“Good Faith” Insurance Law
When consumers accept the contractual terms of auto insurance policies, they reasonably expect their insurers to pay them all that’s owed promptly. This is the very essence of “good faith” that is broadly set forth in our California Unfair Claims Settlement Practices Regulations. Sections 2695.4 (“Representation of Policy Provisions and Benefits”) and 2695.7 (“Standards for Prompt, Fair and Equitable Settlements”) were enacted to make sure that all consumers receive prompt explanations of their settlement benefits and rapid processing of their claims.
California Insurance Law Standards and Basic Contract Law Support Prompt Payments
The specific regulations set forth above do not exempt insurers – nor any other contracting parties -- from promptly paying specific types of claims like those involving uninsured motorists (UM) and underinsured motorists (UIM). In fact, the legislative intent behind the California Unfair Claims Settlement Practice Regulations is to promote efficient handling of all aspects of contractual parties’ transactions. Once a property damage claim is filed, the other contracting party must make a “good faith” attempt to promptly make the other party “whole” again.
Our state’s “unfair claims” regulations must be relied upon for establishing “good faith” practices since our case law has not yet been properly expanded to expressly require the timely handling of all UM and UIM claims. However, once any part of a claim has been established and remains undisputed, basic contract law requires an insurer to promptly pay the insured the undisputed amount – even if other aspects of the case are still being investigated and evaluated.
Added Support for Prompt Payments Set Forth in IRMI Writings & Insurance Treatise
The useful guidance materials published by the International Risk Management Institute (“IRMI”) provide further support for making timely payments of undisputed amounts to insureds in UM and UIM cases. In materials addressing “loss payments,” the IRMI specifically urges insurers to pay undisputed amounts without delay.
Furthermore, legal insurance expert Alan Windt, Esq., has noted in his insurance law treatise Insurance Claims and Disputes that undisputed amounts must be promptly paid, regardless of the exact nature of the first-party insurance coverage that’s tied to the issue.
How Should Counsel Move Forward in Securing Undisputed Amounts in These Cases?
- First, thoroughly review your client’s case file and make sure all appropriate medical records and billings have been forwarded to the insurance company. Insurers require comprehensive medical records to determine all aspects of each case. In some situations, you’ll also have to use your discretion when deciding whether to produce documents revealing all the medical conditions your client was battling prior to the accident;
- Next (if you haven’t already done so), serve a timely demand letter on the insurer requesting payment of the undisputed amount. It’s best to wait and send this letter after you’ve already provided all the medical records and billings to the insurer and given the company time to respond (and to determine the initial, undisputed value of the UM or UIM claim). Be sure to include a statement that your submissions of this specific demand does not prevent your client from later seeking additional amounts that exceed the undisputed amount;
- The next step you should take -- if the insurer has already sent a settlement offer to you before you’ve sent a demand letter). You must now preserve all the client’s rights and accept what you believe is the correct, undisputed amount (after discussing it with your client). You must also carefully note that if your client accepts this amount, that does not prevent your client from later demanding even more money.
Of course, before sending out demand letters or responding to any settlement offers, plaintiffs’ lawyers should carefully review the precise language in their clients’ insurance policies. These often include multiple sections that clearly guarantee prompt payments of all undisputed sums. Be sure to reference and quote these sections in your correspondence.
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Editor’s Note: This page has been updated for accuracy and relevancy [cha 2.25.20]