Policy Limit Tracing: Protecting Claimants from Under-Settlement

Policy limit tracing is the disciplined process of identifying all potentially available insurance coverage—and the true dollar limits behind it, before a claim is resolved. For claimants and their advocates, it’s one of the most effective safeguards against under-settlement.

When done early and thoroughly, tracing shifts leverages, sharpens valuation, and prevents the all-too-common scenario where a case is settled cheaply only to discover later that additional coverage existed.

Below is a practical guide to what policy limit tracing is, why it matters, and how to do it well.

Why Under-Settlement Happens

Under-settlement usually stems from an information imbalance. Insurers and insureds know their coverage architecture; claimants often don’t. Common pitfalls include:

Hidden layers: Excess or umbrella policies that sit above a primary policy and only attach after certain thresholds or conditions.

Multiple insureds: Additional insured endorsements, contractor/subcontractor arrangements, or vendor endorsements that add more pockets of coverage.

Aggregates and sublimits: policy limit tracing with high stated limits but tight sublimits (e.g., for medical payments, assault/battery, or professional services).

Eroding limits: Defense-within-limits (DWL) policies reduce what’s left for indemnity as fees accrue.

Multiple policies across time: Occurrence-based coverage can stack across policy years when a loss spans time or triggers multiple occurrences.

When these elements remain opaque, negotiations center on a single primary policy and a figure that appears “policy-driven,” not loss-driven.

Objectives of Policy Limit Tracing

Comprehensiveness: Identify every potentially responsive policy—primary, excess, umbrella, vendor, owner-controlled (OCIP), contractor-controlled (CCIP), non-owned auto, or specialty lines.

Accuracy: Confirm actual limits, sublimits, aggregates, endorsements, eroding features, and remaining available limits after defense and other claims.

Timing: Surface coverage information early enough to influence demand structure and mediation.

Documentation: Create a verifiable coverage map that stands up to scrutiny and informs strategy.

The Core Steps

1) Build the Insured Universe

Start with the entities plausibly tied to the risk: owners, parent companies, subsidiaries, joint ventures, contractors and subs, property managers, event promoters, drivers and vehicle owners, product manufacturers, and distributors. Use contracts, invoices, bills of lading, permits, police reports, and corporate filings to identify who may be an insured or additional insured.

Tip: In premises or construction losses, obtain all contracts and certificates of insurance (COIs) up and down the chain. COIs aren’t proof of coverage, but they are roadmaps to policies and carriers.

2) Demand Complete Policy Disclosures

Request the full policy for each carrier—not just the declarations page. You need forms, endorsements, schedules, and any manuscripts. Ask for:

Declarations and schedules of locations/vehicles/projects

All endorsements (AI endorsements, waiver of subrogation, primary and non-contributory language)

Claims history affecting aggregates

Reservation-of-rights letters and coverage position correspondence

For DWL policies: defense cost ledger to date

Many jurisdictions allow or compel disclosure of liability limits pre-suit or once litigation is filed. Even where not mandated, clear, professional requests that identify legal bases and explain the need often produce results.

3) Trace Vertical Layers

Identify whether excess/umbrella coverage sits above the primary. Determine attachment points, whether excess follows form, and any drop-down provisions. For each layer, confirm:

Per-occurrence and aggregate limits

Whether defense erodes limits

Exhaustion requirements (actual payment vs. credit for settlement)

Any unique exclusions (e.g., assault/battery carve-outs, contractor exclusions, independent contractor limitations)

4) Map Horizontal Coverage

Parallel policies may respond to different aspects of the same event: auto, general liability, products, liquor liability, professional liability, or homeowner’s policies. In auto claims, check for UM/UIM, non-owner, rental, and stackable coverages; in premises claims, look for property manager and tenant policies with AI endorsements.

5) Verify What’s Left

Limits on paper aren’t the same as available limits. Ask for the defense and indemnity paid to date, copies of invoices (redacted if needed), and any pending settlements or related claims drawing down the aggregate. In mass-tort or multi-claimant events, this step is pivotal.

6) Document a Coverage Map

Create a one-page matrix listing: entity, policy number, carrier, line of coverage, per-occurrence/aggregate limits, attachment point, AI status, erosion status, known payments, and open exposures. Use this as your negotiation exhibit.

Legal and Ethical Considerations

Good-faith disclosure: Some jurisdictions require insurers to disclose limits upon request; others limit disclosure to litigation. Know the rule where your matter sits.

Confidentiality: Confidentiality orders can allow disclosure of sensitive coverage information while protecting competitive data.

Reasonableness: Avoid overbroad, harassing requests. Targeted, justified requests preserve credibility and speed responses.

Privilege: Coverage counsel communications can be protected; factual limit and payment data typically are not.

(This article is general information, not legal advice.)

Practical Tools and Sources

Contracts and COIs: A fast first pass to spot carriers, policy numbers, and AI endorsements.

Public filings: Secretary of State records, DOT registrations, FMCSA databases (for motor carriers), building permits, and court dockets can surface entities and insurers.

Loss-site documents: Incident reports, vendor logs, security contracts, delivery tickets, and repair orders.

Discovery devices: Targeted interrogatories, requests for production, and 30(b)(6) depositions directed to insurance topics.

Mediation protocols: Pre-mediation orders can require disclosure of layers and authority holders.

Negotiation Strategy with a Coverage Map

A complete coverage map does more than add dollars; it recalibrates leverage.

Structure demands to trigger layers. If a $1M primary sits under a $5M umbrella, a demand at or slightly above $1M forces the room to include the excess carrier and its adjuster or reinsurer—often bringing more realistic settlement authority.

Sequence offers across insureds. Where multiple policies could apply, stage demands to preserve claims against non-settling carriers while maximizing available funds.

Use erosion data. In DWL programs, increasing defense spend can create urgency to settle; conversely, a nearly exhausted aggregate may demand speed or creative structuring.

Condition settlements on verified limits. Tie any release to accurate representations of coverage and payments to date, with claw-back or re-opener language if material misstatements are later discovered (where permitted).

Red Flags That Merit Extra Scrutiny

“This is our only policy.” Treat categorical statements without documentation as a starting point, not an endpoint.

COIs without matching policy language. COIs can list AI status that endorsements don’t actually grant.

Umbrella ≠ excess. Some umbrellas include broader grants; others track exclusions narrowly. Read them.

Manuscripted exclusions. Tailored endorsements can eliminate the very hazard at issue.

Self-insured retentions (SIRs). Large SIRs can complicate tender and attachment; confirm who controls defense and settlement authority.

Mini-Case Example (Hypothetical)

A patron is injured at a mixed-use complex. The tenant’s GL carrier discloses a $1M per-occurrence limit. Early tracing uncovers: (1) the landlord’s master policy with a $2M primary and $10M umbrella; (2) a property manager policy naming the tenant as AI; and (3) a contractor’s policy covering security operations with a $1M primary and $5M excess. The tenant’s policy is DWL with $250k defense already spent.

Armed with this, counsel sets a $3.5M demand that forces the landlord’s umbrella and the security contractor’s excess into the conversation. Mediation closes at $2.8M, funded across four carriers. Without tracing, the claim might have settled near $900k—below fair value and without addressing systemic security failures.

Best Practices Checklist

Start tracing immediately—before suit if possible.

Identify every entity in the causal chain; don’t stop at the obvious defendant.

Demand full policies and ledgered erosion details.

Confirm excess layers and attachment mechanics in writing.

Maintain a living coverage map and update it as payments are made.

Use coverage information to engineer a settlement structure, not just size.

Preserve the right to reopen if coverage representations prove inaccurate (where allowed).

Conclusion

Policy limit tracing is less about “finding deep pockets” and more about leveling the informational playing field. By systematically identifying who is insured, what policies apply, how limits truly function, and what remains available, claimants protect themselves from under-settlement. The process demands persistence and detail, but the payoff—settlements aligned with the actual risk and harm—is worth it. In a landscape where coverage architecture grows more complex each year, tracing isn’t optional diligence; it’s a core competency.