Claims Handling Standards

Industry Standards for Fair and Reasonable Claims Handling

Proper claims handling requires insurers to act fairly, promptly, and in good faith. Industry standards, regulatory guidelines, and judicial expectations collectively define how insurers should investigate, evaluate, communicate, and resolve claims.

Courts often rely on these standards when assessing whether an insurer met its obligations. Understanding and following established claims handling practices helps minimize disputes, reduce exposure to bad faith allegations, and ensure efficient, consistent claim resolutions.

Core Principles of Good Faith Claims Handling

Across jurisdictions, certain principles form the foundation of proper claims handling. Insurers are expected to:

• Treat the insured’s interests with equal regard as their own.
• Investigate promptly and thoroughly.
• Communicate clearly and consistently throughout the claim.
• Evaluate claims fairly, based on all available facts.
• Respond to reasonable settlement opportunities within policy limits.

These principles guide both first-party and third-party claim handling obligations.

Investigation Standards

A prompt, thorough investigation is the cornerstone of reasonable claims handling. Insurers are generally expected to:

• Acknowledge receipt of the claim promptly.
• Collect all relevant facts, documentation, and statements.
• Consult experts when specialized evaluation is needed.
• Document investigative steps clearly in the claim file.

Delays or incomplete investigations are among the most frequently cited issues in bad faith litigation.

Evaluation and Decision-Making

Once information is gathered, insurers must evaluate claims objectively and fairly. Standards typically include:

• Analyzing coverage provisions and exclusions accurately.
• Weighing liability and damages based on all available evidence.
• Avoiding assumptions or conclusions unsupported by facts.
• Documenting the basis for claim decisions.

Decision-making should reflect a balanced evaluation of the insured’s interests and the insurer’s contractual obligations.

Communication Standards

Clear and timely communication is central to good faith conduct. Insurers are expected to:

• Respond promptly to correspondence and requests.
• Provide clear explanations of coverage positions.
• Inform insureds of additional information needed to complete the claim.
• Update insureds on the status of the investigation and evaluation.

Courts often scrutinize communication patterns for signs of delay, avoidance, or inconsistent messaging.

Settlement Practices

Fair settlement practices are a critical element of claims handling standards. Insurers must:

• Evaluate settlement opportunities objectively.
• Respond to settlement demands within a reasonable time.
• Consider exposure to the insured, especially in liability claims.
• Avoid placing the insurer’s financial interests above policy limits protection.

Failure to settle reasonably when liability is clear is one of the most common bases for third-party bad faith claims.

File Documentation Standards

Claim file documentation serves as the official record of the insurer’s conduct. Standards generally require:

• Accurate, contemporaneous notes of investigative steps.
• Clear explanations of claim decisions.
• Records of communications with insureds and third parties.
• Documentation that supports settlement decisions and evaluations.

In litigation, the claim file often becomes the most significant piece of evidence regarding claims handling conduct.

Role of Expert Review

Claims handling experts assist courts and parties in determining whether an insurer’s conduct aligned with industry standards. Expert analysis may involve:

• Reviewing the claim file and internal communications.
• Evaluating timeliness, completeness, and fairness of the investigation.
• Analyzing settlement decisions relative to evidence and exposure.
• Explaining regulatory requirements and industry expectations.

With extensive experience in claims and insurance operations, Jim Schratz provides expert insight into whether claims were handled consistently with applicable standards.