Someone is injured in an accident, whether it’s a car crash, a slip and fall, or another incident caused by negligence, insurance is usually the primary source of compensation. But there’s an important detail that many claimants overlook until it becomes a major issue: policy limits.
Insurance companies don’t have unlimited funds to pay claims. Every liability policy has a maximum amount that the insurer will pay for a covered loss. This is known as the policy limit. Understanding how policy limits work and how they are investigated is crucial for claimants who want to pursue fair compensation for their injuries.
This article explains what policy limits are, why they matter, how policy limit investigations are conducted, and what claimants should keep in mind during the process.
What Are Policy Limits?
A policy limit is the maximum amount of money an insurer is obligated to pay under an insurance contract. For example:
If a driver carries an auto liability policy with bodily injury coverage of $50,000 per person and $100,000 per accident, the insurer will only pay up to those amounts.
If a person is seriously injured and their damages exceed the policy limit, the insurance company is not legally required to pay beyond that limit (unless special circumstances apply).
Policy limits serve as the “ceiling” for what a claimant can recover directly from an insurer. Any compensation above that limit must be pursued directly from the at-fault party’s personal assets—something that is often impractical or impossible.
Why Policy Limits Matter for Claimants
Understanding policy limits is important for several reasons:
Realistic Expectations
Claimants need to know whether the coverage is enough to pay for medical expenses, lost wages, and other damages.
Negotiation Leverage
If damages clearly exceed the policy limit, the insurer may be pressured to settle at the full limit to avoid potential “bad faith” claims.
Strategic Decisions
Knowledge of policy limits helps claimants decide whether to accept a settlement, continue negotiations, or pursue litigation against the at-fault party.
What Is a Policy Limit Investigation?
A policy limit investigation is the process of determining how much insurance coverage is available in a claim. It typically involves verifying:
The type of policy in effect (auto, homeowners, commercial general liability, etc.)
The exact liability limits for bodily injury, property damage, or other coverages
Whether there are multiple layers of coverage (such as an umbrella policy)
Whether exclusions or endorsements affect the available coverage
Claimants (or their attorneys) often conduct these investigations to ensure they know the full scope of coverage before deciding how to proceed.
How Claimants Can Discover Policy Limits
Unlike medical bills or wage statements, policy limits aren’t always easy to find. Insurers are often reluctant to disclose them, especially early in the claims process. However, claimants have several avenues:
Direct Request to the Insurer
Many states require insurance companies to disclose policy limits upon written request, especially if injuries are serious.
Demand Letters
Attorneys frequently send a settlement demand letter that asks the insurer to disclose limits. If the insurer refuses, it may risk bad faith liability later.
Litigation Discovery
If a lawsuit is filed, claimants can request policy declarations during discovery. Courts typically compel disclosure.
Public Records & Other Sources
Sometimes policy details may surface in accident reports, corporate filings, or through industry databases.
Factors That Complicate Policy Limit Investigations
Policy limit investigations aren’t always straightforward. Common complications include:
Multiple Policies – The at-fault party may have several layers of insurance, such as a personal auto policy plus an umbrella policy.
Shared Limits – In accidents with multiple injured parties, policy limits may be split among all claimants.
Excess Coverage – Some employers, businesses, or high-net-worth individuals carry excess liability insurance, which must be confirmed.
Policy Exclusions – Certain types of damages (e.g., punitive damages or intentional acts) may not be covered.
Because of these complexities, policy limit investigations are often best handled by an attorney with experience in insurance claims.
Insurer Obligations and Bad Faith Concerns
Insurers owe their policyholders a duty of good faith. This includes the obligation to settle claims reasonably when liability is clear and damages exceed policy limits. If an insurer unreasonably refuses to disclose limits or settle within limits, it may expose its policyholder to personal liability.
In some jurisdictions, if an insurer acts in bad faith and the case goes to trial resulting in a judgment above the policy limit, the insurer may be responsible for paying the entire judgment, not just the policy limit.
For claimants, this means that carefully pressing for disclosure and negotiating fairly within limits can create leverage against the insurer.
Practical Tips for Claimants
Request Policy Limits Early
Don’t wait until litigation. A timely request for policy limits can shape the entire negotiation strategy.
Document All Communications
Keep a record of requests made to insurers and their responses. This documentation can help if a bad faith claim becomes necessary.
Hire Experienced Counsel
Attorneys know how to investigate coverage effectively and use legal tools to obtain disclosure.
Consider All Sources of Coverage
Don’t assume only one policy applies. Look into umbrella policies, employer coverage, or other potentially responsible parties.
Be Realistic About Recovery
If damages greatly exceed policy limits and no additional coverage exists, it may not be financially worthwhile to pursue the at-fault party personally.
Example Scenario
Imagine a pedestrian is hit by a driver who carries only the state minimum liability insurance: $25,000 per person. The pedestrian’s medical bills alone exceed $100,000.
A policy limit investigation confirms that the driver has no umbrella policy or significant assets.
The insurer offers the $25,000 policy limit.
The claimant’s attorney may accept the settlement but also evaluate whether the insurer delayed unreasonably or failed to disclose coverage, which could open the door to a bad faith claim.
Without understanding policy limits, the pedestrian might have spent years in litigation only to find recovery capped by the insurer’s maximum coverage.
Conclusion
Policy limit investigations may not be the most exciting part of a personal injury claim, but they are one of the most important. Knowing the insurance coverage available sets the boundaries for negotiation, settlement, and litigation.
For claimants, being proactive about requesting disclosure, understanding the role of multiple policies, and working with legal counsel can make the difference between walking away with a fair recovery or discovering too late that compensation is capped far below actual damages.
By appreciating the role of policy limits from the start, claimants can better protect themselves and ensure they pursue the maximum recovery the law allows.
