When an insurer improperly avoids a claim or attempts to bring it down in size, it is considered an unfair claims practice. In several jurisdictions, insured parties are protected from this practice by law. Texas is one of those states, which is something to be aware of if you have an insurance claim in the Lone Star State.
How does unfair claims practice happen?
Unfair claims practice can come in the form of attempted delays, reduction and avoidance when an insured party is due to be paid out. When an insurer does this, it involves illegal practices as a form of bad faith insurance in many cases.
A significant number of states have not passed laws to prevent unfair claims practice, and Texas is among them. These laws offer protections for insured parties if their insurers exhibit bad behavior in the settlement process.
The NAIC’s model act
One of the mandates made by the NAIC (National Association of Insurance Commissioners) is that insurers handle claims fairly while communicating with the insured party. It’s up to individual states rather than the federal government to regulate these insurance situations. As such, many jurisdictions with these laws have based them on the model act of the NAIC.
One common example of an unfair claims practice is when a small business owner with a commercial property policy experiences a fire in their building. If the insurer takes unreasonably long to pay the business owner, it can be detrimental to the business and might make it impossible to reopen.
With unfair claims practice, representatives might say they forgot to send the necessary claim form. Other times, adjusters will request additional proof of loss even though one has already been provided.