Presented by Daisy Khambatta and John LaBarbera, Partners, Kennedys
In today’s legal landscape, insurers face unprecedented challenges with time limit demands, driven by the rising tide of social inflation. As verdicts escalate, with some reaching astronomical figures like the $1.2 billion Texas case, insurers must develop robust strategies to respond to policy limit demands.
Time limit demands have become a critical pressure tactic for plaintiffs’ attorneys. These demands typically require insurers to respond within a strict deadline, often with the threat of automatic revocation if not accepted. The complexity lies in evaluating these demands with limited information, especially in pre-litigation stage.
Key best practices for insurers begin with comprehensive documentation. Every step of the investigation must be meticulously recorded; creating a clear narrative that can withstand future legal scrutiny. This means developing a claim file that goes beyond mere notes – it should be a detailed chronicle of decision-making.
Written responses are crucial. Oral communications or passive responses are insufficient. Insurers must provide affirmative, detailed explanations for accepting or rejecting a demand. This documentation should clearly articulate:
- The investigation’s scope
- Evidence considered or needed
- Consultation with defense counsel
- Rationale for the decision
- Potential verdict exposure
Coordination with defense counsel is paramount. Experienced attorneys can provide insights into local jury trends, potential arguments, and realistic verdict potentials. This collaboration helps insurers make more informed decisions and document their reasoning more comprehensively.
Critically, insurers must avoid common pitfalls. This includes refraining from sending disparaging comments in emails and texts (even with co-counsel) about plaintiffs or attorneys, as these can become damaging exhibits in future litigation. Communications should remain professional, factual, and focused on the merits of the claim.
The evaluation process should extend beyond simple settlement values. Insurers must analyze potential verdict risks, considering factors like:
- Jurisdictional characteristics
- Jury pool sympathies
- Witness credibility
- Specific case circumstances
While challenging, these demands present opportunities for strategic resolution. In one case shared by insurance experts, a pre-litigation demand was transformed into a successful mediation, reducing a potential $6 million claim to a $3 million settlement through careful negotiation.
As social inflation continues to reshape the insurance landscape, proactive, well-documented approaches become increasingly critical. Insurers who develop robust investigation and decision-making processes will be best positioned to navigate these complex demands effectively.
The key is preparation, detailed documentation, and a strategic approach that protects both the insurer’s and the insured’s interests.
Insurance carriers face complex challenges when responding to time limit settlement demands. Across different jurisdictions, insurers must carefully evaluate claims using standards like Texas’s Stowers doctrine or California’s balancing of interests approach. Key considerations include assessing policy limits, liability clarity, and potential excess judgments. Proper documentation, transparent communication with policyholders, and understanding jurisdiction-specific nuances are critical. Failure to respond reasonably can result in bad faith claims, potentially exposing insurers to judgments far exceeding original policy limits. Proactive investigation, strategic negotiation, and meticulous file management are essential to mitigating risks in high-stakes insurance claim scenarios.
