Some state's laws allow (some don't) for judges to award attorney's fees as well as punitive damages on behalf of the plaintiff suing an insurance company in a bad faith insurance matter (an insurer's unreasonable withholding of insurance policy benefits). Some practices by employers put them at risk of being in the middle of one of these types of actions. The importance in having the threat of punitive damages (in an amount sufficient enough to deter malicious, fraudulent or oppressive conduct) being awarded in bad faith cases is enormous as it is the only financial incentive for an insurer to abide by fair dealing and acceptable good faith standards with Insureds. In the absence of the threat of punitive damages, financially, an Insurer is actually encouraged to engage in unfair claims practices.
As a Third Party Administrator working on behalf of various A Rated insurance companies, CRS is held to an extremely high standard of compliance to ensure we are not practicing any claim management strategies that can be construed as Bad Faith dealings with claimants. We are construed in these cases to be the party responsible for meeting all the standards. We are constantly walking a tight rope to balance the needs of our customers with those of the carrier in making sure that we are acting with reasonable promptness and communicating with injured parties and paying them any and all benefits and settlements that they are entitled to by statute. These are examples of just a few practices that would be subject to scrutiny in a bad faith lawsuit:
- Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
- Failing to acknowledge and act with reasonable promptness upon communications with respect to claims arising under insurance policies;
- Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
- Refusing to pay claims without conducting a reasonable investigation based upon all available information;
- Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;
- Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
- Making claims payments to insureds or beneficiaries not accompanied by statements setting forth the coverage under which the payments are being made;
- Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
These are just a few examples and the list goes on. When an insured decides to try to tackle claims on your own without reporting them under your policy to CRS you are essentially taking on the risk of one of these claims against you. This and the MMSEA requirements are reasons you will often hear a CRS person "reminding" you about submitting at the very least, an incident report for each occurrence to protect your company from being subjected to one of these types of actions. Keep yourself from being caught "in the middle" and report all losses to CRS!
Teri L. Sporer | President