Certain time-limited settlement demands delivered on or after January 1, 2023 will be subject to additional restrictions as California Code of Civil Procedure (“CCP”) Sections 999-999.5 take effect in the New Year. In the past, policyholder counsel have issued policy-limit demand letters, with little detail, and little time to respond; threats and concerns over acting in “bad faith” abound. In enacting CCP § 999-999.5, the California Legislature set about to establish restrictions and, importantly, clearer guidelines—for both policyholders and insurers.
Pursuant to CCP § 999(b)(2), a “time-limited demand” is defined 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.”
Thus, the new statutory requirements apply only to pre-litigation settlement demands and further only to limited causes of action and claims under automobile, homeowner, motor vehicle, or commercial premises liability insurance policies for property damage, personal or bodily injury and wrongful death claims. (CCP § 999.5(a).)
A “time-limited demand” must be in writing, and labeled as a time-limited demand or reference § 999.1. It also must contain “material terms,” which include the following:
(1) The time period within which the demand must be accepted, which shall not be fewer than 30 days (if sent by e-mail, fax, or certified mail), or not fewer than 33 days (if sent by mail);
(2) A clear and unequivocal offer to settle all claims, within policy limits;
(3) An offer for a complete release, from all present and future liability for the occurrence;
(4) The date and location of the loss;
(5) the claim number, if known;
(6) A description of all known injuries sustained by the claimant;
(7) Reasonable proof, which may include, if applicable, medical records or bills sufficient to support the claim.
(CCP § 999.1(a)-(g).) A “time-limited demand that does not substantially comply” with CCP § 999 et seq. “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.”
The law also establishes important guidelines for responding to time-limited demands, including a requirement that the insurer expressly reject the demand (should it choose to reject the demand). (See CCP § 999.3.) For example, an attempt to seek clarification or additional information, or a request for an extension, “shall not, in and of itself, be deemed a counteroffer or rejection of the demand.” (CCP § 999.3(b).) In addition, “[i]f, for any reason, an insurer does not accept a time-limited demand, the insurer shall notify the claimant, in writing, of is decision and the basis for its decision.” This notification must be sent prior to the expiration of the time-limited demand, “and shall be relevant in any lawsuit alleging extracontractual damages against the tortfeasor’s liability insurer.” (CCP § 999.3(c).)
In the past, time-limited, policy limit demands provided opportunity for the unscrupulous to improperly attempt to manufacture bad faith litigation. But, in all, CCP §§ 999-999.5 appear to provide additional guidance and requirements to time-limited, policy limit demands that should help rein in any such conduct.