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Playing By the Rules: What Rules Govern How Insurance Companies Treat Policyholders?

MGW lawyers explain the rules and laws that insurance companies must follow.

Football season is back, but your favorite team is not the only one with rules to play by. Insurance companies also have rules to play by, and there are three main sources of rules and laws they must follow. First, insurance companies must follow the terms and conditions contained in the insurance policy. Second, insurance companies must follow state laws, which are contained in the Wisconsin Statutes and the Wisconsin Administrative Code. Third, insurance companies should follow court decisions interpreting insurance policies and insurance company conduct.


The first and most important set of “rules” an insurance company must follow is the insurance policy. The insurance policy is a legally enforceable agreement between you and the company: in exchange for payment of premiums, the company agrees to pay you insurance benefits if you suffer a covered loss. Different types of policies will contain different terms and conditions, but if the insurance company promises to do something, you have a right to expect that the company will do what it promised.

For example, most property policies state that you can demand appraisal by an outside person if all that is disputed is the amount of a loss. So, if you and the insurance company agree that your home’s roof needs to be replaced, and you both agree on which sections are to be replaced, you can demand appraisal if you feel the company is underestimating the cost of the work.


The second set of rules an insurance company must follow comes from state law: the Wisconsin Statutes and Wisconsin Administrative Code. The Wisconsin Statutes are the laws passed by our elected state representatives and senators, and the Wisconsin Administrative Code is a set of rules and regulations that are issued by state agencies. Certain types of insurance are also covered by federal law, such as health, life, and disability insurance.


Both the Statutes and Administrative Code address insurance issues. For example, if you apply for life insurance and are denied, the statutes require the insurance company to provide the reason for denial in writing. Similarly, the insurance code requires insurance companies to fairly handle claims and lists a number of things that an insurance company may not do when settling a claim.


Finally, the last set of rules an insurance company should follow comes from court decisions. When the company refuses to provide the benefits it agreed to pay, sometimes a policyholder has no choice but to file a lawsuit. Court decisions may decide what certain terms mean, if an insurance company acted fairly, and what types of relief an insured should have when the company is not acting fairly. In Wisconsin, one of the most important court decisions was that insurance companies could be sued for “bad faith” for the way a claim was handled. Another important court decision held that an insured should have coverage when the policy is unclear or ambiguous.


Although there are many rules insurance companies must follow, all too often insurance companies disregard those rules and treat policyholders unfairly. If you feel your insurance company is not playing by the rules, contact the MGW attorneys for a free consultation. We are familiar with the rules that insurance companies must follow and know how to get them to play fair.


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