Non-monetary terms in a policy limits demand, and where the repair promise goes instead

The pressure to load a limits demand comes from the client, and it usually has a good reason behind it. Money will not fix the condition that caused the loss, and a release that ends the case without a repair commitment can feel like paying the defendant to leave the condition in place.

That concern is legitimate, and it belongs in the settlement. It does not belong in the demand. The demand is the instrument that moves the excess onto the carrier, and every term the carrier cannot deliver by writing a check gives it a reason to refuse that a court will accept.

Why a performance term takes the demand outside the limits

The carrier can deliver money and a release. It cannot deliver its insured's work.

A claim for wrongful refusal to settle "first requires proof the third party made a reasonable offer to settle the claims against the insured for an amount within the policy limits." Graciano, 231 Cal.App.4th at 425. The offer qualifies only if "its terms are clear enough to have created an enforceable contract resolving all claims had it been accepted by the insurer," every claimant joins, it releases every insured, and the time allowed is enough to evaluate the exposure. Id. at 425-426.

Heredia is the closest published case. The claimant offered to settle for the 15,000 dollar limit if the insureds also participated at trial and the carrier kept defending them. The policy ended the defense obligation once the limit was paid. The court held the offer "was plainly beyond the policy limit," because "$15,000 plus the cost of defense does not equal $15,000." Heredia, 228 Cal.App.3d at 1355.

Coe gets to the same place from the other direction. A limits offer that left out a workers' compensation carrier, whose consent the settlement legally required, was not an offer "whose acceptance by appellant would have produced a valid settlement," because "when the approval of a third party is necessary for a contract to take effect, there is no contract until such approval has been obtained." Coe, 66 Cal.App.3d at 992-993. Strauss later described that offer as one that "exceeded the policy limit." 26 Cal.App.4th at 1021.

A demand that requires the insured to finish a repair, remove an encroachment or rebuild a drainage system has the same defect. The carrier cannot accept it by paying its limit, because the performance is not its to give. No published California decision decides a demand conditioned on the insured's own repair work. The argument that it falls outside the limits is an inference from these cases, and it is a strong one.

What the carrier does with a mixed demand

It tenders the limits for a release and lets the repair term go.

When a liability insurer timely tenders its full limits to settle its insured's liability, it has acted in good faith as a matter of law. Graciano, 231 Cal.App.4th at 426. The reason given is that "by offering the policy limits in exchange for a release, the insurer has done all within its power to effect a settlement." Lehto, 31 Cal.App.4th at 73. And an insurer that "would have acted in bad faith by accepting the offer" cannot be in bad faith for refusing it. Strauss, 26 Cal.App.4th at 1022.

Put those together and the risk is plain. A repair term hands the carrier the response that ends its exposure: a written tender of the limits for a complete release, with a letter explaining that it cannot commit its insured to perform. Even a reasonable demand that goes unaccepted is not bad faith by itself; the claimant still has to prove the refusal was unreasonable. Pinto v. Farmers Ins. Exchange (2021) 61 Cal.App.5th 676, 688.

Where the term can still matter

Two lines of authority keep a mixed demand from being worthless, and neither turns it into a limits demand.

The insured has to be told. In Heredia the same court that held the offer outside the limits let the insureds' other claims go forward at the pleading stage: failing to tell them about the offer in time, and rejecting it without giving them a chance to contribute above the limits, stated a cause of action. 228 Cal.App.3d at 1360. The court relied in part on Merritt, which describes communicating an over-limits offer to the insured as "the first step." 34 Cal.App.3d at 875. A carrier that sits on a repair term without telling its insured takes a risk of its own.

A willing insured changes the analysis. Merritt says a conflict between carrier and insured develops when "a settlement offer is made in excess of policy limits and the assured is willing and able to pay the excess." 34 Cal.App.3d at 877. That passage is about money. Whether an insured's willingness to do the repair works the same way is undecided, and you should not plan a demand around it.

Carriers are also expected to work with an imperfect offer rather than ignore it. Among the authority Heredia cited for the claims that survived is a Ninth Circuit decision applying California law, holding that claimants need not "begin settlement overtures with letter-perfect offers to which insurers need only respond 'Yes' or 'No.'" 228 Cal.App.3d at 1360, quoting Allen v. Allstate Ins. Co. (9th Cir. 1981) 656 F.2d 487, 490. That helps a claimant whose demand has a fixable defect. It does not help one whose demand asks for performance the carrier cannot give.

The 998 analogy, and its limit

Under CCP 998, an offer "includes all its terms and conditions and must be evaluated in the light of all those terms and conditions." Valentino v. Elliott Sav-On Gas, Inc. (1988) 201 Cal.App.3d 692, 697. "Any nonmonetary terms or conditions must be sufficiently certain and capable of valuation to allow the court to determine whether the judgment is more favorable than the offer." Fassberg, 152 Cal.App.4th at 764.

The same concern applies to a limits demand. A court deciding later whether refusing the demand was unreasonable has to value what was offered, and a repair obligation of uncertain cost makes that hard. But no case found applies the 998 valuation rule to a failure-to-settle claim. Use it as an analogy and say so. It is not automatically fatal either: Fassberg held a broad release "not overbroad or incapable of valuation." 152 Cal.App.4th at 767.

If the demand is also served as a 998 offer, as the one in Strauss was (26 Cal.App.4th at 1020), the repair term puts the 998 at risk as well.

Where the repair terms belong

Make the clean demand, then trade cash below the limits for the terms on the counter.

1. Serve the clean demand. Money within the limits, every claimant joining, a complete release of every insured, and a reasonable deadline. Graciano, 231 Cal.App.4th at 425-426.
2. Say what your client wants, separately. If the client needs the repair on the record now, put it in a letter to defense counsel that is not part of the demand and says in terms that the demand is not conditioned on it.
3. Trade on the counter. When the carrier counters below the limits, the repair terms become what your client gets for taking less cash.
4. Get the right signatures. An insurer's authorized agent can sign for an insured, but not "if the party whom the insurer is defending would be liable under the terms of the settlement for any amount above the policy limits." CCP 664.6(b)(3). A repair obligation is above the limits, so the insureds or their own counsel sign the terms. CCP 664.6(b)(1), (b)(2).
5. Keep the court. The court may "dismiss the case as to the settling parties without prejudice and retain jurisdiction over the parties to enforce the settlement until performance in full of the terms of the settlement." CCP 664.6(a). The request has to reach the court before the dismissal does. Wackeen v. Malis (2002) 97 Cal.App.4th 429, 440. If the terms are not performed, a party may file "a motion based upon such terms." CCP 664.6(f)(1).
6. If it settles at mediation, have the signed agreement say it is "enforceable or binding or words to that effect." Evid. Code 1123(b). Without that or another exception in section 1123, mediation confidentiality keeps it out.

A repair term that a court can enforce names the engineer and the scope, gives the claimant's expert a review with a turnaround, sets dates for permits, start and completion, requires progress reports and access, and says what happens if a date is missed. For a conditional settlement outside 664.6, the notice of settlement has to give the date by which the dismissal will be filed. Cal. Rules of Court, rule 3.1385(c)(1).

The local layer

Everything on this page is statewide: the cases, CCP 664.6, Evid. Code 1123 and rule 3.1385. No county layer was found for what goes into a settlement demand. A department's settlement conference order can still require more of the papers you bring to it, so read yours.