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Difficulty: HardUnfair Claims Settlement Practices

A regional claims adjuster is assigned to a complex commercial property loss involving extensive water damage. During the claims handling process, the adjuster takes several actions to manage the file and communicate with the insured. Based on standard NAIC regulations, which of the following actions by the adjuster are considered prohibited Unfair Claims Settlement Practices? (Select all that apply)

  1. Requiring the insured to submit a formal, notarized proof of loss form after the insured had already provided a comprehensive preliminary claim report containing the exact same detailed information.Answer
  2. B
    Denying a portion of the claim in writing while explicitly quoting the specific policy provision and exclusion language regarding long-term maintenance issues that justifies the denial.
  3. Informing the insured that the insurer maintains a strict internal policy of appealing any arbitration awards in favor of policyholders to encourage the insured to accept a lower immediate settlement.Answer
  4. D
    Sending a written notice to the insured on day 25 of the investigation, stating that an additional 30 days are required to properly evaluate a structural engineering report.

Answer

The prohibited practices are requiring duplicate proof of loss forms containing identical information, and making known a policy of appealing arbitration awards to compel lower settlements.
The correct answers identify specific violations of the NAIC Unfair Claims Settlement Practices Act: demanding duplicate paperwork that serves only to delay the claim, and using the threat of appealing arbitration awards as leverage to compel a lower settlement.

Step-by-Step Solution

1
Analyze the scenario to identify the regulatory framework being tested.
The question requires applying the NAIC Unfair Claims Settlement Practices Act to a commercial adjuster's conduct.
Establishing the standard of compliance is necessary to distinguish between illegal delays and valid procedural actions.
2
Evaluate the request for a formal proof of loss form following a detailed preliminary report.
This constitutes an unfair practice. The NAIC model act prohibits delaying claims by requiring multiple forms that contain substantially the same information.
Insurers cannot use redundant paperwork as a tactic to unnecessarily prolong the settlement process.
3
Evaluate the statement regarding appealing arbitration awards.
This is an unfair practice. Insurers cannot use the threat of appealing arbitration as leverage to force a policyholder into accepting a reduced settlement.
This practice undermines the good faith settlement process and is explicitly prohibited.
4
Evaluate the written denial and the 30-day investigation extension.
Both of these actions are fully compliant with insurance regulations. Properly documenting a denial with specific policy language and sending timely notices for necessary investigation extensions are required duties, not unfair practices.
Statutory guidelines allow for investigation extensions if properly communicated, and require transparent, documented reasons for claim denials.

Key Concept

Unfair Claims Settlement Practices (NAIC Model Act)
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Topics

Unfair Claims Settlement Practices

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