A new California law is responding to the continued use of time-limit demands to “open” insurance. Time-limited demands are offers to settle a claim within a specified period of time, usually within the policy limits of the liable party’s insurance. These demands can be used to pressure insurers to accept a settlement or face the risk of being sued for bad faith if they reject a reasonable offer.
Senate Bill 1155, signed by Governor Gavin Newsom on September 28, 2022, adds Chapter 3.2, “Time-Limited Demands,” to the California Code of Civil Procedure (sections 999-999.5) (the “Statute”). The Statute establishes California’s first statutory framework for 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 claims12.
The Statute defines a “time-limited demand” 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.”1
The Statute requires that a claimant’s time-limited demand be in writing, be labeled as such a demand or reference the statute, and provide the insurer at least 30 or 33 days from the date of transmission (depending on the method of transmission) for the insurer to respond to the demand1. The demand must contain, at a minimum, the following material terms:
- A clear and unequivocal offer to settle all claims within policy limits, including the satisfaction of all 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 known;
- A description of all known injuries sustained by the claimant;
- Reasonable proof sufficient to support the claim;
The Statute also requires that a claimant send the time-limited demand to the insurance representative assigned to handle the claim, if known, or to the email or physical address designated by the liability insurer for receipt of time-limited demands, if an address has been provided by the insurer to the Department of Insurance and the Department has made the address publicly available.
The Statute provides that an insurer may, during the time within which to accept the time-limited demand, seek clarification, additional information, or an extension due to the need for further information or investigation. Such a request “shall not, in and of itself, be deemed a counteroffer or rejection of the demand.” An insurer may accept a time-limited demand by providing written acceptance of the material terms in their entirety. An insurer rejecting a time-limited demand must notify the claimant in writing prior to the expiration of the demand (including any extension agreed to by the parties) of its decision and the basis for its decision. The Statute states that the notification “shall be relevant in any lawsuit alleging extracontractual damages against the tortfeasor’s liability insurer.”
The Statute aims to prevent unfair and abusive practices by both claimants and insurers regarding time-limited demands. It seeks to ensure that claimants provide sufficient information and time for insurers to evaluate and respond to their demands, and that insurers provide clear and timely communication and justification for their decisions. It also seeks to reduce litigation costs and delays by encouraging early settlement of claims within policy limits.
The Statute only applies to claims arising from occurrences that take place on or after January 1, 2023. It also only applies if Senate Bill 1107 is enacted into law1. Senate Bill 1107 amends section 16056 of the California Vehicle Code to increase the minimum motor vehicle financial responsibility limits to $30,000/$60,000/$15,000 beginning on January 1, 2025, and to $50,000/$100,000/$25,000 on January 1, 2035.