What Is an Excess Limits Letter — and Does My Insurer's Lawyer Work For Me?

Most people who receive an excess limits letter read it the way they'd read a bill: alarming, official-looking, demanding something of them financially, right now. It isn't that. It's a notice — and an important one — but the alarm and the financial demand are two different things, and separating them is the point of this page.

Here's what the letter actually says, why insurers send it, what it changes about who's working for you, and what independent "excess limits counsel" actually is.

What is an excess limits letter?#

It's a formal notice your insurer sends once it concludes a claim against you may exceed your policy's liability limit — the point where the case could produce a judgment bigger than what your insurer is obligated to pay. The letter typically explains the situation, confirms your insurer is continuing to defend the claim, and flags that you may wish to seek independent legal advice about the portion of exposure above your limit.

It is not a bill. Your insurer isn't asking you for money in this letter — it's disclosing a risk so you have the chance to protect yourself, and so the insurer's own conduct of the claim from this point forward is documented and defensible.

Why does my insurer send this instead of just handling it?#

Because the moment a claim could exceed your limit, your insurer's interest and your own interest are no longer perfectly aligned, and the letter is how a responsible insurer manages that honestly. Up to your limit, the insurer is paying for the outcome, so its incentive to defend well and settle sensibly matches yours closely. Above your limit, the insurer's own money is capped — it pays no more than the limit regardless of the final number — while you personally absorb everything past it.

That gap is exactly what Why Is the Claim for Exactly $1,055,000? Plaintiffs Sue Just Above Your Limit explains from the plaintiff's side. The excess limits letter is your insurer's side of the same moment: formal acknowledgment that the split has become real, not hypothetical.

Does the lawyer my insurer appointed actually work for me?#

Yes, in the sense that matters legally: the lawyer your insurer selected and pays owes a professional duty of loyalty to you, the insured, as their client — not to the insurance company. Canadian rules of professional conduct for lawyers require this regardless of who signs the cheque, and defence lawyers appointed under a duty-to-defend obligation take that duty seriously as a matter of professional obligation, not just courtesy.

Where it gets genuinely complicated is settlement strategy within your limit. Your insurer may be comfortable settling at or near your policy limit to close its own exposure cleanly. You might prefer the case fought harder, or settled differently, specifically to reduce what's left exposed above the limit — or the reverse could be true. The lawyer is professionally bound to represent your interest, but they're also selected, instructed day-to-day, and paid by an insurer with its own related interest in the same decision. That structural tension is real, even where no individual lawyer does anything improper.

What if I disagree with my insurer's proposed settlement?#

Say so, in writing, and explain why — and consider getting independent advice before you do. Insurers generally have to act reasonably and in good faith when handling a claim, including settlement decisions, but "reasonable" leaves real room for a decision you might not have made yourself if you alone bore the entire risk above the limit.

This is precisely the scenario excess limits counsel exists for: someone whose only job is evaluating the settlement from your side of the number, with no relationship to maintain with the insurer on other files. Raising a disagreement doesn't have to mean conflict with your existing defence lawyer — it means adding a second, independent voice to a decision that affects you more than anyone else in the room.

Does getting this letter mean I should stop cooperating with my insurer's lawyer?#

No. Continuing to cooperate fully with the lawyer your insurer appointed remains important — they are still defending the claim, they still owe you a duty of loyalty, and an uncooperative insured can genuinely damage their own defence. Retaining independent excess limits counsel is additive, not a replacement or a vote of no confidence.

Think of it as two lawyers with overlapping but distinct jobs: one defending the whole claim under your policy, and one specifically watching the slice of the outcome that could become your personal debt. Good independent counsel will coordinate with, not undermine, the existing defence.

When does it actually make sense to call an independent lawyer?#

A few concrete triggers are worth watching for, rather than treating every claim above your limit identically:

• The claim's realistic value, based on medical evidence and expert reports, is approaching or exceeding your policy limit — not just the number originally pleaded.
• A settlement is being discussed or proposed, and you're uneasy about the amount, the timing, or who it protects.
• Trial is approaching and the case hasn't resolved, meaning the excess exposure is no longer theoretical.
• You simply want a second, independent opinion on how the case is being handled — you don't need a specific trigger event to ask for one.

What is "excess limits counsel," and how is it different?#

Excess limits counsel is a lawyer you retain personally — separate from the insurer-appointed defence lawyer — specifically to represent your interest in the portion of the claim above your policy limit. They don't replace the insurer's lawyer or take over the day-to-day defence; they advise you, specifically, on settlement decisions, strategy, and risk from the one perspective nobody else in the room is paid to hold: yours alone.

Who actually pays for excess limits counsel?#

Generally you do. Because this is a lawyer you're retaining personally, rather than one your insurer appointed under the duty to defend, the cost typically falls to you — though specifics can vary by circumstance and by what your own policy says. Confirm directly with a lawyer and your broker rather than assuming either way; this is not a place to guess.

Weighed against what's actually at stake — the portion of a serious claim above your limit, which can run into hundreds of thousands or millions of dollars in a catastrophic case — an initial consultation with independent counsel is a modest cost for a second, undivided opinion on a decision that could otherwise be shaped by someone else's competing interest.

What should I actually do when this letter arrives?#

Read it fully, and keep it — it's a document you may want to refer back to. Don't panic and don't ignore it; it's neither a crisis nor a formality. Consider a consultation with an independent lawyer about your personal exposure specifically, separate from any conversation you're already having with the lawyer your insurer appointed.

It's also worth revisiting your own coverage at this point, not just the current claim. What Happens If You're Sued for More Than Your Insurance Covers? and I've Been Served With a Statement of Claim. What Happens Next? cover the surrounding timeline, and Duty to Defend, Explained covers exactly where your insurer's obligation to fund your defence stops.

Argued honestly: most claims that trigger an excess limits letter still settle within the policy limit, or are successfully defended, and the letter itself is a sign of prudent insurer practice rather than a signal that you're about to lose. The letter exists to protect you by giving you the chance to look after the one slice of the case nobody else is specifically paid to watch. Whether that's worth an independent lawyer's time depends on how close the numbers actually are — which, for most people reading this, starts with knowing their own limit in the first place.