Once an insurer has determined that a claim is payable, it must:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The Fair Claims Settlement Practices Regulations require insurers to attempt in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear. Once the insurer determines that a claim is payable, it must pay without unreasonable delay. Delaying payment to earn additional investment income, conditioning payment on the claimant hiring an attorney, or waiting until the statute of limitations expires before paying are all unfair claims practices. The standard is designed to ensure that policyholders receive the benefits they are due promptly once the insurer has made its coverage determination. Fair settlement is a core duty of the insurer toward its insureds.
Why the other options are wrong
- B) Requiring the claimant to hire an attorney before paying is a form of unfair delay. Once liability is reasonably clear, the insurer must settle promptly without imposing improper conditions on payment.
- C) Delaying payment to maximize investment income is a prohibited claims practice. The insurer holds the funds in a fiduciary posture, and using delay to earn investment returns at the claimant's expense violates the fair settlement rules.
- D) Waiting until the statute of limitations expires is unreasonable delay, not fair settlement. Once liability is reasonably clear, the insurer must pay promptly; running out the clock is a classic unfair claims practice.
Memory hook
Liability is clear? Pay promptly; fairness is the rule.