After a car accident or personal injury claim in Texas, many people assume that once the insurance company pays a settlement, the matter is closed. However, the reality is more nuanced. While insurance settlements often resolve claims, there are situations where you could still be sued even after your insurer has paid out. Understanding the rules, exceptions, and legal processes is crucial for anyone involved in an accident or facing a potential lawsuit.
The General Rule: Settlements Usually End Further Claims
In most Texas car accident and personal injury cases, when an insurance company pays a settlement, the injured party (plaintiff) is required to sign a release or waiver. This legal document states that, in exchange for the settlement payment, the plaintiff gives up the right to pursue any further legal action or seek additional compensation for the same incident. As a result, it is uncommon for someone to successfully sue you after your insurance has paid out.
If a plaintiff tries to file a lawsuit after signing such a release, the court will typically dismiss the case, as the settlement agreement is binding. This system is designed to provide finality and certainty for both parties.
Key Exceptions: When a Lawsuit Is Still Possible
Despite the general rule, there are exceptions where someone might still be able to sue you after an insurance payout:
-
Fraud or Coercion: If the settlement was reached through fraud, misrepresentation, or coercion, a judge may allow the plaintiff to pursue further legal action. For example, if the injured party can prove they were misled or pressured into accepting the settlement, the court could set aside the release and permit a lawsuit.
-
Multiple Defendants: If there are other parties who share responsibility for the accident, the plaintiff may settle with one party (and sign a release for them) but still pursue claims against others. The release typically applies only to the party or parties named in the agreement.
-
Insufficient Insurance Coverage: If the damages from the accident exceed your insurance policy limits, the injured party can accept the insurance payout up to those limits and then sue you personally for any remaining losses. For example, if your policy covers $30,000 but the plaintiff’s damages are $100,000, they may accept the $30,000 from your insurer and then pursue you directly for the remaining $70,000.
How Insurance Settlements Work in Texas
Texas is an at-fault insurance state, meaning the driver or party responsible for an accident (and their insurer) is liable for damages, including medical bills, lost wages, and pain and suffering. The claims process typically involves:
-
Filing a claim with the at-fault party’s insurance company.
-
Negotiating a settlement, which usually requires the claimant to sign a release.
-
Receiving payment—either as a lump sum or structured settlement.
Once the release is signed and payment is made, further legal action against the same party for the same incident is generally barred.
What If Insurance Doesn’t Cover All Damages?
Insurance policies have limits. If the damages exceed these limits, the plaintiff can pursue additional compensation through a lawsuit, but only for the amount not covered by insurance. For example, if your policy limit is $50,000 and the injured party’s damages are $150,000, they can accept the $50,000 from your insurer and then sue you personally for the remaining $100,000.
Other Complications
-
Lapsed or Invalid Insurance: If your insurance lapses or is invalid at the time of the accident, the injured party can sue you directly for all damages, regardless of any attempted insurance payout.
-
Bad Faith by Insurer: If your insurance company acts in bad faith—such as by failing to settle a claim within policy limits—you could be exposed to additional liability, and the plaintiff could sue for damages beyond your coverage.
Protecting Yourself
-
Read and Understand Settlement Agreements: Never sign a release or settlement agreement without understanding its terms. If possible, consult with an attorney.
-
Maintain Adequate Insurance Coverage: Make sure your policy limits are sufficient to protect your assets in the event of a serious accident.
-
Consult a Lawyer: If you are being sued after your insurance has paid, or if you are worried about your liability, speak with a Texas personal injury attorney immediately.
Conclusion
In Texas, once your insurance company settles a claim and the injured party signs a release, you are generally protected from further lawsuits for the same incident. However, exceptions exist—especially if there was fraud, multiple liable parties, or damages exceeding your policy limits. Understanding your rights and obligations, and seeking legal advice when necessary, is the best way to protect yourself from unexpected legal action after an insurance payout.
