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Limit of Liability Clauses in Auto Insurance

In situations in which the specified maximum amount an insurer has agreed to pay for a particular loss under a policy of motor vehicle insurance is insufficient to fully compensate a claimant, it is in the interest of the insurer to specify in the policy as clearly as possible that other coverage, or coverage on other vehicles owned by an insured, is not to be called into play to make up the shortfall. Limit of liability clauses, otherwise called limits of liability clauses, generally provide that an insurer’s total liability to a particular claimant arising out of a specific occurrence will be limited to an amount set forth in the policy, despite the specified limits of any other coverage or coverage on any other vehicle.

Limits of liability clauses often come into play when claimants under auto insurance policies attempt to “stack” coverage under more than one policy, or coverage on more than one vehicle under a single policy, in order to make up for the inadequacy of underinsured motorist or uninsured motorist coverage to fully compensate the claimant for his or her loss. In such circumstances the insurer will frequently assert the limits of liability clause as a basis for refusing to stack coverage. In some jurisdictions, stacking will be permitted despite the existence of the limits of liability clause, the courts sometimes determining that such a clause is at odds with the applicable stacking statute. In other jurisdictions, the limits of liability clause will be applied and stacking of such coverage will be denied.

The business of insurance in the United States, including motor vehicle insurance, has traditionally been governed by the individual laws of each state rather than by a single unified body of federal law. As a result, the answers to questions concerning the validity and application of limits of liability clauses in auto insurance policies will vary from state to state, and will be found in the state statutes governing the business of insurance and in the decisions of courts dealing with questions of insurance law.


Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.