Which statement describes an unfair claims settlement practice?

• A. Settling a claim by arbitration
• B. Failing to acknowledge receipt of a claim within a reasonable time
• C. Misrepresenting facts during the claims investigation
• D. Underpaying a valid claim after a prompt investigation

Answer: (A)

Unfair claims settlement practices are actions by an insurer that undermine fair and prompt handling of claims. Settling a claim by arbitration, by itself, is a neutral dispute-resolution method and is permissible when both parties agree or when the policy requires it; it is not an unfair practice simply because arbitration is used. In contrast, failing to acknowledge a claim within a reasonable time delays the process and can prejudice the insured, misrepresenting facts during the investigation distorts the claim and misleads the insured about coverage, and underpaying a valid claim after a prompt investigation signals an unfair, inadequate settlement. These behaviors are considered unfair because they prevent a fair, timely, and accurate resolution of the claim.