You may feel particularly
vulnerable when filing a claim, especially if you aren't familiar with
the process of making claims and getting payments. Fortunately, your
state has specific regulations that protect you against unfair claims
settlement practices, such as slow or deceptive claims handling.
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 you may be
surprised how often you can get the law to work in your favor when
you're having trouble with your insurer.
Claims practices that are
verboten will be similar from state to state because they are based on
a model act developed by the National Association of Insurance
Commissioners (NAIC). NAIC model acts are generally adopted by all
states, but since states may tweak theirs first, your state's law will
likely be slightly different. To find out more about how the law works
in your state, contact your state's insurance department. (Click here to find your state's contact information.)
Most state laws concerning this topic make a distinction between an auto 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 auto 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 must acknowledge and act promptly in response to your
communications about your claims. In some states, the insurance company
must respond within a certain time frame, such as 15 days
Must process your claim promptly
Insurers must implement standards for promptly investigating and
processing claims. Otherwise, an unethical insurance company could
endlessly stonewall you by saying it is still investigating your claim.
No delays for extra forms
An insurer may not delay an investigation or payment of claims by
requiring unnecessary or repetitive reports and proof-of-loss forms.
Can't force you to sue
A
company may not force you to go to court in order to recover amounts
due under a car insurance policy by offering substantially less than
the money ultimately recovered. Otherwise, an insurance company with
lots of lawyers on the payroll could just say, "Sue us!" and make you
go to court. Obviously, that would discourage many individuals with
small claims
Can't appeal lots of claims
Similarly,
an insurance company may not 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 promptly provide you with a reasonable
explanation why your claim was denied or why a compromise settlement
was offered. 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.
If you suspect that your insurance company, agent, or 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.
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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.
The unfair claims settlement practices act in your state may not apply
to every type of claim. For instance, the act may not apply to surety,
malpractice, or workers compensation claims.
In a few jurisdictions, you can point to violations of the Unfair
Claims Settlement Practices Act as a basis for a bad-faith action
against your insurance company, and a company that makes a practice of
violating the act may be subject to punitive damages.
In an overwhelming majority of states, however, violations of the
unfair claims settlement practices act won't allow you to sue a company
privately. Nevertheless, catching your insurer in the act does give you
some leverage in your negotiations with the company.
