The Policy Limits Demand and Why It Matters
This is the moment that creates most third-party bad-faith cases. An injured claimant offers to settle for the policy limits, the insurer declines, the case goes to trial, and the verdict lands above the limits. What happens next depends entirely on whether that refusal was reasonable.
What the demand does
It gives the insurer the opportunity to close the case within the coverage it sold. Once made, the insurer must weigh its insured's exposure alongside its own money — and an insurer that refuses in order to protect its own position, rather than because the demand was genuinely unreasonable, is taking a risk with someone else's assets.
The insured is usually the last to know
Policyholders frequently learn about a within-limits demand only after an excess verdict. Insurers generally must keep an insured informed about settlement opportunities and about exposure above the limits, and what you were and were not told is central to any later claim.
If you are the insured, respond in writing
Ask to be told about every settlement demand, state in writing that you want the claim settled within limits if it can be, and keep the correspondence. That record is what distinguishes an insured who was kept in the dark from one who was consulted.
What you can do about it depends on your state
This describes the denial itself, which works much the same everywhere. Whether you can sue under a statute, what you can recover, and how long you have differ sharply — choose the state where your policy was issued.
Common questions
I only found out about the demand afterwards.
That is common and it matters. Insurers generally must keep an insured informed about settlement opportunities and excess exposure — what you were told is central to the analysis.
Can I tell my insurer to settle?
You can say so in writing, and it is worth doing. It will not compel them, but it establishes your position at the time rather than in hindsight.
Is this what happened to you?
A free, confidential review can tell you whether the denial holds up — no cost, no obligation.
Other reasons claims get denied
General information, not legal advice. Insurance law differs by state and every policy is different.