Unfair Claims Settlement Practices Acts apply mainly to claims for personal injury, property damage (home or car), medical bills and disability but they vary from state to state. In some states, the acts may not apply to surety, malpractice or workers compensation claims.
Claims practices that are prohibited will be similar from state to state because they are based on a model act developed by the National Association of Insurance Commissioners (NAIC). Most states use the NAIC model as a basis for their individual state acts but many tweak it. To find out more about how the law works in your state, contact your state's insurance department.
When it comes to car insurance claims, most state laws make a distinction between a car insurance company's own customers and a third-party claimant. For example, if you cause an accident, you would file a claim with your own insurance company. But if another driver damages your car, you would file a claim with their insurance company — and in that case, you are the third-party claimant. Generally, an insurance company has more of an obligation to its own customers.
Can't misrepresent your policy
Under most Unfair Claims Settlement Practices Acts, an insurance company may not knowingly misrepresent material facts or relevant policy provisions in connection with a claim. It may not attempt to enforce policy provisions that were altered by the company without notice to you or without your knowledge or consent.
Can't influence other policy settlements
Typically, the company may not drag out the settlement of a claim under one portion of your policy where liability and the amount of the loss are reasonably clear, so as to influence settlements under a different portion of your policy. For example, your auto insurer can't refuse to pay your bills under the medical coverage in your policy so that you'll settle your uninsured motorist claim. Usually, this prohibition only applies if you're filing a claim under your own policy, not if you're pursuing a third-party action against someone.
Must acknowledge your claim
An insurance company must acknowledge and act promptly in response to your communications about your claims. In some states, the insurance company must respond within a certain time frame, such as 15 days.
Must process your claim promptly
Insurers must implement standards for promptly investigating and processing claims. Otherwise, an unethical insurance company could endlessly stonewall you by saying it is still investigating your claim.
No delays for extra forms
An insurer may not delay an investigation or payment of claims by requiring unnecessary or repetitive reports and proof-of-loss forms.
Can't force you to sue
A company may not force you to go to court in order to recover amounts due under an insurance policy by offering substantially less than the money ultimately recovered. Otherwise, an insurance company with lots of lawyers on the payroll could just say, "Sue us!" and make you go to court. Obviously, that would discourage many individuals with small claims.
Can't appeal lots of claims
Similarly, an insurance company may not exploit the legal system by appealing almost all of the arbitration awards in favor of policyholders as a way to force a settlement or compromise of claims. The insurance company is allowed to appeal, but appeals can't be a standard business practice aimed at forcing you to take less than you're owed on a claim.
Can't refuse or delay claims without a good reason
An insurance company may not refuse to pay your claim or delay payment without a valid reason. It must promptly provide you with a reasonable explanation why your claim was denied or why a compromise settlement was offered. The insurer is required to make a good faith attempt to process a prompt, fair, and equitable settlement of claims in which liability is reasonably clear.
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