Avoiding Pitfalls in Handling Time-Limited Demands
Myrece 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.