A regional accounting firm suffers a ransomware attack and files a claim under its commercial cyber liability policy. Two weeks later, the insurer sends a short letter to the firm stating that the claim has been denied because "the loss falls outside the scope of covered perils." The letter does not cite any specific policy provision, exclusion, or legal basis for the denial.
Under the NAIC Unfair Claims Settlement Practices Act, which of the following statements best describes the insurer's action?
- AIt is a compliant procedure under the Fair Credit Reporting Act (FCRA), which permits insurers to keep proprietary coverage determinations confidential.
- BIt is legally acceptable as long as the insurer issued the denial letter within the state's mandated procedural timeframe for resolving claims.
- It is an unfair claims settlement practice because the insurer failed to provide a reasonable explanation referencing specific policy provisions.Cevap
- DIt is a legitimate claims practice if the adjuster suspects a moral hazard, granting the insurer the right to withhold specific investigation details.
Cevap
The insurer's action is an unfair claims settlement practice because it failed to provide a reasonable explanation referencing specific policy provisions.
Under the NAIC Unfair Claims Settlement Practices Act, insurers must provide a reasonable explanation of the basis for a claim denial, specifically referencing the relevant facts, applicable law, or policy provisions. A vague statement that a loss 'falls outside the scope' without citing an exact exclusion is a direct violation of this statutory requirement.
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Unfair Claims Settlement Practices - Claim Denial Explanations