How to Use Policy Limit Discovery in Mediation and Negotiation

Understanding the available insurance coverage is often critical to the outcome of a mediation or negotiation. Policy limit discovery—uncovering the maximum amount an insurer is obligated to pay under a policy—can significantly shape strategy, influence settlement amounts, and determine whether a case resolves early or proceeds to trial.

This article explores what policy limit discovery is, why it matters, and, most importantly, how to strategically use it to your advantage in mediation and negotiation settings.

What Is Policy Limit Discovery?

Policy limit discovery refers to the process of identifying the maximum liability limits of an insurance policy that could be used to satisfy a legal claim. In civil litigation, especially in personal injury, wrongful death, or commercial liability cases, plaintiffs often seek this information early on to understand the full extent of financial recovery available.

Policy limits typically fall into one of the following categories:

Per occurrence limit: The maximum payout for a single event or claim.

Aggregate limit: The maximum payout over the life of the policy, regardless of the number of claims.

Excess or umbrella coverage: Additional limits beyond the primary policy, potentially covering catastrophic losses.

Why Policy Limit Discovery Is Critical

Policy limit information plays a pivotal role in mediation and settlement discussions for several reasons:

Realistic Valuation of Claims: Knowing the defendant's coverage cap helps plaintiffs align their settlement demands with available resources.

Settlement Leverage: If the damages clearly exceed policy limits, it may pressure insurers to settle within limits to avoid bad faith exposure.

Litigation Strategy: Understanding coverage can inform decisions about whether to pursue litigation or settlement, and guide trial risk assessments.

Bad Faith Exposure: If an insurer refuses to settle a case within policy limits when it reasonably could have, it may later be exposed to liability beyond those limits.

Methods of Discovering Policy Limits

1. Informal Requests

In many jurisdictions, a simple written request to the insurer or defense counsel may yield the information voluntarily. Some states, like California and New York, allow claimants to demand disclosure of policy limits during pre-litigation under certain conditions.

2. Formal Discovery

If informal efforts fail, policy limits can be obtained through interrogatories, requests for production, or depositions once litigation is underway. Courts often compel disclosure if the information is deemed relevant to settlement and case evaluation.

3. Statutory Rights

Some jurisdictions mandate disclosure of insurance coverage information early in the litigation process, especially in motor vehicle accident claims.

Best Practices for Using Policy Limit Discovery in Mediation

Once the policy limits are known, the key is using that information strategically in mediation and negotiation.

1. Evaluate the Case Value Relative to Limits

Assess the strength of your case and the extent of damages. If your client’s injuries and losses significantly exceed the policy limits, use that disparity to push for a full policy settlement. This approach is most effective when liability is clear and damages are high.

Example: In a motor vehicle accident resulting in catastrophic injuries, if the policy limit is $100,000 and medical expenses alone exceed $250,000, demand the full limit early and make the case for bad faith if it’s not offered.

2. Leverage the Threat of Excess Judgment

If your case clearly exceeds the policy limits and the insurer delays or refuses to settle within limits, communicate the risk of an excess judgment. Remind the insurer that a failure to protect its insured by settling within limits could expose it to bad faith claims later.

Tip: Send a time-limited demand letter with clear evidence of liability and damages that offers to settle within policy limits. This puts pressure on the insurer to act responsibly.

3. Tailor Your Mediation Strategy

During mediation, use the known policy limits as a baseline for negotiations. Structure your opening offer, midpoint, and final settlement demand in relation to the limits. Avoid overshooting when you know the coverage is limited—unless you have a clear path to excess recovery.

When to demand the limits in mediation:

When the damages are severe and liability is strong.

When the defendant has no meaningful assets beyond insurance.

When there's little to gain from prolonged litigation.

When to negotiate below limits:

When liability is questionable.

When your damages are below or near the limit.

When settlement avoids a risky or expensive trial.

4. Identify Additional Policies or Coverage Layers

Sometimes more than one policy applies to the incident. If policy limits appear inadequate, investigate:

Excess or umbrella policies

Other insured entities (e.g., employers, contractors)

Policies covering additional defendants

Using discovery tools and depositions, determine whether multiple policies can be tapped to satisfy your claim. Bringing this information to mediation can significantly change negotiation dynamics.

5. Highlight Financial Exposure to the Defendant

If there’s a possibility that a verdict will exceed the limits and the insurer won’t settle, highlight the personal exposure of the defendant. This strategy often motivates defendants to push their insurer to resolve the case within limits or even contribute personally to a settlement.

Strategy: Include the insured in settlement discussions. A concerned defendant may encourage their carrier to settle rather than face personal liability.

6. Document All Communications for Bad Faith Claims

If you’re demanding the policy limits and the insurer refuses without just cause, document every communication. Make it clear that a reasonable opportunity to settle was presented and that the refusal may subject the insurer to bad faith liability.

Use mediation to build this record. If mediation fails and the case proceeds to trial, those documents can become crucial in any subsequent bad faith litigation.

Use a Mediator to Emphasize Risk to the Insurer

Mediators with experience in insurance cases can be powerful allies. Provide them with information about the policy limits, excess exposure, and claim value. Encourage the mediator to convey to the insurer the seriousness of the risk if the case does not settle.

Pro Tip: Share a confidential mediation brief with the mediator outlining the known policy limits, settlement attempts, and your valuation analysis.

Conclusion

Policy limit discovery is more than a procedural step—it’s a strategic tool that, when used effectively, can shift the balance of power in mediation and negotiation. By identifying available coverage, evaluating your claim in context, and using the threat of excess judgments or bad faith claims, you can often secure fair and timely settlements for your clients.

Success lies in preparation, timing, and a thoughtful negotiation strategy. In high-stakes cases, knowing the policy limits isn’t just helpful—it’s essential.