📋 Overview
A policy limits demand is a strategic tool that offers to settle a liability claim for the full amount of available insurance coverage. When properly structured, it creates significant pressure on insurers because rejecting a reasonable policy limits demand may expose them to liability for the entire judgment - even amounts exceeding policy limits. I draft policy limits demands that maximize settlement leverage while preserving all options if the insurer unreasonably refuses.
What is a Policy Limits Demand?
A policy limits demand is an offer from an injured claimant to settle their claim against an insured defendant for the total available liability insurance coverage. Key characteristics:
💰 Full Policy Amount
Demands the entire available coverage - policy limits plus any umbrella or excess coverage.
📅 Time-Limited
Imposes a reasonable deadline (typically 30 days) for acceptance, creating urgency.
📝 Conditional Terms
May include conditions such as releases, cooperation requirements, or documentation.
⚠ Excess Exposure Warning
Puts insurer on notice of bad faith exposure if it unreasonably rejects the demand.
When to Use a Policy Limits Demand
Policy limits demands are appropriate when:
- The claim value clearly exceeds available policy limits
- Liability is clear or reasonably clear against the insured
- You want to maximize settlement pressure on the insurer
- You are willing to accept policy limits in full settlement
- You want to preserve excess liability claims against the insurer or insured
Texas Has Stowers - California Has Comunale
While Texas practitioners refer to the "Stowers doctrine" from G.A. Stowers Furniture Co. v. American Indemnity Co. (1929), California's equivalent derives from Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654. The principles are similar: insurers who unreasonably reject reasonable settlement offers face excess liability.
⚖ Legal Basis (California Statutes)
California law imposes a duty on liability insurers to accept reasonable settlement offers within policy limits. Unreasonable rejection exposes the insurer to liability for the full judgment.
The Duty to Accept Reasonable Settlements
Implied Covenant of Good Faith
Every insurance contract in California contains an implied covenant of good faith and fair dealing. In the liability context, this means the insurer must give equal consideration to the insured's interests when evaluating settlement offers.
Insurance Code 790.03(h)(5)
"Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear." While this does not create a private right of action, it establishes the standard for reasonable claims handling.
Foundational California Cases
Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654
The foundational California case establishing that a liability insurer has a duty to accept reasonable settlement offers within policy limits. When the insurer unreasonably rejects such an offer and the insured suffers an excess judgment, the insurer is liable for the entire judgment, not just policy limits. The insurer must give "at least as much consideration" to the insured's interests as to its own.
Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425
Expanded Comunale to hold that the insurer's duty to settle is not limited to cases where liability is "certain." The insurer must settle when there is a "substantial likelihood" of an adverse judgment exceeding policy limits. Also established that the insured can recover emotional distress damages for the insurer's bad faith failure to settle.
Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9
Held that a liability insurer may be liable for bad faith failure to settle even where the policy limits demand required more than just money (here, an apology). The insurer cannot hide behind technical imperfections in the demand to avoid its duty to settle reasonably.
Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718
Clarified that an injured claimant who obtains a judgment against the insured can pursue a direct action against the insurer for bad faith failure to settle, either through assignment from the insured or after the insured becomes insolvent. The claimant steps into the shoes of the insured.
Graciano v. Mercury General Corp. (2014) 231 Cal.App.4th 414
Emphasized that the duty to settle does not require a "perfect" policy limits demand. Insurers cannot avoid settlement by pointing to technical defects in demands that do not materially impair the insurer's ability to evaluate and accept the offer.
The "Equal Consideration" Standard
Under California law, the insurer must give "at least as much consideration" to the insured's interests as to its own financial interests. This means the insurer cannot gamble with the insured's assets by rejecting reasonable settlement offers to protect its own reserves.
📝 Requirements for Effective Demand
A policy limits demand must be properly structured to create maximum pressure and preserve all legal options. I ensure demands meet these requirements:
⚠ Critical Requirements for Valid Policy Limits Demand
- 1 Demand Full Policy Limits: The demand must be for the total available coverage. A demand for less than limits may not trigger the same duties.
- 2 Clear and Unambiguous: The terms must be clear enough that the insurer can evaluate and accept. Vague or ambiguous demands may be rejected.
- 3 Reasonable Time to Respond: Must provide reasonable time for investigation and evaluation (typically 30 days). Unreasonably short deadlines may invalidate the demand.
- 4 Within Insurer's Power to Accept: The demand cannot require the insurer to do something beyond its control. Conditions must be reasonable.
- 5 Full Release Offered: Must offer to fully release the insured from liability in exchange for payment. Partial releases may not be sufficient.
- 6 Proper Documentation: Should include sufficient documentation of injuries, damages, and liability to allow reasonable evaluation.
Elements of Bad Faith Failure to Settle
If the insurer rejects a proper policy limits demand and an excess judgment results, I prove these elements to establish bad faith:
1. Valid Demand Made
A proper policy limits demand meeting the requirements above was submitted to the insurer.
2. Demand Was Reasonable
The demand was reasonable given the nature and extent of the claimant's injuries and damages.
3. Liability Reasonably Clear
There was substantial likelihood of adverse judgment against the insured at the time of the demand.
4. Rejection Unreasonable
The insurer's decision to reject the demand was unreasonable under the circumstances.
5. Excess Judgment Resulted
The claimant obtained a judgment against the insured exceeding policy limits.
6. Causation
The unreasonable rejection caused the excess judgment that would have been avoided by settlement.
Common Defects That Undermine Demands
- Unreasonably short deadlines (less than 15-20 days)
- Ambiguous terms about what is being released
- Conditions the insurer cannot control (e.g., requiring insured's cooperation insurer cannot compel)
- Insufficient documentation to evaluate the claim
- Failure to identify all claimants who must release
- Demanding more than policy limits without explanation
💰 Damages and Penalties
When an insurer unreasonably rejects a valid policy limits demand and an excess judgment results, the exposure can be catastrophic for the insurer.
| Damage Category | Description |
|---|---|
| Full Excess Judgment | The insurer becomes liable for the entire judgment, even amounts exceeding policy limits. A $100,000 policy can result in millions in liability. |
| Post-Judgment Interest | Interest accrues on the full judgment amount from date of judgment at the legal rate (10% in California). |
| Emotional Distress (Insured) | The insured can recover for emotional distress caused by the bad faith, including anxiety about excess exposure. |
| Punitive Damages | If the failure to settle was malicious, oppressive, or fraudulent, punitive damages are available under Civil Code 3294. |
| Attorney Fees | Brandt fees for obtaining policy benefits, plus potential fee-shifting in bad faith actions. |
Assignment of Bad Faith Claims
In California, when the insured faces an excess judgment due to the insurer's failure to settle, the insured can assign their bad faith claim to the injured claimant. This allows the claimant to pursue the insurer directly:
Pre-Judgment Assignment
The insured assigns their bad faith claim to the claimant in exchange for a covenant not to execute on personal assets.
Post-Judgment Assignment
After an excess judgment, the insured assigns their bad faith claim to satisfy part of the judgment.
Direct Action
Under Hamilton, the claimant may pursue the insurer directly after obtaining judgment against an insolvent insured.
My Demand Letter Services
✅ Evidence Checklist
I gather this evidence to support a compelling policy limits demand:
💰 Damages Documentation
- ✓ Complete medical records and bills
- ✓ Future medical treatment projections
- ✓ Lost wage documentation
- ✓ Economic loss calculations
- ✓ Pain and suffering documentation
⚖ Liability Evidence
- ✓ Police or incident reports
- ✓ Witness statements
- ✓ Photos and videos of scene/injuries
- ✓ Expert liability opinions if needed
- ✓ Defendant's statements or admissions
📄 Coverage Information
- ✓ Policy limits confirmation
- ✓ All applicable policies identified
- ✓ Umbrella/excess coverage inquiry
- ✓ Other potential defendants' coverage
📈 Value Comparison
- ✓ Similar case verdicts and settlements
- ✓ Jury verdict research for jurisdiction
- ✓ Analysis showing claim exceeds limits
Typical Policy Limits Demand Timeline
📄 Sample Demand Language
These sample paragraphs illustrate the structure of a policy limits demand. Each letter is customized to the specific case.
Claimant: [CLIENT NAME]
Your Insured: [DEFENDANT NAME]
Claim/Policy No.: [NUMBER]
Date of Loss: [DATE]
This letter constitutes a time-limited demand to settle all claims against your insured, [DEFENDANT NAME], for the full policy limits of $[AMOUNT]. This demand will remain open for acceptance until [DATE - 30 DAYS] at 5:00 PM Pacific Time, after which it shall be deemed withdrawn without further notice.
The evidence establishes your insured breached the applicable standard of care, and that breach proximately caused all of my client's damages. There are no viable affirmative defenses or comparative fault issues that would meaningfully reduce recovery.
Past Medical Expenses: $[AMOUNT]
Future Medical Expenses: $[AMOUNT]
Past Lost Wages: $[AMOUNT]
Future Lost Earning Capacity: $[AMOUNT]
Pain and Suffering (Past): $[AMOUNT]
Pain and Suffering (Future): $[AMOUNT]
TOTAL DAMAGES: $[TOTAL]
Complete medical records, billing statements, and economic loss documentation are enclosed. Comparable verdicts in [COUNTY] County for similar injuries range from $[LOW] to $[HIGH].
Given the clear liability and damages that substantially exceed policy limits, rejection of this reasonable policy limits demand will expose your insured to an excess judgment. If such a judgment results from your unreasonable failure to settle, your company will be liable for the entire judgment amount, not just policy limits. Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425.
Your insured will also have claims against your company for emotional distress and potentially punitive damages. These claims are assignable to my client. Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718.
1. Payment of $[POLICY LIMITS] by certified check or wire transfer;
2. Payment within thirty (30) days of acceptance;
3. Execution of a standard release of all claims against your insured arising from this incident;
4. No admission of liability by either party.
DEADLINE: This demand expires on [DATE] at 5:00 PM Pacific Time. Written acceptance must be received at my office before that time. Failure to timely accept shall constitute rejection, and this demand shall be deemed withdrawn without prejudice to my client's right to pursue all available remedies.
Please confirm receipt of this demand and provide written response to:
[YOUR NAME]
[YOUR ADDRESS]
[YOUR EMAIL]
Very truly yours,
[YOUR NAME]
Attorney for [CLIENT NAME]
🚀 Next Steps
For Claimants After Sending Demand
- Document Receipt: Confirm the insurer received the demand via certified mail receipt or email confirmation.
- Respond to Requests: Reasonably respond to any requests for additional information or clarification.
- Track the Deadline: Calendar the expiration date and time precisely.
- Prepare for Acceptance: Have release documents ready if the demand is accepted.
- Prepare for Rejection: If rejected, document the rejection and preserve bad faith evidence.
- File Suit if Necessary: After rejection or expiration, proceed with litigation while preserving excess claims.
For Insurance Companies Receiving Demands
- Acknowledge Promptly: Acknowledge receipt in writing immediately.
- Investigate Thoroughly: Conduct a complete investigation of liability and damages.
- Evaluate Honestly: Apply the "equal consideration" standard objectively.
- Communicate with Insured: Keep the insured informed of the demand and your evaluation.
- Make Timely Decision: Accept, reject, or make counter-offer before deadline.
- Document Reasoning: Create a contemporaneous record of your evaluation and decision.
Need a Policy Limits Demand?
I draft professionally structured policy limits demands that maximize settlement pressure while preserving all legal options. Get it right the first time.
Schedule ConsultationRelated Hub Pages
- Bad Faith Overview - Comprehensive California bad faith guide
- Undervalued Claims - When insurers lowball settlement offers
- Claim Denials - Wrongful denial demands
- Delay Claims - Unreasonable delay demands
External Resources
- California Department of Insurance
- State Bar of California - Find certified specialists
- Consumer Attorneys of California