limits voluntarily in response to a proper demand letter.
Florida: Florida Statute §627.4137 requires insurers to disclose the insured’s policy information—including limits—within 30 days of a written request.
New York: As of January 2022, the Comprehensive Insurance Disclosure Act (CIDA) mandates disclosure of insurance information early in litigation.
Texas: No statute compels disclosure pre-suit, but discovery rules require it once litigation begins.
For attorneys, it’s essential to understand the governing law in their jurisdiction and use the appropriate mechanism—demand letters, discovery requests, or motions to compel—to obtain this information.
How to Conduct a Policy Limit Investigation
A policy limit investigation involves gathering and verifying all possible sources of insurance coverage that could apply to the loss. Here’s a systematic approach:
1. Send a Policy Limit Demand Letter
Attorneys typically begin by sending a written demand letter to the insurer or insured party requesting:
- The name of the insured
- Policy number and effective dates
- All applicable coverage types and limits
- Any excess or umbrella policies
- The name and contact information of all insurers and adjusters
The letter should be polite but firm and cite any applicable statutes or case law supporting the right to disclosure. It’s also strategic to note that failure to disclose may expose the insurer to bad faith liability if the claim later exceeds policy limits.
2. Use Pre-Suit Discovery Tools (if available)
Some states allow pre-suit discovery or statutory requests for insurance information before litigation begins. If available, these can compel disclosure without filing a formal complaint.
3. File Suit and Use Formal Discovery
If an insurer refuses to voluntarily disclose policy limits, formal litigation tools—such as interrogatories, requests for production, and depositions—can compel production of the insurance policy and declaration pages.
4. Investigate Other Potential Coverage Sources
Skilled attorneys often look beyond the obvious policy for other sources of coverage:
Employer or commercial policies if the defendant was on duty or using a company vehicle.
Homeowners or renters’ policies if the incident occurred on personal property.
Umbrella or excess liability policies.
Additional insured endorsements extending coverage to third parties.
Government or municipal coverage for public entities.
5. Verify Authenticity and Scope
Always confirm that the policy documents are complete and genuine. Review endorsements, exclusions, and conditions to ensure coverage actually applies to the claim.
Common Challenges and Insurer Tactics
Policy limit investigations can be frustrating, as insurers often delay or obscure disclosure. Common issues include:
Partial Disclosure: Providing only declarations pages without endorsements or exclusions.
Nonresponse: Ignoring letters or requests until litigation forces action.
Denials of Coverage: Claiming no coverage applies due to exclusions or lapsed policies.
Misrepresentation: Providing inaccurate or incomplete information—sometimes unintentionally.
Attorneys must be persistent and document every communication. Keeping a record of repeated attempts to obtain policy limits can be invaluable in a later bad faith claim.
The Role of Bad Faith in Policy Limit Disputes
A bad faith insurance claim arises when an insurer unreasonably refuses to settle within policy limits, exposing its insured to a judgment exceeding coverage. If the insurer fails to disclose limits or respond promptly to a settlement demand, it risks losing the protection of those limits.
For example, if a claimant offers to settle for the policy limit but the insurer delays or refuses without justification, and a jury later awards a higher amount, the insurer may be liable for the entire judgment, even beyond the policy limit.
Thus, transparency and good-faith negotiation are in the insurer’s best interest—but when they fail to act responsibly, the claimant may gain significant leverage.
Best Practices for Claimants and Attorneys
Act Early: Begin investigating policy limits as soon as the claim arises.
Document Everything: Keep written records of all communications and responses.
Be Professional: Use polite, legally grounded demand letters rather than hostile correspondence.
Understand the Law: Know your jurisdiction’s disclosure requirements and leverage them effectively.
Consider All Coverages: Don’t assume one policy is the only source—search for umbrella, employer, or secondary coverage.
Leverage Non-Disclosure: If the insurer stonewalls, note that behavior—it may strengthen a later bad faith argument.
Educate the Client: Make sure the claimant understands that policy limits can cap potential recovery.
Conclusion
Policy limit investigations are a critical step in any personal injury or liability claim. For claimants and their attorneys, understanding and uncovering the full extent of available insurance coverage can shape the course of settlement negotiations, litigation strategy, and ultimate recovery.
By knowing the governing laws, using effective demand letters, and documenting insurer conduct, attorneys can ensure their clients receive fair compensation—and, when necessary, hold insurers accountable for acting in bad faith.
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