What is a Fair and Reasonable Insurance Settlement?

A settlement is an arrangement between two or more persons to resolve a dispute. All parties involved in a settlement typically expect some level of compromise.  Unfortunately, there is not a standard that is used in legal disputes with insurance companies. Defining a fair and reasonable settlement in the insurance arena requires that certain factors be taken into consideration.

Both the fairness and reasonableness of a settlement process in insurance disputes are regulated by the insurance code in Texas and most other states in the U.S.  Insurance companies are required by law to act in good faith throughout an insurance claim process, including settlement. The purpose of insurance laws is mainly designed to protect the policyholders by regulating trade and treatment practices in insurance business.

Consequently, to apply the quid pro quo principle in the insurance context would almost always lead to unfair results to the policyholder’s detriment.  For instance, imagine a homeowner who paid his homeowners’ insurance policy premiums month after month and year after year, and whose house was severely damaged by an event covered under his policy.  It would be extremely unfair in this context for the insurance company to use the conventional settlement practices and expect the homeowner to give something up to be able to settle his claim.  That would usually mean that the policyholder would get paid much less than what his claim is really worth, creating bad precedent and bad faith practices in the insurance industry.

Therefore, to determine whether a settlement in the insurance context is both fair and reasonable, there are a number of factors that should be taken into consideration:

1. Whether the insurance company misrepresented to the policyholder a material fact or policy provision related to coverage, like saying that the event is not covered under the policy.
2. Whether the insurance company failed to attempt in good faith to make a prompt, fair, and an equitable settlement of a claim in which the insurance company’s liability was reasonably clear.
3. Whether the insurance company failed to promptly provide a policyholder a reasonable explanation of the policy, for the insurance company’s denial of the claim or offer of a compromise settlement of the claim.
4. Whether the insurance company failed within a reasonably time to affirm or deny coverage of a claim to a policyholder or submit a reservation of rights to the policyholder.
5. Whether the insurance company refused to pay a claim without conducting a reasonable investigation with respect of the claim.
6. Whether the insurance company has incurred in bad faith practices to force financially burdened policyholders to surrender or settle for an amount much less than they are entitled to, such as offering quick settlements early on, delay the payment process, or manipulating the insurance estimating software (Xactimate) to increase profits and short property owners on their insurance claims. For more information about this topic, please read our blog “How Insurance Companies Manipulate Estimating Program Xactimate to Increase Profits and Short Property Owners on Hail Claims.”

The attorneys at the Amaro Law Firm have vast experience dealing with insurance companies.  In fact, some of their attorneys worked as insurance companies defense lawyers before joining the firm.  Now, they help property owners fight for fair and just treatment.  Our consultations are free.  If we cannot add value to your claim, we will not take your case.  We are only paid if we win your case by converting your denied or underpaid claim into a fully paid claim.  Contact us for a free claim evaluation.