Disability Insurance Bad Faith: Different States – Part 5 (New Mexico)
Over the past several days, we have been outlining the different standards that apply from state to state in determining whether a disability insurance company has acted in bad faith in wrongly denying a claim. Previous posts have outlined the standards for Arizona, California, Colorado, and Nevada. Today we look at the bad faith law of New Mexico.
New Mexico created a statute governing insurance company practices, called the Trade Practices and Frauds Act, in order to promote ethical settlement practices within the insurance industry. Anyone who has suffered damages as a result of a violation of that statute by a disability insurance company can bring an action to recover his or her damages. A policyholder can also bring a suit based on the same wrongful conduct under New Mexico’s tort law.
The Statute: N.M. Stat. § 59A-16-20
The Rules: Any and all of the following practices by an insurance company are defined as unfair and deceptive practices and are prohibited:
- Falsely representing pertinent facts or policy provisions relating to coverages at issue to insured.
- Failing to acknowledge and act reasonably promptly upon communications with policyholders.
- Failing to have reasonable standards in place for prompt disability claim processing and investigation.
- Failing to affirm or deny coverage of claims of insureds within a reasonable time after proof of loss requirements under the policy have been completed and submitted.
- Not attempting in good faith to come to prompt, fair and equitable settlements of claims in which the disability insurance company’s liability has become reasonably clear.
- Compelling insureds to institute a lawsuit to recover amounts due under their policy by offering substantially lower amounts than those ultimately recovered when the insureds have made claims for amounts reasonably close to the amounts they ultimately recover at trial.
- Attempting to settle a disability claim for less than the amount to which a reasonable person would have believed he was entitled by reference to written or printed ads accompanying or made part of a disability insurance application.
- Trying to settle claims on the basis of an application that was altered without the policyholder’s knowledge or consent.
- Delaying the investigation or payment of claims by requiring unnecessary, duplicative information.
- Failing to promptly provide an insured a reasonable explanation of the basis the insurance company relied on to deny a disability claim.
In our next blog post about Insurance Bad Faith, we will outline the standards that apply in the State of Texas.
Disability Insurance Bad Faith: Different States – Part 3 (Colorado)
In this series of blog posts, we have been outlining the first-party insurance bad faith law of Arizona, California, and other states. Today’s post examines the bad faith law of Colorado.
Although the Colorado statute regarding unfair or deceptive acts or practices provides for state regulation of insurance companies and not for private lawsuits for damages, an insured can still bring a bad faith action against a disability insurer under Colorado tort law. Nevertheless, in determining whether an insurance company’s delay in paying benefits or its denial of disability benefits was reasonable, the court or jury can consider evidence that the insurer’s conduct violated the Unfair Claims Settlement Practices Act statute.
The Statute: Col. Rev. Stat. § 10-3-1104
The Rules: An insurance company must:
- Not misrepresent pertinent facts or policy provisions.
- Acknowledge or act reasonably promptly upon communications.
- Adopt and implement reasonable standards for the prompt investigation of claims.
- Conduct a reasonable investigation based upon all available information before refusing to pay a disability insurance claim.
- Affirm or deny coverage within a reasonable time.
- Attempt in good faith to effectuate prompt, fair, and equitable settlement of claims in which liability has become reasonably clear.
- Not compel insureds to institute litigation to recover amounts due under their policies by offering substantially less than the amounts ultimately recovered in legal actions brought by the insureds.
- Not attempt to settle a claim for less than the amount that a reasonable person would have believed he or she was entitled to based upon the insurer’s advertising or policy application materials.
- Not delay investigation or payment by requiring submission of multiple forms containing substantially the same information.
- Promptly provide a reasonable explanation of the basis in the policy or law for a claim denial or compromise settlement offer.
The Tort Law Standard: Disability insurance companies can be liable for first party bad faith if they act unreasonably and with knowledge of or reckless disregard of their unreasonableness.
In our next post, we will review the insurance bad faith standards for the State of Nevada.
Disability Insurance Bad Faith: Different States – Part 2 (California)
In this series of posts, we are outlining what constitutes insurer bad faith from state to state. Our previous post outlined Arizona’s standards, and today, we look at the bad faith law of California.
In California, the Unfair Trade Practices Act of the Insurance Code statute dealing with unfair claims settlement practices is merely a codification of its bad faith law. A policyholder can bring a suit in California against its disability insurance company under the tort law, but not under the statute itself.
The Statute: Cal. Ins. Code § 790.03(h)
The Rules:
An insurance company’s duties include the following:
- To investigate disability claims thoroughly.
- To not deny coverage based on unduly restrictive policy interpretations.
- To use standards it knows are improper to deny disability claims.
- To not unreasonably delay processing or paying claims.
- To give as much consideration to the insured’s interests as it does to its own.
An insurance company is not allowed to:
- Misrepresent pertinent facts or policy provisions.
- Fail to acknowledge or act reasonably promptly on communications about a disability insurance claim.
- Fail to adopt and implement reasonable standards for prompt claims investigation.
- Fail to make a decision on coverage within a reasonable time after a policyholder has submitted complete proof of loss.
- Tell claimants the company always appeals arbitration awards in favor of claimants to get them to accept lowball settlement offers.
- Not attempt to make prompt, fair, and equitable settlements in which it has become reasonably clear that the disability insurance company must pay a claim.
- Force an insured to litigate to recover under the policy by offering an unreasonable settlement.
- Delay investigation or payment of claims by requiring an insured to submit multiple forms containing the same data.
- Withhold a reasonable explanation of the basis relied on in the insurance policy for the denial of a disability claim or for the offer of a compromise settlement.
- Directly advise a disability claimant not to obtain the services of a lawyer.
- Deceive a claimant as to the statute of limitations that applies.
The Tort Law Standard: A disability insurer can be found to have acted in bad faith if it withholds benefits unreasonably and without proper cause, whether or not the insurance company had a conscious awareness of wrongdoing or intent to harm the policyholder.
Disability Insurance Bad Faith: Different States – Part 1 (Arizona)
When a disability insurance company wrongly denies a disability claim in Arizona, it can be subject to a suit for bad faith. What constitutes insurer bad faith varies from state to state. Over the next several days, we will be outlining the first-party insurance bad faith law of Arizona and nearby states.
In many states, an insurance company can be held liable for its wrongful conduct in two ways: (i) under the tort law of the state or (ii) under a state statute. Though tort law and the statute usually overlap somewhat, they are sometimes meant to create separate and distinct causes of action. The tort law makes the insurance company pay damages to a private policyholder, while a violation of the statutes can often lead to either a suit by a private policyholder or charges brought by the state.
Arizona Insurance Bad Faith Law
The Arizona Unfair Claim Settlement Practices Act was intended to give the state Department of Insurance, headquartered in Phoenix, Arizona, guidelines for determining whether an insurer’s procedures and practices occur with such frequency as to indicate an unacceptable general business practice. This statute does not allow an individual to bring a lawsuit based solely on its provisions.
However, dentists and physicians can bring an action under the state’s tort law. Under Arizona insurance law relating to disability claims, the core of the duty of good faith and fair dealing is that the insurer must act reasonably towards its insured, giving equal consideration in all matters to the insured’s interest.
The Statute: A.R.S. §20-461. Unfair claim settlement practices.
The Rules: An insurance company’s duties include the following:
- To act reasonably in handling the claim.
- To not misrepresent facts of policy provisions to avoid paying benefits.
- To reasonably interpret contract provisions.
- To not take unreasonable legal positions.
- To not impose requirements on the insured that are not contained in the policy.
- To properly investigate the claim.
- To treat the policyholder fairly and honestly at all times.
- To give as much consideration to the insured’s interests as it does to its own.
- To make claims decisions without regard to profitably.
- To not attempt to influence the opinions of independent medical examiners.
- To not destroy or alter documents to conceal evidence of claim handling.
- To not lie about actions taken on a claim.
The Tort Law Standard: An insurer can be liable for bad faith if there is an absence of a reasonable basis for denying benefits of the policy and the disability insurance company had knowledge or a reckless disregard of the lack of a reasonable basis for denying the claim.
If you have concerns that your disability insurance claim has been denied in bad faith, an experienced Arizona disability can help you determine if you have a lawsuit to file against your insurer.
