Garrett Murai | California Construction Law Blog
It’s not uncommon in construction claims for there to be Insurance and bond issues, whether it’s tendering a claim to your insurer, or claims against a license, payment, or performance bond. Insurance Code section 790.03 sets forth sixteen (16) unfair claims settlement practices by insurers and sureties including:
(1) Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.
(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
(3) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.
(4) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured.
(5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
(6) 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 the insureds, when the insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.
(7) Attempting to settle a claim by an insured for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.
(8) Attempting to settle claims on the basis of an application that was altered without notice to, or knowledge or consent of, the insured, his or her representative, agent, or broker.
(9) Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made.
(10) Making known to insureds or claimants a practice of the insurer 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.
(11) Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either, to submit a preliminary claim report, and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information.
(12) Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.
(13) Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.
(14) Directly advising a claimant not to obtain the services of an attorney.
(15) Misleading a claimant as to the applicable statute of limitations.
(16) Delaying the payment or provision of hospital, medical, or surgical benefits for services provided with respect to acquired immune deficiency syndrome or AIDS-related complex for more than 60 days after the insurer has received a claim for those benefits, where the delay in claim payment is for the purpose of investigating whether the condition preexisted the coverage. However, this 60-day period shall not include any time during which the insurer is awaiting a response for relevant medical information from a health care provider.
In addition to these sixteen (16) unfair claims settlement practices, the Department of Insurance has issued regulations known as the Fair Claims Settlement Practices Regulations (“Regulations”). 10 CCR §2695.1 et seq.
According to the Regulations, its purpose is “[t]o delineate certain minimum standards for the settlement of claims.” Because the regulations provide “minimum standards,” the Regulations state that they “are not meant to provide the exclusive definition of all unfair claims settlement practices.” They are, nonetheless, helpful to bear in mind when submitting claims to insurers as well as to sureties.
Who do the Regulations apply to?
The Regulations apply to both insurers as well as to sureties, although not all portions of the Regulations apply to sureties. We have noted where the Regulation does not apply to sureties.
What Claimants are beneficiaries under the Regulations?
The Regulations apply to claims by both first and third party claimants as well as any person who asserts a right of recovery under a surety bond.
A “first party claimant” is the party insured under an insurance policy. The easiest way to think about this is if you file a claim under your homeowners insurance policy after a tree falls onto your house, you would be a first party claimant. A “third party claimant” is anyone other than a first party claimant. For example, if you are struck by a car while crossing the street, you could sue the driver who would in turn submit your claim to his automobile insurance carrier, and you would be a third party claimant under the policy.
Are insurers required to disclose insurance policies?
No. However, insurers are required to disclose “all benefits, coverage, time limits or other provisions of any insurance policy . . . that may apply to the claim presented by the claimant.” Note: This requirement does not apply to sureties.
Are claimants required to permit an insurer or surety to inspect the claimant’s property?
Yes, if the insurer or surety has made a reasonable demand to inspect the property or, in situations where the claimant is a first party claimant under an insurance policy, the policy provides that the first party is required to permit inspection of the property.
When settling a claim how broad of a release can an insurer or surety require a claimant to agree to?
An insurer or surety cannot require a claimant to sign a release that extends beyond the subject matter which gave rise to a claim unless, prior to execution of the release, the legal effect of the release is disclosed and fully explained to the claimant in writing. However, if the claimant is represented by an attorney, no such disclosure is required.
Can an insurer or surety require that a claimant agree to a waiver of Civil Code section 1542?
Civil Code section 1542 provides that when signing a release a claimant does not waive claims that he or she does not know or suspect to exist in his or her favor at the time of executing a release and that, if known by him or her, would have materially affected his or her settlement with the released party. As such, it is not uncommon when settling claims for there to be a release that includes a waiver of Civil Code section 1542 since the party being released, and who is typically paying money for the release, wants to ensure that no other future claims are brought by the claimant.
The Regulations allow an insurer or surety to include in a release a waiver of Civil Code section 1542. However, if an insurer or surety does so, they must disclose the legal effect of the Civil Code section 1542 waiver in writing to the claimant. However, if the claimant is represented by an attorney, no such disclosure is required.
Are there time limits for insurers and sureties to respond to claims?
Yes. Upon receiving a claim, an insurer or surety, unless the claim is in the form of a lawsuit, must immediately do the following within 15 calendar days:
- Acknowledge receipt of the claim unless payment is made within the 15-day period.
- Provide the claimant with “necessary forms, instructions, and reasonable assistance, including but not limited to, specifying the information the claimant must provide for proof of claim.”
- Begin necessary investigation of the claim.
Further, upon receiving a communication from a claimant that reasonably suggests that a response is expected, an insurer or surety must immediately, but in no event more than 15 calendar days after receipt of the communication, furnish the claimant with a complete response based on the facts known by the insurer or surety. The 15-day response requirement does not apply if a lawsuit is filed.
Are there time limits for insurers to accept or deny claims?
Yes. Upon receiving a proof of claim, an insurer must accept or deny the claim in whole or in part within 40 calendar days, unless the insurer notifies the claimant in writing that additional information is required for it to make a determination and states any continuing reasons for the insurer’s inability to make a determination. Thereafter, the insurer is required to notify the claimant in writing every 30 calendar days until a determination is made or if a lawsuit is served.
Further, an insurer is required to notify a claimant in writing of “any statute of limitation or other time period requirement upon which the insurer may rely to deny a claim” within 60 calendar days prior to such expiration. However, if a claim is received within such 60-day period, the insurer must notify the claimant in writing immediately. If the claimant is represented by an attorney, no such disclosure is required.
If an insurer denies a first party claim in whole or in part the insurer must “provide to the claimant a statement listing all bases for such rejection or denial and the factual and legal bases for each reason given for such rejection or denial which is then within the insurer’s knowledge.” Further,”[w]here an insurer’s denial of a first party claim, in whole or in part, is based on a specific statute, applicable law or policy provision, condition or exclusion, the written denial shall include reference thereto and provide an explanation of the application of the statute, applicable law or provision, condition or exclusion to the claim.”
If an insurer denies a third party claim in whole or in part the insurer must do so in writing. Nothing more is required, although in practice most insurers will identify their bases for denial.
If an insurer accepts a claim in whole or in part the insurer must make payment within 30 calendar days of receipt of a signed release, if any.
Note: These requirements do not apply to sureties.
So, if the above requirements do not apply to sureties, what requirements if any do apply to sureties?
Glad you asked. There specific requirements that apply to sureties, some of which, are substantially similar to those applicable to insurers.
Upon receiving a proof of claim, a surety must accept or deny the claim in whole or in part within 40 calendar days unless the claim is in litigation or arbitration. However, if a surety needs further time to determine if a claim should be accepted or denied, the surety must notify the claimant in writing that additional time is needed and the reasons for the need for such additional time, including specification of any additional information the surety requires in order to make such determination. Thereafter, the surety is required to notify the claimant in writing every 30 calendar days until a determination is made or if a lawsuit is served or arbitration commenced.
Further, a surety is required to notify a claimant in writing of “any statute of limitation or other time period requirement upon which the [surety] may rely to deny a claim” within 60 calendar days prior to such expiration. However, if a claim is received within such 60-day period, the surety must notify the claimant in writing immediately. If the claimant is represented by an attorney, or if claim is already time barred at the time of receipt by surety, no such disclosure is required.
If a surety denies a claim in whole or in part the surety must “provide to the claimant a written statement listing all bases for such rejection or denial, and the factual and legal bases for each reason given for each rejection or denial, which are within the insurer’s knowledge.” Further, “[i]f a surety’s denial of a claim in whole or in part is based on a specific statute or specific bond provisions, the denial shall include reference thereto and provide an explanation of the application of the state or bond provision to the claim.”
If a claim is settled by payment, and where neither the claim nor the amount is in dispute, a surety must tender payment within 15 calendar days of receipt of an executed release, if any.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.