Consent Judgments and Covenants Not to Execute in 2025: Settling Beyond Policy Limits

## When the Defendant Has No Money but the Insurer Acted in Bad Faith

Sometimes the at-fault party has low insurance limits and few assets, yet the insurer unreasonably refused to settle within those limits when it should have. In that situation, a specialized settlement structure can let you recover far more than the policy limits by pursuing the insurer's bad faith. The tools are the consent judgment, the covenant not to execute, and the assignment of claims. This is advanced territory, but understanding it can mean the difference between collecting a token amount and a full recovery.

The Setup: A Clear Case, Inadequate Limits

Imagine a driver with a fifty thousand dollar policy causes a crash leaving you with three hundred thousand in damages. Liability is obvious. Your attorney sends a policy limits demand, offering to settle for the fifty thousand and release the driver. If the insurer accepts, the driver is protected. If the insurer unreasonably refuses, it has exposed its own insured to a judgment far above the policy.

Why the Insurer's Refusal Matters

An insurer owes a duty of good faith to its own insured, which includes settling a clear claim within policy limits when it has the chance. If it refuses and a verdict comes in above the limits, the insurer may be liable for the entire excess, not just the policy amount, under bad-faith law. This duty exists because the insured, not the victim, would otherwise bear the excess personally.

The Three-Part Structure

When the insurer refuses to protect its insured, the victim and the defendant can cooperate through a structure that shifts the risk to the insurer:

1. **Consent judgment.** The defendant agrees to a judgment in your favor for the full amount of your damages, often far above the policy limits.
2. **Covenant not to execute.** You agree not to collect the judgment from the defendant's **personal assets**. This protects the defendant, which is why they cooperate.
3. **Assignment of bad-faith claim.** The defendant assigns to you their claim against their own insurer for bad-faith failure to settle. You then pursue the insurer for the excess.

How It Works in Practice

After the structure is in place, you stand in the defendant's shoes and sue the insurer for bad faith. If you prove the insurer unreasonably refused a reasonable within-limits demand, the insurer may be liable for the full consent judgment, the three hundred thousand in the example, even though the policy was only fifty thousand. The covenant not to execute means the defendant pays nothing personally; the insurer's own conduct created its exposure.

Why This Is Not a Sham

Courts scrutinize these arrangements, but they are legitimate when:

1. The underlying **demand was reasonable** and within limits.
2. The insurer's **refusal was unreasonable** under the circumstances.
3. The **consent judgment amount is reasonable** for the actual damages, not inflated.
4. The structure is **disclosed** and not collusive beyond protecting the insured.

An inflated or collusive judgment can be challenged, so the damages figure must reflect genuine harm.

The Defendant's Perspective

The defendant cooperates because the covenant not to execute protects their personal assets. Facing a potential personal judgment of hundreds of thousands of dollars, the defendant gladly assigns a claim against the insurer that mishandled their defense. The insurer, not the defendant, bears the consequences of its own bad faith.

Risks and Limits

1. **Proving bad faith is demanding.** You must show the insurer's refusal was unreasonable, not merely a hard bargain.
2. **State law varies.** Some states scrutinize these structures more than others, and the rules on assignment and reasonableness differ.
3. **The judgment must be defensible.** A reasonableness hearing may test whether the consent amount reflects true damages.
4. **It requires experienced counsel.** This is sophisticated litigation, not a do-it-yourself strategy.

When to Consider It

This approach fits a narrow but important set of cases:

1. **Clear liability** against the insured.
2. **Damages well above** the policy limits.
3. **A timely, reasonable policy limits demand** that the insurer rejected.
4. **A defendant with limited personal assets** who is exposed to an excess judgment.

In those circumstances, the structure converts an insurer's bad-faith refusal into a path to full compensation.

Frequently Asked Questions

Can I really recover more than the policy limits? Yes, when the insurer acted in bad faith by refusing a reasonable within-limits demand, exposing its insured to an excess judgment that becomes the insurer's responsibility.

Does the at-fault person pay anything? Under the covenant not to execute, no. Their personal assets are protected; the insurer bears the excess.

Is this collusion? Not when properly done. The judgment must reflect genuine damages, the demand must have been reasonable, and the insurer's refusal must have been unreasonable. Courts test for fairness.

Do I need a special attorney? Yes. This is advanced bad-faith litigation requiring counsel experienced in these structures and your state's specific rules.

When an insurer unreasonably refuses to settle a clear claim within limits, the consent judgment, covenant not to execute, and assignment of the bad-faith claim can unlock recovery far beyond the policy. It is sophisticated, fact-dependent litigation, but in the right case it turns an insurer's misconduct into full compensation for a seriously injured victim.