When you file an insurance claim, whether it’s for a car accident, a personal injury, or property damage, you expect the insurance company to act in good faith and provide compensation according to the terms of the policy.
However, in many cases, insurers will attempt to limit payouts or deny claims entirely. One area where this becomes particularly important is during a policy limit investigation. Understanding what policy limits are, how investigations work, and what rights you have can make the difference between receiving fair compensation and walking away with less than you deserve.
What Are Policy Limits?
Every insurance policy has a coverage limit—the maximum amount the insurer will pay for a covered loss. For example:
Auto insurance: A driver may have liability coverage of $100,000 per person and $300,000 per accident.
Homeowners insurance: Coverage might be capped at $250,000 for dwelling damage and $100,000 for personal property.
Commercial insurance: A business policy could include higher or aggregate limits across different types of claims.
Once the insurer pays the policy limit, their obligation typically ends—even if your actual damages are higher. This is why determining whether the policy limits apply, and whether the insurer is handling your claim properly, is so critical.
What Is a Policy Limit Investigation?
A policy limit investigation occurs when the insurer examines the total value of your claim to determine whether it exceeds or falls within the policy’s coverage limit. These investigations are often triggered by serious accidents or claims involving significant losses, such as catastrophic injuries, wrongful death, or major property damage.
The insurance company conducts the investigation to assess:
- The extent of damages or injuries
- Liability determination (who is at fault)
- Whether the claim qualifies for payment under the policy
- Whether to tender (offer) the policy limits
On the surface, this process sounds fair. However, insurers sometimes use policy limit investigations to delay payment, minimize liability, or avoid disclosing the full limits of coverage—especially when a claimant is unrepresented.
Why Policy Limit Investigations Matter
For an injured person or claimant, understanding the policy limits can help guide settlement decisions. If your claim is clearly worth more than the available coverage, you may need to pursue the at-fault party personally for the excess amount or explore other avenues of recovery, such as umbrella policies or third-party claims.
On the other hand, if the insurance company refuses to disclose policy limits or drags its feet in tendering the policy amount, it could be engaging in bad faith practices—a violation of its duty to act fairly and promptly.
Common Issues During Policy Limits
While insurance companies have the right to investigate claims, certain tactics can unfairly harm claimants. Below are some common red flags:
1. Delays in Disclosure
Insurers often withhold information about the policy’s limits, forcing claimants to negotiate without knowing how much coverage exists. Some states require disclosure upon written request, but insurers may still delay or provide incomplete information.
2. Undervaluing Damages
An adjuster may minimize the extent of your injuries or property losses to justify offering less than the policy limit. They may challenge medical records, dispute lost wage calculations, or blame pre-existing conditions.
3. Failure to Tender Policy Limits in Clear Liability Cases
When it’s obvious that your damages exceed the coverage and the insured is clearly at fault, the insurer has a duty to settle within policy limits to protect its insured. If it refuses, it could later be liable for bad faith exposure beyond those limits.
4. Misleading Communication
Insurance representatives might make statements suggesting that policy limits are lower than they are, or that certain losses aren’t covered, discouraging claimants from pursuing full compensation.
How Policy Limit Investigations Can Affect Settlement
Policy limits often serve as a key factor in settlement negotiations. For example:
Scenario 1: A driver causes a severe accident, and their liability coverage is $50,000. The victim’s medical bills exceed $100,000. The insurer should promptly tender the full $50,000 once liability and damages are clear.
Scenario 2: The insurer delays payment while “investigating,” hoping the injured person will accept a lower amount out of financial desperation.
Scenario 3: If the insurer’s refusal to tender the policy limit results in a judgment greater than the limit, the insured could sue their own insurer for bad faith failure to settle, and the claimant could recover the full judgment amount.
This is why investigations are so closely tied to bad faith law and why claimants must remain vigilant throughout the process.
Protecting Your Rights After a Claim
Here are practical steps you can take to protect yourself during and after a policy limits:
1. Request Policy Limit Information Early
In most jurisdictions, you can send a written demand to the insurance company requesting disclosure of policy limits. Keep a record of your request and any responses. An experienced attorney can draft this letter in compliance with state law to ensure a timely and complete response.
2. Document Everything
Keep copies of all correspondence, adjuster communications, estimates, and medical bills. Detailed records strengthen your position if the insurer later disputes your claim.
3. Avoid Quick Settlements
Never accept an early offer before understanding the full extent of your injuries, future medical costs, or long-term financial impact. Insurers may pressure you to settle fast, especially before you know the policy limits.
4. Work With an Experienced Attorney
Insurance companies have teams of lawyers and adjusters protecting their interests. Having a qualified attorney ensures someone is protecting your. A lawyer can evaluate the adequacy of the insurer’s investigation, negotiate fair compensation, and file a bad faith claim if the insurer fails to act responsibly.
5. Understand Bad Faith Laws in Your State
Bad faith standards vary by state, but generally, an insurer acts in bad faith when it:
- Refuses to settle a valid claim within policy limits
- Fails to conduct a reasonable investigation
- Delays payment without justification
- Misrepresents policy provisions
If bad faith is proven, the insurer can be held responsible for damages far exceeding the policy limits—including punitive damages in some cases.
What to Expect If You Pursue a Bad Faith Claim
If your insurer mishandles your policy limit claim, a bad-faith lawsuit may be warranted. In such cases, your attorney will need to show:
The insurer had an opportunity to settle within policy limits.
Liability was reasonably clear.
The insurer unreasonably refused or delayed settlement.
Courts often view bad faith claims seriously because they protect both insureds and claimants from abusive insurance practices. A successful claim can result in recovery of the full amount of your losses, plus additional damages and attorney’s fees.
Conclusion
Policy limit investigations are a normal part of the insurance claims process, but they must be handled in good faith. Insurers have a legal and ethical duty to conduct prompt, honest investigations and to pay valid claims within policy limits when liability is clear. When they don’t, you have the right to fight back.
Understanding your rights, keeping thorough documentation, and working with an experienced attorney can help you navigate the complex world of insurance claims and ensure that you receive the full compensation you deserve. Remember, you don’t have to face an insurance company’s tactics alone—knowledge, persistence, and proper legal guidance are the best tools to protect your rights after a claim.
