For starters, stop stressing. Insurance companies are in the business of collecting premiums, not paying claims. They won't just give her money because she asks. In fact, they are pretty stingy on paying claims these days for minor impacts like that.
Conveying a settlement offer is almost always a good idea. The most significant difference between a verbal offer and a written offer is that the attorney "must" convey a written offer, but is not necessarily required to convey a verbal offer (although generally a good idea). Also, written offers are less likely to be confused, and tend to show you are more serious.
You potentially have significant claims for breach of duties of loyalty, good faith and fair dealing, as well as conversion related claims. The biggest question will probably be determining the value of your claims, and of course collectability is always a wildcard. If you'd like to chat, let me know as I regularly handle matters in Modesto.
I apologize if this sounds curt and self-serving, but "get a lawyer!" You shouldn't be making business decisions with over $600,000 at stake based on a blog.
I'd be happy to speak with you, as would a dozen other lawyers on this site. Please take advantage of someone's offer, and get proper formal counseling.
It doesn't sound like a lawsuit, but rather "just" a collection letter. You can check with the Sacramento County Courthouse. There is an online index for civil cases, and see if your name appears. However, the way you've described it, I highly doubt you've been sued at this point.
The statute of limitation generally starts when you "breach the agreement." That is typically upon non -payment of the first bill after the last transaction (payment or charge).
No, it doesn't mean you...
www.caeb.uscourts.gov You will need to sign up for a Pacer account, and then you can download directly form the court. Otherwise you can go the the court physically at 500 I Street in Sacramento and pick it up. (This assumes you lived in Vallejo at the time you filed)
To seek clarification, you needed to have requested oral arguments by 4:00 p.m the day the ruling came out. However, I think what you are really seeking is clarification as to what the next steps are, and that legal advise that Judge can't really give you. You should seek advice of an attorney.