Exerpt From Running with the Bulls

Tips from Running with the Bulls, by Nicholas Rowley and Courtney Rowley

A compelling demand letter is a critical component of filing a lawsuit. An effective demand letter will both explain the issue at hand, and speak to the heart of your client’s case. By setting the scene with your demand letter, you establish a basis for the complaint—and for the damages you hope to collect.

All too often, however, demand letters are unfocused, underwhelming, and strategically lacking. Many plaintiff’s lawyers report that the process of writing a demand letter often takes too long, and does little to resolve the issues at hand. When sending a demand letter, many attorneys fail to impel the respondent to action.

Master trial lawyers Nicholas and Courtney Rowley have written countless successful demand letters over their illustrious careers. In a step-by-step guided format, the Rowleys offer nine keys to writing a proper demand letter, as it relates to opening an insurance policy. 

The following is an excerpt from their bestselling book, Running with the Bulls, available through Trial Guides in paperback and ebook.

The key to opening an insurance policy is sending a proper demand letter. Too often, plaintiffs’ counsel’s letters are deficient. Nine keys to writing a proper demand letter to open a policy are below. Other factors apply in specific contexts, but these factors are often the largest roadblocks.

1. Give the Opportunity to Settle within Policy Limits

In order to open the policy, the plaintiff’s lawyer must provide the insurance company with an opportunity to settle the case within the insured’s policy limits. Generally speaking, this requires the plaintiff’s lawyer to make a demand for the insured’s policy limits or less. Insurance companies do not have an obligation to accept reasonable demands that exceed their policy limits.

Referring lawyers frequently call our office and pitch supposedly “open-policy” cases where the only demands made to the insurance company were larger than the insured’s policy limits. When we try to explain that an insurance company, absent unusual circumstances, does not have an obligation to pay more than the insurance policy limits, the referring lawyer sometimes tries to argue that if he made a demand within policy limits, the insurance company would accept it, and the matter would settle for less than his client’s injuries are worth.

That may be true. However, such unfortunate circumstances do not change the fact that an insurance company generally does not have to settle a case for more than an insurance policy, no matter how unreasonably low the limits may be.

2. Put It in Writing

The demand letter should be in writing. Too often, referring counsel will state that an oral policy limits demand was made and rejected orally. This is too difficult to prove in any subsequent bad faith case. The demands that you intend to later rely on to prove a bad-faith case should be in writing. The writing may be somewhat informal, but the demand should be written.

3. Set a Deadline

A demand letter that opens a policy should always have a deadline. Never agree to an “unlimited” extension of a demand. Every demand should have a specific deadline by which the insurance company must accept the demand. Preferably, the demand letter will state that if the demand is not accepted by the date specified, it will be deemed rejected. 

This does not mean that extensions to demands should not be granted when an insurer reasonably requests an extension before a demand’s expiration. At times, extensions are warranted. It simply means that every demand has a deadline and every extension similarly has a deadline.

Here are two (of the many) good reasons for a deadline: 

It maintains pressure on the insurance company.
The insurance company must understand that if they allow this deadline to pass, the consequences for their insured will be far worse.
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4. Give the Insurance Company Time
The deadline must give a reasonable amount of time for the insurance company to consider the settlement request. Deadlines that are too short are the most common problem we see with supposed open-policy cases. For instance, we have seen lawyers give insurance companies only seven calendar days to evaluate a demand, which was only sent by USPS (so some of the days were lost in transit), and a three-day weekend was included in the period. In many circumstances, this is not sufficient.

Lawyers frequently ask us, “What is the magic number of days an insurance company must be provided to evaluate a demand?” There is no one correct answer. It depends on the circumstances.

At the outset of a case, we think thirty days, with reasonable documentation, is sufficient as a rule of thumb. However, when the injuries are grave and the policy limits are small, fewer days are probably sufficient. On the other hand, when the claim is murky and the plaintiff’s counsel is unable or unwilling to amply provide information to the insurance company, thirty days may be insufficient time for the carrier to evaluate the claim.

By contrast, during trial, a few hours or even minutes may be sufficient. At that time, all sides have had the benefit of discovery, expert review, and evaluations by counsel. The insurance company would be hard-pressed to argue that it needed more time to evaluate a claim on which it was currently in trial.

5. Remind the Insurer of the Obligation to Communicate

A demand letter should remind the defendant’s insurer and counsel of the obligation to communicate the demand to the insured. We are always surprised at how often insurance companies fail to communicate offers to their insureds. While language reminding the insurer of their obligation is not necessary to trigger the obligation, it is helpful language to use so that you can draw attention to it later.

There are two good reasons for pushing an insurer to communicate the offer to the insured:

It will create fear in the insured who will push her insurer to resolve the case.
In some jurisdictions, the failure to communicate an offer to an insured is a very helpful factor in proving an insurer’s bad faith. It is believed that an insured could have tried to contribute the balance in order to satisfy the demand.

6. Don’t Require the Insured to Take Action

A demand letter seeking to open an insurance policy should not require an insured to take unreasonable actions or, preferably, any action. Frequently, we see supposed “open policy” letters that require an insured—not an insurance company—to complete a declaration regarding the insured’s assets or do something else in addition to offering the full insurance policy limits. 

Such demands pose significant hurdles to bad-faith actions if the insurance company can later argue that the insured policyholder was noncooperative or not available. As the lawyer representing victims and families, you want the failure to pay a policy limits demand to be attributed exclusively to the insurer, not the insured. 

You might respond by saying that you need an asset declaration in order to know if a policy limits settlement is a reasonable sum. That may be so, but demanding such a declaration risks the policy not being open because the insured was noncooperative. Therefore, the insurance company could not accept the policy limits demand due to the insured’s fault, not the insurance company’s.

One of the particularly irksome issues with insured noncooperation is that a plaintiff may only learn about it post-judgment. In such a case, the plaintiff thinks the insurance policy is open, litigates for many years, and spends large sums of money prosecuting an action, only to later learn that due to a noncooperative insured, the policy limits demand could not have been accepted. This can be devastating to the plaintiff.

The best practice is to avoid creating conditions in which insured noncooperation may occur. We have found that insureds are far more likely to cooperate during litigation, as opposed to pre-litigation. Attorneys and their paralegals and staff build better rapport with individual insureds due to repeated contact in discovery. So, if you require an asset declaration to settle the case for policy limits, make the demand during litigation when a lawyer will secure it.

7. Remind Counsel of Conflict of Interest

Seventh, the demand letter should remind the insurance-appointed counsel of their conflict of interest. In a personal injury case, the insurance company not only controls settlement, it also controls the defense of the case, which means the insurer selects counsel. And the insurance-appointed counsel represents both the insurer and insured. In this context, a policy limits demand inherently causes a conflict. 

The insured always wants the demand to be accepted as it eliminates their personal exposure.
The insurer often wants to gamble at trial on a better result as it might save the company money.
The insurance-appointed counsel cannot advise the insured or insurance company on the strengths and weaknesses of the bad-faith case, as the two clients would be adverse to each other. More specifically, the insurance-appointed counsel cannot (and will not) advise the insured of her right to sue the insurance company later for bad faith.

For this reason, in connection with reminding the insurer of the conflict, as plaintiff’s counsel, you should recommend that the insured hire independent bad-faith counsel. Indeed, in our firm we often list the names and telephone numbers of several excellent bad faith lawyers. The insurance-appointed counsel will often (rightly) feel a need to communicate to the insured that a conflict exists and that the insured should seek independent counsel and often even provide the names we listed. 

We remind the defendant that these lawyers are contingency-based and will not charge for a consultation in order to motivate the insured to make the phone call. Getting the insured into the hands of competent bad-faith counsel, who is generally entitled to review the claims file, should result in the perfection of the bad-faith case.

8. Address Multi-claimant Problems

Eighth, demand letters must address any multi-claimant problems. When counsel represents only a portion of the potential claimants, it can (in some jurisdictions) be impossible to make a valid policy-limits demand. This complication is highly variable from state to state. Be mindful of the wrinkles of writing policy-limits demand letters from fewer than all potential claimants.

9. Accept Responses Only in Writing

Finally, a demand letter should state that acceptance may be communicated only in writing. Too often, there are disputes as to the terms of an acceptance. Insurers will often state after-the-fact that they accepted the demand, but not all the terms. For instance, an insurer may add an additional term of confidentiality into the release, which was not part of the plaintiff’s demand, and which may have tax consequences.

To avoid these disputes, a demand letter should state that a demand may be accepted only in writing. This forces the insurer to either accept the demand as stated or propose additional terms in writing, which may be construed as a rejection of the plaintiff’s demand and therefore risk bad-faith exposure.

Conclusion

In sum, if you follow the above nine rules, open-policy cases really do exist. But it is up to you to create and build them in a way that is honest and ethical. If you are willing to do the work and follow our methods, you will succeed in getting a lot more civil justice for your clients than you ever imagined. Once a policy is open, there is no limit on what you can win and recover.