Every now and then, I am asked by policyholders and public adjusters: What can one do if the insurance company has not issued payment on a claim that has been agreed upon or settled? Are there any penalties if an insurance company withholds payment indefinitely?
In California, the answer can be found in the Insurance Code:
Under a contract of fire insurance, payment to the insured shall be made within 30 days after the amount of the loss and the liability of the company have been agreed upon or settled by the insured and the company in writing. If the company fails to pay within the 30 days, the payment shall bear interest, beginning the 31st day, at the prevailing legal rate. The company also shall be liable for all costs of collection, including reasonable attorney’s fees, if legal action is necessary to obtain payment after the company has willfully failed to pay within the 30 days.1
Here, it is clear. If an insurance company, in particular one that issues a standard fire policy, has not made payment within a 30-day time frame after settlement of a claim, then it must pay interest and costs expended by the policyholder to compel payment. What is the rate of interest? is the next logical question. Well, according to the California Civil Code, the interest rate chargeable after a breach of contract (insurance policy included) is 10 percent per annum.2 If the delay is a matter of a few days, then the interest penalty may not be that severe. However, on a larger claim or settlement, the interest can be more significant depending on the length of the delay.
In sum, an insurance company is not a bank and should not be holding on to a customer’s money without paying interest. If an insurance company is willfully delaying payment, let them know that they are breaking the law, plain and simple.
1 Cal. Ins. Code section 2057.
2 Cal. Civ. Code section 3289(b).