2) Knowingly cease or prolong nego-
tiations for settlement of a claim with
the intention of allowing the statute of
limitations to run out.
Again, prompt investigation and action should be the rule. Generally, it
is important to provide the insured or
claimant with notice of an approaching statute of limitations date (usually
in writing), which many states require.
However, some states do not require any
such notice when the insured or claimant is represented by counsel.
3) Indicate payment or accompanying
letter with payment is final or requires
the release of any claims, unless the policy limit has been paid or the first-party
claimant and insurer have agreed to a
compromise settlement in the amount
payable under the insurance contract.
4) Issue checks or drafts in partial settlement of a loss or claim under a specific coverage that contains language purporting to release insurer or insureds
from total liability under all coverage.
These kinds of prohibited actions are
not limited to first-party insureds, but
also extend to third-party claimants.
5) Withhold payment under any applicable coverage when the payment
is known, not in dispute, and would
extinguish the insurer’s liability under
that coverage if a claim involves multiple coverages.
By enacting unfair claims settlement
practices laws, the states are seeking to
effectuate prompt and fair settlements
and placing the burden on the insurers
to recover under any other applicable insurance policies. If coverage is applicable
to a claim, the states expect the insurer
to pay the claim and then fight with any
additional applicable insurance. The
same is true if there are multiple coverages available to the insured from the
same insurer; the insurer cannot withhold payment of an undisputed portion
to try to obtain a compromise under
6) Delay settlement where liability has
become reasonably clear under a portion of the policy coverage in order to
influence settlement under other portions of the insurance policy coverage.
While these lists are not exhaustive
of all of the required or prohibited acts
or practices under each state’s unfair
claims practices laws, they highlight the
underlying purpose of these statutes and
regulations. The states are attempting
to effectuate prompt, fair, and equitable
settlements of claims where liability is
reasonably clear, requiring prompt communications and claim documentation,
while keeping insureds and claimants
informed when additional investigation
is required or a claim is denied. In fact,
these unfair claims practices can be treated almost as “consumer” protection laws
for an insured or claimant.
When choosing a particular course of
action, it may be wise to check with the
state’s unfair claims settlement practices
statutes or regulations for additional
What are the consequences of a violation of a state’s unfair claims settlement
practices? Typically, each state’s Department of Insurance (i.e., insurance commissioner) is authorized to conduct
investigations into an insurer’s claims
practices and levy penalties for proven
violations. Many states require a pattern
of violations (i.e., established practices)
before any penalties will be imposed by
the Department of Insurance, and a few
states only require a single violation to
support the imposition of penalties.
Under the Model Act and Regulations,
NAIC states that nothing in those provisions shall create or imply a private cause
of action or individual civil lawsuit for
violation of those laws. However, not all
states have followed that suggestion. Some
states permit private causes of action and
civil suits against insurers for a violation
of their unfair claims practices laws. Of
those states, many require claimants to
pursue administrative remedies first.
Some states, like Florida, have even
statutorily created a private right of action
which permits both insureds and third-parties to bring private causes of action under Florida’s Unfair Claims Practices Act.
Several other states permit a private right
of action to proceed in court even though
their statutory schemes do not specifically
provide for such a remedy, implying the
cause of action based on the failure of the
legislature to specifically exclude it.
Because each state has unique requirements and prohibited activities, it is important to focus on the specific state’s
unfair claims settlement practices laws.
Remembering the general purposes for
which the unfair claims practices laws
have been enacted and keeping the above
suggestions in mind will assist insurers in
handling property and casualty claims in
a “fair” manner.
George V. Pilat, Esq., is a partner with
Mazanec, Raskin & Ryder Co., L.P.A. He can
be reached at firstname.lastname@example.org. Terry L.
Williams, Esq., is an associate and can be
contacted at email@example.com.