Page 78 - FDCC_InsightsSpecialIssue23.2

Extra-Contractual Liability Law
California (sort of) Provides New Rules (guidelines, really) For Time-limit Settlement Demands
By Jeffrey V. Commisso
In California, it is bad faith for a liability insurer to unreasonably fail to accept a reasonable settlement demand. And California bad faith means California- size damages, including punitive damages. Consequently, for years claimants’ lawyers have made settlement negotiations into a cat-and-mouse game; making demands crafted to not be accepted, but to lapse or be rejected and thus laying the foundation to argue that the insurer acted in bad faith.
Effective January 1, California has introduced new rules into the game. Under California’s new Code of Civil Procedure § 999 et seq., a time-limited settlement demand must check a few boxes to be deemed “reasonable.” As always, any demand must be for an amount within the policy’s liability limit, offer to settle all claims and satisfy all liens, and offer a complete release from past and future liability. What’s new is that “reasonable” demands must be in writing, properly addressed (to the claim handler or company-designated address), labeled as a time-limited demand, and provide the date and location of the occurrence. “Reasonable demands” must also give the insurer at least 30 days to respond. So we can at least say goodbye to 10-day deadlines dropped in the mail at 5:00 p.m. the day before Thanksgiving. Finally, “reasonable demands must describe the claimant’s injuries and include “reasonable proof” supporting demand, such as medical records and bills.
Lawyers being lawyers, and legislators being legislators (and usually lawyers too), the new statute has two big areas for dispute. First, a demand need only “substantially comply” with the new rules to be considered reasonable. In this sense, the new § 999, like the pirate code, “is more what you’d call ‘guidelines’ than actual rules.” “Substantial compliance” is undefined, so whether a demand measures up is something insurers and claimants’ lawyers will litigate about. Second, “reasonable proof” to support a demand also isn’t defined, adding another layer of uncertainly.
There are also new rules for responding to time-limited demands. Insurers must respond to time-limited demands in writing. If an insurer accepts, then it must accept the demand’s material terms “in their entirety.” And if an insurer rejects, then it must provide a written explanation for its decision that “shall be relevant” in
68
(sometimes)
Jeffrey V. Commisso
FDCC ANNUAL INSIGHTS 2023