Determining a Total Loss

Figuring out if something is a total loss can be a bit of a headache. It’s not always as simple as ‘it’s broken, so it’s a total loss.’ There’s a whole process involved, and insurance companies have specific ways they go about making that call. We’re going to break down what goes into the total loss determination process, what factors play a role, and what you need to know to understand it better.

Key Takeaways

The total loss determination process starts with an initial notice and investigation, followed by a close look at the insurance policy to see what’s covered.
Key factors include how bad the damage is, how much repairs would cost, and any potential legal issues or lost income involved.
Policy details like limits, deductibles, and specific exclusions significantly impact whether a loss is deemed total.
How the loss is valued – whether it’s replacement cost or actual cash value – is a major part of the determination.
If you disagree with the insurer’s decision, there are steps like negotiation, mediation, or even legal action to resolve the dispute.

Understanding the Total Loss Determination Process

When an insured event happens, the insurance company kicks off a process to figure out if the damage is so bad that fixing it just doesn’t make sense. This is what we call a ‘total loss’ determination. It’s not just about whether something is broken; it’s a whole procedure involving several key steps and people.

The Role of Insurance Adjusters

Adjusters are the front-line investigators for the insurance company. They’re the ones who show up, look at the damage, and start gathering all the facts. Their job is to assess the situation objectively and report their findings back to the insurer. This involves understanding the policy, the circumstances of the loss, and what it would cost to repair or replace the damaged property. They might take photos, get repair estimates, and talk to witnesses. Basically, they’re building the case file for the insurance company to make a decision.

Initial Notice of Loss and Investigation

It all starts when you, the policyholder, report a loss. This is the ‘notice of loss.’ The sooner you report it, the better, as policies often have clauses about timely notification. Once the insurer gets this notice, they’ll assign an adjuster to start the investigation. This isn’t just a quick look-see; it’s a thorough examination. They’ll verify that the policy was active, check if the event is covered under the policy terms, and start figuring out who or what is responsible for the damage. Depending on the type of claim, this could involve reviewing police reports, getting medical records, or inspecting damaged property.

Coverage Analysis and Policy Interpretation

This is where the insurance policy itself really comes into play. The adjuster, and often a specialized claims handler or legal team, will carefully read the policy language. They need to determine if the loss is actually covered by the policy. This means looking at the main insuring agreements, but also paying close attention to any exclusions, conditions, or limits that might apply. Sometimes, policy language can be a bit tricky, and if there’s ambiguity, it’s often interpreted in favor of the policyholder. This step is really about matching the facts of the loss to the promises made in the insurance contract.

Key Factors in Total Loss Determination

When an insurance claim reaches the point where a total loss is being considered, several significant factors come into play. It’s not just about whether the item is damaged; it’s a more complex calculation involving repair costs, potential liability, and even lost income.

Assessing Property Damage and Repair Costs

This is often the most straightforward part, but it can still get complicated. The insurer’s adjuster will look at the extent of the damage to the property. They’ll get estimates from repair shops or contractors to figure out how much it would cost to fix everything. If the estimated repair cost exceeds the property’s actual cash value (ACV) or its replacement cost, it’s a strong indicator of a total loss. Sometimes, even if the repair cost is slightly less than the value, other factors might push it into total loss territory. For example, if the damage is so extensive that it compromises the structural integrity or safety of the property, it might be deemed a total loss regardless of the repair quote. Think about a car that’s been in a severe accident; even if some parts could be fixed, the frame might be bent, making it unsafe and uneconomical to repair.

Here’s a general breakdown of how repair costs are weighed:

Damage Assessment: A thorough inspection to identify all damaged components.
Repair Estimates: Obtaining quotes from qualified professionals.
Cost vs. Value: Comparing the total repair cost against the property’s pre-loss value.

Evaluating Liability and Legal Exposure

In some cases, especially with liability claims, the potential legal exposure can influence the total loss determination. If a damaged property or product leads to injury or further damage to a third party, the insurer has to consider not only the cost of repair or replacement but also the potential legal costs, settlements, or judgments. This is particularly relevant in commercial policies where a failure in equipment or a product could lead to significant lawsuits. The insurer might decide it’s more prudent to declare a total loss and pay out the policy limit rather than risk a lengthy and expensive legal battle that could cost far more than the property itself is worth. This involves looking at the potential legal exposure and how it stacks up against the claim.

Quantifying Business Interruption and Income Loss

For businesses, a total loss event often means more than just damaged property; it can mean a complete halt in operations. Business interruption coverage is designed to address this, but the potential for lost income is a significant factor in the overall claim evaluation. If a business suffers a total loss of its premises or essential equipment, the insurer needs to consider not only the cost to replace the physical assets but also the projected income the business would have earned during the period it’s unable to operate. This calculation can be complex, involving historical financial data, market conditions, and projections. In some scenarios, the projected income loss might be so substantial that it contributes to the decision to classify the event as a total loss, especially if replacing the assets would take a very long time, leading to prolonged business interruption. This is why understanding the full impact, beyond just the physical damage, is so important for a complete claims process.

The determination of a total loss isn’t a single calculation but a multi-faceted assessment. It requires a deep look into the physical damage, the financial implications of repair versus replacement, and any associated legal or operational consequences. Insurers must weigh all these elements to arrive at a fair and accurate conclusion according to the policy terms.

Policy Provisions Influencing Total Loss

Understanding Policy Limits and Sublimits

When a total loss occurs, the policy limits are the first thing that comes into play. These limits are essentially the maximum amounts your insurance company will pay for a covered loss. They’re usually found on the declarations page of your policy. It’s not uncommon for policies to have different limits for different types of property or losses. For instance, you might have a specific limit for your building, another for your contents, and perhaps even a separate, lower limit for things like valuable art or jewelry. These are known as sublimits.

It’s really important to know these numbers. If the cost to replace your damaged property exceeds these limits, you’ll be responsible for the difference. This is why regularly reviewing your policy and updating your limits as your assets change is a good idea.

Here’s a quick look at how limits and sublimits work:

Coverage Type	Policy Limit	Sublimit (if applicable)
Building	$500,000	N/A
Business Personal Property	$250,000	$50,000 (for art/antiques)
Business Interruption	$100,000	N/A

The Impact of Deductibles and Self-Insured Retentions

Deductibles and self-insured retentions (SIRs) are the amounts you, the policyholder, agree to pay out-of-pocket before the insurance coverage kicks in. Think of them as your initial share of the loss. A deductible is typically a fixed amount or a percentage of the loss, while an SIR is usually a fixed amount that you are responsible for.

The higher your deductible or SIR, the lower your premium will generally be. This is because you’re taking on more of the financial risk yourself. However, in a total loss scenario, a large deductible or SIR can significantly reduce the amount the insurer actually pays out. It’s a balancing act between managing your upfront costs and ensuring you have adequate protection when a major event happens.

Consider this: if you have a $10,000 deductible and a total loss of $100,000, the insurance company will pay $90,000. If your deductible was $25,000, they would only pay $75,000.

Interpreting Exclusions and Conditions

Exclusions and conditions are the parts of the policy that limit or define the coverage. Exclusions are specific events or circumstances that the policy will not cover. Common exclusions in property policies, for example, might include flood, earthquake, or wear and tear. Conditions, on the other hand, are requirements that both you and the insurer must meet for the policy to be valid and for a claim to be paid.

Understanding these sections is absolutely vital. An exclusion can mean that even if you suffer a significant loss, your insurance won’t pay a dime if the cause is listed as excluded. Similarly, failing to meet a condition – like not reporting the loss promptly or not cooperating with the investigation – could jeopardize your claim. It’s always best to read these sections carefully and ask your agent or insurer for clarification if anything is unclear.

Here are some common policy conditions:

Notice of Loss: You must notify the insurer of a loss as soon as reasonably possible.
Cooperation: You must cooperate with the insurer’s investigation.
Preservation of Property: You must take reasonable steps to protect the damaged property from further loss.
Proof of Loss: You may be required to submit a detailed statement of the loss.

Valuation Methods in Total Loss Scenarios

When a loss is so severe that repairing the damaged property isn’t practical or cost-effective, it’s declared a total loss. Figuring out how much the insurance company should pay in these situations involves specific valuation methods. It’s not always a straightforward calculation, and understanding these approaches is key to a fair claim settlement.

Replacement Cost vs. Actual Cash Value

This is probably the most common point of confusion. Replacement Cost (RCV) is what it would cost to buy a brand-new item of similar kind and quality to replace the damaged one. Actual Cash Value (ACV), on the other hand, is the Replacement Cost minus depreciation. Think of it like this: if your 10-year-old TV is totaled, RCV would pay for a new TV, while ACV would pay for a 10-year-old TV (or rather, the value of that TV at the time of the loss).

Valuation Method	Description	Payout Basis
Replacement Cost (RCV)	Cost to acquire new property of like kind and quality.	Full cost to replace with new, without deduction for depreciation.
Actual Cash Value (ACV)	Replacement Cost minus depreciation for age, wear, and tear.	Market value of the property at the time of the loss.
Agreed Value	Insurer and insured agree on a specific value for the property beforehand.	The pre-determined value, regardless of RCV or ACV at the time of loss.
Stated Value	Policyholder declares a value, but insurer may pay the lower of stated value, RCV, or ACV.	Varies; often the lowest of the declared value or actual market value.

Most standard policies default to ACV unless you’ve specifically purchased Replacement Cost coverage. It’s a good idea to check your policy details or discuss this with your agent, especially for high-value items like vehicles or homes. For example, understanding how whole life insurance works involves similar considerations of value and payout, though in a very different context.

Depreciation Schedules and Their Application

Depreciation is the decrease in an asset’s value over time due to age, wear, and obsolescence. Insurance companies use depreciation schedules to calculate the ACV. These schedules are often based on the expected lifespan of an item. For instance, a roof might have a 20-year lifespan. If it’s 10 years old when damaged, it might be considered 50% depreciated.

Age of the item: Older items are generally worth less.
Condition before loss: Pre-existing damage or wear reduces value.
Obsolescence: Newer technology or designs can make older items less valuable.

It’s important to remember that depreciation typically applies to the materials and labor when calculating ACV, but not always to things like building code upgrades that are required by law after a loss.

Agreed Value and Stated Value Structures

Sometimes, especially with unique or high-value items like classic cars, art, or specialized equipment, standard RCV or ACV methods don’t quite fit. That’s where Agreed Value and Stated Value come in.

Agreed Value: Before a loss occurs, the insurer and the policyholder agree on a specific value for the insured item. This amount is listed on the policy’s declarations page. If the item is a total loss, the insurer pays that agreed-upon amount, period. No depreciation is factored in.
Stated Value: With a Stated Value policy, you declare a value for the item. However, the insurer usually reserves the right to pay the lesser of the stated value, the actual cash value, or the replacement cost at the time of the loss. This means the stated value acts more like an upper limit than a guaranteed payout.

These structures can offer more certainty, but they often come with higher premiums. They are particularly useful when the market value of an item is hard to determine or fluctuates significantly.

Navigating Claims Disputes and Resolution

Sometimes, even with the best intentions, folks don’t see eye-to-eye on an insurance claim. It’s pretty common, actually. When you’ve had a loss, you’re probably stressed, and the insurance company has its own procedures and interpretations. This is where disputes can pop up, usually around how much the damage is worth or whether something is even covered.

Common Areas of Disagreement in Valuation

Valuation is a big one. The insurance company might look at a damaged roof and calculate its value based on depreciation, while you might be thinking about the cost to put on a brand-new one. It’s like the difference between what something is worth now and what it would cost to replace it with something new. Other sticking points can include:

Matching Materials: If a storm damages part of your siding, you might expect the insurer to replace the whole wall so the new siding matches the old. They might argue for just replacing the damaged section, leading to a visual mismatch.
Code Upgrades: Sometimes, building codes have changed since your property was built. If repairs require bringing things up to current code, that can add unexpected costs that might not be immediately obvious in the initial estimate.
Scope of Repairs: There can be disagreements about how extensive the repairs really need to be. Is it a simple fix, or does it require more involved work to properly restore the property?

It’s important to remember that insurance policies are contracts. The language used in them is key, and sometimes, what seems straightforward to one person might have a different legal interpretation for another. This is why clear communication and understanding the policy terms from the start are so important.

Negotiation, Mediation, and Appraisal Processes

When disagreements happen, there are steps you can take before heading to court. Negotiation is the first, most direct approach. You and the adjuster, or perhaps your own public adjuster, talk it out, present your evidence, and try to reach a middle ground. If that doesn’t work, mediation is often the next step. A neutral third party, the mediator, helps facilitate a conversation between you and the insurer to find a resolution. They don’t make decisions, but they guide the discussion. An appraisal clause, often found in property policies, is another option. This involves each side selecting an appraiser, and those two appraisers then select a neutral umpire. The appraisal panel then determines the amount of the loss. This process is specifically for valuation disputes and can be a more formal way to settle disagreements without going to court. It’s a way to get a professional, unbiased opinion on the value of the damage.

The Role of Arbitration and Litigation

If mediation or appraisal doesn’t resolve the issue, or if the dispute is more complex, arbitration or litigation might be the next steps. Arbitration is like a more formal mediation where the arbitrator listens to both sides and makes a binding decision. It’s often faster and less expensive than going to court, but you give up some control over the outcome. Litigation, or going to court, is the most formal and often the most expensive route. This is where lawyers get involved, evidence is presented, and a judge or jury makes the final decision. It can take a long time and be quite draining. Ultimately, understanding these dispute resolution methods can help you approach a claim disagreement with a clearer strategy. If you’re dealing with a situation where you’re unable to work due to an injury, understanding your disability income insurance policy is also key, as disputes can arise there too.

The Insurer’s Duty in Claims Handling

When a loss occurs and a claim is filed, the insurer’s role shifts from risk assessment to fulfilling its contractual obligations. This is where the insurer’s duty in claims handling comes into play, a process governed by policy terms, legal standards, and regulatory expectations. It’s not just about paying out; it’s about doing so fairly, promptly, and with a degree of professionalism that upholds the integrity of the insurance contract.

Standards of Care and Good Faith Obligations

Insurers are expected to act with a certain standard of care when managing claims. This means they can’t just ignore a claim or handle it haphazardly. A core part of this duty is the obligation of good faith. Essentially, this means the insurer must deal honestly and fairly with the policyholder, without resorting to tricks or unreasonable delays to avoid paying a valid claim. This isn’t just a nice-to-have; it’s a legal requirement in most places.

Investigate promptly and thoroughly: Gather all necessary facts and information related to the claim.
Communicate clearly: Keep the policyholder informed about the claim’s status and any decisions made.
Act without unreasonable delay: Process the claim efficiently, avoiding unnecessary back-and-forth.
Make fair decisions: Base claim determinations on the policy terms and the facts gathered, not on arbitrary reasons.

Failing to meet these standards can lead to allegations of "bad faith," which can have serious financial consequences for the insurer, often exceeding the original claim amount.

Timeliness and Documentation Requirements

Time is often of the essence in claims handling. Policies usually have clauses requiring policyholders to report losses within a certain period, and insurers, in turn, have a duty to process those claims within a reasonable timeframe. What constitutes "reasonable" can depend on the claim’s complexity, but significant delays without good reason are generally frowned upon.

Insurers also need to keep good records. This means documenting every step of the claims process: initial notice, investigation activities, communications with the policyholder, coverage analysis, and the final decision. This documentation is vital for several reasons:

Accountability: It shows the insurer acted properly and followed its procedures.
Regulatory Compliance: Regulators often review claim files to ensure compliance with laws and regulations.
Dispute Resolution: If a dispute arises, the claim file serves as the primary record of what happened and why decisions were made.

Claim Stage	Typical Documentation
Notice of Loss	Date/time of report, claimant’s initial statement
Investigation	Photos, repair estimates, police reports, witness statements
Coverage Analysis	Policy excerpts, legal opinions, internal memos
Valuation	Appraisals, invoices, depreciation calculations
Decision/Settlement	Denial letters, settlement agreements, payment records

Consequences of Bad Faith and Unfair Practices

When an insurer doesn’t uphold its duties, the consequences can be significant. Beyond the obvious financial cost of paying a claim that might have been disputed, insurers can face legal action for bad faith claims handling. This can result in:

Compensatory Damages: Covering the actual financial losses the policyholder suffered due to the insurer’s actions.
Consequential Damages: Losses that flow directly from the bad faith conduct, such as lost business opportunities.
Punitive Damages: In some jurisdictions, courts may award punitive damages to punish the insurer for egregious conduct and deter future misconduct. These can sometimes be much larger than the original claim amount.
Legal Fees: The insurer may be ordered to pay the policyholder’s attorney fees.

Regulatory bodies also play a role. They can investigate complaints, audit an insurer’s claims practices, and impose fines or other penalties for unfair claims handling. Ultimately, maintaining a reputation for fair and prompt claims service is not just good business; it’s a fundamental requirement for operating within the insurance industry.

Underwriting and Risk Assessment for Premiums

So, how do insurance companies figure out what to charge you for coverage? It all comes down to underwriting and risk assessment. Basically, they’re trying to predict how likely you are to have a claim and how much that claim might cost. It’s a bit like a detective job, but instead of solving crimes, they’re trying to understand potential future losses.

Frequency and Severity of Potential Losses

When an underwriter looks at a risk, they’re really focused on two main things: how often a loss might happen (frequency) and how big that loss could be if it does (severity). Think about car insurance. Fender benders happen pretty often, so that’s a high-frequency, moderate-severity risk. On the other hand, a massive natural disaster that wipes out thousands of homes is a low-frequency, but extremely high-severity event. Insurers have to balance these different types of risks across their whole book of business. They use historical data, statistical models, and sometimes even professional judgment to get a handle on these probabilities. It’s not an exact science, but they get pretty good at it over time. This helps them set premiums that are fair and also keep the company financially stable. Understanding these two factors is key to how insurance pricing works.

Risk Classification and Pool Balance

Insurers don’t just look at you as an individual; they group people with similar characteristics together. This is called risk classification. For example, young drivers might be in one group, experienced drivers in another, and so on. The idea is to spread the risk across a large pool of people. If only high-risk individuals were in the pool, premiums would skyrocket. This is why insurers work hard to prevent what’s called adverse selection, which is when mostly high-risk people sign up, making the pool unstable. They use guidelines and data to make sure their classifications are accurate and that the pool remains balanced. It’s all about fairness and making sure the premiums collected can actually cover the claims that come in. You can find more details on how this works in actuarial science.

The Influence of Loss History on Pricing

Your past claims history is a pretty big deal when it comes to pricing your insurance. If you’ve had a lot of claims in the past, especially for similar types of losses, insurers will likely see you as a higher risk. This doesn’t automatically mean you’ll be denied coverage, but it will probably affect your premium. Insurers look at this history to see patterns and predict future behavior. It’s not just about the number of claims, though; the severity of those past losses also plays a role. A history of minor incidents might be viewed differently than a history of major, costly claims. This feedback loop, where past losses inform future pricing, is a fundamental part of how insurance companies manage their risk and keep their pricing competitive and sustainable.

Regulatory Frameworks and Compliance

Insurance is a pretty regulated business, and for good reason. States pretty much handle most of the oversight, making sure companies play fair and can actually pay out when you need them to. This means each state has its own set of rules about how insurance companies operate, from licensing to how they handle claims. It’s a complex web, especially if a company does business in multiple states.

State-Level Insurance Regulation

In the U.S., insurance regulation is mostly a state affair. Each state has its own Department of Insurance. These departments are the watchdogs, overseeing things like licensing for insurers and agents, making sure rates are fair and not discriminatory, and checking that policy language is clear and doesn’t take advantage of people. They also keep an eye on the financial health of insurance companies to make sure they have enough money set aside to pay claims. It’s all about protecting consumers and keeping the market stable. You can find more information about specific state regulations through your local department of insurance.

Market Conduct and Consumer Protection

This part of regulation focuses on how insurance companies interact with us, the policyholders. It covers everything from how they advertise and sell policies to how they underwrite risks and, importantly, how they handle claims. Regulators look for unfair practices, like misleading sales tactics or slow, unfair claim settlements. They conduct exams to spot these issues and can fine companies or make them change their ways if they’re not treating consumers right. Think of it as the rules of engagement to make sure you’re not getting a raw deal.

Ensuring Insurer Solvency and Capacity

This is a big one. Regulators are constantly checking to make sure insurance companies have enough money – capital and reserves – to pay claims, not just today, but in the future, even if a lot of claims happen at once. They use models to figure out how much capital a company needs based on the risks it’s taking on. This is super important because if an insurer goes broke, policyholders can be left high and dry. It’s all about making sure the system is sound and can handle whatever comes its way.

Advanced Concepts in Risk Management

Subrogation and Recovery Rights

When an insurer pays out a claim, they often gain the right to step into the shoes of the policyholder to pursue any party that might have been responsible for the loss. This is called subrogation. Think of it like this: if your neighbor’s faulty wiring caused a fire that damaged your house, and your insurance paid for your repairs, your insurer could then go after your neighbor (or their insurer) to get that money back. It’s a way to make sure the party that actually caused the damage ultimately bears the financial burden, rather than it falling solely on the insurance pool. This process helps keep premiums more stable for everyone.

Alternative Risk Transfer Structures

Beyond traditional insurance policies, businesses have other ways to manage risk. Captive insurance companies are one example. These are essentially insurance companies set up by a parent company to insure its own risks. It gives the company more control over its insurance program and can sometimes be more cost-effective. Another structure is a risk retention group, which is owned by its policyholders and typically insures risks common to its members, like those in a specific industry. These methods allow organizations to retain more control and potentially reduce costs associated with commercial insurance.

The Strategic Role of Insurance in Business

Insurance isn’t just about paying claims after something bad happens. It’s a key part of a business’s overall strategy for handling uncertainty. By transferring certain risks, businesses can protect their assets, ensure continuity of operations, and take on projects or ventures they might otherwise avoid due to potential financial fallout. It frees up capital that would otherwise be held in reserve for unexpected events. Effective risk management, with insurance as a core component, allows businesses to plan for the future with more confidence.

Here’s a quick look at how insurance fits into broader risk management:

Risk Identification: Pinpointing potential threats to the business.
Risk Assessment: Evaluating the likelihood and potential impact of identified risks.
Risk Treatment: Deciding how to handle each risk – avoid, mitigate, retain, or transfer (through insurance).
Risk Monitoring: Regularly reviewing the effectiveness of the risk management strategy.

Insurance acts as a financial shock absorber, allowing businesses to absorb unexpected losses without derailing their operations or financial stability. It’s a tool that enables growth and resilience in an unpredictable world.

Wrapping Up the Total Loss Process

So, figuring out if something is a total loss, whether it’s a car or something else, really comes down to a few key things. It’s about comparing the cost to fix it versus what it’s worth. Insurers have their own ways of looking at this, and they’ll check the policy details carefully. Remember, understanding your policy and what it covers is super important before anything happens. If you’re ever unsure about a claim or how it’s being handled, don’t hesitate to ask questions or seek clarification. It’s all part of making sure things are fair and square.

Frequently Asked Questions

What is a total loss in insurance?

A total loss means that the cost to fix your damaged property, like a car or a house, is more than what it’s worth. Instead of repairing it, the insurance company will pay you its value before it was damaged.

Who decides if something is a total loss?

An insurance adjuster looks at the damage and figures out the repair costs. They compare this to the value of the item. If repairs cost too much, they’ll recommend it as a total loss.

How does an insurance company figure out the value of my damaged item?

They usually look at what the item was worth right before the damage happened. This might be based on what similar items sell for, or it could be based on the price listed in your policy, like ‘Actual Cash Value’ (which subtracts wear and tear) or ‘Replacement Cost’ (which aims to get you a new item).

What if I don’t agree with the total loss decision or the value?

You have options! You can talk to the adjuster and provide your own evidence, like repair estimates or proof of value. You might also be able to use a process called mediation or appraisal, where a neutral person helps decide. If that doesn’t work, you might need to go to court.

What’s the difference between ‘Actual Cash Value’ and ‘Replacement Cost’?

‘Actual Cash Value’ (ACV) is what your item was worth after considering how old it is and how much it’s been used (depreciation). ‘Replacement Cost’ (RC) is what it would cost to buy a brand-new item that’s similar to the one you lost.

Does my insurance policy have limits that affect a total loss payout?

Yes, policies have limits, which are the maximum amounts the insurance company will pay. There might also be ‘sublimits’ for specific types of damage or items. You need to check your policy to see these limits.

What is a deductible and how does it affect a total loss claim?

A deductible is the amount of money you have to pay out of your own pocket before the insurance company starts paying. For a total loss, you’ll usually have to pay your deductible, and then the insurance company pays the rest of the item’s value, up to the policy limit.

What should I do if my insurance company is delaying my total loss claim?

It’s important to keep records of all your communication. If the delay seems unreasonable, you can ask for an explanation. If you’re still not getting a fair response, you might need to contact your state’s insurance department or consider getting legal advice. Insurers have a duty to handle claims promptly and fairly.