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Difficulty: HardUnfair Claims Settlement Practices

A commercial property insurer is handling a complex fire and business interruption claim for a manufacturing facility. During the adjusting process, the claims examiner takes several actions. According to standard NAIC Unfair Claims Settlement Practices regulations, which of the following actions constitute statutory violations? (Select all that apply.)

  1. Denying the business income portion of the claim in writing without identifying the specific policy provision or exclusion used as the basis for the denial.Answer
  2. Sending a partial settlement check for structural repairs without accompanying documentation that indicates the specific coverage under which the payment is issued.Answer
  3. C
    Notifying the insured in writing 30 days after receiving the proof of loss that the investigation remains incomplete, while providing the specific reasons why additional time is required.
  4. D
    Issuing a reservation of rights letter prior to investigating whether the insured failed to maintain the required fire suppression system.

Answer

The actions that constitute statutory violations are denying the claim without identifying the specific policy provision and sending a settlement check without indicating the coverage under which payment is made.
Under the NAIC Unfair Claims Settlement Practices Model Act, insurers are strictly prohibited from denying a claim without promptly providing a reasonable and accurate explanation of the basis for the denial, which includes citing the specific policy provision. Furthermore, it is a violation to issue claims payments without a statement setting forth the specific coverage under which the payments are being made.

Step-by-Step Solution

1
Analyze each action taken by the claims examiner against the NAIC Unfair Claims Settlement Practices Model Act.
Identified two actions that violate the act and two that are standard compliance procedures.
To determine which actions are legally prohibited versus those that are permitted or required.
2
Evaluate the denial of the business income claim.
Determined that failing to cite the specific policy provision for a denial is an unfair practice.
Insurers must provide a reasonable and accurate explanation of the basis for any claim denial.
3
Evaluate the issuance of the partial settlement check.
Determined that failing to indicate the specific coverage for a payment is an unfair practice.
Insurers must clearly state the coverage under which any payment is being made to prevent confusion.
4
Evaluate the 30-day notice of incomplete investigation and the reservation of rights letter.
Determined both are legitimate and required procedures, not violations.
Statutes require insurers to notify insureds if investigations take longer than standard timeframes, and a reservation of rights is a standard legal tool to prevent estoppel.

Key Concept

Unfair Claims Settlement Practices
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Unfair Claims Settlement Practices

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