Unfair Claims Settlement Practices Act: Prohibitions and Penalties

The Unfair Claims Settlement Practices Act is a model insurance law written by the National Association of Insurance Commissioners that sets minimum standards for how insurers investigate, communicate about, and pay claims. Every state has adopted some version of it, though the details differ. The Act lists fourteen specific practices insurers must avoid, lets state insurance commissioners fine violators up to $25,000 per act in serious cases, and in a minority of states lets policyholders sue directly.¹ One feature catches most policyholders off guard: in its model form, the Act generally targets patterns of insurer misconduct, not a single bad claims experience.

What the Act Prohibits

The model act identifies fourteen practices that violate its standards. Some are communication failures, some are investigation and settlement failures, and some address specific tactics that insurers use to grind down legitimate claims.

Misrepresentation and Silence

Insurers cannot knowingly misrepresent relevant facts or policy provisions to a claimant.¹ That covers telling you a loss isn’t covered when the policy says otherwise, or mischaracterizing what you need to prove. Companies must also acknowledge your communications with reasonable promptness. Ignoring phone calls, emails, and letters to burn a deadline or wear you down is exactly the conduct the Act targets.

Investigation and Settlement

Insurers must adopt reasonable standards for promptly investigating and settling claims. Denying a claim or issuing a low offer without actually examining the facts is a standalone violation. When liability is reasonably clear, the Act requires a good-faith effort to settle promptly instead of sitting on the claim.¹

One of the more aggressive prohibited practices addresses lowball offers. When an insurer offers so little that you have no realistic choice except to sue, and you ultimately recover substantially more, the tactic itself violates the Act. The law also bars settling for less than a reasonable value by pointing to advertising materials or brochures rather than the actual policy terms.

Other Prohibited Conduct

Settling a claim based on an application that was materially changed without the insured’s knowledge or consent.
Sending a claims payment without indicating which coverage it falls under, leaving the policyholder unable to verify accuracy.
Requiring both a formal proof of loss and follow-up verification that duplicates the same information, creating unnecessary delay.
Failing to promptly give a reasonable, accurate explanation when denying a claim or offering a compromise settlement.
Failing to ensure that repairs performed by an insurer-owned or insurer-required shop meet workmanlike standards.

The duplicative-documents violation shows up often in practice. Adjusters sometimes request the same records repeatedly under slightly different descriptions, adding weeks or months to a straightforward claim.

The Pattern Requirement

Under Section 3 of the model act, conduct becomes an improper claims practice only when it clears one of two thresholds: the insurer acted flagrantly and in conscious disregard of the law, or the behavior happened frequently enough to show a general business practice.¹ That is a real limit. If your insurer mishandled your claim but otherwise processes thousands correctly, regulators may not treat your experience alone as a violation of the Act.

Some states have softened or removed the pattern requirement in their own versions of the law, allowing enforcement based on a single violation. And even where the requirement applies to administrative enforcement, you may still have a separate common law bad faith claim built on one bad experience. The pattern rule matters most when you file a regulatory complaint, less when you sue.

Penalties

The model act creates a two-tier penalty structure keyed to how egregious the conduct was. For routine violations, the commissioner can impose a fine of up to $1,000 per violation, capped at $100,000 in the aggregate. When violations are committed flagrantly and in conscious disregard of the law, the ceiling rises to $25,000 per violation and $250,000 total.¹

If a commissioner issues a cease and desist order and the insurer violates it, penalties escalate again: up to $25,000 per act, capped at $250,000, plus suspension or revocation of the insurer’s license to operate in the state.¹ License revocation is the strongest tool a department holds, and the threat of it gives regulators leverage well before formal proceedings start.

These are the figures in the model act. Individual states may impose higher or lower penalties under their own versions, and some have adopted steeper fines for repeat offenders.

Claim Timelines

The model act itself is deliberately vague on deadlines. It requires insurers to act with “reasonable promptness” and to affirm or deny coverage “within a reasonable time” after completing an investigation.¹ The one concrete number is a 15-calendar-day window to send the forms a claimant needs after requesting them.

The hard deadlines most people associate with insurance claims come from state regulations that fill in those gaps. Common patterns across jurisdictions:

Most states require insurers to acknowledge receipt of a claim within 15 to 30 days.
After complete documentation is received, insurers typically have 15 to 40 days to make a coverage decision, depending on the state.
Many states require a response to policyholder communications within 10 to 21 days.

If the insurer needs more time to investigate, most state regulations require written notice explaining the delay, with periodic updates until a decision is reached. The deadlines that actually apply to your claim live on your state insurance department’s website, and the gap between states can be dramatic.

When the Act Does Not Apply

If your health or disability coverage comes through an employer-sponsored benefit plan, state unfair claims settlement laws may not protect you. The federal Employee Retirement Income Security Act preempts state laws that “relate to” employee benefit plans.²

The impact depends on how the plan is funded. Fully insured plans, where the employer buys a policy from an insurance company, keep some state insurance regulation under ERISA’s savings clause. Self-insured plans, where the employer bears the financial risk directly, fall completely outside state jurisdiction. ERISA’s deemer clause bars states from treating self-insured plans as insurance companies, even though they function like insurers from the employee’s point of view.²

If your claim is governed by ERISA, your remedies are limited to what the federal statute allows: suing to recover benefits owed under the plan, enforcing rights under the plan, or clarifying your entitlement to future benefits, with attorney’s fees available at the court’s discretion.³ Punitive damages and emotional distress compensation generally are not available under ERISA. If you think your employer-sponsored plan is mishandling a claim, finding out whether the plan is self-insured or fully insured is the first step.

Regulatory Complaints vs. Private Lawsuits

Filing a complaint with your state insurance department triggers an administrative process. The commissioner investigates and can impose fines, issue cease and desist orders, or revoke licenses. In most states, that is all the Act does: the majority of jurisdictions do not give policyholders a private right to sue insurers directly under the unfair claims settlement statute.⁴

A minority of states, including Connecticut, Florida, Kentucky, Louisiana, Montana, Nevada, New Mexico, Texas, Washington, and West Virginia, allow private lawsuits for statutory violations through either explicit legislation or judicial interpretation.⁴ In those states, you can potentially recover damages beyond anything the administrative process delivers.

Even where the Act itself does not support a private lawsuit, you may have a separate common law bad faith claim. Bad faith is a tort, independent of the statute, and most states recognize it in some form. Damages in a bad faith lawsuit can include compensatory losses, emotional distress, consequential damages, attorney’s fees, and, in cases of particularly egregious conduct, punitive damages. Many policyholders pursue both tracks at once.

How to File a Complaint

Gather your documentation before you contact the department. You need the policy number, the claim number, and the names of every adjuster or representative who handled the file. A detailed chronological log of all interactions is the single most useful piece of evidence you can prepare. Record the date and time of each phone call, who you spoke with, and what was said. Save every email, letter, and text message.

The NAIC maintains a consumer portal that links to each state’s complaint page, where you can access your state’s online or paper form.⁵ You will provide your name and address, the type of insurance involved, and a detailed account of what happened. Attach your correspondence log and copies of all written communications with the insurer.

When you describe the problem, be specific about which prohibited practice applies. “They’re taking too long” is weaker than “the insurer failed to affirm or deny coverage within a reasonable time after completing its investigation, and has provided no written explanation for the delay.” Tie your evidence to the conduct the Act prohibits. Describe the financial harm the delay or denial caused, whether out-of-pocket costs, lost use of property, or ongoing damage that worsened while the claim sat.

After you submit, the department issues a confirmation number for tracking. Processing times vary by state, and the department will usually ask the insurer for a response before issuing findings. If the investigation confirms a violation, the department can order corrective action, impose fines, or escalate to formal proceedings. Even when a single complaint does not produce direct penalties, it creates a regulatory record, and enough complaints against the same insurer can establish the pattern of conduct that triggers enforcement.

1
National Association of Insurance Commissioners. Unfair Claims Settlement Practices Act
2
Office of the Law Revision Counsel. 29 USC 1144 – Other Laws
3
Office of the Law Revision Counsel. 29 USC 1132 – Civil Enforcement
4
National Association of Insurance Commissioners. Private Rights of Action for Unfair Claims Settlement Practices
5
National Association of Insurance Commissioners. How to File a Complaint and Research Complaints Against Insurance Carriers