Can an Insurance Company Pay More Than Their Insured’s Policy Limits?

Generally, an insurance company is not required to pay more than the policy limits stated in the contract—it’s the maximum amount they agreed to cover for a given loss. However, there are key exceptions under Texas law where an insurer can be forced to pay beyond those limits, and the Stowers doctrine is one of the most important.

Under the Stowers doctrine, if a plaintiff makes a reasonable settlement offer within the policy limits and the insurer rejects it, the company assumes the risk of an excess judgment. If the case goes to trial and the jury awards more than the policy, the insurer may be personally liable for the entire verdict, even the portion that exceeds the policy limit. This happens because the insurer failed to exercise ordinary care in protecting its insured from unnecessary financial exposure.

For example, suppose a defendant has a $100,000 liability policy, and the injured party offers to settle for $95,000 with a full release. If the insurer refuses and the jury later awards $400,000, the insurer could be forced to pay the entire $400,000, not just the $100,000 policy limit—because it negligently gambled with its insured’s financial safety.

In other rare cases, insurers might also pay above policy limits to avoid bad faith lawsuits, punitive damages, or regulatory penalties for mishandling claims. But typically, without Stowers exposure or other misconduct, insurance companies will not voluntarily pay beyond the limits stated in their policy.

To see how coverage disputes arise, read [What is the Stowers doctrine?].