Time-Limited Policy Limits Demand with Multiple Claimants
On March 15, a Great Falls driver runs a red light and strikes a pickup. The at-fault driver has a Montana auto policy with limits of 25/50/25: $25,000 per person, $50,000 per accident for bodily injury, and $25,000 property damage, with no umbrella. Three people in the pickup are injured: A has $60,000 in medical bills and lost wages; B has $18,000; C has $7,000. The pickup is totaled; actual cash value is $22,000; salvage is $3,000; there is a $500 deductible. A's attorney sends a time-limited demand on April 20: $25,000 policy limit in exchange for a full release, expiring May 1. The adjuster requests medical records, waits for the demand period to run, and does not respond. On May 3, A files suit. The insurer then offers $12,500. B and C have not retained counsel. The insured calls the adjuster asking whether the insurer will protect him.
1. Evaluate the liability limits, the time-limited demand, and the adjuster's response. What should the insurer have done before May 1?
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The policy has a $25,000 per-person bodily injury limit and a $50,000 per-accident limit, plus separate $25,000 property damage. A's damages clearly exceed $25,000, so the demand is a policy-limits demand. The adjuster should not simply wait out the deadline. The insurer should promptly evaluate liability, confirm the policy limits in writing, request A's medical and wage records, and either accept the demand if it can protect the insured, or respond with a reasoned position and request a short extension. If the insurer needs more time, it should say so before May 1. Letting the demand expire without a response, then offering $12,500 after suit, increases the risk of an excess judgment and a bad-faith claim. The insurer also must consider B and C, because paying A the full $25,000 may exhaust the per-person limit but not the per-accident limit; the remaining $25,000 is needed for B and C. A release of the insured in exchange for the per-person limit may be worth serious consideration if the release is full and the other claimants can still be addressed.
2. How should the $50,000 per-accident limit be allocated among A, B, C, and the property damage claim, and what steps protect the insured and insurer?
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Property damage is a separate $25,000 limit, so the pickup claim-actual cash value $22,000 less the $500 deductible, with $3,000 salvage-should be handled there, not taken from the bodily injury limits. For bodily injury, A cannot receive more than $25,000. B's $18,000 and C's $7,000 fit within the remaining $25,000 of the $50,000 per-accident limit only if A is paid $25,000; total bodily injury would then be $50,000. If the insurer pays A less, more remains for B and C, but A may pursue the insured for the excess. The insurer should document a good-faith allocation, avoid preferring one claimant without a reasonable basis, and consider an interpleader or declaratory judgment if the claimants cannot agree. It should obtain full releases, including a covenant not to execute if appropriate, and confirm that the insured understands the limits. The insured's call should be answered honestly: the insurer will defend and may settle within limits, but it cannot guarantee protection against an excess verdict. The adjuster should create a claim diary, a limits letter, and a settlement authority analysis.