10 Unfair Claim Settlement Practices

October 21, 2008

I can't tell you how many times I have heard an insured, when discussing an insurer's offer of settlement, say: "That isn't fair." I am sometimes prompted to tell them what my wife told our children as they were growing up: "Life isn't fair!" Nevertheless, many states do have laws on the books which define what is and what is not fair when it comes to Claim Settlement Practices. Simply put, many states have come up with a list of unfair practices which, when practiced by an insurer, simply do not place an insured in a position of receiving a level playing field when pursuing a claim.

The number of "Unfair Practices" as defined by the law can vary. They usually run from 15 to 20 different practices listed for an individual state. Arizona has 19. For better or for worse, I am going to list the "Top Ten" which, from my lofty tower, are the most difficult for an insured. Here goes:

• Failing to promptly settle claims if liability has become reasonably clear under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage. It happens. Some insurance companies have tried to stop additional living expense claims -- claims that are paid for out of home expenses -- in order to force an insured to accept a structure settlement that just might not be in that insured's best interests.
• Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which the payments are being made. What a way to confuse an insured. It happens. I have seen payments made under one portion of a policy placed on a different portion of the policy when the time draws nigh to conclude a claim.
• Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed. Another delay tactic.
• Failing to acknowledge and act reasonably and promptly upon communications with respect to claims arising under an insurance policy. Laws in different states vary on what is an inordinate amount of time to respond but we call insurance companies who fail to respond in a timely manner to correspondence for which a reasonable person would expect to receive a response: "delay experts".
• Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under an insurance policy.
• Refusing to pay claims without conducting a reasonable investigation based upon all available information. The key word here is "all". Some insurance company representatives have been known to gather just enough information to justify denying a claim while great information that would buttress the insured's claim goes uninvestigated.
• Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.
• Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds. If you have to go to court, you have already lost. Have you ever seen people exiting a courtroom? There are two people smiling: the lawyers!
• Attempting to settle a claim for less than the amount to which a reasonable person would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application. Its called false advertising.

And the Number One Unfair Claim Settlement Practice:

• Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue. In my book, that is called lying and I despise liars.

What does all of this mean? Practicing such things in the adjustment of an insured's claim is illegal. So, what do insurance company lobbyists think about such things. They ponder. They plan. They go to work. They get things like this put in the Law (no kidding this is actually in the Law in Arizona and in several other states in which we assist insureds):

Nothing contained in this section is intended to provide any private right or cause of action to or on behalf of any insured or uninsured resident or nonresident of this state. It is, however, the specific intent of this section to provide solely an administrative remedy to the director for any violation of this section or rule related to this section.

Administrative remedy only? Yes. You can't sue based upon this law! This is another reason why you need an advocate to put your claim together.