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[IN ACCORDANCE WITH CALIFORNIA INSURANCE CODE (CIC) SECTION 12938, THIS REPORT WILL BE MADE PUBLIC AND PUBLISHED ON THE
CALIFORNIA DEPARTMENT OF INSURANCE (CDI) WEBSITE]
WEBSITE PUBLISHED REPORT OF THE MARKET CONDUCT EXAMINATION OF THE CLAIMS PRACTICES OF
AIG LIFE INSURANCE COMPANY
NAIC # 66842 CDI # 1625-3
AMERICAN GENERAL LIFE INSURANCE COMPANY
NAIC #60488 CDI # 1625-3
UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
NAIC #70106 CDI # 1409-2

AS OF AUGUST 31, 2010


ADOPTED JUNE 4, 2012
STATE OF CALIFORNIA

CALIFORNIA DEPARTMENT OF INSURANCE

MARKET CONDUCT DIVISION

FIELD CLAIMS BUREAU


NOTICE
The provisions of Section 735.5(a) (b) and (c) of the California Insurance Code (CIC) describe the Commissioner's authority and exercise of discretion in the use and/or publication of any final or preliminary examination report or other associated documents. The following examination report is a report that is made public pursuant to California Insurance Code Section 12938(b)(1) which requires the publication of every adopted report on an examination of unfair or deceptive practices in the business of insurance as defined in Section 790.03 that is adopted as filed, or as modified or corrected, by the Commissioner pursuant to Section 734.1.

TABLE OF CONTENTS

SALUTATION 11

FOREWORD 22

SCOPE OF THE EXAMINATION 33

EXECUTIVE SUMMARY OF CLAIMS SAMPLE REVIEWED 44

RESULTS OF REVIEWS OF MARKET ANALYSIS, CONSUMER COMPLAINTS AND INQUIRIES, AND PREVIOUS EXAMINATIONS 55

DETAILS OF THE CURRENT EXAMINATION 66

TABLE OF TOTAL CITATIONS 88

TABLE OF CITATIONS BY LINE OF BUSINESS 1010

SUMMARY OF EXAMINATION RESULTS 1111


STATE OF CALIFORNIA

Dave Jones,

Insurance Commissioner

DEPARTMENT OF INSURANCE

   

Consumer Services and Market Conduct Branch
Field Claims Bureau, 11th Floor
300 South Spring Street
Los Angeles, CA 90013
 

SALUTATION

June 4, 2012

The Honorable Dave Jones

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 handling practices and procedures in California of:
AIG LIFE INSURANCE COMPANY
NAIC # 66842 CDI # 1746-7
AMERICAN GENERAL LIFE INSURANCE COMPANY
NAIC #60488 CDI # 1625-3
UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
NAIC #70106 CDI # 1409-2
Group NAIC # 0012

Hereinafter, the Companies listed above also will be referred to as AGLIC, AIGL, USLIC or, collectively, as the Companies.

This report is made available for public inspection and is published on the California Department of Insurance website ( www.insurance.ca.gov) pursuant to California Insurance Code section 12938(b)(1).

FOREWORD


The examination covered the claims handling practices of the aforementioned Companies Life and Annuities claims closed during the period of September 1, 2009 through August 31, 2010. The examination was made to discover, in general, if these and other operating procedures of the Companies conform to the contractual obligations in the policy forms, the California Insurance Code (CIC), the California Code of Regulations (CCR) and case law. This report contains all alleged violations of laws that were identified during the course of the examination.
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 a summary of pertinent information about the lines of business examined, details of the non-compliant or problematic activities that were discovered during the course of the examination and the insurer's proposals for correcting the deficiencies. When a violation that reflects an underpayment to the claimant is discovered and the insurer corrects the underpayment, 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 upon or criticize non-compliant practices in this state or other jurisdictions does not constitute acceptance of such practices.
Alleged violations identified in this report, any criticisms of practices and the Companies' responses, if any, have not undergone a formal administrative or judicial process.

SCOPE OF THE EXAMINATION

To accomplish the foregoing, the examination included:


The review of the sample of individual claims files was conducted at the offices of the Companies in Springfield, IL.

EXECUTIVE SUMMARY OF CLAIMS SAMPLE REVIEWED

The Life and Annuities claims reviewed were closed from September 1, 2009 through August 31, 2010, referred to as the "review period". The examiners randomly selected 77 AGLIC claims files and 10 AGLIC rescissions, 2 AIGL claims files and 1 claim file for USLIC for the examination. Within this population, 20 retained asset accounts were reviewed. The examiners cited 11 alleged claims handling violations of the California Insurance Code and other specified codes from this sample file review

Findings of this examination included failure to pay interest on a claim that remained unpaid longer than 30 days from the date of death when the insured relocated to another state, or when the beneficiary resided in another state; and failure to conduct and diligently pursue a thorough, fair and objective rescission investigation.


RESULTS OF REVIEWS OF MARKET ANALYSIS, CONSUMER COMPLAINTS AND INQUIRIES, AND PREVIOUS EXAMINATIONS

The results of the market analysis did not identify any specific issues of concern except as noted below.

The Companies were the subject of 53 California consumer complaints and inquiries closed from September 1, 2009 through August 31, 2010, in regard to life, accident and disability claims reviewed in this examination. The CDI alleged 11 violations of law including eight improper denials of claims and one claims handling delay. Of the complaints and inquiries, the CDI determined six complaints were justified.

The previous claims examination reviewed a period from October 1, 2004, through September 30, 2005. The most significant noncompliance issue identified in the previous examination report was the Companies' failure to properly document files. This issue was not identified as problematic in the current examination.

DETAILS OF THE CURRENT EXAMINATION

Further details with respect to the examination and alleged violations are provided in the following tables and summaries:

AGLIC SAMPLE FILES REVIEW


LINE OF BUSINESS / CATEGORY

CLAIMS IN REVIEW PERIOD

SAMPLE FILES REVIEWED

NUMBER OF ALLEGED CITATIONS

Annuities/ Individual

44

10

1

Life / Individual

1682

67

8

Life / Individual / Rescissions

10

10

2

TOTALS

1736

87

11

AIGL SAMPLE FILES REVIEW


LINE OF BUSINESS / CATEGORY

CLAIMS IN REVIEW PERIOD

SAMPLE FILES REVIEWED

NUMBER OF ALLEGED CITATIONS

Life / Individual

52

2

0

TOTALS

52

2

0

USLIC SAMPLE FILES REVIEW


LINE OF BUSINESS / CATEGORY

CLAIMS IN REVIEW PERIOD

SAMPLE FILES REVIEWED

NUMBER OF ALLEGED CITATIONS

Life / Individual

34

1

0

TOTALS

34

1

0

TABLE OF TOTAL CITATIONS


Citation

Description of Allegation

AGLIC
Number of Alleged Citations

AIGLIC Number of Alleged Citations

USLIC
Number of Alleged Citations

CIC §10172.5(a)
*[CIC §790.03(h)(5)]

The Company failed to pay interest on a claim that remained unpaid longer than 30 days from the date of death.

7

0

0

CCR §2695.7(d)
[CIC §790.03(h)(3)]

The Company failed to conduct and diligently pursue a thorough, fair and objective investigation of a claim.

2

0

0

CCR §2695.11(b) *[CIC §790.03(h)(3)]

The Company failed to provide a clear explanation of the computation of benefits.

1

0

0

CIC §10172.5(c)
*[CIC §790.03(h)(3)]

The Company failed to notify the beneficiary that interest will be paid.

1

0

0

Total Number of Citations

11

0

0


*DESCRIPTONS OF APPLICABLE
UNFAIR CLAIMS SETTLEMENT PRACTICES

CIC §790.03(h)(3)

The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.

CIC §790.03(h)(5)

The Company failed to effectuate prompt, fair, and equitable settlements of claims in which liability had become reasonably clear.

TABLE OF CITATIONS BY LINE OF BUSINESS


LIFE
2009 Written Premium:  $482,133
AMOUNT OF RECOVERIES $134,832.97

NUMBER OF CITATIONS

CIC §10172.5(a)
*[CIC §790.03(h)(5)]

6

CCR §2695.7(d)
*[CIC §790.03(h)(3)]

2

CIC §10172.5(c)
*CIC §790.03(h)(3)

1

CCR §2695.11(b)
*CIC §790.03(h)(3)

1

SUBTOTAL

10

ANNUITIES
2009 Written Premium: $67,046,102
 

CIC §10172.5(a)
*[CIC §790.03(h)(5)]

1

SUBTOTAL

1

TOTAL

11

SUMMARY OF EXAMINATION RESULTS


The following is a brief summary of the criticisms that were developed during the course of this examination related to the violations alleged in this report.
In response to each criticism, the Companies are required to identify remedial or corrective action that has been or will be taken to correct the deficiency. The Companies are obligated to ensure that compliance is achieved.
Any noncompliant practices identified in this report may extend to other jurisdictions. The Companies were asked if they intend to take appropriate corrective action in all jurisdictions where applicable. The Companies intend to implement corrective actions in all jurisdictions.
Money recovered within the scope of this report was $8,771.04 as described in section number one and two below. Following the findings of the examination, a closed claims survey, as described in section one below, was conducted by the Companies resulting in additional payments of $126,061.93. As a result of the examination, the total amount of money returned to claimants within the scope of this report was $134,832.97.
Annuities
1. In one instance, AGLIC failed to pay interest on a Life claim that was paid longer than 30 days following the date of death of the insured as was Company procedure. In the settlement of an annuity insurance claim the Company failed to pay interest on the payable proceeds which remained unpaid more than 30 days from the date of death. The Department alleges this act is in violation of CIC §10172.5(a) and is an unfair practice under CIC §790.03(h)(5).

Summary of the Company's Response: The Company believes that it followed claim interest payment instructions it was given by the Department and has willingly corrected interest payments for claims paid during the current examination period once the Department's position on this matter was made clear to the Company. Historically, the company only paid interest on annuitant death claims paid more than 30 days after the date of death when the annuitant resided in California at the time of death, instead of paying the interest regardless of the residence of the claimant at the time of death.  The Company stated, "the statute does not make any reference to whether its requirements apply to policies issued in California, to claimants who reside in California, or is limited to only when both bases are present." As a result of the examination, the Companies corrected their protocol to be in compliance and paid interest on this claim in the amount of $5,009.44.  Also, the Companies agreed to correct all claims within the examination period, and all claims going forward. The Companies' self-survey covering the period from September 1, 2009, through August 31, 2010 found 12 late annuitant death claim payments where interest was not paid totaling $5,708.00 and made the interest payments on those claims. The Company provided the Department with evidence of the completed survey including supporting data and proof of payments.


Life
2. In six instances, the Companies failed to pay interest on Life claims that were paid longer than 30 days following the date of death of the insured. In the settlement of Life insurance claims the Companies failed to pay interest on the payable proceeds which remained unpaid more than 30 days from the date of death. The Department alleges these acts are in violation of CIC §10172.5(a) and are unfair practices under CIC §790.03(h)(5).
3. In one instance, the Company, AGLIC failed to provide to the claimant an explanation of benefits including the name of the provider or services covered, dates of service, and a clear explanation of the computation of benefits. In one instance, the Company failed to send an explanation of benefits to the beneficiary with its settlement check. The Department alleges this act is in violation of CCR §2695.11(b) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company Response: The Company acknowledged the finding and states it was an isolated error. The Company has procedures in place that require an explanation of benefits for every payment.
4. In one instance, the Company, AGLIC failed to notify the beneficiary of the specified rate of interest paid on the death benefit. In one instance, the Companies failed to disclose the interest rate on the proceeds to the beneficiary. The Department alleges this act is in violation of CIC §10172.5(c) and is an unfair practice under CIC §790.03(h)(3).
Summary of the Company Response: The Company acknowledges the finding and states it was an isolated error. It is the Company's procedure to disclose the rate of interest when interest is paid.
Rescissions
5. In two instances the Company failed to conduct and pursue a thorough, fair and objective investigation of a claim. In the first instance, the insured's medical records, obtained by the insurer in the post-claim investigation, provided ample information that physical abnormalities would have been visible to the sales agent during the application and to the paramedical examiner conducting the physical assessment. Specifically, the records indicated the insured had a history of scleroderma and hypo pigmentation. This was not noted on the application or in the paramedical assessment. Coverage was rescinded as a result of this information. In the second instance, during the post claims investigation, it was discovered that an interpreter was not used in Part B of the application process, the paramedical examination. The insured spoke Cambodian and limited English. This was verified by the agent, the contingent beneficiary, and the medical records. The Company used statements made in the application to rescind coverage without investigating whether the applicant appreciated the significance of the information related to him or her. The Department alleges these acts are in violation of CCR § 2695.7(d) and are unfair practices under CIC §790.03(h)(3).
Summary of the Companies' Response: The Companies disagree with the Examiners findings. The Companies state its post claims investigation provided sufficient information to rescind the policies without obtaining an agent's statement or paramedical examiner statement.
Summary of the Department's Evaluation of the Companies Response: In the first instance, the Department asserts there was ample file documentation of the applicant's physical ailments to support further investigation prior to rescission. In the second instance, the terms used on the application required full understanding of the English language. The Company failed to consider the language barrier during the post-claim investigation and subsequent rescission. These are unresolved issues that may result in administrative action.

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Last Revised - June 18, 2012
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