New law protects California policyholders from insurers

In order to protect policyholders from unfair insurance practices, California enacted the Unfair Insurance Practices Act (UIPA), which defines unfair insurance practices. The Insurance Commissioner has the authority to prosecute direct claims against an insurer for violations of the Act – but state courts have held that individual policyholders cannot sue under UIPA, although there are remedies for policyholders under case law and other state statutes.

Recent decision gives policyholders more power

A recent state Supreme Court decision held that under certain circumstances, a violation of UIPA may also lead to a claim under California’s Unfair Competition Law. Late last year, the Court clarified that a policyholder cannot bring a suit on the basis of a violation of UIPA – that is still the province of the Insurance Commissioner. However, a wronged party can bring a legal action based on case law and other state statutes even where the insurer’s conduct also allegedly violated UIPA.

Now, insured people have another tool in their fight against unfair and unlawful business practices that may arise when dealing with an insurance claim. The state Supreme Court decision, issued in August, has already paid dividends to some insured who have experienced unfair insurance practices.

Unfair insurance practices

Unfair insurance practices are broad in scope and encompass a variety of not-uncommon insurance misbehavior:

  • Misrepresenting coverage or facts in order to avoid paying claims
  • Stalling or failing to respond in a reasonable time to a claim
  • Making arbitrary or unreasonable demands regarding proof of loss or bad health
  • Being abusive, coercive or otherwise compelling an insured to settle a claim
  • Directly telling an insured not to obtain the advice of an attorney
  • These are only representative examples of types of behavior that violates the UIPA.

Representation can help

Even before this decision, insurance companies who violated the law were liable for damages resulting from illegal activity. However, because the UIPA only allowed for administrative action, in some cases that left insurance policyholders without a legal cause of action under UIPA despite violations. Because it now appears UIPA claims can piggyback on other laws, there is now one more way that policyholders can hold insurance companies accountable for their actions.

Policyholders who have been underpaid for their claim, feel that their insurance company was acting in bad faith or otherwise breaking the law should contact an experienced insurance litigation attorney to discuss their legal options.