The Importance of Policy Limit Investigations in Maximizing Settlements

In personal injury and civil litigation, a critical element that can make or break a case is knowing the insurance policy limits of the defendant or other responsible parties. Policy limits refer to the maximum amount an insurer will pay for a claim under an existing insurance policy, and understanding these limits early in the litigation process can help attorneys maximize settlements and effectively navigate the settlement process.

For plaintiffs’ attorneys, a thorough investigation of policy limits is often the key to securing favorable settlements quickly and efficiently. This article explores why policy limit investigations are so important, how they impact settlement strategies, and the best practices for uncovering and utilizing policy limits in maximizing settlements.

What Are Policy Limits?

Insurance policies come with predefined limits, which set the maximum amount the insurance company will pay in the event of a covered loss. For example, in an auto accident, the defendant might carry an insurance policy with a $50,000 liability limit. This means the insurer will only pay up to $50,000 for injuries or damages sustained in the accident, regardless of how high the actual damages are.

These limits can play a significant role in a case’s strategy and can influence the entire approach to settlement discussions. If a plaintiff’s damages exceed the policy limit, the attorney must carefully assess whether the case is worth continuing or if additional strategies are necessary, such as seeking a judgment against the defendant’s assets or pursuing a claim against another party (e.g., underinsured motorist coverage).

Why Policy Limit Investigations Are Crucial

Early policy limit investigations allow attorneys to make well-informed decisions about case strategy, settlement negotiations, and overall case management. The benefits of early policy limit discovery are multifaceted and can provide both tactical and financial advantages in the litigation process.

1. Understanding the Financial Recovery Potential

One of the most important aspects of policy limit investigations is determining the financial recovery potential in a case. If an attorney knows the defendant’s insurance limits, they can quickly determine whether the available policy is sufficient to cover the plaintiff’s damages. This information helps the attorney and client align their expectations regarding the likelihood of recovery and guides decisions on whether to settle or pursue further legal action.

If policy limits are sufficient to cover the plaintiff’s damages, the attorney can advise the client to pursue a settlement.

If policy limits are insufficient, the attorney can explore other avenues of recovery (e.g., personal assets, excess insurance, or underinsured motorist coverage).

Without knowing the policy limits, the attorney risks making assumptions about the recovery potential, which could lead to unrealistic expectations or missed opportunities.

2. Accelerating Settlement Negotiations

A key advantage of knowing the policy limits early is the ability to accelerate settlement negotiations. Insurers are more likely to engage in settlement discussions early if they know the plaintiff’s damages are within or near the policy limits. With clear knowledge of the policy limit, plaintiffs’ attorneys can make strategic demands that are more likely to prompt quick offers from the insurer.

Early settlement can benefit both parties, as the insurance company avoids the costs and risks of protracted litigation, and the plaintiff gets compensation faster. The earlier the investigation of policy limits, the sooner attorneys can engage in meaningful settlement discussions, often resulting in a resolution before the case escalates into a lengthy court battle.

3. Maximizing the Case Value

Understanding policy limits also allows attorneys to assess whether it makes sense to pursue a case aggressively or if the potential recovery is capped by the defendant’s insurance coverage. For example, if the policy limits are $100,000 but the plaintiff’s damages are estimated to be $250,000, knowing this early on helps the attorney weigh whether to settle for the policy limit or pursue alternative recovery options.

If the policy limits are close to or exceed the damages, the attorney can use this knowledge to aggressively pursue a fair settlement.

If the policy limits are much lower than the damages, the attorney can determine whether it’s worth investing in additional litigation strategies, such as pursuing a bad faith claim or seeking additional defendants or coverage.

By understanding how the policy limits interact with the potential damages, attorneys can better maximize the value of the case.

4. Identifying Potential Gaps in Coverage

Sometimes, policy limits are insufficient to cover the full scope of the plaintiff’s damages. In such cases, early policy limit can reveal gaps in coverage and allow the attorney to pursue other sources of recovery, such as:

Umbrella or excess insurance: In many cases, defendants may carry umbrella or excess insurance that kicks in once the primary policy limit is exhausted. Discovering this early allows the attorney to assess whether there are additional funds available to cover the plaintiff’s damages.

Underinsured motorist coverage: If the defendant’s policy is insufficient, the plaintiff may be able to tap into their underinsured motorist (UIM) coverage, depending on the jurisdiction.

Third-party claims: If another party (e.g., a contractor or employer) shares responsibility for the plaintiff’s injuries, policy limit investigations might reveal other insurance sources to pursue.

Understanding potential gaps in coverage gives attorneys the flexibility to think beyond just the defendant’s policy limits and identify all possible avenues for recovery.

Best Practices for Policy Limit Investigations

Knowing the importance of early policy limits, attorneys need to use best practices when investigating and uncovering this information.

1. Leverage Initial Disclosures

In both state and federal courts, insurance policy details are often subject to mandatory disclosures. According to Federal Rule of Civil Procedure 26(a)(1)(A)(iv), parties are required to disclose any insurance policies under which a party might be liable for all or part of a potential judgment. Plaintiffs’ attorneys should ensure that these disclosures are thoroughly reviewed at the outset of a case.

If disclosures are incomplete or unclear, attorneys should follow up with additional discovery requests.

2. Use Formal Discovery Requests

When policy limit information is not provided voluntarily or through initial disclosures, attorneys can utilize interrogatories, requests for production, or depositions to obtain this information. Some formal requests might include:

Interrogatories: Ask the defendant to disclose all insurance policies and their respective limits.

Requests for Production: Ask for copies of the insurance policies, policy declarations, and any endorsements or riders that affect the policy’s limits.

3. Send Demand Letters for Disclosure

In some jurisdictions, plaintiffs’ attorneys can send a formal demand letter requesting disclosure of insurance policy limits. This is particularly effective when dealing with insurance companies that may try to avoid disclosing policy limits voluntarily. Such a letter can also set the stage for settlement discussions.

4. Depositions of Key Witnesses

In cases where the insurer or defendant is not forthcoming with policy information, depositions can be an effective tool for uncovering insurance coverage details. Attorneys should depose key witnesses such as the defendant, the defendant’s employer (if applicable), or the insurance adjuster, asking about the existence of policies and limits of coverage.

5. Consider Subpoenas When Necessary

If other methods fail, attorneys can issue subpoenas directly to the insurance company to compel disclosure of policy limits. Subpoenas can be particularly useful when dealing with multiple layers of insurance coverage or when there’s resistance from the defendant to provide policy information.

Conclusion

Policy limit investigations are an essential component of any personal injury case, providing attorneys with the information necessary to maximize settlements. By uncovering the policy limits early in the process, attorneys can better assess the financial recovery potential, accelerate settlement negotiations, and identify any gaps in coverage that may affect the case’s outcome.

By using best practices to obtain policy information—whether through initial disclosures, discovery requests, demand letters, depositions, or subpoenas—attorneys can improve the efficiency and value of the settlement process, ensuring that clients are adequately compensated for their injuries and damages.