Every disagreement between a policyholder and its insurer is not necessarily due to bad faith on the insurer’s part. Many claims are settled promptly, fully, and fairly. That said, there are also instances where an insurer and its adjusters and representatives do not adjust and settle a claim with the policyholder’s best interests at heart. This is when bad faith allegations come into play.
Recognizing the need for consistency among jurisdictions, the National Association of Insurance Commissioners created the Model Unfair Claims Settlement Practices Act. The Act spells out what actions would be considered a breach of an insurer’s obligations of good faith and fair dealing, and most states have adopted this model in some form.
While not all inclusive, the following are some of actions that may constitute a breach of an insurer’s ethical obligation:
Making material misrepresentations to an insured or any other person having an interest in the proceeds payable under the or policy, for the purpose and with the intent of effecting settlement of such claims, loss, or damage under such contract or policy on less favorable terms than those provided in, and contemplated by, such contract or policy.
Failing to adopt and implement standards for the proper investigation of claims.
Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue.
Failing to acknowledge and act promptly upon communications with respect to claims.
Denying claims without conducting reasonable investigations based upon available information.
Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after proof-of-loss statements have been completed.
Failing to promptly provide a reasonable explanation in writing to the insured of the basis in the insurance policy, in relation to the facts or applicable law, for denial of a claim or for the offer of a compromise settlement.
Failing to promptly notify the insured of any additional information necessary for the processing of a claim.
Failing to clearly explain the nature of the requested information and the reasons why such information is necessary.
Failing to promptly pay undisputed amounts owed under the policy.
While there are many other acts that can be considered improper, those listed above are almost uniformly accepted as evidence of bad faith conduct. If an association or unit owner believes that their insurer is acting improperly, the association or unit owner should document the insurer’s unfair actions. Confirming conversations in letters and making notes while speaking to an adjuster will help keep a good record in case it is needed in the future.
It is important for an association or unit owner to understand, however, that accusing an adjuster or carrier of bad faith without full knowledge of the relevant facts or law can be counterproductive. If a policyholder has a question about whether they are being treated in bad faith or think that action should be taken to stop unfair treatment, he or she should speak with an attorney.