Does liability policy limit affect ultimate settlement amount?

[p911dad]

My question relates to what is the likely outcome if an individual is found "at fault" in a personal injury accident. The example is say you have a $100,000/$300,000. policy(like many drivers in NY have) and a person gets seriously hurt as a result of your driving versus another driver with a $1,000,000. excess liability policy in place at the time of the accident. All other facts are the same- my question: Is the person injured likely to end up with a greater amount in the end because the pockets of driver #2 are deeper? Or are these differing policy amounts unrelated, and the amount is solely dependant on the scope of the injury? Or in reality, does the upper limit of the policy set the damages? I don't often(if ever) hear of people losing their houses to pay settlements.

[the]

The liability policy limit does not technically affect a settlement or judgment amount - in other words, it does not limit what a person can recover.

But as a practical matter, it often does. Because most of the time, the defendant doesn't have significant assets to collect against. If, for example, the defendant doesn't own a house with significant equity, he is usually pretty much "judgment proof."

So if you get significantly injured, it is much, much better if the guy with the $1 million policy is at fault. If you have $1 million in damages, you will end up collecting more from that guy and his insurance than the $300K limit guy. That is esp. true because if someone has a $1 million umbrella policy, the probably ALSO has significant personal assets he is trying to protect. He is going to put significant pressure on the insurance company to settle for the policy limits.

The minimum or average policy limits guy probably has little or no net worth.

You don't often heare of people losnig their houses to pay settlements or judgments, but then again, you probably don't hear of people not losing their houses, either. If you injure someone in an accident and have $750K in equity in your house, and have $100K insurance, you likely will lose the house. (If you were crazy enough to not sell it the day after the accident!).

[greglepore]

+1

I'd just add that most PI atty's aren't interested in reviving judgments until one spouse dies or chasing assets that aren't easy, unless the defendant is wealthy enough that the exposure is "easy pickings". 99 times out of 100, the plaintiff takes the policy limits and moves on to underinsured motorist coverage if its available. While the underinsured carrier can subrogate, they rarely do.

[p911dad]

Thanks for the thoughful responses. These days it is difficult for the average Joe to conceal assets, so perhaps an insurance review would be appropriate. More that a few of us would be sitting ducks in such a case.

[The Gaijin]

The second half millon of liability insurance is not as expensive as the first - and the second million is not as expensive as the first million...

Make sure to get coverage for those underinsured as well as uninsured. There is an important difference. The drunk biker that almost killed my Dad had insurance - but at the very low statutory limit. If he had no insurance at all would have been better.

[RallyJon]

the, you raise an interesting point about high insurance limits inviting opportunistic PI suits. So how do you protect your assets without presenting that juicy target?

[MRM]

You can't protect yourself any way except with high limits. It's actually pretty cheap to do as Gaijin explains. The easiest way to do it is to get basic liability coverage and add a million dollar or so umbrella. The best coverage and best value in the world.

This is very important: You need the high limits to protect yourself in case you get hit by a driver who doesn't have coverage. If you get an umbrella policy, make sure it has uninsured and underinsured motorist coverage. That means that if an uninsured or lightly insured drunk hits you, your own coverage will pay for the damage he caused. For that reason alone I have a $2 million umbrella on top of my underlying coverage.

Finally, the higher limits can actually decrease the settlement value of your case. The calculation goes like this. In most states, if the plaintiff asks for your policy limits or less, but your insurance company turns them down, the insurance company is on the hook if the plaintiff gets a verdict against you for more than your limits. So if you have $30,000 or even $50,000 or $100,000 limits, even a minor accident carries some risk to the insurance company that they will be responsible for an excess verdict. So with the lower policy limits, there is an incentive to pay more in proportion to the insurance coverage to prevent an excess verdict. But if you have a larger policy, like a million dollar umbrella, all but the most serious accidents will fall under your limits even if there is a run away jury. So the insurance company can take a much harder line and settle the claim for what it is worth if you have high enough limits.