Policy limits represent the maximum financial exposure an insurer assumes under a particular coverage agreement. These limits establish the ceiling on what a claimant can recover from that insurer regardless of damages proven. Common auto liability policies range from state-minimum minimums ($25,000/$50,000 in many states) to high-limit umbrella policies ($1M+). When a plaintiff's damages exceed available policy limits, the attorney may pursue the difference from the defendant personally, explore umbrella coverage, or evaluate bad faith claims against the insurer for failing to settle within policy limits when liability was clear. Understanding policy limits early in intake is critical for case valuation. High-value injuries with low policy limits require different strategies than cases with substantial coverage available. Uninsured/underinsured motorist coverage may provide additional recovery sources.
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Policy Limits
Maximum amount an insurance company will pay under a given policy, often determining the upper bound of recoverable settlement.
Related terms
- Bad Faith Claim — Legal action against an insurer that unreasonably denied or delayed payment of a valid claim, potentially exposing them to full damages plus penalties.
- Insurance Adjuster — Insurance company representative who investigates claims, evaluates liability and damages, and makes settlement recommendations or offers.
- Umbrella Coverage — Additional liability insurance layer above auto and home policies, providing extra protection for high-value claims beyond standard policy limits.