PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION

OF THE CLAIMS PRACTICES OF THE


ARGONAUT INSURANCE COMPANY
NAIC # 19801 CDI # 1523-0
ARGONAUT - MIDWEST INSURANCE COMPANY
NAIC # 19828 CDI # 2409-1
ARGONAUT - SOUTHWEST INSURANCE COMPANY
NAIC # 19844 CDI # 1704-6

AS OF FEBRUARY 28, 2006


STATE OF CALIFORNIA


DEPARTMENT OF INSURANCE

MARKET CONDUCT DIVISION

FIELD CLAIMS BUREAU

TABLE OF CONTENTS

SALUTATION.......................................................................................1


SCOPE OF THE EXAMINATION...............................................................3
CLAIMS SAMPLE REVIEWED AND OVERVIEW OF FINDINGS......................4
TABLE OF TOTAL CITATIONS.................................................................6
TABLE OF CITATIONS BY LINE OF BUSINESS...........................................7
SUMMARY OF RESULTS.........................................................................8

STATE OF CALIFORNIA	Steve Poizner,	Insurance Commissioner
DEPARTMENT OF INSURANCE
Consumer Services and Market Conduct Branch Field Claims Bureau, 11th Floor 300 South Spring Street Los Angeles, CA 90013

June 4, 2007

The Honorable Steve Poizner

Insurance Commissioner

State of California

45 Fremont Street

San Francisco, California 94105


Honorable Commissioner:

Pursuant to instructions, and under the authority granted under Part 2, Chapter 1, Article 4, Sections 730, 733, 736, and Article 6.5, Section 790.04 of the California Insurance Code; and Title 10, Chapter 5, Subchapter 7.5, Section 2695.3(a) of the California Code of Regulations, an examination was made of the claims practices and procedures in California of:

Argonaut Insurance Company
NAIC # 19801
Argonaut - Midwest Insurance Company
NAIC # 19828
Argonaut - Southwest Insurance Company
NAIC # 19844
Group NAIC # 0457

Hereinafter referred to as AIC, AMIC, ASIC, the Company or, collectively as the Companies.

This report is made available for public inspection and is published on the California Department of Insurance web site ( www.insurance.ca.gov) pursuant to California Insurance Code section 12938.

SCOPE OF THE EXAMINATION


The examination covered the claims handling practices of the aforementioned Companies during the period March 1, 2005, through February 28, 2006. The examination was made to discover, in general, if these and other operating procedures of the Companies conform with the contractual obligations in the policy forms, to provisions of the California Insurance Code (CIC), the California Code of Regulations (CCR) and case law. This report contains only alleged violations of Section 790.03 and Title 10, California Code of Regulations, Section 2695 et al. The alleged violations of other relevant laws which resulted from this examination are included in a separate report which will remain confidential subject to the provisions of CIC Section 735.5.

To accomplish the foregoing, the examination included:

1. A review of the guidelines, procedures, training plans and forms adopted by the Companies for use in California including any documentation maintained by the Companies in support of positions or interpretations of fair claims settlement practices.
2. A review of the application of such guidelines, procedures, and forms, by means of an examination of claims files and related records.
3. A review of consumer complaints received by the California Department of Insurance (CDI) in the most recent year prior to the start of the examination.
The examination was conducted primarily at the offices of the Companies in Fresno, California.
The report is written in a "report by exception" format. The report does not present a comprehensive overview of the subject insurer's practices. The report contains only a summary of pertinent information about the lines of business examined and details of the non-compliant or problematic activities or results that were discovered during the course of the examination along with the insurer's proposals for correcting the deficiencies. When a violation is discovered that results in an underpayment to the claimant, the insurer corrects the underpayment and the additional amount paid is identified as a recovery in this report. All unacceptable or non-compliant activities may not have been discovered. Failure to identify, comment on or criticize activities does not constitute acceptance of such activities.
Any alleged violations identified in this report and any criticisms of practices have not undergone a formal administrative or judicial process.

CLAIM SAMPLE REVIEWED AND OVERVIEW OF FINDINGS

The examiners reviewed files drawn from the category of Closed Claims for the period March 1, 2005, through February 28, 2006, commonly referred to as the "review period". The examiners reviewed 162 AIC claim files, 5 AMIC claim files and 7 ASIC claim files. The examiners cited ten claim handling violations of the Fair Claims Settlement Practices Regulations and/or California Insurance Code Section 790.03 within the scope of this report. Further details with respect to the files reviewed and alleged violations are provided in the following tables and summaries.

Argonaut Insurance Company
LINE OF BUSINESS / CATEGORY	CLAIMS FOR REVIEW PERIOD	REVIEWED	CITATIONS
Workers Compensation Indemnity	1,647	51	6
Workers Compensation Denied	269	49	0
Workers Compensation Medical Only	1,173	62	3
TOTALS	3,089	162	9

Argonaut - Midwest Insurance Company
LINE OF BUSINESS/CATEGORY	CLAIMS FOR REVIEW PERIOD	REVIEWED	CITATIONS
Workers Compensation Indemnity	22	3	0
Workers Compensation Denied	2	2	0
TOTALS	24	5	0
Argonaut - Southwest Insurance Company
LINE OF BUSINESS/CATEGORY	CLAIMS FOR REVIEW PERIOD	REVIEWED	CITATIONS
Workers Compensation Indemnity	76	3	1
Workers Compensation Denied	11	4	0
TOTALS	87	7	1

TABLE OF TOTAL CITATIONS
Citation	Description	AIC	AMIC	ASIC
CIC §790.03(h)(3)	The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies.	8	0	1
CIC §790.03(h)(5)	The Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear.	1	0	0
Total Citations		9	0	1

TABLE OF CITATIONS BY LINE OF BUSINESS
WORKERS COMPENSATION	NUMBER OF CITATIONS
CIC §790.03(h)(3)	9
CIC §790.03(h)(5)	1
SUBTOTAL	10

TOTAL

10

SUMMARY OF RESULTS

1. In nine instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. Of the instances cited, five were the result of a failure by the Company to pay or object to medical bills within 60 days of receipt. In three of the instances cited, the claim files were not adequately documented. The DWC-1 claim forms were missing from these files. In the remaining instance, a delay in processing the claim occurred between 10/28/05 and 06/07/06. The Department alleges these acts are in violation of CIC §790.03(h)(3).

Summary of Company Response: Argonaut is committed to the highest standards of professional claims management. We believe that our Customers, Insured's, Producers and Claimants should expect Argonaut to treat them fairly and always deal with them honestly and in good faith. Argonaut will promptly and fully investigate every claim of which it is aware. We will carefully evaluate each claim, determine coverage and liability questions and, when appropriate, make fair and reasonable offers to settle as soon as practical. We will communicate with Insured's, Brokers and Claimants to keep them informed of our progress toward resolution of claims issues, frequently enlisting their help in the process. We are committed to applying the resources necessary to produce sound claims management results.

In addition, some states have enacted specific laws and regulations codifying fair claims management practices. Argonaut is committed to full compliance with all such standards and charges it's Divisional Management with direct responsibility for maintaining the ability and readiness of its employees and outside service providers to meet at least the mandatory levels of good faith and professionalism required by those laws in jurisdictions where they apply. We will conduct extensive training with our staff to insure a prompt and full investigation is completed on all files managed by our company. Training will also include identifying fraud and the referral process.

2. In one instance, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In the instance cited, the Company failed to pay interest and the penalty on a medical benefit that was paid late. The Department alleges that this act is in violation of CIC §790.03(h)(5).

Summary of Company Response: The Company states "Our normal business practice is to insure full compliance with prompt and fair payment of medical benefits. Should we fail to pay a medical benefit timely, upon recognition of this failure, we immediately assess and pay a self imposed penalty along with the interest due. We have reviewed the specific example outlined above. We have recognized that a late payment was issued on a medical benefit. A self imposed penalty, along with interest was paid to the vendor." As a result of the examination finding the Company issued a self imposed penalty and interest to the vendor in the amount of $336.10.

Last Revised - August 10, 2007
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