A passenger is injured when the insured driver causes a collision. The insurer's investigation quickly determines that the insured is entirely at fault. The passenger submits 3,000 immediately, but only on the condition that the passenger signs a document releasing the insurer from any future Bodily Injury liability claims. Under standard state insurance regulations, which of the following best describes the adjuster's action?
- It is an unfair claims settlement practice because the insurer is withholding payment on an undisputed coverage to influence the settlement of a separate coverage.Answer
- BIt complies with regulations as long as the conditional settlement offer is communicated in writing within the state's mandatory timeframe for acknowledging claims.
- CIt is an unfair trade practice known as rebating, because the immediate medical payment is being used as an unauthorized inducement to secure a legal release.
- DIt is a legitimate contractual practice since insurance policies are contracts of adhesion and the insurer reserves the right to dictate final settlement terms.
Answer
The action is an unfair claims settlement practice because the insurer is leveraging an undisputed claim under one coverage to force a settlement on a different coverage.
State regulations, based on the NAIC model act, specifically prohibit insurers from failing to promptly settle claims under one portion of a policy (where liability is reasonably clear) in order to influence settlements under other portions of the coverage. The Medical Payments coverage should be paid independently without requiring a release for Bodily Injury liability.
Step-by-Step Solution
Key Concept
Leveraging Coverages in Unfair Claims Settlement Practices