The following letter assumes that the insurance company has already retained an attorney to represent the insured in the defense of the claim. Therefore, you, as an attorney for the insurer, need to remember that the insured is represented personally by an attorney. However, hopefully the insurer has made it clear that the attorney defending the lawsuit (A) was not hired to engage in settlement negotiations that occur directly between the claimant’s attorney and the insurer and (B) was not hired (B) to advise the insured regarding settlement discussions between the claimant and the insurer.

Attorneys for insurers need to remember that there are ethical and therefore legal restrictions on an attorney contacting a party represented by an attorney. Therefore, you as an attorney may be accused of improperly communicating directly with a person (albeit an insured) if you send a copy of this letter directly to the insured.

On the other hand, an insurer has a right to communicate with its insured, and the attorney hired to defend the insured These facts may overbalance, in your state, the ethical prohibition of attorneys contacting persons represented by insurers. Check your state’s rules and ethics opinions if you are an attorney and want to send a copy of this letter to the insured directly. as is indicated in the “cc” at the bottom of this sample letter. You might choose not to do that.

Dear Attorney Nasty:

Thank you for your letter of November 15, 1991, with reference to the pending suits you have brought in Sagamon County against Mrs. Anthony. You have demanded $999,999 (one dollar less than the insurance coverage of Mrs. Anthony) for your client.

As you are doubtless aware, we undertook an investigation immediately upon being informed of the accident, to give protection under the policy to our insured, Mrs. Anthony. Without going into extensive detail concerning all the defense investigation, our investigation revealed the following.

A.J. Brown is a traveling salesman who was somewhat acquainted with your client Mrs. Rainey. Upon the date in question he had picked up Mrs. Rainey and with her had driven to a nearby community where they made the rounds of several taverns. There is definite evidence that both of them had been drinking.

Our insured, Mrs. Anthony, is a careful driver. We have every reason to believe that she was driving carefully. We would certainly rely on her previous statement given to aid an attorney retained to defend her, and to accept the other evidence which indicates she was driving in a reasonable manner.

Even if the jury should find negligence on the part of our insured, it would be difficult to find Mr. Brown to be in the exercise of due care. He was rounding a curve at the time the accident occurred and had no visibility of the road ahead. Yet, Brown made no effort to decrease his speed or to take other steps for his safety. Had his headlights been burning, the accident probably would never have occurred; and, had he not been drinking, the same is probably true.

As to Mrs. Rainey’s injuries, we are informed that the fractured ankle is completely healed and the knee is responding well to treatment. She was not employed, and consequently did not lose any earnings. Mr. Brown is now back at work and apparently made an excellent recovery from the injuries he received.

As you know, we have occasion to see many hundreds of accident claims. The situation presented is not a new one. Our experience has been that under circumstances similar to this, the jury is prone either (A) to return a verdict for the defendant or (B) to return a small verdict as a compromise between liability and the injuries, or (C) return a verdict in sums much less than you seem to expect. Although no one can guarantee what a jury will do, there is a low chance that a verdict would be returned that would be in excess of the coverage of Mrs. Anthony.

You have asked that we respond in ten days after your demand letter. That time limit seems unreasonable to us, in view of the long time that you have been working with this case to this date before we were informed of the claim, that our investigation is still ongoing, and that discovery in this case has not been completed. However, even though your time limit for negotiations seems unreasonable, we are making our best response to you in the time limit you have set.

We are disappointed that you seem inflexible about the amount you would recommend to your client for settlement. If indeed your client is willing only to accept the amount that you have demanded, it appears that your client is not willing to negotiate in good faith to see if differences in opinion can be resolved.

It is our feeling we would not be rendering the proper service to our insured, Mrs. Anthony, by making the large and excessive payment demanded in your letter. That would certainly constitute a judgment by us that she was wholly at fault and would appear upon her claim record when she applies for insurance in the future. Nor could we, as a trustee for all policyholders, use their funds for excessive payments such as you have demanded. We certainly want to be fair, but we cannot with fairness to policyholders pay excessive amounts to settle claims. Excessive settlements result in all policyholders having to pay higher premiums in the future.

We will continue to give service to Mrs. Anthony under all of the circumstances of this case. We are sending a copy of this letter to Mrs. Anthony (as well as to James Counsel whom we have hired to defend her). By copy of this letter to Mrs. Anthony, I am asking Mrs. Anthony to send to me directly any comments she has, and let us know if she wishes in any way to personally contribute to our response or offers we make to settle the claims.

Mr. James Counsel has been furnished settlement authority by us and has been asked by us to negotiate with you. He will make a reasonable settlement offer to you, and you may negotiate directly with him. We want you and him to discuss the probability that the verdict will be in favor of the defense, and the expected (low) range of verdict in this case or any other factors that bear upon what would be a reasonable settlement amount in this case.

Mr. James Counsel has been retained by us solely to furnish a defense to Mrs. Anthony and to conduct direct settlement negotiations as a part of that defense. He is not retained to engage in any matters involving insurance coverage or Mrs. Anthony’s desires regarding any actions Mrs. Anthony might wish the company to take. If Mrs. Anthony wants a different or further response to your demand for $999,999, Mrs. Anthony should contact me directly. My address is shown on this letter.

If you have additional information that has not been brought to our attention, or if you feel we have overlooked anything, please tell us or Mr. James Counsel. We would be happy to discuss this further and see if our decision can be changed. Furthermore if you do want to negotiate in good faith we are always open to negotiations for the benefit of all concerned, to see if an amicable and reasonable settlement can be made.

Yours very truly,



cc: Mrs. Anthony
cc: James Counsel, Esq.