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What Is The Insurance Company’s Duty?

Among the general rules governing insurance and the business of insurance in California, you’ll find a long list of more than two dozen unfair or deceptive acts and practices that violate an insurance company’s duty toward its policyholders. In addition, every insurance contract imposes a duty on the insurance company to act in good faith and deal fairly with its insured. Bad faith insurance practices violate the insurer’s duty to its customers.

What acts violate the insurance company’s duty to its insureds?

Engaging in unfair methods of competition or unfair and deceptive acts or practices violate the insurance company’s duty. The covenant of good faith and fair dealing implied in the insurance contract requires the insurance company to act reasonably and not for an improper motive, such as avoiding payment of valid claims. Some examples of acts which violate the insurance company’s duty include:

Inadequate investigation – Insurers must investigate claims thoroughly and properly. If an insurer denies a claim without investigating all the bases for paying the claim, it violates the covenant of good faith and fair dealing.

Delayed investigation or claims processing – Insurance carriers must adopt and implement reasonable standards for the prompt investigation and processing of claims. When insurers rely on internal clinical policy bulletins to issue blanket denials of requests for certain procedures, surgeries or medications, they are likely violating this duty.

Misrepresentations – Insurance companies must be truthful regarding the policy and coverage they provide. They cannot make misrepresentations that customers may rely on when choosing insurance.

Denials without explanation – If a company turns down a claim for the payment of benefits or coverage of a requested treatment, the carrier must provide a reasonable, written explanation for the denial.

Additionally, the California Unfair Claims Practices Act lists more than a dozen unfair claims settlement practices. These include:

  • Misrepresenting pertinent facts or policy provisions regarding the coverage at issue

  • Failing to acknowledge and act reasonably promptly on communications regarding claims

  • Failing to adopt and implement a reasonable standard for prompt investigation and processing of claims

  • Failing to affirm or deny coverage of a claim within a reasonable time after the insured submits proof of loss or other requirements to make a claim

  • Failing to attempt in good faith to make prompt, fair and equitable settlements of claims where liability is reasonably clear

  • Forcing the insured sue to get money due under the policy by making lowball offers, when the insured claimed an amount reasonably similar to what was ultimately recovered

  • Attempting to settle a claim for less than what a reasonable person would expect based on the policy, application or advertising material

  • Attempting to settle a claim based on an application that was altered without notice, knowledge or consent of the insured

  • Failing to inform the insured of coverage under which payment has been made

  • Telling the insured the carrier has a practice of appealing unfavorable arbitration awards to get the policyholder to accept settlements or compromises less than the amount awarded in arbitration

  • Delaying investigation or payment by requiring the insured or a doctor first to submit a preliminary claim report and then submit formal proof of loss forms which ask for substantially the same information

  • Failing to settle one portion of a claim to influence settlements under other portions of coverage

  • Failing to promptly provide a reasonable explanation of the basis relied on for denial of a claim or offer of a compromise settlement

  • Telling the insured not to get an attorney

  • Misleading the insured about the applicable statute of limitations

  • Delaying payments or treatment for AIDS for more than 60 days for the purpose of investigating whether the condition preexisted coverage

These examples don’t tell the whole story of the limitless ways insurance companies violate their duty to their insureds. If you feel you are being treated unfairly and not getting the benefit you bargain for when you purchased insurance, call Gianelli & Morris for an evaluation of your claim.

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