PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION
OF THE CLAIMS PRACTICES OF THE
TABLE OF CONTENTS
May 10, 2005
The Honorable John Garamendi
Insurance Commissioner
State of California
45 Fremont Street
San Francisco, California 94105
Hereinafter referred to as UIC and UID, 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.
The examiners reviewed files drawn from the category of Closed Claims for the period January 1, 2004 through December 31, 2004, commonly referred to as the "review period". The examiners reviewed 362 UIC claims files and 201 UID claim files. The examiners cited 82 claims 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.
1. The Companies failed to properly document claim files. In 22 instances, the Companies' files failed to contain all documents, notes and work papers. In 11 instances, the Companies' file notes failed to document if a copy of the repair estimate was sent to the insured. In five of the instances, the files failed to contain all copies of imaged documents that pertain to the claim. In four of the instances, the claim files contained incomplete documentation to reconstruct the activity or conversation that occurred. In two instances, the Company failed to document the basis for the depreciation amount on a personal effects loss. The Department alleges these acts are in violation of CCR §2695.3(a).
Summary of Companies Response: With regard to the 22 alleged violations, the Companies agree with the findings and state that this is a training issue. The Companies will impress upon their staff the importance of providing full and clear documentation as well as maintaining documentation for the claim files and system notes.
2. The Companies failed to document the determination of value. In 13 instances, the Companies failed to document the determination of value. Any deductions from value, including deduction for salvage, must be discernible, measurable, itemized, and specified as well as be appropriate in dollar amount. The Companies use a third party vendor to determine the vehicle valuation of their total loss vehicles. This vendor's valuation report took baseline adjustments that were not supported in the valuation or file. The Department alleges these acts are in violation of CCR §2695.8(b)(1)(C).
Summary of Companies Response: The Companies believe that there was adequate documentation to support the adjustment, however, in agreement with the Department; the Companies state that beginning on September 11, 2004 total loss valuations no longer take into consideration the baseline adjustment.
3. The Companies failed to accept or deny the claim within 40 calendar days. In seven instances, the Companies failed, upon receiving proof of claim, to accept or deny the claim within 40 calendar days. The Department alleges these acts are in violation of CCR §2695.7(b).
Summary of Companies Response: The Companies acknowledge that in six of the seven instances, the adjusters handling these claims failed to comply with the regulation requiring that the claim be accepted or denied within 40 days of receiving proof of claim. It is the Companies' practice and guideline to comply with this regulation and they believe in most instances they do adhere to the regulation. The Companies agree that in six of the instances a status letter should have been sent and was overlooked. The Companies believe these were oversights by the handling adjusters and will remind claims staff of this procedure to ensure compliance.
In one instance, Unigard Insurance Company respectfully disagrees with the Department that a status letter was required since the full magnitude of the claim was not known. The Company contends that in this one claim file, the claimant carrier submitted a subrogation demand without supplying proof of claim that included validation of the rental costs and salvage value. The Company maintains that it followed up by telephone for this information. Moreover, the Company states that once the additional documentation was received, it was paid by the Company within the criteria of the code. Nonetheless, as a result of this examination, the Companies are amending their procedures to include sending a status letter whenever proof of claim documentation that they receive can be construed as proof of claim. These new procedures will avoid any future occurrences of failing to provide a status letter when partial proof was received.
4. The Companies failed to provide written notice of the need for additional time every 30 calendar days. In seven instances, the Companies failed to provide written notice of the need for additional time every 30 calendar days. The Department alleges these acts are in violation of CCR §2695.7(c)(1).
Summary of Companies Response: The Companies acknowledge that in six of the seven instances, the adjusters handling these claims failed to comply with the regulation requiring written notice every 30 calendar days when additional time is needed to consider proof of claim or a demand for payment. It is the Companies' practice and guideline to comply with this regulation and they believe in most instances they do adhere to the regulation. The Companies agree that in six of the instances a status letter should have been sent and was overlooked. The Companies believe these were oversights by the handling adjusters and will remind claims staff of this procedure to ensure compliance.
In one instance, Unigard Insurance Company respectfully disagrees with the Department that a status letter was required since the full magnitude of the claim was not known. The Company contends that in this one claim file, the claimant carrier submitted a subrogation demand without supplying proof of claim that included validation of the rental costs and salvage value. The Company maintains that it followed up by telephone for this information. Moreover, the Company states that once the additional documentation was received, it was paid by the Company within the criteria of the code. Nonetheless, as a result of this examination, the Companies are amending their procedures to include sending a status letter whenever proof of claim documentation that they receive can be construed as proof of claim. These new procedures will avoid any future occurrences of failing to provide a status letter when partial proof was received.
5. Upon acceptance of the claim the Company failed to tender payment within 30 calendar days. In four instances, upon acceptance of the claim, Unigard Insurance Company failed to tender payment within 30 calendar days. The Department alleges these acts are in violation of CCR §2695.7(h).
Summary of Company Response: The Company agrees to the finding and states failure to pay timely falls outside its expectations and that in these instances, the undisputed portion of the claim was not paid in a timely manner. The Company will re-emphasize to its staff the importance and requirement of paying bills timely upon acceptance of the claim.
6. The Companies failed to respond to communications within 15 calendar days. In four instances, the Companies failed to respond to communications within 15 calendar days. The Department alleges these acts are in violation of CCR §2695.5(b).
Summary of Companies Response: The Companies agree that in these instances the adjusters failed to respond to communications within 15 days, even though it is each Companies' normal practice and guideline to comply with this regulation. All claims staff will be reminded of this regulation to ensure timely communications.
7. The Companies failed to advise the claimant that he or she may have the claim denial reviewed by the California Department of Insurance. In four instances, the Companies failed to include a statement in their claim denial that, if the claimant believes the claim has been wrongfully denied or rejected, he or she may have the matter reviewed by the California Department of Insurance. The Department alleges these acts are in violation of CCR §2695.7(b)(3).
Summary of Companies Response: The Companies agree. It is the policy of the Companies to reference the CDI in denial letters, and therefore any errors are unintentional. The Companies will remind claims staff of this regulation to ensure compliance.
8. The Companies failed to include, in the settlement, all applicable taxes, license fees and other fees incident to transfer of evidence of ownership of the comparable automobile. In four instances, the Companies failed to include in the settlement, all applicable taxes, license fees and other fees incident to transfer of evidence of ownership of the comparable automobile. The Department alleges these acts are in violation of CCR §2695.8(b)(1).
Summary of Companies Response: The Companies acknowledge that the four files in question did not include all applicable salvage certificate fees or vehicle license fees as required. In the first two instances, a salvage certificate fee was paid at an incorrect amount. The Companies advised they were unaware the salvage certificate fee had increased to $15.00 for the 2004 year thus resulting in the error. As a result of the examination, the Companies have since paid the additional fees that were owed to claimants.
In the additional two claims, the registration fees were not calculated and included in the final total loss valuation. The Companies had a practice in place to request from the claimant the registration fee amount so that it could be included as part of the settlement. The Companies agree there were instances in which they were unable to obtain verification from the claimant to support the amount of the registration fees. The Companies agree that the failure to obtain this information resulted in these fees being omitted from the total loss settlement amount. The Companies are conducting research on the files identified in this examination to determine which license fees might be owed.
As a result of this examination, the Companies are conducting a self-review to determine any missed fees that might have been overlooked or underpaid. The self-review period for vehicle license fees will be for the window period and two proceeding years, while the period for salvage certificate fees will be the year of 2004. The Companies will provide the Department with evidence of completion of the review and policyholder notification by July 31, 2005.
9. The Companies failed to disclose all policy provisions. In four instances, the Companies failed to disclose all benefits, coverage, time limits or other provisions of the insurance policy. The Department alleges these acts are in violation of CCR §2695.4(a).
Summary of Companies Response: The Companies acknowledge that in four instances its claims staff failed to disclose all benefits relating to the 180-day provision for replacement cost items as it pertains to Homeowner property losses. The Companies will impress upon their staff the importance of advising the insured's of all applicable coverage, benefits and related time periods.
10. The Companies failed to supply the claimant with a copy of the estimate upon which the settlement is based. In three instances, the Companies failed to supply the claimant with a copy of the automobile repair estimate upon which the settlement is based. The Department alleges these acts are in violation of CCR §2695.8(f).
Summary of Companies Response: The Companies have a procedure in place to supply the claimant with a copy of the estimate as required. In these instances, the original estimate was revised and the Companies acknowledge a copy of the revised estimate was not provided as required. The Companies have implemented a new procedure of supplying copies of revised estimates to all claimants. The claims staff has been reminded of this regulation and the importance of providing these copies as required.
11. The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims. In two instances, Unigard Insurance Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. The Department alleges these acts are in violation of CIC §790.03(h)(3).
Summary of Company Response: The Company states the delays were inconsistent with its own expectations and that the files in question do not meet its established standards with respect to prompt investigation.
The Company disagrees the two files constitute a overall practice and believe they do have clear expectations of claims handling and are consistent with implementing and adopting reasonable standards.
To remedy this situation, the adjusters have been reminded of the importance of complying with this regulation and to promptly investigate all claims and to document any activities that occur in the claim file.
12. The Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In two instances, Unigard Insurance Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. The Department alleges these acts are in violation of CIC §790.03(h)(5).
Summary of Company Response: The Company acknowledges that the two liability files in question did not include the appropriate salvage certificate fee amount as required. The Company advised it was unaware the salvage certificate fee had increased to $15.00 for the 2004 year thus resulting in the error. As a result of the examination, the Company has since paid the additional fees that were owed to claimants.
As a result of this examination, the Company is conducting a self-review to determine any missed fees that might have been underpaid. The self-review period for the salvage certificate fees will be the entire year of 2004. The Company will provide the Department with evidence of completion of the review and policyholder notification by July 31, 2005.
13. The Companies failed to provide the written basis for the denial of the claim. In two instances, the Companies failed to provide the written basis for the denial of the claim. The Department alleges these acts are in violation of CCR §2695.7(b)(1).
Summary of Companies Response: The Companies acknowledge in two instances they failed to provide a written basis for the denial of claims in question. The Companies will re-emphasize to the adjusters the importance of timely written denials.
14. The Company failed to begin investigation of the claim within 15 calendar days. In one instance, Unigard Insurance Company failed to begin investigation of the claim within 15 calendar days. The Department alleges this act is in violation of CCR §2695.5(e)(3).
Summary of Company Response: The Company states that its procedure is to start investigation on all claims timely and within the 15 days as required. In this instance, the Company made contact to the insured but overlooked assigning the independent adjuster in a timely manner. The Company believes this is an isolated error and will remind its claims staff of this procedure to ensure compliance.
15. The Company failed to provide written notice of any statute of limitation 60 days prior to the expiration date. In one instance, Unigard Insurance Company failed to provide written notice of any statute of limitation or other time period requirement not less than 60 days prior to the expiration date. The Department alleges this acts is in violation of CCR §2695.7(f).
Summary of Company Response: The Company states that its procedure is to provide the requisite written notice as required by the regulation. The Company will remind all claims staff to adhere to the Company's procedures.
16. The Company failed to provide written notification to a first party claimant as to whether the insurer intends to pursue subrogation. In one instance, Unigard Insurance Company failed to provide written notification to a first party claimant as to whether the insurer intends to pursue subrogation of the claim. The Department alleges this act is in violation of CCR §2695.8(i).
Summary of Company Response: The Company states its standard procedure is to notify the insured when it intends to pursue subrogation. The Company will remind its staff of the importance of adhering to this regulation and to send all appropriate letters as required.
17. The Company failed to document the basis of betterment, depreciation, or salvage. The basis for any adjustment shall be fully explained to the claimant in writing. In one instance, Unigard Insurance Company failed to document the basis of betterment, depreciation, or salvage in the handling of an automobile claim. The basis for any adjustment shall be fully explained to the claimant in writing. The Department alleges this act is in violation of CCR §2695.8(k).
Summary of Company Response: The Company acknowledges this violation and states it did provide a written explanation but it lacked detail. The Company will impress upon its adjusters that they must provide complete explanations of any deduction applied.
