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I read on my "Evidence of Liability Insurance card" issued by Geico in California, US:

What to do at the time of an accident: […] Do not reveal the limits of your liability coverage to anyone.

Why does Geico ask me not to reveal the limits of my liability coverage in case of a car accident, and should I follow that advice?

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Franck Dernoncourt
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    This should belong in Law, it has to do with the tactics of the legal process and lawyering. – user71659 Dec 31 '18 at 02:15
  • @user71659 thanks, I wasn't sure which website was the most suitable for this question, I am okay with migrating the question of there if that's on topic on law.se – Franck Dernoncourt Dec 31 '18 at 02:16
  • I’m voting to close this question because SE says it's too late to request migration – keshlam Mar 08 '23 at 23:32

6 Answers6

106

Negotiation 101, never be the first to say a number.

You tell them you have a $300,000 limit and magically they want $300,000. Alternatively, they may just assume you carry the minimum.

quid
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    If you actually do have the minimum, could it hurt you to say that? Also, with a high limit, who is likely to fudge the severity of the injury -- the plaintiff, their doctor, or both? Aren't they taking a huge risk that if the suit fails (the insurance company successfully defends itself against the falsely inflated injury claim), they'll be deep in medical debt (plaintiff) or not get paid for their services (doctor)? – nanoman Dec 31 '18 at 03:26
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    The only reason you don't want to be the first to say a number is if the other party is about to make a big mistake which you want to accept. Otherwise, saying the first number frames the negotiation and is a good thing. If you don't think they are going to give you a silly offer you should be eager to get your number in there. But, really, that is not your problem it is GEICOs problem. They don't want you to avoid a mistake from the other side and want to control the negotiation themselves. – Ross Millikan Dec 31 '18 at 05:46
  • @nanoman , insurance companies very rarely even try to defend themselves. Typically, there is some postering from both sides, and then they settle for some usual amount. The risk for the insurance company is simply too high, even when they think theyhave a clear case, as a Jury could decide on punitive damages of hundreds of millions. It's better to pay 50k$ many times than lose one big one. – Aganju Dec 31 '18 at 06:12
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    The posturing and settlement IS the defense.... – quid Dec 31 '18 at 06:55
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    @nanoman, it's not about fraud and fudging the severity of anything. Its what car the person decides to rent, which body shop they pick, whether or not they decide to go to a doctor at all, whether they try to argue that they missed days of work etc. It's not about lying and fraud. When I'm spending money that might not come back I'm careful, when I'm spending your money, I don't really care how much anything costs, particularly when I KNOW you have deep pockets. – quid Dec 31 '18 at 20:12
  • "Negotiation 101, never be the first to say a number" is there a peer-reviewed study that backs this assertion? – Aaron Hall Jan 01 '19 at 15:05
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    I believe it's called the art of the deal – quid Jan 01 '19 at 17:47
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    This answer could be improved by explaining why it is good for the other party to underestimate your liability protection. Litigation is expensive, and it may not be worthwhile if the most they can get is $5,000 (minimum coverage for property damage in California). – Thomas Jan 02 '19 at 00:14
  • How does this relate to the fact that if they filed suit against you they would be entitled to learn the policy limits as part of discovery? – Owen Jan 02 '19 at 01:07
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    @Owen because they would have to actually file suit to get to the discovery process. It might surprise you to know that almost all insurance claims are managed without the courts... – quid Jan 02 '19 at 03:44
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    @AaronHall It's called "Anchor Bias". Not sure why admin removed my comment earlier, but it's well studied for negotiations. https://www.pon.harvard.edu/daily/negotiation-skills-daily/what-is-anchoring-in-negotiation/ – SnakeDoc Jan 02 '19 at 19:17
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    @SnakeDoc "Anchor bias" would imply that there are cases in which you should be first to say a number, which is my primary objection to the first sentence in this answer. – Aaron Hall Jan 02 '19 at 19:51
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    @AaronHall in this case you'd be lying outright (by claiming a less number than reality), or offering information that isn't necessary and could be harmful to yourself... so you should say nothing at all. If you review that link at harvard, they cover the few cases where you should be first to say a number - it's typically when both parties already have a deep understanding of the ZOPA and therefore are very close to begin with. This situation, with auto collision, is not one of those applicable scenarios. – SnakeDoc Jan 02 '19 at 20:32
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    So you're saying, in the context of negotiation, that sometimes one should give a number? If so, then the phrase, "negotiation 101: never..." is incorrect. – Aaron Hall Jan 02 '19 at 22:41
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    No. In the context of sometimes you'll be negotiating with someone with less experience than you who will likely fall victim to to anchor bias it can be wise to drop the anchor. Anchor bias has no application here because either you lie about your limit or you step on your own foot. The reality is you sold your liability to Geico and Geico doesn't want your help negotiating its liability. – quid Jan 02 '19 at 22:47
  • Obviously it helps the insurance company, but how does it help the customer? Besides the nebulous "your premium might go higher"? – Money Ann Jan 02 '19 at 22:57
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    @MoneyAnn it's possible that interfering could be a breach of your contract with the insurer. You might notice in the image in the question, Geico isn't asking you anything. Geico is telling you not to divulge your limits to anyone. – quid Jan 02 '19 at 23:15
  • @quid Sounds like FUD to me, unless you have actual examples where a claim was denied on this basis. – Money Ann Jan 02 '19 at 23:33
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    My answer has three sentences in it. I'm not spreading anything. I'm not spreading FUD with some mysterious motive. The question is why is this point present, my answer is why it's present. If you want explore the situation beyond that, feel free to ask another question, though examining the severity of a breach of an insurance contract is probably more suited to the law stack. – quid Jan 02 '19 at 23:43
  • My concern is that this answer is spreading a misconception as an axiom that is wrong in some contexts. Yes it's right in this context, but if the context matters, the word "never" is incorrect. – Aaron Hall Jan 02 '19 at 23:52
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    Then vote it down. :) Clearly I wasn't writing the encyclopedia of negotiating. – quid Jan 02 '19 at 23:54
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    @AaronHall - I have no problem with "Negotiation 101: Never be the first to say a number" and "Sometimes it is ok to be the first to say a number" being contradictory. X 101 is an introduction to X, and should get basic points across; edge cases aren't going to be dealt with until later courses. – AndyT Jan 03 '19 at 15:06
  • It's not about saying the number first. It's about saying the number at all, at any time, where the number is your reserve price, i.e. the maximum you can afford, your "pain threshold". Understating the number is not a bad strategy at all, in fact it's very common. – henning Jan 04 '19 at 12:24
63

It isn't just GEICO that tells you this, every US car insurance company instructs their customers to not mention the amount of coverage.

Your job is not to negotiate. Your job is to collect the specified information and to hand the claim process over to the insurance company. That is also why they tell you not to admit fault.

When you start discussing the amount of coverage you have, then you are starting the process that the insurance company doesn't want you involved in. Telling them the maximum that your insurance can pay, or telling them that you only have the state mandated minimum doesn't make the job of the insurance company any easier.

mhoran_psprep
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    Also don't sulk, argue and/or play the blame game during an accident. Don't even talk back to an angry person, but be civil. Get the insurance company over the phone, get whatever (minimum) information the IC or the cops require and walk away. Go home and cry all you want, but don't do it in front of the other party. May sound callous but self-preservation often is. – Mindwin Remember Monica Jan 02 '19 at 11:15
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    Your answer is better than mine – quid Jan 02 '19 at 23:45
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The limits of your coverage are completely irrelevant to anything you might do in a situation where your liability coverage is in play. More directly, there is nothing at all for you to gain from providing this information. Another way to look at the question is "why would you want to reveal this information?".

There probably isn't much downside to it for you, personally. Your insurer will be on the hook for any negative consequences (like inflated settlement amounts, at the margins), but your policy isn't going to retroactively change or anything. But the insurer will still want to protect its own interests to the maximum possible extent.

Your contract almost certainly establishes that every element of the settlement, and negotiations around it, will be handled by your insurer. You blurting out information in this situation wouldn't be much better than you interrupting your own lawyer in the courtroom during arguments in a trial.

As a few examples:

  • Someone might see your volunteering that information as an admission of guilt, giving them much better leverage in negotiations than if you'd simply not said anything.
  • The payment sought might become higher due to knowing how much money is "available", as per other answers here.
  • It's not that hard to rack up "valid" medical charges, meaning not obviously fraudulent, like additional MRI scans because the ones already done aren't clear enough (allegedly). This is somewhat risky (the claim may not cover those bills anyways), but it is less risky if the potential insurance payout has a higher ceiling.
  • The other party (or parties) might believe that they are entitled to that amount of money, not for any rational reason but because it's the number they heard, and then becomes hard to deal with within and outside of the insurance process.
  • It might simply make the settlement process longer and more tedious, causing the insurer's money to be burned in extra administrative and bureaucratic costs to no additional benefit to anyone. Consider the case of identifying which medical bills were reasonable and which were opportunistically grasping for more cash-- that audit isn't free.
  • Revealing information about your policy might suggest information about your personal financial situation, making you a target for additional civil litigations (whether they are frivolous or not, you'll have to dedicate time, energy, and money to responding).
Upper_Case
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In my state (Commonwealth of MA, in US), once the lawyers get involved, the parties involved are legally required to release insurance coverage info upon formal request.

Further, if it goes to trial, the jury is not allowed to know the amount of insurance.

NVZ
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master chief
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    I'd assume that once the lawyers get involved in any state, the relevant policies would be part of the discovery process. – quid Dec 31 '18 at 20:09
  • Why would they? There would be a correct amount of damaged, and the maximum covered doesn’t change that amount. – gnasher729 Mar 08 '23 at 23:29
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If you know how much money is available, you could be more willing to spend it. You might accept an expensive optional test that you would have skipped if you were paying for it. There's no upside to the other party knowing how much insurance you have. It's only going to lead to higher costs.

Philip Tinney
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All forms of insurance create perverse incentives to bill for as much as possible instead of competing on price. That's why auto glass repair shops often advertise that they will give you cash back if your insurance covers the repair. They bill so much more than their actual cost that they can afford to give you $100 cash and still turn a profit. This is insurance fraud, but it's so common that apparently authorities don't have the resources to deal with it.

Insurance companies want to use coverage limits as a selling point to their own customers, without exposing themselves to this kind of fraud by revealing it to claimants. As another answer notes, coverage limits may end up being revealed in court. But presumably, the claimant would have had to come up with a dollar amount before that.

StackOverthrow
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