Summary. This article explains how a liability insurer that turns down a reasonable settlement offer within its policy limits can end up paying a verdict many times those limits, and why the time-limited demand has become the main tool for creating that exposure. It traces the duty to settle from the Texas Stowers decision of 1929 through California's Comunale and Crisci cases, then compares the standards courts now apply, from Texas negligence to New York's gross-disregard rule. It explains what makes a demand legally effective, the case law on short deadlines, impossible conditions, liens, and multiple claimants, and the growing body of statutes in California, Georgia, Florida, and Missouri that regulate demands. It then covers what happens after a demand lapses: excess verdicts, assignments, consent judgments, and the limits courts have placed on them. Separate sections address federal court practice and the ethical duties of plaintiff's counsel, defense counsel, and the insurer. An extended worked example, common mistakes, an FAQ, and takeaways close the article.

The letter arrives at a regional claims office on a Tuesday. It is fourteen pages long, with a thumb drive of medical records clipped to the back. It says that the insurer's policyholder, a 23-year-old delivery driver named Marcus Bell, ran a red light and hit Renata Okafor's car broadside. Okafor spent nine days in the hospital with a fractured pelvis and a lacerated spleen, and her bills already exceed $310,000. Bell's personal auto policy carries $50,000 in bodily injury coverage. The letter offers to release Bell completely for the $50,000 limit. It gives the insurer 30 days to accept in writing, and it says, in bold type, that if the offer expires the claimant will try the case and collect the full verdict from Bell personally.

The adjuster has a choice that looks small. She can pay $50,000 now, or she can keep investigating, ask for more records, offer $35,000, or miss the deadline because the file sat in a queue during a staffing gap. If she gets it wrong, and a jury later awards Okafor $1.8 million, the insurer may owe the whole $1.8 million plus interest, even though its contract capped its obligation at $50,000. Bell, who earns $41,000 a year, will be the nominal judgment debtor, but the real fight will be between Okafor (holding an assignment of Bell's rights) and the insurer.

That is the mechanism this article explains: how a time-limited offer within policy limits converts a capped contract into uncapped exposure, why courts allow it, where legislatures have stepped in, and what each person in the transaction (claimant's lawyer, adjuster, defense counsel, and the insured) should do when the letter arrives.

The short answer

  • Liability insurers that control settlement owe their insureds a duty to settle reasonably. If an insurer unreasonably rejects an offer to settle within its limits, it can be liable for the entire resulting judgment, not just its limits. Texas announced the rule in G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex. Comm'n App. 1929); California followed in Comunale v. Traders & General Insurance Co., 50 Cal. 2d 654 (1958) and Crisci v. Security Insurance Co., 66 Cal. 2d 425 (1967).
  • The standard varies sharply by state. Texas asks whether an ordinarily prudent insurer would have accepted. California asks whether a prudent insurer without policy limits would have accepted. Florida looks at the totality of the insurer's conduct. New York requires "gross disregard" of the insured's interests, a much harder showing (Pavia v. State Farm Mutual Automobile Insurance Co., 82 N.Y.2d 445 (1993)).
  • The time-limited demand is the trigger. A valid demand must be within limits, must offer a full release of the insured, must give the insurer enough information and enough time to evaluate it, and must not impose conditions the insurer cannot meet. Defects on any of these points can defeat a later bad-faith claim.
  • Legislatures are regulating demands. California's time-limited demand statute, Cal. Civ. Proc. Code §§ 999-999.5, sets minimum content, a 30-day floor, delivery rules, and a duty to explain a rejection. Georgia's O.C.G.A. § 9-11-67.1, Missouri's Mo. Rev. Stat. § 537.058, and Florida's 2023 amendments to Fla. Stat. § 624.155 impose their own requirements and, in Florida, a 90-day safe harbor for insurers that tender.
  • The bad-faith claim usually belongs to the insured, but it ends up in the claimant's hands. After an excess verdict, the insured typically assigns the claim to the injured party in exchange for a promise not to collect from the insured personally. Some states also allow pre-trial consent judgments when the insurer refuses to defend (Coblentz v. American Surety Co. of New York, 416 F.2d 1059 (5th Cir. 1969); Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982)), but others sharply limit them (Hamilton v. Maryland Casualty Co., 27 Cal. 4th 718 (2002); State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996)).
  • "Setup" demands are a real concern, and courts police them. Short deadlines, demands sent before the insurer could investigate, and conditions designed to be failed have all led courts to reject bad-faith claims. The cleanest demands are the ones most likely to produce real exposure.
  • Everyone has a role. The adjuster must evaluate quickly and communicate. Defense counsel must tell the insured about the demand and its risk. The insured should get personal counsel. The claimant's lawyer must make a demand that a reasonable insurer could actually accept.

Why a $50,000 policy can produce a $2 million check

A liability policy has two promises. The insurer promises to pay covered damages up to the limit (the duty to indemnify), and it promises to defend the insured against covered suits (the duty to defend). Almost every liability policy also gives the insurer the right to control the defense and to settle "as it deems expedient." The insured, in turn, promises to cooperate and not to settle on its own.

That allocation of control creates a conflict of interest that the policy does not mention. When a claim is worth more than the limits, the insurer's maximum loss is fixed at the limit plus defense costs. Refusing a within-limits offer and going to trial costs the insurer little: if it wins, it saves the limit; if it loses big, it still pays only the limit. The insured is in the opposite position. Every dollar of verdict above the limit is the insured's personal debt. An insurer guided only by its own interest would gamble with the insured's money.

Courts solved this by implying a duty into the contract. In most states the duty comes from the covenant of good faith and fair dealing; in Texas it is framed as a tort duty of ordinary care. Either way, the remedy is the same: an insurer that breaches the duty to settle pays the consequence of the breach, which is the excess judgment. The policy limit stops being a cap because the insurer is no longer being held to its promise to indemnify. It is being held liable for the damage its own decision caused.

Three features of this remedy shape everything that follows.

  1. The claim belongs to the insured. The injured claimant is a stranger to the policy and, in most states, has no direct claim against the tortfeasor's insurer for failing to settle. Texas, for example, held in Allstate Insurance Co. v. Watson, 876 S.W.2d 145 (Tex. 1994) that a third-party claimant cannot sue the defendant's insurer under the Insurance Code's unfair settlement provisions. The claimant gets to the insurer through the insured, usually by assignment.
  2. The excess judgment is the damage. Without a judgment above limits, there is usually nothing to recover. The Texas Supreme Court made the point in In re Farmers Texas County Mutual Insurance Co., 621 S.W.3d 261 (Tex. 2021), holding that an insured who paid $100,000 of her own money to close a settlement the insurer would not fully fund had no negligent-failure-to-settle claim, because there was no judgment or settlement in excess of limits. (She could pursue a contract claim for indemnity instead.)
  3. The demand is the evidence. Bad-faith cases are decided by asking what the insurer knew, when, and what it did with a concrete opportunity to settle. The time-limited demand fixes that opportunity in writing, with a date. That is why plaintiff's lawyers draft them carefully, and why insurers keep claims files as if a jury will read them, because one may.

Where the duty came from

Stowers: a $4,000 offer and a $5,000 policy

The modern law starts with a furniture company in Galveston. G.A. Stowers Furniture Company carried a $5,000 liability policy with American Indemnity Company. A woman named Bichon sued the company for injuries, and before trial she offered to accept $4,000 in full settlement. The insurer refused to pay more than $2,500, even though, as the furniture company alleged, it knew the case was dangerous and that a verdict above the limit was likely. The jury returned a verdict of $12,207. After an unsuccessful appeal, Stowers paid $14,107.15 with interest and costs, and sued the insurer for the difference.

The Commission of Appeals held that the insurer could be liable. By taking exclusive control of the litigation and settlement, the insurer had made itself the insured's agent, and "it ought to be held to that degree of care and diligence which an ordinarily prudent person would exercise in the management of his own business." If an ordinarily prudent person, viewing the case from the insured's standpoint, would have settled, the insurer had to answer in damages. (G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex. Comm'n App. 1929).)

Texas lawyers still speak of "Stowers demands" and "Stowers letters," and the Texas Supreme Court has since defined the trigger precisely. Under American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994), the duty is activated only when (1) the claim is within the scope of coverage, (2) the demand is within the policy limits, and (3) the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured's potential exposure to an excess judgment. In Texas Farmers Insurance Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994), the court added that the demand must propose to release the insured fully in exchange for a stated sum. Texas also treats Stowers as the exclusive third-party duty: in Maryland Insurance Co. v. Head Industrial Coatings & Services, Inc., 938 S.W.2d 27 (Tex. 1996), the court declined to recognize a broader tort duty of good faith running from an insurer to its insured in the third-party context.

Comunale and Crisci: California makes it a covenant

California reached the same destination through contract. In Comunale v. Traders & General Insurance Co., 50 Cal. 2d 654 (1958), a truck driver named Sloan was insured under a policy with $10,000 per-person limits. The insurer denied coverage (wrongly, it turned out) because Sloan was driving a truck he did not own, refused to defend, and on the second day of trial refused a chance to settle for $4,000. The verdict was $25,000 for the injured husband and $1,250 for his wife. The California Supreme Court held that the implied covenant of good faith and fair dealing required the insurer to consider the insured's interest in settlement, and that an insurer that wrongfully refuses a reasonable settlement within limits is liable for the entire judgment. It also held that an insurer that wrongly denies coverage takes the risk of being wrong: it cannot defend its refusal to settle by pointing to the coverage position it lost.

Nine years later Crisci v. Security Insurance Co., 66 Cal. 2d 425 (1967) supplied the test California still uses. Rosina Crisci, a 70-year-old widow, owned an apartment building. A tenant, June DiMare, fell through the outside wooden staircase when a tread gave way, and later developed a severe psychosis she attributed to the fall. Crisci had $10,000 of coverage. The insurer's own lawyer and claims manager believed that if the jury connected the psychosis to the fall, the verdict would be at least $100,000. By the time the DiMares reduced their demand to $10,000, the insurer was willing to pay only $3,000, and it rejected a later $9,000 demand even when Crisci offered to contribute $2,500. The jury awarded $100,000 to DiMare and $1,000 to her husband. Crisci lost her property, became indigent, and attempted suicide.

The court affirmed a judgment against the insurer for the $91,000 excess plus $25,000 for emotional distress, and stated the test: "whether a prudent insurer without policy limits would have accepted the settlement offer." The test is elegant because it removes the conflict. An insurer that would bear every dollar of the verdict has no reason to gamble, so asking what that insurer would do measures whether the real insurer gave the insured's interest equal weight.

New Jersey followed a similar path in Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474 (1974), which emphasized that an insurer must treat a settlement offer as though it alone would be liable for the entire verdict. Today nearly every state recognizes some form of the duty to settle, although they disagree about its source, its standard, and who may sue on it.

The standards courts apply today

The phrase "bad faith" hides very different tests. Some states require only negligence. Others require something close to recklessness. The standard matters most at summary judgment, where it determines whether a jury ever hears the case.

State Source of the duty Core standard Key authority
Texas Tort duty of ordinary care (Stowers) Would an ordinarily prudent insurer have accepted a demand within limits that offered a full release? G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex. Comm'n App. 1929); American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994); Texas Farmers Insurance Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994)
California Implied covenant of good faith Would a prudent insurer without policy limits have accepted? An unreasonable failure to accept is required, not just a failure to accept Comunale v. Traders & General Insurance Co., 50 Cal. 2d 654 (1958); Crisci v. Security Insurance Co., 66 Cal. 2d 425 (1967); Pinto v. Farmers Insurance Exchange, 61 Cal. App. 5th 676 (2021)
Florida Common law good faith duty; also statutory remedy Totality of the circumstances; did the insurer act diligently, "with the same haste and precision as if it were in the insured's shoes"? Boston Old Colony Insurance Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980); Berges v. Infinity Insurance Co., 896 So. 2d 665 (Fla. 2004); Harvey v. GEICO General Insurance Co., 259 So. 3d 1 (Fla. 2018)
Georgia Negligence or bad faith in failing to settle Did the insurer give the insured's interests the same faithful consideration it gives its own, in response to a valid offer within limits? Southern General Insurance Co. v. Holt, 262 Ga. 267 (1992); Cotton States Mutual Insurance Co. v. Brightman, 276 Ga. 683 (2003); First Acceptance Insurance Co. of Georgia v. Hughes, 305 Ga. 489 (2019)
New York Good faith duty "Gross disregard" of the insured's interests: a deliberate or reckless failure to place them on an equal footing with the insurer's own Pavia v. State Farm Mutual Automobile Insurance Co., 82 N.Y.2d 445 (1993)
Nevada Covenant of good faith Includes a duty to inform the insured adequately of settlement offers, even those above limits Allstate Insurance Co. v. Miller, 125 Nev. 300 (2009)

A few points in this table deserve elaboration.

Florida's list of duties. Boston Old Colony Insurance Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980) remains the starting point. An insurer handling a claim against its insured must use the care and diligence of a person of ordinary prudence managing his own business. That includes the duty to advise the insured of settlement opportunities, to advise of the probable outcome of the litigation, to warn of the possibility of an excess judgment, to advise the insured of steps he might take to avoid one, to investigate the facts, and to give fair consideration to a settlement offer that is not unreasonable under the facts. The Florida Supreme Court in Harvey v. GEICO General Insurance Co., 259 So. 3d 1 (Fla. 2018) called these obligations "not a mere checklist." An insurer that sends the right letters can still be liable if, overall, it did not work to protect the insured.

Florida also does not require a formal demand. Under Powell v. Prudential Property & Casualty Insurance Co., 584 So. 2d 12 (Fla. 3d DCA 1991), the lack of a formal offer to settle does not preclude bad faith, which can be inferred from a willful and unreasonable delay in settlement negotiations where liability is clear and damages obviously exceed the limits. Most states are less demanding of insurers on this point. Georgia's Supreme Court held in First Acceptance Insurance Co. of Georgia v. Hughes, 305 Ga. 489 (2019) that the insurer's duty to settle arises only when the injured party presents a valid offer to settle within limits, and Texas held in American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994) that an insurer has no Stowers duty to make or solicit settlement proposals.

California requires unreasonableness. In Pinto v. Farmers Insurance Exchange, 61 Cal. App. 5th 676 (2021), a jury found for the claimant-assignee on a special verdict form that asked nothing about the reasonableness of the insurer's conduct. The court of appeal reversed and ordered judgment for the insurer: a bad-faith claim requires a finding that the insurer acted unreasonably in some respect. The failure to accept a reasonable offer, without more, is not enough. In Graciano v. Mercury General Corp., 231 Cal. App. 4th 414 (2014), the court reversed a verdict where the insurer, within three weeks of first contact and despite the claimant's misidentification of the driver and the policy, tendered its full limits. There was no evidence it had unreasonably failed to settle.

New York's "gross disregard" test is demanding. In Pavia v. State Farm Mutual Automobile Insurance Co., 82 N.Y.2d 445 (1993), a 16-year-old driving at night on a learner's permit lost control and crashed, leaving his 19-year-old passenger hemiplegic. The policy limit was $100,000. Shortly after the young driver's deposition raised possible defenses (an emergency, missing witnesses, seat-belt nonuse, drug use in the car), the passenger's lawyer, admittedly without having read that deposition, demanded the limit and gave 30 days. The insurer let the demand lapse while it investigated, then offered the limit about six months later. The plaintiff called it "too late," tried the case, and won $6.3 million (later reduced). The Court of Appeals reversed a $4.7 million bad-faith judgment. It held that the plaintiff must show the insured lost an actual opportunity to settle within limits, that the insurer's failure to meet a deadline "unilaterally established" by the claimant's counsel is not enough, and that the relevant factors include the likelihood of success on liability, the potential magnitude of damages, the financial burden each party faces from a refusal, and whether the insurer investigated properly. The court worried that a contrary rule would bombard insurers "with settlement offers imposing arbitrary deadlines."

Anatomy of an effective demand

Across jurisdictions, courts ask the same five questions about the demand itself. A demand that fails any of them may not be an "opportunity to settle" at all, and without an opportunity there is no breach.

1. Is it within the limits?

A demand above limits does not trigger Stowers, however reasonable the number. The insurer cannot be faulted for refusing to spend money it never promised to pay, and Texas law does not require the insurer to negotiate up to its limit in response to an above-limits demand. Georgia's court in Cotton States Mutual Insurance Co. v. Brightman, 276 Ga. 683 (2003) similarly rejected "an affirmative duty on the [insurance] company to engage in negotiations concerning a settlement demand that is in excess of the insurance policy's limits." The insured, of course, can contribute personal funds, and in Nevada the insurer must at least tell the insured about above-limits offers so the insured can decide whether to do so (Allstate Insurance Co. v. Miller, 125 Nev. 300 (2009)).

"Within the limits" is harder than it sounds when there are several coverages (a primary auto policy plus an umbrella, or per-person and per-accident limits) or several insurers. A demand for "all available coverage" from an insurer that does not know whether an umbrella exists invites a dispute about whether the offer was ever within its limits.

2. Does it offer a full release of the insured?

Texas Farmers Insurance Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994) requires a proposal to release the insured fully. A demand that releases the named driver but not the vehicle owner (also an insured under the policy), or releases the insured only from "bodily injury claims" while preserving a property damage claim or a loss-of-consortium claim by a spouse, may not be a demand the insurer could prudently accept. The cleanest demands release all insureds from all claims arising from the occurrence, by all claimants the lawyer represents.

3. Does the insurer have enough information?

An insurer cannot evaluate a claim it has not seen. Bad-faith cases routinely turn on whether the demand was accompanied by the medical records, bills, and liability evidence an adjuster needed. California now requires "reasonable proof, which may include, if applicable, medical records or bills, sufficient to support the claim" (Cal. Civ. Proc. Code § 999.1). The flip side is that an insurer cannot defeat a claim by asking for information it does not need, or by sitting on records it already has. In Southern General Insurance Co. v. Holt, 262 Ga. 267 (1992), the claimant's lawyer sent medical bills, doctor's notes showing a herniated disk, proof of additional expenses, and finally a certified copy of the complete medical file, with extensions; the insurer neither accepted nor asked for more time, and liability was undisputed. A jury could find it acted unreasonably.

4. Is there enough time?

Courts have rejected deadlines that were too short for the information available, and have upheld liability where the time was adequate. Southern General Insurance Co. v. Holt, 262 Ga. 267 (1992) involved a ten-day offer, extended by five days, on a clear-liability claim with $15,000 limits; the verdict was $82,000. The Georgia Supreme Court warned that nothing in its decision would allow a plaintiff's attorney to "set up" an insurer for an excess judgment "merely by offering to settle within the policy limits and by imposing an unreasonably short time within which the offer would remain open." In Pavia v. State Farm Mutual Automobile Insurance Co., 82 N.Y.2d 445 (1993), by contrast, the 30-day deadline came early, while new defenses were under investigation, and the insurer's failure to meet it was not bad faith. Statutes now set floors: 30 days in California (33 if mailed) and Georgia, and, under Missouri's statute, a much longer period (see the table below). The floors do not make a 30-day demand automatically reasonable; they make a shorter one presumptively ineffective.

5. Are the conditions ones the insurer can meet?

This is where the hardest cases arise. Some conditions are normal and courts enforce them: a written acceptance, payment within a stated period, affidavits that there is no other insurance, and resolution of liens from the proceeds. Others are impossible or nearly so: payment by a check in a form the insurer cannot issue, acceptance by a particular person, a release that the insurer must sign but that waives the insurer's own rights, or performance by a third party the insurer does not control.

Georgia's cases illustrate both sides.

  • In Cotton States Mutual Insurance Co. v. Brightman, 276 Ga. 683 (2003), the claimant's final demand asked for Cotton States' $300,000 limit and also sought the limits of a second insurer that covered the van's driver. Cotton States did not tender, and the claimant obtained a $1,787,500 judgment. The Georgia Supreme Court held that an insurer in a multiple-insurer case may be liable on a bad-faith claim "when it fails to tender its policy limits in response to a settlement offer solely because the offer also seeks the policy limits from other insurers." An insurer facing a condition outside its control has to do what it can (tender its own limit, communicate, ask) rather than treat the condition as a reason to do nothing.
  • In Grange Mutual Casualty Co. v. Woodard, 300 Ga. 848 (2017), the claimants' demand under the pre-suit offer statute required written acceptance within 30 days, affidavits of no other coverage within 10 days of acceptance, and payment within 10 days of acceptance, each labeled "an essential element of acceptance." The Georgia Supreme Court, answering certified questions from the Eleventh Circuit, held that the 2013 version of O.C.G.A. § 9-11-67.1 did not prohibit a claimant from conditioning acceptance on the performance of an act, including timely payment. A late check meant no settlement. The General Assembly later amended the statute, in part in response to cases like this one.
  • In First Acceptance Insurance Co. of Georgia v. Hughes, 305 Ga. 489 (2019), a multi-vehicle collision produced five injured claimants and a $25,000 per-person, $50,000 per-accident policy. Two claimants' counsel sent letters expressing interest in a settlement conference and, alternatively, offering to settle for the available limits, but without a deadline; they withdrew the offer about six weeks later. The court held that the letters were a valid offer within limits but that, without any deadline and given ongoing communications, the insurer did not act unreasonably in failing to accept before the withdrawal.

Florida courts have similarly held that an offer is not invalid merely because it requires later court approval, as in a minor's or estate's settlement, and that an insurer's agreement to tender does not protect it if it does not actually tender within the time allowed (Berges v. Infinity Insurance Co., 896 So. 2d 665 (Fla. 2004)).

The "setup" problem

Insurers argue, with some force, that the time-limited demand has become a device for manufacturing coverage. The pattern they describe goes like this: a claimant's lawyer sends a demand early, before records are complete; sets a short deadline; adds conditions that are easy to miss (a particular payee line on the check, a specific form of release, an affidavit signed by an officer of the insurer); and declines any extension. When the insurer misses a detail, the lawyer declares the offer rejected, tries the case, and takes an assignment. The policy limit, in this telling, was never the point.

Plaintiff's lawyers answer that insurers created the problem by lowballing clear-liability, catastrophic-injury claims, and that a demand with a firm deadline is the only way to force a decision. Both accounts describe real cases.

Courts have responded in three ways.

They look at the whole file. Florida's "totality of the circumstances" standard asks about the insurer's conduct, but federal courts applying Florida law have held that the claimant's conduct is part of the circumstances. In Pelaez v. Government Employees Insurance Co., 13 F.4th 1243 (11th Cir. 2021), the Eleventh Circuit drew the line this way: there is "a difference between focusing on a claimant's actions, which would be improper, and factoring a claimant's actions into the totality of the circumstances analysis, which is not improper." The Florida Supreme Court in Harvey v. GEICO General Insurance Co., 259 So. 3d 1 (Fla. 2018) had rejected the idea that an insurer escapes liability "merely because the [claimant]'s actions could have contributed to the excess judgment," emphasizing that the focus is on the insurer, and reinstated a verdict against GEICO where its adjuster failed to relay the claimant's request for a statement about the insured's assets and failed to pass along the insured's message that he was working to provide it. The two lines of authority coexist uneasily, and outcomes depend heavily on the record.

They grant summary judgment where the insurer moved fast. In Eres v. Progressive American Insurance Co., 998 F.3d 1273 (11th Cir. 2021), the Eleventh Circuit affirmed judgment for an insurer, noting that the claimant had identified ways the insurer "might improve its claims-processing practice" without showing negligence, "let alone bad faith." In Martinez v. GEICO Casualty Co., No. 24-10641 (11th Cir. Sept. 23, 2025), decided in September 2025, the court affirmed summary judgment for GEICO where the insurer, facing a five-passenger crash and $10,000/$20,000 limits, tendered the full per-accident limit at a global settlement conference 32 days after notice and before it had resolved a coverage question; the claimant rejected the tender, litigated for years, and ultimately took a $2 million stipulated judgment and an assignment.

They send close cases to juries. In Ilias v. USAA General Indemnity Co., 61 F.4th 1338 (11th Cir. 2023), the same court reversed summary judgment for USAA. The claimant had been catastrophically injured, the policy limit was $10,000, liability was clear, and the insurer allegedly delayed initiating settlement for over a month and failed to confirm for the claimant's lawyer that the insured had no other coverage, which the lawyer needed before releasing the insured. The excess judgment was about $5 million. Credibility disputes about what was said and when were for a jury.

The lesson for insurers is that speed and communication are the best defense to a setup. The lesson for claimants is that a demand designed to be refused is less valuable than one designed to be accepted, because courts read both the demand and the insurer's file.

Legislatures step in

Since 2013, several states have codified rules for time-limited demands. The statutes differ in scope and effect, and some have been amended more than once. Always read the version in force for the date of loss or the date of the demand, as the statute specifies.

Feature California (CCP §§ 999-999.5) Georgia (O.C.G.A. § 9-11-67.1) Florida (Fla. Stat. § 624.155, as amended 2023) Missouri (Mo. Rev. Stat. § 537.058)
Scope Pre-complaint demands on auto, motor vehicle, homeowner, and commercial premises liability claims; represented claimants only Attorney-prepared offers to settle motor vehicle personal injury, bodily injury, and death claims made before the defendants answer (2024 text); product liability claims excluded Bad-faith actions on liability insurance claims, statutory or common law, filed after March 24, 2023 Time-limited demands to settle personal injury, bodily injury, or wrongful death claims within limits, except demands issued within 90 days of a jury trial in a filed case
Form Writing; labeled a time-limited demand or citing § 999.1 Writing; reference to the Code section; certified mail or statutory overnight delivery, return receipt requested; states where a written acceptance may be sent Not a demand statute; regulates bad-faith liability Writing; reference to § 537.058; certified mail, return receipt requested, to the liability insurer
Minimum time 30 days from transmission by email, fax, or certified mail; 33 by regular mail Acceptance date not less than 30 days from receipt; payment date not less than 40 days from receipt 90-day safe harbor after notice with sufficient evidence Not less than 90 days from the insurer's receipt
Required content Clear and unequivocal offer within limits including satisfaction of all liens; complete release of insureds; date and location of loss; claim number if known; description of known injuries; reasonable proof Acceptance date; amount; parties released; whether each release is full or limited and what the claimant will provide each releasee; claims released; payment date; sworn statement on insurance coverage unless waived; medical or other records sufficient to evaluate the claim N/A Acceptance period; amount or a request for limits; date and location of loss; claim number if known; known injuries; parties and claims to be released; unconditional release of the insureds; list of treating providers with HIPAA authorizations (and employers, for wage claims)
Insurer's protections Request for clarification, more information, or an extension is not a counteroffer; insurer must state in writing why it rejects; noncompliant demand is not a reasonable offer for bad-faith purposes Written request for reasonable clarification is not a counteroffer; terms outside the statutory list are immaterial; no failure-to-settle action if the insurer timely accepts the material terms other than amount, gives any required sworn statement, and pays the lesser of the demand or its bodily injury limits No bad-faith action if insurer tenders the lesser of limits or the amount demanded within 90 days; negligence alone is not bad faith; claimant's bad faith may reduce damages; interpleader or arbitration safe harbor for multiple claimants Noncompliant demand is not a reasonable opportunity to settle and is inadmissible in a suit for extracontractual damages

California

The California statute, enacted in 2022 and effective for demands transmitted on or after January 1, 2023, is the most detailed. It defines a "time-limited demand" as an offer made "prior to the filing of the complaint or demand for arbitration" to settle within limits, "which by its terms must be accepted within a specified period of time" (Cal. Civ. Proc. Code § 999). The demand must be in writing, labeled as a time-limited demand or citing the section, and contain the material terms listed in Cal. Civ. Proc. Code § 999.1: the acceptance period (at least 30 days, or 33 if mailed), a clear and unequivocal offer to settle all claims within limits "including the satisfaction of all liens," a complete release of the insurer's insureds "from all present and future liability for the occurrence," the date and location of loss, the claim number if known, a description of all known injuries, and reasonable proof.

Cal. Civ. Proc. Code § 999.2 requires delivery to the address the insurer has designated with the Department of Insurance for time-limited demands, or to the assigned claims representative if known. Cal. Civ. Proc. Code § 999.3 provides that the recipients accept by written acceptance of the material terms "in their entirety"; that a request "to seek clarification or additional information or a request for an extension due to the need for further information or investigation" made within the acceptance period is not, "in and of itself," a counteroffer or rejection; and that an insurer that does not accept "shall notify the claimant, in writing, of its decision and the basis for its decision" before the demand expires. That notice "shall be relevant" in any later bad-faith suit, which means the rejection letter is now trial evidence by statute.

The enforcement provision is Cal. Civ. Proc. Code § 999.4: in a suit by the claimant, the claimant as assignee, or the insured for the claimant's benefit, a demand that does not "substantially comply" with the chapter "shall not be considered to be a reasonable offer to settle the claims against the tortfeasor for an amount within the insurance policy limits" for purposes of a suit seeking extracontractual damages. The statute does not apply to unrepresented claimants, and Cal. Civ. Proc. Code § 999.5 limits it to automobile, motor vehicle, homeowner, and commercial premises liability policies and preserves existing law otherwise. Demands made after a complaint is filed, and demands on other kinds of policies (professional liability, for instance), remain governed by the common law of Comunale v. Traders & General Insurance Co., 50 Cal. 2d 654 (1958) and Crisci v. Security Insurance Co., 66 Cal. 2d 425 (1967).

Georgia

Georgia's pre-suit offer statute, O.C.G.A. § 9-11-67.1, was enacted in 2013 to bring order to "Holt demands," the time-limited offers named for Southern General Insurance Co. v. Holt, 262 Ga. 267 (1992). The original version required that a covered offer be in writing and include five material terms: the time period for acceptance (not less than 30 days from receipt), the amount, the party or parties to be released, the type of release (and, if a limited release, any indemnity obligations), and the claims to be released. The statute allowed the recipient to seek reasonable clarification about liens and other terms without turning an acceptance into a counteroffer. Grange Mutual Casualty Co. v. Woodard, 300 Ga. 848 (2017) then held that offerors could add conditions beyond the statutory five, including payment deadlines.

The General Assembly rewrote the statute in 2021 and again in 2024. The 2021 version, which applied to motor vehicle claims arising on or after July 1, 2021, required pre-answer offers to include medical or other records sufficient to evaluate the claim, limited offers to the statutory terms unless both sides agreed otherwise in writing, set a 40-day floor for any payment deadline, and provided that a written request for clarification is not a counteroffer. The 2024 amendment (Senate Bill 83, signed April 22, 2024) went further. Every offer to settle a motor vehicle injury or death claim is now an offer to enter a bilateral contract. For attorney-prepared offers made between accrual and the defendants' answers, the statute lists seven terms that "shall be the only material terms": an acceptance date at least 30 days after receipt, the amount, the parties to be released, whether each release is full or limited and what the claimant will provide each releasee, the claims to be released, a payment date at least 40 days after receipt, and (unless the offeror waives it) a sworn statement on whether all of the recipient's coverage has been disclosed. The offer must also include the records needed to evaluate the claim. Any other term is immaterial, and a recipient's variance from it does not expose the recipient to a failure-to-settle claim. The 2024 text also creates a safe harbor: no failure-to-settle action lies if, by the dates in the offer, the recipient accepts the material terms (other than amount) in writing, supplies any required sworn statement, and pays the lesser of the amount demanded or its bodily injury limits, and that protection applies even to offers that say the statute does not apply. By its terms the 2024 act reaches offers made on or after the signing date and excludes product liability claims. Because the 2013, 2021, and 2024 versions differ, identify the version that governs the offer at issue before drafting or answering it. Georgia's insurers also face a separate statutory duty to disclose policy limits on request, under O.C.G.A. § 33-3-28, which claimants use to confirm that the demand is actually within limits.

Florida

Florida has two tracks. The common law duty from Boston Old Colony Insurance Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980) and Berges v. Infinity Insurance Co., 896 So. 2d 665 (Fla. 2004) runs in parallel with the statutory civil remedy in Fla. Stat. § 624.155, which requires a civil remedy notice to the insurer and the Department of Financial Services and gives the insurer 60 days to cure. In Macola v. Government Employees Insurance Co., 953 So. 2d 451 (Fla. 2006), the Florida Supreme Court held that an insurer's tender of limits in response to a civil remedy notice, after suit was filed against the insured but before an excess judgment, does not preclude a common law third-party bad-faith claim. The court stressed "the essence of a third-party bad faith cause of action is to remedy a situation in which an insured is exposed to an excess judgment because of the insurer's failure to properly or promptly defend the claim."

In March 2023, Florida's tort reform legislation (commonly called HB 837) amended section 624.155 in ways aimed squarely at the setup problem. The amendments, now codified in section 624.155(4) through (6): provide that no bad-faith action lies if the insurer tenders the lesser of the policy limits or the amount demanded within 90 days after receiving actual notice of a claim accompanied by sufficient evidence to support the amount of the claim; state that negligence alone is insufficient to constitute bad faith; impose on the insured, the claimant, and their representatives a duty to act in good faith in furnishing information, making demands, setting deadlines, and attempting to settle, with the trier of fact permitted to reduce damages for a failure; and create a safe harbor for insurers facing multiple claims exceeding limits that file an interpleader or offer the limits through binding arbitration within 90 days after receiving notice of the competing claims. If an insurer does not tender within the 90-day window, the existence of the window is inadmissible in the bad-faith case, and any limitations period is extended by 90 days. Chapter 2023-15 took effect March 24, 2023, and applies to causes of action filed after that date. Its interaction with the common law standard of Harvey v. GEICO General Insurance Co., 259 So. 3d 1 (Fla. 2018) will be worked out case by case, so check recent appellate decisions before relying on it.

Florida also requires an insurer, on written request from a claimant, to disclose policy limits and related information within 30 days under Fla. Stat. § 627.4137, which is often the first step before a demand.

Missouri

Missouri's Mo. Rev. Stat. § 537.058, enacted in 2017 (effective August 28, 2017), governs time-limited demands to settle personal injury, bodily injury, and wrongful death claims within limits. A demand must be in writing, reference the section, and be sent to the liability insurer by certified mail, return receipt requested. It must remain open for at least 90 days from the insurer's receipt and state the amount (or request the limits), the date and location of the loss, the claim number if known, all known injuries, the parties and claims to be released, and an unconditional release of the insureds. It must come with a list of the claimant's treating providers and HIPAA-compliant authorizations, plus a list of employers and authorizations if lost earnings are claimed. The claimant may require payment within a stated period, but not less than 10 days after the insurer receives the executed release. A noncompliant demand is not "a reasonable opportunity to settle" and is inadmissible in a later suit for extracontractual damages, and the section does not reach demands issued within 90 days of a jury trial in a filed case. The same legislation rewrote Mo. Rev. Stat. § 537.065, Missouri's statute on agreements that limit a claimant's recovery to insurance proceeds. As now in force, the tortfeasor must give the insurer a copy of the contract within 30 days after it is signed, no judgment may be entered until at least 30 days after the insurer receives that notice, and the insurer has an unconditional right to intervene within 30 days.

States without a statute

Most states have no demand statute, and the common law governs. In those states, statutory floors elsewhere are still useful evidence of what reasonable practice looks like. A 30-day deadline accompanied by complete records is defensible almost everywhere; a 10-day deadline accompanied by a promise to send records later is defensible almost nowhere.

Multiple claimants and inadequate limits

The hardest policy-limits problems arise when one accident injures several people and the per-accident limit cannot cover them all. A demand from one claimant for the full limit, if accepted, leaves the others with nothing and the insured exposed to their claims. A refusal, if unreasonable, exposes the insurer to an excess verdict on the first claim.

Texas resolved the dilemma in Texas Farmers Insurance Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994). An insurer facing multiple claims and inadequate proceeds "may enter into a reasonable settlement with one of the several claimants even though such settlement exhausts or diminishes the proceeds available to satisfy other claims." The insurer must act reasonably as to each claim, but it is not liable merely because a settlement with one claimant left less for another. The court also held that evidence of the other claims is relevant to whether rejecting a particular demand was reasonable.

Georgia's First Acceptance Insurance Co. of Georgia v. Hughes, 305 Ga. 489 (2019) shows the more common modern approach: the insurer assesses liability and exposure early, retains counsel, and tries to convene a global settlement conference so that the limits can be divided among all claimants at once. Courts generally give insurers room to pursue that process, provided they keep claimants informed and do not use it to stall. Martinez v. GEICO Casualty Co., No. 24-10641 (11th Cir. Sept. 23, 2025) reached a similar result under Florida law where the insurer tendered the per-accident limit for division at a global conference within about a month of notice.

The procedural tool for a true limits shortage is interpleader. An insurer can deposit its limits with a federal court and ask the court to divide them, using statutory interpleader under 28 U.S.C. § 1335 (which requires only minimal diversity among claimants and a fund of $500 or more) and the injunction power of 28 U.S.C. § 2361, or rule interpleader under Fed. R. Civ. P. 22. Interpleader has a well-known limit: in State Farm Fire & Casualty Co. v. Tashire, 386 U.S. 523 (1967), the Supreme Court held that interpleader by a liability insurer with a small policy could not be used to force every tort claim against the insured into one forum, because the insurer's limited fund did not entitle it to control litigation over the insured's uninsured liability. Interpleader divides the money; it does not protect the insured from excess verdicts. Florida's 2023 amendments give interpleader an added role by making a timely interpleader (or an offer of limits through binding arbitration) a safe harbor against bad-faith liability in multiple-claimant cases, if the insurer acts within 90 days after receiving notice of competing claims that exceed the limits (Fla. Stat. § 624.155(6)). For the mechanics of interpleader and related party practice, see Adding Parties to a Federal Lawsuit: Joinder, Intervention, Impleader, and Interpleader.

A lawyer who represents several claimants from the same accident faces a separate problem: dividing a single limit among one's own clients is an aggregate settlement, and ABA Model Rule 1.8(g) requires each client's informed consent, in a signed writing, after disclosure of the existence and nature of all the claims and each person's share. A global demand that ignores this rule can unravel after acceptance.

Liens, Medicare, and the insurer that cannot just write a check

A modern injury claim almost always comes with liens: hospital liens under state statutes, health insurer and ERISA plan reimbursement claims, Medicaid, and Medicare. Liens matter to policy-limits practice because an insurer that pays the claimant without protecting itself against a known lien can be forced to pay twice.

Medicare is the clearest example. Under the Medicare Secondary Payer provisions, 42 U.S.C. § 1395y(b), Medicare's payments for injury treatment are conditional when a liability insurer is responsible, and the government may recover them from the primary payer (including a liability insurer) even if the insurer has already paid the claimant. The statute also creates a private cause of action for double damages against primary plans that fail to pay, and imposes reporting obligations on liability insurers for settlements with Medicare beneficiaries. The implementing regulations are in 42 C.F.R. part 411. Medicaid liens are governed by a different framework: in Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268 (2006), the Supreme Court held that a state Medicaid agency's recovery from a tort settlement is limited to the portion representing medical expenses, and in Gallardo v. Marstiller, 596 U.S. 420 (2022) it held that a state may recover from the portion representing past and future medical expenses. ERISA plans enforce reimbursement rights through equitable liens on settlement proceeds (Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006)), and plan terms can override equitable defaults like the common-fund doctrine (US Airways, Inc. v. McCutchen, 569 U.S. 88 (2013)).

For the claimant's lawyer, the lesson is that a demand should address liens explicitly: identify them, state that the claimant will satisfy them from the proceeds, and offer an indemnity or a hold-harmless clause. California's statute builds this into the definition of a valid demand, which must be an offer to settle "all claims within policy limits, including the satisfaction of all liens" (Cal. Civ. Proc. Code § 999.1). A demand that refuses any lien protection, or requires the insurer to pay the full limit to the claimant alone while a known Medicare conditional payment claim is outstanding, gives the insurer a legitimate reason to ask for changes. For the insurer, the lesson is the reverse: asking for reasonable lien protection is defensible, but treating an unresolved lien as a reason to let a clear-liability demand expire is not. The insurer can accept and include a reasonable lien term, or propose a two-party check and a standard indemnity, within the deadline. More background on Medicare's coverage rules is in Medicare: Enrollment, Coverage, Appeals, and What It Does Not Pay For, and lien reduction practice is covered in Personal Injury Claim Toolkit: Liability, Damages, Liens, and Settlement.

After the deadline: excess verdicts, assignments, and consent judgments

When a demand lapses and the case is tried, three things typically follow an excess verdict.

The insured assigns the bad-faith claim. The insured, facing a judgment it cannot pay, assigns its claim against the insurer to the judgment creditor in exchange for a covenant not to execute on the insured's personal assets. That is how most third-party bad-faith cases reach court. Pavia v. State Farm Mutual Automobile Insurance Co., 82 N.Y.2d 445 (1993) and Southern General Insurance Co. v. Holt, 262 Ga. 267 (1992) both arose this way. Assignment works because the claim is a property right of the insured, and in most states it is freely assignable after judgment. (In Southern General Insurance Co. v. Holt, 262 Ga. 267 (1992), the Georgia Supreme Court also held that the insured who assigned her claim forfeited her own right to recover on it.)

The insurer pays, or litigates bad faith. Many insurers pay the excess judgment rather than face a bad-faith jury. Those that litigate face discovery into the claims file, the adjuster's notes, reserve history, and the defense lawyer's reports, and at trial the time-limited demand becomes Exhibit 1.

Or the parties skip the trial. Where an insurer refuses to defend, denies coverage, or defends under a reservation of rights, many states allow the insured to protect itself by agreeing to a judgment against it, assigning its rights against the insurer, and receiving a covenant not to execute. These agreements go by regional names.

Agreement Origin When it is used Main protection for the insurer
Coblentz agreement Coblentz v. American Surety Co. of New York, 416 F.2d 1059 (5th Cir. 1969) (applying Florida law) Insurer wrongfully refuses to defend Settlement binds the insurer only if coverage exists and the settlement is reasonable and made in good faith, without fraud or collusion
Damron agreement Damron v. Sims, 105 Ariz. 151 (1969) Insurer refuses to defend Same reasonableness and collusion limits
Morris agreement United Services Automobile Ass'n v. Morris, 154 Ariz. 113 (1987) Insurer defends under a reservation of rights Insured must give notice; insurer may contest coverage and reasonableness; the agreement does not breach the cooperation clause because the insurer has not unconditionally assumed liability
Miller-Shugart agreement Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982) Insurer contests coverage Binding only if coverage is found and the settlement is reasonable and prudent, not fraudulent or collusive
Covenant judgment Besel v. Viking Insurance Co. of Wisconsin, 146 Wash. 2d 730 (2002) Bad-faith refusal to settle Amount is presumptive measure of harm only if found reasonable under Washington's Chaussee factors
Section 537.065 agreement Mo. Rev. Stat. § 537.065 Claimant and tortfeasor limit recovery to insurance Copy of the contract to the insurer within 30 days; no judgment until 30 days after notice; unconditional right to intervene within 30 days

Not every state accepts these devices, and the most important limits come from the states with the largest volume of bad-faith litigation.

  • California. In Hamilton v. Maryland Casualty Co., 27 Cal. 4th 718 (2002), the insurer defended its insured but refused a $1 million settlement offer within limits. The insured then stipulated to a $3 million judgment with a covenant not to execute, assigned its rights, and the claimants sued. The California Supreme Court held that a defending insurer "cannot be bound to a settlement to which it has not agreed and in which it has not participated," even if a court approved the settlement as made in good faith, and that the claimants could not sue for breach of the duty to settle because, given the covenant not to execute and the absence of a trial, the stipulated judgment did not prove the insured suffered any damage. The practical rule: in California, when the insurer is defending, an excess verdict after trial (not a stipulated judgment) is the usual route.
  • Texas. State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996) held that an insured's assignment of its claims against its insurer to the plaintiff, made before an adjudication of the plaintiff's claim in a fully adversarial trial, is invalid when the insurer has tendered a defense and either accepted coverage or made a good-faith effort to adjudicate coverage before the underlying trial. A judgment resulting from such an arrangement does not bind the insurer. Great American Insurance Co. v. Hamel, 525 S.W.3d 655 (Tex. 2017) applied the rule to a judgment after a bench trial in which the insured had little incentive to contest damages, holding that the insurer was not bound absent a fully adversarial trial, and that an agreement limiting the insured's exposure creates a strong presumption the trial was not adversarial.

Readers who represent insureds in these situations should also understand ordinary consent judgment and settlement mechanics. See Settlement Agreements, Releases, and Rule 68: Ending a Case on Terms That Hold and, for the risks of letting a case go to judgment without a defense, Default and Default Judgment in Federal Court: Rules 55 and 60 and the Cost of Ignoring a Lawsuit.

Bad faith in federal court

Most third-party bad-faith suits are diversity cases. The assignee (often the injured claimant) sues an out-of-state insurer, the amount in controversy is the excess judgment, and the case lands in federal court under 28 U.S.C. § 1332, either as an original filing or by removal under 28 U.S.C. § 1441 and 28 U.S.C. § 1446. A few features of federal practice matter.

State law governs, and federal courts sometimes guess. Under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) and Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941), the federal court applies the substantive law, including the choice-of-law rules, of the forum state. Because the duty to settle is a creature of state common law and statute, federal judges frequently confront unsettled questions. The Eleventh Circuit has repeatedly certified bad-faith questions to state supreme courts; both Macola v. Government Employees Insurance Co., 953 So. 2d 451 (Fla. 2006) and Grange Mutual Casualty Co. v. Woodard, 300 Ga. 848 (2017) were answers to certified questions. When a key question is open, a party can ask the federal court to certify it. Choice of law can also be outcome-determinative when the accident, the policy, and the parties are in different states. See Choice of Law, Forum Selection, and Where Your Dispute Will Be Decided.

The "direct action" proviso. Section 1332(c)(1) treats a liability insurer as a citizen of its insured's state in a "direct action" against the insurer where the insured is not joined. Courts have generally held that a suit by the insured, or by the insured's assignee, against the insured's own insurer for bad faith is not a direct action in this sense, so the proviso usually does not defeat diversity. Check circuit law.

Summary judgment is the battleground. Because the standards are fact-intensive, the outcome often turns on whether the court finds a triable issue under Fed. R. Civ. P. 56. Ilias v. USAA General Indemnity Co., 61 F.4th 1338 (11th Cir. 2023) reversed summary judgment for the insurer on a credibility dispute, while Eres v. Progressive American Insurance Co., 998 F.3d 1273 (11th Cir. 2021) and Martinez v. GEICO Casualty Co., No. 24-10641 (11th Cir. Sept. 23, 2025) affirmed it on records showing prompt action.

Insurance and settlement evidence. In the underlying tort case, Fed. R. Civ. P. 26(a)(1)(A)(iv) requires initial disclosure of any insurance agreement that may satisfy a judgment, which tells the claimant the limits. Fed. R. Evid. 411 bars evidence of liability insurance to prove negligence, but in the bad-faith case insurance is the subject. Fed. R. Evid. 408 bars settlement offers to prove the validity or amount of a disputed claim, but the bad-faith suit uses the demand and the response for a different purpose: to prove whether the insurer acted reasonably. Courts routinely admit them for that purpose.

Declaratory relief. Insurers that dispute coverage often file a declaratory judgment action under 28 U.S.C. § 2201 while the tort case is pending. A coverage dispute does not suspend the duty to respond to a demand. An insurer that denies coverage and refuses a reasonable demand takes the risk of being wrong, as Comunale v. Traders & General Insurance Co., 50 Cal. 2d 654 (1958) illustrates. For the federal declaratory procedure, see Declaratory Judgment Actions: Jurisdiction, Discretion, and the Race to the Courthouse.

The ethics of the demand

Every participant in a policy-limits demand works under ethical rules that the demand can strain.

Plaintiff's counsel. The lawyer's duty runs to the client, and a client with a catastrophic injury and a small policy is often better served by an excess verdict and an assignment than by a quick $50,000. That makes a demand designed to be refused tempting. But the lawyer must convey settlement offers and let the client decide whether to settle (ABA Model Rules 1.2(a) and 1.4), and may not make false statements of material fact to the insurer (Model Rule 4.1). A demand that misstates the medical record, or that claims a deadline is "nonnegotiable" because of a limitations problem that does not exist, is a misrepresentation. And a lawyer who refuses a reasonable extension request without a client-based reason risks both the bad-faith claim and the court's patience. The client must also understand the trade: an excess verdict may take years to collect, if ever, and the insured may file for bankruptcy.

Defense counsel. The lawyer the insurer hires to defend the insured represents the insured, and in many states the insurer too. Texas held in American Physicians Insurance Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994) that the insurer was not the client of the lawyer it hired to represent its insured. When a demand within limits arrives, the defense lawyer must promptly tell the insured about it, explain the excess exposure, and advise the insured of the right to consult personal counsel. ABA Formal Opinion 96-403 addresses the defense lawyer's obligations when the insured and insurer disagree about a settlement within limits, and Model Rules 1.7 and 1.8(f) govern the conflicts and third-party payment issues in the tripartite relationship. Where a reservation of rights creates a true conflict, California requires the insurer to provide independent counsel at its expense, under Cal. Civ. Code § 2860 (codifying San Diego Navy Federal Credit Union v. Cumis Insurance Society, Inc., 162 Cal. App. 3d 358 (1984)).

The insurer. Insurers are not lawyers, but they are regulated. California's unfair claims practices statute, Cal. Ins. Code § 790.03(h), lists practices such as failing to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear. There is no private action under it (Moradi-Shalal v. Fireman's Fund Insurance Cos., 46 Cal. 3d 287 (1988)), but its standards often appear in expert testimony in bad-faith trials. Texas has a similar list in Tex. Ins. Code § 541.060, which insureds (but not third-party claimants) can enforce. Nevada requires insurers to inform insureds of settlement offers, including those above limits (Allstate Insurance Co. v. Miller, 125 Nev. 300 (2009)), and Florida's Boston Old Colony Insurance Co. v. Gutierrez, 386 So. 2d 783 (Fla. 1980) duties include advising the insured of settlement opportunities and of steps to avoid an excess judgment.

For the general framework of conflicts and confidentiality, see Legal Ethics in Practice: Conflicts, Confidentiality, Fees, and the Duty of Technological Competence.

Practical implications for each side

For the claimant's lawyer.

  • Get the limits first, by asking, by statute (Fla. Stat. § 627.4137; O.C.G.A. § 33-3-28), or through Fed. R. Civ. P. 26(a)(1)(A)(iv) disclosures once suit is filed.
  • Make the demand complete: records, bills, liability proof, lien information, and a release draft.
  • Give at least the statutory minimum, and more where records are voluminous or liability is disputed.
  • Use conditions that protect the client, not conditions designed to trap: written acceptance, payment within a reasonable time, a no-other-insurance affidavit, and lien satisfaction from the proceeds.
  • Calendar the deadline and document every contact. If the insurer asks a sensible question, answer it.

For the insurer.

  • Acknowledge the demand in writing immediately, identify the deadline, and route it to someone with authority.
  • Evaluate it against the question your jurisdiction asks. In California, ask what you would do with no limits.
  • If you need information, ask for it specifically, in writing, within the deadline, and ask for an extension in the same letter.
  • If you will not accept, say why in writing before expiration (in California, the statute requires it).
  • If you will accept, accept the material terms unconditionally and on time, and perform exactly as required.

For defense counsel.

  • Send the insured a copy of the demand and an excess exposure letter the same week.
  • Report your candid valuation to the insurer in writing. Your reports will be discovered in a bad-faith case.
  • Do not let a coverage dispute between the insurer and the insured compromise your representation of the insured.

For the insured.

  • Read the excess letter. Consult personal counsel, especially if assets are at risk.
  • Write to the insurer demanding that it settle within limits, and keep a copy.
  • Cooperate with requests for statements, asset information, and records. In Harvey v. GEICO General Insurance Co., 259 So. 3d 1 (Fla. 2018), the claimant's request for the insured's statement about other insurance and assets was the hinge of the case.
  • Do not settle directly with the claimant without understanding the cooperation clause and your state's rules on consent judgments.

Extended worked example: one demand, two endings

Return to the opening scene and place it in California. Renata Okafor was injured in Sacramento County on March 3. Marcus Bell's insurer, which we will call Harborline Mutual, has a $50,000 per-person bodily injury limit. No complaint has been filed.

The demand. Okafor's lawyer, Priya Raman, confirms the limit in writing with Harborline's adjuster. On May 12 she sends a letter by email to the address Harborline has designated with the Department of Insurance, labeled "TIME-LIMITED DEMAND PURSUANT TO CODE OF CIVIL PROCEDURE SECTION 999.1." It offers to settle all of Okafor's claims against Bell, and against the vehicle's registered owner (Bell's father, also an insured), for the $50,000 limit, "including the satisfaction of all liens." It describes the date and location of the collision, gives the claim number, lists the known injuries, and attaches the police report, 1,140 pages of records, itemized bills of $312,400, and a hospital lien notice. It identifies a Medicare Advantage plan as a payer, and states that Okafor will satisfy all liens from the proceeds and indemnify the releasees. It encloses a proposed release. It requires written acceptance within 30 days of transmission, and payment within 21 days of acceptance by a check payable to Okafor and her lawyer's trust account. It says nothing about personal assets, and it does not demand any affidavit from Harborline.

That demand substantially complies with Cal. Civ. Proc. Code § 999.1. It was sent to the right address under Cal. Civ. Proc. Code § 999.2. A prudent insurer without limits, looking at a red-light, broadside collision with a fractured pelvis and $312,400 in billed charges, would almost certainly pay $50,000. Under Crisci v. Security Insurance Co., 66 Cal. 2d 425 (1967), Harborline's exposure is now real.

Ending one: Harborline handles it. The adjuster logs the demand the day it arrives, calendars June 11 as the deadline, and sends Bell and his father an excess exposure letter on May 14 advising them of the demand, the risk of a judgment above $50,000, and their right to consult personal counsel. On May 20 she writes to Raman asking two specific questions: whether the Medicare Advantage plan has asserted a reimbursement claim, and whether Okafor's husband (who is mentioned in the records) has a loss-of-consortium claim that the release will cover. Under Cal. Civ. Proc. Code § 999.3, those requests are not a counteroffer. Raman answers within a week: the plan has asserted a claim of $41,000, and the husband will sign the release. On June 2, Harborline accepts the material terms in their entirety, in writing, and proposes a two-party check including the lienholder as an alternative. Payment issues on day 19 after acceptance. The claim closes for $50,000. Bell has no further exposure.

Ending two: Harborline does not. The demand lands in a general inbox during a staffing transition. The adjuster opens it on June 1, sees the deadline, and on June 9 sends a letter offering $35,000, citing "questions about causation of the claimed lumbar injury." The letter does not ask for an extension and does not address the pelvis or the spleen. Raman replies that the demand has expired. She files suit. Bell is defended by counsel Harborline hires. At trial, the jury awards $1.8 million. Harborline pays its $50,000. Bell, facing a $1.75 million personal judgment, retains his own lawyer, assigns his claims against Harborline to Okafor in exchange for a covenant not to execute, and Okafor sues Harborline in federal court on diversity.

In the bad-faith case, Okafor's evidence is the demand, the claims log showing when it was opened, the $35,000 counteroffer that ignored the most serious injuries, the absence of any request for more time, and the absence of the written explanation the statute required before expiration. Harborline's best argument is that the lumbar causation question was legitimate. Under Pinto v. Farmers Insurance Exchange, 61 Cal. App. 5th 676 (2021), the jury must be asked whether Harborline acted unreasonably, not merely whether it failed to accept. Under Crisci v. Security Insurance Co., 66 Cal. 2d 425 (1967), the question is what an insurer without limits would have done. On these facts, Harborline faces a serious risk of paying the full $1.75 million excess plus interest, and possibly more if Bell can prove emotional distress damages of the kind awarded in Crisci v. Security Insurance Co., 66 Cal. 2d 425 (1967).

Notice what changed between the two endings. The demand was identical. What mattered was an acknowledgment, a calendar entry, a letter to the insured, two specific questions asked within the deadline, and an unconditional acceptance.

Common mistakes

Claimant's counsel

  • Sending the demand before confirming the limits and all applicable coverages.
  • Omitting a co-insured (the vehicle owner, the employer) from the release.
  • Attaching a summary of records instead of the records themselves.
  • Using a deadline shorter than the statutory floor or too short for the volume of records.
  • Adding conditions that serve no client interest, such as requiring a specific person at the insurer to sign or a check delivered by courier by a particular hour.
  • Ignoring liens, or refusing to address Medicare at all.
  • Failing to answer a good-faith request for information, which hands the insurer its defense.

Insurers

  • Letting a demand sit unread. The clock does not care about internal routing.
  • Counteroffering below limits on a clear-liability, catastrophic-injury claim.
  • Asking for information already in the file, or asking vague questions ("please send all records").
  • Missing a condition on acceptance: the payee line, the payment date, the affidavit.
  • Failing to tell the insured about the demand, or about an above-limits offer the insured might want to fund.
  • In California, failing to send a written explanation before expiration.

Defense counsel and insureds

  • Defense counsel treating the insurer as the only client when advising on the demand.
  • Insureds ignoring excess letters, or failing to cooperate with requests for statements and asset information.
  • Insureds entering a consent judgment without understanding whether their state will enforce it against the insurer.

FAQ

Can a claimant sue the other driver's insurer directly for refusing a policy-limits demand? Generally no. The duty to settle runs to the insured. The claimant typically reaches the insurer through an assignment from the insured after an excess judgment. A few states have direct action statutes for other purposes, and Florida's statutory civil remedy has its own standing rules, but the assignment route is the norm.

Does an insurer have to accept a policy-limits demand just because damages exceed the limits? No. The insurer must act reasonably (or, in New York, avoid gross disregard of the insured's interests). Disputed liability, missing information, an unreasonably short deadline, or conditions the insurer cannot meet can all justify not accepting. What the insurer cannot do is ignore the demand or reject a reasonable one for its own benefit.

Is a 30-day deadline always reasonable? Not always. Thirty days is the statutory minimum in California and Georgia, which makes shorter deadlines presumptively ineffective there, but whether 30 days is reasonable depends on the complexity of the claim and what the insurer already knows. A clear-liability claim with complete records is very different from one with disputed causation and 3,000 pages arriving on day one.

What should an insurer do if it needs more time? Ask for an extension in writing, within the deadline, and explain specifically what it needs and why. In California, that request is not a counteroffer under Cal. Civ. Proc. Code § 999.3. Elsewhere, phrase it carefully so it cannot be read as a rejection, and continue working on the claim while you wait for an answer.

Can the insured force the insurer to settle? Not directly. But a written demand from the insured to the insurer, asking it to accept a within-limits offer, is powerful evidence in a later bad-faith case, and in some states the insured can contribute personal funds to close an above-limits offer and then seek reimbursement if the insurer's refusal was unreasonable.

What happens if the insurer accepts but pays late? In Georgia under the 2013 statute, a late payment that the offer made an essential condition of acceptance can mean there was no settlement (Grange Mutual Casualty Co. v. Woodard, 300 Ga. 848 (2017)). Elsewhere, results vary. Treat every condition of acceptance as a deadline.

Do these rules apply to commercial and professional liability policies? The common law duty to settle applies broadly, including to commercial general liability, professional, and directors and officers policies. California's statute, however, applies only to auto, motor vehicle, homeowner, and commercial premises liability policies (Cal. Civ. Proc. Code § 999.5). For coverage issues in commercial lines, see Business Insurance and Coverage Disputes: CGL, E&O, Cyber, and D&O.

Takeaways

  • The duty to settle exists because the insurer controls settlement while the insured bears the excess risk. The remedy for breach is the excess judgment.
  • Each state frames the standard differently. Know whether you are in a negligence state, a "prudent insurer without limits" state, a totality state, or a gross-disregard state.
  • A demand creates exposure only if it is a real opportunity: within limits, a full release, enough information, enough time, and achievable conditions.
  • California, Georgia, Florida, and Missouri regulate demands by statute, and the details (delivery address, labels, content, deadlines, required explanations) decide cases.
  • Liens and multiple claimants are legitimate complications, but they call for communication and structured solutions, not silence.
  • After an excess verdict, assignment is the usual path. Consent judgments work in some states and fail in others.
  • For every participant, the best protection is the same: act promptly, communicate in writing, and document why.

The step-by-step process for sending or answering a demand is in Making or Responding to a Time-Limited Policy-Limits Demand: A Practical Guide. The task list is in the Policy-Limits Demand Checklist: A Practical Checklist, and the letters are in the Policy-Limits Demand Toolkit: Demand Letters, Insurer Responses, and Excess Exposure Letters.

This document is general information, not legal advice for any particular situation; the law of insurer bad faith varies widely by state and changes often, and the facts of each claim matter.

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