Crafting the Perfect Policy Limit Demand Letter: A Template and Strategy Guide

The Strategic Purpose of a Policy Limit Demand

A policy limit demand letter is not just a settlement offer — it's a strategic legal document designed to put the insurer on notice, create a contractual deadline, and potentially trigger bad faith liability if the insurer fails to accept. Done correctly, it protects your client's right to collect against the insurer personally if the case proceeds to a verdict exceeding the policy limits.

Required Elements of an Effective Demand Letter

Every policy limit demand letter should include: clear identification of your client and the incident; a concise liability analysis establishing the insured's fault; a summary of your client's damages (medical specials, lost wages, pain and suffering); a specific dollar demand equal to or matching the known policy limits; a reasonable acceptance deadline (typically 30 days); and a clear statement that the demand will be withdrawn if not accepted within the deadline.

Stowers Doctrine and Its Implications

Under the Stowers doctrine (recognized in Texas and adopted in various forms in other states), an insurer that refuses a reasonable settlement demand within policy limits may be liable for the full amount of any judgment, even if it exceeds the policy. To trigger Stowers liability, the demand must be within the policy limits, the plaintiff must have a reasonable probability of recovery, and the demand amount must be reasonably proportionate to the damages.

Timing Your Demand

The optimal timing for a policy limit demand depends on the jurisdiction, the nature of the injuries, and whether your client has reached maximum medical improvement (MMI). Premature demands — before the full extent of damages is documented — can be rejected on the grounds that the plaintiff cannot establish proportionate damages. Late demands — after the statute of limitations or a competing claimant has depleted the policy — may be too late to create bad faith exposure.