A policy limits demand is what creates the insurer’s legal exposure for refusing to settle. Until a claimant demands settlement within the policy limits, the carrier’s duty to settle has not been triggered. Once the demand is on the table and the conditions are met, refusing it puts the insurer, not just its policyholder, at risk for a judgment that exceeds the coverage.
That is the whole mechanism. It is also why these letters are drafted carefully rather than fired off.
When the duty to settle arises in Illinois
The Illinois Supreme Court set the test in Haddick v. Valor Insurance, 198 Ill. 2d 409 (2001). The duty to settle arises when there is:
- a reasonable probability of recovery in excess of the policy limits, and
- a reasonable probability that the insured will be found liable.
Critically, the court held that the duty does not arise until a third party demands settlement within the policy limits. No demand, no duty. That single sentence is why a properly made demand changes the dynamic of a case with serious injuries and thin coverage.
Separately, an insurer that vexatiously and unreasonably refuses to pay may face liability under 215 ILCS 5/155, which allows recovery of reasonable attorney’s fees, costs and a statutory penalty of up to the greatest of 60% of the amount recovered, $60,000, or the excess over what the insurer offered. Illinois also defines improper claims practices at 215 ILCS 5/154.6.
When it is the right move
| Factor | Why it matters |
|---|---|
| Damages clearly exceed the limits | With Illinois minimum limits at $25,000 per person under 625 ILCS 5/7-203, a surgical case exceeds them easily. |
| Liability is strong | The second Haddick element. A contested-fault case is a weaker candidate. |
| The medical picture is complete | You are asking for everything available; you need to be able to show why it is not enough. |
| The demand is time-limited and deliverable | A reasonable window with everything the adjuster needs to evaluate it. An impossible deadline undermines the letter. |
| You know the limits | See how to find the other driver’s policy limits. |
What goes in the letter
A demand that cannot be evaluated inside the deadline is not a demand; it is a formality the carrier will point to later. Include:
- A clear statement that the claim is being settled for the full available limits, and nothing less
- The complete medical records and bills, itemised, not a summary
- Documented wage loss, and future care where supported
- The liability evidence: crash report, photographs, witness details, any video
- A specific, reasonable deadline for acceptance
- A statement that the offer is made so the insurer can protect its insured from an excess judgment
That last line is doing real work. It puts the carrier on notice of exactly the exposure Haddick describes, and it is the sentence its own counsel will read most carefully.
What Counts as a “Reasonable” Window, and Why Carriers Fight Over It
Because the demand’s deadline is central to whether a court later finds the insurer had a genuine opportunity to settle, insurers and defense counsel frequently argue after the fact that a given window was too short to be a real offer, an argument aimed specifically at defeating the Haddick exposure. There is no single fixed number of days Illinois law requires; what matters is whether the deadline gave the carrier a realistic chance to gather the file, evaluate it, and respond, given the volume of material sent and the complexity of the case. A demand sent with thin documentation and a 48-hour deadline is vulnerable to exactly this argument. A demand sent with complete medical records, wage documentation, and liability evidence, paired with a deadline of two to four weeks, is much harder for an insurer to later claim was unfair, which is precisely why thoroughness and reasonable timing matter more than speed in how these letters are built.
What actually happens inside the carrier
A policy limits demand with a deadline moves a file out of routine adjusting. It typically goes above the handling adjuster’s authority, gets reviewed by a supervisor or committee, and often gets sent to coverage counsel. The question being asked internally is no longer “what is this claim worth” but “what is our exposure if we decline and a jury returns more than the limits.”
That is a different and much less comfortable question, and it is why demands that meet the Haddick conditions are frequently accepted. See how insurers handle Chicago crash claims and the demand letter guide.
A Realistic Example
Hypothetical, for illustration only: A Chicago cyclist is struck by a driver carrying $50,000 in liability coverage. Surgery, physical therapy, and lost income push documented damages past $90,000, with clear liability against the driver who ran a stop sign. The cyclist’s attorney sends a complete policy-limits demand: full medical records, wage-loss documentation, the police report, and photographs, with a 30-day deadline and the specific language that the demand is made to protect the insurer’s own policyholder from an excess judgment. The carrier tenders its full $50,000 within three weeks rather than risk a Haddick claim if the case went to trial and returned a verdict well above that limit. The attorney then pursues the remaining gap through the cyclist’s own UIM coverage, having already secured the maximum available from the at-fault driver’s policy without months of back-and-forth negotiation.
If the limits are not enough
Recovering the full policy is sometimes still not full compensation. Two routes matter:
- Your own underinsured motorist coverage, which fills the gap, but note the setoff rule and the requirement to notify your UIM carrier before settling with the at-fault driver. See UM and UIM claims.
- Other defendants. An employer, a motor carrier, a bar under the Dram Shop Act, or a road authority may carry coverage the driver does not.
Deadlines
A demand does not stop the clock. Suit must still be filed within two years under 735 ILCS 5/13-202, or one year against a city, county or the CTA under 745 ILCS 10/8-101. Note too that prejudgment interest under 735 ILCS 5/2-1303(c) runs from the date the action is filed, not from the date of a demand, another reason not to let a demand cycle drift.
Frequently Asked Questions
What is a policy limits demand?
A written offer to settle the entire claim for the full amount of the at-fault driver’s available liability coverage, usually with a deadline. It is the step that triggers the insurer’s duty to settle under Illinois law.
When does an Illinois insurer have a duty to settle?
Under Haddick v. Valor Insurance, 198 Ill. 2d 409 (2001), when there is a reasonable probability of recovery in excess of the policy limits and a reasonable probability the insured will be found liable. The duty does not arise until a third party demands settlement within the limits.
What happens if the insurer refuses a reasonable policy limits demand?
If a judgment later exceeds the limits, the insurer may be exposed to that excess for having failed to settle in good faith. Separately, 215 ILCS 5/155 allows attorney’s fees, costs and a penalty where an insurer’s conduct is vexatious and unreasonable.
How long should the deadline be?
Long enough for the carrier to genuinely evaluate what you sent. An unrealistically short window gives the insurer an argument that it never had a fair opportunity to accept, which is the opposite of what the letter is for.
Should I send one myself?
It is not advisable. The value of a policy limits demand lies in it being drafted so the conditions are met and documented. A letter that misses those elements can leave the carrier better off than if nothing had been sent.
Can a policy limits demand be sent before I finish treating?
Generally no, or at least not effectively. The demand needs to show the full medical picture, including any permanency or future-care findings, to support the claim that damages genuinely exceed the limits. Sending one before treatment is complete risks a lower, less defensible number and an insurer argument that the demand was premature.
What if the insurer asks for more time to respond?
A reasonable, good-faith request for a short extension to gather information is common and usually granted. A pattern of repeated extension requests without genuine progress toward a decision starts to look like exactly the kind of delay the underlying Haddick framework and 215 ILCS 5/154.6’s prompt-investigation requirements are meant to discourage.
When the at-fault driver has no coverage or not enough, your own policy is the route to recovery. See our guide to uninsured and underinsured motorist claims.
Related guides on lawsuits and court process
- Start here: Cook County Mandatory Arbitration for Smaller Car Accident Lawsuits
- Mediation in Cook County Car Accident Lawsuits: How It Works
- How Prejudgment Interest Pressures Insurers to Settle Car Accident Cases Faster
- Pre-Settlement Funding for Car Accident Cases in Illinois: Read This Before You Borrow
- Claims Against a Driver Who Died in the Crash: Suing an Estate in Illinois
Talk to a Chicago car accident lawyer. Phillips Law Offices offers a free case review, and there is no fee unless we recover for you. Call (312) 346-4262 or request a free case review.
This article is general information about Illinois law, not legal advice, and reading it does not create an attorney-client relationship. Illinois law changes; confirm anything you intend to rely on with a licensed Illinois attorney.