What is the legal position regarding insurance claims that take long to finalise?
02 Jan 2024
It is not unusual for many insureds to complain about unexplained delays in their insurance claims. More often than not, insureds undergo a very frustrating period whilst waiting for the outcome of their insurance claims. There are many applaudable reasons why insureds may become frustrated when there are delays in the claiming process – an insured may be losing out on business; there may be serious inconveniences on the part of the insured; there may be no update from the insurer as to when the claim will most likely be finalised; etc. Delays in the claiming process is, at least on the face of it, in stark contrast to the precise reason why people take out insurance policies. It is for this reason that the frustration of the insureds is understandable. In some extreme instances, claims never see the light of the day, and the insureds eventually let go of their claims and take it upon themselves to make up for the losses suffered.
In most cases, and justifiably so, people seek legal advice only after the rejection of their claims i.e., once a “negative” outcome has been made by an insurer. Due to a lack of knowledge and/or sometimes financial constraints, people do not ordinarily make use of legal processes to get their claims investigated promptly. It is, as such, of great importance that people are made aware of what are the available legal avenues when they are faced with such delays in their insurance claims. All the principles explicated below apply similarly to third-party claims as they apply to the first party claims.
Duties of the insurer:
From the onset, it is critical to note that an insurer does not owe an absolute duty to finalise the claim promptly. This is due to the fact that claims differ in nature, complexity, value, etc. Thus, several factors may have an impact on the processing of a claim. It would be unfair to impose an absolute duty on an insurer as this may permeate fraudulent insurance claims. There is, however, a duty on the insurers to investigate claims promptly. Regulators and courts do not take this duty lightly. This duty is premised on the overriding implied principle of good faith that finds application in all insurance matters. With the principle of good faith comes an inextricable intertwined principle of fairness. Regulators of the insurance industry place great emphasis on these principles, and insurers are legally bound by same.
In addition to investigating claims promptly, insurers are required to promptly assess claims, make a decision (accept/reject) and communicate same to an insured. Where there are delays and complications in a claim, an insurer is expected to update an insured, accordingly.
Duties of the insured:
As stated above, in all insurance policies there is an implied principle of good faith. Good faith applies on both sides. Thus, an insured is required to not do anything that will obstruct the investigation of a claim. An insured is also required to provide documents and information as soon as reasonably practicable to their insurer.
Further, an insured is required to cooperate with reasonable requests from their insurer. It sometimes happens that an insurer makes unreasonable requests and demands to frustrate the process. The law does not allow for this. Instead, it is taken as an act of bad faith on the part of the insurer. Insureds are within their rights to take legal steps against such actions.
Legal ramifications & recourse:
Where there are unreasonable delays on an insurer’s part regarding the finalisation of a claim, the insurer is said to be acting in bad faith, and the insurer may be regarded to have breached its duty to treat clients fairly. In cases of undue delays, an insured may bring an application to compel their insurer to make a decision within a certain number of days; where a delay has resulted in financial losses, the insured may, depending on the policy terms, be able to claim for special damages i.e., consequential loss. Where a matter relating to an undue delay gets heard in court, the insured may justifiably pray for punitive costs in his/her court papers.
It is important to hold insurers to account where one’s finalisation of the claim is being unduly delayed. Just as an insured is expected to pay their premiums timeously (on an agreed date), there is a corresponding duty on the part of an insurer to promptly investigate claims. Our insurance law department has recently assisted a client whose third-party claim had been pending for a year (November 2021 to November 2022). There was no concrete progress in his matter despite his determined efforts to follow-up with the insurer. Upon instructing our insurance law experts, and after the first letter was dispatched to the insurer, the insurer undertook to advise of outcome of the claim within a certain period of time – which it did; and, within a month thereafter, payment was made. It is for this reason that insureds should seriously consider making use of legal representation in such cases.
Article sourced from Adams & Adams.
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