How your state’s Unfair Claims Settlement Practices Act can help you

Filing a claim can be unnerving. An accident may have already made you feel vulnerable and now you have to figure out the process of making claims and getting paid for your damages. 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.” For example, California’s regulations are called the Fair Claims Settlement Practices. 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 forbidden 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.

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.

What insurance companies can’t do

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 insurance claim

An insurance company must acknowledge and act promptly in response to your communications about your claims. In most 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 insurance 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.

State specific standards

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.

What to do if you have an insurance claim problem

If you suspect that your insurance company, agent, or adjuster is violating your state’s Unfair Claims Settlement Practices Act, talk to the individual’s supervisor. If you don’t get any satisfaction, file a complaint with your state’s insurance department.

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.

What the law can’t do for you

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.