Topics covered:

Introduction

Statutory and regulatory references to states unfair claims settlement practices

Regulations

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 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 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, Mississippi, Nebraska, New York, Ohio, South Carolina, South Dakota, and Utah.

H. Settle for less based on advertising material: Not adopted in Alabama, 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 and Ala.Code 1975 § 27-12-1 through Ala.Code 1975 § 27-12-24. 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. §22:1964.

Maine: Me. Rev. Stat. Ann. tit. 24-A, §2164-D.

Maryland: Md. Code Ann., Ins. §§27-303 and -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. Stat. Ann. §§375.1000 to .1018.

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. Stat. Ann. §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: Ohio Admin. Code 3901-1-07.

Oklahoma: Okla. Admin. Code 365:15-3-1 through 365:15-3-8.

Oregon: Or. Rev. Stat. §746.230.

Pennsylvania: 40 Pa, Stat, Ann, §1171.5.

Rhode Island: R.I. Gen. Laws Ann. §27-9.1-4.

South Carolina: S.C. Code Ann. §38-59-20.

South Dakota: S.D. Codified Laws §58-33-67.

Tennessee: Tenn. Code. Ann. §56-8-105.

Texas: Tex. Ins. Code Ann. §541.060.

Utah: Utah Code Ann. §31A-26-303.

Vermont: Vt. Stat. Ann. tit. 8, §4724.

Virginia: Va. Code. §38.2-510.

Washington: Wash. Admin. Code 284-30-330.

West Virginia: W. Va. Code §33-11-4.

Wisconsin: Wis. Admin. Code Ins §6.11.

Wyoming: Wyo. Stat. Ann. §26-13-124.

 Regulations

 Many states have instituted regulations to enforce the Unfair Claims Settlement Practices Act because some courts concluded that suit cannot be filed for violation of the Act. The courts, like the Supreme Court of California, required the Department of Insurance to enact regulations and enforce the statute with appropriate fines.

 For example, in 1993, the California Department of Insurance started the regulatory process to control, through regulatory micromanagement, claims handling in the state of California. The first version of what was then called the Unfair Claims Settlement Practices Regulations were issued to comply with the direction of the California Supreme Court made as part of the ruling in Moradi-Shalal v. Fireman's Fund Ins. Companies, 46 Cal. 3d 287 (1988), that concluded: “Neither section 790.03 [the unfair claims settlement practices act] nor section 790.09 was intended to create a private civil cause of action against an insurer that commits one of the various acts listed in section 790.03, subdivision (h).” The court concluded that enforcement was the obligation of the California Department Of Insurance (CDOI).

 The CDOI, five years after receiving instruction from the supreme court, issued the first version of the regulations in 1993 and modified the regulations in 1996, 1997, 2004, 2007, and 2009. The 1997 changes renamed the Regulations the California Fair Claims Settlement Practices Regulations, which name remains.

 The regulations imposed on all insurance personnel a detailed laundry list of actions the CDOI considered wrongful or in violation of the Fair Claims Practices Act, California Insurance Code Section 790.03(h).

 The regulations impose on all insurance claims personnel the requirement that they read and understand the regulations or attend an annual training program no later than September 1 of each year. They require that insurers ascertain that every employee involved in any way in the claims process is trained about the regulations or has submitted a sworn statement that he has read and understands the regulations.

 The regulations even require that the insurance claims managing executive attest, under oath, that each employee has been trained with regard to and understands the regulations. This requirement must be complied with in order to avoid the possibility of administrative penalties upon the insurer or prosecution of the officer for perjury.

 Those found in violation can be fined up to $55,000 for each violation and may even lose their certificate of authority to do insurance business in California. For example, an insurer with 100 employees who have not been trained could, but probably will not, face a fine of $1 million or more.

 The regulations set forth minimum standards for the handling of insurance claims. They are not intended to be a text on the handling of insurance claims that must be followed slavishly. They do not even claim to be a complete guide to claims handling. The regulations are, rather, an outline of basic claims handling techniques.