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October 1st, 2024
Most states have laws prohibiting certain conduct by insurance companies while negotiating and settling insurance claims, often called unfair claims settlement practices. Many states have enacted laws based on a model law drafted by the National Association of Insurance Commissioners.
This model act requires insurance companies to meet standards such as responding to communications from policyholders promptly, attempting to settle claims fairly when the insurer’s responsibility is reasonably clear, reasonably investigating an insured’s claim, acting promptly on claims, and explaining the basis for its decisions. Many of these standards seem like common sense, but disputes often arise over what conduct is “reasonable.”
An individual policyholder’s rights under unfair claims settlement laws can vary from state to state. In West Virginia, for example, a policyholder may bring a lawsuit for a violation of the state’s version of the model law, called the Unfair Trade Practices Act, where an insurer commits prohibited acts frequently enough to be considered a general business practice.
Of course, what constitutes a general business practice is usually a contested issue, and courts have to decide that issue based on guidance from previous cases and the facts in front of them. This is just one of the many nuances that make insurance claims settlement cases complicated, with a policyholder’s rights varying from state to state and often from case to case. A lawyer experienced in handling insurance claims can help a policyholder understand these laws and enforce the rights they provide.
