The Department of Insurance
The Department of Insurance does have statutes and regulations, which can effectively be enforced by attorneys knowledgeable about those regulations. However, it has no power to force an insurance company to pay claims and it has a limited staff with which to handle many complaints. Filing a complaint with the Department of Insurance rarely resolves our client's disputes with their insurers.
Insurance Code - The Insurance Unfair Practices Act
The California Insurance Code contains Insurance Code 790.03(h), which is called the Unfair Practices Act. It sets forth a variety of actions by an insurer that are considered unfair practices and therefore are improper. There is no right to sue directly under this statute. Enforcement is the responsibility of the Department of Insurance. However, that department has very limited resources to enforce this Act and rarely takes actions to enforce it.
Still, a policyholder can use the statute when suing under the common law of Insurance Bad Faith to establish certain minimum standards with which an insurance company must comply. The list of prohibited acts is set forth below. It is by no means an exhaustive list of all of the conduct that would be improper or would constitute Insurance Bad Faith. The specific prohibited acts listed in Insurance Code 790.03(h) are as follows:
- Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue
- Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies
- Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies
- Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured
- Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear
- Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered
- Attempting to settle a claim by an insured for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application
- Attempting to settle claims on the basis of an application that was altered without notice to, or knowledge or consent of, the insured, his or her representative, agent, or broker
- Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made
- Making known to insureds or claimants a practice by the insurer of appealing arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration
- Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either, to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which contain substantially the same information
- Failing to settle claims promptly when liability has become apparent under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage
- Failing to promptly provide a reasonable explanation of the basis relied on in the insurance policy in relation to the facts or applicable law for the denial of a claim or for the offer of a compromise settlement
- Directly advising a claimant not to obtain the services of an attorney
- Misleading a claimant as to the applicable statute of limitations
- Delaying the payment or provision of hospital, medical, or surgical benefits for services provided with respect to acquired immune deficiency syndrome or AIDS-related complex for more than 60 days after the insurer has received a claim for those benefits, where the delay in claim payment is for the purpose of investigating whether the condition preexisted the coverage. However, this 60-day period shall not include any time during which the insurer is awaiting a response for relevant medical information from a health care provider.
(For more information on the California Insurance Code, please go to the Official California Legislative Information Web site, where you will find information on California Law and Insurance Codes.)
Department of Insurance Regulations
The Department of Insurance has issued regulations that apply to all insurance claims in California.
These regulations are lengthy and contain many requirements of insurance companies. The most common important provisions are the following:
- Every insurance company is required to maintain a file that documents all important events. 10 CCR 2695.3
- Every insurance company is required to advise the policyholder of all benefits, coverage, time limits, or other provisions which may apply to the claim, to advise the policyholder of when other or additional benefits may be payable, and to cooperate and assist the policyholder in obtaining these benefits. 10 CCR 2695.4(a)
- Every insurance company shall immediately and properly respond to communications from policyholders. 10 CCR 2695.5(b)
- Every insurance company shall maintain appropriate claims manuals. 10 CCR 2695.6
- In most instances, claims shall be resolved within 40 days unless the insurance company notifies the claimant of the specific reasons (except for suspected fraud) why more time is required. Such notification must be made every 30 days. 10 CCR 2695.7(b)
- A denial of a claim must set forth the specific factual and legal reasons and cite all applicable policy provisions. 10 CCR 2695.7(b)(1)
- No insurer shall attempt to settle a claim by making a settlement offer that is unreasonably low. 10 CCR 2695.7(g)
- In most instances every insurance company shall tender payment of any portion of a claim that is not in dispute within 30 days of acceptance. 10 CCR 2695.7(h).
For more information on the California Insurance Code, please go to the Official California Legislative Information Web site, where you will find information on California Law and Insurance Codes.
