Although it can feel as if insurance companies hold all the cards after a claim is filed, California has more laws to protect insurance policyholders than most states in the country. These laws tell companies and their representatives how they must behave after an insurance claim is filed. Most importantly, an insurance company has the legal duty to investigate, process, and pay your claim fully and in good faith, and deal with you fairly at all times. Failure to do so could potentially expose the insurance company to a bad faith lawsuit.
Duty to Investigate
Once a claim is filed, an insurance company is obligated to gather as much information as needed to process your claim. In California, “[w]hen investigating a claim, an insurance company has a duty to diligently search for evidence which supports its insured’s claim. If it seeks to discover only the evidence that defeats the claim it holds its own interest above that of the insured.” Mariscal v. Old Republic Life Ins. Co. (1996) 42 CalApp.4th 1617, 1620.
In addition, while you have a duty to cooperate with the investigation, you are also protected from the insurance company making unreasonable requests or using harassing tactics. For example, the insurance company cannot mandate that you participate in a recorded telephone interview. While you are obligated to provide claim related information regarding your loss, you have the right to provide necessary information in writing rather than via interview.
Timely Claims Process
While the amount of time an insurance company has to process a claim varies from state to state, California is known to have consumer-friendly laws when it comes to insurance. The California Department of Insurance published the "Fair Claims Settlement Practice Regulations," setting time limits insurers must comply with when adjusting claims. Some of these time limits are as follows:
- When an agent or other insurance representative receives a claim, that claim must be immediately tendered to the insurer;
- Within 15 days of notice of a claim, the insurer must acknowledge receipt and provide the insured with all necessary forms and instructions and begin the investigation of the claim;
- An insurer must respond within 15 days of any inquiry from the insured and within 21 days of any inquiry from the California Department of Insurance;
- Within 40 days of receipt of the notice of a claim, unless the insurance company otherwise advises the insured in writing with reasons for delay and updates the reasons for delay every 30 days, an insurer must accept or deny claims in whole or in part and affirm or deny liability; and
- Claims should be paid within 30 days after coverage is determined or a settlement agreement is reached (subject to a few exceptions).
Although an insurer can delay claims for 30 days with written notice, you should monitor such delays and can request that justification be given for any delay.
You are legally entitled to be treated in “good faith” by your insurance company and its representatives at all times. This means the insurance company must be open and honest about your insurance policy and what you are entitled to after you file a claim. You are also entitled to a “good faith” settlement of your claim. According to California Insurance Code § 790.02, every insurer must attempt “in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.” This means an insurer cannot make an “unreasonably low” offer, that is, attempting to settle a claim “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 the application.”
Do You Have A Bad Faith Claim?
If your insurance company violates its duty of good faith and fair dealing, you may have a claim against the insurance company known as “bad faith.” In California, policyholders can sue their insurance companies if they act unreasonably in a number of respects when handling claims. However, there is no uniform definition of what constitutes “bad faith.” Instead, a determination of bad faith can only be made based on an exploration of the facts of what occurred, the insurance policy, and the behavior of the insurance company. California law defines certain acts and conduct that can qualify as bad faith. They include the following:
- Unreasonable denial of policy benefits;
- Misrepresenting facts or policy provisions to claimants;
- Failing to respond or act promptly with respect to a claim;
- Not having reasonable standards for the prompt investigation and processing of claims;
- Failing to either approve or deny claims within a reasonable time period after the insured has submitted adequate proof of loss;
- Refusing to make a good faith effort to fairly settle claims when liability is reasonably clear or failing to settle one part of a claim in order to influence other parts of the claim;
- Compelling the insured to litigate the claim because the insurance company has refused to make an adequate settlement offer;
- Attempting to settle for an amount that appears unreasonable when compared to statements made in written or printed advertising material that accompanied the application for insurance;
- Attempting to settle claims using an application that was altered without the knowledge and consent of the insured or his or her agent;
- Threatening to appeal an arbitration award in an attempt to compel the insured to accept a settlement less than what was awarded in arbitration;
- Failing to provide prompt justification for the denial of a claim;
- Advising a claimant not to hire an attorney; and
- Misleading a claimant as to the legal deadline for filing a claim or initiating a lawsuit.
These are just some of the many examples that may constitute grounds for bringing a bad faith claim against an insurer. Because each claim is unique, it is advisable to consult with an attorney if you feel you have been treated unfairly by your insurance company.
What If Your Claim Is Denied?
If your claim is denied, you have a right to a written explanation for the denial of coverage upon request. If the insurer denies your claim, you also have the right to dispute the denial. You should contact the insurance representative in writing to dispute the denial and explain how you would like the dispute resolved. The insurer may request that you go through an appraisal process to resolve the dispute if the policyholder disputes the insurer's offer. If the dispute involves a complete denial of coverage, additional steps may be required, and it is advisable that you consult with an attorney.
Knowing what duties and obligations an insurance company owes you is the first step to determine if you are being treated fairly by your insurance company. Good faith insurers explore the ways to assent and pay the claims of the policyholder properly, and in a timely manner. Bad faith insurers will find a deceitful way to delay the payment, diminish the amount of the petition, and disapprove or refute the payment of claims.