During the handling of a personal auto claim, an insurer determines that liability is clear and undisputed. The insured's vehicle is declared a total loss, and the exact replacement value is quickly agreed upon between both parties. However, the insured also has pending medical bills for bodily injury resulting from the same accident that are still being evaluated. The claims adjuster informs the insured that the settlement check for the vehicle's total loss will be withheld until the insured agrees to sign a final, comprehensive release for the pending bodily injury claim as well. Based on state insurance regulations, which of the following best describes the adjuster's action?
- It constitutes a prohibited practice by failing to promptly settle a claim under one portion of the policy coverage in order to influence settlements under another portion.Answer
- BIt is a permissible standard settlement procedure, provided the insurer issues a reservation of rights letter regarding the unresolved medical bills.
- CIt is a violation of the statutory time limits for claim acknowledgment, because the property damage payment is being illegally deferred.
- DIt constitutes the unfair trade practice of twisting, because the adjuster is manipulating the insured's available policy benefits.
Answer
It constitutes a prohibited practice by failing to promptly settle a claim under one portion of the policy coverage in order to influence settlements under another portion.
State insurance regulations explicitly identify it as an unfair claims settlement practice to fail to promptly settle claims under one portion of the insurance policy coverage, where liability has become reasonably clear, in order to influence settlements under other portions of the insurance policy coverage. The insurer cannot lawfully use the undisputed property damage payment as financial leverage to force a premature bodily injury settlement.
Step-by-Step Solution
Key Concept
Unfair Claims Settlement Practices: Leveraging Coverages