Overview

Opening the insurance policy refers to the strategic process of creating excess exposure for the defendant's insurer -- positioning the case so the insurer faces a realistic risk of a judgment exceeding policy limits. When the insurer faces this exposure and fails to settle, it opens itself to bad faith liability for the entire judgment, including amounts above the policy.

This guide covers the duty to settle, excess exposure letters, time-limited policy limits demands, multiple-claimant scenarios, and the documentary practices that build an airtight bad faith record.

Key takeaway
Opening the insurance policy is not a single action but a strategic campaign. It begins with identifying excess exposure, continues through carefully crafted demands and documentation, and culminates -- if the insurer refuses to settle -- in a bad faith claim that may yield recovery far exceeding the original policy limits.

The Duty to Settle

California law imposes a duty on liability insurers to accept reasonable settlement demands within policy limits when there is a substantial likelihood of an adverse verdict exceeding those limits. Comunale v. Traders & General Insurance Co. (1958) 50 Cal.2d 654. The insurer must give the insured's interests at least as much consideration as its own.

This strategy works best when liability is clear or strong, damages clearly exceed limits, the defendant carries minimum or inadequate coverage, and the plaintiff would present sympathetically to a jury.

Excess Exposure Letters

An excess exposure letter formally notifies the defendant and the defendant's insurer that the plaintiff's damages exceed policy limits. It should include: identification of the claim; a liability summary; a damages overview; the known policy limits; a clear excess exposure statement; an invitation to settle; a warning of bad faith consequences; a request for complete coverage disclosure; and confirmation that a copy is being sent to the defendant personally.

Send to both the insurer and the insured
Always send the excess exposure letter to both the insurance adjuster and the defendant personally. The insured must be aware of the excess exposure so they can demand settlement, retain personal counsel, and protect their own interests.

Insurance company not offering enough? Talk to a California injury attorney now. Call (424) 353-4624 or text us. Free. Confidential. No obligation.

Time-Limited Policy Limits Demands

A time-limited policy limits demand is the most powerful tool for creating bad faith exposure. It must clearly state the demand amount (full policy limits), set a reasonable deadline (typically 30-60 days), specify reasonable conditions, and include sufficient documentation establishing the claim exceeds limits. The demand must be capable of being accepted -- unreasonable conditions may relieve the insurer of its duty to settle.

Multiple Claimants and Interpleader

When multiple injured parties have claims against a single defendant with limited limits, the insurer may negotiate with all claimants, offer a global settlement, or file an interpleader action under CCP 386 depositing limits with the court. Coordinate with other claimants' attorneys, propose allocations based on injury severity, and preserve individual bad faith rights.

Setting Up Bad Faith: The Documentary Record

Bad faith claims succeed or fail based on the documentary record. Keep copies of all correspondence, document every phone conversation, follow up calls with confirming letters, preserve proof of mailing for all demands, and maintain a chronological log of all communications with the insurer. Track every deadline and response.

Need help with a policy limits demand? We handle excess exposure strategy throughout California. Call (424) 353-4624 or text us for a free case review.

Cross-References

Common Questions

What is a policy limits demand?
A policy limits demand is a formal written offer to settle the case for the defendant's full insurance policy limits. It typically includes a reasonable deadline for acceptance, supporting documentation proving damages exceed the limits, and a clear statement that refusal may constitute bad faith. The demand must be capable of being accepted -- no impossible or unreasonable conditions.
What happens if the insurance company refuses my policy limits demand?
If the insurer refuses a reasonable policy limits demand and the case goes to trial with a verdict exceeding policy limits, the insurer may be liable for the entire excess judgment under a bad faith theory. The insured may also assign their bad faith rights to the plaintiff, allowing the plaintiff to pursue the insurer directly for the full judgment plus consequential damages.
Should I send the excess exposure letter to the defendant too?
Always. Send the excess exposure letter to both the insurance adjuster and the defendant personally. The insured must know about the excess exposure so they can demand the insurer settle, retain personal counsel, and protect their own interests. Sending only to the insurer allows the insurer to control information flow.
What happens when multiple people are injured and there isn't enough insurance?
When multiple claimants have claims exceeding available limits, the insurer may negotiate with all claimants, offer a global settlement, or file an interpleader action depositing the policy limits with the court. Each claimant should coordinate with other attorneys, preserve individual bad faith rights, and evaluate UIM coverage as an additional recovery source.

Sources & Citations

Our offices

Tarzana 18653 Ventura Blvd., Suite 361 Tarzana, CA 91356 Open in Maps →
Los Angeles 5411 S. Broadway, Suite 201 Los Angeles, CA 90036 Open in Maps →

Local Resources

  1. Comunale v. Traders & General Insurance Co. (1958) 50 Cal.2d 654. Established the insurer's duty to accept reasonable settlement demands within policy limits.
  2. Crisci v. Security Insurance Co. (1967) 66 Cal.2d 425. Insurer liable for excess judgment when it unreasonably refused to settle within limits.
  3. Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718. Time-limited demands must be reasonable; insurer must respond timely.
  4. PPG Industries, Inc. v. Transamerica Insurance Co. (1999) 20 Cal.4th 310. Insurer's duty not triggered by unreasonable demand conditions.
  5. Johansen v. California State Auto Assn. (1975) 15 Cal.3d 9. Assignment of bad faith rights following excess judgment.
  6. California Code of Civil Procedure § 386. Interpleader procedure for multiple claimant disputes.