MINIMUM LIMITS POLICIES EXPLAINED

In Texas, all drivers are required to carry liability insurance by law. The term “liability” references a situation where you are deemed at fault for causing a collision. Essentially, the State of Texas wants to ensure that its drivers are financially accountable for their actions, so it requires you to purchase liability insurance when driving on Texas roads.

Each and every insurance policy sold in Texas has a maximum amount payable on a given accident, known as the “policy limits.” In my own professional experience, I would estimate that anywhere between 75%-80% of drivers only carry the “state minimum” insurance. The current minimum liability limits are $30,000 for each injured person, $60,000 for each accident occurrence, and $25,000 for property damage per accident. This is known as a 30/60/25 policy.

To better illustrate a 30/60/25 policy, let’s run through a few examples:

• Example A: You are involved in an accident where you are hit by a negligent Defendant who only has a minimum policy. You incur $40,000 in medical bills and another $5,000 in lost wages. The property damage amount to your vehicle is $8,500. In this scenario, the most you can recover from the Defendant’s insurance is $30,000 for your injury claim and $8,500 for your property damage claim. Why? Because the Defendant has a contract with his insurance company stating that if he causes an accident, the most the insurance company will pay is the $30,000 maximum, regardless of what your case is actually worth.
• Example B: Let’s use the same fact pattern from Example A except let’s add a second victim in a second vehicle to this accident. Let’s also say the medical bills for both victims are identical. In this scenario, the most you can recover from the Defendant’s insurance is $30,000 for your injury claim and $8,500 for your property damage claim. This is also the same amount Victim #2 can recovery. Under this example, the insurance company has paid the “per occurrence” maximum amount of $60,000, although any individual person only received the “per person” maximum of $30,000. Further, by paying $8,500 for each property damage claim, or $17,000 total, the insurance company is still below the “per occurrence” threshold of $25,000 aggregate for all property damage claims.

Here, however, is where things get tricky.

• Example C: Let’s use the same fact pattern from Example B except let’s now add a third and fourth victim to this accident. In this scenario, the Defendant’s insurance company now has to divide the $60,000 “per occurrence” maximum amongst the four claimants. If the insurance company chooses to pay one victim the “per person” maximum of $30,000, it now has to split the remaining $30,000 amongst the remaining three victims. Worse, it actually can decide to pay two claimants $30,000 each and leave nothing for the remaining two claimants. As for the property damage claim, the same insurance company has to repair four vehicles with only $25,000 available.

For these reasons, it is important to make sure you carry sufficient Uninsured Motorist coverage on your own policy so you are protected in the event that the negligent Defendant does not have any insurance to pay for all the damages he or she caused to you (or to multiple victims). For more information on Uninsured Motorist coverage.