Insurance carriers are often the target of time-limited settlement demands from claimants – demands that the carrier settle for policy limits, or less than policy limits, usually within a relatively short period of time – which claimants may use as evidence in pursuing an extracontractual liability claim against the carrier for failure to accept a reasonable settlement offer. In many states, an insurer’s obligation to respond to a time-limited settlement demand is governed by case law, which is not always a model of clarity. A small number of states, including Georgia and Missouri, have enacted statutes intended to provide clarity regarding the contents, timing and response to time-limited demands under certain circumstances. California recently joined this minority, passing Senate Bill 1155, California Code of Civil Procedure sections 999-999.5 effective January 1, 2023.  Section 999 provides for the issuance of and response to time-limited settlement demands for claims for personal or bodily injury, property damage or wrongful death under certain types of insurance policies. While the law will help provide certainty to insurers regarding the adequacy of time-limited demands and responding to those demands, it could also serve as a roadmap for claimants attempting to “set up” a bad faith claim.

Scope of Section 999

Section 999 imposes requirements for time-limited policy limits demands related to civil claims covered under automobile, motor vehicle, homeowner, or commercial premises liability policies for property damage, personal injury or bodily injury, and wrongful death claims.  C.C.P. § 999.5(a). The statute defines a “Time-Limited Demand” to include those demands made prior to litigation or arbitration within the policy limits of specific types of insurance policies:

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). 

The Time-Limited Demand definition is somewhat limited in scope in that it applies only to a subset of claims (personal or bodily injury, wrongful death or property damage), and, as noted above, is further limited to only apply to certain types of policies (auto/motor, homeowner and commercial premises liability policies). Accordingly, claims that fall within coverage afforded by, for example, professional liability or directors and officers liability policies, would not be subject to Section 999. It is not yet clear whether “commercial premises liability policies” could encompass general liability insurance policies, which can include coverage for premises-related liability.

The statute is additionally limited to policy demands made before litigation or arbitration is filed, where the claimant is represented by counsel. Most policy limits demands are extended during litigation, often shortly before trial. Section 999 would not apply to those situations. The statute is also only applicable to claims “covered under” specifically enumerated types of insurance. The “covered under” requirement means that the statute does not apply where there is no coverage under the specifically enumerated types of policies. Of course, this makes sense given that there cannot be extracontractual liability for failure to settle if the claim is not covered in the first instance.

Time-Limited Demand Content Requirements

Any demands falling within the “Time-Limited Demand” definition transmitted on or after January 1, 2023 must meet the following requirements:

• Be in writing;
• Identified as a time-limited demand or cite Section 999;
• Provide at least thirty days in which to respond (thirty-three if sent by mail);
• Set forth a “clear and unequivocal offer to settle all claims within policy limits, including the satisfaction of all liens”;
• Offer a complete release from the claimant for all the liability insurer’s insureds;
• Identify the date and location of the loss, the claim number (if known), and a description of all known injuries sustained by the claimant;
• Provide “reasonable proof” to support the claim; and
• Be sent to the insurance representative assigned to handle the claim (if known), or the e-mail or physical address designated by the insurer for receipt of time-limited demands, which the Department of Insurance will make available on its internet website.

C.C.P. § 999.1-.2. 

Any demand that does not “substantially comply” with the above terms cannot be considered a reasonable offer to settle for purposes of establishing extracontractual liability. This suggests that strict compliance is not required, but leaves open the question of what constitutes “substantial compliance.” 

The requirement that the claimant provide a description of injuries and “reasonable proof” to support their claim would ideally provide insurers with the information needed to evaluate the reasonableness of the demand. That said, the phrase “reasonable proof” is undefined in Section 999, and what evidence is required to satisfy the “reasonable proof” requirement is likely to be tested in the courts. 

Time and Manner of Responding to Demands

The statute also addresses how an insurer should respond to a Section 999 demand. Specifically, within the applicable time limit, the insurer has three options for its response: 

• Agree, in writing, to the offer in its entirety;
• Request additional information or an extension based on the need for additional information or time to investigate, and such request “shall not, in and of itself, be deemed a counteroffer or rejection of the demand”; or
• Notify the claimant, in writing, of its decision to reject the demand and the basis for its decision.

C.C.P. § 999.3. 

In investigating and responding to a time-limited settlement demand, where the information supplied is insufficient, insurers should utilize their statutory right to request information that will allow them to fully evaluate the reasonableness of any demand, including information relative to the nature and extent of any alleged injuries, such as medical reports for claims of physical injuries or vendor evaluations of damage to property.

Insurers should also be mindful of the requirements for rejecting time-limited demands under the statute. The statute requires the insurer to state the “basis for its decision” and the rejection notification will likely be used later in any subsequent bad faith lawsuit against the insurer. C.C.P. § 999.3(c) (this notification “shall be relevant” in any lawsuit alleging extracontractual damages”). As the phrase goes, “what you say can, and may be, used against you.”

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Section 999 sets forth the expectations for both claimants and insurers in submitting and responding to time limited demands. However, the statute has limited application to specific types of claims and specific coverage. Questions remain as to whether it will achieve the stated goal of obtaining early claim resolution, or is a “road map” for setting up potential extracontractual claims under the policies enumerated in the statute. Only time will tell.