What Happens When a Car Accident Claim Exceeds Insurance Limits?

Auto insurance policies provide financial protection against unexpected damages. These policies serve as a safeguard, offering coverage for various liabilities. However, the total cost of damages can sometimes surpass the maximum amount an insurance policy covers. Understanding these scenarios is important for anyone involved in a collision.

Understanding Your Liability Coverage

Automobile liability insurance covers damages you cause to other people or their property in an accident. This coverage has two main parts: bodily injury liability and property damage liability. Bodily injury liability covers medical expenses, lost wages, and pain and suffering for others injured in an accident you cause. Property damage liability pays for repairs or replacement of another person’s vehicle or other property damaged in the collision.

Policy limits for liability coverage are structured in two ways: split limits or a combined single limit. Split limits (e.g., 25/50/25) denote maximum payouts for bodily injury per person, total bodily injury per accident, and property damage per accident. For instance, a 25/50/25 policy pays up to $25,000 for one person’s injuries, $50,000 for all injured parties, and $25,000 for property damage. A combined single limit provides a single maximum amount the insurance company will pay for all damages, including both bodily injury and property damage.

These policy limits represent the maximum amount your insurance company will disburse for a covered claim. It is important for policyholders to understand their specific limits, as these figures define the extent of protection provided by their coverage. Any damages exceeding these limits become the responsibility of the at-fault driver. Knowing your policy’s terms helps manage potential financial exposure after an accident.

The At-Fault Driver’s Personal Responsibility

If total damages from a car accident exceed the at-fault driver’s liability insurance limits, the driver becomes personally responsible for paying the financial difference. The insurance company’s obligation to cover costs ends at the policy’s maximum payout. This personal responsibility can encompass a wide range of damages beyond typical coverage amounts.

Medical expenses form a significant portion of these damages, including emergency room visits, ambulance transportation, hospital stays, and surgeries. Long-term medical care, such as physical therapy, rehabilitation, and ongoing doctor visits, also contributes substantially to the total claim. Injured parties may also seek compensation for lost wages, covering income missed due to injuries and reduced future earning capacity.

Non-economic damages like pain and suffering are a large component of a claim, reflecting physical discomfort, emotional distress, and reduced quality of life. Property damage, while sometimes overlooked, can also exceed limits, particularly with high-value vehicles or multiple damaged structures. For example, a single luxury car or extensive commercial property damage could surpass standard property damage limits. When these damages exceed the insurance policy’s maximum, the at-fault driver faces the remaining financial burden.

Navigating the Excess Claim

When a car accident claim exceeds the at-fault driver’s insurance limits, a process unfolds. The injured party, often through legal representation, sends a “demand letter” to the at-fault driver’s insurance company. This letter outlines the full scope of damages, requesting an amount higher than the policy limits. The insurance company has a duty to defend their insured and negotiate up to the policy’s maximum coverage.

The insurance company must act in “good faith” throughout this process, attempting to settle the claim within policy limits. Failure to do so could expose the insurance company to further liability. Negotiations take place between the injured party’s attorney and the at-fault driver’s insurance claims adjuster. These discussions aim to reach a settlement within the existing policy coverage.

If negotiations fail to yield a settlement within policy limits, the injured party may file a lawsuit against the at-fault driver. This legal action seeks to recover total damages, including the amount exceeding insurance coverage. The lawsuit proceeds through the court system, potentially leading to a trial where a judge or jury determines damages and liability. If a judgment is rendered against the at-fault driver for an amount greater than their insurance policy, the driver becomes personally responsible for that excess sum.

Potential Financial Implications for the At-Fault Driver

A court judgment against an at-fault driver for damages exceeding insurance coverage can lead to severe personal financial implications. After a judgment, the injured party, now a judgment creditor, can pursue legal mechanisms to collect the owed amount from the at-fault driver’s personal assets. These methods satisfy the debt and can significantly impact the driver’s financial stability.

One collection method is wage garnishment, where a portion of the at-fault driver’s earnings is withheld by their employer and sent to the judgment creditor. Federal law places limits on how much can be garnished from wages. A bank account levy allows the judgment creditor to seize funds from the at-fault driver’s checking or savings accounts, resulting in a loss of available cash.

A lien may be placed on the at-fault driver’s real estate, such as their home. A property lien makes it difficult to sell or refinance until the judgment debt is satisfied. Other valuable assets, including vehicles, investments, or personal belongings, could also be subject to seizure or forced sale. In extreme cases, an individual might consider filing for personal bankruptcy. While bankruptcy can discharge certain debts, including civil judgments, it has long-lasting negative impacts on credit and financial standing.