Insurance Limits: When Less is More

Washington law requires all drivers to carry minimum insurance limits. Specifically, drivers are required to carry liability limits of $25,000 per person and $50,000 per accident.

I’ve railed before about how these limits are inadequate to cover the damages caused by anything more than minor accidents. However, there are some advantages to the injured person when the at-fault driver carries relatively low limits.

For a variety of reasons – both based on the internal policies and Washington law – insurance companies don’t want to risk a verdict that exceeds the limits of liability that have been written for their insured. These internal and external factors cause insurance companies to (frequently) pay more than they should in cases where the injured person’s damages approach the limits of liability.

For example, it’s much more likely that an insurance carrier will pay $100,000.00 to a person with $30,000.00 in medical bills if its limits are $100,000.00 than it will pay $100,000.00 to that same person if the limits are $1,000,000.

Sometimes this is difficult for injured people to absorb. The limits carried by the at-fault driver anchor the injured person’s thought process and come to represent what the insurance company should pay to settle a case. I can’t tell you the number of clients I’ve represented who have had $10,000.00 in chiropractic care who find out the at-fault driver carries $1,000,000 in coverage and decide that means they should be paid $1,000,000 to settle their case.

The amount of insurance coverage carried by the at-fault driver definitely can have an effect (frequently an upward effect) on how much is paid on settlement. Dynamically, it’s oftentimes better to have relatively low limits (or at least limits that are slightly more than the probable value of the case) then it is to have a huge commercial policy with $5,000,000 in coverage. If there’s $5,000,000 in coverage, it’s unlikely that the insurance company will pay any premium for the case and, if the injured person isn’t realistic in assessing the value of their claim, the carriers litigate the case through the trial and let a jury decide how much it’s worth rather than settle it.