The importance of early disclosure of policy limits in personal injury cases

Whether you are an attorney representing a party seeking damages or the attorney representing the defendant against a claim, understanding the applicable policy limits in your case can play a vital role in the outcome.

Policy limits drive settlement, help to manage client expectations, and, if disclosed early enough, can reduce the number of lawsuits filed each year. Yet, why don't carriers disclose policy limits right away? Why are defendant's failing to disclose all applicable limits even after a lawsuit is filed? What benefit do insurance companies gain by withholding this information? This article briefly addresses those questions and proposes a few solutions for this ongoing problem.

The disclosure dilemma

While it is arguably much easier for defense attorneys to determine their clients' applicable policy limits, it is nearly impossible for the plaintiff and his or her attorney to ascertain limits without filing a lawsuit and conducting discovery. This makes no sense from the plaintiff's perspective. Equally confounding is that sometimes defense attorneys fail (innocently or deliberately) to disclose all of the applicable limits even after filing suit.

Unfortunately, insurance companies do not have a duty to disclose policy limits to anyone but their insured. In fact, under California law, carriers are explicitly prohibited from disclosing policy limits to third parties without the insured's written permission or court order. (Ins. Code Section 791.13(a).) Therein lies the problem.

Seeking disclosure of policy limits

Plaintiff lawyers can attempt to circumvent this issue by writing a letter to the defendant's insurance company requesting that it immediately seek permission from its insured to disclose policy limits. The letter should include the basic facts and claims in your case as well as an explanation as to why the insured should give permission to disclose the limits. Demand that a copy of the letter be provided to the insured. To be clear, this is not a policy limits demand, it is a request for the disclosure of limits. Most adjusters will never share your letter with the insured and will likely reject the request, but the letter can be useful in a subsequent bad faith case and will not be subject to the same evidentiary restrictions as a policy limits demand. Moreover, an insurer's failure to ask the insured's permission to disclose policy limits may form the basis for a bad faith claim. (See e.g., Boicourt v. Amex Assur. Co., (2000) 78 Cal.App.4th 1390).

Once a lawsuit is filed, policy limits (and the policies themselves) become discoverable. (See Code Civ. Proc., §§2017.210, 2030.310, and 2031.310.) It is critical for plaintiff lawyers to promptly serve discovery, particularly Form Interrogatories, to obtain the defendant's policy limits. However, relying solely on discovery responses can be a critical oversight made by far too many plaintiff attorneys. For instance, although Form Interrogatory 4.1 requires the defendant to disclose all potentially applicable policy limits, defense attorneys often only possess knowledge regarding the primary level of insurance and may not have been provided with information regarding excess or additional coverages from their client. Plaintiffs should also request a full and complete copy of defendant's insurance policy - including all declaration pages, supplements, renewals, and/or endorsements that were in effect at the time of the incident. Attend an IDC or file a motion to compel if the defendant refuses to cooperate.

In the case of a commercial defendant, where excess coverage is more likely, researching the defendant's business can provide initial intel as to whether or not the defendant may have additional insurance. When in doubt, take the deposition of the company's Person Most Qualified regarding insurance.

A voiding last-minute surprises

To ensure there are no additional limits, it is prudent for plaintiff attorneys to adopt a practice of sending a letter to the defense attorney, requesting confirmation, in writing, that all applicable insurance limits have been disclosed. This includes verifying the absence of any additional limits, such as excess, umbrella, or other policies, which could potentially provide coverage for the case. By engaging the defense attorney in this matter, it compels them to revisit the issue with their client, increasing the likelihood of uncovering any undisclosed additional limits and avoiding further delay down the road.

Attorneys are too often in mediation or gearing up for trial when they learn that there are additional limits which were never disclosed in discovery. Learning of additional coverage late in a case can delay and derail settlement or trial. Taking steps to ascertain the applicable insurance limits early on in your case will save time and resources for you and your client. Thus, it may not be worthwhile to pursue a case if the policy limits are not enough to cover your client's damages.

The need for legislative action to shift burden for early disclosure

For some inexplicable reason, insurers believe that disclosing policy limits pre-litigation will lead to more lawsuits and, therefore, more money spent on lawyers and defending lawsuits. However, there is another equally valid point of view: disclosing policy limits early would benefit insurance companies, as it would conserve judicial economy, lead to fewer lawsuits, and minimize attorney's fees.

Yet, without a legal basis for early disclosure, obtaining policy limits will become more difficult and attorneys on both sides of the bar will continue to waste an exuberant amount of time and resources. Unnecessary lawsuits would be short-circuited if carriers were obligated to disclose all policy limits pre-litigation, or at a minimum disclose whether limits are or are not the legal minimum limits. "Minimum limits" is the financial responsibility requirement that all policies must have (with a limited exception for low-income policyholders). For example, California's minimum automobile liability coverage, effective Jan. 1, 2025, will be increased to $30,000 per bodily injury or death, $60,000 per occurrence, and $15,000 in property damage coverage.

If this simple information is required to be disclosed upon request, the onus and the burden will be shifted to the insurer. The disclosure of this critical information levels the playing field and protects both the injured party and the insured. If the limit is minimal and the damages are significant, the insured will be protected by early policy limits demands and resolution before facing years of litigation. Conversely, if the carrier discloses minimal limits upon request, and a policy limits demand is made and ignored, the plaintiff may be able to sue the insurer for an excess judgment.

Ultimately, the only way to force insurers to disclose policy limits pre-litigation and/or ensure all limits are disclosed in litigation will be to pass legislation.