Policy limits are the maximum amount an insurance policy will pay for a covered loss. They cap the recovery available from the insurer and shape settlement dynamics.
When a defendant's coverage is limited, the realistic value of a claim is often bounded by the limit, however large the damages. Claimants and their funders therefore look at the coverage available, the number of claimants competing for it and any excess layers.
A refusal to settle within limits when a reasonable opportunity exists can expose the insurer to liability above them, which is why limits interact with bad faith doctrine.
Policy limits are not the value of a case. They are a ceiling on one source of recovery.
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