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What Are Unfair Insurance Claims Handling Practices?

Posted October 12, 2018

By Jonathan A. Karon

Regulating insurance companies is generally a matter of state law, so specific protections vary from state to state.  In Massachusetts, insurance companies are required to act in good faith when adjusting a claim, no matter who is making the claim.  Whether you are a policyholder seeking benefits under your own policy (known as a “first party” claim) or someone making a claim for personal injuries or property damage under the negligent person’s liability coverage (known as a “third party” claim) insurers are required to treat you fairly.

There is a specific Massachusetts statute, Massachusetts General Laws Ch. 176D § 3(9) which prohibits insurance companies from engaging in the following unfair claims handling practices:

(a) Misrepresenting pertinent facts or insurance policy provisions relating to coverages
at issue;

(b) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;

(c) Failing to adopt and implement reasonable standards for the prompt investigation
of claims arising under insurance policies;

(d) Refusing to pay claims without conducting a reasonable investigation based
upon all available information;

(e) Failing to affirm or deny coverage of claims within a reasonable time after
proof of loss statements have been completed;

(f) Failing to effectuate prompt, fair and equitable settlements of claims in
which liability has become reasonably clear;

(g) 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 such insureds;

(h) Attempting to settle a claim for less than the amount to which a reasonable
man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;

(i) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured;

(j)  Making claims payments to insured or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made;

(k)  Making known to insured or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;

(l) Delaying the investigation or payment of claims by requiring that an insured or claimant, or the physician of either, submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;

(m)  Failing to settle claims promptly, where 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; or

(n) Failing to provide promptly a reasonable explanation of the basis in  the insurance policy in relation to the facts or applicable law for denial of a
claim or for the offer of a compromise settlement.

If an insurance company is found to have committed any of these violations, it is also deemed to have violated Massachusetts General Laws Ch  93A which prohibits unfair and deceptive business practices.  If a Court finds that the violation was “willful or knowing” the insurance company can be liable for double or triple damages, plus attorneys fees.

The above requirements include both acting reasonably promptly in investigating and evaluating claims (sub-parts b and d) and effecting a prompt, fair and equitable settlement of claims in which liability is reasonably clear (sub-part f).    Similarly, sub-part (d) prohibits refusing to pay claims without conducting a reasonable investigation based upon all available information.  A very important protection is contained in sub-part (g) which prohibits compelling insureds to institute litigation (including an arbitration proceeding) to recover amounts due by offering substantially less than the amounts ultimately recovered in such an action. As the Massachusetts Appeals Court explained, one of the purposes of this provision is to prohibit the practice of “low-balling, i.e., offering much less than a case is worth…where liability is either clear or highly likely.” Guity v. Commerce Insurance Co., 36 Mass. App. Ct. 339, 343 (1994).

The list of prohibited claims practices in Chapter 176D is not exhaustive.  Any time an insurer unfairly places its own interests ahead of those of a policyholder or does not fairly consider all information in evaluating a claim, it may be engaging in an unfair claims settlement practice.  Accordingly, this blog post is merely intended to be a useful discussion of general principles.  If you think that you may have been wrongfully taken advantage of by an insurance company, you should contact an attorney with experience in these types of cases.

Yes, I do handle them.

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