Today's adjuster is frequently responsible for handling claims in several states. This applies to both the in-house claim office staff and to independent adjusters. There is often an effort to accuse the claim handler of mistakes or misconduct as a way to either increase the amount of money available through the insurance coverage or to convert the loss into one for policy limits. One approach is accusing the adjuster of engaging in “unfair claim settlement practices” as prohibited by the statutes or regulations in a particular state.

Beginning in 1971 and continuing through 1990, the National Association of Insurance Commissioners (NAIC) performed major re-writes of its original Model Act dealing with claim practices. Almost all of the states have now adopted some form of legislation incorporating all or portions of the NAIC's model act and/or model regulations.

However, there is no true uniformity among the states in terms of statutes, regulations, and judicial interpretations. Each state has addressed its priorities in diverse ways, setting different requirements for adjusting property and casualty claims. In addition, each state will generally have a separate set of guidelines for automobile claims. Finally, many states will have specific guidelines addressing life, health, workers compensation, and surety claims.

This is the first in a five-part series of articles that will highlight some of the contrasting provisions and unique variations of the Unfair Claims Settlement Practices Act and the Unfair Property/Casualty Claims Settlement Practices Regulations among the states. There will be no attempt to address issues associated with automobile claims, as those matters will be discussed, hopefully, another day. In addition, we will not focus on the fields of life, health, workers' compensation, and surety claims.

This series is not intended to be an exhaustive analysis of state-specific statutes and regulatory schemes. Rather, the goal of this series is to raise the overall awareness of claim personnel with respect to the variations that exist.

Each segment will be accompanied by state-specific, regional claim-handling reference charts, which will set out deadlines relevant to the principal prohibitions in the statutes and/or regulations. Intended to function as a quick reference tool, this series of charts is not designed to replace the need to review and familiarize oneself with each state's statutes and regulations. That is why each entry is accompanied by the specific reference to the statute or the regulation. The law is a dynamic institution. Change occurs frequently, and it is critical that the claim adjuster stay informed about matters governing the profession.

Section 3 of the NAIC's Model Act states that it is “an improper claim practice for a domestic, foreign, or alien insurer transacting business” in the particular state to commit an act defined in Section 4 if it was committed “flagrantly and in conscious disregard” of the act or any rules promulgated hereunder; or “with such frequency to indicate a general business practice to engage in that type of conduct.”

In Section 4, unfair claim practices relating to the typical property and casualty claim were classified as:

Misrepresenting relevant facts or policy provisions.
Failing to acknowledge pertinent communications with reasonable promptness.
Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims.
Not attempting in good faith to promptly, fairly, and equitably settle claims in which liability has become reasonably clear.
Forcing insureds to file suit to recover amounts due by offering substantially less than the amount ultimately recovered in the law suit.
Failing to conduct a reasonable investigation.
Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information.
In the case of claim denials or offers of compromised settlement, failing to promptly provide a reasonable and accurate explanation of the basis for such actions.
Failing to provide necessary claim forms and reasonable instructions about their use.

There are other model regulations that are not directly applicable to the topic of this series. Additionally, there are other definitions of unfair claim practices that are unique to certain states.

In future articles in this series, we will discuss the impact of the time limits adopted by the various states. We also will highlight the changes made by some states by including both first- and third-party claimants under the protections provided by these statutes and/or regulations. Last, we will explore some of the unique provisions that can often create challenges in claim handling.

Tim Lynch and Anne Bandle are insurance defense attorneys with Lynch and Associates in Anchorage, Alaska. They may be reached at 907-276-3222, tlynch@northlaw.com, abandle@northlaw.com.

Special Reports /

Unfair Claim Settlement Practices

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