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The Third Party Unfair Claims Act and Car Insurance
You are at a red light in rush-hour traffic, trying to decide between Chinese take-out and a home-cooked dinner when you’re violently thrown forward by the car that just rear-ended you. Physically, you are just shaken up. Mentally, you went from tranquil to train-wreck in just seconds, and you dread your next step. It goes without question that both you and the other driver should file a claim with your respective car insurers. You should file a claim with your insurer even if you are not at fault, because people do and can lie, and you need your account of the accident to be well documented. Equally important is knowing your rights as a third party claimant under the third-party unfair claims settlement practices act.
Insurers in every state must abide by state-mandated laws designed to protect individuals against unfair and deceptive insurance practices. These regulations fall under what is referred to as the Unfair Claims Settlement Act or Unfair Insurance Practices Act. The laws vary by state and may not cover all types of claims. You can check with your state’s insurance department to find out the insurance regulations in your state.
The basic stipulations of this act are as follows:
- Insurers must keep complete and accurate files and documentation of all paperwork in a manner that allows for dates and events to be reconstructed if necessary.
- Insurers are prohibited from misrepresenting all or any part of a policy’s provisions, coverage or benefits. Policyholders must be informed of all information regarding coverage, benefits and all other provisions covered with the insurance contract under which the claim is presented. Insurers may not conceal information regarding policy provisions, coverage and benefits.
- Insurers cannot deny a claim without providing a written explanation. Denial cannot be on the grounds of a specific policy condition, provision, or exclusion unless such is referenced in the denial. A copy of the denial letter should be kept in the insurer’s claim file.
- Claims must be promptly acknowledged and processed within 10 working days, as recommended by the National Association of Insurance Commissioners (NAIC). Responses must be filed within 15 days, and responses to all other pertinent communication must be made within 10 working days. Insurers must also provide necessary claim forms, instructions, and any assistance within 10 days to insure that first party claimants can comply with the conditions of their policies.
- Investigations must be completed within 30 days of the notification of a claim, unless for some reason the investigation cannot be completed within that timeframe.
- A settlement that is prompt, fair, and equitable to all parties must be reached. An insurer cannot pressure a claimant to accept a settlement for less than what the insurer would pay for repairs, except for situations where there is a total loss, and only in an amount agreed by the insured. Insurers can elect to offer a replacement vehicle. Insurers cannot insist that an insured travel an unreasonable distance to inspect a replacement vehicle.
Basically, an insurer has to acknowledge your claim, process it in a timely manner, provide and maintain copies of all communication, provide a valid reason (in writing) if your claim is denied, and come to a resolution that is amicable to both the insured and insurer.
Most state laws prohibit a car insurer from raising a policyholder’s premium rate due to an accident that was not their fault. Unfortunately, these laws do not keep a car insurer from dropping a policyholder at the time of renewal if too many such accidents occur, or the policyholder drives in areas where the likelihood of getting hit is high.
Another reason why it is important to file a claim with your own insurance company even if an accident was no fault of yours is that the third-party unfair claims settlement practices act pertains to the relationship between an insurer and a first-party claimant and not necessarily to a third-party one. You can write a letter to the other driver’s insurer informing them of your expectations and rights. Be sure to forward a copy of the letter to your insurer so they ensure you get that to which you are entitled.