A review of the Model Act and Regulations as originally draftedby the National Association of Insurance Commissioners (NAIC)demonstrates that their intent was for violations to be dealt withthrough the imposition of administrative remedies rather thanjudicial penalties in civil litigation. The requirements imposedsuch as (1) acknowledging receipt of a claim within a relativelybrief time period; (2) responding in writing to communications; and(3) providing assistance and forms without requiring a showing ofspecific harm flowing from a violation makes judicial remedies suchas a directed verdict of bad faith and/or the imposition ofmonetary damages a penalty that often does not match thebehavior.

A number of states have attempted to correct this imbalance byproviding statutorily that violations of the Unfair ClaimSettlement Practices Act or regulations do not form the basis of aprivate right of action, either for first- or third-partyclaimants. In others, the appellate courts have held that noprivate right of action exists.

Neither of these corrective measures, however, provides completeprotection from civil consequences for a violation in the course ofclaim handling. At least six states have been identified whereinthe courts permit the introduction of evidence of violations asbeing a breach of an industry standard. This evidence is generallyput on through an expert witness. At least one of thesejurisdictions is Alaska, which statutorily prohibits a privatecause of action.

It is not possible within the scope of this article to do athorough jurisdiction-by-jurisdiction review of all of the nuancesof enforcement and consequences of violations. That would be moreappropriately addressed in a separate series of articles or inseveral chapters in a textbook. What is possible is to provide anoverview. Claim professionals should review any concerns with anattorney in their specific jurisdictions.

A general principle that does not merit discussion is that everystate has some form of administrative agency that is tasked withmonitoring the behavior of insurance companies and their agents,i.e. brokers, independent adjusters, and defense counsel. This mayexist within the context of the model act and regulations thatdefine the scope of the regulations as applying to “all personstransacting a business of insurance who participate in theinvestigation, adjustment, negotiation, or settlement of a claimunder all types of insurance.” (Alaska Administrative Code 26.020.)It may also exist under other regulations, such as those thatestablish the department of insurance for that particular state. Aclaim professional must be well versed in the requirements imposedby the particular department of insurance and the governingregulations.

These states have by statute or regulation mandated that noprivate right of action exists:

• Alabama – ADC 482-1-125-.02
• Alaska – AS 21.36.125(b)
• Arizona – ARS 20-461E
• Georgia – GA. Code Ann. 33-6-37.
• Indiana – IC 27-4-1-18
• Kentucky – 806 KAR 12:095 2(3)
• Maine – 24 A.M.R.S.A. 2164-D(8)
• Nebraska – 210 NAC 60-002
• North Carolina – N.C.G.S.A. 58-63-15(11)
• Rhode Island – RI ST. 27-9.1-1
• Utah – U.C.A. 1953 31A-26-303(5)
• Virginia – Va. Code. Ann. 38.2-510B

Other states appear to have provided by appellate decisions thatno private right of action exists. Because this is a moving target,claim professionals should make certain that any information hereinhas not been superseded by an appellate court. Research performedat the time of the writing of this article indicated that a partiallist of these jurisdictions would include:

• California
• Delaware
• Hawaii
• Illinois
• Louisiana
• Massachusetts
• Michigan
• Minnesota
• New York
• New Jersey
• Nevada
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• South Carolina
• Tennessee
• Vermont
• Wisconsin
• Wyoming

Finally, a partial list of states which appear to permit theintroduction of evidence of violations as indicating a breach of anindustry standard would include:

• Alaska
• Colorado
• Idaho
• Mississippi
• North Carolina
• New Hampshire

This latter category is almost certainly larger than the sixstates listed. These were the ones that were identified during theresearch for this article. Since the admissibility at a bad-faithtrial of evidence of violations is a creation of the courts, itwill be necessary for the claim professional to check with anattorney in the jurisdiction. It is a safe rule of thumb, however,to assume that all violations of the Unfair Claim SettlementPractices Act or regulations can be described to a jury by a claimexpert appearing for the insured as being a violation of anindustry standard. The principal questions will be: What frequencyof violations will be necessary to constitute bad faith; The weightthe jury should give to this testimony; and whether it is necessaryfor the plaintiff to show actual damages flowing from theviolations.

Tim Lynch and Anne Bandle are insurance defense attorneyswith Lynch and Associates in Anchorage, Alaska. They also aremembers of the Council on Litigation Management. They can bereached at 907-276-3222, [email protected], [email protected],www.northlaw.com.