The holidays—parties, family and the spirit of giving. Some personal injury plaintiff attorneys really get into the spirit, hoping to receive the gift of “open” policy limits and unlimited injury recoveries by making short-fused settlement demands that are set to expire right before, during or right after the holiday.

Timing settlement demands for holidays (and the press of business and short staffing that surrounds the holidays) increases the risk for slip-ups in the claims handling process, which could potentially lead to significant or even catastrophic financial consequences for liability insurers. As one exasperated pair of defense attorneys put it: “the original purpose of ‘bad faith’ laws has become perverted, leaving a system in which a minor error, miscommunication, or misunderstanding leads to a finding of bad faith. Sometimes that ‘error’ is due to the deliberate conduct of the plaintiff’s attorney, who claims he or she is merely doing what is in the best interests of his or her client.” (Source: Michael F. Cunningham & Lewis F. Collins, Turning Bad Faith Inside Out: How Plaintiff Attorneys Are Creating Third-Party Bad Faith Claims, 61 FDCC Quarterly 366, 367)

Maybe that goes too far. Perhaps most judges would agree that there should be no “bad faith” finding based on an insurer’s mistake a claimant or plaintiff attorney deliberately induces.

Nevertheless, liability insurers are increasingly confronted with settlement demands that seem timed and designed to minimize the opportunity to achieve a settlement and maximize the chance for insurer error that will later be described (however unfairly) as an unreasonable failure to settle.

This article suggests seven New Year’s resolutions insurers may want to treat as necessities rather than aspirations.

Before we explain how an insurer should handle a time limit settlement demand, we would like to explain how much can go wrong where an insurer fails to promptly investigate such a demand.

In the recent appellate decision out of San Diego, Hedayati v. Interinsurance Exchange of the Automobile Club, 67 Cal.App.5th 833 (2021) rev. den., No. S270909, 2021 Cal. LEXIS 7981 (Nov. 17, 2021), the insurer’s alleged resistance to the seriously injured pedestrian’s request for disclosure and proof of the policy’s $25,000 per person bodily injury liability limit, coupled with its inability to timely respond to a conditional settlement demand received on Nov. 21, 2012 on or before Nov. 27, 2012, has left the insurer facing responsibility for a $26,000,000 judgment.

On Oct. 1, 2012, the insured apparently ran a red light and hit Hedayati while she was walking in a cross-walk. The impact caused very serious, even life-threatening injuries, including a severed leg and broken bones. Hedayati was in a coma for over two weeks. The day after the accident, the insured driver notified Automobile Club of the accident, authorized the disclosure of the $25,000 policy limits, and indicated that he had no other insurance or assets.

About two weeks after the accident, while she was still in a coma, Hedayati’s attorney sought disclosure of the insured’s policy limits. Although the insured’s authorization allowing limits disclosure was promptly obtained, there was apparently no disclosure of the limits. If disclosure happened, it wasn’t confirmed.

The insurance adjuster says that approximately 18 days after the accident, on Oct. 19, 2012, he spoke with the claimant’s attorney on the phone and verbally offered the insured’s policy limits to settle the claim. However, the claimant’s attorney denied ever having the conversation. Again, if the offer was made, it wasn’t confirmed in writing, not even in the insurer’s internal claim notes.

On Oct. 29, 2012, the insurer obtained the insured’s signed declaration stating that he did not have any other applicable liability insurance and that he was not acting within the course and scope of his employment at the time of the accident. The next day, the insurer sent Hedayati’s attorney a letter offering to settle for the insured’s $25,000 per person policy limits, but it still did not provide the previously requested information—including the policy’s Declarations pages showing the applicable limit.

On Nov. 20, 2012—two days before Thanksgiving—Hedayati’s attorney sent a policy limit, time limit, settlement demand (that the insurer received the next morning). The demand articulated conditions, including:

  • The insured’s signed declaration addressing no other insurance and course and scope.
  • A copy of the Declarations pages for any applicable liability policy.
  • The insured’s attestation to having assets totaling less than $200,000.

The demand required acceptance within seven days, (Nov. 27, 2021, the Tuesday after the Thanksgiving weekend) in writing, with proof of delivery to confirm receipt.

Although it received the short-fuse demand on the day before Thanksgiving (Nov. 21), the insurer took no action on it until Nov. 28, 2012—one day after the demand expiration. Because the person responsible for distributing deliveries was out of the office when the demand was received, the demand sat, unnoticed, until after it had expired. The adjuster then asked for an extension, but the attorney refused because the seven-day demand had expired.

Also, the insurer did not promptly convey the demand to the insured, nor did it secure the insured’s signed declaration of no other significant assets (although the insured had verbally confirmed he had no significant assets).

Initially, the trial court entered summary judgment for the insurer, finding no “bad faith” failure to settle. However, the appellate court reversed the ruling, explaining that whether the insurer acted unreasonably called for analysis of the entire claims handling history, not just the one-week demand sent just before the Thanksgiving holiday consumed four of those precious days: “In focusing on the short workweek surrounding the Thanksgiving holiday, [the insurer] ignores that Hedayati’s complaint and the foregoing evidence produced for summary judgment place her settlement offer into a larger context.”

Citing Pinto v. Farmers Ins. Exchange, 61 Cal.App.5th 676 (2021), the court acknowledged that the issue of whether the insurer unreasonably failed to accept a policy limit settlement demand is “a question of law where the evidence is undisputed and only one reasonable inference can be drawn from the evidence.” However, the court held that the facts were not undisputed with respect to the insurer’s failure to timely accept Hedayati’s settlement demand, so a jury ultimately would have to decide whether the insurer was to pay $25,000 or $26,000,000.

With this background in mind, this article suggests some approaches to responding to time limit settlement demands that may make good New Year’s resolutions for those who handle liability claims for insurers.

DO—React immediately and don’t procrastinate.

If a demand arrives Friday at 4:45 p.m., it should be reviewed immediately—not on Monday morning. Any temptation to put the demand aside and deal with it “later” or next week should be avoided. Even if the injuries appear mild, delaying the process of responding to a policy limit settlement demand can have devastating consequences.

Something as simple as ensuring that there is always someone responsible for receiving and distributing incoming demands can be essential.

Under any scenario, immediately evaluating the settlement demand so that swift action can be taken as needed greatly enhances the liability insurer’s chances of successfully navigating and properly responding to the demand.

DO—Zealously hunt and gather.

Today’s policy limit settlement demands are likely to include a list of conditions. The conditions are likely to address issues including verifying applicable policies and limits, release provisions, course and scope of employment, the insured’s assets, and liens. The conditions sometimes seem designed to impede settlement because they can make acceptance and achieving a binding settlement harder than it otherwise would be.

Often, the conditions are not clearly stated, or the terms of the settlement offer are murky (and sometimes even contradictory), and it will be necessary for the insurer to seek clarification from the claimant or plaintiff attorney. Other times, whether coverage attaches at all may be a question that needs to be resolved.

A demand that expires 30 days from the date of the letter sounds like it gives the insurer plenty of time to respond. But if the insurer waits two or three weeks before it tries to contact the insured and get a required declaration, only to find that the insured has gone on vacation and is unavailable, the situation turns perilous.

Insureds may have moved, changed phone numbers or otherwise become difficult to reach. Insurers may need to hire private investigators to track down the insured. Waiting to identify that problem adds unwanted urgency.

Liability insurers that receive time limit settlement demands should contact insureds immediately. Insurers should make sure they establish reliable and prompt means of communications with those who may need to provide declarations, authorize disclosure of policy limits, or otherwise be involved in the claims handling process.

Don’t wait. Gather the documentation necessary as early as possible, and assemble it in one place, so it will be ready for inclusion in the ultimate acceptance package or response to the demand when needed.

DO—Seek early explanations or extension requests.

Whether by design or otherwise, many settlement demands will have ambiguities ranging from fairly obvious copy-and-paste typos to “I have no idea what this means” language. Seeking an explanation shortly after receiving the demand shows diligence in responding to the demand and can make responding to the demand easier and more efficient when the explanations are provided.

Caution is still required. Some demands specify the means of requesting an explanation or clarification. And some even say that a request for clarification or extension will be treated as a rejection of the demand. (What’s next? Acceptance will be treated as a rejection?)

To avoid debate over silly issues, insurers need to review demands carefully to determine whether clarifications are to be requested only in writing. For example, if clarification is verbal, the insurer will want to confirm it in writing, preferably a writing from the attorney that communicated the demand.

In many situations, requesting an extension is appropriate, if not necessary.

Take an extreme example: The demand letter requests a declaration of no other insurance and no course and scope of employment from an insured who cannot be located (or in some cases, who may have even passed away). An early extension request is advisable in such a situation. Pointing out that a private investigator has been retained and is actively looking for the insured (or providing other details as appropriate) may add legitimacy to the extension request.

DON’T—Bicker over trivialities.

Legal arm wrestling over lien issues, the wording of a release or whether the insured’s declaration needs to say something like “If this declaration is inaccurate, the releasing party can rescind the release,” can become counterproductive.

Barickman v. Mercury Cas. Co., 2 Cal.App.5th 508 (2016) offers a good example of what can go wrong when a liability insurer picks a fight over a side issue. In Barickman, the signed release was returned to the insurer with an added statement that the required payment “does not include court-ordered restitution.” (A $165,000 restitution order had been entered against the insured.)

The insurer consulted with the insured’s criminal defense attorney and went back and forth with the attorney for the injured pedestrians. The debate concentrated on whether the added language eliminated the right to offset the $15,000 insurance payment from the restitution order. The attorney for the injured pedestrians ultimately announced that there would be no settlement. The injured pedestrians obtained judgments totaling $3,000,000.

A finding of “bad faith” by failing to accept the modified release was affirmed on appeal. Instead of paying $30,000 to the injured pedestrians, the Barickman insurer ended up owing $3,000,000 plus interest.

If an insurer is going to pick a fight in relation to a policy limit settlement demand, make sure the fight is worth having.

DON’T—Keep the insured in the dark.

Under some circumstances, even a demand that exceeds the policy limit can result in “open” limits if the insurer fails to communicate with the insured, who may have had the availability to pay the excess amount to settle the case.

Almost universally, liability insurers should make sure that settlement demands are promptly communicated to insureds so that the insureds are aware of what’s going on and are positioned to make decisions as needed to respond to the demand.

DON’T—Count on the mail.

If the required method of delivery is not specified, communications preceding acceptance and the acceptance of the demand should be done by a fast, reliable method that allows for confirmation, such as email, fax or personal delivery. Federal express or other overnight mail with tracking capability can be used when the insurer is out in front and able to respond in advance to the deadline.

There may be strong argument that a settlement acceptance letter, release (and in some cases, the settlement check) mailed to the plaintiff attorney five days ahead of the demand should have arrived on time. However, no insurer wants to rely on the U.S. postal service when the bet is either a $25,000 policy limit payment or the responsibility for a $26 million adverse judgment. Using email and fax makes it that much harder for a claimant attorney to argue that the settlement was not timely accepted.

Waiting for the last day or hour to communicate acceptance of a demand is usually not a good idea. When possible, liability insurers should strive to get acceptance documents sent out early so there’s an extra day or two to react if something goes wrong.

DO—Seek help early.

When a settlement demand is received, there will often be a benefit to involving professionals who can assist. Taking steps to retain a private investigator or insurance coverage attorney to help with the communication surrounding the demand can be advantageous. Retaining those who can assist will make it easier to get in front of the demand and whatever complexities attach to it.


Claims handling professionals and support teams need to be speedy, detailed and exercise sound judgment when navigating the settlement minefield. To avoid the claims handling equivalent of a (potentially very costly) lump of coal, liability insurers should resolve to get out in front of settlement demands.

Topics Carriers Claims