Understanding the Unfair Settlement Practices Act in California

When you file an insurance claim, you expect the process to be fair and straightforward. Unfortunately, this isn’t always the case. To protect consumers from unethical practices by insurance companies, the Unfair Settlement Practices Act was established. In this post, we’ll delve into what this act entails, how it safeguards your rights as a policyholder in California, and what you can do if you encounter unfair settlement practices.

What is the Unfair Settlement Practices Act?

The Unfair Settlement Practices Act refers to a set of regulations that govern how insurance companies handle claims. These laws ensure that claims are processed fairly and promptly, protecting consumers from unfair and unethical practices. While many states have their own versions of this act, the primary goal is the same: to hold insurance companies accountable and ensure fair treatment of policyholders.

Key Provisions of the Unfair Settlement Practices Act

Uninsured Motorist (UM) and Underinsured Motorist (UIM) coverage are essential protections for drivers. These coverages come into play when you are involved in an accident with a driver who has no insurance or insufficient insurance to cover the damages. In such cases, your own insurance company steps in to cover your losses. However, disputes can arise during the claims process, and this is where the Unfair Settlement Practices Act becomes particularly relevant.

Prompt Investigation and Communication

In UIM/UM cases, your insurance company is obligated to promptly investigate your claim. This means they must gather all necessary information, assess the damages, and determine liability without unnecessary delays. They must also maintain clear and timely communication with you, keeping you informed of the claim’s progress and any additional information required.

Fair Settlements

Your insurer must make good faith efforts to settle your UIM/UM claim fairly and promptly. This involves offering a settlement that accurately reflects the extent of your damages, including medical expenses, lost wages, and pain and suffering. If the other driver is underinsured, your insurer should cover the gap up to your policy limits.

No Misrepresentation

In UIM/UM cases, it is crucial that your insurer does not misrepresent the terms of your policy or the facts surrounding your claim. Misrepresentation can include understating your coverage limits or misinforming you about what expenses are covered. This protection under the Unfair Settlement Practices Act ensures you receive the full benefits of your policy.

Reasonable Standards and Denials

Your insurer must adhere to reasonable standards for investigating and processing your UIM/UM claim. Any denial of your claim must be based on a thorough and reasonable investigation, with clear, valid reasons provided. For example, if your insurer denies your claim based on alleged contributory negligence, they must have substantial evidence to support this assertion.

Examples of Unfair Practices in UIM/UM Claims

• Unjustified Delays: Prolonging the investigation or settlement process without valid reasons can be particularly harmful in UIM/UM cases, where policyholders are relying on their insurer for timely compensation.
• Lowball Offers: Offering settlements significantly lower than the actual damages incurred is an unfair practice. In UIM/UM claims, this might involve undervaluing medical expenses, property damage, or lost wages.
• Demanding Excessive Documentation: While insurers are entitled to request documentation to support a claim, demanding excessive or irrelevant paperwork can be a tactic to delay or discourage claims.
• Unreasonable Denials: Denying a UIM/UM claim without a valid basis or adequate investigation is prohibited. This could involve rejecting a claim due to alleged policy exclusions that do not apply.

California-Specific Regulations

In California, the regulations governing unfair settlement practices are part of the California Insurance Code, particularly sections 790.03 and 790.04. These laws are enforced by the California Department of Insurance, which ensures that insurance companies adhere to fair practices in handling claims.

California Insurance Code Section 790.03

Section 790.03 outlines specific acts that are considered unfair or deceptive. These include, but are not limited to:

• Misrepresenting facts or policy provisions.
• Failing to acknowledge and act promptly on communications.
• Failing to adopt and implement reasonable standards for processing claims.
• Not attempting in good faith to effectuate prompt and fair settlements.
• Compelling policyholders to institute litigation to recover amounts due by offering substantially less than the amounts ultimately recovered in actions brought by such policyholders.

California Insurance Code Section 790.04

Section 790.04 gives the Insurance Commissioner the authority to enforce the provisions of Section 790.03. The Commissioner can investigate complaints, hold hearings, and impose penalties on insurers who violate these provisions.

Examples of Unfair Settlement Practices

• Failure to Provide a Reasonable Explanation for Denial: When an insurer denies a claim, they must provide a clear and reasonable explanation. If they fail to do so, it can be considered an unfair practice.
• Delaying Payment Without Reason: Insurers must not delay payments without a valid reason. Unnecessary delays can cause financial hardship for policyholders waiting for compensation.
• Offering Substantially Less Than Fair Value: Insurers must offer settlements that reflect the fair value of the claim. Lowball offers that do not cover the actual damages are considered unfair.
• Requiring Unnecessary Documentation: Demanding redundant or excessive documentation to process a claim can be a tactic to delay settlement or discourage policyholders from pursuing their claims.
• Denying Claims Without a Reasonable Investigation: Denying claims without conducting a thorough and reasonable investigation into the facts and circumstances of the claim is prohibited.

Remedies and Penalties

If an insurance company is found to be in violation of the Unfair Settlement Practices Act, they may face several consequences, including:

• Penalties and Fines: The Insurance Commissioner can impose fines and penalties on insurers who engage in unfair practices.
• Administrative Actions: The Commissioner can take administrative actions against the insurer, which may include orders to cease and desist from certain practices, or even suspension or revocation of the insurer’s license.
• Policyholder Rights: Policyholders have the right to file complaints with the California Department of Insurance. They can also pursue legal action to recover damages caused by unfair settlement practices. This can include compensation for the amount due under the policy, as well as additional damages for any harm caused by the insurer’s unfair practices.

What to Do If You Encounter Unfair Settlement Practices

If you believe an insurance company has engaged in unfair settlement practices, there are several steps you can take:

1. Review Your Policy: Carefully review your insurance policy to understand your coverage and the insurer’s obligations.
2. Document Everything: Keep detailed records of all communications with the insurer, including emails, letters, and phone calls. Document any delays, misrepresentations, or unreasonable demands.
3. File a Complaint: You can file a complaint with the California Department of Insurance. The Department investigates complaints and can take action against insurers who violate the law.
4. Consult an Attorney: If you are not satisfied with the insurer’s response or if the unfair practices continue, consider consulting with an attorney who specializes in insurance law. An attorney can help you understand your rights and pursue legal action if necessary.

Anderson Franco Law – Uninsured Motorist Lawyer

The Unfair Settlement Practices Act is crucial for protecting consumers from unethical behavior by insurance companies. It ensures that claims are handled promptly, fairly, and transparently, safeguarding the rights of policyholders. If you believe an insurance company has engaged in unfair settlement practices, consulting with an attorney who specializes in insurance law or contacting the California Department of Insurance can provide guidance and potential remedies.

Understanding your rights under the Unfair Settlement Practices Act can empower you to take action if you encounter unfair treatment from your insurer. Always stay informed and don’t hesitate to seek professional help when needed. By knowing your rights and the protections available, you can better navigate the claims process and ensure that you receive the fair treatment you deserve.