Clock is Ticking: New Law Restricts Time-Limited Policy Limit Settlement Demands

By: Dominica Anderson and Daniel B. Heidtke

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).)

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Rejection of Reasonable Settlement in Third Party Insurance Claim Not Per Se Unreasonable

In an opinion filed on March 8, the California Court of Appeal, Second District, reversed a jury verdict against an insurer because the jury failed to make an explicit finding that the insurer acted unreasonably in some respect.  In Alexander Pinto v. Farmers Ins. Exch., Case No. B295742, the court held that a bad faith claim requires a finding that the insurer acted unreasonably in some respect.  Because the jury made no such finding (because the verdict form lacked any question asking the jury to make such a finding), the court vacated the verdict in favor of the insured and remanded the case for further proceedings.

The coverage dispute arose out of a single-car traffic accident.  The victim offered to settle his claim against the vehicle owner in exchange for payment of the vehicle owner’s insurance policy limits.  The offer lapsed before the insurer accepted it.  The victim then obtained a judgment in excess of the vehicle owner’s insurance policy limits.  The vehicle owner then assigned her claims against the insurer to the victim.  The victim then sued the insurer alleging that the insurer should be held liable for its alleged bad faith failure to settle.  The victim prevailed at trial against the insurer.

At issue in the appeal was the lack of an express finding by the jury that the insurer had acted unreasonably (again, the lack of an express finding was because the jury had not been asked this question on the verdict form).  The court explained, “[t]he issue is whether, in the context of a third party insurance claim, failing to accept a reasonable settlement offer constitutes bad faith per se.  We conclude it does not.”

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Protections Against Defended Policyholder Manufacturing Bad Faith Case Via Stipulated Judgment Confirmed By California Court

The California Court of Appeal for the Fourth District, Division Two, in 21st Century Ins. Co. v. Superior Court (Tapia), ___ Cal.App.4th ___  (No. E062244, September 10, 2015), recently confirmed some of the important protections for defending insurers against stipulated judgments that were established in the Hamilton and Safeco decisions and limited the application of other decisions that have been relied on by claimants and policyholders seeking to get around the Hamilton rule against bad faith actions premised on such stipulated judgments. Continue reading “Protections Against Defended Policyholder Manufacturing Bad Faith Case Via Stipulated Judgment Confirmed By California Court”

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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