Your lawyer offered to settle with the other driver’s insurance company for the policy limits. The insurer said yes. Then you learned the other driver may own more than he claimed. Can you walk away from the deal? In most cases, no. A new California appeals court decision says that once the insurer accepts a policy limits offer on the terms the offer set, the settlement is binding, even if the final paperwork is never signed.
This post explains that decision, what a policy limits demand is, and the California rules that now control how these offers must be made and answered.
What a Policy Limits Demand Means After a Car Crash
When another driver hurts you, you usually make a claim against that driver’s liability insurance. This is often called a third-party claim, because you are not the insurer’s customer. Our earlier post on how a third-party injury claim works in California walks through the basics.
A policy limits demand is a written offer to settle your injury claim for the most the policy will pay. The offer usually has a deadline. If the insurer accepts in time, you get the policy limit and the at-fault driver is released from the claim.
In California, many drivers carry only the minimum. For policies issued or renewed on or after January 1, 2025, the minimum bodily injury coverage is $30,000 for one person. Our post on what happens when the other driver has only $30,000 in coverage explains those limits.
The 2026 Case: Farmers Insurance Exchange v. Superior Court
The case is Farmers Insurance Exchange v. Superior Court (Wood), No. E087128. The Court of Appeal, Fourth Appellate District, Division Two, filed its opinion on July 9, 2026, and certified it for publication on August 4, 2026. You can read the full opinion on CourtListener.
Here is what happened, according to the opinion:
- On January 5, 2021, a driver insured by Farmers rear-ended the injured woman at a red light in Hesperia.
- His policy paid up to $15,000 for each person.
- Her lawyer sent a letter offering to settle for the “total available policy limit of $100,000, or less,” and added that if the demand exceeded the policy, it was a policy limit demand.
- Farmers accepted in writing before the deadline, agreed to pay $15,000, and sent the declarations page the letter asked for.
After that, the driver signed a declaration saying he had one vehicle and $5,000 in the bank. An asset check found other assets. The injured woman refused to sign the settlement papers and sued the driver. Farmers sued her to enforce the settlement.
Why the Court Said the Deal Was Final
The court treated the settlement like any other contract. A contract forms when one side makes an offer and the other side accepts it. Courts look at what the parties said and did, not at what they privately meant.
The court made three points. First, the $100,000 figure did not change anything, because the letter itself said it was a policy limits demand if the policy was smaller. Second, the offer never said the deal depended on the driver’s assets, so the asset declaration could not undo it. Third, when the parties agree on the main terms and plan to sign formal papers later, failing to sign those papers does not erase the agreement.
The court ordered the trial court to grant Farmers summary adjudication on its claim that a binding settlement existed.
The Lesson: The Demand Letter Sets the Terms
This case shows how much weight the first letter carries. Whatever the offer requires is what the insurer must do to accept it. A condition that is not in the offer usually cannot be added later.
That matters most when the at-fault driver has low coverage and you are worried the policy will not cover your losses. A question about the driver’s assets is a question to raise before an offer goes out, not after an insurer has accepted it.
California’s Rules for Time-Limited Demands Since 2023
The demand in the Farmers case was sent in 2021. For demands sent on or after January 1, 2023, California has a set of rules in Code of Civil Procedure sections 999 through 999.5. They apply to claims under automobile, motor vehicle, homeowner, and commercial premises liability policies, and they cover offers made before a lawsuit is filed.
Under section 999.1, a time-limited demand must:
- Be in writing and be labeled as a time-limited demand or refer to section 999.1.
- Give at least 30 days to accept if sent by email, fax, or certified mail, or at least 33 days if sent by regular mail.
- Make a clear offer to settle all claims within policy limits, including paying all liens.
- Offer a complete release of the insurer’s insureds.
- State the date and place of the crash, the claim number if known, and the injuries known so far.
- Include reasonable proof to support the claim, which may include medical records or bills.
How an Insurer Can Answer a Demand
Section 999.3 says the insurer may accept by agreeing in writing to all of the demand’s main terms. Asking for more information, a clarification, or more time during the deadline is not, by itself, a rejection.
If the insurer turns the demand down for any reason, it must say so in writing and give its reasons before the deadline runs out. That written answer can matter later if anyone claims the insurer should have settled.
Questions People Ask About Policy Limits Offers
Can I change my mind after the insurer accepts?
Usually not. Under the Farmers decision, a timely acceptance that matches the offer creates a binding settlement, even before the release is signed.
What if the at-fault driver has more money than the policy?
Whether you can reach those assets depends on what your offer said. In the Farmers case, the offer did not depend on the driver’s assets, so learning about them later did not undo the deal.
Is a policy limits offer the same as a section 998 offer?
No. A section 998 offer is made during a lawsuit and can shift court costs. Our post on the section 998 settlement offer in a California injury case covers that rule.
When to Call Mines Law Firm
We handle auto accident injury claims, and are accepting clients for those. If you are injured in an auto accident, that is when you should call us at 888-700-0093.
ATTORNEY ADVERTISING. This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. Every case depends on its own facts, and prior results do not guarantee a similar outcome. Responsible attorney: Jasmine Mines (State Bar No. 331135), Mines Law Firm, 468 N. Camden Drive, Suite 200, Beverly Hills, CA 90210.