New California Time-Limited Demand Statute for Insurance Claims Effective Now | Carlton Fields

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In an effort to promote early resolution of claims and remove ambiguity in bad faith litigation, the California legislature recently passed Senate Bill 1155. Effective January 1, 2023, the bill creates California Code of Civil Procedure Section 999 et seq., a set of rules detailing form requirements for time-limited demands, demand delivery procedures, and steps needed to accept or deny the demand. The scope of Section 999 is limited to demands brought prior to any suit or arbitration involving property damage, personal or bodily injury, or wrongful death causes of action. Additionally, Section 999 only applies to claims covered under motor vehicle, homeowner, or commercial premises liability insurance policies where the claimant is represented by counsel.

Background

Under California case law, the covenant of good faith and fair dealing implied in insurance policies obligates insurers to make reasonable efforts to settle a third-party’s lawsuit against the insured, and opens the possibility for the insured to sue the insurer to recover damages caused by the insurer’s failure to reasonably settle a lawsuit (typically damages in excess of the insurance policy limits). In the context of time-limited demands, pre-Section 999 courts assessed, on a case-by-case basis, the length of time an insurance company is given to act on a pre-litigation demand as a key factor in whether the demand was in fact a reasonable offer to settle the claim, i.e. one that can give rise to bad faith litigation should the insurance company not accept.

Key Provisions

Section 999 supplants that existing case law and provides a framework for whether a time-limited demand can be considered a reasonable offer to settle. To that end, the statute contains several requirements, starting with the form of the demand. Specifically, Section 999.1 requires that the demand:

  • Be written and labeled as a time-limited demand, or reference Section 999;
  • Provides at least 30 days for acceptance if sent by email, fax, or certified mail, and at least 33 days if by regular mail;
  • Contain a clear and unequivocal offer to settle all claims within policy limits, including the satisfaction of all liens;
  • Provide for a complete release from the claimant for the insured;
  • Specify the date and location of the loss, the claim number (if known), and provide a description of all known injuries sustained by the claimant; and
  • Provide reasonable proof sufficient to support the claim, which may include medical records or bills.

The demand must be sent either to the insurance representative assigned to handle the claim or to the email or physical address designated by the insurer for receipt of time-limited demands.  To facilitate the latter, the statute requires the Department of Insurance to post on its website the email or physical address.

As for steps the insurer must take upon receipt of a time-limited demand, Section 999.3 contains several options:

  • The insurer may accept the demand by providing written acceptance of the material terms outlined in Section 999.1 in their entirety;
  • The insured may attempt to seek clarification or request additional time to investigate the claims in the demand. Such attempts are not to be construed as a counteroffer or a rejection of the demand.
  • The insured may not accept the demand. If it does so, it must notify the claimant in writing prior to the expiration of the demand of its decision and the basis for its decision. The statute states that the notification “shall be relevant in any lawsuit alleging extra contractual damages against the tortfeasor’s liability insurer.”

Potential Issues

While the new rule offers some clear guidelines for claimants and insurers, it also raises potential areas of uncertainty. For example, Section 999.4 requires “substantial compliance” in order for a demand to be considered a reasonable offer to settle the claim, which implies that complete compliance is not required, leaving uncertainty in the level of proof required to demonstrate compliance. Additionally, while it is clear the rule covers commercial premises liability policies, it is unclear whether the statute applies to other policies that may include coverage for premises liability.

Notwithstanding those issues, the new statute does provide certain ground rules to claimants and carriers for navigating time-limited demands for those claims within its scope.

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