Must An Insurance Company Immediately Pay The “Undisputed Amount”?

Follow

Email

Our insurance company clients have asked the following question: “Where a first-party claim is involved, does the carrier have to immediately pay the claimant the amount at which the carrier values the claim?  Or can it in good faith refuse payment until the parties reach a resolution of the dispute as to value?”  The answer to that question always starts with a review of the regulations.

Nevada Administrative Code 686A.675 reads as follows:

7.  Except for a claim involving health insurance, any case involving a claim in which there is a dispute over any portion of the insurance policy coverage, payment for the portion or portions not in dispute must be made notwithstanding the existence of the dispute where payment can be made without prejudice to any interested party.

If you read the regulation superficially, as have many claimants’ attorneys, you may be convinced that insurance companies are obligated to immediately pay out the amount at which the carrier values the claim, even though the claimant believes the value is higher and is intent on arbitrating or litigating over the difference.

However, if you interpret the regulation in that fashion your interpretation would be different than that held at the Nevada Division of Insurance.  In 2003, a consumer (Walter Jourdan) filed a complaint with the Division of Insurance against his insurance company (Progressive Halcyon Insurance Company Claim No. 028122836).  That dispute involved an underinsured motorist claim.  The carrier offered its insured a certain amount to settle the claim.  However the payment was conditioned upon the insured signing a release.  Mr. Jourdan apparently valued the claim higher than the amount offered by Progressive.  When he refused to sign a release for the amount Progressive offered and Progressive did not pay that amount immediately, he filed his complaint with the Division arguing the insurance company had violated the above regulation.  The insured argued that the carrier was obliged to immediately pay him the amount at which it had valued the claim.  The insured apparently planned to pursue the difference via arbitration or some other dispute resolution process after he had received the insurance company’s payment.

The Division of Insurance considered the facts and interpreted the regulation.  It denied the insured’s complaint.  See HERE for a copy of the letter.  The Division found that the regulation applies across coverages and not within the same coverage.  As an example, an auto carrier could not withhold payment on a medical payments claim in order to leverage its negotiating position on a UIM claim.  However, the regulation was not applicable to a value dispute that exists exclusively within the UIM portion of the coverage.  Therefore, according to the Insurance Division, an insurance company is not obligated to immediately pay its insured the amount at which it values the claim so long as the dispute is within the same portion of the policy coverage.  Rather, the insurance company is authorized to await the resolution of the entire dispute on that portion of the policy before it has to pay that portion of the claim.

When the Division of Insurance is contacted, it explains that the letter issued in Mr. Jourdan’s case is not a Formal Opinion rendered by the Division.  And that the only precedent set by the letter is that it was a recommended resolution of that particular claim.  So to argue that the matter is finally resolved would be incorrect.  Nevertheless, Mills & Associates is aware of at least two Eighth Judicial District Court cases in which the letter has been considered by the court and the judge has agreed with the Division’s interpretation of the statute.  Conger v. Arcos, EJDC Case No. A515982 and Cabrera v. American Family, EJDC Case No. A521507.  In other words, there is no definitive interpretation of the regulation.  However, the weight of argument seems to be on the side of the insurance company.

That is not to say that the carrier should never pay the undisputed amount of coverage on a single portion of the coverage.  In each instance, the company can make a strategic decision to pay its value and fight about the rest.  If you have a question about this issue, please feel free to contact Mills & Associates and we will be glad to speak with you about your claim.