Welcome to the course on Claims Settlement. 

As an insurance adjuster or insurance agent, your goal is to gain relevant and adequate information about claims settlement issues. This course will help you achieve that goal. By the completion of this Claims Settlement Course, you should be able to comprehend the fundamentals of claims settlement.

You should keep in mind that the information contained in the course materials is only designed to serve as a broad introduction and overview of the course. It will not be possible to cover all of the elements associated to claims settlement in the course due to the dynamic nature of the law, which is continually evolving and differing from one jurisdiction to another. Because of this, you are urged to improve your understanding by reading more materials on the subject. Furthermore, please keep in mind that some of the classes may cover specific interrelated topics that have been covered in more than one class.

The following is a list of the course’s topics and objectives:

  1. Introduction to Claim Settlement
  2. Stages of Claim Settlement
  3. Beneficiaries of the Claim Settlement process
  4. Categories of insurance in the claim settlement process
  5. General Facts on Claim Settlement
  6. Final Payments and Offers of Settlement
  7. Methods of compensation in claim settlement
  8. Unfair Claims Practice
  9. Case Study-California
  10. Case Study-Alabama
  11. Case Study-Georgia
  12. Case Study-Florida

Introduction to Claim Settlement

Claim settlement is defined as follows: Generally speaking, a claim is something that someone says but cannot prove and which may or may not be true or to formally request or demand something; assert that one owns or has earned something. In insurance law, an insurance claim may be defined as a formal way for a policyholder to ask an insurance company for coverage or money for a covered loss or policy occurrence. An official settlement is an agreement reached between two parties who have been involved in a conflict or disagreement, and it is generally referred to as such. 

A policyholder is the individual who is the legal owner of an insurance policy in the insurance industry. In their capacity as policyholders, they are the ones who purchased the policy, and as a result, they have the authority to make changes to it. In addition, policyholders are responsible for making certain that their premiums are paid on time each month. Thus, an insurance premium is defined as the amount of money paid in exchange for protection against a loss, risk, or harm of some kind. ‘Premium’ is derived from the Latin word “praemium,” which literally translates as “reward” or “prize” in English. Insurance, in its broadest sense, is a method of risk transferring and risk spreading among individuals. The term “policy” comes from the Italian word “poliza,” which means “folded writing.” Caravans of trade and merchants from Phoenicia and Greece specifically divided their cargo among numerous carriers and agreed to share losses if the caravan was attacked or a ship was lost in a storm. 

The settlement of a claim by an insurer is the payment of money to a policyholder in exchange for the occurrence of a loss or risk against which they were insured. The insurance company will make a payment to the insured or an authorized interested party on the insured’s behalf if the claim is approved by the underwriting committee. 

Types of claims

  • Life Insurance. A claim form, a death certificate, and the original policy will be submitted.
  • Property. The policyholder is responsible for reporting damage or loss to their property. 

An adjuster inspects and assesses the damage or loss for payment to the insured, depending on the type of claim. The adjuster begins the process of paying or reimbursing the insured (indemnification) once the harm has been verified. 

  • Health Insurance.  The policyholder is insured against an accident or illness.


The primary principle of Insurance is Indemnification/Compensation and not to earn a profit. This principle is applied in all insurance contracts with the exception of life insurance. An insured individual is compensated subject to the limit of actual loss. 

Where there is an Average clause in an insurance contract, indemnity is calculated in proportion to insured amount and the subject matters sum value.

The formula is therefore:-

 Policy Amount × Actual Loss = Market value of the subject matter on the date of loss

Amount of Indemnity

The process of Claim settlement is accomplished through three stages i.e. claim lodging, claim processing and claim payment.


This entails notification of the Insurer by the Policy holder of the occurrence of an insured event and the expectation of compensation.


This entails undertaking an investigation into the facts of the event to establish if they fall within the scope of the Policy Holders insurance. If it is established after the investigation that indeed the event was insured under the Policy Holders Insurance, the Insurer then proceeds to establish an appropriate amount for compensation as per the policy. 


Once the event has been confirmed as falling within the Insured’s policy, and all required documents for the investigation have been submitted, the Insurer proceeds to issue the payout. This is usually done within a reasonably short period of time which is majority of the times prescribed in the Insurance policy.

An expedited claim settlement process lowers the cost of processing any claim, while multiple stages in the process raise the cost associated with the claim settlement process and the same should be avoided.


Insurance Payments are typically made to the following 3 Parties: 

  1. Policy Holder

This is the subscriber to the insurance policy. They are the individuals who own the policy and can also be referred to as policy owners. Policy holders are responsible for the buying and management of the insurance policy, they also adjust coverage as necessary. Most insurance policies make provision for multiple policy holders whom could be people like spouses, children under the prescribed age, relatives and mortgagees among others.

These individuals make claims against their insurance policies.

  1. Third Party Claimant

This is any person asserting a claim against any person under a policy of an Insurer. These are people claiming harm has been caused to them by the Insured or someone under their policy. The Insured is considered the first party, the Insurer the second party, and the Claimant the third party.

Third parties are entitled to damages and costs arising as a result of the Insured’s negligence or the negligence of individuals falling under the Insured’s policy.

When the third party files a claim, the Insurer in order to evaluate the damages and ascertain the approximate cost of repairs engages a surveyor. The insurer then settles the claim once the verification process has been completed. 

  1. Beneficiary(s)

This is an individual, group, trust of people or even a company i.e charitable organization that receives compensation in the event of death of the Insured or Third party claimant prior to compensation by the Insurance Company after having lodged a claim during their life time.

In cases of Life Insurance, this are the people or entity entitled to receive compensation in the event of death of the Insured or upon maturity of the policy.

They are also known as ‘nominees’ because they are nominated by the Insured during their life time.

They can also be referred to as ‘heirs’ in the event where an Insured dies without having nominated a nominee or in case of third party claims upon being declared as administrators in the event the benefactor died interstate or their will was declared by a court of law as invalid or as executors where the benefactor died testate.


There are two broad categories of insurance of which the claim settlement process is applied:

  1. Life Insurance
  2. General Insurance

The main difference between this two categories being that General Insurance is meant for indemnity of the Policy holder while Life Insurance is not a contract of indemnity.


In the United States of America, all states apart from South Carolina have laws requiring insurance companies to pay or deny claims within a prescribed timeframe, normally 30, 45, or 60 days.

It is the obligation of the Insurer, their Adjusters and Brokers to familiarize themselves with the provisions of the law on payment timelines within their state.

This timelines set by law are known as ‘prompt pay laws’ and the States ordinarily impose serious requirements and penalties to guarantee compliance with the same.

Different Insurance categories have different requirements both under the law and under their respective Insurance policies. For example, in medical insurance, we the law providing for ‘clean claims’ and that make it mandatory for the insurer to settle claims within the stipulated timelines with very few exceptions.

A clean claim is a claim that has no errors, defect or impropriety filled by the medical service provider in which all the required fields in the prescribed document have been properly filled and all supporting documentation supplied in a manner that would allow the Insurer to process the claim.

If an Insurer fails to process claims within the respective prompt pay deadlines with regard to clean claims, they become liable to pay interest to the service provider. This is a kind of compensation falling under third (3) party claims regulated by the law.

An important fact to note with Final Payments and Offers of Settlement is that these payments in most instances are paid in installments and not as a lump sum amount.

The Insured/Claimant also has the ability to reopen a claim and file for an additional amount after discovering further damage that was not known to them in the first instance.

Where several insurance policies have been taken by the same Policy holder, the common practice is that separate checks are issued for each category of damage. For Instance, a home owner who has taken insurance policies with an Insurance Company for both the structure of their house and another for their personal belongings in that house. Such an individual will receive separate cheques for each of the Insurance categories.

 Insurance companies are also obliged to include third parties that may have an interest in the Insured item/property such as creditors, courts, mortgagees just to name a few.

Sometimes creditors could have obtained lawful orders from Courts of law and other ad hoc legal committees/tribunals granting them authority to attach payouts from Insurance Companies. An Insurer is therefore expected to exercise due diligence in ensuring that no such persons exists and failure to do this can amount to them being sued for negligence.

Courts of law can also require policy holders to deposit Insurance Payouts in Court for existing suits as security and issue orders to that effect. Failure by the Insurance Company to comply with such orders can lead to it being cited for contempt of Court orders. It is thus essential that the Insurance provider ensure they are up to date with any orders that may have been issued from the Courts against them and that they exercise due diligence.

Policy holders also take out loans for their properties and the mortgagee gets registered in the national lands registers as interested parties. In the event of damage occurring to the Insured property as per the Insurance policy, it is important for the Insurer to peruse the Lands registers as part of their due diligence to identify any other subsisting interests that may lie in the property and that may not have been notified to them and if any such interests are discovered, they should make the necessary queries to the policy holder. This way, they can secure themselves from suits as they can always claim material non-disclosure and breach of the requirement of utmost good faith by the Policy holder.



An Insurance Company will use their ‘damages formula’ to determine the amount of compensation to pay an Insured in the event of occurrence of the insured event. They also use claims evaluation software.

In the damages formula, the Adjuster first adds up all the receipts and bills that would help them determine the quantifiable damages (Special damages), they then proceed to calculate the general damages (not easily quantifiable event like pain and suffering and mental turmoil) if there are any by multiplying the Insured’s special damages by a number between the range of 1.5 and 5, once they have gotten a figure after this multiplication, they add it to the special damages cost, the amount obtained at the end of this process is the base figure which the Insurance Company will use to determine their initial settlement offer.


The most favorable decision in the majority of cases when an Insurance Company is faced with a merited third party claim is to seek out of Court settlement as opposed to leaving determination of the same to the Courts.

Offers of settlement are meant to benefit third parties who have suffered damage as a result of the Insured’s actions. They are third party claims.

This process often commences with the lodging of a claim with the Insurance company by the Third Party through a settlement demand. Upon lodging of the claim, the Insurance Company’s Adjuster will contact the Claimant and request documentation to support the claim. Such documents may include medical bills, proof of earnings, tax returns and proof of damage to their property as may be applicable. They will also collect statements from the Insured to try and determine if he bears any culpability. The Insurance company will also investigate the Claimant to find out if they can get information to minimize or completely eliminate the amount payable in the claim.

Upon satisfaction with the documentation that has been supplied by the Claimant and upon reaching the conclusion that the event is insured the adjuster will respond to the settlement demand by way of a settlement offer.

In arriving at an appropriate settlement amount, there are some factors the Adjuster must take into consideration:

  1. Odds of the Claimant winning a personal injury suit in Court with regard to the event. NB Should the Adjuster reach the conclusion that the Claimant is unlikely to receive a favorable judgment in a personal injury suit, they will not issue a settlement offer to the Claimant and will proceed to disregard the settlement demand.
  2. Amount of damages likely to be awarded by a jury to the Claimant as compensation for the event.

Compensation to be awarded by the Adjuster must factor in Special damages (this are quantifiable damages capable of being proved e.g hospital bills, receipts of purchase etc) and General damages (not capable of being quantified and their determination is subject to discretion e.g pain and suffering.)

The Adjuster may use claim evaluation software to arrive at a settlement amount. Once the Adjuster has completed his analysis and has determined a settlement amount, he proceeds to make the first settlement offer. The first offer will be a percentage of what he has estimated as the possible judicial award were the case to go to Court and a favorable award granted, say 60% of the estimated Court Award. This is always entirely up to the discretion of the Adjuster and there are no set rules on the same. If the Claimant does not have advocate representation, the typical practice is to set a low amount in the first settlement offer.

The Claimant or their advocate will either accept the first settlement offer or reject it. If they reject it, the negotiation process will then begin entailing offers and counteroffers until both Parties arrive at an agreeable compensation amount.

The Insurance Company however will under no circumstances exceed the coverage limits of the policy.

When Insurance Company has made a final payment or offer of settlement, they are expected to explain to the policyholders /claimant/ beneficiary what the payment or settlement is meant for and the basis used to arrive at the payment.


  1. Cash Payment

This is the most common method of Insurance payout. It is essentially the sum paid out after application of the damages formula by the adjuster.

  1. Replacement of subject matter

When it comes to replacement of the subject matter in an insurance policy, one must know about ‘replacement value’ and ‘actual cash value.’ These are the system used by an Insurer to determine the amount of compensation to pay to the insured in the event of theft or destruction of the insured property. It is usually the equivalent of the cost of replacing the property, the Insurance company does not however buy the actual item for the insured, it only gives them the money to replace it.

Actual cash value-This is a method of valuing property for insurance purposes. It takes into account depreciation of insured item in determining the payout amount for its replacement. It is used for goods that depreciate e.g vehicles. The possible Insurance payout in this case continues to decrease as the insured item continues to depreciate.

Replacement value- This is another method of valuing property for insurance purposes. It takes into account appreciation of insured item in determining the payout amount for its replacement. It is used for goods that appreciate e.g land/buildings. The possible Insurance payout in this case continues to increase as the insured item continues to appreciate.

An Insured is usually given the option to select between actual cash value and replacement value.

  1. Undertaking repairing of the Insured item to the satisfaction of the Insured.

This is known as Cash in lieu.

This is mostly applied in cases of motor insurance claims. This option helps Insurance Companies save money in the process of repair of the damaged vehicle. The Insurance Companies guarantees this option is utilized by including clauses like providing that cash payments will only be made where the replacement parts are out of stock and the time required for restocking to occur will be extremely long, or cash payments will be made where parts are unavailable in the market such as would be the case with much older models of vehicles that are no longer in production.

Insurance companies can also prefer to make cash payments as opposed to undertaking repairs where they are aware that the vehicle had in the past been repaired poorly or has corrosion occurring in the damaged area.

The risk with undertaking repairs of the Insured item as a method of compensation is that Insurance Companies can be held liable in case of injuries as a result of poor motor vehicle repairs. As a result most Insurance Companies prefer paying the repair costs as opposed to undertaking the responsibility of repairs through contracting of third parties.

  1. Reconstruction

Reconstruction comes in with regard buildings. In the event of partial loss of a building, the general rule of indemnity for reconstruction of buildings is that indemnity settlement must reflect the pre-damage age and condition of a building, and the same should be dealt with on an elemental basis.

The elemental basis provides that there are different life expectancies for different parts of a building. The following factors must therefore be taken into consideration during indemnity calculation; the age and condition, prior damage and the pending lifespan of the part. 

The Insurer must determine the estimated life expectancy of the part (i.e plasterwork,roof decorations, electrical wires), how much of the expected life had already lapsed prior to the occurrence of the event and lastly how much of that life was left.

An Insurer should also consider the factor of depreciation/diminution in market value (DMV) of the property. The calculation should be ‘cost of rebuilding less diminution in market value.’ Consideration of diminution in market value helps the Insurer determine the correct sums for indemnity as it indicates the pre-loss value of the building. It the structure was neglected and in poor repair, then its value will reduce accordingly.

Irrespective of what the Insured intended for the building in terms of construction prior to the occurrence of the event, the correct measure of indemnity is the diminution in market value.

Sometimes the Insurance company may not be keen on reconstruction as a mode of indemnity but the Insured in insistent on this method. In such cases, if the cost of rebuilding the structure exceeds its market value, factors like depreciation being taken into account, the Insured may be required by the Insurer to make contributions to the rebuilding cost. The insurer will also be within his rights to rebuild a lesser or reduced size building if the Insured refuses to avail additional funding to supplement the insurance payment.

Upon the Indemnification of the insured through any of the aforementioned methods, they are expected to surrender all their rights in

Some jurisdictions like India advise the insured to look at the Insurance Claim Settlement Ratio (CSR) that is calculated as follows: number of claims settled divided by the number of claims filed multiplied by 100. The insurance claim settlement ratio is defined as the ratio of the number of claims settled by an insurance company to the number of claims filed by the company in a particular financial year. It is believed that the greater the quality of the insurer, the higher the CSR percentage will be and that the insurance firms’ claim ratios are important due to the following:

  • The show the insurance company’s dependability. It reveals the insurance provider’s capacity to settle claims. As a result, an insurance business’s CSR demonstrates its dependability, which aids customers in selecting an insurance company for policy acquisition.
  • It shows the insurer’s consistency. The claim settlement ratio of an insurance firm should be consistent. If the company has been consistent in settling claims throughout, this demonstrates the insurance company’s ability to settle claims.
  • When we look at the claim ratio, we can see how many claims the insurance has received in a given financial year. This offers us an idea of the size and age of the insurance organization.


It is critical for an insurance adjuster or agent to be aware of what constitutes unfair claims practice in order to avoid litigation or disagreements between them and the insured. Learning about unfair claims practices entails also learning about fair claims practices, which are necessary in order to verify that the insurance adjuster or agent has complied with the applicable legislation (s). 

Unfair Claims Practice refers to when an insurer’s improper avoidance of a claim or an attempt to lessen the magnitude of the claim is known as unfair claims practice. An insurer tries to cut expenses by engaging in unscrupulous claims procedures. 

In 1871, a nationwide organization of state insurance commissioners was formed and the National Association of Insurance Commissioners grew out of it. The Unfair Claims Settlement Practices Act, designed by the National Association of Insurance Commissioners (NAIC), is a model unfair claims practice law that has been used and passed by numerous states. The aforementioned legislation differs from state to state, and each state’s insurance departments is responsible for implementing it. The Unfair Trade Practices Subcommittee noted many revisions to the Unfair Trade Practices Act that were needed in 1971. This included claims practices, namely unjustified delays or denials. Therefore, the NAIC added a section on unfair claims settlement to its Model Unfair Claims Practices Act. 

In 1990, the NAIC made more changes and enacted two new Acts. In a preamble to both Acts, the NAIC stated that separating the issues of unfair claims settlement practices into a separate Act from the Unfair Trade Practices Act was achieved so that the NAIC could concentrate more on unfair claims as a market conduct surveillance function separate from general unfair trade practices. The Model Act is intended to prohibit insurers from arbitrarily disputing claims or compelling claimants to litigate legitimate claims to judgment with the intention of compelling them to take a settlement for less than the full amount of their losses.

The Model Act empowers a state’s insurance commissioner to enforce its terms by conducting an inquiry and, if necessary, imposing sanctions. Courts have ruled that the Act merely authorizes state regulatory bodies to sanction insurance corporations, rather than creating private causes of action. In addition, the Act defines what constitutes unfair claims practices. These include: misrepresenting insurance policy provisions, failing to set and execute acceptable criteria for prompt claim investigation, failing to acknowledge or act fairly soon when claims are presented, and declining to pay claims void of an investigation. 

The insured enjoys administrative remedies, civil damages, common law remedies, and punitive damages in non-contractual actions against a non-compliant insured. Where an insurer has endeavored to avoid a fast, fair settlement, prejudgment interest may be awarded. The Model Act’s Section 4 lists 14 unfair claims procedures that are forbidden. These banned practices can be divided into three categories: 

  1. Mandatory claim adjusting standards. Insurance firms are required to establish and execute acceptable standards for the rapid investigation and settlement of claims occurring under its policies (Section 4C);  
  2. Interactions with insureds and claimants. Five banned practices involving interaction with insureds and claimants are listed in Section 4 of the Model Act:
  1. intentionally misrepresenting relevant facts or policy terms relating to the coverages at issue to claimants and insureds;
  2. neglecting to recognize pertinent correspondence regarding claims emerging under its policies with reasonable swiftness;
  3. failing to say whether or not they will cover a claim or claims within a reasonable amount of time after the investigation is done.
  4. neglecting to give a realistic and correct account of the rationale for claim denials or offers of compromise settlements as soon as possible; 
  5. failure to produce appropriate paperwork for presenting claims within 15 calendar days after a request, along with reasonable reasons for their use (the paperwork); and 
  6. Conduct that is prohibited.

If the state insurance commissioner decides that there has been an unfair claims practice, monetary fines can be levied under the Model Act. The NAIC has implemented a two-tiered penalty mechanism. The first tier applies in cases when the Act has been broken but there are no aggravating circumstances. The first tier of monetary sanctions has a $1,000 per violation cap and a $100,000 aggregate cap for all infractions. When a breach was committed flagrantly and in conscious disregard of the Act, second-tier sanctions apply.  Second-tier fines are limited to $25,000 per violation, with a total limit of $250,000. The Model Act contains no direction for commissioners in determining the appropriate amount of a monetary punishment. Punitive damages are also not provided for in the Model Act. 

Under Section 790.03 (h) of the California Insurance Code, unfair claims settlement procedures have been highlighted to include the following actions performed repeatedly in a manner that suggests that such conduct is common practice in the subject business:

  1. Providing false information to claimants about relevant facts or insurance policy clauses relating to the coverages in question. 
  2. Not accepting and acting on correspondence pertaining to claims drawn from insurance policies in a timely manner. 
  3. Refusing to develop and put in place appropriate criteria for the rapid investigation and processing of insurance claims. 
  4. Refusing to accept or reject claim coverage within a reasonable period after the insured has completed and filed the proof of loss requirements.
  5. Refusing to make a good faith effort to reach fast, fair, and equitable settlements of claims when culpability is reasonably obvious.
  6. Inducing insureds who have made claims for amounts that are rationally alike to the amounts eventually recovered, to file a lawsuit in order to recover sums due under an insurance policy by providing much less than the amounts recovered in actions initiated by the insureds.
  7. Insurance companies’ attempt to settle a claim for less than what a reasonable person would have thought they were entitled to going by written or printed marketing material that comes with or is part of a claim application. 
  8. An attempt to settle a claim with the help of a form that was changed without the permission or knowledge of the insured who filed it, their representative, agent or broker. 
  9. Refusing to provide information of the coverage that was used once a claim has been paid, to insureds or beneficiaries, when they request for the said information. 
  10. Informing the insureds or claimants that they usually appeal against arbitration decisions that are made in the insureds’ or claimants’ benefit in order to force them to take settlements or compromises that are below the amount granted in arbitration. 
  11. Slowing the investigation or payment of claims by requiring the insured, claimant, or either of their physicians to file a preliminary claim report, followed by official proof of loss forms, when the two, (the preliminary claim report and proof of loss) contain basically the same information. 
  12. Refusing to immediately pay claims where responsibility has become apparent under one part of the insurance policy with the intention of affecting the other parts of the insurance policy.
  13. Not giving a rational explanation of the rationale used in the insurance policy for the rejection of a claim or the offer of a compromise settlement in a timely manner, in respect to the facts or relevant legislation.
  14. Explicitly telling a claimant that he or she should not hire an attorney. 
  15. Deceiving a claimant about the statute of limitations that applies.
  16. Slowing payment or grant of hospital, medical, or surgical benefits for services related to acquired immune deficiency syndrome or AIDS-related complex for more than 60 days after the insurer receives a claim for those benefits, if the delay is meant to determine whether the condition predated the coverage. The 60-day timeframe, however, does not include the time period when the insurer is awaiting a reply from a health care provider regarding pertinent medical information.
  1. Infringing on Section 676.10 by canceling or refusing to renew an insurance.
  2. Misrepresenting, the fact that one is acting on behalf the California Health Benefit Exchange established according to Section 100500 of the Government Code without first obtaining a legal agreement from the California Health Benefit Exchange.


Section 2695.7. of the Fair Claims Settlement Practices Regulations provides for “Standards for Prompt, Fair and Equitable Settlements”. These are:

  • Non-discrimination in claims settlement methods by insurers against claimants because of their age, race, gender, income, religion, language, sexual orientation, ancestry, national origin, or physical disability, or because of the property or person insured’s location.
  • Every insurer must accept or deny a claim in whole or in part within forty (40) calendar days of receiving evidence of claim. Unless the claim has been denied in its whole, the sums accepted or denied must be fully stated in the claim file.  This time period limit is however not applicable in claims arising from disability insurance policies under Section 10123.13 of the California Insurance Code, disability income insurance policies under Section 10111.2 of the California Insurance Code, or mortgage guaranty insurance policies under Section 12640.09(a) of the California Insurance Code, or automobile repair bills arising from policies of automobile collision and comprehensive insurance policies under Section 560. 
  • If an insurer denies or rejects a first-party claim in whole or in part, it must do so in writing and provide to the claimant a statement outlining all bases for the rejection or denial, as well as the factual and legal bases for each reason given for the rejection or denial that is then known to the insurer. When an insurer denies a first-party claim in whole or in part because of a specific statute, applicable law, or policy provision, condition, or exclusion, the written denial must include a reference to the statute, applicable law, or policy provision, condition, or exclusion and an explanation of how the statute, applicable law, or provision, condition, or exclusion applied to the claim. Every insurer must deny or reject a third-party claim, in whole or in part, or dispute culpability or damages in writing. Nothing herein requires an insurer to disclose any information that may reasonably be expected to alert a claimant to the knowledge that the subject claim is being investigated as a suspected fraudulent claim, except where the insurer is submitting information for review by the California Department of Insurance, on the belief that the claimant has submitted or caused to be submitted to an insurer a suspected false or fraudulent claim.
  • Where a written notification is required, it must include a statement that the claimant may have the matter reviewed by the California Department of Insurance if he or she believes all or part of the claim was wrongfully denied or rejected, as well as the address and phone number of the Department’s unit that reviews claims practices. 
  • If more time is needed than the forty (40) calendar days of receiving evidence of claim, to assess whether a claim should be accepted or denied in whole or in part, every insurer must give the claimant written notice of the need for extra time within the forty (40) calendar days of receiving evidence of claim. This written notice must include any more information that the insurer requires in order to make a determination, as well as any ongoing reasons for the insurer’s inability to do so. After then, the written notification must be given every thirty (30) calendar days until a decision is reached or legal action is taken. If the determination cannot be made until a future event happens, the insurer must continually notify the claimant, subject to the notice period requirement, of the circumstances and provide an estimate of when the determination can be made.
  • An insure shall not be required to disclose any information that may reasonably be expected to alert a claimant to the knowledge that the claim is being investigated as a probable fraudulent claim, except where the insurer is submitting information for review by the California Department of Insurance, on the belief that the claimant has submitted or caused to be submitted to an insurer a suspected false or fraudulent claim.
  • Every insurer must undertake a comprehensive, fair, and impartial inquiry and refrain from requesting information that is not reasonably required for or material to the resolution of a claim dispute.
  • Except as otherwise authorized by policy provisions, legislation, or regulations, including those pertaining to coordination of benefits, no insurer shall delay or deny settlement of a first-party claim on the ground that responsibility for payment should be assumed by others. 
  • Unless a claim has been settled by payment, every insurer must provide written notice of any statute of limitation or other time period restriction that it may use to deny a claim. The claimant must be provided notice of the expiration date not less than sixty (60) days before to the expiration date; however, if the insurer receives notification of the claim within that sixty-day period, the claimant must be given notice of the expiration date immediately. This notice must be given to a first party claimant in a matter involving an uninsured motorist at least thirty (30) days prior to the expiration date, unless the insurer receives notice of the claim within those thirty days, in which case notice of the expiration date must be given to the claimant immediately. This however does not apply to a claimant who is represented in the claim issue by counsel.
  • No insurer may attempt to settle a claim by offering an excessively low settlement offer. In assessing whether or not a settlement offer is unreasonably low, the Commissioner shall examine any admissible evidence submitted about the following factors: the degree to which the insurer examined the claimant’s evidence in determining the claim’s worth; the insurer’s assessment of legal authority or evidence made available to it or reasonably available to it; how much weight the insurance gave to its claims adjuster’s advice on the level of losses; the insurer’s consideration of its counsel’s judgment that a substantial chance of recovery in excess of policy limitations existed; the insurer’s methods for calculating the dollar amount of property damage; the extent to which the insurer weighed the insured’s potential liability and the probable of a jury verdict or other final decision; and any other credible evidence presented to the Commissioner demonstrating that any amount offered by the insurer in settlement of a first-party claim to an insured who is not represented by counsel, (ii) the final amount offered in settlement of a first-party claim to an insured who is represented by counsel, or (iii) the final amount offered in settlement of a third-party claim by the insurer is less than the amount that a reasonable person with knowledge of the facts and circumstances would offer.
  • Upon acceptance of the claim in whole or in part and, if necessary, receipt of a properly executed release, every insurer shall immediately, but no later than thirty (30) calendar days later, tender payment or otherwise perform its claim obligation. The amount of the claim that must be presented is the amount that the insurer has accepted. In claims involving multiple coverage and where the payee is known, amounts accepted by the insurer must be paid promptly, but no later than thirty (30) calendar days, if payment would terminate the insurer’s known liability under that individual coverage, unless it would impair the insured’s interests. When a policy provides for a waiting period after a claim is accepted and before benefits are paid, the time limitations indicated in this subsection do not apply. The above-mentioned time periods shall not apply to claims arising from disability insurance policies subject to Section 10123.13 of the California Insurance Code, disability income insurance policies subject to Section 10111.2 of the California Insurance Code, or mortgage guaranty insurance policies subject to Section 12640.09(a) of the California Insurance Code, or automobile repair bills subject to Section 560 of the California Insurance Code. Any insurer offering a title insurance policy must either tender payment herein or take steps to rectify the situation that resulted in the claim as soon as possible, but no later than thirty (30) calendar days after the claim is accepted. 
  • Unless the information is given for the purpose of notifying the claimant of any applicable statute of limitations or policy provision, or the time limit within which claims must be brought against state or local entities, no insurer shall inform a claimant that his or her rights may be impaired if a form or release is not completed within a specified time period.
  • Unless allowed by the applicable insurance contract and state law, no insurer may request or require an insured to submit to a polygraph examination. 
  • Where there is a reasonable basis, supported by specific information available for review by the California Department of Insurance, for the belief that the claimant has submitted or caused to be submitted to an insurer a suspected false or fraudulent claim as defined in California Penal Code Section 550 or California Insurance Code Section 1871.4(a), the 

forty (40) calendar days’ time period of receiving evidence of claim when insurer must accept or deny a claim in whole or in part shall be reduced, subject to the requirements of seeking an extension on time covered above, as follows: raised to eighty (80) days on the calendar or alternatively, suspended until the Commissioner orders otherwise, if the insurer has followed California Insurance Code Section 1872.4 and can show the Commissioner that it made a diligent effort to determine whether the subject claim is false or fraudulent within the aforementioned eighty-day period.

  • No insurer may refuse a claim based on information gained through a telephone conversation or personal interview with a source unless the conversation or interview is documented in the claim file.
  • Except in the event of a proven false or fraudulent claim, subject to the provisions of Section 10123.145 of the California Insurance Code, no insurer shall make a payment to a provider pursuant to a policy provision to pay medical benefits and then seek recovery or set-off from the insured on the basis that the amount was excessive and/or the services were unnecessary. 
  • If an insurer requests a medical examination to determine liability under a policy provision, the insurer must do so only if it has a good faith judgment that the examination is reasonably necessary.
  • As a condition antecedent to the settlement of any claim, no insurer may require a claimant to withdraw, rescind, or desist from filing any complaint with the California Department of Insurance over the treatment of a claim or any other matter complained of.
  • Every insurer must notify a first-party claimant in writing whether the insurer plans to pursue subrogation of the claim. When an insurer decides not to pursue subrogation or stops doing so, it must include a statement in its notification that any recovery sought is the responsibility of the first party claimant. If the deductible is waived, the coverage under which the claim is settled requires no deductible to be paid, the loss sustained does not exceed the appropriate deductible, or there is no legal basis for subrogation, there shall be no requirement for issuance of the notification.
  • Every insurer who issues a subrogation demand must include the first-party claimant’s deductible in the demand. Unless the first party claimant has otherwise collected the entire deductible amount, every insurer must split subrogation recoveries proportionately with the first party claimant. Unless the insurance has hired an outside attorney or collection agency to collect the deductible, no insurer may deduct legal or other charges from the deductible recovery. Only a pro rata part of the assigned loss adjustment expense may be deducted. This will not apply to disability and health insurance under California Insurance Code Section 106, and when numerous policies have been issued to the insured(s) covering the same loss and the language of these contracts prescribes different subrogation rights.


Section 482-1-125-.07 Standards for Prompt, Fair, and Equitable Settlements states as follows: 

The first party claimant shall be notified of the insurer’s acceptance or denial of the claim within thirty (30) days, or the number of days indicated in the policy, after receipt by the insurer of properly executed evidence of loss. No insurer may deny a first-party claim based on a specific policy provision, condition, or exclusion unless the denial specifically mentions the provision, condition, or exclusion. The first-party claimant may receive the refusal in writing, verbally, or electronically through e-mail). If the refusal was verbal, the paperwork should explicitly state the denial and the reasons for it. If the denial is written or sent electronically through e-mail, a copy of the letter or e-mail should be kept in the file. If the first party claimant requests a written rejection after the first party claim is refused, the written denial will be mailed within a reasonable period. The insurer is exempt from the requirements contained herein if there is a reasonable basis supported by specific information available for review by the insurance regulatory authority that the first-party claimant fraudulently caused or contributed to the loss; provided, however, that the first-party claimant is notified of the acceptance or denial of the first-party claim within a reasonable time or any time limit specified in the policy for a full investigation after the insurer receives a properly executed proof of loss. 

If the insurer needs more time to decide whether a first-party claim should be accepted or refused, it must tell the first-party claimant within thirty (30) days of receiving the evidence of loss, or the time limit stated in the policy, explaining why additional time is required. If the investigation is still incomplete, the insurer must tell the first party claimant in writing, verbally, or electronically through e-mail forty-five (45) days after the original notification and every forty-five (45) days afterwards of the reasons extra time is needed for an investigation. 

The insurer is exempt from the requirements contained herein if there is a reasonable basis supported by specific information available for review by the insurance regulatory authority for suspecting that the first party claimant has fraudulently caused or contributed to the loss; provided, however, that the claimant is notified of the insurer’s acceptance or denial of the claim within a reasonable time for full investigation after receipt by the insurer of a properly executed proof of loss. The following notification standards will no longer apply to that particular claim if it is in litigation for whatever reason. 

Except as otherwise permitted by policy conditions, statutes, or case law, insurers may not refuse to modify first-party claims on the ground that payment responsibility should be assumed by others. 

No insurer shall willfully halt or extend claim settlement negotiations in order to cause the statute of limitations to run out. On an unresolved claim subject to a statute of limitations, the insurer must provide written notice to a first-party claimant who is not represented by counsel of the statute of limitations’ expiration date, as understood by the insurer, and the effect of the statute of limitations’ expiration period. Any first-party claimant must receive said notification roughly forty-five (45) calendar days before the limitations period is set to expire. 

No insurer may willfully make deceptive statements implying that a third-party claimant’s rights may be jeopardized if a form or release is not completed within a certain time frame. 

After accepting culpability, reaching an agreement on the amount of the claim, and receiving any documentation necessary to complete the settlement, the insurer must offer payment within thirty (30) days or the time indicated in the policy. 

Unless allowed by the appropriate insurance contracts and state law, no insurer may request or require any insured to submit to a polygraph examination.

Because of the insured’s failure to cooperate, no insurer may refuse or fail to adjust an otherwise legitimate third-party claim unless the insurer can show that the lack of cooperation is material, substantial, and to the insurer’s detriment. 


The Fair and Equitable Settlement of First Party Property Damage Claims under 

Rule 120-2-52-.03 provides for Standards for Prompt and Fair Settlements of First Party Property Damage Claims from personal private passenger motor vehicle policies.

  • Upon receiving notice of a claim, every insurer must confirm receipt of such notice by the insured within fifteen (15) days, unless payment is made within that time period. If an acknowledgment is made by a method other than writing, the acknowledgement must be noted and dated in the insurer’s claim file. Notification of a claim to an insurer’s agent is considered notification to the insurer. 
  • Upon receiving notice of a claim, every insurer must furnish the insured with the proof of loss forms, if applicable, and reasonable explanations on their usage, within fifteen (15) days. The submission of these forms will be regarded as an acknowledgement of receipt of the claim. 
  • The insurer shall confirm or deny liability on claims within fifteen (15) days of receiving the completed proof of loss from the insured. The affirmation or denial of liability must be made within thirty (30) days of the claim being reported to the insurer if the insurer does not require the proof of loss to be completed.
  • Payment must be made within ten (10) days of confirmation of coverage and determination of the entire amount of the claim that is not in dispute. Payments for individual coverages that are not in dispute and where the payee is known must be tendered within ten (10) days in claims involving multiple coverages if making such a payment would end the insurer’s recognized responsibility under that specific policy.
  • If the insurer requires more time than the fifteen (15) days of receiving the completed proof of loss from the insured or the thirty (30) days of the claim being reported to the insurer if the insurer does not require the proof of loss to be completed mentioned above to determine whether a first-party claim should be accepted or denied, it must notify the claimant within five (5) business days after the time limit has passed, explaining why more time is required and providing an estimate of the additional time required to establish liability. This can be done in writing, or if another method is used, a suitable note and date must be recorded in the claim file. Unless the company has documented the claim file where information required necessary to evaluate culpability has not been submitted, the insurer’s total time to accept or deny liability shall not exceed 60 days from the moment the company is notified of the claim.
  • If the insurer has affirmed liability on a claim, or affirmed liability for individual coverages where a claim involves numerous coverages and the amount payable is in dispute, the insured or the insurer may make a request to the Commissioner for arbitration. The request must be in writing and describe the facts of the case, including where each party stands in the negotiations at that time. The Commissioner may appoint an arbitrator panel made up of attorneys licensed to practice law in the state and insurance adjusters licensed to work in the state. The arbitrators’ job will be to come up with a fair and equitable monetary settlement for the dispute. If an arbitration panel has been established, each request for arbitration will be heard by three (3) individuals from the panel of arbitrators, at least one of whom shall be an attorney authorized to practice law in the State and at least one of whom shall be an insurance adjuster licensed to act as such in in the State. Any claim decided therein shall be binding on both parties and fulfills any arbitration clause existing in the motor vehicle insurance policy, but it does not prohibit or waive any other common law rights that each party may have. The arbitration panel’s finding is not to be understood as the Commissioner’s decision. If an arbitration panel has been formed, the Commissioner shall transmit the written request for arbitration to the three (3) individuals who have been chosen to hear the case. The parties to the arbitration must split the costs of the arbitration evenly.
  • No insurer may deny a claim based on a specific policy provision, condition, or exclusion unless the denial specifically mentions the provision, condition, or exclusion. The refusal must be communicated to the insured in writing, and evidence of the denial must be kept in the insurer’s claim file.
  • The insurer will pay up to the actual cash value to repair or replace the damaged or stolen item, subject to any deductibles, under the terms of its policy for the insured loss.
  • If the cost of the repair shop picked by the insured is higher than that obtained by the insurer, the insured who exercised their right to choose the location of repair shall pay the difference in cost. Except where the policy of insurance expressly states otherwise, no insurer may require an insured to use a specific person, firm, or corporation to repair a motor vehicle in order to settle a first-party claim if the insured may acquire the same repair work from another source for the same price.


Section 626.9743 “Claim settlement practices relating to motor vehicle insurance” provides for how personal and commercial motor vehicle insurance claims are adjusted and settled. It provides as follows:

  • When the liability and damages owing under the policy are sufficiently evident, an insurer may not advise a third-party claimant to file a claim under his or her own policy in order to avoid paying the claim under the insurer’s policy. The insurer, on the other hand, may provide a third-party claimant with options for car repair.
  • An insurer who elects to repair a motor vehicle and specifies a specific repair shop for vehicle repairs is required to restore the damaged vehicle to its physical condition in terms of function and its look immediately before the loss at no additional cost to the insured or third-party claimant unless as indicated in the policy.
  • Insurers may not mandate the use of replacement parts that are below or not equal in kind and quality to the damaged parts previous to the loss in terms of fit, appearance, and performance to be used in the repair of a motor vehicle. 
  • The insurer must apply one of the following procedures when the insurance policy provides for the adjustment and settlement of first-party motor vehicle total losses on the basis of actual cash value or replacement with another of comparable sort and quality:
  1. The insurer may choose a monetary payment based on the real cost of purchasing a comparable motor vehicle, including sales tax if applicable. If a claimant will be required to pay sales tax as part of the replacement of a total loss or the repair of a partial loss, the insurer may withhold payment of the sales tax until the requirement has been met. Costs can be obtained from a variety of sources, including:
  1. The cost of two or more comparable motor vehicles in the local market that within the previous 90 days are attainable.
  2. The retail price as calculated by a well-known source in the used car industry e.g.: an electronic database if the insurer provides the first-party insured with pertinent portions of the valuation documents generated by the database upon request; or a guidebook that is widely available to the general public if the insurer, upon request, discloses the guidebook that was used as the basis for the retail cost to the first-party insured.
  3. The insurer’s acquired two or more quotations from two or more licensed dealers in the local market area to calculate the retail cost. 
  1. The insurer may opt to provide the insured with another comparable vehicle, including sales tax where necessary, at no expense other than the policy’s deductible. The offer must be recorded in the claim file of the insurer. If a claimant will be required to pay sales tax as part of the replacement of a total loss or the repair of a partial loss, the insurer may withhold payment of the sales tax until the requirement has been met.  A comparable motor vehicle is one that is built by the same manufacturer, is of the same or newer model year, is of similar body type, and has similar options and mileage as the insured vehicle. A comparable motor vehicle must also be in comparable or better overall condition than the covered vehicle and be available for inspection within a reasonable distance of the insured’s home.
  2. When a loss for a motor vehicle is adjusted or settled on a basis other than those mentioned above, the determination of value must be documented, and any reductions from value must be itemized and detailed in appropriate monetary amounts. If the claimant requests it, the justification for the settlement must be communicated in writing to him or her, and a copy of the explanation must be included in the insurer’s claim file.
  3. Any other manner that the claimant agrees to.
  • When the amount offered in settlement reflects a reduction by the insurer due to betterment or depreciation, the insurer’s claim file must be updated to reflect the reduction. Deductions must be itemized and dollar amount specified, and they must accurately reflect the value given to the betterment or depreciation. If the claimant requests it, the justification for any deduction must be stated in writing, and a copy of the explanation must be included with the insurer’s claim file.
  • If a partial loss is paid on the basis of a written estimate generated by or for the insurer, the insurer is required to provide a copy of the estimate to the insured. 
  • Every insurer must provide an insured notice before terminating payment for previously allowed storage charges, and the notification must give the insured 72 hours to remove the vehicle from storage before the storage payments are terminated.
  • The Section does not permit or restrict the execution of policy measures relating to disputes on settlement. 
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