How Often Do Auto Accident Settlements Exceed the Policy Limits in Texas?

In a perfect world, insurance policies would cover all damages from an auto accident. When this does not happen, victims often want to know how often do auto accident settlements exceed the policy limits and what steps they can take to recover fully.

Auto accident settlements rarely exceed the policy limits, as insurance companies typically only pay up to the coverage amount. However, in cases involving severe injuries, such situations can arise. For victims in Houston, Texas, it is crucial to understand how these scenarios work and the factors at play, such as the Stowers Doctrine, to better navigate their legal options and secure the compensation they deserve.

Because Texas has complex rules about collecting personal injury settlements over insurance limits, it is important to discuss your case with an experienced auto accident attorney. They will be able to explain the various legal remedies available to the victim, such as filing a lawsuit and utilizing umbrella insurance policies. This ensures that the victim’s rights are protected and that they receive the compensation they are entitled to.

Texas Auto Insurance Policy Limits

Texas requires every automobile owner to purchase basic liability insurance. The Texas minimum liability limit for coverage is called a 30/60/25 policy.

This coverage includes $30,000 for bodily injury to a single person, $60,000 for bodily injury for any one accident, and $25,000 in property damage coverage.

In cases where a claim exceeds Texas auto insurance policy limits, anything over that amount may be the policyholder’s responsibility.

What Happens If Accident Damage Exceeds Your Car Insurance in Texas

In Texas, if someone sues you for an amount exceeding your insurance coverage, you may face personal liability. This situation might lead to a deficiency judgment—a debt calculated as the claim amount minus your liability insurance policy limits.

Unfortunately, there are several reasons why it is unlikely for an accident victim to attain more than their or the at-fault driver’s applicable policy limits.

First, any settlement a victim reaches with an at-fault driver’s insurance company will require the victim to release the at-fault person from further liability.

A lawsuit settlement for a claim exceeding an at-fault driver’s policy limit is also unlikely, as it requires the at-fault driver to have personal wealth that well exceeds their liability limits.

This is especially true in Texas, where under the Texas Property Code, Sections 41.001, most of a policyholder’s assets are exempt from being collected to enforce a judgment.

Finally, Texas considers lawsuit judgments to be unsecured debt. Furthermore, most judgments in Texas civil proceedings are fully dischargeable through bankruptcy.

This means that even if a victim could obtain a judgment against an at-fault driver, the driver could discharge the judgment in bankruptcy court.

Because the judgment would be an unsecured debt, it would be last in line to be paid out in a bankruptcy proceeding.

The only exception falls under the Texas Stowers Doctrine.

Key Points About Exceeding Policy Limits in Car Accidents

Uncommon occurrence

Most of the settlements are still within the limits of the insurance of the driver who caused the accident. As per the Texas Department of Insurance, the insurance carrier is usually liable for the damage up to the policy limits that are stated in the policy. Such policy limits act as a barrier to insurance payments unless there are extraordinary incidents or some other legal conditions.

Serious injuries needed

To potentially exceed policy limits, accident victims typically suffer catastrophic injuries such as spinal cord damage, traumatic brain injuries, or other life-altering conditions. These injuries usually result in high medical costs, long-term treatments, and loss of income. In some cases, the total damages may far exceed the car insurance policy that was taken by the policyholder for the car that caused the accident. Hence, the economic burden highlights the need to explore other ways of getting compensation.

Legal action required

Compensation claims that go beyond policy limits are usually done through lawsuits and this is because the victim is trying to get more compensation from the at-fault driver’s personal assets. Under the Texas Insurance Code Chapter 1952, such cases often turn on a determination that the insurer acted in bad faith or was negligent in the handling of the claim. Such conduct can be established by proving that the insurer has denied the clear liability and or failed to respond to reasonable settlement demand.

Additionally, accident victims may resort to uninsured/underinsured motorist (UM/UIM) coverage, which is extended coverage in case the underlying policy of the at-fault driver is inadequate. However, this coverage is not mandatory, and in order to exclude it from a policy, the policyholders are required to reject it in writing. The UM/UIM policies can then be used by those who have them to fill the gaps in compensation especially where there are severe injuries or multiple parties are involved.

Consequently, the process of going beyond policy limits is a rather complicated one, which may involve litigation, other types of insurance, and demanding that insurers live up to their responsibilities. It is therefore important to engage the services of a good legal counsel in order to understand and navigate through such situations and get proper compensation for all the losses incurred.

Stowers Doctrine in Texas

The Stowers Doctrine holds that an insurance company must use reasonable care when handling a policyholder’s claim. The Doctrine, stemming from the 1929 case G.A. Stowers Furniture Co. v. American Indemnity Co., plays a crucial role in cases where damages exceed the policy coverage. It serves as a form of protection against insurance company negligence, holding insurers accountable for failing to settle claims within policy limits when the opportunity to do so exists. This doctrine helps ensure that victims are not unfairly left without full compensation due to the insurance company’s oversight or failure to act in good faith.

If an insurance company can reasonably settle a claim for an amount within the policy limits, the insurance company may be liable to the insured for any excess judgment if the claim fails to settle. 

For instance, if the insurance policy has a limit of $50,000 and the insurance company turns down a $50,000 settlement demand, the insurer will be liable for any judgment entered in excess of $50,000. Hence, this legal framework ensures that the insurance companies compensate the costs of damages and also evaluate the reasonableness of the settlement amounts for which they are liable for being paid by the insured’s insurance policies. The doctrine is based on the requirement of insurance companies to act in the best interest of the policyholders and not the opposite way.

Also, the Stowers Doctrine has been very helpful in promoting fairness in Texas in negotiation. For victims, this principle adds another level of protection since it provides them with another way of seeking their legal rights where the insurers have failed to act in good faith. Beyond financial recovery, applying the Stowers Doctrine often requires demonstrating that the insurance company’s refusal to settle was unreasonable given the circumstances.

The Texas Bar Association’s legal education materials emphasize the importance of the Stowers Doctrine in ensuring fair treatment for policyholders. These materials explain how the doctrine safeguards policyholders by holding insurance companies accountable when they fail to reasonably settle claims within policy limits, a critical aspect in personal injury cases involving high damages.

Since, with rare exceptions, the at-fault driver’s liability policy limits an auto accident victim’s recovery, your best action after an auto accident is to speak with an attorney. A good auto accident lawyer can also be in a position to explain all the possibilities available to the victim, including the use of the Stowers Doctrine to seek protection. 

Umbrella Policy

An umbrella policy provides additional liability coverage beyond the limits of standard auto insurance. In Texas, this policy is especially useful for those who were involved in an accident as well as those who caused it. Here’s how umbrella policies can protect against exceeding policy limits:

• Additional Coverage: The additional liability coverage is usually in the region of $1 million and up, and this is enough to protect one in cases of high risk cases. This gives a high level of protection in cases where a lot of money is at stake. Some of the features that can be adjusted include the limit which can be as high as a certain value to meet or cover such claims or liabilities.

• Broader Protection: They can cover claims beyond auto accidents, other personal liability includes homeowners or renters insurance, and many others. Some policies also include the legal expenses that are liable in defending liability claims thus providing an added reassurance.

• Peace of Mind: For drivers with significant assets, these policies offer financial security in high-stakes accidents. This is the knowledge that one’s wealth and estate would not be at risk in a lawsuit, which is quite comforting.

How Umbrella Policies Work in Real-Life Scenarios

For instance, if the standard auto insurance of the at-fault driver is $100,000 and the victim’s damages are $1 million, then the umbrella policy will be used to pay the remaining amount of $900,000. Also, in cases of multiple victim situations, the umbrella policy can be used to fill the gaps left by the primary auto policy per accident limits. Considering that the umbrella policy requires additional premiums, it is something that should be considered by any person who has a lot of personal assets that need to be protected.

Besides protecting the policyholder, umbrella insurance can be very helpful to the victims of severe accidents to enable them to get adequate compensation for their losses. This is especially so when the traditional liability limits are insufficient as in the case of medical expenses, loss of earnings, and pain and suffering. This additional layer of protection is especially useful in cases of severe injuries where damages can easily go beyond the normal policy cover.

Who Should Consider an Umbrella Policy?

Umbrella policies are ideal for individuals and families with elevated liability risks. High-net-worth individuals benefit by safeguarding their wealth and assets from lawsuits that exceed standard insurance limits. Business owners also find umbrella policies invaluable, especially those in industries with frequent client interactions or operational risks, as it provides an extra layer of financial protection against uncovered liabilities.

Families with teen drivers should consider umbrella policies due to the higher risk of accidents involving inexperienced drivers. Additionally, individuals with significant liabilities, such as property owners or pet owners, are at risk for incidents like dog bites or injuries on their premises that could lead to lawsuits exceeding primary coverage limits.

Contact Texas Car Accident Attorneys You Can Count On

If you or someone you care about was injured in an auto accident, please do not hesitate to contact us at 832-402-6637 for a free consultation.

At Armstrong Lee & Baker LLP, our experienced auto accident attorneys have dedicated their careers to fighting for your rights.

Our passionate advocates believe in carefully evaluating every case that comes through our door, and we never take a fee unless you win.

Scott Armstrong

Scott Armstrong obtains remarkable results for his clients. He has successfully tried numerous cases to favorable verdicts and reached significant settlements on his clients’ behalf, recovering millions for them. Our lawyers have 25+ years of combined experience.

Scott is known for his aggressive approach to every case. He has been recognized as a Rising Star by Super Lawyers, an accolade awarded to only 2.5% of attorneys under forty and practicing for less than ten years. Houstonia Magazine, H-Texas Magazine, and others have recognized Scott as a “top lawyer” in Houston.

Get in touch with Scott Armstrong now.