Time-Limited Demand and Bad Faith Toolkit - Arkansas

TIME-LIMITED DEMAND AND BAD FAITH TOOLKIT - ARKANSAS

JURISDICTION NOTE: Arkansas recognizes both a common law tort of bad faith and statutory remedies for insurer misconduct. The Arkansas Supreme Court established the bad faith tort in Aetna Casualty & Surety Co. v. Broadway Arms Corp., 281 Ark. 128 (1984). Arkansas also provides a statutory 12% penalty plus attorney fees under Ark. Code Ann. section 23-79-208 for failure to timely pay losses. The Unfair Claims Settlement Practices Act (Ark. Code Ann. section 23-66-206) does NOT create a private right of action but its standards are relevant evidence. Arkansas allows punitive damages in bad faith cases upon proof by clear and convincing evidence.

TABLE OF CONTENTS

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

1. THIRD-PARTY TIME-LIMITED SETTLEMENT DEMAND LETTER

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

Date: [__/__/____]

To:
[________________________________] (Claims Adjuster)
[________________________________] (Insurance Company)
[________________________________] (Address)
[________________________________] (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] that occurred on [__/__/____] in [________________________________] County, Arkansas, involving your insured, [________________________________] ("Insured").

A. LIABILITY SUMMARY

Liability against your Insured is clear and supported by the following:

[________________________________]
[________________________________]
[________________________________]

[Insert specific facts establishing liability. Note: Arkansas applies modified comparative fault (Ark. Code Ann. section 16-64-122) -- the claimant's recovery is reduced by fault percentage, and the claimant is barred if more than 50% at fault. Address the claimant's freedom from fault or minimal fault.]

Supporting documentation is attached as Exhibit A.

B. DAMAGES SUMMARY

Supporting documentation is attached as Exhibit B.

C. COVERAGE

The applicable liability policy provides bodily injury coverage with limits of $[________________] per occurrence. No known exclusions or coverage defenses apply.

D. DEMAND

Claimant demands payment of $[________________] (the full per-occurrence policy limits) to settle all claims against the Insured.

E. TIME LIMIT

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

F. CONDITIONS FOR ACCEPTANCE

1. Written acceptance delivered to the undersigned by the deadline.
2. Payment of the full demanded amount within [____] business days of acceptance.
3. Release of the Insured only -- standard release with no confidentiality, no indemnification beyond customary release, and no release of the insurer from independent claims.
4. No additional conditions. Any variation constitutes a counteroffer and rejection.

G. NOTICE OF EXCESS LIABILITY EXPOSURE UNDER ARKANSAS LAW

Under Arkansas law, an insurer owes a duty of good faith to its insured when handling third-party claims. See Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128 (1984). When an insurer unreasonably refuses to accept a reasonable settlement within policy limits and an excess judgment results, the insurer may be liable for:

• The full amount of any excess judgment
• Compensatory damages including economic loss and mental anguish
• Punitive damages (upon proof by clear and convincing evidence)
• Attorney fees
• The 12% statutory penalty under Ark. Code Ann. section 23-79-208 (for first-party context)

The Insured's exposure in this matter substantially exceeds the available policy limits. We urge you to immediately notify the Insured of this demand.

H. DOCUMENTATION ENCLOSED

☐ Exhibit A: Liability Evidence Package
☐ Exhibit B: Damages Package
☐ Exhibit C: Photographs / Evidence
☐ Exhibit D: Expert Reports (if applicable)

Respectfully submitted,

________________________________________
[________________________________] (Attorney Name, Firm, Address, Phone, Email, Bar No.)

Counsel for [________________________________], Claimant

2. FIRST-PARTY BAD FAITH DEMAND LETTER

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

Date: [__/__/____]

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

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

Dear [________________________________]:

This firm represents [________________________________] ("Insured") regarding the above-referenced claim under [________________________________] Policy No. [________________________________].

A. CLAIM HISTORY

On [__/__/____], the Insured suffered a covered loss consisting of [________________________________]. The claim was timely reported on [__/__/____]. The Insured has complied with all policy conditions.

B. COMPANY'S IMPROPER CLAIMS HANDLING

☐ Denied the claim without reasonable basis on [__/__/____]
☐ Unreasonably delayed payment for [____] days beyond the policy's required payment period
☐ Underpaid the claim: offered $[________________] when the covered loss is $[________________]
☐ Failed to conduct an adequate investigation
☐ Misrepresented policy provisions
☐ Engaged in dishonest, malicious, or oppressive conduct toward the Insured
☐ Other: [________________________________]

[Detailed factual narrative:]
[________________________________]
[________________________________]

C. STATUTORY PENALTY UNDER ARK. CODE ANN. SECTION 23-79-208

The Company has failed to pay the loss within the time specified in the policy after demand. Under Ark. Code Ann. section 23-79-208(a)(1):

"In all cases where loss occurs and the [insurer] liable therefor shall fail to pay the losses within the time specified in the policy after demand made therefor, the [insurer] shall be liable to pay the holder of the policy or his or her assigns, in addition to the amount of the loss, twelve percent (12%) damages upon the amount of the loss, together with all reasonable attorney's fees for the prosecution and collection of the loss."

Demand was made on [__/__/____]. Payment was due within [____] days per the policy. Payment has not been made or has been underpaid. The 12% penalty and attorney fees are now accruing.

D. COMMON LAW BAD FAITH UNDER ARKANSAS LAW

Under Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128 (1984), bad faith occurs when the insurer's conduct is "dishonest, malicious, or oppressive in an attempt to avoid its liability under an insurance policy."

The Company's conduct in this case constitutes bad faith because:
[________________________________]
[________________________________]

E. DEMAND

1. Immediate payment of covered benefits: $[________________]
2. 12% statutory penalty under section 23-79-208: $[________________]
3. Reasonable attorney fees under section 23-79-208: $[________________]
4. Consequential damages from the unreasonable delay/denial: $[________________]
5. Written explanation of any continued denial within [____] days

F. NOTICE OF LITIGATION

If the Company fails to resolve this claim within [____] days, the Insured will pursue all available remedies:

• Breach of contract
• Bad faith tort claim (Broadway Arms)
• 12% statutory penalty and attorney fees (section 23-79-208)
• Compensatory damages including consequential losses and emotional distress
• Punitive damages (clear and convincing evidence)
• All other available relief

Respectfully submitted,

________________________________________
[________________________________] (Attorney Name, Firm, Address, Phone, Email, Bar No.)

Counsel for [________________________________], Insured

3. ARKANSAS BAD FAITH ELEMENTS CHECKLIST

A. Common Law Bad Faith Tort (Broadway Arms Standard)

Under Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 661 S.W.2d 102 (1984), the Insured must prove:

☐ The Insured sustained damages
☐ The insurer acted in bad faith in an attempt to avoid its liability under the policy
☐ The bad faith proximately caused damage to the Insured

Bad Faith Standard: The insurer's misconduct must be "dishonest, malicious, or oppressive in an attempt to avoid its liability under an insurance policy." Broadway Arms, 281 Ark. at 133.

Important: The existence of a legitimate coverage dispute does not automatically defeat a bad faith claim. The question is whether the insurer's overall conduct was dishonest, malicious, or oppressive. However, if the insurer had a reasonable basis for its position, it is more difficult to prove bad faith.

B. Statutory Penalty -- Section 23-79-208

To recover the 12% penalty and attorney fees, the Insured must prove:

☐ A loss occurred that is covered under the policy
☐ The insurer failed to pay the loss within the time specified in the policy
☐ Demand was made by the insured (or assignee)
☐ The insurer still failed to pay after demand

Note: The section 23-79-208 claim is contractual in nature and does not require proof of bad faith. It applies whenever the insurer fails to timely pay a covered loss after demand, regardless of the insurer's subjective intent.

C. Third-Party Bad Faith

☐ A valid liability policy covered the insured
☐ A reasonable settlement demand was made within policy limits
☐ Liability was clear or reasonably clear
☐ The insurer unreasonably refused the demand
☐ An excess judgment was entered against the insured
☐ The insurer's conduct was dishonest, malicious, or oppressive

Note on Third-Party Standing: A third party does not have a direct action for bad faith against the insurer in Arkansas. However, the insured may assign the bad faith claim to the third-party claimant. See Columbia Nat'l Ins. Co. v. Freeman, 347 Ark. 423 (2002).

D. Fairly Debatable / Legitimate Dispute Defense

☐ The insurer's denial or delay was based on a genuine, good-faith coverage dispute
☐ The insurer conducted a thorough investigation before reaching its decision
☐ The coverage issue was genuinely debatable under the policy language and applicable law
☐ The insurer did not manufacture the dispute or act with dishonest intent

4. DAMAGES CALCULATION FRAMEWORK

A. Contract Damages

B. Statutory Penalty (Ark. Code Ann. Section 23-79-208)

C. Compensatory Tort Damages (Bad Faith)

D. Punitive Damages

Arkansas Punitive Damages Standards:

• Burden of Proof: Clear and convincing evidence (Ark. Code Ann. section 16-55-207)
• Standard: The insurer knew or ought to have known that its conduct would naturally and probably cause damages, and continued in reckless disregard of the consequences
• Cap: Arkansas caps punitive damages at the greater of $250,000 or three times compensatory damages (Ark. Code Ann. section 16-55-208), unless the defendant intentionally pursued a course of conduct for the purpose of causing injury or damage
• No cap exception: If the trier of fact finds by clear and convincing evidence that the defendant intentionally pursued a course of conduct for the purpose of causing injury or damage, the cap does not apply

E. Total Damages Summary

5. BAD FAITH CONDUCT DOCUMENTATION CHECKLIST

A. Timeline and Claims Handling

☐ Date of loss: [__/__/____]
☐ Date claim reported: [__/__/____]
☐ Date insurer acknowledged claim: [__/__/____]
☐ Policy payment deadline (days after proof of loss): [____] days
☐ Date demand for payment made: [__/__/____]
☐ Date policy payment deadline expired: [__/__/____]
☐ Date of denial or underpayment: [__/__/____]
☐ Total delay from claim report to resolution: [____] days

B. Evidence of Dishonest, Malicious, or Oppressive Conduct

☐ Insurer denied based on grounds not supported by the policy language
☐ Insurer misrepresented policy terms to the insured
☐ Insurer conducted a biased investigation designed to support denial
☐ Insurer used outcome-oriented experts
☐ Insurer ignored or discounted favorable evidence
☐ Insurer's own adjuster recommended payment but was overridden
☐ Insurer threatened the insured (e.g., threats to report to authorities without basis)
☐ Insurer engaged in unreasonable delay tactics
☐ Insurer imposed unreasonable documentation requirements
☐ Insurer failed to communicate with the insured for extended periods

C. Documents to Preserve and Obtain

☐ Complete claim file (paper and electronic)
☐ All internal communications, adjuster notes, and activity logs
☐ Reserve history and changes
☐ All expert reports and consultant communications
☐ Claims handling manuals and guidelines
☐ Training materials for claim adjusters
☐ Prior complaints or regulatory actions against the insurer
☐ Proof of loss documentation and all insured submissions

6. PRE-SUIT REQUIREMENTS

Arkansas Pre-Suit Requirements

Arkansas does not have a mandatory pre-suit notice requirement for bad faith claims. There is no statutory pre-suit filing like Florida's Civil Remedy Notice.

Pre-Suit Checklist:

☐ Confirm the statute of limitations:

• Bad faith tort: 3 years (Ark. Code Ann. section 16-56-105)
• Breach of insurance contract: 5 years (Ark. Code Ann. section 16-56-115)
• Section 23-79-208 penalty: 5 years (contractual)
• Accrual: Generally the date of denial or last unreasonable act

☐ Make a written demand for payment triggering the section 23-79-208 penalty clock -- this demand is important because the 12% penalty accrues from the failure to pay after demand

☐ File a complaint with the Arkansas Insurance Department (optional but may be strategically useful): Arkansas Insurance Department, 1 Commerce Way, Suite 102, Little Rock, AR 72202

☐ Confirm venue: Circuit Court in the county where the insured resides, where the loss occurred, or where the insurer maintains an office

☐ Preserve evidence -- send a litigation hold letter

☐ For third-party claims: Confirm whether an assignment of the bad faith claim from the insured has been obtained, as third parties cannot bring direct bad faith claims

7. ARKANSAS-SPECIFIC PRACTICE NOTES

A. Key Arkansas Bad Faith Cases

1. Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 661 S.W.2d 102 (1984)
   - Recognized the common law tort of bad faith in Arkansas
   - Standard: "dishonest, malicious, or oppressive" conduct to avoid policy liability
   - Jury awarded $175,000 compensatory and $5,000,000 punitive damages

2. Columbia Nat'l Ins. Co. v. Freeman, 347 Ark. 423, 64 S.W.3d 720 (2002)
   - Addressed bad faith in the first-party property insurance context
   - Confirmed the three-element test for bad faith
   - Jury awarded $170,000 compensatory and $200,000 punitive damages

3. Employers Equitable Life Ins. Co. v. Williams, 282 Ark. 29, 665 S.W.2d 873 (1984)
   - Addressed bad faith in the disability insurance context
   - Confirmed that emotional distress damages are recoverable in bad faith tort claims

4. Southern Farm Bureau Cas. Ins. Co. v. Holland, 324 Ark. 435, 921 S.W.2d 583 (1996)
   - Addressed the insurer's duty to investigate claims thoroughly before denying them
   - An insurer cannot claim a legitimate dispute if it failed to conduct a reasonable investigation

B. The Two-Track Arkansas Approach: Tort + Statutory

Arkansas provides two independent avenues for relief:

Track 1 -- Common Law Bad Faith Tort:

• Requires proof of dishonest, malicious, or oppressive conduct
• Allows compensatory damages (economic loss, emotional distress) and punitive damages
• 3-year statute of limitations (tort)

Track 2 -- Statutory Penalty (Section 23-79-208):

• Does NOT require proof of bad faith intent
• Requires only that the insurer failed to pay a covered loss within the policy period after demand
• Provides 12% penalty on the loss amount plus reasonable attorney fees
• 5-year statute of limitations (contract)

Practitioners should pursue both tracks simultaneously. The statutory penalty claim is easier to prove and guarantees attorney fee recovery. The tort claim allows recovery of broader compensatory and punitive damages.

C. The Unfair Claims Settlement Practices Act (Section 23-66-206)

The Act prohibits various unfair claims practices including:

• Misrepresenting pertinent facts or policy provisions
• Failing to acknowledge and act reasonably promptly on claims
• Failing to adopt reasonable standards for prompt investigation
• Not attempting in good faith to effectuate prompt, fair, and equitable settlements
• Compelling the insured to litigate by offering substantially less than ultimately recovered

No Private Right of Action: Section 23-66-206 does NOT create a private cause of action. Only the Arkansas Insurance Commissioner may enforce the statute. However, violations of the statute's standards may be admissible as evidence of bad faith in the common law tort action.

D. Unique Arkansas Considerations

1. 12% Penalty is Powerful: The section 23-79-208 penalty is automatic upon failure to pay a covered loss after demand. It applies regardless of the insurer's subjective intent. This is a strong tool for practitioners.

2. Demand Requirement: The 12% penalty requires a "demand" for payment. The demand letter should clearly constitute a formal demand for payment of covered benefits, not merely a claim submission.

3. Modified Comparative Fault: Arkansas applies modified comparative fault (Ark. Code Ann. section 16-64-122). In third-party demand situations, consider how fault allocation affects the demand strategy.

4. No Direct Third-Party Action: Third-party claimants cannot directly sue the insurer for bad faith. They must obtain an assignment from the insured or sue the insured and pursue the excess judgment.

5. Punitive Damages Caps: The $250,000 / 3x compensatory cap has a significant exception for intentional conduct, which may apply in egregious bad faith cases.

E. Statute of Limitations

8. SAMPLE TIME-LIMITED DEMAND CONDITIONS

A. Payment and Release

☐ Full payment within [____] business days of acceptance
☐ Check payable to "[________________________________] and [________________________________], as Trustees"
☐ Standard release of the named insured only
☐ No confidentiality or indemnification provisions
☐ No release of the insurer from independent bad faith or statutory penalty claims

B. Arkansas-Specific Conditions

☐ This demand constitutes a formal "demand" under Ark. Code Ann. section 23-79-208 for purposes of triggering the 12% penalty
☐ The insurer must disclose all available policy limits
☐ The insurer must provide this demand to the insured within [____] business days
☐ The insurer must advise the insured of excess exposure and the right to personal counsel

C. Communication Requirements

☐ Written acceptance received at counsel's office by the deadline
☐ Any modification constitutes a counteroffer and rejection
☐ Insurer must confirm acceptance is binding on behalf of the insured

9. SOURCES AND REFERENCES

Arkansas Statutes

• Ark. Code Ann. section 23-66-206 -- Unfair Claims Practices: https://law.justia.com/codes/arkansas/title-23/subtitle-3/chapter-66/subchapter-2/section-23-66-206/
• Ark. Code Ann. section 23-79-208 -- Penalty for Failure to Pay Losses
• Ark. Code Ann. section 16-55-206 et seq. -- Punitive Damages
• Ark. Code Ann. section 16-56-105 -- Statute of Limitations (Tort)
• Ark. Code Ann. section 16-56-115 -- Statute of Limitations (Contract)

Key Cases

• Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 281 Ark. 128, 661 S.W.2d 102 (1984): https://law.justia.com/cases/arkansas/supreme-court/1984/83-134-0.html
• Columbia Nat'l Ins. Co. v. Freeman, 347 Ark. 423, 64 S.W.3d 720 (2002): https://law.justia.com/cases/arkansas/supreme-court/2002/01-614.html
• Employers Equitable Life Ins. Co. v. Williams, 282 Ark. 29, 665 S.W.2d 873 (1984)
• Southern Farm Bureau Cas. Ins. Co. v. Holland, 324 Ark. 435, 921 S.W.2d 583 (1996)

Additional Resources

• Chartwell Law -- Arkansas Bad Faith: https://www.chartwelllaw.com/bad-faith-claims-map/arkansas
• ALFA International -- Arkansas Insurance Law: https://www.alfainternational.com/compendium/insurance-law/arkansas/
• United Policyholders -- Arkansas: https://uphelp.org/claim-guidance-publications/insurance-consumer-rights-in-the-state-of-arkansas-2022/

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 licensed in Arkansas. Always verify current law and confirm all citations before use.

Last updated: 2026-02-26