An Authoritative Guide for Policyholders Facing Unreasonable Insurance Claim Delays

Insurance is designed to provide financial security and peace of mind during some of life’s most challenging moments. Yet, for many people filing disability or life insurance claims, the wait for benefits can become a source of significant stress and hardship. Going weeks or months with no income can be devastating for people without substantial savings or a strong support system in place. Unreasonable delays by insurance companies can jeopardize your well-being, as well as your family’s. Below is information that can help you understand your rights and options when your disability insurer does not provide you with a timely claim determination.

Understanding Unreasonable Delay: What the Law Says

Insurers are expected to review and process claims promptly and fairly. An “unreasonable delay” refers to a situation where an insurance company unreasonably fails to process, investigate, or pay a valid claim within a reasonable or stated period provided by law. What is considered reasonable can depend on the complexity of the claim, the need for additional information, and other factors. Regulatory bodies and courts have established timelines and standards that insurers must follow. Prolonged delay without a valid explanation may constitute insurance bad faith under state law and provide a basis to recover damages from your insurer.  It can and does happen more often than it should.

ERISA Regulations: Federal Standards for Employer-Sponsored Plans

For those covered under employer-sponsored group insurance plans, the Employee Retirement Income Security Act of 1974 (ERISA) establishes federal standards for claim processing. Under ERISA, the following time limits apply:

• Initial Claim Decision: 45 days. The insurer can take two additional 30-day extensions (for a total of 105 days) if they provide notice of why more time is needed.
• Time to File an Appeal: You must be given at least 180 days from the date of the denial to file your appeal.
• Appeal Decision: The insurer has 45 days to decide on the appeal. They may take one 45-day extension (total of 90 days) if they notify you of “special circumstances.”

On an appeal, if the insurer needs more time than the initial 45 days, it can take up to an additional 45 days, though it must provide the claimant with written notice of this prior to the end of the initial 45 days, and it must provide a good reason for taking additional time. Simply informing the claimant that it has not yet been able to review the evidence is not sufficient; the reason for taking additional time must be caused by something outside the insurer’s control, for example if a claimant obtains new medical evidence during the review period and submits it to the insurer a few days before the 45 day deadline, the insurer may be justified in informing the claimant that it needs additional time beyond the 45 days.

California State Law: Statutes, Timelines, and Remedies

For claimants in California who have individual policies or policies obtained through religious or governmental employers, there are robust consumer protections governing insurance claim handling. Under the California Insurance Code and the Unfair Claims Settlement Practices Act (California Code of Regulations, Title 10, Section 2695.7), there are robust timelines that insurers are required to follow:

• Acknowledgment of Claim: Within 15 calendar days of receiving notice of your claim, the insurer must acknowledge receipt, provide you with all necessary forms/instructions, and begin their investigation.
• Response to Communications: If you contact the insurer regarding your claim, they must provide a substantive response within 15 calendar days.
• Acceptance or Denial (The 40-Day Rule): Once the insurer receives “Proof of Claim” (the completed forms and medical records), they have 40 calendar days to accept or deny the claim, in whole or in part.
• Extensions: If the insurer cannot make a decision within 40 days, they must send a written notice explaining why more time is needed. They must then send an update every 30 calendar days until a decision is reached.
• Payment After Decision: Once the claim is accepted, payment must be made within 30 calendar days.

 

Failure to comply with these deadlines may constitute unfair and unreasonable claims practices. Claimants have the right to file complaints with the California Department of Insurance, which investigates such delays and may impose penalties on insurers found in violation. Beyond that, claimants may also pursue civil lawsuits seeking damages based on undue delay, which is a basis to sue an insurer even if it eventually pays the claim.

Options for Claimants: Steps to Take When Facing Unreasonable Delays

If your disability or life insurance claim is delayed, there are several proactive steps you can take to protect your rights:

• Request Written Explanations: Ask your insurer for a written update on the status of your claim and the reasons for any delay.
• Document Everything: Keep detailed records of all communications with the insurer, including dates, names, and the content of conversations.
• Provide Requested Information Promptly: Respond immediately to any requests for additional documents or clarification to avoid further delays. If the insurer is requesting the same information over again, point it out.
• Consult an Attorney: Seek legal advice from an experienced ERISA or disability or life insurance attorney, especially if you suspect bad faith or your claim is denied without justification.

Legal Remedies: Complaints, Lawsuits, and Potential Damages

Claimants dealing with unreasonable delays have options for legal recourse. In California, you may file a complaint with the Department of Insurance, which can investigate and penalize insurers for unfair practices. If the delay constitutes bad faith, you may be entitled to file a lawsuit seeking damages merely for the unreasonable delay of deciding the claim, even if the insurer eventually pays the claim.  McKennon Law recently settled a claim based on an unreasonable delay in the payment of our client’s disability claim for the sum of $275,000.  And, the claim was paid in full with interest!

For ERISA-governed policies, claimants may consider taking the position that the claim has been effectively denied as of the ERISA deadline; the claimant can then submit an appeal. It is important to note that in order to bring a lawsuit against an insurer, the claimant must have exhausted all administrative remedies, which means the claimant must have gone through the appeals process. If the insurer unreasonably delays the decision of an appeal, the claimant may file suit in federal court on the basis that the appeal was effectively “deemed denied” as of the ERISA deadline.   In this situation, you may be able to argue that the administrative record for litigation (the record on which the federal court judge will decide the case) is limited and as such, is highly beneficial to the claimant.

Practical Tips: Documentation, Communication, and Seeking Legal Help

To strengthen your position and increase the likelihood of a favorable outcome, consider these practical strategies:

• Stay Organized: Create a dedicated file for your claim, including policy documents, medical records, correspondence, and notes from phone calls.
• Follow Up Regularly: Follow up with the insurer if you have not received a timely response. Written communications are preferable, as they create a clear record.
• Understand Your Policy: Review your insurance policy carefully to understand your coverage, claim procedures, and appeal rights.
• Seek Professional Guidance: If delays persist, consult with an attorney who specializes in insurance bad faith or ERISA litigation.

Conclusion: Know Your Rights and Take Action

Facing a delayed insurance claim can be daunting, but California law and ERISA regulations provide protections for disability claimants. By understanding what constitutes unreasonable delay, knowing your legal remedies, and following practical steps to document and communicate with your insurer, you can assert your rights and pursue the benefits you deserve. If you encounter persistent delays, reach out to the experienced attorneys at the McKennon Law for a free consultation. We work on a contingency basis, so you do not pay anything until your case has been resolved successfully.