What Insurance Companies Are Required to Do
The first obligation that an insurance company owes its policyholders is to properly handle your claim in the first place. This generally involves valuable communication with its insured, reasonable response times, and an investigation of the insurance claim. State insurance laws also mandate that insurers respond to policyholders within certain timeframes.
Insurers must ordinarily respond to an insured’s communications within four business days, only after receipt of any necessary forms that require an insured’s signature or other evidence of loss needed from the insured, whichever is applicable. Upon receipt of such communications, insurers typically have 15 calendar days to acknowledge receipt of the claims in writing to the policyholder (or its agent when made through an agent), including any additional information necessary for the insured to provide. Multiple pieces of correspondence received by an insurer (e.g., a document requiring a signature and other evidence of loss) on the same day that may not require any action or response from the insurer (i.e., an invoice) do not count as a communication under this law.
While it is essentially impossible to comply with response deadlines that fall on a holiday or weekend because they occur outside of normal business operations and hours, an insurer must respond to an insured’s communication within the statutory timeframe even if the communication occurs during off-hours . An insurer does not have to respond within statutory timeframes for any emergency communication received during non-business hours, notice of which will be sent to the insurer the next business day for subsequent action.
An insurer generally has 13 days from receipt of a communication to make its coverage determination and, if coverage is available, remit payment for a claim, along with a written statement indicating the coverage considerations upon which it decided to pay all or part of the claim. Insurers are not required to provide any explanation of their coverage decision unless they decided to deny the claim, at which point they must state the specific reasons for denying the claim based on the terms and conditions of the insurance policy.
A policyholder may obtain information regarding an insurer’s handling of a claim from the insurer upon request for the claim file. The purpose of obtaining the claim file is for the policyholder to understand how the insurer investigated a claim and what grounds the insurer relied on when adjusting the claim. An insurer’s response to the request may cause the policyholder to recall additional information that it needs to provide to the insurer.
The most common reason why policyholders make demands for an insurer to respond to communications in writing is because they want an explanation for a delay or investigation of a claim. Insurers should provide prompt responses to all communications to its policyholders, and it will obviously be deficient for them to sit on a request without an explanation.
Why an Insurance Company May Fail to Respond
There are many reasons why an insurance company might not respond:
Understaffing – You may be trying to reach an individual who handles claims. That person may have quit, quit, been promoted, been terminated or transferred. In this case you’ll probably get no response from the person you’re looking for. Instead, an underling may promise to get back to you – with no intention of actually getting back to you — OR, the underling may request that you put your questions in writing and be patient enough to wait for a response.
Confusion – The placement of coverage can be complicated; it requires a team effort, both by your agent and the insurance company. Coverage may be more complicated than you realize. The answer to your question may require research by professionals from many departments within the company. The insurance companies have a vested interest in keeping you in the dark about the coverage terms in your polices. It’s difficult to take legal action unless you can prove that coverage existed. The insurer will likely respond to your inquiry within a reasonable period of time. If not, don’t be shy about making follow-up calls. The delay could be due (among other things) to company confusion about the facts of your case, or due to the fact that your agent has not passed along the necessary information related to your claim.
Grounds for Suing an Insurance Company
There are a couple of main legal grounds to suing an insurance company for failing to respond to your insurance claim. One is contract law, which specifically addresses the insurance contract itself. The other is bad faith law, which is broader and more expansive.
The insurance contract
Every insurance contract has a language that talks about how the insurance company must handle the claim you give them. This language may be a combination of the policy language, the requirements of the state’s insurance laws, and the reasonable expectations of parties who sign such policies. As a general rule, if an insurance company violates the language of the contract (in most states), they can immediately be sued in court for the breach of contract. In such a situation, it would be the insurance company’s burden to prove that they were not in violation of the contract. In the context of an insurance company’s failure to respond to a claim, this provision can be found in several aspects of the claims process. The most common is in the time in which the insurance company must respond to the insured’s claim. Other claim provisions that might be involved in a failure to respond litigation may be in the time in which an insurance company must conduct an investigation into the claimant’s loss. Another possible claim provision would be in the time in which the insurance company must send out benefits due to repair/replace property losses. As an aside, if you look at your homeowner’s insurance policy, you will probably find this language: We will provide or pay for up to the limit of liability under the Additional Coverages and Coverage categories below, only if it is an immediate and necessary measure against further damage so that covered damage or loss can be repaired or replaced to avoid further loss. This language is common in a homeowner’s policy because insurance companies want the insured to be the one to pay for their claim, and then the insurance company will reimburse them later. The problem with this statement is that it was unfair to the insured because the top priority is always to get the property repaired periodically by the insurance company. Using the same language as in the rest of the contract would make the insurance company pay regardless of whether the insured would pay first.
Insurance company’s bad faith practices
This legal theory of insurance claim litigation is normally more common and more applicable to instances where the insurance company takes way too long to respond or answer an insured’s claim. By taking too long to respond, the insurance company’s actions increase the risk that the insured may suffer further loss due to their damage. For example, when hail or heavy rain damages a roof, the longer the insurance company takes to investigate the loss, the more the delay increases the risk that additional claims may occur in the meantime (i.e., subsequent hail damage or heavy rain). In such a situation, the insurance company’s actions in delaying the investigation are not consistent with the way a rational person would handle the situation. Therefore, there may be grounds for suing the insurance company for not responding promptly to the claim.
What to Do Before You Take Legal Action
Before you can sue your insurance company for not responding to your loss you have to show or prove to the court that you made a good faith effort to resolve the claim with your insurance company. The following list shows what steps you should take before considering a lawsuit:
- File a complaint with the Department of Insurance. Every state has an insurance department with an office that handles consumer complaints and disputes with insurance companies. Call the number on your policy and get the correct number, then file the complaint with your state’s insurance department. You will likely have to fill out a complaint form (this is now usually done online), and provide a copy of your policy and a letter explaining the problem.
- Send them a demand letter: Even if you don’t have to , send them a demand letter requesting a quick response to your unanswered correspondence. Demand letters are often useful in establishing good faith bargaining efforts which will support your argument for reasonable attorney fees later on. Make sure to send this via certified mail and/or email and request they respond by a certain date.
- File a complaint with the Better Business Bureau: The Better Business Bureau mediates conflicts between insurance companies and consumers. So it is helpful to show the Court you made a good faith effort to settle the dispute rather than immediately file suit. It never hurts to have a record that you attempted to settle the dispute in a reasonable amount of time prior to going to the court system via mediation.
- File a complaint with the Federal Department of Insurance: This is an extra step, but it can be helpful in getting your dispute resolved. It can also help establish jurisdiction subject matter jurisdiction if your claim is in Federal Court.
How to Sue in Response to a Non-Reply
While rarely done with carriers, if you are seriously frustrated that your insurance company has refused to acknowledge receipt of your claim, or if you feel that it has been a significant period of time since your claim was sent and you have yet to receive a response of any sort in writing, then it is possible to sue the carrier in court. There are two scenarios in which carriers can be successfully sued for refusing to respond to a claim. The first is if a claim was timely submitted but a response was never received by the insured. The second is if the insurer denied the claim previously and without reasonable basis but nonetheless failed to timely respond to an appeal. As mentioned earlier, it is rare to see courts agree with plaintiffs suing this way on the grounds that: (1) the policyholders had no alternative form of enforcing their contractual rights and (2) the courts were mainly concerned with policyholders being adequately compensated for their losses via monetary damages, not through injunctive relief or other such enforcement. Nevertheless, if you are adamant that legal action is the only way, then suing the carrier in an effort to compel it to issue a response can be successful. If a lawsuit is pursued, you have to be very careful selecting legal counsel and your lawsuit generally has to be filed quickly. That said, there is the possibility that you will at least receive a response in a satisfying manner after the carrier is made aware that legal action is being taken and there will be monetary penalties incurred for a carrier who either fails to respond or respond in a timely manner.
What Could Happen in a Lawsuit
When you sue an insurance company for not responding or simply denying a claim that they should have otherwise covered, several things can happen. Again, it all comes down to the specifics of your case and what level a judge may decide. In some cases you may win or receive a settlement, whereas in other cases areas may be changed in your policy to accommodate for a previous trapped claim.
The first is that you win. If an insurance company has been denying claims they should be covering or if your policy was being unfairly or improperly interpreted, the judge could decide that the insurance company owes you money for any damages you may have suffered because of your property or claim not being covered. This is often formally called restitution, and will result in a monetary payment being made to you.
Another option is that you receive a settlement. Usually this happens within the court case, where the insurance company agrees to pay you to avoid going to trial. Much the same as jury award , a judge will set an amount that he feels the insurance company needs to pay you.
The third potential outcome is policy changes. If the insurance company is acting in a way that is not in line with Federal or State regulations or policy, a judge may re-write the policy or enact some form of plan that requires the insurance company to cover certain claims. For example, if you were denied coverage to repair your roof that suffers from wind damage, and the judge feels that the insurance company must cover these repairs, regardless of their specific rules, he may institute a set of standards and rules, like a settlement, that compels the insurance company to cover your repairs.
There is a fourth option available, but it’s not something you want. This is the outcome of losing. If you do not win your case, there are several options that you’re facing. First, the insurance company may not be liable for further claims, and will not contribute to your repair efforts. Secondly, and much less costly, you can be liable for their legal fees (although many states are looking to reduce or eliminate this rule altogether, so it differs per state). As you can see, if you don’t win your lawsuit it often is not desirable.