How the Unfair Claims Settlement Practices Act can help you
You may feel vulnerable when filing an insurance claim, especially if you aren't familiar with the process. 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 the law can work in your favor when you're having trouble with your insurer.
Claims practices that are prohibited will be similar from state to state.
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.