There is a big difference between a simple delay, and unfair settlement practices. A settlement is a written agreement where both sides agree to resolve a lawsuit or dispute. Getting to the point where a settlement can be reached involves a lot of investigation, settlement negotiation and a complete understanding the laws that apply. Generally, unfair settlement practice laws do not allow insurance companies and providers to act unfairly in how they handle insurance claims. When insurance companies act badly, or fail to do something they should have done, they need to be held responsible for unfair settlement practices.
Historically, in the late 1950’s, the National Association of Insurance Commissioners (NAIC) drafted an example, or model act for good faith claims practices. But it was not until the 1970’s when many states started to make their own laws and adopt this model act into its own laws and codes.
Each state has different laws. This means most states unfair practice laws apply to all insurance claims, except insurance claims that are controlled under federal law such as Employee Retirement Income Security Act (ERISA), so insurance claims related to worker’s compensation, title insurance, marine insurance, and other liability claims are usually governed by the state’s unfair claim practices laws.
Some examples of things insurance companies are not allowed to do as an unfair settlement practice includes when the insurance company:
- Fails to acknowledge and act within a reasonable time after they get notice or other communication about a claim,
- Fails to make and follow reasonable standards and rules so that its employees and others following its guidelines respond to claims investigations on time,
- Fails to make its decision about accepting or denying a claim about coverage after it has all the proof of the claimant’s losses,
- Hides misrepresents or outright lies about important and relevant facts about the insurance policy,
- Will not pay a claim without conducting a real and thorough investigation and use all of the information it has,
- Fails to try to act in good faith and fairly settle a claim that it knows should be paid because liability is clear,
- Forces the injured claimant to file a lawsuit because the offer it made was for an unreasonably low amount when you consider the amount of the insurance policy and the amount of injuries and damages suffered,
- Tries to settle a claim for less than the claim is actually worth by trying to point to a written or printed advertisement that was a part of the application,
- Changes the insurance policy terms without getting the insured client’s permission or agreement to the change, then trying to settle the claim based on that changed application,
- Makes a payment to its insured client or beneficiary without providing a statement showing which policy the payment was made under,
- Delays payment of a claim or investigation by requiring specific proof of loss forms when there already is a form that does the same thing, and has the same information,
- Fails to settle payment of a claim under one part of the insurance policy, to try to influence payment under a separate section of the insurance policy,
- Fails to provide a reasonable explanation for denial of a claim under the law and policy terms.
Each case is unique, and no two cases are exactly the same because there are different people involved, different locations and different responsible parties. Because of this, the examples of bad behaviors in the list above is not complete – there are many other actions that can be considered violations of unfair settlement practices not discussed in this post. Contact an experienced personal injury attorney to get a full case evaluation. A few points are broad and worth discussing in detail:
Misrepresentation: Misrepresentation means trying to twist words or hide certain facts to create confusion, problems and delay. An insurance claims representative cannot misrepresent, hide or twist the facts, related to the insurance policy’s amount of coverage to the person with insurance (policyholder or insured), or the injured claimant for any insurance claims. This means that the insurance company employee must tell the whole story. For example, if the insurance claims representative knows that there are witnesses who support the injured claimant’s side of the story, but tells the injured claimant that he or she was actually at fault, then the insurance claims representative has misrepresented the facts. Another example is misrepresenting the amount of coverage available. This can be when there is an option to get a rental car while the damaged car is being repaired or held at a facility.
Finally, the insurance company can also misrepresent the actual terms of the insurance policy. An insurance policy is basically a legal contract. The insurance policy contract terms can be interpreted a few different ways. The insurance company will obviously try to interpret the meaning of a term to its favor, to cause the injured claimant to get less money or no money at all. An insurance company misrepresentation of a term reaches the level of unfair settlement practice or even bad faith when it twists the words of the policy to limit or minimize insurance coverage.
For example, in one Michigan lawsuit, the insurance company tried to twist the policy and argue that the insured client was not covered for his illness because it fell under its 2-year “sickness” insurance coverage and not the 30-year “disability” coverage.
While misrepresentation can be intentional, it is not always the insurance company acting badly on purpose. Sometimes it can just be negligence – just neglecting to do something they know they should do, but not acting carefully to prevent mistakes from being made. Or, it can be because the insurance company employee was simply not trained. Most insurance company employees are not lawyers, educated and experienced in understanding the full implications of their roles. Still, whatever the reason, when the insurance company employee makes an important misrepresentation that affects the ability of an injured person’s ability to recover and his or her insurance claim, the insurance company needs to be held responsible.
Delays by documentation: The insurance claims representative cannot try to stall payment or an insurance investigation by asking that the person with insurance or the injured claimant to send in documents that they already sent in, even if it is not in the exact form that they originally requested.
For example, if an injured claimant gets a repair estimate for his car and brings a claim to the insurance company, then the insurance company cannot order the injured claimant to go back out and get multiple estimates to find some average marketplace estimate amount for repairs. The first repair was reasonable and accurate, and unless there is a real reason, the insurance company needs to accept it. If the insurance company wants to challenge it, then it needs to offer a real argument and reason for rejecting the car/property damage estimate. The insurance company cannot also keep asking for documentation that it knows does not exist.
Failure to communicate and respond: It is unprofessional for the insurance company not to respond to a claim on time. It may also be a violation of unfair settlement practice laws. Once an insurance company receives notice or a communication of an insurance claim, they have a duty to respond within a reasonable time. What is defined as reasonably prompt really depends on the unique facts of each case the state’s laws, but generally the insurance company should respond within 24 hours. When someone provides written correspondence, like a letter, the insurance company should respond within 5 business days from.
If the insurance company gets a proof of loss form, which is typically the insurance company document that gives the insurance company notice that a claim is being filed and provides important details like how much damage was caused, the insurance company should accept, reject or make some kind of compromise within 30 to 60 days. If the insurance company fails to reject a proof of loss form on time, then the insurance company gives up, or waives, certain legal defenses against the claim, like issue of waiver and estoppel.
Like any other business, insurance companies make money by delaying, or holding off on paying a claim. Insurance companies do not have a reason to pay a claim any earlier than they have to, and are not motivated to rush.
But when insurance companies try to manipulate the law to avoid insurance payments, they need to be held responsible for any bad faith and misinformed actions that they take. Even if the mistake was not on purpose, this is not an excuse. Insurance claims adjusters, supervisors and their other employees must have knowledge about certain laws and court decisions in order for them to avoid making mistakes and harming already injured claimants.
Contact an experienced personal injury lawyer
Without experience in the insurance industry or legal experience, understanding which factors or evidence can help or hurt your case can be difficult to understand.
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