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Insurance “Policy Limits”

By far, the lion’s share of monetary damages awarded in jury trials or voluntary settlements comes from insurance money. At one time, insurance companies merely increased their premiums across the board to recoup their losses. However, insurance premiums have reached all-time highs, and consumers are no longer willing to accept this solution. An alternative has been to sharply raise the limitations of coverage offered by insurers. In health insurance, for example, this may take the form of more stringent limitations on pre-existing conditions, or a lower maximum dollar amount payable per injury/illness or per incident. Although insureds may file suit for reimbursement or payment of larger amounts, the stated policy limit will generally be held valid.

For business entities carrying liability insurance, their contracts or business transactions may often expressly state that liability is limited to “policy limits.” This means that, should a damages award against the company result in a liability greater than the amount of coverage provided by any insurance against such loss or liability, persons dealing with the business cannot compel the business to liquidate assets or offer other resources to cover the difference.

In lawsuits, the policy limit is often used as a negotiating tool for early settlement of a case. Even though plaintiffs may believe they could be awarded a greater dollar amount by a jury, they may settle the case for the policy limits of any insurance carried by defendants. This removes the uncertainty and protracted litigation often involved in trying to collect money or liquidating assets from the defendant’s personal estate after all available insurance has been paid out.

Inside Insurance “Policy Limits”