Understanding the depth of an at-fault party’s insurance coverage is vital for structuring effective negotiation strategies and formulating litigation plans. This understanding begins with policy limit tracing.
The careful investigation and documentation of the amount of coverage available under an insurance policy. For legal professionals, mastering the art of policy limit tracing can dramatically improve settlement outcomes and inform decisions about whether to pursue litigation.
In this guide, we’ll explore the importance of policy limit tracing, the best methods for tracing policy limits, and how legal professionals can use this information to enhance their case strategies.
Why Policy Limit Tracing is Crucial
For plaintiffs, understanding the policy limits of the at-fault party’s insurance policy can be one of the most important pieces of information to have early on in a case. This figure represents the maximum potential payout from the insurer, which can inform the following:
Settlement Negotiations: Knowing policy limits allows plaintiffs to make informed settlement demands. For example, if the policy limit is low, the plaintiff may decide to settle quickly or explore other sources of compensation, such as the defendant’s personal assets.
Avoiding Protracted Litigation: If the defendant has limited insurance coverage, it might not be worthwhile to pursue a lengthy trial when the recovery potential is capped. On the other hand, knowledge of high coverage can motivate a plaintiff to pursue litigation with greater confidence.
Assessing Bad Faith Risk: For insurers, failing to disclose policy limits in an attempt to avoid settlement could lead to claims of bad faith. Legal professionals must be aware of these potential claims to safeguard their interests.
Thus, knowing how to trace policy limits—finding and confirming the exact limits—can make or break a case.
Steps in Policy Limit Tracing
1. Start with the Insurance Policy
The first step in tracing policy limits is identifying the at-fault party’s insurance provider. In many cases, this information can be obtained early in the claims process, often through:
The Defendant’s Statements: If the defendant is involved in an accident or legal dispute, they may voluntarily disclose insurance information early on. Many defendants, however, are not forthcoming with this information.
Insurance Cards or Documents: These documents may contain vital information regarding the type of insurance policy in place, the insurer’s name, and policy numbers. In the case of auto accidents, insurance cards are often exchanged between parties.
Once you have this information, the next step is to contact the insurer directly. Most insurers can confirm the existence of a policy, as well as its limits, after receiving a request from an attorney.
2. Leverage Statutory Disclosure Requirements
In many states, laws exist to compel insurers to disclose policy limits upon request. These statutes generally require that insurance companies respond to such requests within a certain period, typically 30 days.
For instance:
Florida: Fla. Stat. § 627.4137 mandates that insurance companies disclose their policy limits within 30 days of receiving a written request, provided the request includes the claimant’s name and the claim number.
California: While California doesn’t have a statute that directly requires insurers to disclose policy limits, case law supports the notion that insurers must disclose insurance policy limits when requested.
If you’re practicing in a jurisdiction with mandatory disclosure laws, make use of these legal frameworks to expedite the tracing process. Be sure to follow the specific guidelines laid out in the law to avoid delays or refusals.
3. Use Discovery in Litigation
If you’re already involved in litigation or anticipate filing a lawsuit, discovery tools can be particularly effective for uncovering policy limits. Interrogatories and requests for production of documents can be used to formally ask the defendant (or the insurance company) to provide policy limit information.
For instance, Rule 26 of the Federal Rules of Civil Procedure requires a party to disclose the existence and amount of insurance coverage that may satisfy a judgment. This rule often applies to personal injury cases, where knowing the insurance policy limits is critical for preparing a case.
In some instances, depositions may be used to compel the disclosure of insurance information. This is particularly useful when the insurance adjuster or defendant’s representative has specific knowledge regarding the policy.
4. Investigate Insurance Providers Through Third Parties
When direct requests to the insurer or defendant yield limited results, third-party investigations may be necessary. This is particularly common when the defendant is uncooperative or when the policy is issued by a lesser-known or obscure insurer.
Legal professionals may consider the following third-party resources:
Private Investigators: Specially trained investigators can assist in locating and verifying insurance policies.
Public Records: In some cases, business licenses, vehicles registration, or court filings may provide clues about insurance coverage.
Insurance Verification Services: These services maintain databases of insurance companies and policy details and can sometimes provide policy limits upon request.
Though not always guaranteed, these tools can help track down elusive insurance information.
5. Cross-Reference with Legal Precedent
In some situations, legal precedent can be crucial for determining the scope of insurance coverage. Court rulings and statutes might indicate whether certain types of insurance are required in particular industries or whether certain exclusions apply to a defendant’s policy. For instance, commercial general liability policies may cover a broader range of damages, while homeowners’ insurance policies often have exclusions for certain types of accidents.
Case law can also help clarify when an insurer is obligated to disclose policy limits. For example, the case of Comunale v. Traders & General Ins. Co., 328 P.2d 198 (Cal. 1958), established that an insurer’s failure to settle within policy limits could expose them to a bad faith claim.
Legal professionals should be aware of state-specific rulings and relevant case law when tracing policy limits, as this can further inform the negotiation or litigation strategy.
Best Practices for Legal Professionals
Tracing policy limits effectively requires precision, persistence, and an understanding of the various tools and methods at your disposal. Here are some best practices to consider:
Document Everything: Keep detailed records of all communications with the insurer, third-party investigators, and the defendant. This ensures that you can substantiate your efforts in tracing policy limits if necessary.
Be Familiar with Local Laws: Different states have different requirements and methods for accessing policy limits. Stay informed about your jurisdiction’s statutes and regulations to streamline the process.
Act Early: The earlier you begin tracing policy limits, the better prepared you will be for settlement negotiations or litigation. This proactive approach can help you avoid surprises during the claims process.
Communicate Effectively: Whether you are dealing with the defendant’s insurer or conducting your own research, clear and direct communication can expedite the tracing process. Use professional, well-written requests to ensure a timely response.
Conclusion
Policy limit tracing is an essential skill for any legal professional handling personal injury or insurance litigation. By knowing how to identify, trace, and leverage the insurance policy limits, attorneys can shape their strategies to maximize settlements, avoid unnecessary litigation, and ensure fair outcomes for their clients. As legal frameworks evolve and technology advances, mastering the art of tracing policy limits will remain a cornerstone of effective legal practice.
