Unfair Claims Practice
Unfair claims practice is the improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. The National Association of Insurance Commissioners (NAIC) has created model unfair claims practice legislation that mandates claims be handled fairly and that there be clear communication between the insurer and the insured. Many states have passed unfair claims practices laws to protect insured parties from bad behavior on the part of insurers in the claims settlement process. An unfair claims practice is what happens when an insurer tries to delay, avoid, or reduce the size of a claim that is due to be paid out to an insured party. Unfair claims practice is the improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim.
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What Is Unfair Claims Practice?
Unfair claims practice is the improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims practices, an insurer tries to reduce its costs. However, this is illegal in many jurisdictions.
Understanding Unfair Claims Practice
The National Association of Insurance Commissioners (NAIC) has created model unfair claims practice legislation that mandates claims be handled fairly and that there be clear communication between the insurer and the insured. Because of this legislation, many states have implemented unfair claims practice laws.
Also, most states have enacted a version of this model law. Called the Unfair Claims Settlement Practices Act, it protects insurance buyers from unjust behavior by insurers in the claims settlement process. Specifics of the law vary from state to state. Unfair Claims Settlement Practices Acts (UCSPA) are not federal law; instead, they are enforced by individual state insurance departments.
Typical Example of Unfair Claims Practice
Consider a small business owner that insures his company's building and business personal property under a commercial property policy. Unfortunately, a fire broke out in the building, causing $100,000 in property damage. The insurance company delays payment, rendering the business owner unable to repair any of the damage. The insurance company continues using delay tactics to avoiding making a payment. For example, the claims representative keeps "forgetting" to send the claim forms. Also, the adjuster says he needs another proof of loss, but the small business owner has already submitted proof of loss twice. These are the types of situations that unfair claims practice laws are designed to prevent.
Other Examples of Unfair Claims Practice
Related terms:
Adjuster
An adjuster is an insurance claims agent charged with evaluating an insurance claim to determine the insurer's liability under an owner's policy. read more
All Risks
"All risks" refers to a type of insurance coverage that automatically covers any risk that the contract does not explicitly omit. read more
Antitrust
Antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. read more
Deed
A deed is a signed legal document that transfers the title of an asset to a new holder, granting them the privilege of ownership. read more
Directors and Officers Liability Insurance: Overview
Directors and officers (D&O) liability insurance covers directors or officers of a business or other organization if a lawsuit is brought against them. read more
Employers' Liability Insurance
Employers' liability insurance covers businesses against claims by employees who have suffered a job-related injury or illness, or who file lawsuits. read more
Insurance Loss Control
Insurance loss control is a set of risk management practices designed to reduce the likelihood of a claim being made against an insurance policy. read more
Insurance Claim
An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim and, once approved, issues payment to the insured. read more
National Association of Insurance Commissioners (NAIC)
The National Association of Insurance Commissioners (NAIC) is a nonprofit organization that helps develop model laws for state insurance regulators. read more
Third-Party Insurance
Third-party insurance, the most common example being auto insurance, is a policy designed to protect against the actions or claims of a third party. read more