What happens if someone sues you for more than your insurance covers?

Car accidents and the personal injury lawsuits resulting from them are commonplace in the US. Although many things happen after an accident, it depends on multiple factors, like the level of injury, what the involved individuals choose to do, and state law. 

One constant is that being responsible for an accident exposes you to the possibility of a lawsuit.

To avoid these potential lawsuits, you sign up for insurance policies and liability coverage that will either pay you or a person they injure in an accident. State law requires that you get insurance before driving. 

But what happens when you get in an accident and face a lawsuit that demands more than you can get from your insurer under your policy?

Generally, an insurer that is supposed to compensate a person you’ve injured in an accident will also pay for you to have legal representation if the injured person brings a lawsuit against you. If the lawyer believes the injured party is unnecessarily inflating the damages they’re claiming in the suit, the lawyer will try to get the amount reduced either through negotiation or in court. 

Should the lawyer fail and the court grants the claim, your insurer will cover the damages up to your limit, and you will become personally responsible for the balance.

This article explores what to expect if someone sues you for more than your insurance covers. To do that, we discuss policy limits, the consequences of any such lawsuit, and how you may protect yourself.

Understanding Insurance Policy Limits

Limits are the maximum amount your insurer will pay out for your claim. The limit amount will be stated in your policy and usually depends on your coverage. Different coverages in a policy could have different limits.

For example, if you have a car accident insurance policy with collision, comprehensive, and liability coverages, each coverage could have different limits. So, if you got into a crash, and your coverage limit is $5,000, your insurer will pay the most for repairs, which is $5,000 minus deductibles. 

Similarly, if you have liability coverage with a property damage limit of $10,000, but you were responsible for an accident that totaled another person's car, the most your insurer will pay on that claim is $10,000, even if that car was worth $35,000. 

Factors Affecting Car Accident Insurance Policy Limits

What are the different things that determine policy and coverage limits?

State Law

State law provides required minimum and maximum limits for mandatory auto insurance coverages. So, there are no limits in state law for optional coverages like collision or comprehensive. 

But there is usually a legal limit for liability coverage, Personal Injury Protection (PIP), and any other coverage that may be deemed mandatory by a state.

In Connecticut, Conn. Gen. Stat. § 14-112 requires liability coverage to have minimum limits of $25,000 per person and $50,000 per accident for bodily injury with $25,000 per accident for property damage. Since PIP is mandatory in Kentucky, Ky. Rev. Stat. § 304.39-050 stipulates that the maximum a person may recover for medical expenses and lost wages per accident will be $10,000.

New Hampshire requires all drivers to have MedPay, and the minimum limit for that coverage is $1,000 per person according to N.H. Rev. Stat. § 264:16. Finally, uninsured motorist coverage is required in Oregon, with the minimum limits being $25,000 per person and $50,000 per accident according to Or. Rev. Stat. § 742.502.

Insurance Company Offerings

Insurance companies also offer varying limits on different coverages. Since state law typically only stipulates a minimum or maximum, an insurance company may offer coverage limits at any range as long as they fall within the legal requirements. Some insurance companies may even offer unlimited coverage.

Your Preferences

Depending on your financial status, your preference will also determine your policy limit. Policies with higher will likely require higher premiums and/or higher deductibles. Therefore, you’ll only be able to get a policy with a high limit when you can afford it.

Liability Coverage Explained

If you are being sued for an accident, your policy's liability coverage will determine how much your insurer can cover. So, what is it?

Liability coverage is insurance intended to protect you from financial liability if you are responsible for an accident. It is split into bodily injury and property damage to cover medical expenses for an injured person and repairs to damaged property. 

However, it will also cover your legal fees if you are sued and the damages awarded against you up to your limit.

Liability coverage limits for bodily injury and property damage are often represented together. So, for the liability coverage limit, you may see something like 25/50/25. For that coverage, there is a $25,000 bodily injury per person limit; a $50,000 bodily injury per accident limit; and a $25,000 property damage limit. 

Legal Consequences of Being Sued Beyond Insurance Coverage

What happens if you receive notice of a lawsuit from someone you were involved in an accident with? The first thing you should do is notify your insurance company. They should provide legal representation or cover your liability fees if you have liability coverage.

Once you confirm that the damages claimed against you in the lawsuit are beyond your policy limits, inform your lawyer. The following are then likely to occur:

Negotiations

Your lawyer will attempt to negotiate with the injured party. The primary aim is to convince them to settle for an amount that your policy covers.

If your lawyer is successful at this stage, and a settlement offer within your policy limit is made, your insurer will likely accept that offer. If your insurer fails to accept the offer and the case proceeds to trial the jury might award damages that exceed your policy limits. 

If the judgment verdict exceeds policy limits, your insurer will be liable to you for acting in bad faith according to the Stowers Doctrine (established in the Texas case of G.A. Stowers Furniture Co. v. American Indemnity Co. 15 S.W.2d 544 (Tex. Civ. App. 1929) but other states have similar rules).

If negotiations or attempts to negotiate are unsuccessful, the case will likely proceed to trial. At trial, your lawyer will again attempt to reduce the damages claimed against you through various legal strategies. The jury’s verdict will ultimately determine the extent of financial liability.

Personal liability

Should the jury award damages that exceed your policy limits against you, your insurance company will pay up to your limit. Then, you will be personally liable for paying the rest of the damages. 

To illustrate, if you have liability coverage with a $35,000 limit for property damage, and a jury awards $60,000 against you for property damages, your insurer will pay $35,000, and you will be responsible for paying the remaining $25,000 out-of-pocket.

Being personally liable means you owe a judgment debt to the person. Even though the judgment will not directly affect your credit score, paying it as soon as possible is still best. If you can pay from your savings or liquidate some assets, you should.

Garnished wages or bank accounts

If you cannot settle the debt within a short period (usually 21 days), a judgment creditor may request that your wages or bank account go through garnishment. Garnishment for debts refers to a legal process that allows a creditor to remove money from your paychecks or bank account.

The procedure for garnishment may slightly differ by state, but there are some fundamentals. For wage garnishment, your employer will be directed to withhold some of your pay by the creditor or law enforcement. Depending on state law, you may be notified before the garnishment of your wages begins and allowed to object.

Federal law (29 CFR § 870.10) limits what portion of your wages may be withheld and paid to a creditor to 25% of disposable wages. 

However, if you earn more than 40 times the minimum wage, up to 50% of your income may be garnished. It is important to note that some states like Texas, will not allow wages to be garnished to pay judgment debts arising out of car accidents (Tex. Const. Art. 16, § 28)

To garnish bank accounts, the creditor will notify the bank of your debt. The bank will then freeze the portion of your assets necessary to satisfy that debt. However, certain money in your bank account may be exempt from garnishment like social security and unemployment benefits. That is the case in Minnesota according to Minn. Stat. § 550.37.

Liens

If garnishing is impossible, or the creditor is not interested in doing that, they could pursue a lien. A lien will grant the creditor interest in your real property (land and buildings), and the lien must be released before ownership can be transferred. A creditor with a lien on your property could take ownership and sell it.

For a lien to be valid or perfected, it usually must be filed in the county where the property is located before specified deadlines. Liens also have a statute of limitations after which they expire but can often be renewed. 

In Georgia (Ga. Code Ann. § 9-12-60), liens will be unenforceable if they were not obtained within seven years after the judgment. But, in Louisiana (La. Civ. Code Art. 3501), judgments expire after ten years.

Asset seizure

A creditor could also choose to pursue the seizure and auction of your assets to pay the debt. Most of the time this process will require instituting another court action to confirm the debt, your inability to pay the debt, and grant the debtor the right to seize your assets. Most of the time, even if a court grants a debtor the right to seize your assets, they must notify you.

State and federal law limits what assets a debtor can go after for seizure. In Utah, according to Utah Code § 78B-5-505, the following property will be exempt from seizure: a burial plot, veterans benefits, money or property received for child support, carpets in use, works of art depicting the debtor or the debtor’s family among others.

Strategies to Protect Yourself

The potential consequences of insufficient insurance coverage are undesirable, so how can you protect yourself from this situation?

Higher insurance limits

The easiest way to avoid being sued beyond your insurance coverage is to go for a policy with higher limits if you can afford it. Before buying any policy, ensure you fully understand its limits and endeavor to compare it with other offerings from the same insurance company or a different company.

Even though insurance rates are impacted by certain factors that most insurance companies will consider, researching to make an informed decision will help you get a policy with higher limits. Or at least the highest limits possible within your budget.

Umbrella coverage

An umbrella coverage is additional liability coverage that provides more protection when the limits of a relevant coverage are reached. So, when your insurance company pays up to the limit of your auto insurance liability coverage in damages, they will also pay the balance under the umbrella coverage.

Most of the time you'll be required to purchase up to a certain level of auto insurance liability coverage before being allowed to purchase umbrella coverage. But note that umbrella coverage will not cover any acts you intentionally committed.

Getting legal representation as soon as possible

As soon as you receive notice of a lawsuit and inform your insurance company of the suit, discuss provisions available for your legal representation since they will be responsible for attorney fees. 

Whether they intend to provide legal representation for you, or you intend to hire a lawyer yourself, it is important to get clarity on the situation and proceed quickly.

The sooner you have a lawyer, the sooner you can discuss with them, and the sooner they will begin working on your behalf. Negotiations with an injured party have a higher chance of success if the party feels you take their claim seriously enough to attempt negotiations as early as possible.

Estate planning

Proper estate planning or estate management methods, such as transferring ownership of your assets to a limited liability company or a revocable trust, can protect your assets from creditors when a situation arises.

It is essential to mention that you should not attempt transferring your assets to another party for the sole purpose of a judgment debt against you. And if you intend to practice estate planning, you should have a specialist to advise you properly.

Legal Options and Defenses

Fortunately, a few legal routes are still available to you if you have received a judgment debt or are faced with a lawsuit that claims damages beyond your coverage.

Argue fault/negligence on the other party’s part

In practically all states, when a party's negligence contributes to an accident and the injuries or damages they suffer, they will bear partial liability. If they bear partial liability for the accident, the damages claimed will be reduced in proportion to their liability for the accident.

To illustrate, if a person sued you claiming $70,000 in damages, but your attorney can successfully argue that the person was 40% responsible for the accident, the damages ($70,000) will be reduced by 40%. Then, you'll only have to pay $42,000.

Appeal

You can decide to appeal a judgment debt against you, especially when you've been slammed with punitive damages. If new evidence that might help your case surfaces, or there were procedural errors in the initial trial, or you are simply dissatisfied with the outcome of the case, you have the right to appeal the judgment. 

Exemptions

You could also file for exemptions when you cannot pay the debt. Exemptions are available to prevent garnishing and asset seizure; we pointed some out earlier. Moreover, a creditor cannot obtain a lien on your real property if you do any.

The things that may be exempt from debt collection and the process of filing for exemption are significantly different across state lines. Therefore, consult a lawyer in your area if you intend to claim an exemption validly.

Bankruptcy

Claiming for bankruptcy will eliminate your debts from a car accident lawsuit as long as you did not cause the accident intentionally or while you were intoxicated. However, there is no guarantee that you will qualify for bankruptcy.

With Chapter 7 bankruptcy, all your assets will be sold to pay off your debts, but the debts may just be discharged when there are no assets. With Chapter 13 bankruptcy, your finances will be restructured, and a payment plan that helps you pay off your debts will be implemented.

Claiming bankruptcy is not a decision that should be taken lightly because it will significantly and negatively affect your credit score. 

Contact The Accident Helpers Today

Getting sued for more than your insurance covers is not a situation you want to be in. If a court grants the damages claimed against you to the plaintiff, you will become indebted to the plaintiff for the portion of damages not covered by your insurer.

If you can't afford to pay this balance, your assets may be seized, and you may have to file for bankruptcy. Even when you can pay for this balance out of pocket, paying for insurance with higher limits would probably have been cheaper.

However, you can avoid paying excessive damages from a lawsuit with a lawyer. With an attorney well versed in your state's laws by your side, they could reduce your financial liability through negotiations, legal defenses, and claim exceptions.

Not sure how to go about finding the best attorneys in your state? Our consultancy team here at The Accident Helpers would love to assist you. Schedule a free consultation session today, and let’s discuss your needs.