Failure to Comply Fatal to Extracontractual Claims Against Insurer

Insurance industry professionals should take notice of a recent bill passed by the California legislature that will impact time-limited insurance settlements moving forward. On September 28, 2022, SB 1155 was signed into law by Governor Newsom. This bill adds Chapter 3.2 entitled "Time-Limited Demands" to the California Code of Civil Procedure (sections 999-999.5).

The legislation institutes new statutory requirements for parties utilizing time-limited demands within policy limits for settling civil claims covered under automobile, motor vehicle, homeowner, or commercial premises liability policies for property damage, personal or bodily injury, and wrongful death claims. C.C.P. §999.5(a)

Time-Limited Demand Definition and Requirements

A time-limited demand is defined by the statute as "an offer made prior to the filing of the complaint, or demand for arbitration, to settle any cause of action or 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). A time-limited demand must meet the following requirements:

  • Time-limited demand must be in writing.
  • Must be labeled as a time-limited demand or refer to the statute.
  • Must allow insurer 30 or 33 days from the date of transmission to respond to the demand.
  • Demand must include the following terms:
    • A clear and unequivocal offer to settle all claims within policy limits, including liens.
    • An offer for a complete release of the liability insurer's insureds from all present and future liability for the occurrence.
    • The date and location of the loss.
    • The claim number, if available.
    • A description of all known injuries, and
    • Reasonable proof to support the claim.
  • The claim should also be sent to the insurance representative assigned to handle the claim, or to the email or physical address for time-limited demands provided by the insurer.

Importantly, the bill states that, in any lawsuit filed by a claimant, “a time-limited demand that does not substantially comply with the terms of this chapter shall not be considered to be a reasonable offer to settle the claims against the tortfeasor for an amount within the insurance policy limits for purposes of any lawsuit alleging extracontractual damages against the tortfeasor’s liability insurer.”

Best Practices For Handling Time-Limited Demands

  • If an insurer plans to reject the demand it should do so in writing within the specified time limit and provide a reason for its decision in order to remain in compliance with the statute.
  • If the decision is to accept the offer, the material terms must be accepted in writing in their entirety.
  • The insurer does retain the right to seek clarification, request additional information, or request an extension in which to submit an answer or produce a counteroffer. C.C.P. §999.3 (a)-(c). Such a request “shall not, in and of itself, be deemed a counteroffer or rejection of the demand.”

Other Considerations

The provisions of the bill do not apply to an unrepresented claimant and do not include extracontractual damages. If any of the provisions of this new bill conflict with the Civil Discovery Act, the Act would prevail. The bill becomes effective starting on January 1, 2023 and applies to all time-limited demands sent on or after that date. The bill only came into formal existence because Governor Newsom also signed SB 1107, which amends section 16056 of the California Vehicle Code and increases minimum motor vehicle financial responsibility limits to $30,000./ $60,000/ $15,000 commencing on January 1, 2025. Another incremental increase will occur on January 1, 2035 increasing the limits again to $50,000/ $100,000/ $25,000.

All in all, the new provisions outline expectations for insureds and insurers alike when submitting and responding to a time-limited demand. In addition, if a claimant fails to substantially comply with the provisions of this statute, it will defeat any bad faith claims based on the requirement that the plaintiff present a reasonable settlement offer.

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