Delaware Consumer Protection Laws

Delaware law provides comprehensive consumer protections to ensure fair treatment of insurance policyholders. Producers must understand and comply with these laws to protect consumers and maintain their licenses.

Policy Cancellation and Non-Renewal

Cancellation Restrictions

Definition of Cancellation:

• Termination of policy before expiration date
• Initiated by insurer or insured
• Must comply with Delaware law

Permitted Reasons for Mid-Term Cancellation

Insurers may cancel policies mid-term ONLY for:

1. Non-Payment of Premium

• Insured fails to pay premium when due
• Most common reason for cancellation
• Notice requirement: Typically 10-20 days

2. Fraud or Material Misrepresentation

• False statements on application
• Intentional concealment of material facts
• Discovered after policy issued

3. Substantial Increase in Hazard

• Risk significantly increases after policy issued
• Example: Insured starts using home for business without disclosure
• Example: Driver adds high-risk driver to auto policy without notice

4. License Suspension or Revocation

• For auto insurance: Driver's license suspended or revoked
• Insurer cannot provide coverage for unlicensed driver

5. Discovery of Fraud

• After-the-fact discovery of fraud in application
• Material misrepresentation affecting underwriting

6. First 60 Days (Underwriting Period)

• Some policies allow cancellation in first 60-90 days for underwriting reasons
• Varies by policy type and insurer

Cancellation Notice Requirements

Advance Notice:

• Personal Lines: Minimum 30 days advance written notice
• Commercial Lines: Minimum 30-60 days (varies by policy)
• Non-Payment: Shorter notice (typically 10-20 days)

Notice Must Include:

• Effective date of cancellation
• Reason for cancellation
• Explanation of policyholder rights
• Information about obtaining coverage elsewhere

Method of Notice:

• Written notice sent by mail
• Certified mail for some cancellations
• Email if policyholder consented to electronic delivery

Non-Renewal Restrictions

Definition of Non-Renewal:

• Insurer chooses not to renew policy at expiration
• Different from cancellation (not mid-term)

Non-Renewal Notice Requirements:

Timing:

• Personal Auto/Homeowners: Minimum 60 days before expiration
• Commercial Property: Minimum 60-90 days before expiration
• Workers' Compensation: Minimum 60 days before expiration

Notice Content:

• Statement of non-renewal
• Effective date
• Reason for non-renewal (if required by law)
• Information about alternative coverage sources

Permitted Reasons for Non-Renewal:

• Excessive claims history
• Material change in risk
• Underwriting guidelines change
• Insurer withdrawing from market
• Loss of reinsurance

Prohibited Reasons:

• Discriminatory reasons (race, religion, etc.)
• Filing legitimate claims
• Policyholder age (in some cases)
• Disability or health status (in some cases)

Exam Tip: Delaware restricts policy cancellations to specific reasons (non-payment, fraud, substantial hazard increase, license suspension). Non-renewals have fewer restrictions but require advance notice (typically 60 days for personal lines). Insurers cannot cancel or non-renew for discriminatory reasons.

Unfair Claim Settlement Practices

Delaware Prohibited Practices

Delaware law (Title 18, Chapter 23) prohibits unfair claim settlement practices:

1. Misrepresenting Policy Provisions

Prohibited:

• Misrepresenting facts or policy provisions to claimant
• Providing false information about coverage or exclusions
• Misquoting policy language

Example:

• Insurer tells claimant policy doesn't cover water damage when it does
• Adjuster misrepresents deductible amount to reduce payment

2. Failing to Acknowledge Claims Promptly

Required:

• Acknowledge receipt of claim within reasonable time
• Typically 10-15 days in Delaware
• Provide claim number and contact information

Prohibited:

• Ignoring or delaying claim acknowledgment
• Failing to assign claim to adjuster promptly
• Not responding to claimant inquiries

3. Failing to Investigate Claims

Required:

• Conduct reasonable investigation of claims
• Review all relevant evidence and documentation
• Inspect damage when appropriate
• Obtain expert opinions if needed

Prohibited:

• Denying claim without investigation
• Superficial or inadequate investigation
• Ignoring evidence supporting coverage

4. Unreasonable Delays

Prohibited:

• Delaying claim payment without justification
• Requesting unnecessary documentation repeatedly
• Failing to respond to claimant communications
• Prolonging investigation without reason

Reasonable Timeframes:

• Initial contact: Within 10-15 days
• Investigation completion: Within 30-60 days (if possible)
• Payment after agreement: Within 10-30 days
• Explanation of denial: Promptly after determination

5. Not Attempting Good Faith Settlement

Required:

• Make good faith effort to settle claims fairly
• Offer settlement based on investigation and policy terms
• Negotiate in good faith with claimants

Prohibited:

• Making lowball settlement offers
• Refusing to negotiate reasonable settlements
• Forcing claimants to litigate covered claims

6. Compelling Litigation

Prohibited:

• Failing to settle claims when liability is clear
• Denying valid claims to force litigation
• Refusing reasonable settlements to save costs

Example:

• Clear liability auto accident with $25,000 damages
• Insurer offers $5,000 knowing claimant will have to sue
• Forces claimant to hire attorney and litigate

7. Not Paying Claims Promptly

Required:

• Pay claims promptly after agreement reached
• Delaware typically requires payment within 30 days
• Interest may accrue on delayed payments

Prohibited:

• Withholding payment without justification
• Delaying payment to earn interest
• Requiring excessive documentation before payment

8. Making Unreasonable Settlement Offers

Prohibited:

• Offering significantly less than claim value
• Lowball offers hoping claimant will accept
• Offers not supported by investigation

Example:

• Home suffers $50,000 fire damage
• Insurer offers $20,000 with no justification
• Adjuster pressures homeowner to accept

Penalties for Unfair Claims Practices

Consequences:

• Civil penalties up to $10,000 per violation
• Restitution to harmed policyholders
• License suspension or revocation (for adjusters)
• Increased regulatory scrutiny
• Private lawsuits for bad faith

Delaware Insurance Guaranty Association (DIGA)

Purpose and Function

DIGA Protects Policyholders When:

• Licensed insurer becomes insolvent
• Insurer cannot pay claims
• Court orders insurer liquidation

How DIGA Works:

1. Insurer Insolvency

   • Delaware-licensed insurer fails financially
   • Delaware courts order liquidation

2. DIGA Activated

   • Delaware DOI triggers DIGA to assume claims
   • DIGA takes over paying covered claims

3. Claims Payment

   • DIGA pays covered claims up to statutory limits
   • $300,000 maximum for most P&C claims
   • Workers' comp: No maximum limit

4. Member Assessment

   • DIGA assesses solvent member insurers
   • Assessments fund claim payments
   • Insurers may recoup assessments from premiums

5. Subrogation and Recovery

   • DIGA seeks recovery from insolvent insurer's assets
   • Reduces member assessment burden

DIGA Coverage Limits

Maximum Coverage:

What DIGA Does NOT Cover

Exclusions:

• Policies from non-admitted/unauthorized insurers
• Claims exceeding statutory limits ($300,000)
• Punitive or exemplary damages
• Policy deductibles or self-insured retentions
• Fines and penalties
• Interest prior to insolvency

Important Producer Responsibility:

• Explain DIGA protections to clients
• Disclose DIGA coverage limits
• Recommend purchasing from admitted insurers
• Caution about non-admitted insurer risks

Exam Tip: Delaware Insurance Guaranty Association (DIGA) provides safety net for policyholders when licensed insurers become insolvent. Maximum coverage is $300,000 for most P&C claims, but workers' compensation has no limit. DIGA does NOT cover non-admitted insurers, punitive damages, or amounts exceeding $300,000.

Disclosure Requirements

Material Information Disclosure

Producers Must Disclose:

1. Policy Coverage and Limitations

• What policy covers
• What policy excludes
• Coverage limits and sub-limits
• Deductibles and coinsurance

2. Policy Terms and Conditions

• Cancellation and non-renewal provisions
• Premium payment terms
• Claims procedures
• Policy renewal terms

3. Insurer Information

• Insurer name and contact
• Insurer financial rating (if requested)
• Admitted vs. non-admitted status
• Claims payment history (if known)

4. Producer Compensation

• Commission structure (if asked)
• Contingent commissions or bonuses
• Ownership interests in insurers or agencies
• Conflicts of interest

5. Replacement Impact

• Comparison of existing and proposed policies
• Potential disadvantages of replacement
• Surrender charges or penalties
• Loss of benefits

Disclosure Timing

When to Disclose:

• Before application: During initial discussion
• At application: Review application with client
• At policy delivery: Explain policy terms
• At renewal: Disclose changes in terms or coverage
• When asked: Respond to client questions promptly

Written vs. Oral Disclosure

Best Practice:

• Written disclosure preferred for important information
• Document oral disclosures in client file
• Obtain client acknowledgment of important disclosures
• Provide copies of applications, policies, and disclosures

Delaware Insurance Fraud

Definition of Insurance Fraud

Insurance Fraud:

• Knowingly making false statement to obtain insurance benefits
• Concealing material facts to deceive insurers
• Submitting false or inflated claims
• Providing false information on applications

Common Fraud Scenarios

Application Fraud:

• Lying about driving history on auto application
• Concealing pre-existing conditions on health application
• Misrepresenting property value or condition
• Hiding material facts affecting underwriting

Claims Fraud:

• Staging accidents to file false claims
• Inflating damage amounts on claims
• Submitting claims for non-existent losses
• Providing false documentation

Premium Fraud:

• Misrepresenting payroll to reduce workers' comp premiums
• Misclassifying employees to lower premiums
• Hiding exposures to avoid premium charges

Fraud Detection and Reporting

Producer Responsibilities:

Recognize Red Flags:

• Inconsistent information on applications
• Excessive or unusual claims
• Documentation irregularities
• Pressure to expedite claims without investigation

Report Suspected Fraud:

• Report to insurer's special investigation unit (SIU)
• Report to Delaware Insurance Fraud Bureau (if established)
• Cooperate with fraud investigations
• Maintain documentation

Do Not Participate:

• Never assist clients in fraudulent activities
• Refuse to submit false information
• Do not falsify applications or claims
• Advise clients against fraud

Penalties for Insurance Fraud

Criminal Penalties:

• Felony charges for serious fraud
• Fines up to $50,000 or more
• Imprisonment up to 5-15 years
• Restitution to victims

Civil Penalties:

• Treble damages (3× actual damages)
• Civil fines and penalties
• Attorney's fees and costs
• License revocation (producers)

Administrative Penalties:

• Producer license revocation
• Company license revocation
• Prohibition from insurance industry

Delaware Privacy and Data Security

Consumer Privacy Protection

Gramm-Leach-Bliley Act (GLBA):

• Federal financial privacy law
• Applies to insurance companies and producers
• Requires privacy notices and safeguards

Privacy Notice Requirements:

• Provide privacy notice at policy delivery
• Explain information collection and use
• Describe information sharing practices
• Disclose opt-out rights (if applicable)

Information Safeguarding:

• Implement security measures
• Protect against unauthorized access
• Train employees on privacy compliance
• Dispose of records securely

Data Breach Response

If Data Breach Occurs:

1. Contain Breach

   • Stop unauthorized access
   • Secure systems and data

2. Assess Damage

   • Determine what data was accessed
   • Identify affected individuals

3. Notify Affected Parties

   • Notify clients whose data was breached
   • Provide credit monitoring if appropriate

4. Report to Authorities

   • Report to Delaware DOI if required
   • Report to law enforcement if criminal activity
   • Comply with state data breach notification laws

5. Prevent Future Breaches

   • Investigate cause of breach
   • Implement corrective measures
   • Update security policies

Best Practices for Consumer Protection

Proactive Consumer Protection

1. Educate Clients

• Explain policy coverage clearly
• Use plain language, avoid jargon
• Provide written summaries
• Answer questions patiently

2. Manage Expectations

• Be realistic about coverage and claims
• Don't overpromise outcomes
• Explain limitations upfront
• Prepare clients for claims process

3. Document Everything

• Keep detailed client records
• Document advice and recommendations
• Maintain copies of policies and applications
• Save correspondence and communications

4. Follow Up

• Check in with clients periodically
• Review coverage at renewal
• Update coverage as needs change
• Address issues promptly

5. Advocate for Clients

• Assist with claims process
• Communicate with insurers on client's behalf
• Escalate issues when appropriate
• Help resolve disputes

6. Maintain Transparency

• Disclose compensation openly
• Explain conflicts of interest
• Provide clear, honest information
• Admit mistakes and correct them

Handling Client Complaints

When Client Complains:

Step 1: Listen

• Let client explain fully
• Take notes on concerns
• Show empathy and understanding

Step 2: Investigate

• Review policy and records
• Gather facts about situation
• Consult with insurer if needed

Step 3: Respond

• Explain findings clearly
• Offer solutions if possible
• Be honest about limitations

Step 4: Escalate if Needed

• Involve agency management
• Contact insurer management
• Suggest Delaware DOI if unresolved

Step 5: Document

• Record complaint and response
• Maintain file of communications
• Follow up to ensure resolution