How Does a Demand Letter Work?
- A demand letter is a correspondence sent to another entity requesting a specific amount of money to settle a dispute over damages. Normally, demand letters are drawn up by attorneys and associated with a lawsuit or an insurance claim. Although the language used in them is strong, their main purpose is to do one thing: open up lines of communication and start negotiations toward a settlement.
- Demand letters are tools used by attorneys to start negotiations about a dispute for damages. They are usually sent to another attorney hired by a defendant or an insurance adjuster. The damages listed in them usually fall under the category of bodily injury or mental anguish. Demand letters give specific details and supporting paperwork about them such as the date of occurrence, facts of the event, type of injury, incurred expenses (medical bills or lost wages) and other less tangible expenses (mental distress). The requested amount of damages is normally inflated a few times higher than what is actually suffered by the injured party in an effort to give room for negotiations. The defendant's attorney and insurance adjuster is aware of this fact. So they consider the demanded amount an unrealistic value. Instead, they go through the demand letter and supporting paperwork for information on a reasonable value.
- After an attorney or insurance adjuster determines a reasonable value of settlement, they will respond to the demand letter with a phone call or written letter. The response is usually a value lower than the amount at which they want to settle the dispute of damages. However, it sets the ball back into the court of the attorney representing the person making the complaint. At this point, more calls and letters are exchanged until a final amount of monetary damages is agreed to. This final amount ends the usefulness of the demand letter. It then only becomes a filed document reflecting the starting point of a completed negotiation settlement.