A policy limits demand is a written request, sent to an insurance company, asking it to pay the full amount of its insured’s liability coverage to settle a claim. It is used when the injuries and losses clearly exceed what the policy will pay, and it puts the insurance company on notice that it has one real chance to settle within its own limits before the case moves toward a lawsuit and a verdict that could exceed those limits. The letter itself is a page or two. What decides whether it works is almost always the timing: send it before the medical picture is complete and the insurance company can say the damages were not yet clear, send it too late and you have given up leverage that existed earlier in the claim.
California law gives an insurance company a real incentive to respond to a proper policy limits demand, and a real consequence when it does not. This guide explains what the demand is, why an insurer has a duty to consider settling within limits when liability is clear, why the timing of the letter is as important as its content, what happens when the company refuses, why sending one yourself is a mistake, and how the whole process connects to your own uninsured or underinsured motorist coverage.
What a policy limits demand actually is
Most injury claims settle through ordinary negotiation: a demand letter describing the injuries and losses, a counteroffer, and a series of calls back and forth until the parties land on a number. A policy limits demand is different. It asks for the entire remaining limit of the at-fault driver’s liability policy, sets a specific and limited window to accept, generally around thirty days, and lays out the medical records, bills, and other proof supporting a value well above that limit. It is typically sent under Code of Civil Procedure 998, California’s statute governing formal offers to compromise, or as a time-limited demand designed to trigger the insurance company’s duty to protect its own policyholder.
The letter is not written to start a negotiation. It is written to close one, by giving the insurance company a clear, well-documented, time-limited opportunity to pay everything the policy has, and a clear record of what happens if it does not.
Why insurance companies take these seriously
An insurance company owes a duty to its own policyholder, the driver who caused the crash, to handle settlement negotiations in good faith. When liability is clear and the injuries and losses plainly exceed the policy limit, an insurance company that unreasonably refuses to settle within those limits can expose its own insured to a judgment that goes beyond what the policy covers, and that refusal can become the basis of a bad faith claim against the insurer later, brought on the policyholder’s behalf. Insurance Code 790.03 addresses unfair claims practices generally, and a properly documented, time-limited demand is often the piece of paper that later shows the company had a real opportunity to protect its policyholder and did not take it.
This is why a policy limits demand changes an insurance company’s behavior in a way an ordinary demand letter does not. A claims handler who might otherwise sit on a file for weeks has a real reason to move quickly once the letter arrives, because the company’s own exposure is now on the table, alongside the injured person’s claim.
Why timing decides more than wording
A policy limits demand works because it is backed by proof, and proof of the full extent of an injury does not exist until treatment has run its course, or close enough to it that a doctor can describe the likely future. Sending the demand while treatment is ongoing, before surgery has been discussed, before a permanent restriction has been documented, gives the insurance company a legitimate reason to say the damages were not yet established and to refuse, without ever really testing whether it would have paid. A refusal made on a fair basis protects the company from the very bad faith exposure the demand is designed to create.
The opposite mistake, waiting far too long, has its own cost. Evidence fades, witnesses move, and the pressure the insurance company feels early in a claim, before a lawsuit is filed and before its litigation costs start piling up, is not the same pressure it feels a year into active litigation. The window that works is usually once the medical picture is reasonably complete: active treatment has ended or reached a plateau, any recommended surgery has either happened or been clearly declined, and a treating physician can speak to future care if there is any. That is also the point at which how much a case is worth can actually be calculated with real numbers instead of guesses.
What happens when the insurance company refuses
Sometimes an insurance company lets the deadline pass, offers less than the full limit, or offers the limit but only after the deadline has expired. Each of those responses matters differently. A flat refusal, when liability was clear and the demand was well documented, becomes evidence in any later proceeding about whether the company acted reasonably. An offer that comes in under the deadline but below the full limit is not the same as a rejection, and the response to it depends on the specific numbers and the strength of the underlying claim. An offer of the full limit that arrives after the stated deadline raises its own question about whether it counts as an acceptance at all, one that depends on exactly how the original letter was written.
None of these situations resolve themselves through a phone call. They call for a written record, careful tracking of every deadline in the letter, and, when the company crosses the line into unreasonable conduct, a decision about how that conduct gets used later in the case.
There is also a version of this where the insurance company does exactly what the letter asked. A full and timely acceptance ends the case against the at-fault driver, and the settlement then moves into the ordinary process of paying medical liens and closing the file. That outcome is common enough to remember that the demand is not a threat for its own sake. It is a genuine settlement mechanism, and plenty of well-documented demands are paid in full within the deadline, without any dispute at all.
Why you should not send one yourself
A policy limits demand looks like a form letter, and template versions circulate online, which leads some people to think they can draft and send one without a lawyer. The letter has to be precise about the deadline, the manner of acceptance, what proof is enclosed, and what legal consequence attaches if the company misses the window, because an imprecise letter can be read by the insurance company, or later by a judge, as an ordinary settlement offer rather than a time-limited demand that triggers a duty to settle. A demand that misses a required element can foreclose the very bad faith exposure the letter was meant to create, and there is no second chance to send a cleaner version once the first one is out.
There is also a strategic decision buried inside the letter that a person without legal training rarely gets right: which records to include, how to describe future care when a doctor has hedged on the prognosis, and how to frame the case’s value so the number supports the demand without overstating it in a way that undercuts credibility. Getting any of that wrong does not just weaken the demand, it can weaken every negotiation that comes after it. This is a document written once, and it needs to be right the first time, which is why a car accident or other injury claim headed toward a policy limits demand should go through an attorney before the letter is drafted.
How this connects to your own coverage
When the at-fault driver’s policy limit is not enough to cover the full loss, even after that policy pays in full, the injured person’s own underinsured motorist coverage can fill part of the gap. This is one of the practical reasons the timing and handling of a policy limits demand matters even to someone with strong UIM coverage: many UIM claims require the injured person’s own insurer to be notified before the underlying settlement is finalized, and the underlying settlement amount affects how the UIM claim is calculated. Our guide on how much uninsured motorist coverage to carry explains how that coverage works and why the limit on your own policy matters as much as the at-fault driver’s.
Before you accept or reject any offer
An offer that arrives without a clear deadline, or an offer that arrives suspiciously close to the amount of a demand you never actually sent, deserves the same scrutiny as any other early number from an insurance company. Our article on whether to accept the first settlement offer covers the general signs that an offer is designed to close a claim quickly rather than to fairly value it.
Key points
- A policy limits demand asks an insurance company to pay the full remaining limit of its insured’s liability policy, on a strict deadline.
- Insurance companies have a duty to consider settling within limits when liability is clear and damages exceed the policy, and an unreasonable refusal can expose the policyholder to a larger judgment.
- The letter should go out once the medical picture is reasonably complete, not before treatment has run its course and not so late that early leverage is lost.
- A missed deadline, a partial offer, or a late full-limit offer each raise different legal questions that need to be tracked carefully.
- Sending a policy limits demand without a lawyer risks a technical flaw that can undo the letter’s legal effect.
Frequently asked questions
How long does an insurance company have to respond to a policy limits demand?
The letter itself sets the deadline, typically around thirty days, though the exact period varies by case. Missing that deadline can matter later in a dispute over whether the company acted reasonably.
What happens if the insurance company ignores the demand entirely?
A clear refusal or an unexplained silence, when liability was obvious and the demand was well supported, becomes part of the record showing whether the company had a fair opportunity to protect its policyholder. What follows depends on the specific facts of the case.
Can I send a policy limits demand myself without a lawyer?
You can attempt to, but the letter has to satisfy specific legal requirements to carry the consequences it is meant to carry. A letter with a missing or imprecise element can be treated as an ordinary offer rather than a formal time-limited demand, and that mistake cannot be corrected after the fact.
Does a policy limits demand affect my own underinsured motorist claim?
It can. Many UIM policies require notice to your own insurer before an underlying settlement is finalized, and the amount recovered from the at-fault driver’s policy factors into how the UIM claim is later calculated. Handling the two claims together, rather than treating the UIM claim as an afterthought, protects both the settlement and the coverage sitting behind it.
If your injuries and losses appear to exceed the at-fault driver’s insurance coverage, call Manoukian Law Firm at (818) 818-5031 or reach us through our contact page for a free consultation. The demand is written by the attorney on your case, and there is no fee unless we win. Our Glendale injury page has more on how these claims are typically handled in the Los Angeles courts.
