The Consequences of Extending Counteroffers to Pre-Suit Settlement Demands

ABSTRACT: The Missouri Court of Appeals, Eastern District, recently weighed in on time-limited settlement demands, finding that a counteroffer constitutes rejection and a new offer in the context of settlement demands made pursuant to RSMo Sections 408.040 and 537.058.

Jameson v. Still arose from an auto accident between Still’s vehicle and Jameson’s on New Year’s Eve 2018. Jameson’s counsel sent a settlement demand for $150,000 or all available coverages to Still’s insurer. Jameson’s demand was entitled “Offer to Settle Pursuant to RSMo §408.040 and RSMo §537.058.” By law, offers of settlement made pursuant to § 408.040 and § 537.058 “shall remain open” for a period of 90 days.

Section 408.040 provides that a plaintiff must comply with specific statutory requirements to recover prejudgment interest. Section 537.058 provides that a settlement demand is inadmissible in a bad faith failure to settle claim unless the demand complies with the statute. In compliance with § 408.040 and § 537.058, Jameson’s settlement demand stated the “offer to settle will remain open for ninety (90) days.” Jameson’s demand was sent on May 20, 2019 and expired on August 18, 2019.

Still’s insurer responded to Jameson’s settlement demand with an offer of settlement for $24,751 on June 21, 2019. On June 24, 2019, Jameson filed his Petition alleging negligence by Still in St. Louis County Circuit Court. Jameson’s Petition alleged, “Plaintiff’s RSMo section 408.040 offer was rejected on June 21, 2019.” On August 6, 2019 Still’s insurer offered the applicable policy limits of $100,000. On August 14, 2019 Still’s insurer re-offered the $100,000 policy limits. Then, on August 15, 2019, prior to expiration of the original time-limited demand, Still’s insurer sent a letter purporting to accept the original May 20, 2019 settlement demand. Still moved for summary judgment, alleging the parties settled the case. The trial court granted that motion. Jameson appealed.

Until 2015, Missouri’s pre-judgment interest statute contained language specifically addressing rejection of a time-limited demand: “2. Any such demand or offer shall be made in writing and sent by certified mail and shall be left open for sixty days unless rejected earlier.” § 408.040 2005 Mo. Legis. Serv. H.B. 393 (emphasis added). In 2015, the Missouri legislature amended § 408.040 and extended the time for pre-judgment settlement demands to ninety days. The amended version of §408.040 did not contain the “unless rejected earlier” language. In her brief in support of her summary judgment motion, Still argued that the removal of the “unless rejected earlier” language in the amended § 408.040 reflected the legislature’s intent that pre-suit settlement demands are not rejected by a counteroffer.

The Missouri Court of Appeals disagreed. Longstanding black letter Missouri law provides that a counteroffer operates as a rejection of a contractual offer and as a new offer. Here, Jameson’s 90-day settlement demand was a contractual offer of settlement, and Still’s June 21, 2019 offer of $24,751 modified the proposed contractual terms. The appellate Court held that in doing so, Still extended a counteroffer.

The Court noted two circumstances under Missouri law where contractual offers may be irrevocable: 1) when parties enter into an option contract - inapplicable here - and 2), when a statute mandates the offer is irrevocable. Missouri courts interpret statutes by reviewing the plain and ordinary meaning of the words contained. As the appellate Court noted, “[n]either section 408.040 nor section 537.058 use the words irrevocable or non-rejectable or their equivalents.”  It thus concluded that the Missouri legislature did not intend to make time-limited settlement demands pursuant to § 408.040 and § 537.058 irrevocable.

The appellate Court reversed and remanded the case to the trial court. Still has applied to have the case transferred to the Missouri Supreme Court, and that application is still pending. Given the frequency of pre-suit settlement demands in litigation, it is possible the Missouri Supreme Court may accept transfer of this matter to resolve a question of general importance.

Parties should be aware of the consequences of time-limited demands before providing a response to a pre-suit settlement demand. While this case is not yet fully resolved, and it is possible the Missouri Supreme Court may choose to weigh in, it appears the longstanding rule that a counteroffer constitutes rejection and a new offer still applies in the context of settlement demands made pursuant to §408.040 and §537.058, RSMo. Accordingly, a response to a pre-suit settlement demand that modifies the terms - here, the amount of settlement - may function as a counteroffer. Parties who extend counteroffers to pre-suit settlement demands should carefully evaluate the potential for excess liability and a corresponding bad faith claim.