A new year inevitably brings changes to existing laws and “time-limited demands” are no exception. Parties and jurists use different names to refer to such demands, including “time limit demands,” “policy limit demands,” or “time-limited settlement offers.” They may also take the form of statutory “998 Offers to Compromise” pursuant to California Code of Civil Procedure § 998, which often seek a specific amount equal to the limits of an insurance policy.
In the wake of Pinto v. Farmers Insurance Exchange, 61 Cal.App.5th 676 (2021), the California Legislature codified the rules for these type of demands but only under limited circumstances. Senate Bill 1155 was enacted into law in 2022 and is effective January 1, 2023. Since the law has just been enacted, its impact is not fully known. However, what appear to be the most pertinent (and in some respects, controversial) portions of the bill are set forth below.
When Does the New Law Apply?
The new law is effective January 1, 2023 and applies to “time limited demands” in claims under auto, homeowner and commercial premises liability insurance policies for “property damage, personal or bodily injury, and wrongful death claims.” “Time-limited demands” are defined as follows:
Cal. Code Civ. Proc. § 999(b)(2).
The law does not state whether it applies only to incidents that occur in California, only to policies that are issued in California, or only to insureds and claimants who reside in California. Inevitably, these issues will be fleshed out through future litigation.
Nor does the law indicate whether a demand must solely be for “personal injury, property damage, bodily injury or wrongful death” or whether associated losses (such as loss of past and future income) can be subject to the demand. No mention is made of whether loss of consortium claims would fall within the definition of “personal injury” and emotional distress is not expressly addressed.
When Does the New Law Not Apply?
- It does not apply to unrepresented individuals or entities.
- It does not apply to demands made after a lawsuit has been filed or after the submission of a demand for arbitration.
Therefore, if an insurer is dealing with an unrepresented claimant, or if a lawsuit or arbitration has already been filed or commenced, the new law does not apply.
While the California Legislature may have had good intentions in passing a law to clarify an area of the law that has provided mixed results to insureds and insurers, the fact that the law does not apply to lawsuits already filed seems to limit the statute’s impact. Many policies contain clauses that give the insurer discretion to settle claims pre-suit, but only obligate the insurer to defend actual ”suits.” If no “suit” has been filed, then the insurer may have no duty to defend or even consider settlement.
Although the new law is not applicable to post-litigation demands, presumably the statute’s requirements and time limits will provide courts with guidance as to what is reasonable with respect to post-litigation demands as well.
What Is Required for the Demand to be Effective?
2 Labeled as a “time-limited demand” or made with reference to Section 1, Chapter 3.2 of the California Code of Civil Procedure.
3 Contain material terms, which include:
- Time period within which it must be accepted.
- The time period must be at least 30 days from transmission if sent by email, fax or certified mail or at least 33 days if by mail. Because certified mail transmission often takes considerable time, insurers should expect that some demands will be sent by certified mail instead of email or fax in a deliberate attempt to shorten the insurer’s available time to respond.
- A clear and unequivocal offer to settle all claims within policy limits, including the satisfaction of liens.
- The phrase “clear and unequivocal” will undoubtedly be the subject of much debate, but a requirement that the claimant satisfy liens certainly provides clarity in what the claimant must include in the demand.
- An offer of complete release from the claimant for the insureds from all present and future liability for the occurrence.
- Given this addition, insurers should be entitled to written settlement agreements and a California Civil Code § 1542 waiver. However, the statute does not expressly address situations where there are multiple claimants (or multiple potential claimants) and one claimant serves a demand before others. The statute also does not address vulnerable claimants, such as minors or those who may need conservators appointed. The statute does not appear to change existing law, which allows a liability insurer to reject a policy limit demand if the insured could be exposed to additional liability from other potential claimants.
- The date and location of the loss.
- This requirement is an apparent attempt to avoid claimants “hiding the ball” in their demands.
- The claim number, if known.
- Similarly, this is another requirement to avoid claimants not being transparent about the demand being made.
- A description of all known injuries sustained by the claimant.
- Presumably, these demands are sent shortly after the incident at issue, and, therefore, the extent of injuries may not be known. Conversely, the injuries may initially be severe, but recovery might be swift (for example, in younger claimants). The statute does not require the claimant to identify others involved in the incident, the injuries others may have sustained or provide any information regarding the incident itself. In the case of a motor vehicle incident and given that significant delays in obtaining police reports, without more information about the incident and other potential claimants, insurers may find themselves without the information needed to fully evaluate the offer within the timeframe provided.
- Reasonable proof to support the claim.
- The word “reasonable” itself suggests that further litigation is inevitable on the issue. “Reasonable” proof presumably would give an insurer the opportunity to “test” the proof and ensure that is it genuine. By way of example, an insurer may wish to ensure that the physician whose prepared a report actually saw the claimant, instead of merely generating the report. Similarly, an insurer may request a medical release to obtain other medical records relevant to the claim. If loss of income is recoverable, an insurer should be able to request confirmation from an employer as to the claimant’s income. Whether those requests would be considered reasonable under the statute may depend upon the circumstances.
On balance, while the California Legislature wanted to encourage prompt settlements, the new law does not address many situations that commonly arise in liability disputes. Because the statute does not define “reasonable” proof, presumably the statute does not change existing law as to what “reasonable” means under the circumstances.
To Whom Is the Demand to Be Sent?
The statute provides two options under Section 999.2.
- The demand may be sent to the email or physical address designated by the insurer for receipt of the demand if such an address has been provided by the Department of Insurance, which had made the address publicly available; OR
- The insurance representative assigned to handle the claim, if known.
These requirements should prevent claimants from sending time-limit demands to dormant post office boxes or unmonitored email addresses. Demands must be sent to a specific location or email address designated by the insurer and published on the Department’s website or to the claims person handling the claim.
What Can the Insurer Do After Receipt of the Demand?
The new law provides a number of options after receipt of the demand:
1 The demand can be accepted by providing acceptance of the material terms in their entirety.
2 The insurer can seek clarification or request additional information relating to the demand. As long as that clarification or request is not after the deadline, that request “shall not, in and of itself, be deemed a counteroffer or rejection.”
This positive aspect of the law encourages insurers to seek clarification without running the risk of the claimant arguing that not accepting an offer constitutes a counteroffer or rejection.
3 If an insurer does not accept the demand, it shall notify the claimant in writing of its decision and the basis for it before the expiration of the demand. The insurer’s response “shall be relevant in any lawsuit alleging extracontractual damages against the tortfeasor’s liability insurer.”
This bolded section is probably the most important aspect of the new law because it requires the insurer to articulate a basis for rejection instead of merely letting it expire. That said, it does not specify the information that must be included in that response. We expect that claimants will argue that any considerations not articulated in a declination are barred or waived in future actions.
What Happens if the Demand Does Not Comply with the Statute?
If the demand does not “substantially comply” with the statute, it will not be considered a reasonable offer to settle within policy limits. However, the statute does not provide any guidance as to what “substantial compliance” means.
 It appears that the intent is to limit the statute to liability policies that individuals or small businesses typically purchase.
 That a certified mail transmission requires only 30 days’ notice, but regular mail permits 33 days, seems inconsistent with the reality that certified mail requires a signed return receipt and that the certified mail process tends to take longer than regular mail.