When a loss occurs, insurer agency arises because policy terms and the surrounding law that measure the company\u2019s performance are vague and difficult to enforce. Also, the insured usually is poorly situated to effectively monitor the company\u2019s performance in handling the claim. The insurance policy does not specify in much detail the insurer\u2019s duties in processing a claim. A typical HO-3 homeowners\u2019 policy, for example, only requires the company to pay claims within sixty days of agreement or adjudication and to participate in appraisal; otherwise, it delineates no duties concerning the processing of a claim. \u00a0Indeed, it is difficult to specify the insurer\u2019s duties because they necessarily rest on vague concepts such as promptness and reasonableness. As expressed in the Model Unfair Claims Settlement Practices Act, for example, a company must \u2018adopt and implement reasonable standards for the prompt investigation and settlement of claims arising under its policies.\u2019 The vagueness of the company\u2019s defined responsibility, the substantial advantage in information, and the expertise that the insurer possesses create an inherent difficulty in monitoring the performance. Even if the insured can detect insurer opportunism, its ordinary remedy is only to receive the benefits it already was entitled to under the policy; in most jurisdictions, broader remedies are available only if the insured can prove intentional or reckless misconduct.<\/p>\n\n\n\n

Moreover, the company has some incentive to act opportunistically and not pay a claim or pay less than it actually owes. The company that denies payment of a claim in whole or in part increases its profits. The company that only delays payment of a claim increases its investment income and thereby increases its profits. Market competition, reputational effects, and administrative regulation arguably fail to provide effective checks on opportunistic behavior.  A company that delays paying claims or denies valid claims in whole or in part conceivably could suffer a negative reputational effect, and reputation is an important element in consumer purchases of insurance. But claim practices are not a major determinant of satisfaction or purchasing behavior, particularly relative to price.<\/p>\n\n\n\n

The form of insurer opportunism in the claim process that is particularly relevant to the false swearing rule is the assertion of fraud by the insured as a reason for not paying a claim. The false swearing rule gives power to that assertion, and therefore, the rule itself potentially becomes a tool for opportunism. In many jurisdictions, the severe consequences of a finding of false swearing\u2014denial of an entire claim for any nontrivial incidence of fraud\u2014raise the stakes considerably. Therefore, with respect to false swearing in the claim process, agency and opportunism are present on both sides.<\/p>\n\n\n\n

Each of the rationales for the false swearing doctrine also relates to insurer opportunism. Opportunism by insurers constitutes an egregious form of breach of the insurance contract not only of its express terms requiring payment of what is owed but also of the obligation of good faith. The risk of insurer opportunism imposes inefficient monitoring costs on insureds, costs that many insureds cannot bear at all. It violates moral and legal strictures, and insurer fraud imposes costs on members of the pool whose claims are not paid, just as the prevention of that kind of fraud benefits the entire pool by ensuring that the claim process works better for all claimants.<\/p>\n<\/blockquote>\n\n\n\n

Feinman makes the point that preventing fraudulent claims is legitimate.  He merely argues that exaggerated claims of fraud by insurers as a claims practice requires a response in the law. There needs to be a remedy against those fraudulently claiming fraud against policyholders:<\/p>\n\n\n\n