Eights and Duties in the Insurance Claims Process
In the State of New Jersey, statutes and regulations (promulgated and enforced by the New Jersey Department of Banking and Insurance) prohibit insurance companies from engaging in unfair claims settlement practices, as well as unfair and deceptive trade practices. Insurance claims adjusters and examiners must conduct themselves in accordance with these regulations and laws, and treat policyholders in a fair and equitable manner. Violation of these basic standards for handling claims may also constitute a violation of an insurer’s duty to act in duty of good faith and fair dealing (i.e., Bad Faith) with the policyholder, and may result in damages in excess of the insurance policy, compensatory damages, and in some cases, punitive damages and attorneys’ fees. The insurance company is required to provide a copy of the Department’s rules and regulations to each claim examiner or adjuster. Communication and Fair Disclosures of Benefits
All correspondences or written communication with the policyholder (who is not represented by a lawyer) must be written in easy to read and unerstandable terms). - All benefits or coverage in the policy must be explained to you after a claim is filed. - The insurance company cannot demand that you provide a written notice of loss within a certain time period or you lose coverage, unless they actually suffer prejudice because of the delay. - The insurance company cannot send you a check for partial payment and then ask you to sign a release for the entire amount of the loss. - A broker has 3 business days to report the claim to the insurance company after notification from the policyholder. - Receipt of a claim must be acknowledged within 10 days after being informed of the claim, unless the claim was paid within that 10-day period. - Within 10 working days, the insurance company must provide the policyholder with all necessary claims form, instructions and assistance with completing the forms. Prompt Investigation and Settlement - After receiving notice of the claim, the insurance company must initiate an investigation within 10 working days (other than auto claims). - For personal injury protection (PIP) claims, the maximum time for payout is 60 days, but may be extended other 45-days. - For first party claims (the policyholder), other than PIP and auto physical damage claims, unless a clear justification exists, the maximum period of time for all property and liability claims is 30 days after receipt of a notarized proof of loss statement. For 3rd party property damage claims, the maximum time period is 45 days after receipt of a notarized proof of loss statement. For 3rd Party bodily injury claims, the maximum time is 90 days. - If the insurance company is unable to settle the claim within the above time period, they must send the claimant a written notice before the end of the specified time period explaining the reasons for the delay, and why additional time is needed. The notice must contain the address of the office responsible for handling the claim, a local number or a toll-free number, which the claimant can call collect. An updated written notice explaining why additional time is needed must be sent within 45 days after the initial notice and within every 45 days thereafter until the claim is paid or rejected, unless the claimant is represented by an attorney. - Settlement of all or part of a claim may be made within 10 days from receipt of a settlement agreement. - If there is a reasonable basis supported by specific information that the claimant fraudulently caused or contributed to the loss by arson or other fraudulent schemes, the insurance company is not required to pay the claim. Provided, however, that they advise the claimant of the denial within a reasonable time for “full investigation" after receipt of the notarized proof of loss statement. - The time periods for payment of life insurance are set forth in N.J.A.C. §11:2-17.7(h). - Overdue payments must be paid with interest pursuant to N.J.S.A. 52:18A-90.4. Claims relating to auto physical damage · If the insurance company elects to inspect the vehicle or retains an independent appraiser, they must do so within 7 business days after receiving the claim, commence negotiation and make a good faith offer of settlement. - Insurers are prohibited from doing business with an unlicensed auto body repair shop, and must ensure that the repair shop is licensed. - The policyholder may choose his own repair shop, which must be properly licensed. - Unless a clear justification exists, physical damage claims must be paid within 30 days after receipt of notice of claim. - If the insurance company is unable to resolve the claim within 30 days, it is required to provide a written explanation of the specific reasons for delay. Such a letter must be sent every 30 days until the claim is paid or rejected. - The insurance company cannot discourage you from filing a claim, or encourage you to file a claim against anyone instead of the company. Fair and Equitable Settlement and Reasonable Explanations - No insurance company shall deny a claim without providing a specific reference to the policy containing the denial and a statement of facts explaining the denial. And all denials shall be in writing and kept in the file. - Where a policyholder’s claim is denied, the insurance company must notify the policyholder of any limitation on the right to sue. If the claimant is negotiating with the insurance company, and his/her right to sue may be affected by a statute of limitation (SOL), which is about to expire, the insurance company must advise the claimant of the SOL within 60 days before the expiration of the SOL, unless the claimant is an attorney or represented by an attorney. - The insurance company cannot inform you that your rights will be impaired unless a release is signed within a given time period, unless they are notifying you of a law or policy provision with respect to the release. - The insurance company is prohibited from forcing you to sue them by intentionally making low offers. - No insurer shall deny payment of a claim when it is reasonably clear that either full or partial benefits are payable. - The insurance company is not allowed to deny a claim based on an exclusion unless they have documentation of facts to support the denial. - The insurance company may be subject to penalties of up to $1000 for each violation of an unfair claims practices regulation, and up for $5000 for each violation where the insurer knew or reasonably should have known of the violation. Fair and Equitable Settlements Applicable to Property and Liability insurance - Where liability and damages are reasonably clear, the insurance company cannot tell a 3rd party claimant (ex., the person whose injury/damages was caused by the policyholder) to make a claim under his/her own policy solely to avoid paying the claim. - Unless the insurance company is repairing the damaged property itself, it cannot request that you use a particular contractor or repair shop.
After-market parts will be accepted only if the parts are similarly warranted as the original manufacturer’s parts, and the insurance company is required to provide a written notice of similar warranty on the after-market parts. - If the insurance company chooses to inspect the vehicle, it must do so within 10 business days after the claim, and within 10 days’ after a 3rd party claim becomes reasonably clear. Unfair and Deceptive Trade Practices The Following are defined as unfair and deceptive practices under the statute (N.J.S.A. §17:29B-4): 1. Misrepresentation and false advertisement of policy provisions or deceptive and untrue statements; 2. Discrimination between individuals in the same class in the rates, premium, fees, race, color, etc. 3. Misrepresenting facts or provisions of the insurance policy; 4. Failing to have in place standards for prompt investigation of claims; 5. Refusal to pay claims without conducting a reasonable investigation based upon all available information; 6. Failing to affirm or deny coverage within a reasonable time after receiving the proof of loss statement. 7. Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear; 8. Compelling the policyholder to file a lawsuit to recover amounts due under the policy by making an unreasonable offer, or referring to an advertisement attached to the policy in making an unreasonable offer; 9. Advising the claimant of a policy of appealing arbitration awards for the purpose of convincing the claimant to accept a low offer; 10. Failing to provide a reasonable explanation of the basis for denial of a claim; 11. There is a penalty of up to $5000 for each violation and up to $25,000 where the insurance knew or should have known of the violation. If any of the above rules or laws are violated, you may file a complaint with the New Jersey Department of Banking and Insurance, Office of Consumer Protection. The policyholder or 3rd party claimant may also retain an attorney to file an action against the insurer where a denial was made.