Avoiding Pitfalls in Handling Time-Limited Demands

PropertyCasualty360
04.06.2021

Headshot of Myrece JohnsonHeadshot of Lauren WoodrickMyrece Johnson and Lauren Woodrick authored an article published by PropertyCasualty360 on April 6, 2021, offering guidance for insurers subjected to time-limited demands to settle bad faith claims within the available policy limit. Insurance companies have seen a rise in time-limited demands amounting to “bad faith set-ups,” which are attempts to trip up insurers’ responses to create possible extra-contractual liability.

“There is no checklist or other steps that will fully insulate an insurer from liability for a bad faith claim, and each claim presents a different factual scenario requiring close consideration,” Johnson and Woodrick said.

However, there are certain things that can be done when a demand is presented to put the insurer in the best position possible to address such a claim down the road, including:

  • Communication with the insured – Transmit the demand to all insureds immediately, advise the insured of risks involved, communicate ongoing updates and maintain dialogue on approach to resolve claim;
  • Close review of all terms of the demand – Review the demand immediately, identify the headline and review all details, even if it is purposefully long, vague or confusing;
  • Ask for clarification when needed – In writing, carefully seek clarification or more information if the demand is vague or lacking information – being careful to ensure the request cannot be interpreted as a mandatory demand, which could be considered a counteroffer or rejection of the demand;
  • Closely evaluate the claims and risk to the insured – Weigh the pros and cons of the demand with consideration of any exposure to the insured that would not be resolved if the demand is accepted; and
  • Ensure compliance with all terms – Pay close attention to how the claimant has requested performance of the acceptance to ensure the settlement’s enforceability.

For the full article, please click here.

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