A Discussion
Summary: The National Association of Insurance Commissioners (NAIC) created the Unfair Claims Settlement Practices Act to set forth standards for the investigation and disposition of claims arising under policies or certificates. The act had previously been part of the Unfair Trade Practices Act until it was removed and made a freestanding act in 1989.
This article summarizes the provisions of the act and presents a state-by-state list of statutory or regulatory references on the subject of unfair claims settlement practices.
Topics covered:
Introduction
Statutory and regulatory references to states unfair claims settlement practices
Introduction
The act lists fourteen unfair claims practices that are prohibited:
A. Knowingly misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverages at issue;
B. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;
C. Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under its policies;
D. Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear;
E. Compelling insureds or beneficiaries to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;
F. Refusing to pay claims without conducting a reasonable investigation;
G. Failing to affirm or deny coverage of claims within a reasonable time after having completed its investigation related to such claim or claims;
H. Attempting to settle or settling claims for less than the amount that a reasonable person would believe the insured or beneficiary was entitled by reference to written or printed advertising material accompanying or made part of an application;
I. Attempting to settle or settling claims on the basis of an application that was materially altered without notice to, or knowledge or consent of, the insured;
J. Making claims payments to an insured or beneficiary without indicating the coverage under which each payment is being made;
K. Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information and verification appearing in the formal proof of loss form;
L. Failing in the case of claims denials or offers of compromise settlement to promptly provide a reasonable and accurate explanation of the basis for such actions;
M. Failing to provide forms necessary to present claim within fifteen (15) calendar days of a request with reasonable explanations regarding their use;
N. Failing to adopt and implement reasonable standards to assure that the repairs of a repairer owned by or required to be used by the insurer are performed in a workmanlike manner.
Statutory and Regulatory References
to States Unfair Claims Settlement
Practices Laws
Most states have adopted statutes or regulations that are similar to the act. Many states have adopted additional statutes that refine the act and provide even more protection to the insured or claimant. None of the fourteen listed practices have been adopted by all states. The following identifies which states have adopted which of the fourteen practices; since more states have adopted them than not, the states NOT adopting the practice are listed.
A.Misrepresentation: Not adopted by Florida, Georgia, Illinois, Mississippi, and South Dakota.
B.Acknowledgement of communication: Not adopted by Mississippi and South Dakota.
·Hawaii specifies failure to respond within 15 days of receipt of communication from insured, claimant, or commissioner. Response must adequately address concerns listed in the received communication.
·Alabama and Ohio state within 15 days, Oklahoma 20 days, South Dakota 30 days.
C.Reasonable standards: Not adopted by Alabama, Mississippi Oklahoma, South Dakota, and Texas.
D.Good faith settlement: Not adopted by Alabama, Florida, Maine, Mississippi, Ohio, Oklahoma, South Dakota, and Utah. Iowa includes failing to pay interest when required, and New York applies unless arson is suspected.
E.Institute suit: Not adopted in Alabama, Florida, Mississippi, Ohio, Oklahoma, South Dakota, Texas, and Vermont. Tennessee includes life insurance.
F.Without reasonable investigation: Not adopted in Alabama, California, Mississippi, Nevada, New Hampshire, New Mexico, New York, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Utah, and Wisconsin. Alaska and Arizona require the explanation of the basis of denial or the offer of a compromise on the settlement.
G.Affirm or deny coverage: Only the following have adopted the practice as written-Georgia, Maine, Nevada, Rhode Island, and Texas. The other states have adopted this practice based on the submission of a completed proof of loss statement. The following states have not adopted this practice: Alabama, Florida, Mississippi, Nebraska, New York, Ohio, South Carolina, South Dakota, and Utah.
H.Settle for less based on advertising material: Not adopted in Alabama, Colorado, Florida, Georgia, Maine, Mississippi, New York, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Wisconsin.
I.Settle claim on basis of altered application: Not adopted in Alabama, Georgia, Mississippi, New York, Oklahoma, South Carolina, South Dakota, Texas, Washington, and Wisconsin.
J.Payment without indication of coverage: Not adopted in Alabama, Florida, Mississippi, New York, North Dakota, Ohio, Oklahoma, South Carolina, Texas, and Wisconsin. In Georgia, New Mexico, Oregon, and Utah only when the insured or claimant requests a statement identifying the coverage the claim is paid under is such a statement required.
K.Delaying by requiring formal proof of loss and duplicating statements: Not adopted by Alabama, South Carolina, South Dakota, Texas, or Wisconsin. Only Alaska, Rhode Island, and Tennessee have adopted the practice as written. The remaining states include request of reports from physicians as part of the unfair practice.
L.Failure to provide prompt and reasonable explanation: Not adopted in Alabama, Alaska, Colorado, Mississippi, New Hampshire, New York, North Dakota, Ohio, Oklahoma, and South Carolina. Georgia requires an explanation only when requested in writing by the claimant.
M.Provide claim forms within 15 days: Most states have NOT adopted this practice. The states that have adopted the practice are: Georgia, Illinois, Louisiana, Maine (does not apply in a catastrophe), Missouri, Nebraska, Oklahoma (20 days), Rhode Island (10 days), Tennessee, and Wisconsin (no time limit, just promptly).
N.Reasonable standards to assure repairs: Most states have NOT adopted this practice. The states that have adopted this practice are: Georgia, Illinois, Missouri, Nebraska, Rhode Island, and Tennessee.
While not part of the model act, many states have adopted the following as an unfair claim practice:
Making known to an insured or third-party claimant the practice of appealing an arbitration award in favor of the insured/claimant for the purpose of compelling the insured/claimant to accept a settlement lower than the amount awarded in arbitration.
All but the following states have adopted the above as an unfair practice: Alabama, Florida, Georgia, Illinois, Maine, Mississippi, Missouri, Nebraska, New York, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, and Texas.
The following list provides statutory or regulatory references to states unfair claims settlement practices laws. Many states have added additional practices that they deem to be unfair to the insured or claimant.
Alabama: AL ADC 482-1-125-.05 through 7. Alabama has not adopted statutes or regulations similar, identical, or related to the NAIC Model Act.
Alaska: Alaska Stat. §21.36.125.
Arizona: Ariz. Rev. Stat. Ann. §20-461.
Arkansas: Ark. Code. Ann. §23-66-202 through 206.
California: Cal. Ins. Code §790.03.
Colorado: Colo. Rev. Stat. §10-3-1104.
Connecticut: Conn. Gen. Stat. §38a-816.
Delaware: Del. Code Ann. tit. 18, §2304.
District of Columbia: D.C. Code Ann. §31-2231.17.
Florida: Fla. Stat. §626.9541.
Georgia: Ga. Code. Ann. §§33-6-34.
Hawaii: Hawaii Rev. Stat. §431:13-103.
Idaho: Idaho Code §41-1329.
Illinois: 215 Ill. Comp. Stat. 5/154.6.
Indiana: Ind. Code. §27-4-1-4.5.
Iowa: Iowa Code §507B.4.
Kansas: Kan. Stat. Ann. §40-2404.
Kentucky: Ky. Rev. Stat. §304.12-230.
Louisiana: La. Rev. Stat. Ann. §22:19643
Maine: Me. Rev. Stat. Ann. tit. 24-A, §2164-D.
Maryland: Md. Ann. Code Ins. §§27-304.
Massachusetts: Mass. Gen. Laws ch. 176D, §3.
Michigan: Mich. Comp. Laws §500.2026.
Minnesota: Minn. Stat. §72A.20, Subd. 12.
Mississippi: Miss. Code. Ann. §§83-5-29 to 83-5-51. Mississippi has not adopted statutes or regulations similar, identical, or related to the NAIC Model Act.
Missouri: Mo. Rev. Stat. V.A.M. S. 375.1007.
Montana: Mont. Code Ann. §33-18-201.
Nebraska: Neb. Rev. Stat. §§44-1540.
Nevada: Nev. Rev. Stat. §686A.310.
New Hampshire : N.H. Rev. Stat. Ann. §417:4.
New Jersey: N.J. S.A.17B:30-13.1.
New Mexico: N.M. Stat. Ann. §59A-16-20.
New York: N.Y. McKinney's Ins. Law §2601.
North Carolina: N.C. Gen. Stat. §58-63-15.
North Dakota: N.D. Cent. Code §26.1-04-03.
Ohio: OH ADC 3901-1-07.
Oklahoma: OK ADC 365:15-3-1 through 365:15-3-8.
Oregon: Or. Rev. Stat. §746.230.
Pennsylvania: 40 Pa. Cons. State. 1171.5.
Rhode Island: R.I. Gen. Laws 1956 §27-9.1-4.
South Carolina: S.C. Code Ann. §§38-59-20.
South Dakota: S.D. Codified Laws Ann. §58-33-67.
Tennessee: Tenn. Code. Ann. §56-8-105.
Texas: V.T.C.A., Insurance Code § 541.060.
Utah: Utah Code Ann. 1953 §31A-26-303.
Vermont: Vt. Stat. Ann. tit. 8, §4724.
Virginia: Va. Code. §38.2-510.
Washington: Wash. Admin. Code R. §284-30-330.
West Virginia: W.Va. Code §33-11-4.
Wisconsin: Wis. Admin. Code §6.11.
Wyoming: W.S. 1977 § 26-13-124.