MDL-900

NAIC Model Laws, Regulations, Guidelines and Other Resources—January 1997

UNFAIR CLAIMS SETTLEMENT PRACTICES ACT

Table of Contents

Section 1. Purpose

Section 2. Definitions

Section 3. Unfair Claims Settlement Practices Prohibited

Section 4. Unfair Claims Practices Defined

Section 5. Statement of Charges

Section 6. Cease and Desist and Penalty Orders

Section 7. Penalty for Violation of Cease and Desist Orders

Section 8. Regulations

Section 9. Severability

Prefatory Note: By adopting this model act in June 1990, the NAIC separated issues regarding unfair claims settlement practices into a free-standing act

apart from the NAIC Model Unfair Trade Practices Act. This change focuses more attention on unfair claims as a function of market conduct surveillance

separate and apart from general unfair trade practices. By doing so, the NAIC is not recommending that states repeal their existing acts, but states may

modify them for the purpose of capturing the substantive changes. However, for those states wishing to completely rewrite their comprehensive approach to

unfair claims practices, this separation of unfair claims from unfair trade practices is recommended.

Section 1. Purpose

The purpose of this Act is to set forth standards for the investigation and disposition of claims arising under policies or

certificates of insurance issued to residents of [insert state]. It is not intended to cover claims involving workers’

compensation, fidelity, suretyship or boiler and machinery insurance. Nothing herein shall be construed to create or imply a

private cause of action for violation of this Act.

Drafting Note: A jurisdiction choosing to provide for a private cause of action should consider a different statutory scheme. This Act is inherently

inconsistent with a private cause of action. This is merely a clarification of original intent and not indicative of any change of position. The NAIC has

promulgated the Unfair Property/Casualty Claims Settlement Practices and the Unfair Life, Accident and Health Claims Settlement Practices Model

Regulations pursuant to this Act.

Section 2. Definitions

When used in this Act:

A. “Commissioner” means the Commissioner of Insurance of this state;

Drafting Note: Insert the title of the chief insurance regulatory official wherever the term “commissioner” appears.

B. “Insured” means the party named on a policy or certificate as the individual with legal rights to the benefits

provided by the policy;

C. “Insurer” means a person, reciprocal exchange, interinsurer, Lloyd’s insurer, fraternal benefit society, and

any other legal entity engaged in the business of insurance, including agents, brokers, adjusters and third

party administrators. Insurer shall also mean medical service plans, hospital service plans, health

maintenance organizations, prepaid limited health care service plans, dental, optometric and other similar

health service plans as defined in Section [insert applicable section]. For purposes of this Act, these

foregoing entities shall be deemed to be engaged in the business of insurance;

D. “Person” means a natural or artificial entity, including, but not limited to, individuals, partnerships,

associations, trusts or corporations;

E. “Policy” or “certificate” means a contract of insurance, indemnity, medical, health or hospital service, or

annuity issued. “Policy” or “certificate” for purposes of this Act, shall not mean contracts of workers’

compensation, fidelity, suretyship or boiler and machinery insurance.

Drafting Note: The term “policy” is intended to cover the product issued by medical, health or hospital service plans and should be changed to conform to

the laws of each state.

Unfair Claims Settlement Practices Act

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The Federal Employee Retirement Income Security Act (ERISA) preempts certain entities and some activities of those entities from the application of state

laws. The purpose of these definitions is to include within this Act and regulations issued pursuant to it, all entities and activities to the extent not

preempted by ERISA.

Section 3. Unfair Claims Settlement Practices Prohibited

It is an improper claims practice for a domestic, foreign or alien insurer transacting business in this state to commit an act

defined in Section 4 of this Act if:

A. It is committed flagrantly and in conscious disregard of this Act or any rules promulgated hereunder; or

B. It has been committed with such frequency to indicate a general business practice to engage in that type of

conduct.

Section 4. Unfair Claims Practices Defined

Any of the following acts by an insurer, if committed in violation of Section 3, constitutes an unfair claims practice:

A. Knowingly misrepresenting to claimants and insureds relevant facts or policy provisions relating to

coverages at issue;

B. Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising

under its policies;

C. Failing to adopt and implement reasonable standards for the prompt investigation and settlement of claims

arising under its policies;

D. Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in

which liability has become reasonably clear;

E. Compelling insureds or beneficiaries to institute suits to recover amounts due under its policies by offering

substantially less than the amounts ultimately recovered in suits brought by them;

F. Refusing to pay claims without conducting a reasonable investigation;

G. Failing to affirm or deny coverage of claims within a reasonable time after having completed its

investigation related to such claim or claims;

H. Attempting to settle or settling claims for less than the amount that a reasonable person would believe the

insured or beneficiary was entitled by reference to written or printed advertising material accompanying or

made part of an application;

I. Attempting to settle or settling claims on the basis of an application that was materially altered without

notice to, or knowledge or consent of, the insured;

J. Making claims payments to an insured or beneficiary without indicating the coverage under which each

payment is being made;

K. Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form

and subsequent verification that would result in duplication of information and verification appearing in the

formal proof of loss form;

L. Failing in the case of claims denials or offers of compromise settlement to promptly provide a reasonable

and accurate explanation of the basis for such actions;

M. Failing to provide forms necessary to present claims within fifteen (15) calendar days of a request with

reasonable explanations regarding their use;

NAIC Model Laws, Regulations, Guidelines and Other Resources—January 1997

N. Failing to adopt and implement reasonable standards to assure that the repairs of a repairer owned by or

required to be used by the insurer are performed in a workmanlike manner.

Section 5. Statement of Charges

Whenever the commissioner has reasonable cause to believe that an insurer doing business in this state is engaging in any

unfair claims practice and that a proceeding in respect thereto would be in the public interest, the commissioner shall issue

and serve upon the insurer a statement of the charges in that respect and a notice of hearing, which shall set a hearing date not

less than thirty (30) days from the date of the notice.

Drafting Note: If a formal hearing procedure exists, states may wish to incorporate the timeframes from that existing procedure.

Section 6. Cease and Desist and Penalty Orders

If, after hearing, the commissioner finds an insurer has engaged in an unfair claims practice, the commissioner shall reduce

the findings to writing and shall issue and cause to be served upon the insurer charged with the violation a copy of the

findings and an order requiring the insurer to cease and desist from engaging in the act or practice and the commissioner may,

at the commissioner’s discretion, order:

A. Payment of a monetary penalty of not more than $1,000 for each violation but not to exceed an aggregate

penalty of $100,000, unless the violation was committed flagrantly and in conscious disregard of this Act, in

which case the penalty shall not be more than $25,000 for each violation, but not to exceed an aggregate

penalty of $250,000 pursuant to hearing; and/or

B. Suspension or revocation of the insurer’s license if the insurer knew or reasonably should have known it

was in violation of this Act.

Section 7. Penalty for Violation of Cease and Desist Orders

An insurer that violates a cease and desist order of the commissioner and, while the order is in effect, may, after notice and

hearing and upon order of the commissioner, be subject, at the discretion of the commissioner, to:

A. A monetary penalty of not more than $25,000 for each and every act or violation not to exceed an aggregate

of $250,000 pursuant to hearing; and/or

B. Suspension or revocation of the insurer’s license.

Section 8. Regulations

The commissioner may, after notice and hearing, promulgate reasonable rules, regulations and orders as are necessary or

proper to carry out and effectuate the provisions of this Act. The regulations shall be subject to review in accordance with

Section [insert applicable section].

Drafting Note: Insert section number providing for review of administrative orders.

Section 9. Severability

If any provision of this Act, or the application of the provision to any person or circumstances, shall be held invalid, the

remainder of the Act, and the application of the provision to persons or circumstances other than those as to which it is held

invalid, shall not be affected thereby.

_____________________________

Chronological Summary of Actions (all references are to the Proceedings of the NAIC).

1972 Proc. I 15, 16, 443-444, 491, 495-496 (claims settlement practices made part of Unfair Trade Practices Act).

1990 Proc. II 7, 13-14, 160, 177-179 (adopted free-standing claims settlement practices act).

1991 Proc. I 9, 16, 192-193, 203-206 (amended and reprinted).

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This chart is intended to provide readers with additional information to more easily access state statutes, regulations,

bulletins or administrative rulings related to the NAIC model. Such guidance provides readers with a starting point

from which they may review how each state has addressed the model and the topic being covered. The NAIC Legal

Division has reviewed each state’s activity in this area and has determined whether the citation most appropriately

fits in the Model Adoption column or Related State Activity column based on the definitions listed below. The NAIC’s

interpretation may or may not be shared by the individual states or by interested readers.

This chart does not constitute a formal legal opinion by the NAIC staff on the provisions of state law and should not

be relied upon as such. Nor does this state page reflect a determination as to whether a state meets any applicable

accreditation standards. Every effort has been made to provide correct and accurate summaries to assist readers in

locating useful information. Readers should consult state law for further details and for the most current information.

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KEY:

MODEL ADOPTION: States that have citations identified in this column adopted the most recent version of the NAIC

model in a substantially similar manner. This requires states to adopt the model in its entirety but does allow for variations

in style and format. States that have adopted portions of the current NAIC model will be included in this column with an

explanatory note.

RELATED STATE ACTIVITY: Examples of Related State Activity include but are not limited to: older versions of the

NAIC model, statutes or regulations addressing the same subject matter, or other administrative guidance such as bulletins

and notices. States that have citations identified in this column only (and nothing listed in the Model Adoption column) have

not adopted the most recent version of the NAIC model in a substantially similar manner.

NO CURRENT ACTIVITY: No state activity on the topic as of the date of the most recent update. This includes states that

have repealed legislation as well as states that have never adopted legislation.

NAIC MEMBER MODEL ADOPTION

RELATED STATE ACTIVITY

Alabama

DMIN

ODE

r. 482-1-124 to 482-1-125

(2003/2014); 482-12-24 (1971).

Alaska

LASKA

TAT

. §§ 21.36.125 (1976).

American Samoa

NO CURRENT ACTIVITY

Arizona

RIZ

TAT

. § 20-461 (1981/2004).

Arkansas

ODE

. § 23-66-206 (1959/2009).

ULLETIN

8-2014 (2014).

California

ODE

§ 790.03 (1959/1989).

ODE

EGS

tit. 10, § 2695.85

(2003/2009).

Colorado

OLO

TAT

. § 10-3-1104 (1963/2014).

ULLETIN

B-6.3 (2012/2013); B

ULLETIN

B-4.72 (2014).

Connecticut

ONN

TAT

. § 38a-816 (1955/2013).

Delaware

18 D

DMIN

ODE

§ 902 (1977/2003).

District of Columbia

NO CURRENT ACTIVITY

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NAIC MEMBER MODEL ADOPTION

RELATED STATE ACTIVITY

Florida

TAT

. § 626.9541 (1976/2014).

TAT

. § 626.9743 to 626.9744 (2004)

(motor vehicle settlements).

Georgia

ODE

. §§ 33-6-30 to 33-6-37 (1992).

Guam

NO CURRENT ACTIVITY

Hawaii

TAT

. § 431:13-103 (1988/1989).

Idaho

DAHO

ODE

. §§ 41-1329 (1977/1987).

Illinois

215 I

OMP

TAT

5/154.6

(1997).

Indiana

ODE

§ 27-4-1-4.5 (1983/1987).

Iowa

NO CURRENT ACTIVITY

Kansas

TAT

. §§ 40-2404 (1955/1992).

Kentucky

TAT

. §§ 304.12-230

(1984/1988).

Louisiana

TAT

. § 22:1964 (1958/2009).

TAT

. § 22:1973 (2009) (duty

of P/C insurers); § 22:1892 (2009).

Maine

TAT

. tit. 24-A, § 2164-D

(1987) (portions of model).

Maryland

ODE

. §§ 27-301 to 27-306

(1986/2012).

ODE

§ 31.15.08.03

(1989/2009); BULLETIN 2012-13 (2012).

Massachusetts

ASS

AWS

ch. 176D, § 3 (1972/1986).

Michigan

ICH

OMP

AWS

§ 500.2026 (1951/1977).

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NAIC MEMBER MODEL ADOPTION

RELATED STATE ACTIVITY

Minnesota

INN

TAT

. § 72A.20 Subd. 12 (1967/2006).

Mississippi

NO CURRENT ACTIVITY

Missouri

TAT

. §§ 375.1000 to 375.1018

(1991/1993).

Montana

ONT

ODE

. § 33-18-201 (1977).

Memorandum 1-29-2014 (2014).

Nebraska

TAT

. §§ 44-1536 to 44-1544

(1991/2002).

Nevada

NO CURRENT ACTIVITY

New Hampshire

N.H. R

TAT

§ 417:4 (1947/1991).

N.H.

ODE

DMIN

§§

1001.01 to

1001.11 (1982/2015).

New Jersey

N.J. R

TAT

. § 17:29B-4 (1947/2001).

New Mexico

N.M. S

TAT

. § 59A-16-20 (1985/1993).

New York

N.Y. I

§ 2601 (1984).

Circular Letter 2009-3 (2009); Circular Letter

2008-14 (2008); Circular Letter 2011-13

(2011).

North Carolina

N.C. G

TAT

. § 58-63-15 (1949/1987).

North Dakota

N.D. C

ENT

ODE

§§ 26.1-04-03 (1983/2003).

Northern Marianas

4 N. M

SLAND

ODE

§ 7302(g) (1984).

Ohio

HIO

DMIN

ODE

§ 3901-1-07 (1975).

Oklahoma

KLA

TAT

. tit. 36, §§ 1250.1 to 1250.16

(1986/2009).

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NAIC MEMBER MODEL ADOPTION

RELATED STATE ACTIVITY

Oregon

OR. REV. STAT. § 746.230 (1967/1989).

OR. ADMIN. R. 836-080-0235 (1980/2006).

Pennsylvania

40 P

TAT

1171.5(a)(10)

(1974/2006).

Puerto Rico

P.R. L

AWS

. tit. 26, § 2716a (1974).

Rhode Island

R.I. G

AWS

§§ 27-9.1-1 to 27-9.1-9

(1993/2013).

ULLETIN

2007-7 (2007); B

ULLETIN

2010-6

(2010).

South Carolina

S.C. C

ODE

. §§ 38-59-10 to

38-59-50 (1987).

South Dakota

S.D. C

ODIFIED

AWS

§ 58-33-67 (1986/1989).

Tennessee

TENN. CODE ANN. §§ 58-8-2 to 58-8-13 (2008)

(portions of model).

Texas

DMIN

ODE

§ 21.203 (1976/1985).

ODE

. §§ 542.001 to 542.014

(2005).

Utah

TAH

ODE

. §§ 31A-26-303 to

31A-26-310 (1986).

Vermont

TAT

. tit. 8, § 4724 (1955/1987).

Virgin Islands

NO CURRENT ACTIVITY

Virginia

ODE

. §§ 38.2-510 (1986/2001).

ODE

§ 38.2-517 (1992/1999).

Washington

ASH

DMIN

ODE

284-30-300 to

284-30-390 (1978/2016).

West Virginia

ODE

§ 33-11-4 (1957/1985).

Wisconsin

DMIN

ODE

. § 6.11 (1971/2000).

Wyoming

TAT

. § 26-13-124 (1986).

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Proceeding Citations

Cited to the Proceedings of the NAIC

In 1971 the Unfair Trade Practices Subcommittee identified several areas where they thought changes needed to be made to

the Unfair Trade Practices Act. One of those areas was related to claims practices, particularly unreasonable delay or refusal.

1971 Proc. II 341.

A draft of revisions being considered in Michigan was presented and it served as a pattern for the amendment adopted by the

NAIC. 1971 Proc. II 373-374.

The amended Unfair Trade Practices Act adopted in December 1971 included a section on unfair claims settlement practices

which identified 14 activities which, when committed or performed with such frequency as to indicate a general business

practice, were violations. In the past it had been difficult for regulators and insurers to solve problems because there were no

ground rules. The provisions adopted set out standards the subcommittee thought were desirable. 1972 Proc. I 491-492, 495-

496.

In 1989 a subgroup was appointed to consider revisions to the unfair claims settlement practices provisions. The group

decided it would be appropriate to create a separate free-standing unfair claims settlement practices act by removing the

section from the Unfair Trade Practices Act and setting it apart. In addition the group decided that further amendments

needed to be discussed. 1989 Proc. II 204.

Section 1. Purpose

The first issue of discussion was the NAIC’s position regarding whether a private cause of action was intended to be created.

The group decided no private cause of action was intended and language was added to the draft to that effect. 1989 Proc. II

204.

It was the consensus of the drafters and the advisory committee that these new drafts would provide a new emphasis on

claims issues. 1990 Proc. II 160.

Section 2. Definitions

The subcommittee considered numerous linguistic and stylistic changes recommended by industry and staff. Of notable

substance was the issue regarding the definitions of “insurer” and “person” and their relative scope. The purpose of the

definitions was to provide the broadest possible authority while at the same time not being overly broad. It was noted the

authority of the insurance department was to regulate insurers, not all persons. However, there was several sections of the

drafts where the word person was utilized to include all entities, whether engaged in the business of insurance or not. 1991

Proc. IA 218.

B. The definition of insured was added when the model was amended in December 1990. 1991 Proc. IA 204.

Section 3. Unfair Claims Settlement Practices Prohibited

The unfair claims settlement practices section which had been part of the Unfair Trade Practices Act defined an unfair claims

settlement practice as one which was committed or performed with such frequency as to indicate a general business practice.

1972 Proc. I 495.

When amendments were being developed in 1989 there were extensive discussions on whether it was appropriate to broaden

the scope beyond the long-standing “general business practice” standard. 1989 Proc. II 204.

The standards adopted broadened the scope to include either a flagrant violation or one committed with such frequency that it

indicated a general business practice. 1990 Proc. II 178.

NAIC Model Laws, Regulations, Guidelines and Other Resources—October 2010

UNFAIR CLAIMS SETTLEMENT PRACTICES ACT

Proceeding Citations

Cited to the Proceedings of the NAIC

Section 4. Unfair Claims Practices Defined

This section was patterned after the basic list of claims settlement violations adopted in 1971. 1990 Proc. II 172-173, 178.

A. The significant difference from the original model was the addition of the word “knowingly.” In addition the wording

“pertinent facts” was changed to “relevant facts.” 1990 Proc. II 178.

D. This provision was not part of the original section from the Unfair Trade Practices Act. The section most nearly

comparable made it an unfair claims practice to fail to settle a clearly liable claim in order to influence a settlement on other

portions on the coverage. 1990 Proc. II 172-173.

K. The original model language was altered by the addition of the qualifier “unreasonably” delaying investigation. 1990

Proc. II 173, 178.

M. This subsection was not included in the original list deleted from the Unfair Trade Practices Act. 1990 Proc. II 172-

173.

N. This provision was not included in the original list deleted from the Unfair Trade Practices Act. 1990 Proc. II 172-

173.

Section 5. Statement of Charges

Section 6. Cease and Desist and Penalty Orders

One industry attendee at the task force meeting commented that he found the amendment of the draft which changed the

potential penalty for an unfair claims practices violation from an aggregate of $50,000 to an aggregate of $250,000 somewhat

alarming. He offered concern that this change could legitimize some current practices of states utilizing fines for revenue

raising and retaliation purposes rather than for bona fide regulatory purposes. He stated he hoped the committee did not

defend or intend this change to encourage that practice. The chair of the drafting committee responded that, without question,

increasing the size of the penalties was not intended to increase the size of the state coffers. 1990 Proc. II 160.

Extensive discussions on the appropriateness of the aggregate penalty were again held when the model was amended in late

1990. While the industry was divided on the issue, regulators indicated a commitment to the heightened penalties while still

endorsing their position taken previously that such penalties be utilized for regulatory purposes and not revenue enhancement

devises. 1991 Proc. IA 218.

A. The amendments adopted in December 1990 did reduce the aggregate penalty for violations to $100,000, but

maintained the $250,000 penalty for flagrant violations. 1991 Proc. IA 205.

The model adopted in June 1990 contained language specifying the penalty for “each and every” violation. The “and every”

was removed by the December amendments. 1991 Proc. IA 205.

Section 7. Penalty for Violation of Cease and Desist Orders

This section was added at the time amendments were adopted in late 1990. It was the desire of the drafting committee to

include heightened penalties for violation of cease and desist orders. 1991 Proc. IA 218.

Section 8. Regulations

Section 9. Severability

NAIC Model Laws, Regulations, Guidelines and Other Resources—October 2010

UNFAIR CLAIMS SETTLEMENT PRACTICES ACT

Proceeding Citations

Cited to the Proceedings of the NAIC

____________________________________

Chronological Summary of Actions

December 1971: Adopted claims settlement section as part of Unfair Trade Practices Act.

June 1990: Deleted section from Unfair Trade Practices Act and made it part of new model on claims settlement practices.

December 1990: Technical amendments made to correlate language of Unfair Trade Practices Act, this model, and two claims settlement regulations.

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Proceeding Citations

Cited to the Proceedings of the NAIC

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