Ninety Day Time Requirement for Payment or Denial of Property Claims-Part I

(1) (a) Upon an insurer's receiving a communication with respect to a claim, the insurer shall, within 14 calendar days, review and acknowledge receipt of such communication unless payment is made within that period of time or unless the failure to acknowledge is caused by factors beyond the control of the insurer which reasonably prevent such acknowledgment. If the acknowledgment is not in writing, a notification indicating acknowledgment shall be made in the insurer's claim file and dated. A communication made to or by an agent of an insurer with respect to a claim shall constitute communication to or by the insurer.

(b) As used in this subsection, the term "agent" means any person to whom an insurer has granted authority or responsibility to receive or make such communications with respect to claims on behalf of the insurer.

(c) This subsection shall not apply to claimants represented by counsel beyond those communications necessary to provide forms and instructions.

(2) Such acknowledgment shall be responsive to the communication. If the communication constitutes a notification of a claim, unless the acknowledgment reasonably advises the claimant that the claim appears not to be covered by the insurer, the acknowledgment shall provide necessary claim forms, and instructions, including an appropriate telephone number.

(3) Unless otherwise provided by the policy of insurance or by law, within 10 working days after an insurer receives proof of loss statements the insurer shall begin such investigation as is reasonably necessary unless the failure to begin such investigation is caused by factors beyond the control of the insurer which reasonably prevent the commencement of such investigation.

(4) For purposes of this section, the term "insurer" means any residential property insurer.

(5) Within 90 days after an insurer receives notice of a property insurance claim from a policyholder, the insurer shall pay or deny such claim unless the failure to pay such claim is caused by factors beyond the control of the insurer which reasonably prevent such payment. Failure to comply with this subsection constitutes a violation of this code.

Subsection 5 adds a new and potentially troublesome requirement for property claims handlers. The premise is straightforward: all claims should be paid or denied within ninety (90) days of the report of the loss. The problem is that many property claims involve issues relating to coverage or causation which can make closure virtually impossible within ninety (90) days. The statute’s “safety net” for insurers only recognizes an exception for “factors beyond the control of the insurer which reasonably prevent payment”, which is a standard not easily applied to any given fact pattern and will ultimately require construction by the courts.

What types of factors will be considered “beyond the control” of the insurer? Certainly, an insured’s failure to cooperate with the insurer or comply with the Duties After Loss would be factors beyond the control of the insurer. The failure to present a Proof of Loss, submit to an Examination Under Oath, properly document the loss or produce records relevant to the coverage investigation would likely be considered matters “beyond the control” of the insurer which prevent a coverage decision and/or payment of the claim. A complex coverage evaluation requiring professional opinions by experts and consultants, such as windstorm claims under the Valued Policy Law for a combination of wind and flood damages (even with the 2005 amendments to the VPL) will inevitably test the limits of the new statute. A suspected fraud claim becomes even more problematic with the complexity of such investigations inherent in those kinds of claims. An investigation which requires more than ninety (90) days due to the need for documentation and cooperation by the insured is one thing; but the time necessary to complete an expert analysis and opinion may not be seen as something “beyond the control” of an insurer in many cases, particularly if there has been any delay in the decision to retain such experts until the later stages of the claim investigation. Insured's and their attorneys will undoubtedly argue that it is not. And with any standard that relies upon a subjective “reasonableness” factor, there will always be a difference of opinion. In claims which result in litigation, this will be considered an issue of fact for determination by a jury.

Claims handlers and SIU representatives will need to work harder and more efficiently (i.e., faster) to conclude coverage investigations of property claims. Compliance with the statute’s ninety (90) day time requirement is not an option or a target goal, but a mandatory rule of law. The statute plainly states that failure to comply with this requirement constitutes a violation of the Insurance Code and bad faith claims citing this statute will be a routine matter of course in the near future. In situations where it appears likely the ninety (90) day time limitation cannot be met, it will be incumbent upon the insurer to fully document the reasons for the delay and communicate those reasons to the insured. Comprehensive and contemporaneous documentation of the basis for the delay will be needed in order to defend any subsequent litigation which may result from failing to timely resolve a claim. With this new statute, it will no longer be business as usual. Things will have to be done differently from now on.

Should you have any questions about this statute or how it applies to the handling of any particular claim, please feel free to contact us for any information or assistance we may be able to offer. We would be pleased to provide in-depth training on this issue for your claims handlers and SIU representatives upon request.