A claimant’s policy limit demand may set an attorney up to fail in hopes of a larger payday. Small mistakes could constitute a rejection, which opens an attorney up to a malpractice claim.

Prior claims can help offer insight into what to do and what not to do. Here’s what to know about policy limit demands, the most common pitfalls to watch out for and the best practices to minimize risk when engaging with clients.

How a Call Can Turn into a Claim

Imagine you leave the office a bit early on the Friday before a holiday weekend. You return to find a certified letter from the counsel representing a personal injury claimant. Enclosed is a standard procedural demand for payment by your client’s insurer for their policy’s full limit of liability. The offer to settle comes with an impossibly short timeframe and an easily overlooked requirement that all communications regarding the demand be made only in writing.

As such policy limit demands come early in the legal process, you may have just been retained by the insurer to represent your client in the matter and not have had a chance to really get your bearings. What you do know is that communication with your client and their insurer will take time, as will conducting the necessary analysis on the demand and seeking complete documentation of the claimant’s injuries.

Your first impression of the case is that it is most prudent to recommend to your client and their insurer that they settle the demand. However, the circumstances of the demand and the logistics involved practically rule this out as a possibility. But on top of all this, should you decide to pick up the phone and leave a voicemail for the claimant’s counsel to ask for an extension or more documentation, you may face additional exposure.

Reasonable or not, this is a possibility due to the demand’s express requirement that all communications be in writing. Here, a simple phone call may constitute a rejection of the demand and open your client and their insurer up to a demand for more money and expose you and your firm to a legal malpractice claim.

Policy Limit Case Law Examples

While hypotheticals like the scenario above can be useful for illustrating a point, real policy limit case law examples also exist.

White v. Cheek

In the recent Georgia case of White v. Cheek,¹ the same voicemail scenario was at issue. The original demand was communicated in a twenty-two page single-spaced letter with sixteen footnotes and numerous requirements, including the requirement that all communications be made in writing.

The insurer left the claimant’s attorney several voicemail messages asking for more information, before ultimately sending a check for the full amount and a letter accepting the demand within the specified timeframe. However, the claimant’s attorney rejected the acceptance based on the insurer’s failure to comply with the demand’s written communication requirement.

The court held that the insurer had violated the express terms of the demand by making phone calls to the claimant’s counsel and concluded that such a failure to comply constituted a rejection of the demand.

The Georgia legislature has since revised Ga. Code Ann., § 9-11-67.1, a statute dealing with settlement offers and agreements, in an attempt to provide some additional safeguards to insurers and their attorneys. However, the court’s holding in White was primarily premised on common law principles of contract formation.

Schlosser v. Perez

In the Florida case of Schlosser v. Perez,² the counsel for a car accident claimant sent a settlement demand for the policy limit along with a statutory request for insurance information. Under the state statute, a claimant may request disclosure of the name and coverage of each known insurer.

The insurer sent the claimant a check for the full policy limit but did not include a response to the disclosure request. Despite further communications between counsel, a thirty-day deadline passed without the required disclosure being supplied. The claimant’s attorney then returned the check and filed suit against the insured.

The insured argued that there had been a valid settlement, but the court disagreed, holding that no settlement had been reached because neither the insured nor their insurer had complied with the claimant’s disclosure request. The court held that there had been no “meeting of minds” between the parties and found that any response to a policy limit demand which is not a “mirror image” of the demand may constitute a rejection.

Reppy v. Winters

In another similar case, Reppy v. Winters,³ a policy limit demand was made to resolve a car accident claim. The demand was accepted and a check was sent. However, the acceptance letter from the insured’s counsel contained a statement to the effect that the claimant’s counsel would be responsible for indemnifying the client, his insurer and its firm for liability for any type of lien.

As in previous examples, the claimant rejected this response to the policy limit demand and filed suit against the insured. The court held that the parties had not reached a settlement because indemnification was not a term included in the claimant’s original offer. By including the statement regarding indemnification, the court found that the insured’s attorney had made a counteroffer and rejected the initial demand.

Policy Limit Demand Risks and Best Practices

While not all cases will be as extreme as White or as clear-cut as Schlosser and Reppy, caution is advised when handling any policy limit demand. In particular, risks tend to be higher when:

• An insured’s liability is reasonably clear.
• The potential damages exceed the available insurance coverage.

8 Key Risks of Policy Limit Demands

Attorneys should be aware that the following missteps could lead to a rejection:

1. Seeking clarification of the terms of the release
2. Returning settlement documents in person versus through the mail
3. Providing a form of release that deviates at all from the terms demanded
4. Failing to remit a client affidavit confirming no additional coverage
5. Requesting an extension of time for acceptance
6. Seeking additional time for payment of settlement monies
7. Sending payment in multiple checks versus a single check
8. Conditioning acceptance on proof of the claimant’s legal authority to sign a release

10 Best Practices for Policy Limit Demands

When dealing with policy limit demands, following best practice guidelines may help minimize your risk of a malpractice claim:

1. Carefully consider how potential damages compare to available policy limits in the event of an adverse liability finding.
2. Ensure that your client and their insurer are informed of the risks of not accepting a policy limit demand.
3. Pay close attention to all of the specific terms of a demand, even where requirements appear trivial or overly tedious.
4. Make sure you understand the applicable rules of your jurisdiction, including which acts may constitute a rejection of a demand.
5. Do not assume that an unreasonably short timeframe for a demand acceptance or settlement payment is unenforceable.
6. Respond to all requests for information and act promptly to ensure the required information can be gathered and delivered on time.
7. Be particularly careful in situations where the applicable policy limit is a fraction of the amount of claimed damages.
8. Balance the need to obtain broad release language with the risk of inadvertently rejecting a demand.
9. Be careful about using template form releases that may not comply with all terms of the demand.
10. Communicate clearly with clients and insurers about the potential consequences of a response that is anything but a mirror image of the demanded terms.

Conclusion

Even with the best of intentions when responding to a demand, it’s possible to make a mistake or encounter a situation where a claimant’s counsel is hoping their legal gamesmanship may open a policy and deliver a bigger payday. In such cases, it’s important to ensure that you have the right malpractice insurance to protect yourself.

To learn more about coverage from Lockton Affinity Lawyer, visit us online or call (844) 398-0465.

1. See White v. Cheek, 859 S.E.2d 104 (Ga. Ct. App. 2021).
2. See Schlosser v. Perez, 832 So.2d 179 (Fla. Ct. App. 2002).
3. See Reppy v. Winters, 351 S.W.3d 717 (Mo. Ct. App. 2011).