Legal Definitions - excess judgment

An excess judgment occurs when a court orders a party to pay an amount of money that is greater than the available insurance coverage or a pre-determined limit. The difference between the total amount awarded by the court and the coverage limit is the "excess judgment," for which the insured party (or another responsible party) may be personally liable.

Here are some examples to illustrate this concept:

• Car Accident and Insurance Limits: Imagine a driver, Sarah, causes a serious car accident, and the other driver, Mark, sues her for his injuries. Sarah has an auto insurance policy with a liability limit of $100,000. After a trial, the jury awards Mark $300,000 in damages for his medical bills, lost wages, and pain and suffering.

  In this scenario, Sarah's insurance company will pay its maximum coverage of $100,000. The remaining $200,000 ($300,000 - $100,000) is the excess judgment. Sarah is personally responsible for this $200,000, which could lead to significant financial hardship for her.

• Professional Malpractice Lawsuit: A surgeon, Dr. Lee, is sued for medical malpractice by a former patient. Dr. Lee carries professional liability insurance with a policy limit of $1,000,000 per claim. The jury finds Dr. Lee negligent and awards the patient $1,800,000 in damages.

  Dr. Lee's insurance will cover $1,000,000 of the award. The additional $800,000 ($1,800,000 - $1,000,000) is the excess judgment. Dr. Lee is personally liable for this amount, meaning his personal assets could be at risk to satisfy the judgment.

• Business Liability and Settlement Offers: A small restaurant, "The Daily Dish," is sued after a customer slips and falls, sustaining severe injuries. The restaurant has a general liability insurance policy with a $750,000 limit. During negotiations, the injured customer offers to settle the case for $600,000, which is within the policy limits. The insurance company, believing it has a strong defense, refuses the settlement offer and decides to go to trial. The jury subsequently awards the customer $1,200,000.

  The insurance company will pay its policy limit of $750,000. The remaining $450,000 ($1,200,000 - $750,000) is the excess judgment. In this situation, "The Daily Dish" might have a separate claim against its insurance company for "bad faith" for failing to settle within policy limits when it had the opportunity, thereby exposing the business to the excess judgment. If successful, the insurance company might be compelled to pay the entire $1,200,000.