The Time-Limited Holt Demand
The most common failure to settle within policy limits involves the insurer’s rejection of a time-limited offer. A notable 1992 decision provides the moniker for the so-called “Holt demand,” in which an attorney for a claimant sends a letter to the insurer demanding a settlement at or below policy limits and threatening the specter of a judgment in excess of policy limits if the demand is not accepted within a specified time period. In Holt, the Supreme Court of Georgia addressed whether a demand letter providing the insurer 10 days to make a decision was sufficient. It is within these scenarios where it becomes important to have a strong working knowledge of the time-limited holt demand.
Two Ways Where The Supreme Court Limited Its Holdings
In upholding the rulings and verdict against the insurer, the Supreme Court limited its holding in two distinct ways:
1. An insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person’s attorney. Each claim is different, so the factors the insurer must consider in deciding whether to accept a settlement offer vary. The Holt court specifically mentioned three factors – the strength of the liability case against the insured, the risk to the insured of a judgment in excess of policy limits, and damages to which the claimant may be entitled under applicable tort law – that must also be considered when deciding on any opportunity to settle.
2. The Supreme Court stated that “[n]othing in this decision is intended to lay down a rule of law that would mean that a plaintiff’s attorney under similar circumstances could ‘set up’ an insurer for an excess judgment merely by offering to settle within the policy limits and by imposing an unreasonably short time within which the offer would remain open.”
Thus, although the Holt court accepted a 10-day deadline for an insurer to accept an offer, Holt does not stand for the proposition that 10 days is appropriate in all situations. The length of the deadline depends on the facts and circumstances of the case at hand. For example, consider a simple car-wreck case where liability against the insured is reasonably clear, where the claimant has finished treating and sufficient medical expenses and lost wages can be documented and presented with the demand, and policy limits are at the statutory minimum. In such a case, 10 days should be sufficient for the insurer to analyze the documentation, make a decision as to the value of the case and prepare and deliver payment. In a case where the permanency of the claimant’s injuries are still in doubt, and the available policy limits are substantially high in relation to the known damages, an insurer may reasonably require additional time or additional information to determine the reasonable likelihood that policy limits might be pierced.
Consistent with Holt, obvious “policy limits” claims justify a 10-day demand period. In claims that are not so obvious, or in which the insurer has not had a reasonable opportunity to investigate liability and damages, a time-limited demand might still be appropriate, but more time might be reasonably necessary for the insurer to digest the new information, conclude its independent investigation and respond to the offer to settle.
Other factual scenarios might create a situation where a reasonable insurer must respond to a demand to settle within policy limits in rather short order. For example, if the insurer is providing a defense, the parties go to mediation, and sufficient discovery has taken place to establish that there is a significant risk to the insured of a judgment in excess of policy limits, an insurer may have a matter of hours during the mediation to respond to a policy-limits demand. An even shorter deadline might reasonably occur during trial if a key witness fails to perform, performs better than expected, or other vagaries of trial create a significant risk to the insured of a judgment in excess of policy limits. In these situations, it is interesting to note that both parties are subject to the constraints of time. In the mediation scenario, the parties have the mediator and their respective clients’ focused attention for an afternoon. In the trial scenario, the jury may be out deliberating with both parties evaluating the risk of an adverse decision.
Insurers sometimes ask for extensions to respond to time-limited demands. Any insurer requesting an extension should provide, and any claimant considering whether to grant an extension should request, a reasonably articulated explanation as to why an extension is needed, If the explanation is reasonably necessary, Holt would seem to suggest that failing to provide the extension would run afoul of the cautionary language in Holt warning against a claimant’s attorney “set[ting] up an insurer for an excess judgment merely by offering to settle within the policy limits and by imposing an unreasonably short time within which the offer would remain open.”
In summary, because the test of the insurer’s response to a time-limited demand is measured by the standard of the reasonably prudent insurer, the reasonableness of the terms of the demand is a central factor. Because the facts going to liability, damages and whether the insurer had a reasonable opportunity to settle vary widely from case to case, whether the insurer was negligent or acted in bad faith is usually to be decided by a jury.