What is the Unfair Claims Settlement Practice Act?
Unfair claims practice refers to improper actions by an insurer intended to reduce the payout on a claim. The National Association of Insurance Commissioners (NAIC) promulgated a model for unfair practices acts for states to enact, called the Unfair Claims Settlement Practices Act (UCSPA). Each state, including California, has implemented some form of unfair practices act, and the specifics of the law differ within each state.
The Model UCSPA
The NAIC is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from all 50 states, D.C., and U.S. territories. The NAIC supports state-level efforts to regulate the practice of insurance.
The NAIC created model unfair claims practice legislation, known as the Unfair Claims Settlement Practices Act. The model UCSPA defines a variety of specific unfair practices including misrepresenting facts or policy provisions, unjustifiably delaying investigations into claims, denying claims without a reasonable investigation, delaying payment on claims, and denying claims without an explanation. The UCSPA also provides remedies for policyholders and penalties for insurers who engage in these wrongful practices. The UCSPA is meant to provide guidance for states to enact their own unfair claims settlement practice legislation.
California’s Fair Claims Settlement Practices Regulations
In order to regulate trade practices in the business of insurance and to prohibit unfair or deceptive acts or practices by insurance companies, the California legislature enacted the Unfair Insurance Practices Act (UIPA). Subsequently, the legislature empowered the California Insurance Commissioner to enact regulations necessary to implement the UIPA, and identified 16 specific types of unfair claims settlement practices.
The unfair practices identified in the California Insurance Code largely track the unfair practices identified in the UCSPA and include:
- Misrepresenting the policy or facts
- Failing to act promptly upon communications relating to claims
- Failing to promptly investigate a claim and promptly make a determination regarding a claim
- Not attempting to fairly settle claims that merit payment
- Forcing or threatening bad-faith litigation over claims
- Offering an unreasonable settlement in light of the advertised benefits of a policy
- Altering a policy without knowledge of the policyholder
- Failing to settle claims promptly
- Failing to provide an explanation for a claims decision
- Telling a claimant not to get a lawyer
- Delaying payment of benefits owed
Insurance companies that violate these prohibitions are subject to liability to the policyholder as well as additional statutory penalties.
Gianelli & Morris Takes Insurance Companies to Task for Wrongful Conduct
If you have faced a wrongful claim denial or bad faith conduct by an insurance company in California, call the insurance law attorneys Gianelli & Morris for a free consultation regarding your case.
