After a serious crash, the at-fault driver’s insurance is often far less than the harm done. When that happens, how the settlement demand is written, and how the insurer answers it, can decide whether the injured person recovers only the policy limit or much more. This article explains the insurer’s duty to settle, what “bad faith” means, and the rules California now applies to time-limited demands.
What is an insurer’s duty to settle?
Every insurance policy carries an implied promise of good faith and fair dealing. Neither side may do anything to undercut the other’s right to the benefits of the contract. For liability insurance, that promise includes a duty to settle in the right case.
The California Supreme Court set out the rule in Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654. When deciding whether to settle, the insurer must consider its customer’s interest and give it at least as much consideration as its own. The reason is simple. When the damages are likely to exceed the limits, an insurer that refuses to settle is gambling with its customer’s money. If the case goes badly, the customer, not the insurer, faces the part of the judgment above the limits.
Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425 shows what that can look like. A landlord had a $10,000 liability policy. Her tenant fell through a broken stair and developed a severe psychiatric illness. The tenant’s lawyer came down to $10,000. The insurer offered only $3,000 for the physical injuries and nothing for the mental illness. A jury then awarded the tenant $100,000 and her husband $1,000. The landlord was left with the excess and became indigent. The Supreme Court affirmed an award against the insurer of $91,000 plus interest, and another $25,000 for the landlord’s own mental suffering.
When is refusing to settle “bad faith”?
An unreasonable refusal to settle within the limits can make the insurer liable for the entire judgment against its customer. In practice, that claim is often assigned to the injured person, who then pursues the insurer directly.
But the refusal has to be unreasonable. In Pinto v. Farmers Ins. Exchange (2021) 61 Cal.App.5th 676, a passenger was left quadriplegic when a pickup truck went off the road and flipped in 2013. The truck had a $50,000 per-person limit. The passenger’s lawyer offered to settle for the limit and gave Farmers 15 days, which the court counted as eight workdays. Farmers asked for more time, then tendered the $50,000 before the deadline, but the lawyer rejected the tender as not an unconditional acceptance. The passenger later took an assignment of the insureds’ rights and sued Farmers. The jury found the offer was reasonable and that Farmers failed to accept it, and the trial court entered a $9,935,000 judgment. The Court of Appeal reversed. It held that failing to accept a reasonable offer is not bad faith by itself. The jury must also find that the insurer acted unreasonably. The verdict form never asked that question.
After Pinto, the standard jury instruction on this claim (CACI No. 2334) was revised to require a finding that the failure to settle resulted from unreasonable conduct by the insurer.
What is a time-limited demand?
A time-limited demand is a settlement offer made before a lawsuit or arbitration is filed. It offers to settle an injury, property damage or wrongful death claim within the at-fault party’s insurance limits, and it must be accepted within a set time (Code Civ. Proc., § 999, subd. (b)(2)). Insurers had long argued that short deadlines were used to set up bad-faith claims. The Legislature responded with Senate Bill 1155 (Chapter 719, Statutes of 2022), signed September 28, 2022. It added sections 999 through 999.5 to the Code of Civil Procedure, effective January 1, 2023.
What do sections 999 to 999.5 require?
When the rules apply (§ 999.4, § 999.5)
- Claims covered by automobile, motor vehicle, homeowner or commercial premises liability policies.
- Demands sent before a lawsuit or arbitration is filed, on or after January 1, 2023.
- Claimants who have a lawyer. The rules do not apply to a person who is not represented.
What the demand must contain (§ 999.1)
It must be in writing and labeled as a time-limited demand or reference section 999.1. It must include these material terms:
- A deadline of at least 30 days from transmission if sent by email, fax or certified mail, or at least 33 days if sent by regular mail.
- A clear and unequivocal offer to settle all claims within the policy limits, including satisfaction of all liens.
- An offer of a complete release of the insurer’s insureds from all present and future liability for the occurrence.
- The date and location of the loss.
- The claim number, if known.
- A description of all known injuries.
- Reasonable proof to support the claim, which may include medical records or bills.
Where it must be sent (§ 999.2)
To the address the insurer has designated for these demands, if the insurer gave one to the California Department of Insurance and the Department has posted it publicly. Otherwise, to the insurance representative assigned to the claim, if known.
What the insurer must do (§ 999.3)
- It may accept by agreeing in writing to all the material terms.
- It may ask for clarification, more information, or an extension to investigate. That request is not, by itself, a rejection or a counteroffer.
- If it does not accept, it must say so in writing, with its reasons, before the deadline (including any agreed extension). That letter is relevant in any later bad-faith lawsuit.
What happens if the demand does not comply (§ 999.4)
A demand that does not substantially comply with these rules will not be treated as a reasonable offer within the limits in a later suit seeking damages above the policy limits. In other words, a defective demand can cost the injured person the chance to hold the insurer liable for the excess. Outside the new rules, existing bad-faith law stays the same (§ 999.5, subd. (b)).
What’s new since 2023
As of September 2026, the text of sections 999 through 999.5 has not changed since it took effect. The Department of Insurance now posts the addresses insurers have designated for time-limited demands. And since Pinto, juries are asked directly whether the insurer’s conduct was unreasonable. The focus is now on a demand that follows the statute exactly, and on the record of how the insurer responded.
What this means for you
- Don’t send a demand yourself and don’t rush to accept a quick “policy limits” check. First find out what other insurance may apply, including your own underinsured motorist coverage.
- Keep every medical record and bill. A demand is only as strong as its proof.
- Expect questions from the insurer. Under section 999.3, a request for more information is not a rejection. Answering promptly protects your position.
TORKLAW handles serious car accident, truck accident and catastrophic injury claims where policy limits are often too low. If the other driver had no insurance at all, see our article on uninsured drivers.
Frequently asked questions
What is a policy-limit demand?
A written offer to settle an injury claim for the full amount of the at-fault party’s insurance, with supporting records and a deadline to accept. Before a lawsuit, it must follow Code of Civil Procedure sections 999 through 999.5 for covered policy types.
Can an insurer have to pay more than its policy limit?
Yes. If it unreasonably refuses a reasonable settlement offer within the limits and a larger judgment follows, it can be liable for the full judgment.
How long must a time-limited demand stay open?
At least 30 days from transmission by email, fax or certified mail, or at least 33 days by regular mail.