Every state has laws that prohibit unfair, discriminatory or deceptive insurance
practices. These regulations define what is acceptable conduct in the
insurance industry and cover everything from sales practices to policy
cancellation. If you're looking for regulations in your state, you may
find them tucked in a broader law that applies to all kinds of trade
practices and to fraud, or there may be something called an "Unfair
Insurance Practices Act" or an "Unfair Claims Settlement Practices
Act." It's a mouthful, but the law can work in your favor when you're
having trouble with your insurer.
Unfair Claims Settlement Practices Acts apply
mainly to claims for personal injury, property damage (home or car),
medical bills and disability but they vary from state to state. In some
states, the acts may not apply to surety, malpractice or workers
compensation claims.
Claims practices that are prohibited will be
similar from state to state because they are based on a model act
developed by the National Association of Insurance Commissioners
(NAIC). Most states use the NAIC model as a basis for their individual
state acts but many tweak it. To find out more about how the law works
in your state, contact your state's insurance department. (Find state insurance department contact information.)
When it comes to car insurance claims, most state
laws make a distinction between a car insurance company's own customers
and a third-party claimant. For example, if you cause an accident, you
would file a claim with your own insurance company. But if another
driver damages your car, you would file a claim with their insurance
company — and in that case, you are the third-party claimant.
Generally, an insurance company has more of an obligation to its own
customers.
Can't misrepresent your policy
Under most Unfair Claims Settlement Practices Acts, an insurance
company may not knowingly misrepresent material facts or relevant
policy provisions in connection with a claim. It may not attempt to
enforce policy provisions that were altered by the company without
notice to you or without your knowledge or consent.
Can't influence other policy settlements
Typically,
the company may not drag out the settlement of a claim under one
portion of your policy where liability and the amount of the loss are
reasonably clear, so as to influence settlements under a different
portion of your policy. For example, your auto insurer can't refuse to
pay your bills under the medical coverage in your policy so that you'll
settle your uninsured motorist claim. Usually, this prohibition only
applies if you're filing a claim under your own policy, not if you're
pursuing a third-party action against someone.
Must acknowledge your claim
An insurance company should acknowledge and act promptly in response to
your communications about your claims. The NAIC model act recommends
that the insurance company acknowledge your claim within 10 working
days.
Must process your claim promptly
Insurers must implement standards for promptly investigating and
processing claims. An insurance company should complete its
investigation of your claim within a reasonable amount of time. The
model recommends that it be compete within 30 days after notification
of your claim, unless the investigation cannot be reasonably completed
within that amount of time. Otherwise, an unethical insurance company
could endlessly stonewall you by saying it is still investigating your
claim.
Can't force you to settle for less
Your insurance company may not insist you take a cash settlement that
is less than the amount it pay for repairs — except when cars are a
total loss or if you agree to the amount.
Can't force you to travel
An insurance company may not force you to travel an unreasonable
distance to have your automobile repaired at a specific repair shop, to
inspect a replacement automobile or to obtain a repair estimate.
Can't appeal lots of claims
An insurance company may not make unreasonable refusals to pay claims.
It is not to exploit the legal system by appealing almost all of the
arbitration awards in favor of policyholders as a way to force a
settlement or compromise of claims. The insurance company is allowed to
appeal, but appeals can't be a standard business practice aimed at
forcing you to take less than you're owed on a claim.
Can't refuse or delay claims without a darn good reason
An insurance company may not refuse to pay your claim or delay payment
without a valid reason. It must provide you with a reasonable
explanation why your claim was denied or why a compromise settlement
was offered. If you are denied, the insurer must provide you with the
denial in writing and reference specific provisions, conditions or
exclusions in your policy that allows for denial. The insurer is
required to make a good faith attempt to process a prompt, fair, and
equitable settlement of claims in which liability is reasonably clear.
Your
state may even have implemented standards for resolving specific types
of claims. For instance, your state may stipulate what types of
replacement car parts are permitted after an accident and how a total
car loss should be compensated. For example, the Unfair Claim
Settlement Practices Act of Virginia does not allow an insurance
company to use or prepare a car-repair estimate based on "aftermarket
parts" — those not made by the original manufacturer.
If
you suspect that your insurance company, agent or claims adjuster is
violating the Unfair Claims Practices Act, talk to the individual's
supervisor. If you don't get any satisfaction, file a complaint with
your state's insurance department.
A number of similar complaints against a particular insurance company could trigger a market-conduct examination.
|
State
insurance regulators investigate these practices, and a number of
similar complaints against a particular insurance company could trigger
a market-conduct examination. Regulators will then determine if the
company is in compliance with applicable insurance regulations.
If regulators find a pattern of misconduct, they
will fine an insurance company or take other punitive action. In
extreme cases, the state may even revoke a company's right to do
business.
