The Impact of Unfair Claims Settlement Practices Laws on Claim Declination Letters

This article originally appeared on Bill Wilson’s awesome Insurance Commentary. Republished here with his permission. This is an excerpt from his new book When Words Collide: Resolving Insurance Coverage and Claims Disputes, published by Insurance Nerds and now available for pre-order.

Last week, I blogged about “Claim Declination and Reservation of Rights Letters” and led off with this comment:

The first rule in the claim resolution process is to never accept an oral declination of coverage. In one claim, a written denial was sent in the form of a letter that stated “You have no coverage for this loss.” That is no more acceptable than an oral declination. All claim declinations should meet at least three criteria:

1.  Be in writing;

2.  Cite the specific policy language (and only that language) that is applicable to the present denial; and

3.  Explain why and how that policy language works to exclude coverage.

Also governing how claims should be denied are various state Unfair Claims Settlement Practices laws. The National Association of Insurance Commissioners (NAIC) model act defines over a dozen acts that constitute an unfair claims practice, including [emphasis added]:

  • Knowingly misrepresenting to claimants and insureds relevant facts or policy provisions relating to coverages at issue;
  • Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clear;
  • 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;
  • Refusing to pay claims without conducting a reasonable investigation;
  • Attempting to settle or settling claims for less than the amount a reasonable person would believe the insured or beneficiary was entitled by reference to written or printed material accompanying or made a part of an application;
  • 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;

Many states have adopted this model act, some with modification. Some states have even more stringent and/or specific provisions for what constitutes unfair claims settlement practices, methods of competition, or deceptive acts. For example, Florida includes [emphasis added]:

Failing to promptly provide a reasonable explanation in writing to the insured 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;

California Code of Regulations, Title 10, Chapter 5, Subchapter 7.5 says [emphasis added]:

Fair Claims Settlement Practices Regulations

Section 2695.7.(b)(1)

Where an insurer denies or rejects a first party claim, in whole or in part, it shall do so in writing and shall provide to the claimant a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given such rejection or denial which is then within the insurer’s knowledge. Where an insurer’s denial of a first party claim, in whole or in part, is based on a specific statute, applicable law or policy provision, condition or exclusion, the written denial shall include reference thereto and provide an explanation of the application of the statute, applicable law or provision, condition or exclusion to the claim. Every insurer that denies or rejects a third party claim, in whole or in part, or disputes liability or damages shall do so in writing.

The NAIC model law has a similar provision but appears to lack the important requirement that there be an explanation of how the cited policy terms apply to eliminate coverage. And, again, many states have statutory requirements for policy language or claims settlement practices. For example, according to attorney Dan Kohane, New York statute 3420(d)(2) requires written disclaimers (not reservation of rights) in cases involving bodily injury and wrongful death. Failure to incorporate mandated language in insurance contracts or follow statutorily-mandated procedures can adversely impact a claim denial.

Never accept an oral claim denial and insist that written claim denials comply with applicable state laws. To paraphrase, proper and enforceable claim denial and reservation of rights letters are not only a good idea, they’re the law.

Preorder When Words Collide here.

About Bill Wilson

William C. Wilson, Jr., CPCU, ARM, AIM, AAM is the founder of He retired from the Independent Insurance Agents & Brokers of America in December 2016 where he served as Assoc. VP of Education and Research and was the founder and director of the Big “I” Virtual University for over 17 years. He is the former Director of Education & Technical Affairs for the Insurors of Tennessee and, prior to that time, he was employed by Insurance Services Office, Inc. He is a graduate of the Illinois Institute of Technology with a B.S. degree in Fire Protection & Safety Engineering. Bill was a licensed insurance and surplus lines agent, and his professional affiliations have included past president of the Middle Tennessee Chapter of CPCU, member of the board of directors of the national CPCU society, PMLG of the Honorable Order of Blue Goose, International, member of the Independent Insurance Agents & Brokers of America (IIABA) National Education Committee, member of the Certified Insurance Service Representative (CISR) National Advisory Committee, member of the National Underwriter FC&S editorial board, member of the Society of Insurance Trainers and Educators (SITE) and its SITE Journal editorial committee, member of the National Writers Association, chairman of the Tennessee Insurance Commissioner’s Education Advisory Committee, member of the Middle Tennessee State University Insurance Liaison Committee, and member of the Nashville State Technical Institute’s Business Management Advisory Committee. He has served as a trainer and speaker for various organizations, including the Independent Insurance Agents & Brokers of America and 43 of its state affiliates, the CPCU Society national convention and chapter programs, the National Association of Insurance Women (NAIW), the Southern Agents Conference (SAC), the Risk & Insurance Managers Society (RIMS), the International Risk Management Institute (IRMI), and the Society of Risk Management Consultants (SRMC). Bill has conducted hundreds of technical seminars, workshops and convention presentations—from Hawaii to Maine and Alaska to Florida—as well as programs on time management, presentation and public speaking skills, seminar development, and many others. He has been the top-rated presenter at several CPCU National Conventions and his programs are always highly rated by attendees. He has presented seminars or webinars to as many as 5,000 attendees in a single session. He was the recipient of the IIABA L.P. McCord National Education Award for having the #1 ranked state insurance education program in America and has won six other national education awards, including the George M. Gottheimer Memorial Award which is presented periodically to a CPCU Society member who has made an outstanding contribution to the field of insurance education, risk management or insurance consulting and, most recently, the Jeff Yates Lifetime Achievement Award which is the IIABA’s highest honor for nonagents. Bill has researched, developed, written, and published dozens of technical articles, manuals and CDs/audio tapes, and has authored articles in business and industry trade periodicals such as Presentations magazine, American Agent & Broker magazine, Independent Agent magazine, Tennessee Insuror magazine, Tennessee Business magazine, the CPCU Journal, CPCU Interest Group newsletters, and the SITE Journal. He has been quoted as an expert in a number of mainstream publications, including Readers Digest, Kiplinger’s, and Money magazines and the Wall Street Journal, and he has been cited as an expert resource/interviewee for local television and radio media. He has also served as an expert witness in litigation. According to Nashville NBC television affiliate WSMV, “Bill Wilson is an expert when it comes to insurance.” Dr. William T. Hold, president of the Society of Certified Insurance Counselors in Austin, Texas has said that, “Bill Wilson is recognized by his peers as one of the premier insurance educators in America.” Bob Rusbuldt, CEO of the Independent Insurance Agents & Brokers of America says, “Bill Wilson is the nation’s foremost leading expert on form, coverage, and technical issues.” Bill now blogs on insurance industry issues at and delivers keynote presentations in conjunction with his consulting practice. He is also working on several book projects in addition to playing lead guitar with the band The Old Dogs. His first insurance book, tentatively titled “When Words Collide: Resolving Insurance Coverage and Claims Disputes,” is scheduled for publication in late spring or summer 2018.

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