There is an ongoing debate in the insurance field over whether a liability insurer has a duty to reveal its policy limits to a third-party claimant even before a lawsuit is filed. One approach—supported by the trial lawyers—presupposes that knowledge of the defendant’s insurance policy limits will facilitate settlement and avoid needless litigation which may expose both parties to additional exposure unnecessarily. The opposing view—espoused by defense lawyers and many within the insurance industry—maintains that knowledge of the limits of a liability carrier’s insurance policy is irrelevant, immaterial ,and serves only to motivate claimants to inflate damage claims and demands to fit the available policy limits. With more and more states beginning to weigh in on the issue, whether or not a plaintiff’s attorney (or a subrogated insurance company) can compel a tortfeasor/defendant’s liability carrier to disclose the liability limits of their policy has become necessary information in the world of claims handling.
Effective January 1, 2020, Colorado became the latest in a small but growing number of states that require disclosure of policy limits. Under the new C.R.S. § 10-3-1117, insurers writing commercial or personal auto policies in Colorado must disclose insurance policies to their insureds and reveal the liability policy limits to third-party claimants. If the request is received from a third-party claimant or his attorney, § 10-3-1117(2)(a) requires the insurer provide within 30 days a statement that includes:
- The name of the insurer;
- The name of each insured party, as it appears on the declarations page;
- The limits of the liability coverage; and
- A complete copy of the insurance policy, including endorsements.
The statement from the liability carrier must include the information above for each known policy of the named insured, including excess or umbrella policies, that may be relevant to the claim. The request from the third-party claimant must be presented to the carrier’s registered agent. The statute provides for a penalty of $100 per day if the carrier fails to comply with a written request within 30 days, which begins to accrue on the 31st day after receipt of the request. If the insured (as opposed to the insurer) is sent a written request for policy information, the insured must disclose “the name and coverage of each known insurer of the insured party,” however, no penalty or enforcement mechanism exists for this provision.
Currently, only a minority of states have laws which require the pre-suit disclosure of liability policy limits to third-party claimants. Other states are considering joining them and the list is growing. New Jersey almost joined the club recently when S2429—which would have required pre-suit disclosure within 30 days—passed the New Jersey Legislature but Gov. Phil Murphy (D) declined to sign it into law.
The duty to reveal policy limits encompasses two separate legal issues: (1) whether there is a statute, regulation, or case decision which compels a liability carrier to reveal policy limits when requested to do so; and (2) whether a failure to reveal policy limits when asked can serve as the basis for a subsequent bad faith case should there be a verdict in excess of policy limits. In some cases, a statute literally prohibits the revelation of policy limits at the pre-suit stage. For example, in California, the terms of an insurance policy are confidential and proprietary between the insurer and the insured. Griffith v. State Farm Mut. Auto Ins. Co., 230 Cal.App.3d 59, 281 Cal.Rptr. 165 (1991) (information about policy limits is “personal information” between the insurer and insured under the California Insurance Information and Privacy Protection Act).
Some states, such as New Hampshire, protect the liability limits like a state secret and limit disclosure only to the claimant or his counsel. N.H. Stat. § 498:2-a. Yet, this issue is only now beginning to appear on the legislative radars of states which have until now not chimed in.
For a 50-state chart detailing the law with regard to disclosing liability policy limits pre-suit, see HERE. For more information on the pre-suit duty to reveal liability policy limits, please contact Lee Wickert at [email protected].