PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION
OF THE CLAIMS PRACTICES OF THE
July 13, 2005
The Honorable John Garamendi
Insurance Commissioner
State of California
45 Fremont Street
San Francisco, California 94105
Hereinafter referred to 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 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.
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).
Summary of Companies' Response: The Companies acknowledge these findings and attribute the majority of these acts to adjuster error. The Companies maintain procedures are in place to comply with the California Insurance Code. The Companies advised that performance issues with pertinent examiners will be addressed through progressive discipline. Supervisors will also run queries on all open files by conducting weekly activity reviews to ensure standards for prompt investigation and processing of claims are maintained.
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).
Summary of Companies' Response: The Companies acknowledge these findings and state that most of the errors occurred during a transition period when the Companies' entire California Medical Operation was transferred and centralized to their Salt Lake Medical Office in October 2003. Medical payment claims were centralized for specialized handling and processing. This phase resulted in operational unforeseen delays. The Companies informed the Department this particular operation is now running on normal efficiencies. The Companies addressed the other non-medical payment delays with their staff through continuing training and reminders of compliance requirements.
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).
Summary of Companies' Response: The Companies acknowledge these findings indicating some of the adjusters handling the claims are no longer with the company. The Companies further state that performance issues with pertinent examiners will be addressed through progressive discipline.
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).
Summary of Companies' Response: The Companies acknowledge they were unable to locate or find the pertinent hard copy files that were previously stored at an offsite storage facility. The Companies advise they have a new computerized system of "paperless files" for majority of their claims. This new system is expected to eliminate problems of claims retrieval and accessibility, in compliance with 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).
Summary of Companies' Response: The Companies acknowledge these citations advising corrective action has already been undertaken. The Explanation of Benefits (EOB) form for medical payment claims, handled by their third party medical reviewer, was revised to include the required denial language. Furthermore, the Companies now include the denial language in their settlement cover letters, a sample of which has been provided to the Department. In the six other non-medical claims of non-compliance, the Companies have procedures in place to utilize form letters containing the required denial language. As a result of this examination, adjusters were reminded to utilize the appropriate forms.
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).
Summary of Companies' Response: The Companies acknowledge these errors and indicate it is their company procedure to pay all appropriate sales taxes, vehicle license fees and transfer fees on total loss claims. In these instances, the Companies have a computerized system which breaks down the total loss settlement sheet. The Companies centralized processing of the majority of total loss claims in their Oklahoma office. To ensure compliance, the Companies have updated their California procedures to more clearly indicate the salvage certificate fees owed on owner-retained salvage. Furthermore, effective immediately, total losses with owner-retained salvage will no longer be handled by their Oklahoma facility but will be settled on a per claim basis in their California field offices. The Companies have reinforced these procedures with claims personnel through office meetings, case reviews and one-on-one training. An internal memorandum dated February 17, 2005 was also sent to claims staff reiterating compliance with this regulation. The Companies believe this will allow for better expediency and monitoring of the overall total loss settlement process.
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).
Summary of Companies' Response: The Companies acknowledge that the adjusters failed to explain in writing for the claimant the basis of the fully itemized cost of the comparable automobile pursuant to their procedural requirements. As a result of this examination, the Companies sent the required total loss settlement letters to the 12 insureds with a copy of the market evaluation. Additionally, the Companies will address these findings in ongoing training with its claims personnel.
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).
Summary of Companies' Response: The Companies acknowledge these findings and indicate these are adjuster errors. The Companies state progressive discipline will be used to improve performance of its claims staff. Furthermore, Supervisors will review and audit files on a regular basis to ensure timely acceptance or denial upon receipt of proof of claim.
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).
Summary of Companies' Response: The Companies acknowledge these citations and will emphasize procedures with its staff to send timely status or extension letters to insureds and/or claimants when applicable. To improve efficiency, the Companies assigned one claims staff to handle follow-ups on delayed police reports, particularly on the uninsured motorist lines of coverage.
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).
Summary of Companies' Response: The Companies acknowledge these errors and will follow-up training with its claims staff on file documentation to support claims processes and decision-making. The Companies will emphasize the importance of maintaining all file documentation and communications.
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).
Summary of Companies' Response: The Companies acknowledge these errors. As a result of this examination, payments were issued to claimants resulting in monetary recoveries identified in this report. The Companies further indicated that training is on-going with its staff and that individual adjuster errors will be addressed as necessary through progressive discipline.
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).
Summary of Companies' Response: The Companies acknowledge these errors. In the claims identified in the examination, insureds were provided with appropriate market evaluations. Additionally, the Companies will address the examination findings with their staff through continuing training and reminders of compliance requirements.
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).
Summary of Companies' Response: The Companies acknowledge these errors indicating adjuster oversight. The Companies will address this matter with its claims staff in their ongoing regular training sessions.
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).
Summary of Companies' Response: The Companies acknowledge these errors attributing them to adjuster oversight. The Companies will discuss performance issues with pertinent claims staff in one-on-one training.
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).
Summary of Companies' Response: The Companies acknowledge these errors indicating performance issues with its claims personnel. The Companies will emphasize adherence to said regulation when they conduct additional training and update procedures with its staff.
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).
Summary of Companies' Response: The Companies acknowledge these errors and will continue to follow up on training and performance issues with claims staff to be in compliance with this regulation.
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).
Summary of Companies' Response: The Companies acknowledge these errors and indicate that performance issues with its staff will be addressed. Supervisors will also run queries on all open files for timely contact, handling, and monitoring.
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).
Summary of Companies' Response: The Companies acknowledge these findings indicating current procedures do not allow claims staff to look into the other claim unit's documentation, or share information without approval or release from the insured or claimant. This situation arises particularly in the handling of uninsured motorist bodily injury and medical payments which are handled by separate adjusters in separate units. As a result of this examination, the Companies will review its claims processes and procedures to ensure future compliance with 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).
Summary of Companies' Response: The Companies acknowledge these findings and attribute them to adjuster error. Progressive discipline with its staff will be used to improve performance.
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).
Summary of Companies' Response: The Companies acknowledge these errors and indicate adjuster oversight. As a result of the examination, payments were issued to claimants resulting in monetary recoveries identified in this report. The Companies will address adjuster performance issues as necessary through progressive discipline.
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.
Summary of Companies' Response: The Companies acknowledge these errors and indicate they are isolated instances of non-compliance due to examiner oversight. The Companies will provide ongoing instructions and training to its staff to discuss these findings and reiterate compliance to the fair claims settlement 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.
Summary of Companies' Response: The Companies acknowledge these errors and indicate they are isolated instances of non-compliance due to examiner oversight. The Companies will provide ongoing instructions and training to its staff to discuss these findings and reiterate compliance to the code.
