ILLINOIS UNFAIR CLAIMS LAW & REGULATIONS

Transcription

1 Statutes: ILLINOIS UNFAIR CLAIMS LAW & REGULATIONS (215 ILCS 5/154.5) (from Ch. 73, par ) Sec Improper Claims Practices) It is an improper claims practice for any domestic, foreign or alien company transacting business in this State to commit any of the acts contained in Section if: (a) it is committed knowingly in violation of this Act or any rules promulgated hereunder; or (b) It has been committed with such frequency to indicate a persistent tendency to engage in that type of conduct. (Source: P.A ) (215 ILCS 5/154.6) (from Ch. 73, par ) Sec Acts constituting improper claims practice. Any of the following acts by a company, if committed without just cause and in violation of Section 154.5, constitutes an improper 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 investigations 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 policyholders 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) Engaging in activity which results in a disproportionate number of meritorious complaints against the insurer received by the Insurance Department; (g) Engaging in activity which results in a disproportionate number of lawsuits to be filed against the insurer or its insureds by claimants; (h) Refusing to pay claims without conducting a reasonable investigation based on all available information; (i) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed; (j) Attempting to settle a claim for less than the amount to which a reasonable person would believe the claimant was entitled, by reference to written or printed advertising material accompanying or made part of an application or establishing unreasonable caps or limits on paint or materials when estimating vehicle repairs; (k) Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured; (l) Making a claims payment to a policyholder or beneficiary omitting the coverage under which each payment is being made; (m) Delaying the investigation or payment of claims by requiring an insured, a claimant, or the physicians of either to submit a preliminary claim report and then requiring subsequent submission of formal proof of loss forms, resulting in the duplication of verification; (n) Failing in the case of the denial of a claim or the offer of a compromise 1

2 settlement to promptly provide a reasonable and accurate explanation of the basis in the insurance policy or applicable law for such denial or compromise settlement; (o) Failing to provide forms necessary to present claims within 15 working days of a request with such explanations as are necessary to use them effectively; (p) Failing to adopt and implement reasonable standards to verify that a repairer designated by the insurance company to provide an estimate, perform repairs, or engage in any other service in connection with an insured loss on a vehicle is duly licensed under Section of the Illinois Vehicle Code; (q) Failing to provide as a persistent tendency a notification on any written estimate prepared by an insurance company in connection with an insured loss that Illinois law requires that vehicle repairers must be licensed in accordance with Section of the Illinois Vehicle Code; (r) Engaging in any other acts which are in substance equivalent to any of the foregoing. (Source: P.A , eff ) (215 ILCS 5/154.7) (from Ch. 73, par ) Sec Statement of Charges.) (1) Whenever the Director finds that any company doing business in this State is engaging in any improper claims practice as defined in Section 154.5, and that a proceeding in respect thereto would be in the public interest, he shall issue and serve upon such company a statement of the charges in that respect and a notice of hearing thereon pursuant to Article XXIV, which notice shall set a hearing date not less than 10 days from the date of the notice. (2) The failure of a company to appear at a hearing after receipt of a statement of the charges and notice of hearing is considered a waiver of notice and hearing, a stipulation that the charges against the company are true, immediately suspends such company's Certificate of Authority for 30 days, and subjects the company to any other applicable provisions of this Code. The Director must notify the company of any suspension or action taken under this Section. (215 ILCS 5/154.8) (from Ch. 73, par ) Sec Cease and Desist Order - Suspension of Certificate - Civil penalty - Judicial Review.) (1) If after a hearing pursuant to Section the Director finds that company has engaged in an improper claims practice, he shall order such company to cease and desist from such practices and, in the exercise of reasonable discretion, may suspend the company's certificate of authority for a period not to exceed 6 months or impose a civil penalty of up to $250,000, or both. Pursuant to Section 401, the Director shall promulgate reasonable rules and regulations establishing standards for the implementation of this Section. (2) Any order of the Director pursuant to this Section is subject to judicial review under Section 407 of this Code. (Source: P.A ) (215 ILCS 5/155) (from Ch. 73, par. 767) Sec Attorney fees. (1) In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees, other costs, plus an amount not to exceed any one of the following amounts: (a) 60% of the amount which the court or jury finds 2

3 such party is entitled to recover against the company, exclusive of all costs; (b) $60,000; (c) the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action. (2) Where there are several policies insuring the same insured against the same loss whether issued by the same or by different companies, the court may fix the amount of the allowance so that the total attorney fees on account of one loss shall not be increased by reason of the fact that the insured brings separate suits on such policies. (Source: P.A , eff ) REGULATIONS: TITLE 50: INSURANCE CHAPTER I: DEPARTMENT OF INSURANCE PART 919 IMPROPER CLAIMS PRACTICE SECTION AUTHORITY Section Authority This Part is promulgated by the Director of Insurance (Director) pursuant to Sections 154.5, and 401 of the Illinois Insurance Code [215 ILCS 5/154.5, and 401], Section 10 of the Voluntary Health Services Plans Act [215 ILCS 165/10], Section 25 of the Dental Service Plan Act [215 ILCS 110/25] and Section 5-3 of the Health Maintenance Organization Act [215 ILCS 125/5-3], which empower the Director of Insurance...to make reasonable rules and regulations as may be necessary for making effective...the insurance and related laws of this State. (Source: Amended at 26 Ill. Reg , effective July 22, 2002) Section Scope and Purpose a) This Part shall apply to all insurance companies authorized to transact in this State the kind or kinds of business described in Section 4, Class 1, Class 2 and Class 3 of the Illinois Insurance Code [215 ILCS 5/4] except fidelity and surety, ocean marine and worker's compensation; to all producers licensed under Article XXXI of the Illinois Insurance Code [215 ILCS 5/Art. XXXI]; to all Voluntary Health Service Plan Corporations; to all Dental Service Plan Corporations; to all Health Maintenance Organizations; and to any individual association, corporation, partnership, insurance company or other legal entity licensed under the Illinois Insurance Code which acts as a third party administrator. This Part shall apply 3

4 to all claims handling activity occurring on or after the effective date of this Part and to all pertinent policy forms on file or hereafter filed with the Illinois Department of Insurance after the effective date of this Part. b) The purpose of this Part is to set forth minimum standards for the investigation and disposition of claims arising under contracts and certificates issued to residents of Illinois. The provisions of the Part establish the general criteria to be used by the Director in selecting companies to be examined and the minimum standards for record keeping to be followed by the companies subject to the Part. The various provisions of the Part are intended to define procedures and practices that committed with such frequency as to indicate a general practice will ultimately be the basis for a regulatory finding of unfair claims practices. (Source: Amended at 26 Ill. Reg , effective July 22, 2002) Section Examinations a) Each company's claim files for policies or certificates on Illinois risks are subject to examination and inspection by the Director of Insurance or by his duly appointed designees. Examples of the criteria which may be used to determine the frequency of examinations include but are not limited to: 1) High ratio of written complaints to premium volume or units of exposure or enrollment; 2) Examination of a percent of a particular market; 3) Examination of a particular specialty line for which claims handling, underwriting or marketing practices or procedures raise questions of compliance with any insurance laws or rule; 4) Examination of a particular company whose practice or procedure for the handling of claims, underwriting or the marketing of policies raise questions of compliance with any insurance laws or rules. b) Each company shall maintain claim data that should be accessible and retrievable for examination by the Director. A company shall be able to provide the claim number, line of coverage, date of loss and date of payment of the claim, date of denial, or date claim closed without payment. This data must be available for all open 4

5 and/or closed files for the current year and the two preceding years. The examiners' review may include but need not be limited to an examination of the following claims: 1) Claims Closed With Payment; 2) Claims Denied; 3) Claims Closed Without Payment; 4) First Party Automobile Total Losses; and/or Subrogation Claims. c) Detailed documentation shall be contained in each claim file in order to permit reconstruction of the company's activities relative to each claim file. d) For those companies who do not maintain hard copy files, claim files must be accessible from cathode ray tube (CRT) or micrographics and capable of duplication to hard copy. (Source: Amended at 13 Ill. Reg. 1204, effective January 11, 1989) Section Definitions/Explanations Code means the Illinois Insurance Code [215 ILCS 5]. Company refers to any licensee of the Department of Insurance, including health maintenance organizations. Days for the purpose of this Part, means calendar days. Department means the Illinois Department of Insurance. Director means the Director of the Illinois Department of Insurance. Documentation shall mean all pertinent communications, transactions, notes and work papers. All such communications, transactions, notes and work papers shall be properly dated and compiled in sufficient detail in order to allow for the reconstruction of all pertinent events relative to each claim file. Documentation shall include but not be limited to bills, explanations of benefits and worksheets. First Party means to any individual, corporation, association, partnership, or other legal entity asserting a contractual right to 5

6 payment under an insurance policy or insurance contract arising out of the contingency or loss covered by such policy or contract. Insured shall mean, for the purposes of life, accident and health insurance or other health care or service plans, the party named on a contract as the individual, corporation or association with legal rights to the benefits provided by such contract. This includes certificate holders or subscribers to a group contract and enrollees of a health maintenance organization, any other type of health care or service plans, or third party administrator. For purposes of property and casualty insurance, the party named on the contract is the insured. Non-Original Manufacturer means any manufacturer other than the manufacturer of the original part. Notice of Availability of the Department of Insurance as required by this Part shall be no less informative than the following: Part 919 of the Rules of the Illinois Department of Insurance requires that our company advise you that if you wish to take this matter up with the Illinois Department of Insurance, it maintains a Consumer Division in Chicago at 100 W. Randolph Street, Suite , Chicago, Illinois and in Springfield at 320 West Washington Street, Springfield, Illinois Notification of Loss shall mean communication, as required by the policy or that is otherwise acceptable by the insurer, from a claimant or insured to the insurer which identifies the claimant or insured and indicates that a loss has occurred or is about to occur. Pertinent Communication, as used in Section 154.6(b) of the Code [215 ILCS 5/154.6(b)], shall include all correspondence, regardless of source or type, that is materially related to the handling of the claim. Policy, for the purpose of this Part, shall mean a policy, certificate or contract issued to Illinois residents, including a certificate of enrollment into a health maintenance organization or any other type of health care or service plan. Private Passenger Automobile refers to vehicles insured under a policy of automobile insurance as defined in Section of the Code [215 ILCS 5/143.13]. 6

7 Prompt Investigation, as used in Section 154.6(c) of the Code [215 ILCS 5/154.6(c)], shall apply to all activities of the company related directly or indirectly to the determination of liability based on claims under the coverage afforded by the policy and shall be evidenced by a bonafide effort to communicate with all insureds and claimants where liability is reasonably clear within 21 working days after a notification of loss. Evidence of such bonafide effort to communicate with insureds and claimants shall be maintained in the company's claim files. Reasonable Promptness, as used in Section 154.6(b) of the Code [215 ILCS 5/154.6(b)], shall mean a maximum of 15 working days from receipt of communication from a claimant or insured. Replacement Crash Parts, for purposes of this Part, means sheet metal or synthetic parts, e.g., plastic, fiberglass, etc., that constitute the exterior of a motor vehicle, including inner and outer panels. Representative shall include any person expressly authorized to act on behalf of the insurer and any employee of the insurer who acts or appears to act on behalf of the insurer in matters relating to claims, including but not limited to independent contractors while performing claim services at the direction of the company. Settlement of Claims, as used in Section 154.6(c) of the Code [215 ILCS 5/154.6(c)], shall pertain to all activities of the company or its representatives, relating directly or indirectly to the determination of the extent of liabilities due or potentially due under coverages afforded by the policy, evidence of such activities to be maintained in the company's claim files. Third Party refers to any individual, corporation, association, partnership, or other legal entity asserting a claim against any individual, corporation, partnership, or other legal entity insured under a policy. (Source: Amended at 26 Ill. Reg , effective July 22, 2002) Section Required Practices for all Insurance Companies a) The company shall affirm or deny liability on claims within a reasonable time and shall offer payment within 30 days after affirmation of liability, if the amount of the claim is determined and not in dispute. For those portions of the claim which are not in dispute and for which the payee is known, the company shall tender payment within said 30 days. 7

8 1) On first party claims if a settlement of a claim is less than the amount claimed, or if the claim is denied, the company shall provide to the insured a reasonable written explanation of the basis of the lower offer or denial within 30 days after the investigation and determination of liability is completed. This explanation shall clearly set forth the policy definition, limitation, exclusion or condition upon which denial was based. Notice of Availability of the Department of Insurance shall accompany this explanation. 2) Within 30 days after the initial determination of liability is made, if the claim is denied, the company shall provide the third party a reasonable written explanation of the basis of the denial. b) No company shall deny a claim upon information obtained in a telephone conversation or personal interview with any source unless such telephone conversation or personal interview is documented in the claim file. c) The company's standards for claims processing shall be such that notice of claim and proofs of loss submitted against one policy issued by that company shall fulfill the insured's obligation under any and all similar policies issued by that company and specifically identified by the insured to said company to the same degree that the same form would be required under any similar policy. If additional information is required to fulfill the insured's obligation under other similar policies, the company may request the additional information. When it is apparent to the company that additional benefits would be payable under an insured's policy upon receipt of additional proofs of loss from the insured, the company shall communicate to and cooperate with the insured in determining the extent of the company's additional liability. (Source: Amended at 28 Ill. Reg. 9253, effective July 1, 2004) Section Improper Practices or Procedures for all Insurance Companies a) No company shall indicate to an insured on a payment draft, check or in any accompanying letter that said payment is "final" or "a release" of any claim unless the policy limit has been paid or there is a bonafide dispute either over coverage or the amount payable under the policy. 8

9 b) No company shall make any statement, written or oral, requiring an insured to complete a proof of loss in less time than is provided in the policy. c) No company shall make any statement requiring an insured to give written notice of loss within a specified time so that the company is relieved of its obligations under a policy if such time limit is not complied with, unless such a statement is made after the insured's unreasonable failure to give written notice. d) No company shall request or require any insured to submit to a polygraph examination. The use of examinations under oath, sworn statements or similar procedures shall not be so restricted, if authorized under the applicable insurance contracts. (Source: Amended at 13 Ill. Reg. 1204, effective January 11, 1989) Section Required Claims Practices Life, Accident and Health Companies a) Required Practices. 1) Insurance companies shall utilize the following guidelines to search for additional policies or insurance coverages on the life of an insured upon notification of death of the insured. Companies selling group life insurance policies or credit life insurance policies for which the company does not maintain records of the certificate holders shall be exempt from the requirements of this subsection (a)(1). A) Upon submission of a death claim form pursuant to an insurance contract, insurers shall conduct a search for other policies on the decedent s life. B) The company shall investigate additional policy files identified by the search, for which liability is not immediately verified, and complete a determination of liability no later than 6 months following the claim filing date. C) Where such other policies exist, the insurer shall notify the policy owner (if different than the insured) and the beneficiary and arrange for payment pursuant to the policies. 9

10 D) Insurers shall adopt a written claim processing standard and methodology that will allow the company to process a death or endowment or other claim being presented against a life insurance or accidental death or dismemberment policy. E) The company, as a part of its claim processing standard and methodology, shall inquire for every claim filed with the company for death benefits about other names by which the insured may have been known, such as maiden name, hyphenated name, nickname, derivative form of first and middle name or an alias. If the filer of the claim form includes such additional name information on the claim form or if the company otherwise knows about other names by which the insured may have been known, the company shall include this information as a part of its search criteria to determine whether additional policies exist. F) Claim records shall be maintained that demonstrate that the insurer has followed the written claim processing standard and methodology required by this subsection (a)(1). 2) If a claim remains unresolved for 45 days from the date it is reported, the company shall provide the insured or, when applicable, the insured's beneficiary, with a reasonable written explanation for the delay. In credit or mortgage claims, the notice must be provided to the debtor/insured in addition to the policyholder. Notice of availability of the Department of Insurance shall accompany the written explanation to the insured beneficiary. 3) If a company is under contract for direct filing of claims either with a provider or another carrier on behalf of the insured, the requirement for acknowledgment of claims or notice requirements are waived provided the insured has otherwise received prior notice of such arrangements. If a claim remains unresolved for more than 90 days from the date the administrator provides notice to the company, the notice of delay, as specified in subsection(a)(1), shall be required. Nothing in this Section shall waive the written notice requirement for denial of a claim. 10

11 4) A disability claim settlement on a lump sum basis shall be accompanied with a written explanation of the basis of the settlement including a comparison of the different modes of settlement. b) Improper Practices or Procedures. 1) No company shall settle a claim involving both a covered and non-covered condition, on a percentage basis of contributing loss, unless said percentage is reasonable under the circumstances and the insured is provided with written explanation. The basis for settlement must be maintained in the file. 2) No company shall undertake any activity that has the effect of misrepresenting policy provisions or otherwise unduly influencing the insured to settle a disability claim on a lump sum basis. (Source: Amended at 28 Ill. Reg. 9253, effective July 1, 2004) Section Improper Practices or Procedures Property and Casualty Companies a) A claim shall not be denied on the basis of failure to exhibit property unless there is documentation of breach of the policy provisions in the claim file. b) No company shall make any statement, written or oral, requiring a liability claimant to complete a proof of loss form, accident description, or release of claim for damages, which indicates that the claimant's rights may be impaired if such forms are not completed within a specified time, unless such statement is given for the purpose of notifying the claimant of the provisions of the statute of limitations. c) No company shall advise liability claimants to make claims under their own policies in cases where liability is reasonably clear. d) No company shall fail to effect settlement on first party claims on the basis that responsibility for payment should be assumed by other persons or insurers. e) No company issuing a motor vehicle insurance policy covering damages to a motor vehicle shall abandon the salvage of a motor vehicle to a towing service and/or storage yard service in lieu of the 11

12 towing and storage charges, without the agreed permission of the towing service or storage yard service. f) No company shall deny a claim for storage charges on actual cash value fire and extended coverage losses when the personal property limits have been exhausted, if coverage exists under additional living expense. (Source: Amended at 13 Ill. Reg. 1204, effective January 11, 1989) Disclaimer and warning: This information was published by McAnany, Van Cleave & Phillips, P.A., and is to be used only for general informational purposes and should not be construed as legal advice or legal opinion on any specific facts or circumstances. This is not inclusive of all exceptions and requirements which may apply to any individual claim. It is imperative to promptly obtain legal advice to determine the rights, obligations and options of a specific situation. 12