Claims Handling Practices - Alabama
September 3, 2019
Claims Adjusting Standards
Alabama has not adopted the Unfair Claims Settlement Practices Act.The Alabama Department of Insurance has, however, established standards for adjusting property and casualty insurance claims under authority granted by the Insurance Trade Practices Act and Ala. Code § 27-12-24. Ala. Admin. Code r. 482-1-125 (2003).
The regulations establish the following standards for effectuating the prompt, fair and equitable settlement of property and casualty claims:
- Within thirty (30) days, or the number of days specified in the policy, after receipt by the insurer of properly executed proofs of loss, the first party claimant shall be advised of the status of acceptance or denial of the claim by the insurer.
- If the insurer needs more time to determine whether a first party claims should be accepted or denied, it shall so notify the first party claimant within thirty (30) days or the time period specified in the policy after receipt of the proofs of loss, giving the reasons more time is needed.
- Insurers shall not refuse to adjust first party claims on the basis that responsibility for payment should be assumed by others except as may otherwise be provided by policy provisions, statute or case law.
- No insurer shall knowingly cease or prolong negotiations for settlement of a claim with the intention of allowing the statute of limitations to run.
- No insurer shall knowingly make false statements indicating that the rights of a third party claimant may be impaired if a form or release is not completed within a given period of time.
- The insurer shall tender payment within thirty (30) days or the time specified in the policy, after accepting liability, reaching an agreement on the amount of the claim and receipt of any documents necessary to consummate the settlement.
- No insurer shall request or require any insured to submit to a polygraph examination unless authorized under the applicable insurance contracts and state law.
- No insurer shall deny or fail to adjust an otherwise valid third-party claim because of the failure of the insured to cooperate unless the insurer proves the lack of cooperation is material, substantial, and to the prejudice of the insurer. Ala. Admin. Code r. 482-1-125-.07 (2003).
In addition, the regulations establish the following standards for calculating replacement cost and actual cash value under first-party fire and extended coverage policies:
- When the policy provides for the adjustment and settlement of first party losses based on replacement cost, and a loss requires repair or replacement of an item or part, any consequential physical damage necessarily or reasonably incurred in making such repair or replacement not otherwise excluded by the policy shall be included in the loss. The insured shall not have to pay for betterment nor any other cost except for the applicable deductible, except as provided by the policy.
- When the insurance policy provides for the adjustment and settlement of losses on an actual cash value basis on residential fire and extended coverage, the insurer shall determine actual cash value as replacement cost of property at time of loss less depreciation. Upon the insured’s request, the insurer shall provide a copy of the claim file worksheets detailing any and all deductions for depreciation.
- In cases in which the insured's interest is limited because the property has nominal or no economic value, or a value disproportionate to replacement cost less depreciation, the determination of actual cash value as set forth in Paragraph (2) is not required. In such cases, the insurer shall provide, upon the insured's request, a written explanation of the basis for limiting the amount of recovery along with the amount payable under the policy. Ala. Admin. Code r. 482-1-125-.09 (2014).
Mediation Procedure for Storm Disasters’ Damage
Alabama Insurance Regulation, Chapter 482-1-135, establishes an “Alternative Procedures for Resolution of Disputed Personal Lines Insurance Claims Arising from Hurricane, Tropical Storm, Tornados, and Other Disasters Damage.”
The mediation program serves as a non-adversarial, non-binding, alternative dispute resolution mechanism designed to facilitate the resolution of disputed claims as quickly and fairly as possible.
The program does not apply to commercial insurance, private passenger motor vehicle insurance or to liability coverage contained in insurance policies.
The regulations detailing this program are found at Ala. Admin. Code r. 482-1-135 (2005).
Hurricane Claims Standards
The Alabama Department of Insurance publishes links for hurricane-specific information, including guidance on the mediation program, disaster preparedness, and online registration for emergency adjusters on the Department’s website: http://www.aldoi.gov/Storms.aspx
Duty of Good Faith
Alabama common law recognizes a first-party cause of action for insurer bad faith for intentional misconduct in wrongfully refusing to settle. Chavers v. Nat’l Sec. Fire & Cas. Co., 405 So. 2d 1 (Ala. 1981).
Under Nat’l Sec. Fire & Cas. Co. v. Bowen, 417 So. 2d 179, 183 (Ala. 1982), an insured must prove the following elements to prevail on a claim for “bad faith failure to pay”:
- An insurance contract between the parties and a breach thereof by the defendant;
- An intentional refusal to pay the insured’s claim;
- The absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason);
- The insurer’s actual knowledge of the absence of any legitimate or arguable reason; and
- If the intentional failure to determine the existence of a lawful basis is relief upon, the plaintiff must prove the insurer’s intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.
Thus, an insurer typically is not liable for first-party bad faith in the absence of coverage where it has a “reasonably legitimate or arguable reason” for denying coverage. King v. Nat’l Foundation Life Ins. Co., 541 So. 2d 502, 504-505 (Ala. 1989). Alabama does, however, recognize an “abnormal” brand of first-party “bad faith failure to pay” that imposes bad faith liability even in the absence of coverage. State Farm Fire & Cas. Co. v. Slade, 747 So. 2d 293, 306-307 (Ala. 1999). To prevail on this type of claim, an insured must produce substantial evidence that the insurer:
- Intentionally or recklessly failed to investigate the plaintiff’s claim;
- Intentionally or recklessly failed to properly subject the plaintiff’s claim to a cognitive evaluation or review;
- Created its own debatable reason for denying the plaintiff’s claim; or
- Relied on an ambiguous portion of the policy as a lawful basis to deny the plaintiff’s claim.
Independent adjusters are governed by Ala. Code § 27-9A-1 et seq. and Ala. Admin. Code r. 482-1-151 (2005).
Communication, Investigation, and Payment Deadlines
Ala. Admin. Code r. 482-1-125-.06-.07 (2005).
Give written acknowledgement of receipt of claim to first-party claimant within 15 calendar days from receipt of claim.
Furnish the insurance department with an adequate response to any inquiry within 10 working days of receipt of inquiry.
Reply to all pertinent written communications from first-party claimant which request a response within 15 calendar days from receipt of communication.
Provide necessary claim forms, instructions or reasonable assistance to first-party claimants within 15 calendar days from receipt of claim.
Advise first-party claimant of acceptance or denial of the claim within 30 calendar days after receipt of properly executed proof of loss. Denial must be in writing.
Give written notification to first-party claimant that specifically states the need and reasons for additional time to investigate within 30 calendar days or the time period specified in the policy after the receipt of proof of loss and every 45 days thereafter.
Insurer may not knowingly cease or prolong negotiations for settlement of a claim with the intention of allowing the statute of limitations to run.
Tender payment after accepting liability within 30 calendar days or the time period specified in the policy.
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