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Policy Limits

The maximum an insurance policy will pay - and usually the real ceiling on what a claim is worth, whatever the injury.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

Looking for a lawyer rather than a definition? Skip to the state-by-state list of Car Accident law firms.

What it means

Every liability policy states a maximum. The limit is the insurer's promise, and it is unrelated to the size of the harm: a driver carrying the minimum required by their state can cause a catastrophic injury and the policy still pays only its limit. Because most individuals do not have significant assets beyond insurance, the limit is very often the practical value of the claim, and finding out what it is early changes how a case should be run.

Limits are usually written as two or three numbers. A split limit such as a per-person figure, a per-accident figure and a property damage figure means the per-person amount caps what any one injured person recovers even if the per-accident total is higher. A combined single limit is one pot for the whole accident. A separate aggregate limit, common in business and professional policies, caps everything paid during the policy period rather than per claim.

Two mechanics regularly surprise people. First, in many liability policies defense costs are paid in addition to the limit, but in some - often professional liability and directors' policies - defense costs erode it, so every month of litigation reduces what is left for the claimant. Second, states set only a minimum required liability limit for drivers, and those minimums are in several states very low relative to the cost of a serious injury; that gap is what uninsured and underinsured motorist coverage on your own policy exists to fill.

Whether the other side's limits can be discovered before suit is filed depends on the state. A number of states require an insurer, on request and subject to conditions, to disclose the liability limits of its insured to a claimant; elsewhere the information may not be obtainable until formal discovery. Where several policies apply - a personal policy and an umbrella, an employer's policy where the driver was working, a vehicle owner's policy separate from the driver's - the total available may be considerably larger than the first number quoted, and identifying every applicable policy is a distinct piece of work.

A demand for the full limit is a specific and consequential move rather than a negotiating flourish. If an insurer refuses a reasonable within-limits demand and its insured is later found liable for more, the insurer may be exposed for the excess - the third-party bad faith scenario. That prospect is what gives a properly made limits demand its force, and it is also why the terms and timing of such a demand are worth getting right.

Where this comes from

Compulsory minimum liability limits for motor vehicles, the availability and terms of uninsured and underinsured motorist coverage, the stacking of multiple policies, and whether an insurer must disclose its insured's limits before suit are all matters of state law and differ substantially between states. Whether defense costs erode the limit is a term of the individual policy. The exposure of an insurer that rejects a reasonable settlement within limits and thereby leaves its insured liable for an excess judgment arises under state common law on the duty of good faith. Any period for making or responding to a limits demand, and any deadline in a policy for notice or suit, is set by that policy or by state law, and this page states none.

When people hire a lawyer for this

Establishing what coverage exists is one of the highest-value early tasks in any injury claim and it is largely invisible work: identifying every policy that might respond, including umbrella coverage, an employer's policy if the person was working, and your own underinsured motorist coverage, which is frequently the largest source available and is frequently forgotten because it means claiming against your own insurer. If you are the person insured and a claim against you looks like it may exceed your limits, that is a moment to get independent advice rather than relying solely on the lawyer your insurer appointed. And before buying insurance at all, the cheapest version of this advice is simply to compare your liability limit against what a serious injury actually costs.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

Find Car Accident law firms in your state

Choose your state to see Car Accident law firms in the city where we list the most; your city may be under “other cities”, A to Z.

Alabama (Birmingham)
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- and 6 more with fewer listed firms
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Rhode Island (Providence)
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Texas (Irving)
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Utah (Salt Lake City)
Vermont (Burlington)
Virginia (Chesapeake)
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Washington (Seattle)
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- Spokane
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West Virginia (Charleston)
Wisconsin (Milwaukee)
+1 other city
- Madison
Wyoming (Cheyenne)

Related terms

Entries on the same subject:

Other entries in the same area of law, each written from the same primary sources.

CDL DisqualificationThe federally defined list of offenses that take away a commercial driver's license - including offenses committed in a personal car, and a lower alcohol limit than applies to other drivers.
Contesting a Traffic TicketWhat a moving violation citation actually is, the difference between an infraction and a traffic misdemeanor, and the procedures - hearing, written defense, traffic school - for answering one.
Driving Record PointsThe system most states use to score moving violations against a driver's record, with a license suspension when the total crosses a threshold - and an interstate compact that makes an out-of-state ticket count at home.
DUI / DWI (Impaired Driving)Driving while impaired by alcohol or drugs - a charge that almost always runs as two separate cases at once, one criminal and one over the license.
Field Sobriety TestsThe roadside balance, coordination and eye-movement exercises an officer uses to build probable cause for an impaired-driving arrest - usually voluntary, and never the same thing as the chemical test that follows.
Hours-of-Service Rules (Commercial Trucking)Federal limits on how long a commercial driver may drive and work, and the electronic records that show whether those limits were kept.
Ignition Interlock DeviceA breath-testing device wired into a vehicle that stops it starting if the driver has been drinking - required by many states after an impaired-driving conviction as a condition of driving at all.
Implied Consent and Administrative License SuspensionThe rule in every state that by driving you have agreed to a chemical test for alcohol or drugs after a lawful arrest - and the license suspension that follows a refusal or a failed test, separately from any criminal case.
Leaving the Scene of an Accident (Hit and Run)The legal duties every state imposes on a driver involved in a crash - to stop, to exchange information and to help anyone hurt - and the separate criminal offense of driving away instead.
Lemon Law and Warranty RightsRules that entitle a buyer to a refund or replacement when a new vehicle has a defect the manufacturer cannot fix in a reasonable number of attempts.
Negligent Entrustment (Lending a Vehicle)The claim against a person who lent a car to someone they knew, or should have known, was unfit to drive it - the owner's own negligence, separate from the driver's.
Odometer Fraud and the Odometer DisclosureRolling back or replacing an odometer to hide a vehicle's true mileage is a federal offense, and every transfer of a vehicle must come with a written mileage statement the buyer can sue over if it is false.
Salvage and Rebuilt TitlesThe title brands a state applies to a vehicle an insurer has declared a total loss, what a rebuilt brand means, and the federal database built to stop a branded title being washed clean in another state.
SR-22 and Financial Responsibility FilingsThe certificate an insurer files with the state to prove a high-risk driver is carrying the required liability coverage - what triggers it, why it is not itself insurance, and what happens if the policy behind it lapses.
Tire Defect Claims (Tread Separation and Blowouts)Injury claims after a tire fails, where the question is whether the tire was defectively made or designed, was too old or was recalled, rather than only how the driver reacted.
Used Car Buyers Guide (FTC Used Car Rule)The window sticker a dealer must display on every used vehicle offered for sale, stating whether it comes with a dealer warranty or as is - and why the sticker overrides the contract.
Vehicle Safety RecallA manufacturer's federally supervised obligation to notify owners of a safety defect and fix it free of charge - and the rules on what a dealer may sell with a recall still open.

« All glossary terms

Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

If you cannot afford a lawyer, civil legal aid programs provide free help with many of these problems: civil legal aid programs by state.

Related free reference tools: statute of limitations for a personal-injury claim, by state, quoted from each state's official text - part of LawyerLand's legal reference tools.