PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION

OF THE CLAIMS PRACTICES OF THE


SURETY COMPANY OF THE PACIFIC
NAIC # 12793 CDI # 1960-4

AS OF AUGUST 1, 2002


STATE OF CALIFORNIA


DEPARTMENT OF INSURANCE

MARKET CONDUCT DIVISION

FIELD CLAIMS BUREAU

TABLE OF CONTENTS

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


SCOPE OF THE EXAMINATION...............................................................2
CLAIMS SAMPLE REVIEWED AND OVERVIEW OF FINDINGS......................3
TABLE OF TOTAL CITATIONS.................................................................4

SUMMARY OF CRITICISMS, INSURER COMPLIANCE ACTIONS


AND TOTAL RECOVERIES...................................................................... 5

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

January 18, 2006

The Honorable John Garamendi

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:

Surety Company of the Pacific
NAIC # 12793

Hereinafter referred to as the Company.

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 Company's during the period July 31, 2001 through August 1, 2002*. The examination was made to discover, in general, if these and other operating procedures of the Company conform with the contractual obligations in the policy forms, to provisions of the California Insurance Code (CIC), the California Code of Regulations (CCR), the California Vehicle Code (CVC) and case law. This report contains only alleged violations of Section 790.03 and Title 10, California Code of Regulations, Section 2695 et al. Any alleged violations of other relevant laws which may result from this examination will be 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 Company for use in California including any documentation maintained by the Company 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 at the offices of Surety Company of the Pacific (SCP) in Encino, 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, however, and 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 July 31, 2001 through August 1, 2002, commonly referred to as the "review period".* The examiners reviewed 177 SCP claims files. The examiners cited 29 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.

*In addition to the claims closed during the one year window period, the examiners reviewed other claims that were filed on the same bond as those in the window period. The aggregate coverage limit under the Contractors License Bond applies to all claims filed against the bond. This affects the claims in the window period as the Surety may have gathered information on surrounding claims that relate to the claim within the window period.

Surety Company of the Pacific
CATEGORY	CLAIMS FOR REVIEW PERIOD	REVIEWED	CITATIONS
Contractors License Bonds	3031	159	29
Payment and Performance Bonds	31	18	0
TOTALS	3062	177	29

TABLE OF TOTAL CITATIONS
Citation	Description	Surety Company of the Pacific
CCR §2695.10(d)	The Company failed to pursue diligently an investigation of a claim, or persisted in seeking unnecessary information not reasonably required for or material to resolution of a claim dispute	16
CIC§790.03(h)(5)	The Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear.	11
CIC§790.03(h)(1)	The Company failed to represent correctly to claimants, pertinent facts or insurance policy provisions relating to a coverage at issue.	2
Total Citations		29

SUMMARY OF CRITICISMS, INSURER

COMPLIANCE ACTIONS AND TOTAL RECOVERIES

1. The Company failed to pursue diligently an investigation of a claim, or persisted in seeking unnecessary information not reasonably required for or material to the resolution of a claim dispute . In 16 instances, the Company failed to pursue diligently an investigation of a claim. The Company failed to investigate claims for damages resulting from a violation of the Contractor's License Law. The Contractor's License Bond is to provide coverage to contracting homeowners and others damaged per Section 7071.5 of the Business and Professions Code. The Company kept requesting more information from claimants while not performing their own investigation of the claim. The Department alleges these acts are in violation of CCR § 2695.10(d).

Summary of Company Response: The Company acknowledges two inadvertent violations of CCR § 2695.10(d). The Company has held training sessions reemphasizing the importance of thoroughly reviewing all documentation received. The Company respectfully disputes the remaining 14 instances cited as violations. The Company believes that the violations stem from subjective interpretations of the facts of the files and that there is a good faith difference of opinion. However, the Company has changed its policies and procedures in response to the CDI's concerns.

This is an unresolved issue and may result in further administrative action.

2. The Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In 11 instances, the Company failed to effectuate prompt, fair and equitable settlement of claims in which liability had become reasonably clear. The Surety had sufficient proof of claim to validate payment on the bond but failed to make payment or notify the principal of their intention to validate the claim. The Department alleges these acts are in violation of CIC §790.03(h) (5).

Summary of Company Response: The Company acknowledges one inadvertent violation of CIC §790.03(h) (5) and has changed it Claims manual and held training sessions in order to ensure future compliance. The Company respectfully disputes that the other ten instances that were cited are violations of the Insurance Code as they were based on subjective interpretations of the facts of the files and §790.03(h)(5) . The Company maintains that their claims handling procedures comply with its contractual obligations, the California Insurance Code, applicable case law and other applicable legal requirements. The Company states that there is a good faith difference of opinion regarding subjective standards for the prompt, fair and equitable settlements of claims which the Department is alleging the Surety Company of the Pacific violated. However, the Company has changed its policies and procedures in response to the CDI's concerns.

This is an unresolved issue and may result in further administrative action.

3. The Company failed to represent correctly to claimants, pertinent facts or insurance policy provisions. In two instances, the Company failed to represent correctly to claimants, pertinent facts or insurance policy provisions relating to coverage at issue. The Department alleges these acts are in violation of CIC §790.03(h) (1).

Summary of Company Response: The Company acknowledges an isolated typographical error in one of the 177 files reviewed but respectfully disagrees that in the other instance there was a misrepresentation of coverage. The Company, in an effort to resolve the CDI's concerns, will change its Claims manual and hold training sessions in accordance with the CDI's opinion on the remaining issues.

This is an unresolved issue and may result in further administrative action.

Last Revised - March 17, 2006
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