Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.2-100,
304.2-165,
304.2-340,
304.3-200(1)(e),
304.12-010,
304.12-220,
304.12-230,
304.12-235,
304.14-400,
304.20-070,
304.20-150to304.20-180,
342.325
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 authorizes the Commissioner of
Insurance to make reasonable administrative regulations necessary for, or as an
aid to, the effectuation of any provision of the Kentucky Insurance Code. This
administrative regulation establishes unfair property and casualty insurance
claims settlement practices, effectuating
KRS
304.3-200(1)(e),
304.12-010,
and
304.12-230.
Section 1. Definitions.
(1) "Agent" means any person authorized to
represent an insurer with respect to a claim;
(2) "Claimant" means either a first party
claimant, a third-party claimant, or both and includes:
(a) The claimant's designated legal
representative, including an administrator, executor, guardian, or similar
person, and
(b) A member of the
insured's immediate family designated by the claimant;
(3) "Claim file" means any retrievable
electronic file, paper file, or both;
(4) "Commissioner" is defined by
KRS
304.1-050(1);
(5) "Days" means any day, Monday through
Friday, except holidays;
(6)
"First-party claimant" means a person asserting a right to payment under an
insurance policy, certificate, or contract arising out of the occurrence of the
contingency or loss covered by the policy, certificate, or contract;
(7) "Insurer" is defined by
KRS
304.1-040;
(8) "Investigation" means all activities of
an insurer related to the determination of liabilities under coverages afforded
by a policy, certificate, or contract;
(9) "Local market area" means a reasonable
distance surrounding the area where a motor vehicle is principally garaged or
the usual location of the article covered by the policy. This area does not
mean limited to the geographic boundaries of the Commonwealth;
(10) "Notification of claim" means any
notification, whether in writing or by other means acceptable under the terms
of the policy, certificate, or contract, to an insurer or its agent, by a
claimant, which reasonably apprises the insurer of the facts pertinent to a
claim;
(11) "Policy",
"certificate", or "contract" means any contract of insurance or indemnity,
except for:
(a) Fidelity, suretyship, or
boiler and machinery insurance; or
(b) A contract of workers' compensation
insurance unless it satisfies the requirements of Section 2 of this
administrative regulation.
(12) "Replacement crash part" means sheet
metal or plastic parts which generally constitute the exterior of a motor
vehicle, including inner and outer panels; and
(13) "Third-party claimant" means any person
asserting a claim against any person under a policy, contract, or certificate
of an insurer.
Section
2. Scope and Purpose of this Administrative Regulation.
(1) This administrative regulation
establishes:
(a) Minimum standards for the
investigation and disposition of property and casualty insurance claims arising
under policies, certificates, and contracts;
(b) Procedures and practices which constitute
unfair claims settlement practices; and
(c) Standards for the commissioner in
investigations, examinations, and administrative adjudication and
appeals.
(2) This
administrative regulation shall not cover claims involving:
(a) Fidelity, suretyship, or boiler and
machinery insurance; or
(b)
Workers' compensation unless:
1. The claim
involves a question that does not arise under KRS Chapter 342; or
2. The claim is for unearned premium
refunds.
(3)
Statement of enforcement policy. If complaints are filed with the commissioner,
the commissioner shall note violations of this administrative regulation after
the insurer or agent has been given an opportunity to pay the claim and any
interest.
(4) A violation of this
administrative regulation shall be found only by the commissioner. This
administrative regulation shall not create or imply a private cause of action
for violation of this administrative regulation.
Section 3. File and Record Documentation.
Each insurer's claim files for policies, certificates, or contracts are subject
to examination by the commissioner or the commissioner'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) The insurer shall maintain documentation
in each claim file to permit reconstruction of the insurer's activities
relative to each claim.
(3) The
insurer shall note each relevant document within the claim file as to date
received, date processed, or date mailed.
(4) If an insurer does not maintain hard copy
files, claim files shall be accessible to examiners electronically and be
capable of duplication to legible hard copy.
Section 4. Misrepresentation of Policy
Provisions.
(1) Insurers and agents shall not
misrepresent or conceal from first-party claimants any pertinent benefits,
coverages, or other provisions of any insurance policy or insurance contract if
the benefits, coverages, or other provisions are pertinent to a claim, pursuant
to
KRS
304.12-230(1).
(2) Insurers shall not deny a claim on the
basis of failure to exhibit property unless there is documentation in the claim
file of breach of the policy provisions.
(3) Insurers shall not deny a claim based
upon the failure of a first-party claimant to give written notice of loss
within a specified time limit unless written notice of loss is a written
condition in the policy, certificate, or contract and the first-party
claimant's failure to give written notice after being requested to do so is so
unreasonable as to constitute a breach of the first-party claimant's duty to
cooperate with the insurer.
(4)
Insurers shall not indicate to a first-party claimant on a payment draft,
check, or in an accompanying letter that payment is "final" or "a release" of
any claim unless:
(a) The policy limit has
been paid; or
(b) There has been a
compromise settlement agreed to by the first-party claimant and the insurer as
to coverage and amount payable under the policy, certificate, or
contract.
(5) Insurers
shall not issue checks or drafts in partial settlement of a loss or claim under
a specific coverage which contain language which releases the insurer or its
insured from total liability.
Section
5. Failure to Acknowledge Pertinent Communications.
(1) Every insurer, upon receiving
notification of a claim shall, within fifteen (15) days, acknowledge the
receipt of the notice unless payment is made within that period of time. If an
acknowledgement is made by means other than writing, an appropriate notation of
the acknowledgement shall be made in the claim file of the insurer and dated.
Notification given to an agent of an insurer shall be notification to the
insurer.
(2) If an insurer receives
an inquiry from the Department of Insurance respecting a claim, the insurer
shall, within fifteen (15) days of receipt of the inquiry, furnish the
Department of Insurance with an adequate response to the inquiry in
duplicate.
(3) The insurer shall
make an appropriate reply within fifteen (15) days on all other pertinent
communications from a claimant which reasonably suggest that a response is
expected.
(4) Every insurer, upon
receiving notification of claim, shall promptly provide necessary claim forms,
instructions, and reasonable assistance to first-party claimants so that they
can comply with the policy conditions and the insurer's reasonable
requirements. Compliance with this subsection within fifteen (15) days of
notification of a claim shall constitute compliance with subsection (1) of this
section.
Section 6.
Standards for Prompt, Fair, and Equitable Settlements Applicable to All
Insurers.
(1)
(a) Except as provided in this subsection, an
insurer shall, offer any payment due within thirty (30) calendar days of
receipt of proof of loss. If claims involve multiple coverages, payments which
are not in dispute shall be tendered within thirty (30) calendar days of
receipt of proof of loss.
(b) If
there is a reasonable basis, which shall be supported by specific information
available for review by the commissioner, that a claimant has fraudulently
caused or contributed to the loss, the insurer shall advise the first-party
claimant of the acceptance or denial of the claim within a reasonable time for
full investigation after receipt by the insurer of a properly executed proof of
loss.
(c) If the insurer needs more
time to determine whether a first-party claim shall be accepted or denied, it
shall notify the first-party claimant within thirty (30) calendar days after
receipt of the proofs of loss, giving the reasons more time is
needed.
(d) If the investigation
remains incomplete, the insurer shall, forty-five (45) calendar days from the
date of the initial notification and every forty-five (45) calendar days
thereafter, send to the first-party claimant a letter stating the reasons
additional time is needed for investigation.
(2) Insurers shall not fail to settle
first-party claims on the basis that responsibility for payment shall be
assumed by others except as may otherwise be provided by policy
provisions.
(3) Insurers shall not
continue negotiations for settlement of a claim directly with a first- party
claimant who is not legally represented if the first-party claimant's rights
may be affected by a statute of limitations or a time limit in a policy,
certificate, or contract, unless the insurer has given the first-party claimant
written notice of the limitation. The notice shall be given to the first party
claimant at least thirty (30) calendar days before the date on which the time
limit expires.
(4) Insurers shall
not make statements which indicate 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 unless the statement is given for the purpose of notifying the third-party
claimant of the provision of a statute of limitations.
(5) Subject to subsection (1)(a) of this
section relating to first-party claims, insurers shall affirm or deny liability
on claims within a reasonable time and shall tender payment within thirty (30)
days of affirmation of liability, if the amount of the claim is determined and
not in dispute. If claims involve multiple coverages, and if the payee is
known, payments which are not in dispute shall be tendered within thirty (30)
calendar days.
(6) Insurers shall
not request or require any insured to submit to a polygraph examination unless
authorized under the applicable policy, certificate, contract, or applicable
law.
Section 7.
Standards for Prompt, Fair, and Equitable Settlements Applicable to Motor
Vehicle Insurance.
(1) If the policy,
certificate, or contract provides for the adjustment and settlement of
first-party motor vehicle total losses on the basis of actual cash value or
replacement with another of like kind and quality, one (1) of the following
methods shall apply:
(a) The insurer may
elect to offer a replacement motor vehicle, which is an available specific and
comparable motor vehicle, to the insured, with all applicable taxes, license
fees (if these fees cannot be refunded by the Transportation Cabinet), and
other fees incident to transfer of evidence of ownership of the motor vehicle
paid, at no cost other than any deductible provided in the policy. The offer,
and any rejection thereof, shall be documented in the claim file;
(b) The insurer may elect a cash settlement
based upon the actual cost, less any deductible provided in the policy, to
purchase a comparable motor vehicle, including all applicable taxes, license
fees (if these fees cannot be refunded by the Transportation Cabinet), and
other fees incident to transfer of evidence of ownership of a comparable motor
vehicle. The actual cost shall be determined by any one (1) of the following:
1. The cost of a comparable motor vehicle in
the local market area if a comparable motor vehicle is available in the local
market area;
2. If a comparable
motor vehicle is not available in the local market area, one (1) of two (2) or
more quotations obtained by the insurer from two (2) or more qualified and
licensed dealers which engage in the buying and selling of comparable motor
vehicles in the ordinary course of their business located within the local
market area; or
3. Any source for
determining statistically valid fair market values, including
nationally-recognized automobile evaluation publications that meet all of the
following criteria:
a. The source shall give
consideration to the values of vehicles in the local market area and may
consider data on vehicles outside the area;
b. The source's database shall produce values
for at least eighty-five (85) percent of all makes and models for the last
eight (8) model years taking into account the values of all major options for
these vehicles;
c. The source shall
produce fair market values based on current data available from the local
market area where the insured vehicle was principally garaged or a necessary
expansion of parameters such as travel time and area to assure statistical
validity;
4. Actual cash
value as determined by the use of the source's database shall be adjusted to
reflect any value of enhancements to the motor vehicle not accounted for by the
database;
5. If the vehicle's
condition does not meet the criteria for value used in the source's database,
the actual cash value amount may be adjusted; and
6. Absent an appraisal provision in the
insurance contract, if the insured demonstrates, by presenting two (2)
independent appraisals based on measurable and discernable factors, that the
vehicle would have a higher cash value in the local market area than the value
reflected in the source's database, the local market value shall be considered
when determining the actual cash value;
(c) Right of recourse. If the insurer is
notified within thirty-five (35) days of the receipt of the settlement check
that the insured cannot purchase a comparable motor vehicle for fair market
value, as determined under paragraph (b)3. of this subsection, the insurer
shall reopen its claim file and comply with the following procedures:
1. The insurer may locate a comparable motor
vehicle by the same manufacturer, same year, similar body style, and similar
options and price range for the insured for the fair market value determined by
the insurer at the time of settlement. This vehicle shall be available through
licensed motor vehicle dealers;
2.
The insurer shall either pay the insured the difference between the fair market
value before applicable deductions and the cost of the comparable motor vehicle
of like kind and quality which the insured has located or negotiate and effect
the purchase of this motor vehicle for the insured; or
3. The insurer may conclude the loss
settlement as prepared for under the appraisal provision of the insurance
contract in force at the time of loss. This appraisal shall be considered as
binding against both parties, but shall not preclude or waive any other rights
either party has under the insurance contract or law; or
(d) If a first-party motor vehicle's total
loss is settled on a basis which deviates from the methods described in
subsection (1)(a) or (b) of this section, the deviation shall be supported by
documentation giving particulars of the motor vehicle's condition. Any
deductions from the cost, including deduction for salvage, shall be measurable,
discernable, itemized, and specified as to dollar amount and shall be
appropriate in amount. The basis for the alternative method of settlement shall
be explained fully to the first-party claimant.
(2) The measure of damages in a third-party
motor vehicle loss shall be the difference between the fair market value of the
motor vehicle immediately before and after the loss, proportioned by the third
party's contributory negligence, if any. Repair estimates or appraisers'
reports may be used to indicate the difference in fair market value. The
measure of damages in a first- party vehicle loss shall be governed by the
policy of insurance issued to the first party and shall not include any measure
of damages not specifically provided for in the policy.
(3) If liability and damages are reasonably
clear, insurers shall not recommend that third-party claimants make claims
under their own policies, certificates, or contracts solely to avoid paying
claims under the insurers' policies, contracts, or certificates.
(4) Insurers shall not require a claimant to
travel an unreasonable distance to inspect a replacement motor
vehicle.
(5) If requested by the
claimant, insurers shall include the first-party claimant's deductible, if any,
in subrogation demands. Subrogation recoveries shall be shared on a
proportionate basis with the first-party claimant, unless the deductible amount
has been otherwise recovered. Deduction for expenses shall not be made from the
deductible recovery unless an outside attorney is retained to collect the
recovery. The deduction shall then be for only a pro rata share of the
allocated loss adjustment expense.
Section 8. Repairs to Motor Vehicles.
(1)
(a) If
losses involving motor vehicle repairs are settled on the basis of a written
estimate prepared by or for the insurer, the insurer shall supply the insured a
copy of the estimate upon which the settlement is based.
(b) The estimate prepared by or for the
insurer shall be reasonable, in accordance with applicable policy provisions,
and of an amount which will allow for repairs to be made in a workmanlike
manner.
(c) If the insured
subsequently claims, based upon a written estimate which the insured obtains,
that necessary repairs will exceed the written estimate prepared by or for the
insurer, the insurer shall pay the difference between the written estimate and
a higher estimate obtained by the insured or promptly provide the insured with
the name of at least one (1) repair shop that will make the repairs for the
amount of the written estimate. If the insurer designates only one (1) or two
(2) repair shops, the insurer shall assure that the repairs are performed in a
workmanlike manner. The insurer shall maintain documentation of all of these
communications.
(2) If
the amount claimed is reduced because of betterment or depreciation, all
information for the reduction shall be contained in the claim file. These
deductions shall be itemized and specified as to dollar amount and shall be
appropriate for the amount of deductions.
(3)
(a)
Betterment deductions shall be allowed only if the deductions reflect a
measurable decrease in the market value and general overall condition of the
motor vehicle.
(b) The deductions
set forth in paragraph (a) of this subsection shall be measurable, itemized,
specified as to dollar amount, and documented in the claim file.
(c) Insurers shall not require the insured or
claimant to supply parts for replacement.
(4) Insurers shall not require the use of
replacement crash parts in the repair of a motor vehicle unless the replacement
crash part is at least equal in kind and quality to the part to be replaced in
terms of fit, quality, and performance. Insurers specifying the use of
replacement crash parts shall consider the cost of any modifications which may
be necessary when making the repair.
(5) Insurers shall not require a claimant to
travel an unreasonable distance to:
(a)
Obtain a repair estimate; or
(b)
Have the motor vehicle repaired at a specific repair shop.
Section 9. Standards for Prompt,
Fair, and Equitable Settlements Applicable to Fire-and-Extended-Coverage-Type
Policies with Replacement Cost Coverage.
(1)
If the policy, contract, or certificate authorizes the adjustment and
settlement of first-party losses based on replacement cost, the following shall
apply:
(a) If a loss requires repair or
replacement of an item or part, any consequential physical damage incurred in
making the 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 to the extent of replacement cost, except for the applicable
deductible.
(b) If a loss requires
replacement of items and the replaced items do not reasonably match in quality,
color, and size, the insurer shall replace all items in the area so as to
conform to a reasonably uniform appearance. This applies to interior and
exterior losses. The insured shall not bear any cost over the applicable
deductible.
(2) Actual
cash value.
(a) If 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 follows: replacement cost of property at the time of the
loss less depreciation, if any. If provided for in the policy, depreciation may
include the costs of goods, materials, labor, equipment, overhead and profit,
taxes, fees, and services necessary to replace, repair, or rebuild the damaged
property. If requested by the insured, the insurer shall provide a copy of the
claim file worksheets showing any and all deductions for
depreciation.
(b) If 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 (a) of this subsection shall not
be required. If requested by the insured, the insurer shall provide a written
explanation of the basis for limiting the amount of recovery along with the
amount payable under the policy.
STATUTORY AUTHORITY:
KRS
304.2-110