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Difficulty: MediumUnfair Claims Settlement Practices

Following a severe windstorm, an insured submits a property damage claim for their business. The insurer's field adjuster completes a thorough inspection, confirms the damage is fully covered, and agrees with the contractor's repair estimate. Despite having all required documentation and undisputed liability, the insurer purposefully withholds the claim payment for 90 days in order to maximize the interest earned on its cash reserves.

Under the Unfair Claims Settlement Practices Model Act, which of the following best describes the specific regulatory violation committed by the insurer in this scenario?

  1. A
    Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies
  2. Failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim in which liability has become reasonably clearAnswer
  3. C
    Refusing to pay claims without conducting a reasonable investigation based upon all available information
  4. D
    Failing to promptly provide a reasonable explanation of the basis in the insurance policy for denial of a claim

Answer

Failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim in which liability has become reasonably clear
The correct answer accurately identifies that once liability is reasonably clear and the investigation is complete, the insurer has a statutory duty to finalize the settlement promptly. Withholding payment for 90 days for financial gain is a direct violation of this good faith requirement.

Step-by-Step Solution

1
Analyze the insurer's actions in the scenario.
The insurer successfully completed the investigation, confirmed coverage, agreed on the estimate, and established clear liability.
Identifying the current phase of the claims process eliminates violations related to earlier phases like acknowledgment or initial investigation.
2
Identify the specific misconduct.
The insurer intentionally withheld the undisputed claim payment for 90 days to earn interest on its cash reserves.
This pinpoints the exact nature of the violation as an unjustified delay in payment rather than a failure to investigate or communicate a denial.
3
Match the misconduct to the statutory definitions of unfair claims settlement practices.
The action directly violates the requirement to attempt in good faith to effectuate a prompt and fair settlement once liability is clear.
This confirms the correct statutory violation from the provided choices.

Key Concept

Unfair Claims Settlement Practices
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Topics

Unfair Claims Settlement Practices

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