August 1, 2021
What Are Unfair Claims Settlement Practices?
When you buy an insurance policy, you’re signing a contract with your insurance company. And that contract or agreement states that your insurance company is legally required to cover certain damages when they take place under certain circumstances. Under an insurance contract, both the insured policyholder and the insurer, have an obligation to act in good faith and behave reasonably. However, sometimes this isn’t always the case and insurance companies have an array of unfair claim settlement practices tactics. Therefore, unfair claims settlement practices refers to unjust behavior by insurers when handling claims by policyholders.
Subsequently, an unfair claims practice could manifest itself as an improper avoidance of a claim by an insurer or an attempt to unreasonably reduce the size of the claim. However, this is illegal in many jurisdictions. With this in mind, you should make a point to learn how to spot unfair claims settlement practices, as well as how to file a complaint and what penalties apply to insurers.
Brief Summary of the Implications of Unfair Claims Settlement Practices
- First, unfair claims settlement practices is what happens when an insurer unreasonably tries to delay, avoid, or reduce the size of an insurance claim.
- With this in mind, you should know that these practices are illegal.
- Moreover, many states have passed unfair claims settlement practices laws to protect insured parties from this type of behavior
- In fact, individual states enforce Unfair Claims Settlement Practices Acts, rather than the federal government.
Understanding Unfair Claims Settlement Practices
The National Association of Insurance Commissioners (NAIC) has created model unfair claims settlement practice legislation that mandates claims are fairly handled. Moreover, this type of legislation mandates that there be clear communication between the insurer and the insured. Since, many states have implemented unfair claims practice laws. In fact, most states have enacted a version of this model law. Specifics of the law vary from state to state. Unfair Claims Settlement Practices Acts (UCSPA) are not federal law; but they are enforced by individual state insurance departments nevertheless.
How to File a Complaint of Unfair Claims Settlement Practices
First and foremost, if you suspect that your insurer is mishandling your claim, bring it up to your claim agent. However, if that is of no help, you can then take it to the claims department manager at your insurance company.
Furthermore, if you can’t resolve the matter with your insurer, it’s time to speak with your state insurance department. A representative of the department can tell you how the law applies in your state and how to file a formal complaint. Moreover, you can also check the insurance department’s website for information about your state’s regulations. In fact, some states even provide online forms that consumers can specifically fill out to file complaints about insurance unfair claims settlements practices.
After filing your complaint, some states conduct a regulatory investigation. Meanwhile, other states hold off on any investigation until any active lawsuits concerning the unfair practices have concluded. In addition, in more than a few states you can file a tort claim against their insurer on the basis that the insurer’s unfair claim handling constitutes bad faith. However, to determine whether your state permits this type of lawsuit, consult an attorney or public adjuster.
What Are the Penalties for Unfair Claim Settlement Practices?
Once you, the policyholder, files a complaint with the state, the insurance commissioner will determine if the insurer’s behavior violates the law. If it does, then the regulator will likely issue a statement of charges against the insurance. Afterwards, they will set up a hearing, and continue to do one or more of the following:
- First, issue a cease-and-desist order to warn the insurer to stop engaging in the unfair claims settlement practices.
- Second, impose a monetary penalty. Subsequently, a fine for unfair claim settlement practices is approximately $25,000 for each violation. However, it probably won’t exceed $250,000 in total.
- Furthermore, they can also suspend or revoke the insurer’s license
How to Prove Unfair Claims Settlement Practices
Acts deemed as unfair generally fit into mistreatment or alteration, timeliness issues, unreasonable requirements, and lack of due diligence. In fact, the National Association of Insurance Commissioners (NAIC) has a model for unfair claims practice legislation that requires claims to be fairly handled. One of the most important requirements of this legislation is for clear communication between the insurer and the insured.
Moreover, insurance companies across the United States engage in unfair claims settlement practices every day. Some violations are severe. For example, an insurance company that unreasonably denies a total loss claim entirely. However, most unfair claims practices consist of minor offenses. Insurance companies do this hoping you don’t notice these practices and thus saving them money.
Because of the NAIC legislation, it is now a lot easier for consumers to receive coverage from their insurance company. In fact, even if that insurance company is acting in a deceptive or malicious way. As mentioned before, the UCSPA is not federal law, and the specifics of the law vary widely between states. Consequently, the stories you hear about unfair claims practice in one state might not develop the same way in another state.
How to Identify Unfair Claim Settlement Practices
As we noted above, unfair claims settlement practices laws vary between states. Generally speaking, however, a state’s UCSPA will focus to have protections in place for misrepresentation or alteration, timeliness, unfair acts, unfair requirements and overall deceptive claims handling.
Examples of Unfair Claims Settlement Practices
- First, misrepresenting policy provisions and policy language.
- Second, making a significant alteration in an application without your consent and then settling a claim based on the alteration.
- Also settling claims for less than a reasonable expectation based on a written advertisement you received.
- As well as unjustified and unreasonable delays in claim processing and payment issuing.
- In addition, timeliness issues such as failing to respond promptly to your communications regarding claims you’ve filed. This could also include failing to confirm or deny coverage within a reasonable time period, failing to provide a prompt explanation after denying coverage or offering a compromise settlement. As well as failing to provide claim forms on time and, failing to make a prompt, fair settlement even though you’ve submitted a valid claim.
- Furthermore, unreasonable requirements such as offering small settlement amounts that force you to sue the insurer to recover the amount you are owed. Or demanding written verification of a loss after you have submitted a completed proof-of-loss form and delaying the claim investigation or payment process.
- Moreover, lack of due diligence like failing to adopt standards of reasonable investigation
- As well as unfair acts such as refusing to pay claims without conducting a reasonable investigation, denying that the incident ever occurred, or refusal to send an adjuster to your property to inspect the damages. Moreover, failing to pay your fair settlement promptly even though you’ve submitted a valid claim is another unfair act.
- This is besides payment delay on Small Business Insurance. They might use methods of delaying such as claiming they forgot to send claims forms and not responding to calls. In fact, the insurance company might also insist they never received proof of loss, when you’ve already sent multiple proofs.
What Should You Do? Consider Hiring a Public Adjuster to Handle Unfair Claim Settlement Practices
Most people wrongfully assume their insurance company is dedicated to protecting its customers and have their best interests in mind. However, an insurance company is a for-profit corporation that is more likely to be dedicated to protecting its own benefits and interests.
But when an insurance company engages in unfair claims settlement practice, don’t be discouraged. It’s most important and your right to fight back and avoid becoming a victim of an unfair settlement.
In fact, consider hiring a public adjuster to help. A public insurance adjuster will handle your insurance claim from beginning to end. They will assist with negotiations, appraisals and understand your coverage under the insurance policy. Your public adjuster can be your first line of defense in a case where insurance companies engaged in unfair claim settlement practices. They will determine what the next best course of action should be for your particular situation. Hire a Public adjuster now to maximize claims, protect your rights and assert your claims.
Best way to beat the insurance company is to hire AllCity Adjusting
At AllCity Adjusting we help residential and commercial clients alike get the claims support they need. Moreover, we have over 50 years of combined experience helping get our clients the max settlement time and time again. If your claim has been low balled or denied entirely we can help increase your maximum settlement. Call us today for a FREE consultation. Experience the AllCity difference.
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