Definition:Excess judgment
⚠️ Excess judgment is a court-awarded damages amount that exceeds the policy limits of a defendant's liability insurance, leaving the insured personally responsible for the difference. In a typical scenario, a policyholder carries $1 million in commercial general liability coverage, but a jury returns a $3 million verdict — the $2 million gap constitutes the excess judgment. These situations arise most frequently in bodily injury, auto liability, and professional liability cases, and they carry profound financial consequences for both the insured and the insurer.
🔍 The path to an excess judgment often begins with the insurer's handling of the claim during settlement negotiations. Under most liability policies, the carrier controls the defense and has the authority to accept or reject settlement demands. When a claimant makes a policy-limits demand — an offer to settle the entire case for an amount within the available coverage — and the insurer unreasonably refuses, the insurer may be exposed to a bad faith claim if a larger verdict follows. Courts in many jurisdictions have held that an insurer owes a duty of good faith to its insured when evaluating settlement opportunities, and breaching that duty can shift the excess judgment liability from the insured back to the carrier, sometimes with additional punitive damages.
💰 Excess judgments sit at the intersection of claims management, litigation strategy, and bad faith exposure, making them a focal point for carrier leadership and claims professionals alike. Insurers invest heavily in training adjusters to recognize cases with verdict potential beyond policy limits and to handle policy-limits demands with documented, good-faith deliberation. From the insured's perspective, the risk of an excess judgment is the primary driver behind purchasing umbrella or excess liability coverage that sits above primary policies. The frequency and size of excess judgments have increased alongside the broader trend of social inflation and nuclear verdicts, prompting the industry to reevaluate limit adequacy, pricing, and settlement practices across casualty lines.
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