The tragic tornadoes ripping through Kentucky and the Midwest this weekend will result in significant insurance claims. Policyholders are in need of immediate adjustment and payments of money to help soften the blow. Kentucky has a very strong public policy for good faith claims treatment which is found in its Unfair Claims Settlement Practices Act (USCPA).1
Kentucky’s UCSPA outlines various conduct which constitutes unfair claims settlement practice, including misrepresenting pertinent facts, failing to act reasonably promptly upon communications with respect to insurance claims, and not attempting, in good faith, to effectuate prompt and equitable settlements.
Kentucky’s UCSPA provides that it is an unfair claims settlement practice to commit any of the following acts or omissions:
(1) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;
(3) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
(4) Refusing to pay claims without conducting a reasonable investigation based upon all available information;
(5) Failing to affirm or deny coverage of claims within a reasonable period of time after proof of loss statements have been completed;
(6) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
(7) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds;
(8) Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;
9) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured;
(10) Making claims payments to insureds or beneficiaries not accompanied by statement setting forth the coverage under which the payments are being made;
(11) Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;
(12) Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;
(13) Failing to promptly settle claims, where liability has become reasonably clear, under (1) portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;
(14) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement;
(15) Failing to comply with the decision of an independent review entity to provide coverage for a covered person as a result of an external review in accordance with KRS 304.17A-621, 304.17A-623, and 304.17A-625;
(16) Knowing and willfully failing to comply with the provisions of KRS 304.17A-714 when collecting claim overpayments from providers; or
(17) Knowing and willfully failing to comply with the provisions of KRS 304.17A-708 on resolution of payment errors and retroactive denial of claims.
Under Kentucky’s UCSPA, an insurance company is required to deal in good faith with a claimant, whether an insured or a third-party, with respect to a claim which the insurance company is contractually obligated to pay.2 The statute is “intended to protect the public from unfair trade practices and fraud.”3
There are a few other property claims handling issues to consider:
- Insurers and agents shall not misrepresent or conceal from first party claimants any pertinent benefits, coverage, or other provisions of any insurance policy. 806 KAR 12:095, Section 4(1).
- Every insurer, upon receiving notification of a claim, shall within 15 days acknowledge the receipt of the notice unless payment is made within that period of time. 806 KAR 12:095, Section 5(1).
- An insurer shall affirm or deny any liability on claims within a reasonable time and shall offer any payment due within 30 calendar days of receipt of due proof of loss. 806 KAR 12:095, Section 6(1)(a).
- If the insurer needs more time to determine whether a first party claim should be accepted or denied, it shall so notify the first party claimant within 30 calendar days after receipt of the proof of loss, giving the reasons more time is needed. 806 KAR 12:095, Section 6(2)(a). If the investigation remains incomplete, the insurer shall, 45 calendar days from the date of the initial notification and every 45 calendar days thereafter, send to the first party claimant a letter stating the reasons additional time is needed for investigation. 806 KAR 12:095, Section 6(2)(b).
People purchase insurance never knowing if they will use the product. They rightfully expect that the insurance company will uphold its promise and provide prompt payment of losses. The “moment of truth” for property insurers in Kentucky is right now.
Thought For The Day
Soon after, I returned home to my family, with a determination to bring them as soon as possible to live in Kentucky, which I esteemed a second paradise, at the risk of my life and fortune.
1 KRS 304.12-230.
2 Davidson v. Am. Freightways, Inc., 25 S.W.3d 94, 100 (Ky. 2000).
3 State Farm Mut. Auto. Ins. Co. v. Reeder, 763 S.W.2d 116, 118 (Ky. 1988).