Excess Limits Letter

An excess limits letter is the formal notice a Canadian insurer sends once it concludes that a claim against you may exceed your policy's liability limit — commonly $1 million on Canadian home and auto policies. It typically confirms the insurer is continuing to defend the claim in full, and flags that you may wish to seek independent legal advice about the slice of exposure above your limit. Insurers use varying names for this notice — "excess limits letter," "over-limits letter," reservation-of-rights correspondence about excess exposure — but the moment it marks is consistent: the point where a claim stops being purely the insurer's problem to manage.

Most people who receive one read it like a bill: alarming, official, demanding money right now. It isn't. Your insurer isn't asking you for anything in the letter itself — it's disclosing a risk so you have the chance to protect yourself, and documenting that its own handling of the claim from this point forward is transparent and defensible.

Why it matters to you#

Up to your policy limit, your insurer's incentive to defend well and settle sensibly matches your own closely — it's paying for the outcome. Above your limit, the insurer's exposure is capped regardless of the final judgment, while you personally absorb everything past it. That gap is exactly why the letter exists, and why Canadian insurers must act reasonably and in good faith when handling your claim, including settlement decisions — a duty Canadian courts have enforced directly against insurers who fall short of it.

In practice#

• A claim pleaded at $2 million against your $1 million policy typically triggers this letter once the insurer's adjuster confirms the exposure is real, not just as originally pleaded.
• The lawyer your insurer appointed keeps defending the whole case; the letter doesn't replace or end that representation.
• Receiving one doesn't mean you did anything wrong — it's a routine step tied to the numbers, not a verdict on your defence.

For the full picture of what changes once you're holding one — including when independent excess limits counsel is worth calling — see What Is an Excess Limits Letter — and Does My Insurer's Lawyer Work For Me?

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