Insurers who misrepresent pertinent facts or policy provisions that relate to the claim or coverage at issue may find themselves liable for far more than the amount of the claim itself.
Unwarranted Refusal to Pay
A carrier who refuses to pay a claim for an arbitrary or capricious reason based on all available information is guilty of an unfair claims settlement practice. To deny a claim, an insurer must have legitimate grounds for doing so. Even if a court ultimately disagrees with the carrier's rationale, there must be a good faith basis for denying the claim and insurers must be able to articulate that basis at the time of denial.
Maryland law prohibits a practice of attempting to settle a claim based on an application that is altered without notice to, or the knowledge or consent of, the insured. Although I would like to think that the practice is rare, there have been instances where carriers have mistakenly denied claims based upon an inapplicable policy, leaving themselves exposed to claims that the denial was more than an innocent mistake. For this reason, it is essential that you review your own policy, preferably with an attorney who can ascertain your rights.
Identifying the Claim Being Paid
Even when a carrier pays a claim, it must include a statement of the coverage under which payment is being made. This is because there may be more than one type of coverage and claimants are entitled to know which of various claims is being settled. For example, if a carrier makes a payment for property damage, but not for personal injury, it must specify that the payment settles the property damage portion of the claim only. Otherwise, the scope of the settlement may deceive the payee into thinking that the entire claim is being resolved.
Because insurance policies typically include many forms of coverage, carriers may not withhold payment under one part of the policy as a bargaining chip for other items of the claim. If liability is reasonably clear under one part of a policy, a carrier may not hold off on such payments in order to influence settlements under other parts of the policy.
For example, in an automobile accident case, ABC Insurance Company provides "personal injury protection" or PIP coverage to the occupants of the insured vehicle. Of course, if the driver of the insured vehicle negligently caused the accident, this carrier also provides liability coverage for their injuries. Because PIP coverage must be paid to cover reasonable medical expenses regardless of whether the insured driver is at fault, a carrier cannot withhold payment of PIP benefits in order to gain leverage in the contested, liability portion of the claim.
Refusing to Explain
In Maryland, insurers do not have the right to remain silent when denying a claim. If an explanation is requested, the carrier must promptly explain the basis for its denial.
Penalties to Carriers
In some cases, carriers who failed to act reasonably in settling claims brought against their policyholders have been held liable for far more than the limits of their coverage when jurors return with verdicts exceeding these amounts. But, in all cases, claimants who find themselves subject to any of the above infractions may seek relief from the Maryland Insurance Administration -- the agency with the power to punish carriers who misbehave.
Additional resources provided by the author
This guide is intended to provide general information, but does not provide legal advice. Nor do any of the videos shown on CLIENTELEVISIONÂ® constitute legal advice. Readers must retain qualified lawyers to protect their legal rights after carefully reviewing the facts of specific cases.