Time-Limited Demand and Bad Faith Toolkit - Universal

TIME-LIMITED DEMAND AND BAD FAITH TOOLKIT - UNIVERSAL

IMPORTANT: Bad faith law varies dramatically from state to state. Some states recognize an independent tort of bad faith; others treat it strictly as a contract claim. Remedies range from contract damages only to punitive damages and statutory penalties. ALWAYS confirm the specific law of the governing jurisdiction before sending any demand or filing any claim. This universal template provides a general framework that must be adapted to state-specific requirements.

TABLE OF CONTENTS

1. Third-Party Time-Limited Settlement Demand Letter
2. First-Party Bad Faith Demand Letter
3. Bad Faith Elements Checklist (General)
4. Damages Calculation Framework
5. Bad Faith Conduct Documentation Checklist
6. Pre-Suit Requirements (General)
7. General Practice Notes
8. Sample Time-Limited Demand Conditions
9. Sources and References

1. THIRD-PARTY TIME-LIMITED SETTLEMENT DEMAND LETTER

[Use when your client is the injured third-party claimant demanding settlement from the tortfeasor's liability insurer within policy limits. The purpose is to create a record that triggers the insurer's duty to settle and exposes the insurer to excess liability if it unreasonably refuses.]

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [____________________________________]

Date: [__/__/____]

To:
[________________________________] (Claims Adjuster)
[________________________________] (Insurance Company)
[________________________________] (Address Line 1)
[________________________________] (Address Line 2)
[________________________________] (City, State, ZIP)

Re: Time-Limited Settlement Demand
Claimant: [________________________________]
Insured/Tortfeasor: [________________________________]
Claim Number: [________________________________]
Policy Number: [________________________________]
Date of Loss: [__/__/____]
Policy Limits: $[________________________________] per occurrence / $[________________________________] aggregate

Dear Claims Professional:

This firm represents [________________________________] ("Claimant") for injuries and damages arising from [________________________________] [describe incident: e.g., a motor vehicle collision, premises liability incident, etc.] that occurred on [__/__/____] in [________________________________] [city/county, state], involving your insured, [________________________________] ("Insured").

A. LIABILITY SUMMARY

Liability against your Insured is clear and indisputable based on the following:

[________________________________]
[________________________________]
[________________________________]

[Insert specific facts establishing liability: police report findings, witness statements, admissions, citation/conviction, video evidence, expert opinions, applicable negligence per se statutes, etc.]

Supporting documentation is attached as Exhibit A (Liability Evidence Package).

B. DAMAGES SUMMARY

Claimant has sustained the following damages, which substantially exceed the available policy limits:

Supporting documentation is attached as Exhibit B (Damages Package), which includes:

• Medical records and bills from all treating providers
• Employer verification of lost wages
• Expert reports (if applicable)
• Property damage estimates/repair invoices
• Photographs of injuries and/or property damage

C. COVERAGE AND POLICY LIMITS

Based on information available, the applicable policy provides bodily injury liability coverage with limits of $[________________] per occurrence. No known exclusions, conditions precedent failures, or coverage defenses apply to this claim.

If any coverage defense exists that has not been disclosed, you are obligated to promptly notify your Insured. See NAIC Model Unfair Claims Settlement Practices Act, Section 4(A).

D. DEMAND

Claimant hereby demands payment of $[________________] [insert demand amount -- typically the full per-occurrence policy limits] to settle all claims against the Insured arising from this incident.

This demand represents the full per-occurrence policy limits and is made with full knowledge that Claimant's actual damages substantially exceed this amount.

E. TIME LIMIT

This demand expires at 5:00 p.m. [________________] [time zone] on [__/__/____], which is [____] days from the date of this letter. Time is of the essence.

If acceptance is not received by this deadline, this demand is automatically withdrawn and cannot be later accepted without Claimant's express written consent.

F. CONDITIONS FOR ACCEPTANCE

Acceptance of this demand requires ALL of the following:

1. Written acceptance delivered to the undersigned at the address below (or by email to [________________________________]) on or before the deadline stated above.

2. Payment of the full demanded amount by check payable to "[________________________________] and [________________________________], Attorneys at Law, as Trustees" delivered within [____] business days of written acceptance.

3. Release -- Claimant will execute a standard release of the Insured only. The release shall:
   - Release only the named Insured from claims arising from this incident
   - Not contain any confidentiality provision
   - Not contain any indemnification or hold-harmless clause beyond standard release language
   - Not contain any admission of fault or denial of liability
   - Not release the insurer from any independent claims

4. No additional conditions -- Any attempt to impose conditions beyond those stated herein constitutes a counteroffer and rejection of this demand.

G. NOTICE OF EXCESS LIABILITY EXPOSURE

Please be advised of the following:

The Insured's total exposure in this matter substantially exceeds the available policy limits. In most jurisdictions, an insurer that fails to accept a reasonable settlement demand within policy limits when liability is clear exposes itself to liability for the full amount of any excess judgment entered against its insured.

By declining or failing to timely respond to this demand, [________________________________] Insurance Company may be creating extra-contractual liability for itself, including but not limited to:

• The full amount of any judgment in excess of policy limits
• Consequential damages to the Insured
• Bad faith damages (compensatory and, where available, punitive)
• Attorney fees and costs
• Statutory penalties (where applicable)

This letter serves as formal notice that the Insured's interests are in jeopardy and that the insurer owes a duty of equal consideration to its Insured's interests in evaluating this demand.

We urge you to promptly notify the Insured of the existence and terms of this demand so that the Insured may protect his/her own interests, including retaining personal counsel if desired.

H. DOCUMENTATION ENCLOSED

☐ Exhibit A: Liability Evidence Package
☐ Exhibit B: Damages Package (medical records, bills, wage verification)
☐ Exhibit C: Photographs
☐ Exhibit D: Expert Reports (if applicable)
☐ Exhibit E: Policy Declarations Page (if available)

Please confirm receipt of this demand in writing.

Respectfully submitted,

________________________________________
[________________________________] (Attorney Name)
[________________________________] (Firm Name)
[________________________________] (Address)
[________________________________] (City, State, ZIP)
[________________________________] (Phone)
[________________________________] (Email)
[________________________________] (Bar Number)

Counsel for [________________________________], Claimant

2. FIRST-PARTY BAD FAITH DEMAND LETTER

[Use when your client is the policyholder whose own insurer has unreasonably denied, delayed, or underpaid a covered claim. This letter puts the insurer on notice of bad faith and demands corrective action before litigation.]

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [____________________________________]

Date: [__/__/____]

To:
[________________________________] (Claims Manager / General Counsel)
[________________________________] (Insurance Company)
[________________________________] (Address Line 1)
[________________________________] (Address Line 2)
[________________________________] (City, State, ZIP)

Re: Demand for Payment and Notice of Bad Faith Claim Handling
Insured/Policyholder: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Type of Policy: [________________________________]

Dear [________________________________]:

This firm represents [________________________________] ("Insured") regarding the above-referenced claim under [________________________________] [type of policy: homeowner's, auto, commercial property, disability, health, etc.] Policy No. [________________________________], issued by [________________________________] Insurance Company ("Company").

A. CLAIM HISTORY AND COVERAGE

On [__/__/____], the Insured suffered a covered loss consisting of [________________________________] [describe the loss event]. The Insured timely reported the claim on [__/__/____] and has fully cooperated with all investigation requests.

The applicable policy provides coverage for this type of loss under [________________________________] [identify specific coverage provision]. The policy limits for this coverage are $[________________________________].

B. COMPANY'S IMPROPER CLAIMS HANDLING

Despite clear coverage and the Insured's full compliance with all policy conditions, the Company has engaged in the following improper claims handling conduct:

☐ Denied the claim without reasonable basis on [__/__/____]
☐ Unreasonably delayed investigation or payment for [____] days/months
☐ Underpaid the claim by offering only $[________________] when the actual covered loss is $[________________]
☐ Failed to conduct an adequate investigation
☐ Failed to provide a timely, written explanation for the denial or underpayment
☐ Misrepresented policy provisions or applicable law
☐ Required unreasonable documentation not contemplated by the policy
☐ Failed to affirm or deny coverage within a reasonable time
☐ Compelled the Insured to file suit to recover amounts clearly owed
☐ Failed to attempt in good faith to effectuate a prompt and fair settlement
☐ Other: [________________________________]

[Provide specific factual detail for each checked item:]

[________________________________]
[________________________________]
[________________________________]

C. UNFAIR CLAIMS SETTLEMENT PRACTICES

The Company's conduct violates the standards of fair claims handling as set forth in the NAIC Model Unfair Claims Settlement Practices Act and the applicable state unfair claims settlement practices statute, including but not limited to:

1. Misrepresenting pertinent facts or policy provisions relating to coverage
2. Failing to acknowledge and act promptly upon communications with respect to claims
3. Failing to adopt and implement reasonable standards for prompt investigation of claims
4. Refusing to pay claims without conducting a reasonable investigation
5. Not attempting in good faith to effectuate prompt, fair, and equitable settlement of claims where liability has become reasonably clear
6. Compelling the Insured to institute litigation to recover amounts due under the policy by offering substantially less than the amounts ultimately recovered
7. Failing to promptly provide a reasonable explanation of the basis in the policy for the denial or offer of compromise settlement

D. DEMAND

The Insured hereby demands:

1. Immediate payment of the full amount of covered benefits owed: $[________________]

2. Payment of consequential damages resulting from the Company's unreasonable delay/denial, including: [________________________________]

3. Written explanation of the specific policy provisions and factual bases for any continued denial or underpayment within [____] days of this letter

4. Preservation of the entire claim file, including all internal communications, adjuster notes, supervisor reviews, reserve history, and all documents related to the handling of this claim

E. NOTICE OF BAD FAITH CLAIM

If the Company does not fully resolve this claim within [____] days of receipt of this letter, the Insured intends to pursue all available legal remedies, which may include:

• Breach of contract
• Breach of the implied covenant of good faith and fair dealing
• Violation of applicable unfair claims settlement practices statutes
• Bad faith tort (where recognized)
• Consequential and incidental damages
• Emotional distress damages (where available)
• Punitive/exemplary damages (where available)
• Statutory penalties (where applicable)
• Attorney fees and costs (where recoverable)

NOTE: In certain jurisdictions, state law requires that a specific statutory notice or administrative filing be submitted before a bad faith lawsuit can be commenced (e.g., Florida Civil Remedy Notice under Fla. Stat. section 624.155). This letter is in addition to, and does not replace, any required statutory notice.

F. DOCUMENT PRESERVATION DEMAND

You are hereby directed to preserve and not destroy, alter, or discard any documents, electronically stored information, or tangible items relating to the handling of this claim, including but not limited to:

• The complete claim file (paper and electronic)
• All internal and external communications
• Adjuster notes, diaries, and activity logs
• Reserve history and all reserve-related documents
• Supervisor and management review notes
• All correspondence with the Insured or counsel
• Underwriting file
• Training materials relevant to this type of claim
• Claims handling manuals, guidelines, and bulletins

Respectfully submitted,

________________________________________
[________________________________] (Attorney Name)
[________________________________] (Firm Name)
[________________________________] (Address)
[________________________________] (City, State, ZIP)
[________________________________] (Phone)
[________________________________] (Email)
[________________________________] (Bar Number)

Counsel for [________________________________], Insured/Policyholder

3. BAD FAITH ELEMENTS CHECKLIST (GENERAL)

Note: The specific elements required to establish bad faith vary significantly by jurisdiction. The following is a general framework. Always confirm the elements under the law of the applicable state.

A. Third-Party Bad Faith (Failure to Settle / Excess Liability)

To establish third-party bad faith, the claimant or insured generally must prove:

☐ A valid insurance policy existed covering the insured for the liability at issue
☐ A third-party claim was made against the insured within the scope of coverage
☐ The claimant made a settlement demand within the policy limits
☐ The demand was reasonable in light of the liability exposure and damages evidence
☐ The insurer had adequate time and information to evaluate and accept the demand
☐ Liability was reasonably clear
☐ Damages exceeded or were likely to exceed the policy limits
☐ The insurer failed to accept the demand within the time allowed
☐ A judgment was entered against the insured in excess of the policy limits (required in many states)
☐ The insurer's failure to settle was unreasonable or in bad faith

B. First-Party Bad Faith (Denial, Delay, or Underpayment)

To establish first-party bad faith, the insured generally must prove:

☐ A valid insurance policy existed between the insured and the insurer
☐ The insured suffered a covered loss
☐ The insured complied with all conditions precedent under the policy (notice, cooperation, proof of loss, etc.)
☐ The insured made a claim for benefits under the policy
☐ The insurer denied, delayed, or underpaid the claim
☐ The denial, delay, or underpayment was unreasonable or without a legitimate basis
☐ The insurer knew or should have known that its conduct was unreasonable (in states requiring a scienter element)
☐ The insured suffered damages as a proximate result of the insurer's conduct

C. Common Defenses to Bad Faith Claims

☐ The claim was "fairly debatable" -- a genuine coverage or factual dispute existed
☐ The insurer conducted a reasonable investigation and relied on its results
☐ The insured failed to cooperate or comply with policy conditions
☐ The insurer relied on advice of counsel
☐ The insured's damages were not caused by the insurer's conduct
☐ Statute of limitations has expired
☐ Required pre-suit notice was not given (in states requiring it)
☐ The policy was properly rescinded or voided

4. DAMAGES CALCULATION FRAMEWORK

A. Contract Damages (Policy Benefits Owed)

B. Consequential Damages

[Availability varies by state. Some states broadly allow consequential damages; others limit them.]

C. Emotional Distress Damages

[Available in some states for bad faith tort claims. Typically not available for pure breach of contract. Some states require physical manifestation of distress.]

D. Attorney Fees

[Recoverability varies by state and may be statutory or court-awarded:]

E. Statutory Penalties

[Available in some states. Examples:]

F. Punitive / Exemplary Damages

[Available in many states for bad faith tort. Standard of proof is usually clear and convincing evidence. Some states cap punitive damages.]

G. Total Damages Summary

5. BAD FAITH CONDUCT DOCUMENTATION CHECKLIST

[Use this checklist throughout claim handling to document insurer misconduct for potential bad faith litigation.]

A. Initial Claim Handling

☐ Date claim was reported: [__/__/____]
☐ Date insurer acknowledged the claim: [__/__/____]
☐ Number of days between report and acknowledgment: [____]
☐ Was acknowledgment within the state's required timeframe? ☐ Yes ☐ No
☐ Did the insurer assign a claims adjuster promptly? ☐ Yes ☐ No
☐ Name of assigned adjuster: [________________________________]
☐ Was the adjuster qualified and experienced for this type of claim? ☐ Yes ☐ No ☐ Unknown

B. Investigation

☐ Date investigation commenced: [__/__/____]
☐ Was investigation prompt and thorough? ☐ Yes ☐ No
☐ Did the insurer inspect the loss/damage? ☐ Yes ☐ No -- Date: [__/__/____]
☐ Did the insurer request unreasonable or duplicative documentation? ☐ Yes ☐ No
☐ Did the insurer fail to request necessary documentation? ☐ Yes ☐ No
☐ Did the insurer retain experts? ☐ Yes ☐ No -- If yes, were they objective? ☐ Yes ☐ No
☐ Did the insurer use outcome-oriented or biased experts? ☐ Yes ☐ No
☐ Were investigation results ignored or overridden by management? ☐ Yes ☐ No

C. Evaluation and Decision

☐ Date of coverage decision: [__/__/____]
☐ Days from claim report to coverage decision: [____]
☐ Was the decision communicated in writing? ☐ Yes ☐ No
☐ Did the written decision cite specific policy provisions? ☐ Yes ☐ No
☐ Did the written decision explain the factual basis for the decision? ☐ Yes ☐ No
☐ Was the claim denied? ☐ Partially paid? ☐ Fully paid? ☐ Still pending?
☐ If denied or underpaid, is the stated basis supportable? ☐ Yes ☐ No ☐ Questionable
☐ Did the insurer apply the correct policy provisions? ☐ Yes ☐ No
☐ Did the insurer misrepresent policy terms? ☐ Yes ☐ No
☐ Did the insurer apply exclusions that do not apply? ☐ Yes ☐ No

D. Payment

☐ Amount demanded/claimed: $[________________]
☐ Amount paid (if any): $[________________]
☐ Shortfall: $[________________]
☐ Date of payment: [__/__/____]
☐ Days from proof of loss to payment: [____]
☐ Was payment within the state's required timeframe? ☐ Yes ☐ No
☐ Did the insurer condition payment on release of other claims? ☐ Yes ☐ No
☐ Did the insurer issue only partial payment without explanation? ☐ Yes ☐ No

E. Communication Log

F. Red Flags for Bad Faith

☐ Unreasonable delay in acknowledging or investigating the claim
☐ Failure to communicate with the insured for extended periods
☐ Multiple reassignments of the claim to different adjusters
☐ Low-ball offers with no documented basis
☐ Insurer's own adjuster or expert recommended higher payment but was overridden
☐ Reliance on biased or outcome-oriented independent experts
☐ Denial based on misreading or misapplication of policy language
☐ Application of exclusions that clearly do not apply
☐ Requiring the insured to submit to unreasonable repeated examinations
☐ Threatening policy rescission without basis
☐ Failing to inform the insured of all available coverages
☐ Failing to disclose settlement demand to the insured (in third-party context)
☐ Pattern of similar conduct on other claims (systemic bad faith)

6. PRE-SUIT REQUIREMENTS (GENERAL)

CRITICAL: Several states have mandatory pre-suit notice or administrative filing requirements that must be satisfied before a bad faith lawsuit can be filed. Failure to comply may result in dismissal of the bad faith claim.

A. States with Mandatory Pre-Suit Notice Requirements

B. General Pre-Suit Checklist

☐ Confirm the jurisdiction's statute of limitations for bad faith claims
☐ Determine whether the jurisdiction requires pre-suit notice or administrative filing
☐ If pre-suit notice is required, prepare and file/serve the notice in the required form
☐ Allow the statutory cure period to expire before filing suit
☐ Confirm that the underlying coverage claim has been resolved or adjudicated (if required)
☐ In third-party bad faith cases, confirm whether an excess judgment is required before suit
☐ Gather and organize all claim file documents, correspondence, and evidence
☐ Confirm the appropriate court and venue
☐ Confirm whether the claim must be tried separately from the underlying coverage dispute
☐ Preserve all evidence, including electronic communications and the complete claim file

7. GENERAL PRACTICE NOTES

A. Third-Party Bad Faith -- Key Principles

1. Duty to Settle. In most jurisdictions, a liability insurer has a duty to accept a reasonable settlement demand within policy limits when liability is reasonably clear and damages likely exceed the limits. The insurer must give equal consideration to the insured's interests as to its own.

2. Excess Judgment Requirement. Many states require an actual excess judgment before the insured (or assignee) can bring a bad faith failure-to-settle claim. Some states allow the claim before judgment.

3. Assignability. In many jurisdictions, the insured may assign the bad faith claim to the injured third-party claimant, usually as part of an agreement not to execute on the insured's personal assets.

4. Crafting the Demand. A proper time-limited demand should:
   - Be within the policy limits
   - Provide sufficient time for evaluation (at least 30 days in most cases)
   - Include all supporting documentation
   - State clear, achievable conditions for acceptance
   - Not impose unreasonable or impossible conditions
   - Clearly state the deadline and consequences of non-acceptance

5. Multiple Claimants/Policies. Additional complexities arise when multiple claimants compete for limited policy proceeds, or when multiple policies or layers of coverage are involved.

B. First-Party Bad Faith -- Key Principles

1. Fairly Debatable Defense. In many states, an insurer cannot be held liable for bad faith if the claim was "fairly debatable" -- i.e., there was a legitimate basis for the coverage dispute.

2. Obligation to Investigate. Even if the claim is ultimately debatable, the insurer must conduct a fair and thorough investigation. Failing to investigate, or conducting a biased investigation designed to support a denial, can establish bad faith.

3. Lowballing. Consistently offering amounts well below the reasonable value of the claim, without documented justification, may constitute bad faith.

4. Duty to Inform. Many states impose a duty on the insurer to inform the insured of all applicable coverages and to assist the insured in presenting the claim.

C. Statute of Limitations Quick Reference

D. Key Jurisdictional Variations

8. SAMPLE TIME-LIMITED DEMAND CONDITIONS

[Select and customize the applicable conditions for your demand letter:]

A. Payment and Release Conditions

☐ Full payment of the demanded amount within [____] business days of written acceptance
☐ Payment by certified or cashier's check
☐ Check payable to "[________________________________] and [________________________________], as Trustees"
☐ Standard release of the named insured only
☐ Release shall not include confidentiality provisions
☐ Release shall not include indemnification or hold-harmless provisions
☐ Release shall not include admission or denial of liability
☐ Release shall not release the insurer from independent bad faith claims
☐ No structured settlement unless agreed in advance
☐ No Medicare set-aside requirement unless federally mandated

B. Communication Conditions

☐ Written acceptance must be received at the address specified by the deadline
☐ Acceptance by email is sufficient if confirmed in writing
☐ Any attempt to modify conditions constitutes a counteroffer and rejection
☐ Counter-offers or requests for extension must be made in writing before the deadline
☐ The insurer must confirm that acceptance is on behalf of the insured and is binding

C. Disclosure Conditions

☐ The insurer must disclose all available policy limits, including umbrella/excess layers
☐ The insurer must confirm whether other claims are pending that may exhaust limits
☐ The insurer must confirm whether the insured has personal excess/umbrella coverage
☐ The insurer must disclose any coverage disputes or reservation of rights

D. Third-Party Specific Conditions

☐ Settlement funds shall be disbursed regardless of any subrogation claims
☐ Liens and subrogation interests will be resolved by Claimant
☐ The insurer shall not require contribution from the insured
☐ If multiple policies apply, this demand is directed to [________________________________] policy only

E. Insured Protection Conditions

☐ The insurer must provide a copy of this demand to the insured within [____] business days
☐ The insurer must advise the insured of the right to retain personal counsel
☐ The insurer must advise the insured of the potential excess exposure
☐ Any coverage dispute must be disclosed to the insured before the demand deadline

9. SOURCES AND REFERENCES

General Authorities

• Restatement (Second) of Contracts, sections 205 (Duty of Good Faith and Fair Dealing)
• NAIC Model Unfair Claims Settlement Practices Act (Model Law 900)
• Keeton & Widiss, Insurance Law (West Publishing)
• Appleman on Insurance Law and Practice (LexisNexis)

Key National Resources

• United Policyholders -- 50-State Survey of Bad Faith Laws and Remedies: https://uphelp.org/wp-content/uploads/2025/03/2025-National-Bad-Faith-Survey.pdf
• IADC 50-State Insurance and Bad Faith Quick Reference Guide: https://www.iadclaw.org/assets/1/7/50_State_Insurance_Bad_Faith_Reference_Guide.pdf
• Chartwell Law -- Bad Faith Claims Map: https://www.chartwelllaw.com/bad-faith-claims-map/

State-Specific Authorities

[Refer to the state-specific templates in this toolkit for detailed citations.]

This template is provided by ezel.ai for informational purposes only. It does not constitute legal advice and should not be used as a substitute for consultation with a qualified attorney. Bad faith law is highly state-specific and changes frequently. Always verify current law, confirm all citations, and have any demand or claim reviewed by licensed counsel in the applicable jurisdiction before use.

Last updated: 2026-02-26