Chapter 2 Claims

Question 1

Prompt Payment of claims

Answer 1

Article 21.55 of the Texas Insurance code was established in 1991 to ensure the prompt payment of insurance claims. This statute is a method of consumer protection that is set in place & must be followed by insurers in the state of Texas. This article applies to first party insurance claims, but it does not pertain to catastrophe claims.

21.55 Compliance

Within 15 days of receiving a new claim, the insurer must:
- Acknowledge receipt of the new claim;
- Begin the investigation
- Request all the items needed to evaluate & investigate the claim.

Once these items are completed, the insurer has fulfilled their initial requirements. The PH does not have any time requirements to complete the requirements that the insurer has requested. Most PH complete the requirements in the a timely fashion so that the claims process can proceed.

Once PH complies with the requests of the insurer & items are received, insurer must proceed with the evaluation of the claim.

Within 15 Business days of receipt of the info requested from the PH, the insurer must:
- review & evaluate the claim
- process the claim
- accept or reject the claim

Accepting the claim - this means they have evaluated & processed the claim & will make pyment on the claim.

Rejecting the claim means that the claim will be denied and no payment will be made.

Once the insurer Accepts or rejects the claim, the following must occur:

Within 5 business days the insurer must pay the claim or issue a full or partial denial of the claim.

During the 15 Business Day period, if the insurer needs additional time to evaluate & investigate the claim, they may do so. The insurer must state the specific reason for the request in writing. The insurer can request an additional 45 calendar days. The 45 day request must be for a valid reason, such as consulting with an engineer or some other specialist to assist them in their investigation. It cannot be due to staffing or workload issues.

Question 2

Unfair Trade Practices

Answer 2

It is illegal to engage in any trade practice that involves unfair or unreasonably restrained competition, including acts that are misleading, deceptive, or unfairly discriminatory. The Commissioner ahs the authority to investigate possible unfair trade practices and fine violators if the practices continue. Insurers and agents are prohibited from engaging in any of the following unfair or prohibited trade practices:

Claims methods & practices:
Tx Ins law offers protections to insurance consumers by prohibiting unfair claims practices such as
1. Misrepresenting to claimants material facts or policy provisions;
2. Not attempting in good faith to bring about prompts, fair, and equitable settlements when liability has become reasonably clear;
3. Failing to settle claims promptly, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;
4. Failing to promptly provide a reasonable explanation regarding any policy provisions or law that caused a claim to be denied or for the offer of a compromise to settle a claim;
5. Failing within a reasonable time to affirm or deny coverage of a claim or to submit a reservation of rights to a policyholder.
6. Failing, refusing, or unreasonably delaying a settlement offer because other coverage may be available or because third parties are responsible for the damages;
7. Attempting to enforce a full and final release of a claim when only a partial payment has been made;
8. Refusing to pay a claim without conducting a reasonable investigation with respect to the claim;
9. With respect to a Tx personal auto po-licy, delaying or refusing settlement of a claim solely because there is other insurance of a different type available to satisfy all or part of the loss; or
10. Requiring the claimant, as a condition of settling a claim, to produce the claimant’s federal income tax returns for examination unless a court orders production of the returns, the claim involves a fire loss, or the claim involves lost profits or income.

B. Mis representation

It is an unfair trade practice to:

1. Misrepresent a policy’s terms, benefits, or advantages;
2. Misrepresent the dividends or share of the surplus to be received or previously paid on a policy;
3. Misrepresent the financial condition of a person in the insurance business;
4. Use a title of policy or class of policies that misrepresent the true nature of the policy;
5. Misrepresent the legal reserve system on which any life insurer operates; or
6. Make a misrepresentation to induce a policyholder to lapse, forfeit, exchange, convert, or surrender a policy.

C. Defamation

It is an unfair trade practice to make an oral or written statement that is false or maliciously critical of, or derogatory to, the financial condition of any insurer that is calculated to injure any person engaged in the insurance business.

D. Fraud

The Tx Dept of Ins has an Ins Fraud Unit to enforce laws relating to fraudulent insurance acts.

A fraudulent insurance act is any illegal act that is:
1. Committed while engaging in the business of insurance;
2. Committed as part of or in support of an insurance transaction;
3. Part of an attempt to defraud an insurer.

If the Commissioner has reason to believe that a person has engaged, is engaging in, or is about to engage in what may constitute a fraudulent insurance act or insurance fraud, they make make an investigation to determine whether the act occurred or to aid in the enforcement of the insurance fraud law. If the commissioner believes a fraudulent insurance act has occurred, he will take the appropriate disciplinary measures as well as report the info to the proper law enforcement authorities.

E. False financial statements

It is unfair practice to, with intent to deceive:
1. File a false statement of inancial condition of an insurer;
2. Make or distribute a false statement of financial condition of an insurer; or
3. Make a false entry in an insurer’s statement or willfully omit a true material fact with intent to deceive
- an agent or examiner lawfully appointed to examine the insurer’s condition or affairs; or
- a public official who has authority to examine the insurer’s condition or affairs.

F. Concealment, misrepresentation, or fraud

A person is not liable in a civil action for furnishing information, in good fath, orally, or in writing, relating to a suspected, anticipated, or completed fraudulent insurance act if the information is provided to:
1. an authorized governmental agency or the department;
2. A LEO or an agent or employee of the officer;
3. The National Association of Insurance Commissioners or an employee of the association;
4. A state or federal govt agency established to detect and prevent fraudulent insurance acts or to regulate the business of insurance or an employee of the agency; or
5. A special investigative unit of an insurer.

G. Cancellation and nonrenewal

An insurer may not cancel a policy of property or liability insurance that is a renewal or continuation policy of a policy of liability insurance that is in its initial policy period after the 60th day following the date on which the policy was issued with the following exceptions.

1. Cancellation - an insurer may cancel the policy at any time during the term of the policy for the following reasons:
   - fraud in obtaining coverage;
   - failure to pay premiums when due;
   - On an increase in hazard within the control of the insured that would produce an increase in rate;
   - Loss of the insurer’s reinsurance covering all or part of the risk covered by the policy; or
   - On an insurer being placed in supervision, conservatorship, or receivership, if the cancellation or nonrenewal is approved or directed by the supervisor, conservator, or receiver.
2. Nonrenewal - an insurer may refuse to renew a policy if the insurer has mailed notice of nonrenewal to the insured at least 30 days prior to the policy’s expiration date.
   - An insurer may not decline to renew a policy solely because of the insured’s age;
   - An insurer must renew a policy that was written for less than one year, though an insurer may decline to renew the policy on any 12-month anniversary of the original effective date of the policy.
3. Written statement of reasons for declination, cancellation, or nonrenewal – property & casualty insurers must, on request by an applicant for insurance or a PH, provide written statement of the reasons for declination, cancellation, or nonrenewal of a policy. The statement must:
   - fully explain any decision that adversely affects the applicant for insurance or a PH by denying the applicant or PH insurance coverage or continued coverage.
   - State the precise incident, circumstance, or risk factors applicable to the applicant for insurance or the PH that violates any applicable guidelines;
   - State the source of information on which the insurer relied regarding the incident, circumstance, or risk factors; and
   - specify any other relevant information.

H. Written notice of cancellation or renewal

1. Not later than the 10th day before the date on which the cancellation of a liability policy takes effect, an insurer must deliver written notice of the cancellation to the first named insured under the policy at the address on the policy.
2. An insurer may refuse to renew a liability policy if it delivers written notice of the nonrenewal to the first named insured under the policy at the address on the policy.
3. The notice must be delivered or mailed not later than the 6-th day before the date on which the policy expires. If the notice is delivered or mailed later than the 60th day before the date on which the policy expires, the coverage remains in effect until the 61st day after the date on which the notice is delivered or mailed.
4. Earned premium for any period of coverage that extends beyond the expiration date of the policy shall be computed pro rata based on the previous year’s rate.

I. Premium surcharge

1. An insurer may assess a premium surcharge at the time an insurance policy is renewed if the insured has filed two or more claims in the preceding three policy years. The amount of the surcharge must be based on sound actuarial principles.
2. An insurer may refuse to renew an insurance policy if the insured has filed three or more claims under the policy in any three-year period.
3. An insurer may notify an insured who has filed two claims in a period of less than three years that the insurer may refuse to renew the policy if the insured files a third claim during the three-year period. If the insurer does not notify the insured in accordance with this subsection, the insurer may not refuse to renew the policy because of claims.

J. Insurer records
1. An insurer must maintain information regarding cancellation or nonrenewal of insurance policies in accordance with the insurer’s ordinary practices for maintaining records of expired policies.
2. The insurer must make the information available to the department on request.

K. Insurer statement

Upon request, an insurer must provide a written statement of the reason for a declination, cancellation, or nonrenewal of an insurance policy.

L. Liability for disclosure

An insurer or agent of an employee of an insurer or agent is not liable for a statement or disclosure made in good faith unless the statement or disclosure was:
- known to be false; or
- made with malice or willful intent to injure any person.
- Declination prohibited; consideration of certain claims.

When deciding to issue or to decline a standard fire, homeowners or farm policy, an insurer may not consider a customer inquiry as a basis for declination.