Following an auto accident, both parties must exchange the appropriate contact and insurance information for either party to receive compensation. However, simply having auto insurance coverage does not guarantee that the policy limit will be enough to cover the total amount of a victim’s injuries. In many personal injury cases, the claim exceeds the policy limits. When this happens, the victim may be left wondering how to pay their remaining medical bills and lost wages.
If you or a loved one has recently been involved in an auto accident, you might be unsure of how insurance policy limits work. This can lead to questions like, Will you be granted the proper compensation for your damages? And, How often does an injury claim exceed policy limits? In this post, we discuss everything you need to know about insurance policy limits and how to collect additional compensation for damages.
What Are Policy Limits?
Before we get into policy limits, we need to understand the surrounding insurance terms. Below are the definitions of the most frequently used terms when discussing insurance policy limits.
- Insurer: This is typically an insurance company, such as Allstate, Progressive, or Geico. The insurers provide the policies.
- Policy: A document that protects an asset, like a home or vehicle. Policies lay out the guidelines for financial protection in the case a protected asset is damaged or destroyed. Policies also provide financial protection in the event someone is injured due to the protected asset.
- Policyholder: The person or entity that takes out a policy. The policyholder seeks to protect an asset.
- Claimant: The injured person or entity that wishes to receive compensation for damages caused by the asset. The claimant files a claim against the at-fault policyholder’s policy.
An insurance policy is a contract between an insurer and a policyholder. No matter what type of insurance policy you buy, there is always a limit. This is referred to as a policy limit.
A policy limit is the maximum amount an insurance company will pay for the protected asset, per each disastrous event. In other words, if you take out a $100,000 insurance policy on your vehicle, you are limited to $100,000 to compensate for any damages that occur per each car accident or natural disaster.
An insurer will pay up to the full amount for the terms outlined in your auto insurance policy but, typically, will not exceed the policy limit.
How Do Auto Insurance Policy Limits Work?
Most auto insurance policies include at least two types of insurance policy limits:
- Bodily injury liability coverage
- Property damage liability coverage
Arizona state law has recently changed regarding minimum mandatory auto insurance coverage. Arizona requires that all motorists with policies issued or renewed on or before June 30, 2020 have at least a $15,000 policy limit for bodily injury liability coverage, with a total of $30,000 per accident. Motorists with policies issued or renewed on or after July 1, 2020 must have at least a $25,000 policy limit for bodily injury, with a total of $50,000 per accident.
Arizona motorists with policies issued or renewed on or before June 30, 2020 must also have at least $10,000 in property damage liability coverage in order to properly register their vehicle. Motorists with policies issued or renewed on or after July 1, 2020 must have at least $25,000 in property damage liability coverage. Motorists are welcome to purchase a higher policy limit if they wish, however, the minimum amounts must be met to be in accordance with state law.
Insurance policy limits are typically written as three numbers separated by slashes. The first number is the per-person limit for bodily injury coverage, the second number is the per-accident limit for bodily injury coverage, and the third number is the property damage coverage. For example, Arizona’s current mandatory minimum policy limits read as 25/50/25. Keep reading to discover how policy limits come into play after an auto accident.
Bodily Injury Policy Coverage
Bodily injury (BI) refers to personal injury caused by the accident, such as a broken bone or traumatic brain injury (TBI). If you are at fault for an accident, your bodily injury policy coverage is meant to compensate the victim for any damages you caused. If you were injured in an accident, you would file a claim against the at-fault driver’s insurance policy to cover your own damages.
Bodily injury liability insurance typically has two limits:
- A per-person limit
- A per-accident limit
A per-person limit determines what the insurance company will pay for a single individual’s injuries. A per-accident limit determines what the insurance company will pay for all injuries sustained in a single accident. For example, 50/100 bodily injury liability insurance limits compensation to $50,000 per person and $100,000 per accident. So, if there were two people injured in one vehicle, your insurance would allow them a maximum amount of $50,000 each and $100,000 combined.
Bodily injury liability insurance is almost-always discussed during the discovery phase of a personal injury claim. Both the defense counsel and plaintiff counsel, along with their clients, share all information regarding appropriate insurance policies.
Property Damage Policy Coverage
Property damage refers to damage to the vehicle itself, as well as other inanimate objects, such as the other motorist’s vehicles. All auto insurance policies must have a separate policy limit for property damage. So, if you have 50/100 in bodily injury liability and $25,000 in property damage coverage, your policy would read 50/100/25. The limits for bodily injury and property damage are purposefully separated so that you cannot use funds interchangeably..
Consider it this way: Imagine after an auto accident, you sustain $15,000 in bodily injury damage and $35,000 in property damage to your car. The at-fault driver has $100,000 in insurance coverage broken down in 50/100/25 policy limits. You will be paid the full $15,000 in bodily injury damage because the amount is below their $50,000 bodily injury policy limit. However, your property damage amount exceeds the at-fault driver’s $25,000 property damage policy limit. Therefore, the insurance company will not pay the additional $10,000 in property damage.
Even though there are additional funds, the remaining bodily injury coverage cannot be used for property damage and vice versa. This unique aspect of insurance policy limits often leaves some victims with remaining damages, even after an individual policy limit has been maxed out.
How to Collect Additional Damages
As you saw from the example above, policy limit settlements aren’t always perfect. A victim can be fully compensated for property damage but still have remaining medical bills. Or maybe their bodily injury is completely covered, but they can’t receive full compensation on their totaled new car. Fortunately, there are a number of ways that an injured person can collect compensation in excess of the policy limits.
Methods to collect additional damages include:
- Bringing a personal injury lawsuit against more than one defendant
- Recovering under an umbrella insurance policy
- Proving the insurance company acted in bad faith
- Collecting from a defendant personally
1. Suing Additional Defendants
In personal injury law, the defendant is the person thought to be responsible for the accident and subsequent damages. But in some cases, more than one party can be held legally and financially responsible for an accident.
When this occurs, the multiple defendants can be found to be “jointly and severally” liable for the full amount of damages. This means that if there are two defendants and each has a policy limit of $50,000, both policies could be combined to satisfy a $100,000 judgment.
Of course, not every case will have multiple defendants. Some situations in which there may be multiple at-fault parties include:
- Vicarious Liability Cases: In this case, the defendant must have been acting on behalf of a third-party. A common example of this is when an employee is at fault for a car accident while on the clock for their employer. The employer assumes legal responsibility for the employee’s negligence.
- Multi-car Pileups: In these instances, multiple vehicles must have been involved in the accident that injured the victim. In theory, each driver contributed to the accident, so each may be liable for paying for the damages.
An auto accident attorney can help locate all possible defendants involved in a case to help a victim receive the highest settlement possible.
2. Seeking Compensation from an Umbrella Policy
In instances where there aren’t multiple defendants, there may still be multiple insurance policies in play. Some defendants, especially large business and corporate entities, purchase an “umbrella policy” that essentially covers all other insurance coverage they have. An umbrella policy is designed to kick in when the policyholder faces liability for damages that exceed the original policy limits.
Umbrella policies are most commonly seen in trucking accidents or in accidents that involve a defendant with minimal insurance driving a company-owned vehicle. For example, picture a company that has a primary $100,000 bodily injury policy limit and a $50,000 umbrella policy. The primary policy would pay up to $100,000, and if the total bodily injury damages exceeded that amount, the umbrella policy would pay up to $50,000 more.
Just as with cases with additional defendants, it’s best to seek a personal injury lawyer to gain a clear understanding of all possible insurance policies that may be in play for your case.
3. Proving the Insurance Company Acted in Bad Faith
There are several principles of insurance, the most important being the principle of good faith. This means that both the insurer and the policyholder should respect one another and not seek unjust funds or false insurance claims. An insurance company may act in bad faith if they deny a claim they know they should approve, or if they severely delay the settlement check timeline.
An example of the insurance company acting in bad faith is if they reject a claim from a victim who is clearly not at fault for their injuries, such as a motorist who was rear-ended while stopped at a red light. If the insurance company refuses to enter into a reasonable settlement that abides by the policy limits, a jury verdict could potentially award the victim a settlement larger than the policy limit to account for their additional pain and suffering.
In these cases, the insurance company may be required to pay the maximum amount of money for the victim’s damages. As a disclaimer, this is rare in personal injury cases. Likewise, bear in mind that if the victim doesn’t have a strong case or their settlement demands are unreasonable initially, the insurance company’s denial will not automatically equal “bad faith.” An attorney well-versed in insurance law can help navigate the behavior of the insurance company.
4. Collecting from a Defendant Personally
In the majority of cases, damages that exceed the defendant’s insurance policy’s limits must be personally demanded in a lawsuit. In this case, the defendant’s personal assets, such as cash, investments, or real estate, can be used to compensate the claimant. However, this can be difficult if the defendant doesn’t have any cash or assets in their name.
Claimants may be able to take the case to court. There, a judge or jury verdict can order for wage garnishment or have liens placed on the defendant’s property to recoup damages. But again, this process would rely on the defendant having wages or property to place liens on. If the defendant truly has no money or assets beyond their insurance policy, then an excess judgment will not be possible.
Can You Sue the At-Fault Driver After a Car Accident?
As we’ve discussed, claimants can collect additional compensation in certain situations through multiple defendants, insurance policies, and bad faith claims. However, if none of these options pan out, claimants can also sue the at-fault driver. In this way, claimants can collect from the at-fault driver personally.
Claimants can typically sue for up to the total policy limits of the at-fault driver’s car insurance coverage. Unfortunately, medical bills can still be in excess of the policy limits—especially if there is only one defendant and that person has no assets to sue.
For this reason, it’s important for drivers to also carry underinsured motorist coverage. True to its name, this coverage is enacted whenever an at-fault motorist does not have enough insurance to compensate for all damages. This means that even if you’ve maxed out what you can recover from the at-fault driver’s insurance coverage, you can still make a claim against your own underinsured motorist coverage to fully compensate for your damages.
In this scenario, it’s best to have the guidance of a personal injury lawyer to help make these difficult decisions.
FAQ: How Often Do Auto Accident Settlements Exceed the Policy Limits?
One of the most frequently asked questions (FAQ) car accident victims have is how often auto accident settlements exceed the policy limits. As a general disclaimer, it’s difficult to determine the number of policy limit settlements that received excess judgment, especially as several high-profile accident cases are kept private.
In most cases, the injuries or property damage must be severe for the judgment to exceed the policy. For instance, medical malpractice can result in life-changing injuries that require life-long medical care. Similarly, wrongful death after a vehicle collision can create thousands of dollars of unforeseen expenses for a family.
In these cases, the settlement offer may require excess judgment to properly account for all damages. When long-term medical treatment is necessary, a victim is left permanently disabled, or an individual has been killed, the settlement will likely be in excess of the policy’s limits.
Discuss Your Case with a Personal Injury Attorney
If you or a loved one has suffered injuries in an accident, you should always contact a trusted law firm for legal advice. An experienced personal injury attorney can determine if you have a claim. Plus you can develop a strong attorney-client relationship to build the best possible case for compensation. If you do have a case, an attorney can also help you navigate negotiations with insurers and find all available policies so you can receive maximum compensation.