Policy Limit Demands
Personal injury lawyers love sending out policy limit demands. When we send them out, we may actually be trying to settle the case for policy limits, or in some instances, we’re actually hoping that the insurance carrier refuses to settle for policy limits. In that case, we can potentially assert that policy limits have been “opened” and that damages recovered against the defendant that exceed policy limits must ultimately be paid by the insurance carrier.
For plaintiff lawyers, the policy limits demand can be a significant source of leverage to maximize their clients’ recovery. For insurance adjusters, the policy limits demand can put them between a rock and a hard place. Countless insurance adjusters have been burned by refusing to accept these demands, which can lead to the insurance carrier being exposed to substantial judgments beyond policy limits pursuant to a bad faith claim.
Code of Civil Procedure § 999 – 999.5
However, because of Senate Bill 1155, we have some new rules that we need to follow with respect to policy limits demands. Senate Bill 1155 passed, which enacted Code of Civil Procedure § 999 through 999.5 (we’ll refer to these provisions as CCP 999). CCP 999 went into effect on January 1, 2023 and it provides statutory guidance on how plaintiff lawyers should prepare their policy limit demands, as well as how insurance adjusters should respond to them.
CCP 999 sets forth requirements for submitting a “time-limited demand,” which is just another cute name for a policy limits demand. A “time-limited demand” under CCP 999 is a pre-lawsuit offer to settle a personal injury, wrongful death, or property damage claim made to a tortfeasor to settle within the policy limits of the tortfeasor’s insurance policy that requests acceptance within a specified period.
12 Requirements for a Time-Limited Demand
The CCP 999 time-limited demand has some unique characteristics that should be noted. First, it only applies to personal injury, wrongful death, and property damage claims. The only kind of insurance policies that it applies to are automobile, motor vehicle,
homeowner, or commercial premises liability policies. Second, the demand must be for an amount that is within the tortfeasor’s policy limits. Third, it only applies to demands that are made before a lawsuit is filed. It has no applicability to demands made during litigation. Fourth, the demand must have a specific time limit during which it can be accepted.
The following are 12 requirements for making an effective time-limited demand under CCP 999:
1. The time-limited demand must relate to a personal injury, wrongful death, or property damage claim.
2. The demand must be made before a civil action is filed in court (or before a demand for arbitration).
3. The time-limited demand must be in writing.
4. It must be labeled as a “time-limited demand” or make reference to CCP 999.1.
5. The time limit for accepting the demand must be at least 30 days (if sent by email, fax, or certified mail) or 33 days (if sent by mail).
6. It must contain a “clear and unequivocal” offer to settle all claims within policy limits (including satisfaction of all liens).
7. The demand must include an offer to release the tortfeasor from all present and future liability to the claimant.
8. The date and location of the subject incident must be included.
9. The claim number must be listed, unless it is not known.
10. The demand must include a description of all injuries sustained by the claimant.
11. “Reasonable proof” sufficient to support the claim, which may include medical records, billing records, and other records, must be provided with the demand.
12. The demand can be sent either to the insurance carrier’s email address or physical address designated with the Department of Insurance or to the insurance adjuster assigned to handle the claim.
Accepting or Rejecting a Time-Limited Demand
If the insurer receiving the time-limited demand decides to accept it, the insurer may do so by providing written acceptance of the material terms of the demand. The claim will be settled for policy limits and the claimant will sign a release absolving the tortfeasor of liability.
Alternatively, the insurer may seek clarification or additional information during the time limit for accepting the demand. The insurer may also request an extension if further information or investigation is needed. These actions by the insurer will not be considered a counteroffer or rejection of the demand.
If the insurer does not accept the demand, the insurer must notify the claimant in writing of its decision and the basis for the decision. The notification must be sent prior to expiration of the demand or any extension granted.
If the insurer does not accept the time-limited demand and the claimant files a lawsuit alleging “extracontractual damages” (damages that exceed policy limits) against the tortfeasor’s insurer, the insurer’s notification of non-acceptance will be relevant in the lawsuit. However, where the time-limited demand fails to substantially comply with the requirements of CCP 999, it will not be considered a “reasonable offer” to settle the claims against the tortfeasor for an amount within insurance policy limits for the purpose of a lawsuit seeking extracontractual damages against the insurer. This means that if the demand doesn’t meet the requirements above, the claimant will not be able to recover damages from the insurer that exceed policy limits. Except for the provisions of CCP 999, existing law relating to lawsuits seeking extracontractual damages will not be altered.
Civil procedure rules generally do not provide any slack to a claimant who is not represented by an attorney. However, CCP 999.4 contains a pretty rare provision that a claimant without an attorney is exempt from the provision that a time-limited demand that fails to substantially comply with CCP 999 will not be considered a “reasonable offer” to settle within policy limits.
So, for plaintiff lawyers in California, make sure to keep your policy limit demands in compliance with CCP 999. If they aren’t in substantial compliance, policy limits will not be “opened” and the insurance carrier will not have to pay anything beyond their policy limits.
Feel free to contact Suits Litigation, Inc.’s office in San Jose, California at (408) 637-5413 for a complimentary consultation regarding your personal injury case. We are more than happy to discuss how policy limit demands might come into play when a settlement is being pursued in your case.