Time-Limited Policy-Limits Demand with a Partial Release
Your insured, a Kentucky delivery company, is sued after its driver rear-ended a sedan on I-65 while the driver was texting. The commercial auto policy carries a $1,000,000 combined single limit. Plaintiff counsel sends a 15-day time-limited demand for the $1,000,000 limits plus a release that names only the driver and purports to dismiss the company. Medical bills are $130,000, the plaintiff had surgery, and lost earnings are claimed at $60,000. Your investigation shows the plaintiff braked abruptly for an animal, and plaintiff's own expert concedes 20 percent comparative fault. The demand expires on a Sunday, and the 15 days straddle a holiday weekend. The insured's risk manager calls asking whether the company is protected.
1. Must you accept the demand to avoid bad faith exposure? What standard governs your decision?
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No. A time-limited demand does not convert every rejection into bad faith, and Kentucky does not treat the deadline itself as the trigger. The bad-faith framework under Kentucky law (the Wittmer v. Jones elements) asks whether the insurer was obligated to pay, failed to do so, had no reasonable basis for that failure, knew or recklessly disregarded the absence of a reasonable basis, and caused damage. A genuine dispute about liability or damages defeats the claim.
Evaluate on the merits, not the calendar. Here liability is not clear: the plaintiff braked abruptly for an animal and her own expert concedes 20 percent fault. Full value of a surgically treated case with $130,000 in medicals and $60,000 in wage claims is perhaps $500,000 to $750,000. At 80 percent fault, exposure is roughly $400,000 to $600,000 - inside the $1,000,000 limit. Nothing about this file supports tendering limits.
The real risk is silence. Respond in writing before the deadline, state the evaluation and the comparative-fault basis, make a reasoned counteroffer, and request an extension. A documented, reasoned rejection is defensible; an unanswered demand is not.
2. What do you do about the release that names only the driver?
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Treat it as an incomplete settlement. Accepting it would leave the named insured company in the case - the very insured whose policy you are administering - and would not deliver the peace the insured is paying for. A settlement that resolves the driver and not the employer is not a reasonable settlement of the claim.
Analysis. The driver was delivering for the company, so respondeat superior exposure against the company exists. Check whether the plaintiff has pleaded independent negligence against the company (hiring, training, texting policy, dispatch). If so, a release of the driver alone leaves the company exposed on the same damages.
Response. Demand a release of the company and the driver, or a dismissal with prejudice of all claims against both. If plaintiff refuses, decline the offer in writing, explain precisely why the form of the release is unacceptable, and renew your counteroffer. Do not let a partial release be dressed up as a full one.
3. How do you document the decision and communicate with the insured?
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Decision memorandum in the file. Date received, the stated deadline and what it actually falls on, the offer terms, the liability and damage evaluation, the comparative-fault basis and support, the release defect, why limits were not tendered, the counteroffer amount, and the follow-up plan. Calendar the deadline with an internal reminder before it lapses; a Sunday expiration does not excuse a Monday-morning surprise.
Written response to plaintiff's counsel by the deadline or earlier, with the evaluation and counteroffer.
Written notice to the insured. Tell the risk manager in writing that a demand was received, that it was rejected and why, that the case could produce a verdict in excess of the limit, and that the company may retain personal counsel at its own expense to protect its excess exposure. Answer the risk manager's question honestly: the policy limit is protected so long as the carrier acts in good faith, and the file will show that it did.
Escalation. If the exposure analysis later shows a genuine risk above limits, recommend tendering limits in exchange for a full release of all insureds. That decision is made on exposure, not because a demand letter set a date.