Writing Insurance in a New State? Check the Bad Faith Laws!
An insurer that seriously wants to reduce bad faith exposures will want to improve its understanding of jurisdictional differences. U.S. laws and regulations can vary a great deal between states, and the claim environment can change quickly. Having one global rule or claim standard simply won’t work.
Many examples illustrate this situation and some are more important than others, as Steven Pearson, of the law firm Cozen O’Connor, recently explained in one of our Insurance Issues articles.
In Kelly v. State Farm Fire & Cas. Co., which he used as an example, the Louisiana Supreme Court held that insurers must make a “reasonable effort to settle claims” on a case-by-case basis even in the absence of a firm settlement demand. In the decision, the court created an affirmative duty to act in the absence of an actual demand, and now all insurers in the state have a new standard. Insurers that are unaware of the ruling, or its significance, risk being hit by bad faith claims in the future.
Mr. Pearson strongly advises insurers against assuming that they will always be insulated from excess of policy limits exposure where no settlement demand within policy limits has been made by the third-party claimant. He’s provided us with some helpful suggestions about minimizing bad faith exposure in his article.
Understanding the claim environment is just as important as knowing about the different legal standards: We see dramatically different claim environments across the states, though a handful of jurisdictions do generate the lion’s share of loss activity.
All insurers face the threat of bad faith, but some of the most vulnerable are:
- New entrants to a jurisdiction that have minimal claims handling experience in a volatile state
- Companies with insureds who travel to states outside their typical coverage area that are involved in an accident
For new entrants - those with experience in their coverage area, but little knowledge of this new jurisdiction, seek counsel before assuming it is "business as usual."
Gen Re’s claim executives often share observations about difficult U.S. jurisdictions with clients by helping them prevent or respond to bad faith actions. Many find our Jurisdictional Law Survey on Bad Faith helpful in highlighting jurisdictional rules and differences in the laws. Clients can ask their Gen Re representative for a copy of the survey.
As a reinsurer that works with single-state, regional and national carriers, we have a wide purview of the local claim environment. We welcome the discussion, as do the attorneys at Cozen O’Connor.