Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.2-165,
304.3-200,
304.3-210,
304.12-010,
304.12-220,
304.12-230,
304.12-235,
304.29-341,
304.32-270,
304.38-200,
342.325
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 provides that the Executive
Director of Insurance may make reasonable regulations necessary for or as an
aid to the effectuation of any provision of the Kentucky insurance code.
KRS
304.32-250 provides that the executive
director may promulgate reasonable administrative regulations which he deems
necessary for the proper administration of KRS 304.32.
KRS
304.38-150 provides that the Executive
Director of Insurance may promulgate reasonable administrative regulations
which he deems necessary for the proper administration of KRS 304.38. This
administrative regulation defines unfair life and health insurance claims
settlement practices.
Section 1.
Definitions. As used in this administrative regulation:
(1) "Agent" means any person authorized to
represent an insurer with respect to a claim;
(2) "Beneficiary" means, for the purpose of
life and health insurance, the party entitled to receive the proceeds or
benefits occurring under the policy in lieu of the insured;
(3) "Claimant" means an insured, the
beneficiary, or legal representative (e.g., administrator, executor, guardian,
or similar person) of the insured, including a member of the insured's
immediate family designated by the insured (the insurer may require written
proof of the designation), making the claim under a policy;
(4) "Claim file" shall mean any retrievable
electronic file, paper file, or combination of both;
(5) "Executive Director" means the executive
director of the Kentucky Office of Insurance;
(6) "Documentation" includes, but is not
limited to, all pertinent communications, transactions, notes, work papers,
claim forms, bills and, explanation of benefits forms relative to the
claim;
(7) "Good faith" means an
honest intention to abstain from taking any unconscientious advantage of
another, together with absence of all information, notice, or benefit or belief
of facts which render a transaction unconscientious;
(8) "Insured" means, for the purpose of life
or health insurance, the party named on a policy, certificate, or contract as
the individual with legal rights to the benefits provided by the policy,
certificate, or contract;
(9)
"Insurer" means any insurer, fraternal benefit society, nonprofit hospital,
medical, surgical, dental, and health service corporations and prepaid dental
plan organization, including agents and third party administrators;
(10) "Investigation" means all activities of
an insurer directly or indirectly related to the determination of liabilities
under coverages afforded by a policy, certificate or contract;
(11) "Notification of claim" means a notice
to the insurer that a loss has occurred or is about to be incurred;
(12) "Policy", "certificate" or "contract"
include any contract of an insurer providing indemnity or other coverage for
medical, health or hospital goods and services, but do not include contracts of
workers' compensation;
(13) "Proof
of loss" means written proofs, such as claim forms, medical bills, medical
authorizations, or other reasonable evidence of the claim that is ordinarily
required of all insureds or beneficiaries submitting the claims;
(14) "Reasonable explanation" means that
sufficient information shall be included in the explanation of benefits as to
enable the insured or beneficiary to compare the allowable benefits with policy
provisions and determine whether proper payment has been made;
(15) Delay or denial of a claim is "without
reasonable foundation" when there is no rational relationship between the
reasons for the delay or denial of a claim and the policy, certificate, or
contract, applicable law, or applicable facts;
(16) "Written communications" include all
correspondence, regardless of source or type, that is materially related to the
handling of the claim.
Section
2. Scope and Purpose of this Administrative Regulation.
(1) This administrative regulation sets forth
minimum standards for the investigation and disposition of life and health
insurance claims arising under policies, certificates, and contracts. It is not
intended to cover claims involving workers' compensation insurance since all
questions arising under KRS Chapter 342 shall be resolved by workers'
compensation administrative law judges. This administrative regulation is
intended to define procedures and practices which constitute unfair claims
settlement practices.
(2) The
National Association of Insurance Commissioners, which created the model
regulation on which this administrative regulation is based, has stated that
its model regulation is not appropriate for a state which allows a private
cause of action. Accordingly, the sole purpose of this administrative
regulation is to provide guidance to the commissioner and his designees in
their investigations, examinations, and administrative adjudication and appeals
therefrom.
Section 3.
Claim Practices.
(1) Every insurer, upon
receiving due notification of a claim shall, within fifteen (15) calendar days
of the notification, provide necessary claim forms, instructions, and
reasonable assistance so the insured can properly comply with insurer
requirements for the filing of a claim.
(2) Upon receipt of proof of loss from a
claimant, the insurer shall begin any necessary investigation of the claim
within fifteen (15) calendar days.
(3) The insurer's standards for claims
processing shall require that notice of claim or proofs of loss submitted
against one (1) policy issued by that insurer shall fulfill the insured's
obligation under any and all similar policies issued by that insurer and
specifically identified by the insured to the insurer to the same degree that
the same form would be required under any similar policy. If additional
information is required to fulfill the insured's obligation under similar
policies, the insurer may request the additional information. When it is
apparent to the insurer that additional benefits would be payable under an
insured's policy upon additional proofs of loss, the insurer shall communicate
to and cooperate with the insured in determining the extent of the insurer's
additional liability.
(4) The
insurer shall affirm or deny any liability on claims within a reasonable time
and shall offer payment within thirty (30) calendar days of receipt of due
proof of loss. If the insurer fails to pay the claim within thirty (30) days of
receipt of due proof of loss, and the delay or denial is due to lack of a good
faith attempt to settle the claim, the claim bears interest at the rate of
twelve (12) percent per annum from the expiration of thirty (30) days from the
receipt of due proof of loss. If the delay or denial is without reasonable
foundation, the insured shall be reimbursed for reasonable attorney's fees
incurred in collecting the claim. If a portion or portions of the claim are in
dispute, the insurer shall tender payment for any portion or portions of the
claim which are not in dispute within thirty (30) days of receipt of due proof
of loss.
(5) With each claim
payment, the insurer shall provide to the insured an explanation of benefits
which shall include the name of the provider of health care services covered,
dates of service, and a reasonable explanation of the computation of
benefits.
(6) An insurer shall not
impose a penalty on any insured for noncompliance with insurer requirements for
precertification unless the penalties are specifically and clearly set forth in
writing in the policy.
(7) If a
claim remains unresolved for thirty (30) days from the receipt of due proof of
loss, the insurer shall provide the insured or, when applicable, the insured's
beneficiary, with a reasonable written explanation of the delay. In credit,
mortgage, and assigned health insurance claims, the notice shall also be
provided to the debtor who is the insured or health care provider in addition
to the insured. If the investigation remains incomplete, the insurer shall,
forty-five (45) days from the date of initial notification and every forty-five
(45) days thereafter, send to the claimant a letter setting forth the reasons
additional time is needed for the investigation. The notice shall also describe
to the insured the availability of interest and attorney's fees specified in
subsection (4) of this section.
(8)
The insurer shall acknowledge and respond within fifteen (15) calendar days to
any written communications relating to a claim.
(9) When a claim is denied, written notice of
denial shall be sent to the claimant within fifteen (15) calendar days of the
determination. The notice shall refer to the policy provision, condition, or
exclusion upon which the denial is based.
(10) Insurers shall not deny a claim based on
information obtained in a telephone conversation or personal interview with any
source unless the telephone conversation or personal interview is documented in
the claim file.
(11) Insurers shall
not refuse to settle claims on the basis that responsibility for payment should
be assumed by others except as provided by policy, certificate, or contract
provisions.
(12) All insurers
offering cash settlements of first party long term disability income claims
(except in cases where there is a bona fide dispute as to the coverage for, or
amount of, the disability) shall develop a present value calculation of future
benefits (with probability corrections for mortality and morbidity) utilizing
contingencies such as mortality, morbidity, and interest rate assumptions, and
other facts appropriate to the risk. A copy of the amount so calculated shall
be given to the insured and signed by the insured at the time a settlement is
entered into.
(13) No insurer shall
indicate to a first party claimant on a payment draft, check, or in any
accompanying letter that the payment is "final" or "a release" of any claim
unless the policy limit has been paid or there has been a compromise settlement
agreed to by the first party claimant and the insurer as to coverage and amount
payable under the contract.
(14)
Insurers shall not withhold any portion of any benefit payable as a result of a
claim on the basis that the settlement held is an adjustment or correction for
an overpayment made on a prior claim arising under the same policy unless:
(a) The insurer has within its files clear,
documented evidence of an overpayment and written authorization from the
insured permitting the withholding procedure; or
(b) The insurer has within its files clear,
documented evidence of the following:
1. The
overpayment was clearly erroneous under the provisions of the policy. If the
overpayment is the subject of a reasonable dispute as to facts, the procedure
specified in this paragraph shall not be used;
2. The error which resulted in the payment is
not a mistake of the law;
3. The
insurer notifies the insured within six (6) months of the date of the error,
except that in instances of error prompted by representations or nondisclosures
of claimants or third parties, the insurer notifies the insured within fifteen
(15) calendar days after the date that clear, documented evidence of discovery
of such error is included in its file. For the purpose of this subparagraph,
the date of the error shall be the day on which the draft, check, or other
claim payment is issued; and
4. The
notice states clearly the nature of the error and states the amount of the
overpayment.
(15) Insurers shall not continue negotiations
with a claimant who has no legal representation until the claimant's rights may
be affected by a statute of limitations or a time limitation in a policy,
certificate, or contract without giving the claimant written notice that the
time limitation may be expiring. The notice shall be mailed or delivered to the
claimant at least thirty (30) days prior to the date on which the time limit
may expire.
Section 4.
File and Record Documentation. Each insurer's claim files are subject to
examination by the executive director or the executive director's designees. To
aid in an examination:
(1) The insurer shall
maintain claim data that are accessible and retrievable for examination. An
insurer shall be able to provide the claim number, line of coverage, date of
loss and date of payment of the claim, and date of denial or date closed
without payment. This data shall be available for all open and closed files for
the current year and the five (5) preceding years.
(2) Documentation shall be contained in each
claim file to permit reconstruction of the insurer's activities relative to
each claim.
(3) Each document
within the claim file shall be noted as to date received, date processed, or
date mailed.
(4) For those insurers
which do not maintain hard copy files, claim files shall be accessible from a
computer terminal available to examiners or micrographics and be capable of
duplication to hard copy.
Section
5. Severability. If any provision of this administrative
regulation or the application thereof to any person or circumstance is for any
reason held to be invalid, the remainder of the regulation and the application
of the provision to other persons or circumstances shall not be affected
thereby.
Section 6. Effective Date.
This administrative regulation shall become effective upon completion of its
review pursuant to KRS Chapter 13A.
STATUTORY AUTHORITY:
KRS
304.2-110,
304.32-250,
304.38-150