806 KAR 12:092.

Unfair life and health insurance claims settlement practices.

 

      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

      STATUTORY AUTHORITY:

KRS 304.2-110, 304.32-250, 304.38-150

      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. (17 Ky.R. 806; Am. 1503; eff. 11-15-90;

TAm eff. 8-9-2007; TAm eff. 10-9-2008.)