On September 28, 2022, California Governor Gavin Newsom signed into law Senate Bill 1155, which adds Chapter 3.2, “Time-Limited Demands,” to the California Code of Civil Procedure (sections 999-999.5) (the “Statute”). The Statute establishes California’s first statutory framework for use of time-limited demands within policy limits for settling civil claims covered under automobile, motor vehicle, homeowner, or commercial premises liability insurance policies.
The Statute defines a “time-limited demand” as “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.”
The Statute requires that a claimant’s time-limited demand be in writing, be labeled as such a demand or reference the statute, and provide the insurer at least 30 or 33 days from the date of transmission (depending on the method of transmission) for the insurer to respond to the demand. The demand must contain, at a minimum, the following material terms: (1) a clear and unequivocal offer to settle all claims within policy limits, including the satisfaction of all liens; (2) an offer for a complete release of the liability insurer’s insureds from all present and future liability for the occurrence; (3) the date and location of the loss; (4) the claim number, if known; (5) a description of all known injuries sustained by the claimant; and (6) “reasonable proof … sufficient to support the claim.”
The Statute also requires that a claimant send the time-limited demand to the insurance representative assigned to handle the claim, if known, or to the email or physical address designated by the liability insurer for receipt of time-limited demands, if an address has been provided by the insurer to the Department of Insurance and the Department has made the address publicly available.
The Statute provides that an insurer may, during the time within which to accept the time-limited demand, seek clarification, additional information, or an extension due to the need for further information or investigation. Such a request “shall not, in and of itself, be deemed a counteroffer or rejection of the demand.” An insurer may accept a time-limited demand by providing written acceptance of the material terms in their entirety.
An insurer rejecting a time-limited demand must notify the claimant in writing prior to the expiration of the demand (including any extension agreed to by the parties) of its decision and the basis for its decision. The Statute states that the notification “shall be relevant in any lawsuit alleging extracontractual damages against the tortfeasor’s liability insurer.”
Additionally, in any lawsuit filed by a claimant, “a time-limited demand that does not substantially comply with the terms of this 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 any lawsuit alleging extracontractual damages against the tortfeasor’s liability insurer.”
The Statute applies to time-limited demands transmitted on or after January 1, 2023. It does not apply to unrepresented litigants. It also does not apply once a claimant has filed suit or made a demand for arbitration.
Senate Bill 1155 only became operative because Governor Newsom also signed Senate Bill 1107 into law. Senate Bill 1107 amends section 16056 of the California Vehicle Code to increase the minimum motor vehicle financial responsibility limits to $30,000/$60,000/$15,000 beginning on January 1, 2025, and to $50,000/$100,000/$25,000 on January 1, 2035.
While the Statute omits provisions originally proposed that would have imposed stricter requirements on claimants submitting time-limited demands, the Statute does provide more structure for claimants and insurers in making and responding to such demands. Significantly for insurers, a claimant’s failure to “substantially comply” defeats an essential element of a bad faith claim for failure to settle based on that demand because such a failure “shall not be considered a reasonable offer to settle.”