California’s Sweeping New Insurance Policy Limit Demand Statute Goes Into Effect January 2023

In California, time-limited insurance policy limit demands have become the proverbial sledgehammer in the litigation toolbox.  To set up insurance carriers for bad-faith claims, litigators have issued policy limit demand letters that often include minimal detail while seeking maximum recovery. An insurance carrier, tasked with the duty to act “reasonably” in response to such policy limit demand letters, faced difficult decisions that often left the insurance carrier with few options other than to reject the demand letter and face the consequences. The Legislature, at the behest of both the Plaintiff and Defense bar, has enacted crucial legislative changes taking effect on Jan. 1, 2023, pertaining to time-limited demands.

California Code of Civil Procedure sections 999-999.5 (Senate Bill 1155) sets forth statutory requirements for the use of time-limited demands within policy limits for settling civil claims covered under automobile, motor vehicle, homeowner, or commercial premises liability insurance policies for property damage, personal or bodily injury, and wrongful death claims. A time-limited demand is defined as “an offer prior to the filing of the complaint or demand for arbitration to settle any cause of action or a claim for personal injury, property damage, bodily injury, or wrongful death made by or on behalf of a claimant to a tortfeasor with a liability insurance policy for purposes of settling the claim against the tortfeasor within the insurer’s limit of liability insurance, which by its terms must be accepted within a specified period of time.” C.C.P 999 § (b)(2).

The statute imposes requirements on a claimant issuing a time-limited demand.  The demand must:

• Be written,
• Be labeled as a time-limited demand (or reference the statute),
• Provide at least 30 days to accept if the demand is transmitted by email or 33 days to accept if transmitted by mail,
• Include a clear and unequivocal offer to settle all claims within policy limits, including the satisfaction of all liens,
• Offer for complete release from the claimant for the liability insurer’s insured from all present and future liability for the occurrence,
• Provide the date of the loss, the location of the loss, and the claim number, if known,
• Provide a description of all known injuries sustained by the claimant, and,
• Provide reasonable proof of the claim and damages, which may include, if applicable, medical records or bills sufficient to support the claim.

Upon receiving a time-limited demand, the insurer is empowered to seek clarification, additional information, or request an extension due to the need for further information. Such a request “shall not, in and of itself, be deemed a counteroffer or rejection of the demand.” (Section 999.3(b)). In the event the insurer chooses to reject a time-limited demand, the claimant must be notified in writing prior to the expiration of the demand, and the writing must provide the basis for the insurer’s decision to reject the demand.

The enactment of Senate Bill 1155 will provide a more equitable playing field for both sides and ensure that cases worthy of early resolution receive such attention based on the facts and evidence.