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What does it mean to “open up” the policy limits?

Policy limits can be “opened up” if the insurance company fails to act reasonably in rejecting an accident victim’s settlement demand for payment of the full policy limits. If the case is litigated after the policy limit demand is rejected by the insurance company, and a verdict entered for an amount greater than the policy limits entered, a plaintiff’s attorney may obtain a post-trial assignment of rights from the insured (or at fault driver).


Here the plaintiff’s attorney would legally takeover the at fault driver/Defendant/insured’s right to make a claim against their insurance company for failing to settle the claim for the policy limits, as their failure to do so resulted in an excess judgment that the insured is now on the hook for. If the insurance company fails to pay the judgment in excess of the policy limit and is found to have acted in bad faith by not settling the claim for the policy limits when they had the chance, they could be compelled to pay a much higher amount than the policy limits.


How does all this happen? The amount of a plaintiff’s recovery from a car accident is often limited to the “policy limits” of the insurance policy carried by the at fault driver. Now there are many exceptions to this, which I have detailed in other blog posts, but for this post, let us assume that the only possibility of recovery is from the at fault driver’s insurance policy.


When a car accident victim makes a claim against the at fault driver’s insurance policy, this is called a “third-party claim.” In third-party claims, a non-party to the insurance policy is alleging a loss (be it property damage or bodily injury) and demands that the insured assume liability for it.


It is important to remember that insurance adjusters possess superior knowledge of the insurance contract than their insureds do. Most people buy auto insurance because state law requires it. Very few read the entire policy, with its coverage obligations and limitations, after they purchase it. They simply purchase and hope that they will be covered in the event something bad happens to them. Who can blame people for taking this shortcut? In today’s complex society, there are simply too many details in the fine print in the devices and items we use each day to go over each one.


Consider the user contracts one must agree to to use Apple products. The iCloud user agreement contains a staggering 8,783 words. Apple Watch’s user agreement contains 5,245. Itunes contains 4,215. Even the IOS App store has a user agreement that is 2,719 words.


Assuming coverage exists, the insurance company has contractual duties with its insured (the at fault driver) to indemnify (or reimburse) and defend them (provide legal counsel) against such claims. Plaintiff’s lawyers usually sue the at fault driver individually; knowing that insurance company will defend their insured in the lawsuit.


Prior to filing a lawsuit, and certainly prior to a trial, plaintiff’s lawyers will make a demand to the insurance company asking for payment of the claim. The insurance company has certain duties that are triggered upon receiving this demand. Among them are a duty to share settlement negotiations with their insured and a duty to inform their insured of the potential liability if the case went to trial and a verdict for more than the policy limits were rendered.


Remember – if a jury verdict is greater than the amount of the insurance policy, the insured must pay the difference. While the insurance company has a duty to indemnify or reimburse their insured for excess judgments, they do not always do this, something that could result in a separate lawsuit. The insurance company has a contractual obligation to its insured to make sure that they protect the financial interest of their insured. At the same time, insurance companies want to save money by paying the least amount that they can on claims.


These competing considerations can put insurance companies on a high wire juggling act. On one hand they do not want to pay claimant’s the policy limits on too many cases. On the other, they do not want to be found to have acted in bad faith by offering too little during the negotiation process, litigating the case, and have a verdict higher than the judgment enter against their insured.


An insurance policy can “open up” when an insurance company receives a settlement demand within the policy limits from an accident victim, then rejects the demand, litigates the case, and trial results in a judgment more than the policy limits but refuses to indemnify its own insured for the full judgment. The insurer may have opened the policy by acting in bad faith toward their insured’s financial interests in refusing to settle the claim for policy limits when they had the chance.


A policy limit does not automatically “open up” the moment a policy demand is rejected. An “open limit” depends on many factors, including whether a “reasonable insurer” would have paid the policy limits knowing what the carrier knew or should have known at the time of the policy limit demand was denied. If an insurance company fails to act with the best interest of its insured during this process, this can lead to major problems, setting the stage for “bad faith” claims, a topic I discussed in a prior blog post.


If a plaintiff’s lawyer has a claim that is worth more than the policy limits, they must only provide one opportunity for the insurance company to settle the claim. Plaintiff’s lawyers can “set up” insurance companies for potential bad faith failure to settle claims by first making a demand for the policy limits. If this demand is rejected, they can make demands for greater than the policy limits with the hopes that the insurance company realizes that they undervalued the claim and will pay more than the policy limits to rectify their error.



The Gerring Law Firm, Personal Injury Lawyer Saint Louis, Best Personal Injury Lawyer, Car Accident Lawyer Near Me, Car Accident Lawyer Saint Louis, Stephen Gerring, Car Crash Lawyer
Insurance policy limits can be "opened up" when insurance companies fail to act in the best interest of their insured.


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