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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

Bad Faith Statutes

Bad Faith Statutes (aka Unfair Insurance Claim Practices Acts)

The Insurance Industry has successfully lobbied over the years to defeat efforts to create a federal agency with the power to regulate the insurance industry. Concequently, the nation is without a comprehensive safety net to protect citizens from abusive insurance claims practices and greedy insurance companies.

Instead, the power to regulate the insurance industry remains with the various states, all of whom have insurance regulatory agencies.

In the 1970s, the National Association of Insurance Commissioners (NIAC)  began to develop model legislation designed to address the problems presented by the unfair claims settlement practices prevalent in the insurance industry. In subsequent years, many states enacted statutes based upon the model that empower state regulatory agencies to impose penalties upon insurers for bad faith type conduct during the claims settlement process.


These regulations, which are often known Unfair Insurance Claim Practices Acts, vary from state to state. However, generally speaking, the Acts prohibit bad faith conduct that could be described in some or all of the following ways:

  • 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;

  • Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds;

  • Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;

  • Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured;

  • Making claims payments to insureds or beneficiaries not accompanied by statements setting forth the coverage under which the payments are being made;

  • Delaying the investigation or payment of claims by requiring an insured to repeatedly submit the same information in different form;

  • Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;

  • Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement;


Unfortunately, the model act has not been adopted uniformly and some states have not acted at all. The result has become a hodge-podge of legislation that is confusing for consumers. Insurance companies may take advantage of that confusion. The fact that each state has its own system for regulating insurance is detrimental for policyholders in states with weak legislation or court decisions favorable to the insurance industry that may not sufficiently deter bad faith conduct. In other states, existing rules just need to be properly enforced. As greed increasingly pervades the insurance industry, victims of bad faith will need federal regulation to at least establish a uniform standard for insurer conduct.

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