Last time, we began looking at the difference between breach of contract and bad faith insurance claims, noting that breach of contract claims are the more common form of litigation since most of an insurance company’s duties to insured are governed by the contractual agreement between the two parties. When an insurance company doesn’t honor its obligations under the contract, the insured is entitled to seek relief in court based on the insurance company’s contractual obligations.
Bad faith insurance claims, by contrast, are based on an insurance company’s duty of good faith and fair dealing under state common law, as well as legislation and regulations codifying that duty. One important set of regulations governing insurance companies here in California is the Fair Claims Settlement Practices Regulations. These regulations were implemented in order to establish minimum standards for the settlement of claims, discourage false or fraudulent claims, and to encourage swift and fair settlement of insurance claims.
The Fair Claims Settlement Practices Regulations identify a number of rules insurance companies must follow in the handling of insurance claims. These requirements include:
- Accepting or denying claims within 40 days of receiving proof of claim, unless written notice is provided for additional time;
- Proving written explanation of the factual and legal bases for rejection or denial of first party claims
- Thoroughly, fairly and objectively investigate claims, and not seeking information which is not reasonably required in order to resolve claim disputes
- Providing written notice to insured of any statute of limitation or other time period requirement upon which a claim may be denied
- Not making unreasonably low settlement offers
- Making payment or otherwise fulfilling obligations on accepted claims within thirty days, with certain exceptions
These are only some of the requirements established by the regulations, and the regulations themselves are not exhaustive in terms of defining what constitutes fair settlement of claims. In our next post, we’ll say more about this issue and the role and experienced attorney can play in addressing unfair insurance claims settlement.