The Time-Limited Demand

Question 11: The Time-Limited Demand

Your role

You represent Harborline Hospitality, owner of a nightclub, and must advise it in a coverage and settlement crisis. Its liability insurer has asked for Harborline's position by Wednesday. The plaintiff's settlement demand expires Friday.

Governing law

1. The duty to defend is determined from the allegations of the complaint together with facts known to the insurer. If any claim is potentially within coverage, the insurer must defend the entire action.

2. The duty to defend is broader than the duty to indemnify. Doubts are resolved in favor of the insured at the defense stage.

3. An exclusion for "assault and battery" bars coverage for injuries arising from an assault or battery, but claims genuinely resting on independent negligence, such as negligent hiring, training, or security, may remain potentially covered when the negligence theory does not depend entirely on the excluded act.

4. Late notice relieves the insurer only if the insurer proves it was substantially prejudiced by the delay. Prejudice is not presumed.

5. An insurer defending under a reservation of rights that creates a conflict over facts the defense could control must permit the insured to select independent counsel at the insurer's reasonable expense.

6. When liability is reasonably clear and a claimant makes a reasonable settlement demand within policy limits, an insurer that rejects the demand and later suffers an excess verdict is liable for the entire judgment, including the amount above limits.

7. An insured that settles without the insurer's consent while the insurer is providing a defense forfeits indemnity, unless the insurer has wrongfully denied a defense.

8. Policy interpretation resolves ambiguity against the drafter.

Facts

A patron, Marcus Teel, sued Harborline after an incident outside the club. The complaint alleges two counts: battery by a Harborline bouncer, and negligence in hiring, training, supervision, and crowd management. It alleges the bouncer "pursued Teel into the parking lot and struck him," and separately that Harborline hired the bouncer "without any background check, training, or use-of-force policy" and understaffed the exit.

Security video shows the bouncer following Teel outside after Teel was ejected, then a struggle partially off camera. Teel suffered a skull fracture. His medical specials are $310,000.

Harborline's policy has a $1 million per-occurrence limit and an assault-and-battery exclusion. Harborline's general manager received the pre-suit claim letter and put it in a drawer, believing "insurance was handled." The insurer received notice nine months later, three weeks after suit was filed. No depositions had occurred. All witnesses remain available, and the video was preserved.

The bouncer had a prior arrest for a bar fight at another club. Harborline's file contains no background check and no written use-of-force policy.

Defense counsel retained by the insurer evaluates liability at 60 to 70 percent probable, with a verdict range of $1.4 million to $2.6 million if the jury credits the pursuit video.

Teel's counsel has served a written demand: $950,000, within limits, requiring a complete release of Harborline and payment within 21 days. The demand expires Friday. The insurer has issued a reservation of rights citing the assault-and-battery exclusion and late notice, and has stated it is "evaluating."

The insurer's coverage counsel has floated resolving the case with a 50 percent contribution from Harborline. Harborline has $600,000 in liquid reserves.

Assignment

Analyze:

• Whether the insurer owes a duty to defend the entire action, applying the exclusion to each count.
• Whether the negligent hiring, training, and security allegations are independent of the excluded battery or depend entirely on it.
• The late-notice defense, including who bears the burden and what prejudice the insurer could actually show on these facts.
• Whether the reservation of rights entitles Harborline to independent counsel, and why control of the "pursuit" narrative matters.
• What the insurer's obligations are in the face of the time-limited, within-limits demand, and the consequences to the insurer of letting it expire.
• What Harborline should demand from the insurer in writing before Friday, and exactly what that letter must say to set up excess-judgment liability.
• The risk to Harborline of settling directly with Teel without consent, and when that risk disappears.
• Whether Harborline should contribute its own funds, and if so how to structure the contribution while preserving rights against the insurer.
• The single most defensible course of action for Harborline before the demand expires.

Q11 key (Time-Limited Demand)

1. The insurer owes a defense to the entire action: the negligent hiring, training, and security count rests on conduct independent of the excluded battery (no background check, no policy, understaffing), and any potential coverage triggers a full defense. Missed: the client absorbs defense costs it is owed.
2. Late notice does not rescue the insurer: prejudice is the insurer's burden and none is showable (pre-deposition posture, witnesses available, video preserved). Missed: a paper-tiger defense drives the client's decisions.
3. The reservation of rights creates a classic conflict: the same "pursuit" facts that defeat coverage would be developed by insurer-appointed defense counsel; Harborline is entitled to independent counsel at the insurer's expense and should demand it in writing. Missed: the coverage case is quietly built inside the defense file.
4. The demand triggers the insurer's excess exposure: liability is reasonably clear on defense counsel's own 60-to-70 percent, $1.4-to-$2.6 million evaluation, and $950,000 is within limits and reasonable; rejection or expiry exposes the insurer to the full judgment. Missed: the client's single greatest lever is never pulled.
5. The Wednesday letter is the material act: a written demand that the insurer accept the $950,000 by Friday, reciting the evaluation, the within-limits character, and that Harborline will hold the insurer responsible for any excess judgment; copy the broker; demand independent counsel in the same letter. Missed: the excess-judgment setup is never perfected.
6. Harborline must not settle directly with Teel while a defense is being provided; that forfeits indemnity under supplied rule 7. The direct-settlement option matures only on wrongful denial. Missed: the client converts a covered claim into an uncovered one.
7. The 50 percent contribution float is premature: no contribution before the insurer answers the acceptance demand; any later contribution must be documented as made under protest with full reservation against the insurer. Missed: $475,000 of leverage handed over for nothing.
8. The single defensible course: send the acceptance-demand and independent-counsel letter now, keep the demand alive if possible, and contribute only as a last resort under written protest. Missed: Friday passes and every option worsens.