Insurance companies assume responsibility in a wide variety of injury cases, from car insurance to medical malpractice to premises liability. When an insurance company is responsible for handling a claim filed against its insured, the insurance company usually pays out both legal fees and the cost of damages that are either awarded by a jury or agreed upon in a settlement. However, insurance companies generally only pay out to the policy limits. In this article we'll explain how policy limits work, and how you might be able to collect compensation beyond those limits.
Understanding Policy Limits
When an individual buys liability insurance, there is essentially always a policy limit in place. This refers to the maximum amount of money the insurance company is responsible for. For example, if you buy a car insurance policy that has a $50,000 limit, the insurance company is going to pay out only $50,000. If there are $100,000 in damages, then the insurance company isn't going to pay the excess $50,000. This money, if awarded by a judge or jury, will have to come from somewhere else.
How to Collect Excess Damages
There are a few possible ways that a plaintiff may collect damages in excess of insurance policy limits. These methods include:
- bringing a lawsuit additional defendants
- recovering under an umbrella insurance policy, and
- trying to collect from a defendant personally
The appropriate method of recovering damages will depend on the situation and what options are available to the plaintiff, but let's take a closer look at these three options.
Suing Additional Defendants
Sometimes, more than one party can be held legally and financially responsible for an accident. In many such cases, the different defendants may be said to be "jointly and severally" liable for the whole amount of damages. This would mean that if there were two defendants and each had a policy limit of $50,000, both of those defendant's policies could be used to pay the bills.
Of course, there aren't always multiple defendants or multiple responsible parties. Some examples of situations where there might be multiple defendants include:
- Medical malpractice cases: There can be multiple defendants if both the hospital and the doctor breached their professional duty of care (each can be a defendant).
- Product liability cases: The manufacturer of the defective part and of the final product as a whole can be sued, as can the distributor and store that sold the product in some instances.
- Vicarious liability cases: These are situations in which an agent is acting on behalf of someone else, like an employee who got into a car accident while at work. The employer may be vicariously liable for the acts of his agents, and the employer can be held responsible.
- Premises liability cases in which a defective product was present. The property owner can be responsible for not inspecting and seeing the defect, and the manufacturer can be responsible for making an unsafe product in the first place
In certain instances, even if there is a single defendant, there may be multiple insurance companies. Some defendants, especially corporate entities and large businesses, may have an umbrella policy that essentially "goes over" all of the other insurance they have. This policy is designed to kick in when the policyholder faces liability in excess of the specific original policy limits.
For example, assume that a company had $100,000 in liability protection and a $50,000 umbrella policy. The first policy would pay up to $100,000. The second would kick in and pay $50,000 more if the damages exceeded the amount of coverage available under the first policy.
While umbrella policies are especially common among corporate or business defendants, some private individuals may have them too. So it's best to do your homework and get a clear understanding of all the insurance policies that may be in play for the defendant in your case.
Collecting From the Defendant Personally
Unfortunately, sometimes there is neither an umbrella policy nor more defendants to file suit against. In such cases, if your damage award exceeds the insurance policy limits, your only recourse will be to collect directly from the defendant. This can be hard to do if the defendant does not have cash or assets to pay you.
You may be able to go to court and get a judge to order wage garnishment or to place a lien on the defendant's properties, but this depends on the defendant having wages and having property to place a lien on. If a defendant really has no money or assets, then a judgment in excess of the policy limits in such a case is not going to be collectible.
Bad Faith Of the Insurer
It is very important for defendants to know that they do have some protection against facing personal liability. If an insurance company has the opportunity to settle a claim for within the policy limits and they do not do so, then the insurance company may be held liable for the full amount of damages that result from a jury verdict.
Often, bad faith on the part of the insurer is required for this rule to kick in. For example, if it is very clear that a plaintiff should be able to recover, if the plaintiff is willing to settle and the insurance company won't, then the insurer can be considered to have acted in bad faith and can be liable for the full amount of the jury's verdict, even in excess of the policy limits. However, if the plaintiff didn't have a strong case at all and the settlement demands were unreasonable, an insurance company's refusal to settle is not necessarily going to make the insurer responsible for the whole amount. It is usually the burden of the defendant (the policyholder) to prove bad faith on the part of the insurer.