To combat a perceived litigation tactic by plaintiffs counsel of using settlement demands within policy limits to set up insurers for bad faith, insurance company associations lobbied for statutory clarification to avoid uncertainty around insurers’ duties when faced with time-limited demands.

The result was the enactment of California Code of Civil Procedure Chapter 3.2, Sections 999–999.5, titled “Time-Limited Demands,” which goes into effect Jan. 1, 2023.

Claimants’ time-limited settlement demands often seek the available policy limits and are usually referred to in the industry as “policy limits demands,” though theoretically they could be for an amount below limits. The demands must be reasonable in order to subsequently impose extracontractual liability on an insurer for bad faith failure to settle.

For certain types of claims and policies, Section 999 imposes several new criteria that a presuit demand must comply with to be considered a reasonable offer to settle within policy limits. We’ll call these “Section 999 demands.”

After Jan. 1, claimants must carefully draft Section 999 demands to meet the procedural requirements of these new sections, or their presuit demands will not be a basis to later impose liability in excess of the policy limits on the tortfeasor’s insurer. These additional requirements are, theoretically, designed to constrain and limit bad faith claims.

However, because Section 999 makes it clear how to make a reasonable demand, where to send it and how much time must be provided, it can also be viewed as a road map. If used correctly, compliant Section 999 demands may be a tool for claimants and policyholders to more easily establish that a reasonable presuit offer to settle was made.

And because Section 999 also creates new requirements for how insurers must respond, it may also make it easier to prove that the basis for the insurer’s rejection of a demand was unreasonable — thus exposing the insurer to liability in excess of limits.

You can read the full article I wrote for Law360, “More Stringent California Claim Law Could Benefit Policyholders,” covering Section 999 demands here.