A policy limits demand in California is a written offer to settle an injury claim for the full amount of the at-fault party’s liability coverage, and when it meets the requirements of Code of Civil Procedure Section 999, it forces the insurer to either pay the policy maximum or risk being liable for the entire jury verdict later, no matter how far it exceeds those limits. The rules for how the demand must be drafted, delivered, and supported are strict. A letter that misses any of them cannot be used as evidence of bad faith, which means the insurer can ignore it without consequence.
What Code of Civil Procedure Section 999 Requires
Section 999, created by Senate Bill 1155, governs any pre-lawsuit offer to settle a personal injury, property damage, or wrongful death claim within the insurer’s liability limits. A demand that doesn’t substantially comply with the statute cannot be admitted in any later lawsuit seeking damages beyond policy limits against the insurer. Compliance is the whole ballgame.
The demand must be in writing, labeled as a time-limited demand or reference Section 999, and delivered by certified mail with return receipt requested, or by email or fax to the insurer’s designated address. The insurer gets at least 30 days to accept when the demand is sent by certified mail, email, or fax, and at least 33 days when sent by regular mail.
Inside the letter, six things must appear:
- The specific dollar amount demanded.
- An offer to release the insured from all present and future liability arising from the incident.
- A clear statement that the settlement will satisfy all liens.
- The date and location of the loss, plus the claim number if known.
- A description of all known injuries the claimant sustained.
- Reasonable proof to support the claim, which may include medical records, bills, treatment provider information, and lost earnings documentation.
Miss one of these, and the demand loses its legal force. It may still open a settlement conversation, but it will not create the excess-liability exposure that makes insurers actually pay attention.
Finding Out the Policy Limits
You cannot demand what you do not know. California gives you two paths.
Once a lawsuit is filed, Code of Civil Procedure Section 2017.210 allows any party to discover the existence, contents, and limits of any insurance agreement that might cover the judgment, including the identity of the carrier and whether it disputes coverage. The statute specifically provides that disclosing this information does not make it admissible at trial, so an insurer cannot claim prejudice as a reason to refuse.1California Legislative Information. California Code of Civil Procedure 2017.210
Before suit is filed, no California statute compels an insurer to disclose limits on request. In practice, claimants’ attorneys send a written request, and many carriers disclose voluntarily because refusing looks like obstruction if bad faith litigation follows. Investigating the policyholder’s personal assets separately can also help you decide whether a policy limits demand makes strategic sense in the first place.
Building the Evidence Package
A policy limits demand only works if the file behind it convinces the adjuster that a jury would return a verdict well above the policy. Two categories carry that weight: liability proof and damages proof.
For liability, gather the police report, witness statements, photographs of the scene and vehicles, and any citations issued. The goal is to leave no serious question about who caused the harm.
For damages, medical evidence does the heavy lifting. Collect complete treatment records from every provider, diagnostic imaging, surgical reports, and discharge summaries, paired with itemized billing showing the total cost of care. If treatment is ongoing, include a treating physician’s statement about expected future care and its estimated cost. Add lost-income documentation: employer verification letters, pay stubs, and tax returns showing pre-injury earnings and what has been lost since.
When the package leaves the insurer with no reasonable basis to dispute liability or the size of the claim, the pressure to accept the policy limits becomes real, because California law punishes carriers that ignore clear exposure to an excess verdict.
Sending the Demand and Documenting Everything
Delivery is not a formality. Section 999 requires certified mail with return receipt requested, or email or fax to the insurer’s designated address. Certified mail creates an undeniable record of when the insurer received the letter, and that receipt starts the response clock. Address the package to the claims adjuster handling the file, or to the insurer’s published designated address for time-limited demands if one exists.
After delivery, write everything down. If the adjuster asks for more time or additional records, respond in writing and keep copies. Confirm every phone call with a follow-up email or letter summarizing what was said. If the case turns into bad faith litigation, this paper trail becomes the core evidence, and gaps in it cost you.
How Courts Judge Whether the Demand Was Reasonable
The standard comes from CACI No. 2334, the Judicial Council jury instruction for a third-party bad faith claim. The jury asks whether the insurer knew or should have known, when it rejected the demand, that a judgment against the policyholder would likely exceed the demand amount based on the claimant’s injuries and the insured’s probable liability.2Justia. CACI No. 2334 Bad Faith (Third Party) – Refusal to Accept Reasonable Settlement Demand Within Liability Policy Limits – Essential Factual Elements
The plaintiff has to prove six elements: the insured had a liability policy with the defendant insurer, the claimant made a covered claim, the claimant made a reasonable demand within policy limits, the insurer failed to accept it, that failure was unreasonable, and an excess judgment was entered against the insured (or the insurer’s failure was a substantial factor in causing harm).2Justia. CACI No. 2334 Bad Faith (Third Party) – Refusal to Accept Reasonable Settlement Demand Within Liability Policy Limits – Essential Factual Elements
The foundational case is Comunale v. Traders & General Insurance Co., in which the California Supreme Court held that an insurer must give its policyholder’s interests at least as much weight as its own when deciding whether to settle. Where there is a serious risk of a verdict above policy limits and the claim can be resolved within them, refusal to settle breaches the implied covenant of good faith, and the insurer “is liable for the entire judgment against the insured even if it exceeds the policy limits.”3Justia Law. Comunale v. Traders and General Insurance Co.
One boundary worth naming: this duty and the excess-liability rule apply to third-party liability claims, where someone else is suing the insured, not to first-party claims where the insured is making a claim under their own policy. The Court of Appeal drew that line in Rappaport-Scott v. Interinsurance Exchange.
What the Insurer Risks by Saying No
An insurer that turns down a reasonable policy limits demand exposes itself to the full judgment, no matter how far above the policy cap it lands. Reject a $30,000 policy limits offer, watch a jury return $500,000, and the carrier can be on the hook for all $500,000.3Justia Law. Comunale v. Traders and General Insurance Co.
Bad faith also converts the dispute from contract to tort, which opens the door to damages the policy itself would never cover. Under CACI No. 2350, the policyholder can recover for emotional distress, anxiety, and humiliation caused by the insurer’s conduct, plus attorney fees incurred to recover policy benefits.4Justia. CACI No. 2350 Damages for Bad Faith Punitive damages are available where the conduct was especially egregious.
Prejudgment Interest at 10 Percent
California Civil Code Section 3291 adds another cost. In a personal injury case, if the plaintiff made a formal settlement offer under Code of Civil Procedure Section 998 that the defendant rejected, and the plaintiff later wins a judgment larger than that offer, the entire judgment accrues interest at 10 percent per year, running from the date of the first rejected offer until the judgment is paid.5California Legislative Information. California Civil Code 3291
On a $500,000 judgment, two years of interest is $100,000 before the insurer writes the first check. Experienced adjusters know this, which is one reason a well-drafted demand paired with a 998 offer gets read carefully.
Assignment of Rights With a Covenant Not to Execute
When an insurer refuses to settle and the case goes to verdict, the policyholder is left personally exposed. California law lets the insured assign their bad faith rights against the carrier to the injured plaintiff in exchange for a covenant not to execute against the insured’s personal assets. In Critz v. Farmers Insurance Group, the court held that the assignment is an act of self-protection and does not violate the duty to cooperate with the insurer. Under Hamilton v. Maryland Casualty Co., the assignment can be signed before trial but becomes operative only when an excess judgment is actually entered. The plaintiff then steps into the policyholder’s shoes and sues the insurer directly for the excess judgment and bad faith damages. The insured keeps their assets, and the plaintiff pursues the deeper pocket.
When Multiple Claimants Share One Policy
Policy limits demands get complicated when several people were injured in the same incident and the combined claims exceed available coverage. Three people hurt in a crash with $100,000 in coverage and $400,000 in total claims present a problem with no clean solution.
California does not follow a strict first-come, first-served rule. The insurer must act in good faith to settle in a way that minimizes the insured’s personal exposure. That may mean negotiating with all claimants at once, prioritizing the most serious injuries, or pursuing global releases. The carrier has discretion, but if it exhausts the policy by settling with one claimant while leaving the insured exposed to larger claims from others, it risks a bad faith finding of its own.
Some insurers file an interpleader, depositing the limits with the court and asking a judge to divide the funds. California courts have accepted this in some circumstances. It resolves the insurer’s liability but does not eliminate the insured’s exposure, and the claimants end up litigating against each other over the available money.
Insurer Conduct That Strengthens a Later Bad Faith Claim
California Insurance Code Section 790.03, subdivision (h), lists unfair claims practices that, when done knowingly or often enough to reflect a general business pattern, violate the law. Several apply directly to how carriers must handle a policy limits demand:6California Legislative Information. California Insurance Code 790.03
- Insurers cannot ignore or unreasonably delay responding to claims communications.
- They must adopt and follow reasonable standards for prompt investigation.
- After proof of loss is submitted, they must confirm or deny coverage within a reasonable time.
- Where liability is reasonably clear, they must attempt to settle promptly and fairly.
- They cannot pressure claimants into litigation by offering far less than the claim is worth.
- If they deny a claim or offer a compromise, they must promptly explain the policy basis and applicable law.
Every one of these creates a record you can use later. Slow-walking the investigation, ignoring the demand letter, refusing to explain a denial: each falls squarely within the prohibited conduct, and each strengthens the bad faith case if the insurer’s rejection of a compliant policy limits demand turns into an excess verdict.