The policy limits demand: making one that actually opens the policy
A demand strips the policy limit as a ceiling only if refusing it was unreasonable and the refusal can later be proved. Almost every way it fails is something you controlled when you drafted it, and one of them is not what you wrote but where you said it.
- What it does
- An insurer that unreasonably refuses a reasonable within-limits demand is liable for the entire judgment, limits included Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 659; Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390
- The test
- Would a prudent insurer with no policy limits have accepted it. The insured's interests get at least equal weight Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 429-430
- Is a formal demand required
- No, but silence is not enough. The claimant has to communicate an interest in settling within limits Boicourt v. Amex Assurance Co. (2000) 78 Cal.App.4th 1390; Reid v. Mercury Ins. Co. (2013) 220 Cal.App.4th 262
- Does the statute apply
- Usually not. The chapter reaches only pre-complaint demands, and only auto, motor vehicle, homeowner and commercial premises policies CCP 999(b)(2), CCP 999.5(a)
- Penalty for noncompliance
- Where the chapter does apply, a demand that does not substantially comply is not a reasonable within-limits offer at all CCP 999.4(a). Does not apply to an unrepresented claimant, CCP 999.4(b)
- Minimum acceptance window
- 30 days by email, facsimile or certified mail, 33 days by mail, under the statute CCP 999.1(a). Outside the chapter there is no statutory floor and the deadline is a jury question
- Made inside a mediation
- Probably unprovable later. There is no bad faith exception to mediation confidentiality Evid. Code 1119(a), (b), (c); Foxgate Homeowners' Assn. v. Bramalea California, Inc. (2001) 26 Cal.4th 1; Cassel v. Superior Court (2011) 51 Cal.4th 113
- What the payoff requires
- Usually an excess judgment. The injury is exposure to a judgment larger than the insurer agreed to indemnify, though the same case allows liability for coercing the insured to fund a settlement, where by definition there is no excess judgment J.B. Aguerre, Inc. v. American Guarantee & Liability Ins. Co. (1997) 59 Cal.App.4th 6
On this page
What the demand actually does
It moves the unlimited downside from your opponent's client to your opponent's carrier.
Before any demand, the carrier's maximum loss is the policy limit and the insured absorbs everything above it. The implied covenant of good faith and fair dealing changes that. Comunale holds that "[w]hen there is great risk of a recovery beyond the policy limits so that the most reasonable manner of disposing to the claim is a settlement which can be made within those limits, a consideration in good faith of the insured's interest requires the insurer to settle the claim," and that an unwarranted refusal breaches the covenant. Comunale, 50 Cal.2d at 659.
The consequence is the whole point. An insurer "who wrongfully declines to defend and who refuses to accept a reasonable settlement within the policy limits in violation of its duty to consider in good faith the interest of the insured in the settlement, is liable for the entire judgment against the insured even if it exceeds the policy limits." Comunale, 50 Cal.2d 654. That sentence is written in the conjunctive because the carrier there had done both. It denied coverage, refused to defend, and then turned down a 4,000 dollar offer inside a 10,000 dollar limit. The judgment came back at 25,000.
Refusing to settle is enough on its own. Crisci is the case that shows it. The insurer hired experienced counsel and defended the action throughout, turned down offers of 10,000 and 9,000 dollars, and was held liable for a 91,000 dollar excess judgment. The duty to defend and the duty to settle reasonably are separate obligations, and a carrier that honors the first can still be caught by the second. Kransco adds that the carrier cannot reduce that exposure by blaming its own insured's conduct in the underlying case. The demand converts a capped exposure into an uncapped one. Nothing else you do in a negotiation has that effect.
Coverage doubt is not a defense
An insurer "who fails to accept a reasonable settlement offer within policy limits because it believes the policy does not provide coverage assumes the risk that it will be held liable for all damages resulting from such refusal, including damages in excess of applicable policy limits." Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9.
Good faith and wrong is still wrong. A carrier defending under reservation that turns down a reasonable limits demand because it expects to win the coverage fight is gambling with the insured's money, and Johansen makes it eat the loss.
What it buys you
Ranked by how much each one actually changes the other side's behaviour, rather than by how good it sounds in a demand letter.
| What you get | Why it works |
|---|---|
| The unlimited downside moves onto the carrier | Until a reasonable within-limits demand is refused, the limit is the carrier's ceiling and the insured carries everything above it. Comunale, 50 Cal.2d 654. Nothing else in a negotiation changes the carrier's own arithmetic. |
| The record exists, and in admissible form | A written demand served outside the mediation survives Evid. Code 1119. The same demand made in the room may not, and there is no later proceeding in which you get to fix that. |
| The insured ends up on your side of the problem | The carrier has to communicate a settlement offer that could affect its insured's interests, particularly where the insured must act to secure it. Hedayati, 67 Cal.App.5th 833. Once told about the exposure, the insured has his own reason to push the carrier, and often his own lawyer. |
| Real authority shows up at the session | An adjuster holding a written within-limits demand has to evaluate it and get authority beforehand. Without one, the mediation is a conversation about what you might take. |
| The refusal has to explain itself | Where the chapter applies, CCP 999.3(c) requires written notice of non-acceptance and the basis for it before the demand expires, and says that notice "shall be relevant" in a later extracontractual suit. Outside the chapter, ask for the reasons anyway. Reasons given early are hard to improve on later. |
| The interest clock can start | A separate CCP 998 offer runs 10 percent per annum under Civ. Code 3291 from the first offer the judgment exceeds. The demand and the offer are different instruments and both are worth serving. |
| Your own file gets disciplined | You cannot make a credible within-limits demand without the specials, the lien picture and the release terms. That work has to happen before the mediation regardless. |
The five gates
Five things have to be true. The carrier will contest each one, and you control the first three at the drafting stage.
- There is real exposure above the limit, and the demand is reasonable. Where there is no policy limits exposure for the claimed covered damages, refusing the demand is not bad faith. Dalrymple v. United Services Auto. Assn. (1995) 40 Cal.App.4th 497.
- The carrier receives it, and it is clear enough to accept as written. A formal offer is not an absolute prerequisite, but bad faith cannot rest on the insurer's failure to open settlement talks by itself. Every case allowing liability without a formal demand involves a claimant who conveyed an interest in settling that the insurer ignored. Reid, 220 Cal.App.4th 262.
- The carrier refuses, or lets the window close. Reasonableness of the insurer's conduct is ordinarily a question of fact, and "becomes a question of law where the evidence is undisputed and only one reasonable inference can be drawn from the evidence." Hedayati v. Interinsurance Exchange of the Automobile Club (2021) 67 Cal.App.5th 833.
- The case is tried and the judgment exceeds the limit. An excess judgment is generally an element, because the gravamen of this species of bad faith is exposing the insured to a judgment larger than the insurer is bound to indemnify. Generally, not always. The same case says an insurer "potentially can be liable for unreasonably coercing an insured to contribute to a settlement fund, even though (by definition) there is no 'excess judgment' where a case is settled." J.B. Aguerre, 59 Cal.App.4th 6.
- The insured assigns the claim. The bad faith cause of action is assignable, whether it sounds in tort or contract, and a policy non-assignment clause does not prevent it. Comunale, 50 Cal.2d 654.
Tender of limits is not an automatic defense
When a liability insurer timely tenders its full policy limits in exchange for a release, it has acted in good faith as a matter of law, because "by offering the policy limits in exchange for a release, the insurer has done all within its power to effect a settlement." Graciano v. Mercury General Corp. (2014) 231 Cal.App.4th 414, quoting Lehto v. Allstate Ins. Co. (1994) 31 Cal.App.4th 60, 73.
That rule is narrower than carriers argue, and the two cases that look like a split are not one. Barickman v. Mercury Casualty Co. (2016) 2 Cal.App.5th 508 confines Graciano to its facts. The tender was the only disputed conduct in Graciano. In Barickman the carrier tendered limits and then unreasonably refused a slightly modified release, and reading Graciano the carrier's way "would mean an insurer that at one point acted in good faith during settlement negotiations has fully discharged its obligations under the implied covenant and has no further responsibility to make reasonable efforts to settle a third party's lawsuit against its insured." The question stays whether the conduct was unreasonable under all of the circumstances. Hedayati adds that Graciano addressed only the timeliness of the insurer's response and did not hold that an insurer may ignore documentation requests on which a settlement offer is conditioned.
When the assignment becomes operative
The insured facing an excess exposure can exchange an assignment of the bad faith claim for a covenant not to execute against personal assets. That trade can be made before trial, but the assignment "is not immediately assertable, and it does not settle the third party's claim. As long as the insurer is providing a defense, the insurer is allowed to proceed through trial to judgment. The assignment of the bad faith cause of action becomes operative after the excess judgment has been rendered." Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718.
Strauss v. Farmers Ins. Exchange (1994) 26 Cal.App.4th 1017 runs the full sequence: limits demand, rejection, assignment plus covenant, then the claimant prosecuting the bad faith action as assignee.
The statute, and why it probably does not reach your case
Chapter 3.2 took effect 1 January 2023 and gets cited as though it governs every limits demand. It governs a narrow slice.
"'Time-limited demand' means an offer prior to the filing of the complaint or demand for arbitration to settle any cause of action or a claim for personal injury, property damage, bodily injury, or wrongful death made by or on behalf of a claimant to a tortfeasor with a liability insurance policy for purposes of settling the claim against the tortfeasor within the insurer's limit of liability insurance, which by its terms must be accepted within a specified period of time." CCP 999(b)(2)
A demand served in pending litigation, which is what a pre-mediation demand almost always is, falls outside the chapter on that definition alone. CCP 999.5(a) narrows it again, to claims covered under automobile, motor vehicle, homeowner or commercial premises liability policies, for property damage, personal or bodily injury and wrongful death.
The chapter, subdivision by subdivision
| Subdivision | What it requires or does |
|---|---|
| 999(a) | Declares the public policy favoring prompt settlement of civil actions and claims. |
| 999(b)(1) | Defines "extracontractual damages" as any damage exceeding the total available limit of all applicable policies. |
| 999(b)(2) | Defines a time-limited demand, and confines it to offers made before the complaint or arbitration demand is filed. |
| 999.1 opening | The demand must be in writing and must be labeled a time-limited demand or reference the section. The seven subdivisions below are the required material terms. |
| 999.1(a) | Acceptance window of not fewer than 30 days from transmission by email, facsimile or certified mail, or 33 days by mail. |
| 999.1(b) | A clear and unequivocal offer to settle all claims within policy limits, including the satisfaction of all liens. |
| 999.1(c) | An offer of a complete release of the insureds from all present and future liability for the occurrence. |
| 999.1(d) to (g) | Date and location of loss; claim number if known; a description of all known injuries; and reasonable proof supporting the claim, which may include medical records or bills. |
| 999.2(a) | Send it to the address the insurer designated with the Department of Insurance, or to the assigned claims representative if known. |
| 999.3(a) | Acceptance is by written acceptance of the material terms in 999.1 in their entirety. |
| 999.3(b) | A request for clarification, more information, or an extension is not a counteroffer or a rejection. |
| 999.3(c) | Non-acceptance requires written notice of the decision and its basis, before expiration, and that notice "shall be relevant" in a later extracontractual suit. |
| 999.4(a) | A demand that does not substantially comply is not a reasonable within-limits offer for purposes of an extracontractual damages suit. |
| 999.4(b) | Does not apply to a claimant who is not represented by counsel. The text exempts the whole section, not subdivision (a) alone. |
| 999.4(c) | If the chapter conflicts with the Civil Discovery Act, the Civil Discovery Act prevails. |
| 999.5(a) | Limits the chapter to auto, motor vehicle, homeowner and commercial premises policies. |
| 999.5(b) | Except as provided in the chapter, nothing alters existing law on claims, damages and defenses in extracontractual litigation. |
| 999.5(c) | Applies to demands transmitted on or after 1 January 2023. |
Outside the chapter you are on Comunale and Crisci, unchanged, because CCP 999.5(b) says so. Borrow the seven terms in 999.1 anyway. The list reads like an inventory of the objections carriers raise, and a demand that satisfies all seven is hard to call unreasonable whatever the forum.
Drafting it
Every condition you attach is a question you are handing to a jury three years from now.
Hedayati is the working case. The demand there was conditioned on the insured's signed declaration that he was not driving in the course and scope of employment, a copy of the declaration page and policy, and an attestation that his assets were under a stated figure, all inside seven days. The court held that a short time limit "may or may not be reasonable under the circumstances of a given case" and that the trier of fact decides, evaluating both the conditions and the deadline against the history of how the claim had been handled. A seven-day fuse was defensible there because the carrier had spent months putting counsel off. It is not defensible on a clean file.
Hedayati also confirms that a liability insurer has a duty to communicate to its insured any settlement offer that could affect the insured's interests, particularly where the insured has to do something to secure the settlement. That is a second reason to condition a demand on something only the insured can supply. It forces the conversation the carrier would rather not have.
Liens are the recurring failure. CCP 999.1(b) states the standard even where it does not bind: a clear and unequivocal offer to settle all claims within limits, including the satisfaction of all liens. A demand that leaves the lien picture open is not an offer of a clean release, and the carrier will say it could not have accepted it.
Where your client is one of several claimants against a single limit, a demand for the whole limit cannot be accepted without leaving the insured exposed to the others. Say in the demand how that is being handled, or expect the refusal to be defensible.
A demand for more than the limit can still be in good faith
Aguilar v. Gostischef (2013) 220 Cal.App.4th 475 upheld a CCP 998 offer that exceeded the policy limits as made in good faith, where the claimant had conveyed an interest in settling within limits in the first months after the accident and the carrier never responded to repeated requests to learn the limits.
The lesson is about the record rather than the number. A carrier that will not tell you the limit cannot later complain that you guessed high.
Where you make it, and the mediation problem
A demand you cannot prove was made and refused is not worth making.
"Except as otherwise provided in this chapter: ... (b) No writing, as defined in Section 250, that is prepared for the purpose of, in the course of, or pursuant to, a mediation or a mediation consultation, is admissible or subject to discovery, and disclosure of the writing shall not be compelled, in any arbitration, administrative adjudication, civil action, or other noncriminal proceeding in which, pursuant to law, testimony can be compelled to be given." Evid. Code 1119(b)
Evid. Code 1119(a) does the same for anything said, and 1119(c) makes all communications, negotiations and settlement discussions between participants in the course of a mediation confidential. There are no judicially created exceptions. Foxgate refused to make one even for a party's bad faith failure to participate. Simmons v. Ghaderi (2008) 44 Cal.4th 570 held the protection cannot be waived by conduct. Cassel extended it to private attorney-client communications outside the mediator's presence and said the protection is "not limited by the identity of the communicator, by his or her status as a 'party,' 'disputant,' or 'participant' in the mediation itself, by the communication's nature, or by its specific potential for damage to a disputing party."
Travelers Casualty & Surety Co. v. Superior Court (2005) 126 Cal.App.4th 1131 applied all of that to insurer settlement conduct at a mediation and declined to carve out an exception, saying that punishing an insurer's recalcitrant participation "is best left resolved by insurer and insured through an action for bad faith." It did not suggest the mediation communications would become admissible in that action.
Section 1119 opens with "Except as otherwise provided in this chapter," and the provision that otherwise provides is Evid. Code 1120(a): evidence otherwise admissible outside a mediation does not become inadmissible "solely by reason of its introduction or use in a mediation." Rojas v. Superior Court (2004) 33 Cal.4th 407 reads sections 1119 and 1120 together to mean a party cannot shield a writing that was not prepared for the mediation merely by bringing it into one, even by attaching it to a mediation brief. Wimsatt v. Superior Court (2007) 152 Cal.App.4th 137 states the test as whether the writing or statement would have existed but for the mediation.
The section 998 half, which is a different instrument
A limits demand and a 998 offer do different work. Serve both.
A policy limits demand triggers the insurer's implied-covenant duty. A CCP 998 offer is a litigation device that shifts costs and starts interest running. Under Civ. Code 3291, in an action to recover damages for personal injury, an unaccepted plaintiff's 998 offer that the judgment exceeds carries interest at 10 percent per annum "calculated from the date of the plaintiff's first offer pursuant to Section 998 of the Code of Civil Procedure which is exceeded by the judgment." Interest runs from the first exceeded offer, not the last. Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644; Ray v. Goodman (2006) 142 Cal.App.4th 83.
Three limits on that. Lakin holds prejudgment interest is not available on punitive damages. Gourley v. State Farm Mut. Auto. Ins. Co. (1991) 53 Cal.3d 121 holds a bad faith action is not an action "brought to recover damages for personal injury" under section 3291, so the interest is a feature of the underlying tort case and not of the coverage case that follows it. And the statute does not reach a public entity, or a public employee for an act or omission within the scope of employment, so against either defendant there is no section 3291 interest to start.
Brandt fees, and their ceiling
When an insurer's tortious conduct reasonably compels the insured to retain counsel to obtain policy benefits, those fees are "an economic loss, damages, proximately caused by the tort." Brandt v. Superior Court (1985) 37 Cal.3d 813.
The ceiling is the part people miss. Recoverable fees "may not exceed the amount attributable to the attorney's efforts to obtain the rejected payment due on the insurance contract. Fees attributable to obtaining any portion of the plaintiff's award which exceeds the amount due under the policy are not recoverable." Brandt, 37 Cal.3d 813.
They are tort damages, so there is no Brandt recovery without a tort judgment. Griffin Dewatering Corp. v. Northern Ins. Co. of New York (2009) 176 Cal.App.4th 172; Archdale v. American Internat. Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449. Being amount-of-damages, they go to the trier of fact unless the parties stipulate to a post-judgment determination by the court, which Brandt prefers.
What breaks if you get this wrong
Four ways a demand that felt aggressive turns out to have done nothing.
Making the demand for the first time inside the mediation
Evid. Code 1119(a) and (b) bar the statement and the writing, and 1126 keeps them barred after the mediation ends. Foxgate, 26 Cal.4th 1, and Simmons, 44 Cal.4th 570, foreclose both a bad faith exception and waiver by conduct. There is no later proceeding in which you get to fix this.
A noncompliant demand where the chapter applies
CCP 999.4(a): a time-limited demand that does not substantially comply "shall not be considered to be a reasonable offer to settle the claims against the tortfeasor for an amount within the insurance policy limits" in any extracontractual damages lawsuit. The demand that already expired cannot be re-transmitted with the same effect, and the acceptance window under 999.1(a) is 30 days at minimum.
Sloppy execution once the carrier says yes
Birdsall v. Helfet (2025) 113 Cal.App.5th 558 (1st Dist., Div. Two). A 100,000 dollar limits demand required three things by 3:00 p.m. on a stated date: a release executed by both plaintiffs, a settlement draft payable to both of them and their counsel, and the declaration page attached to a sworn affidavit from an officer of the carrier. The release the carrier sent named one plaintiff as a releasee rather than a releasor. The corrected version arrived at 4:05 p.m., 65 minutes late. The trial court took the settlement defense away on summary adjudication, the case was tried, and the jury came back at roughly 5.2 million. Then the Court of Appeal reversed the whole judgment, held that whether a settlement had formed was a triable issue, and sent it back for a new trial. Both sides can lose this way.
Conditions the carrier could not perform, on a clean claim history
Hedayati, 67 Cal.App.5th 833, makes the reasonableness of both the conditions and the deadline a fact question judged against how the claim had been handled. The tight fuse survived there because of the carrier's own delay. Without that history you are giving the defense a jury argument that the demand was engineered to be refused.
Before you send it
- Answer the two threshold questions. Complaint on file or not, and what kind of policy. That decides whether CCP 999 through 999.5 govern.
- If the chapter applies, run 999.1 as a checklist, all seven terms, and label the demand as a time-limited demand or reference the section.
- Send it where the statute says, the address designated with the Department of Insurance or the assigned representative, CCP 999.2(a). If the chapter does not apply, send it to the adjuster and defense counsel both.
- Deal with liens on the face of the demand. An offer that does not produce a clean release is not an offer the carrier could have accepted.
- Justify the deadline in the demand itself. Recite the claim history that makes your window reasonable, because that is the record Hedayati says the trier of fact will use.
- Keep it outside the mediation. Not in the brief, not first raised in caucus, and not routed through the mediator.
- Serve a separate CCP 998 offer once you are in litigation, so Civ. Code 3291 interest starts running from the earliest date you can defend.
- Diary the expiration and confirm the refusal in writing. Where CCP 999.3(c) applies the carrier owes you written reasons. Where it does not, ask for them anyway.
The local layer
There is not much of one. A policy limits demand is a communication between counsel and a carrier, not a filing, so no county rule governs its form or its timing.
What does vary by county and by department is the mediation that follows: whether the court orders one, when it has to happen relative to trial, and what a department expects to see in a settlement conference statement. Those are department-level questions, and the department's standing order is the answer.