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The examiners reviewed files drawn from the category of Closed Claims for the period September 1, 2003 through August 31, 2004, commonly referred to as the "review period". The examiners reviewed 558 Farmers Insurance Exchange (FAIE) claim files, 190 Fire Insurance Exchange (FIE) claim files, 167 Mid-Century Insurance Company (MCIC) claim files, 201 Truck Insurance Exchange(TIE) claim files, 4 Civic Property and Casualty Company (CPAC) claim files, 4 Exact Property and Casualty Company (EPAC) claim files, and 8 Neighborhood Spirit Property and Casualty Company (NSPAC) claim files. The examiners cited 211 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.


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. This report contains only alleged violations of Section 790.03 and Title 10, California Code of Regulations, Section 2695 et al. 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. Regardless of the remedial actions taken or proposed by the Companies, it is the Companies' obligation to ensure that compliance is achieved. Money recovered within the scope of this report was $9,033.19. Following the findings of the examination, a closed claim survey conducted by the Companies on owner-retained salvage certificate fees resulted in additional payments of $13,467.69. As a result of the examination, the total amount of money returned to claimants within the scope of this report was $22,500.88.

1. The Companies failed to adopt and implement reasonable standards for the prompt investigation and processing of claims. In 31 instances, the Companies failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. These instances occurred primarily in the personal auto categories. The Examiners identified delays in expediting claims settlement, failure to follow through with supervisory or management instructions and directions, as well as gaps in claim file activities. The Department alleges these acts are in violation of CIC §790.03 (h)(3).

2. Upon acceptance of the claim the Companies failed to tender payment within 30 calendar days. In 20 instances, upon acceptance of the claim the Companies failed to tender payment within 30 calendar days. Fifteen of these cases involved delays in medical payments while the other five were for automobile repair estimates and supplemental repairs. The Department alleges these acts are in violation of CCR §2695.7(h).

3. The Companies failed to respond to communications within 15 calendar days. In 19 instances, the Companies failed to respond to communications within 15 calendar days. Twelve of these cases were inquiries or demand packages from the insured, and/or the insured's attorney. The other seven cases were communications from the claimant and/or the adverse carrier demanding payment or settlement of claims. The Department alleges these acts are in violation of CCR §2695.5(b).

4. The Companies failed to maintain hard copy claim files. In 18 instances, the Companies failed to maintain hard copy files or claim files that are accessible, legible and capable of duplication to hard copy for five years. The Department alleges these acts are in violation of CCR §2695.3(b)(3).

5. The Companies failed to advise the claimant that he or she may have the claim denial reviewed by the California Department of Insurance. In 18 instances, the Companies failed to include a statement in its 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. In 12 of the cases, medical payment claims were fully or partially denied in writing without the appropriate referral language. Another four were homeowner claims and two were other auto claims. The Department alleges these acts are in violation of CCR §2695.7(b)(3).

6. 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 12 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. In eight cases, the salvage certificate fees on owner-retained salvage settlements were not paid. Three total loss claims were not paid the vehicle license fees and transfer fees, while one total loss claim was not paid both the sales tax and the vehicle/transfer fees. The Department alleges these acts are in violation of CCR §2695.8(b)(1).

Additionally, as a result of this examination, the Companies conducted a closed claim survey of the prior 3-year period starting from February 1, 2003 to February 28, 2005. The Companies identified 6,555 total-losses for review, and issued payments on 2,300 claims totaling $13,467.69 for unpaid salvage certificate fees. The Companies has submitted a summary of the audit results to the Department.

7. The Companies failed to explain in writing for the claimant the basis of the fully itemized cost of the comparable automobile. In 12 instances, the Companies failed to explain in writing for the claimant the basis of the fully itemized cost of the comparable automobile. The insured was not provided with a breakdown of how the total settlement amount was computed. The Department alleges these acts are in violation of CCR §2695.8(b)(1).

8. The Companies failed to accept or deny the claim within 40 calendar days. In ten instances, the Companies failed, upon receiving proof of claim, to accept or deny the claim within 40 calendar days. The Companies did not respond, or delayed the liability determination and decision-making on claims or demands from insureds, claimants, or their attorneys. The Department alleges these acts are in violation of CCR §2695.7(b).

9. The Companies failed to provide written notice of the need for additional time every 30 calendar days. In ten instances, the Companies failed to provide written notice of the need for additional time every 30 calendar days. These errors involved personal auto claims in the uninsured motorist and medical payment lines of coverage wherein insureds were not apprised in writing of the current pending status of the claim. The Department alleges these acts are in violation of CCR §2695.7(c)(1).

10. The Companies failed to properly document claim files. In eight instances, the Companies' files failed to contain all documents, notes and work papers. Specifically, the files failed to document the basis of claims handling actions or the files failed to contain pertinent documents. The Department alleges these acts are in violation of CCR §2695.3(a).

11. The Companies failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In eight instances, the Companies failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In five instances, the claimants were not paid for towing and storage charges, had an unsupported reduction in the total loss settlement, and a non-payment of a carrier's subrogation claim. Two instances involved workers compensation claims with delays in total disability payment and various unpaid medical bills. The last case was a delayed uninsured motorist resolution and determination. The Department alleges these acts are in violation of CIC §790.03 (h)(5).

12. The Companies failed to document the determination of value. In eight 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. In five cases, the insured was not provided with the market evaluation and documentation of how the total loss amount was determined. Two cases involved baseline adjustments on total loss vehicles which were made without sufficient information on the unsupported deductions. In the final one case, the salvage bid amount and how it was determined was not on file. The Department alleges these acts are in violation of CCR §2695.8(b)(1)(C).

An internal memorandum dated February 17, 2005 was also sent to claims staff reiterating compliance with this regulation. The Companies also advised the Examiners that baseline adjustment on its actual cash valuation or market surveys are no longer being applied by its vendor on total loss valuations.

13. The Companies failed to supply the claimant with a copy of the estimate upon which the settlement is based. In seven instances, the Companies failed to supply the claimant with a copy of the estimate upon which the settlement is based. The Department alleges these acts are in violation of CCR §2695.8(f).

14. The Companies failed to provide written notice of any statute of limitation 60 days prior to the expiration date. In six instances, the Companies 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 these acts are in violation of CCR §2695.7(f).

15. The Companies failed to provide written basis for the denial of the claim. In four instances, the Companies failed to provide written basis for the denial of the claim. The Department alleges these acts are in violation of CCR §2695.7(b)(1).

16. The Companies 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 four instances, the Companies 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 three cases, explanation of betterment on tires was not provided. In the last case, determination of total loss settlement and computation was not provided to the claimant. The Department alleges these acts are in violation of CCR §2695.8(k).

17. The Companies failed to begin investigation of the claim within 15 calendar days. In three instances, the Companies failed to begin investigation of the claim within 15 calendar days. The Department alleges these acts are in violation of CCR §2695.5(e)(3).

18. The Companies persisted in seeking unnecessary information. In three instances, the Companies persisted in seeking information not reasonably required for or material to the resolution of a claim dispute. Medical bills, records and forms may be contained in two separate claim units for handling by multiple adjusters. These resulted in duplicative requests for documentation already previously received. The Department alleges these acts are in violation of CCR §2695.7(d).

19. The Companies failed to acknowledge notice of claim within 15 calendar days. In two instances, the Companies failed to acknowledge notice of claim within 15 calendar days. The Department alleges these acts are in violation of CCR §2695.5(e)(1).

20. The Companies attempted to settle a claim by making a settlement offer that was unreasonably low. In two instances, the Companies attempted to settle a claim by making a settlement offer that was unreasonably low. The Companies misinterpreted the exclusion clause in its policy and failed to pay appropriately in one instance. In the other case, the Companies received receipt for replacement yet failed to issue payment accordingly. The Department alleges these acts are in violation of CCR §2695.7(g).

21. The Companies failed to comply with the Fair Claims Settlement Practices Regulations. In one instance each, (for a total of four instances), the Companies failed to comply with the following Fair Claims Settlement Regulations: (1) CCR § 2695.4(a) for failure to clearly explain or document explanation of pertinent benefits, coverage and time limits; (2) CCR § 2695.5(e)(2) for failure to provide necessary forms, instructions, and reasonable assistance within 15 days of receipt of claim; (3) CCR§ 2695.8(j) for failure to share appropriate subrogation recovery with the insured; and (4) CCR § 2695.8(k)(1)(2) for failure to support adjustments attributable to the age and condition of the vehicle. The Department alleges these acts are in violation of various fair claims practices regulations.

22. The Companies failed to comply with the California Insurance Code. In one instance each, (for a total of two instances), the Companies failed to comply with the California Insurance Code: (1) CIC§ 790.03(h)(1) for misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverage at issue; and (2) CIC§ 790.03(h)(13) for failure to provide a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or the offer of a compromise settlement. The Department alleges these acts are in violation of the law.

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Last Revised - October 19, 2005
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