1. Promptly acknowledge the demand to plaintiff's counsel. Pick up the phone. Send a letter or fax. Send an e-mail. Create a paper trail, acknowledging the demand. Failure to respond promptly provides ammunition for a later bad-faith claim from the policyholder. In some states, there may be potential for third-party bad-faith claims from claimants/plaintiffs. Do not hand them darts to later lob at you. Respond promptly.

2. Buy time. Immediately seek to extend the time limit. Time limits are often unilateral and so compressed as to be unfair and arbitrary. At minimum, discuss the time limit with plaintiff's counsel. Admittedly, if the demand lands on your desk during trial, then you may have little leeway in negotiating breathing room. However, pretrial demands fall into the category of “negotiable exchanges.”

3. Consider the demand thoughtfully. Document in the file that you have analyzed the demand. Avoid kneejerk reactions produced by becoming emotionally/psychologically invested in a settlement target number. Having walked miles in these shoes, I realize this is easier said than done.

4. Make the response a team effort. Huddle with defense counsel and the insured to shape a consensus as to the response. Seek unanimity among the defense team. That includes not just defense counsel but, most importantly, the insured/policyholder. Get input from defense counsel and the policyholder. 

While soliciting input is good, though, make no mistake—the buck stops with the adjuster. Typically, the adjuster must make the final call and decision. Caveat: if you override the recommendations of defense counsel or the policyholder, then there should be a compelling reason. Further, document that rationale in the claim file notes. Ideally, the three of you—the claims professional, the defense counsel, and the policyholder—will agree on the tone and substance of the response.

5. Parry and thrust. Depending on the outcome of the discussion in step four, either decline the demand or make a counter offer. You can even put a time-limit demand on the counter offer.

Importantly, document the claims file showing the steps that you, the adjuster, took in answering the demand; considering the demand; and deciding how to respond to the demand. If the decision had buy-in from defense counsel and the policyholder, then note that in the file. Maybe you still felt that liability against the insured was weak. Perhaps you believe there is weak causation between the accident and the claimed damages. Or maybe the damages are “soft” and built up. Possibly the plaintiff was contributorily negligent. Perhaps you felt the judge had made reversible errors which a forthcoming appeal could address. 

Whatever the reasons, the adjuster should document these in the file, particularly if the insured agreed with the decision to defend or voiced no objection to the proposed strategic course. This can blunt later allegations that you kept the insured in the dark or rode roughshod over the policyholder's interests in trying to save money and not trying to negotiate settlement. This is how the insured may spin the story months or years later, amidst a bad-faith claim. You may be friends and on speaking terms now, but that can change if an adverse jury award detonates.

6. Communicate horizontally and vertically. By “vertical” communication, I mean convey promptly any demands and offers to higher-ups in the claim hierarchy. Never surprise the boss. Also, communicate key developments to other key constituents. This is the “horizontal” aspect of in-trial communication. During trial, such constituents include reinsurers, excess carriers, and the policyholder's insurance broker. As in other phases of claims handling, better to err on the side of overcommunicating. What you lose by overcommunicating is a few minutes here and there. What you risk by undercommunicating is lots of money from a bad-faith verdict years later, predicated on allegations that you kept key people in the dark. 

Trials are trying. Whenever you receive a claimant demand for settlement during trial, handle it with care, like a ticking bomb. Use these steps to defuse the bomb and minimize the odds that the claim file will detonate bad-faith “shrapnel” that damages you and your company in the blowback. (The focus here is on pressurized demands from third-party plaintiffs. Demands from insureds/policyholders comprise another topic and have subtleties and nuances of their own.)

In a sense, responding to settlement demands just before or during trial follows sensible principles that apply in responding to settlement demands early in a claim's life cycle. Good principles of responding to claimant/plaintiff settlement demands apply, whether the demand arrives a week after the file opens or comes while the jury is into its second hour of deliberating. The difference lies in the highly pressurized environment of pretrial and trial. Then, the stakes for handling or mishandling the demand, the nature of your response, and your reason for it becomes a high-stakes affair. Missteps here have significant financial consequences in ways that would not reverberate at the beginning of the claims pendency. Many communication and decision-making burdens fall on the claims adjuster's shoulders during a trial. 

Forget a 9-to-5 schedule during this phase. While adjusters will not try the case and may not even appear in the courtroom, they have much to juggle during trial. It's not just a matter of sitting back and waiting for daily/nightly updates from defense counsel, although those are essential. The claims adjuster must be able to turn on a dime, bob and weave, reacting quickly to changing events. He or she also needs to be ready to reassess developments, communicate with the insured, and orchestrate consensus. 

Amidst all this, adjusters must document in the file what they've done, what they decided not to do, and the reasons why. Oh, and by the way, during this time you have to keep up with the rest of your 150-file caseload, answer e-mails, return phone calls, attend department meetings, and so on. No sweat, right? 

In a bad-faith claim, months or years later, the best or worst evidence for an adjuster, a carrier, or a TPA will be the claims file. Omissions that seemed justified and reasonable in the heat of battle will be under the microscope years later and will thus judge the adjuster retrospectively. Rather than wring our hands over the injustice of this scenario, claims people should use it as a spur to practice their own brand of risk management in handling settlement overtures when cases go to trial.