PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION
OF THE CLAIMS PRACTICES OF THE
TABLE OF CONTENTS
March 3, 2006
The Honorable John Garamendi
Insurance Commissioner
State of California
45 Fremont Street
San Francisco, California 94105
Hereinafter referred to as HMPIC, HMIC, HMLIC, the Company, 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 May 1, 2004 through April 30, 2005, commonly referred to as the "review period". The examiners reviewed 287 Horace Mann Insurance Company claim files, 218 Horace Mann Property & Casualty Insurance Company claim files, and 38 Horace Mann Life Insurance Company claim files. The examiners cited 151 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.
Horace Mann Life Insurance Company (HMLIC) | |||
CATEGORY |
CLAIMS FOR REVIEW PERIOD |
REVIEWED |
CITATIONS |
Individual Life |
49 |
22 |
0 |
Annuities |
12 |
8 |
0 |
Group Disability |
10 |
8 |
2 |
TOTALS |
71 |
38 |
2 |
2. The Companies failed to adopt and implement reasonable standards for the prompt investigation and processing of claims. In 22 instances, the Companies failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. There were delays in expediting claims settlement, failure to set up an appropriate claim diary system, as well as gaps in claim file activities. The Company's external communication system also failed to reflect the transmittal date on their letters to various recipients, including those communications with time-bar or response requirements. The Department alleges these acts are in violation of CIC §790.03 (h)(3).
Summary of Companies' Response: "The Companies have reasonable standards for the prompt investigation and processing of claims, and attribute these findings to human errors. These issues have been brought to the attention of the claims management, who in turn will address them with the responsible claims personnel. The Companies will reemphasize this requirement with all claims staff, and conduct regular supervisory audits to be in compliance with CIC §790.03(h)(3). It is also the Companies' practice to record the date the Companies receive all documents by date-stamping all incoming documents. Training of claim staff was completed September 20-22, 2005 to reinforce these requirements; support staff who are responsible for date-stamping incoming mail were included in the training roster. The Companies have made appropriate revisions to print that stored date on the external communications".
3. 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 18 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 vehicle license fees and other transfer/miscellaneous fees were not consistently paid. The Department alleges these acts are in violation of CCR §2695.8(b)(1).
Summary of Companies' Response: The Companies state that it is their procedure to include in the settlement, all taxes, license fees and other fees incident to transfer of evidence of ownership of the comparable automobile as required by CCR §2695.8(b)(1). This requirement was reemphasized during training conducted September 20-22, 2005. The Companies have completed a self-survey involving automobile total loss claims for the period July 1, 2002- June 30, 2005. The total number of claim files identified for the review was 1,094, of these files, 727 had incorrect fee calculations or had missing vehicle registration fee reports. Appropriate reimbursement checks with explanation letters were sent to insureds totaling $51,882.87. The Companies have also contracted with the California Department of Motor Vehicles (DMV) to obtain computerized vehicle registrations (CVRs) to automate their process and ensure compliance.
4. The Companies failed to explain in writing for the claimant the basis of the fully itemized cost of the comparable automobile. In 16 instances, the Companies failed to explain in writing for the claimant the basis of the fully itemized cost of the comparable automobile. Although the Companies' claim files contained copies of the valuation reports, the adjusters did not follow through with company procedures and no valuation reports or breakdown of settlement letters were provided to the insured. The Department alleges these acts are in violation of CCR §2695.8(b)(1).
Summary of Companies' Response: "It is the Companies' procedure to provide a cash settlement offer in writing to the claimant. This offer is self-explanatory, itemized, and includes a breakdown of the total loss settlement. It includes Actual Cash Value that is based on an evaluation from a computerized automobile valuation service. The company is provided an evaluation report from our vendor showing comparable autos in the claimant's geographical area. A copy of this evaluation report is available on the vendor's software. It is the Companies' position that this procedure is in compliance with CCR §2695.8(b)(1). This requirement was reinforced during claims training conducted September 20-22, 2005."
5. The Companies failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In 12 instances, the Companies failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. Six cases involved non-payment or delayed payment of the collision deductible waiver when the Uninsured Motorist Property Damage exposure has been confirmed. The other six instances involved non-payment of sales taxes on personal property claims. The Department alleges these acts are in violation of CIC §790.03 (h)(5).
Summary of Companies' Response: "It is the Companies' procedure to reimburse the insured for the Collision deductible when it is determined that UMPD exposure has been confirmed. It is also the Companies' procedure to include sales taxes on personal property claims. The Companies attribute these findings to human error. The Companies will reemphasize this requirement with all claims staff, and conduct regular supervisory audits to be in compliance with CIC §790.03(h)(5). In addition, training was conducted with claims staff September 20-22, 2005 to reinforce this requirement.
As a result of this examination, the Companies also completed a self-survey of its claims with UMPD exposures. This review covered the period July 1, 2002- June 30, 2005. A total of 166 files were identified and reviewed. There were two claims where the appropriate collision deductibles had not been returned to the insureds. Reimbursement checks totaling $500.00 were issued with explanation letters to the insureds."
6. The Companies failed to properly document claim files. In nine instances, the Companies' files failed to contain all documents, notes and work papers. The Department alleges these acts are in violation of CCR §2695.3(a).
Summary of Companies' Response: "It is the Companies' procedure to maintain all documents, notes and work papers in the claim files. However, the Companies acknowledge that in some instances, the files were not documented in compliance with the Companies' standards and procedures. We attribute these to human error and will reemphasize this requirement with all claims staff, and conduct regular supervisory audits to be in compliance with CCR§2695.3(a). Claims training was conducted September 20-22, 2005, to reinforce this requirement."
7. The Companies failed to accept or deny the claim within 40 calendar days. In eight 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 acceptance or denial of third party subrogation claims and bodily injury claims/demands. The Department alleges these acts are in violation of CCR §2695.7(b).
Summary of Companies' Response: "It is the Companies' practice to acknowledge the acceptance or denial of a claim, in whole or in part, no more than forty (40) calendar days after receiving proof of claim. These findings do not reflect the Companies' practice, and attribute them to human error. The Companies will reemphasize this requirement with all claims staff, and conduct regular supervisory audits to be in compliance with CCR §2695.7(b). Claims training was conducted September 20-22,2005 to reinforce this requirement."
8. The Companies failed to advise the claimant that he or she may have the claim denial reviewed by the California Department of Insurance. In eight 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. The Department alleges these acts are in violation of CCR §2695.7(b)(3).
Summary of Companies' Response: "The Companies acknowledge that the form letters used for denials did not contain the required language. The Companies have updated their regular denial letters and explanations of benefits (EOB) to include the mandatory denial language. In addition, claims training was conducted September 20-22, 2005 to reinforce this requirement."
9. The Companies failed to provide written basis for the denial of the claim. In seven instances, the Companies failed to provide written basis for the denial of the claim. This pertains to claims with disputed damages or reduced payments on medical invoices, personal property claims, or claims with no legal basis specified for the denial. The Companies were unable to provide proof of any attempt to contact medical providers to negotiate or resolve differences in reduced or unpaid invoices. It is also the Companies' contention that that they will work with medical providers with regard to reduced payment on medical charges or invoices. However, there were no documented cases that the Company negotiated these reductions, or explained the basis in an appropriate denial letter. The Department alleges these acts are in violation of CCR §2695.7(b)(1).
Summary of Companies' Response: The Companies state that it is their procedure to provide the claimant a statement listing all bases for denying or rejecting a first party claim, in whole or in part. In four instances, the Companies sent letters indicating the medical charges may be reduced, and that the Companies will work with the providers to resolve any differences. However, in three instances, the Companies agree they did not clearly explain the denial to the insureds. The Companies attribute these acts of noncompliance to human errors. The Companies reemphasized this requirement with all claims staff in its training conducted September 20-22, 2005, and will conduct regular supervisory audits to be in compliance with CCR §2695.7(b)(1)."
10. The Companies failed to provide written notice of the need for additional time every 30 calendar days. In six instances, the Companies failed to provide written notice of the need for additional time every 30 calendar days. There were five cases in homeowner/property claims which were delayed for processing/settlement yet no status updates were sent to the insured. One claim involved failure to update a claimant on the status of his bodily injury claim. The Department alleges these acts are in violation of CCR §2695.7(c)(1).
Summary of Companies' Response: "It is the Companies' procedure to provide written notice of the need for additional time every 30 calendar days. The Companies acknowledge these findings and attribute them to human errors. The Companies brought this matter to the attention of the responsible claims personnel to emphasize compliance to CCR §2695.7(c)(1). The Companies reemphasized this requirement with all claims staff in their claims training conducted September 20-22, 2005 which included claims regulatory training and a supervisory audit."
11. The Companies failed to conduct and diligently pursue a thorough, fair and objective investigation, and shall not persist in seeking information not reasonably required for or material to the resolution of a claim dispute. In four instances, the Companies failed to conduct and diligently pursue a thorough, fair and objective investigation, and persisted in seeking information not reasonably required for, or material to the resolution of a claim dispute. The Companies requested duplicative documentation, failed to secure the appropriate investigative reports, and closed the claim without any diligent effort to settle claim. In particular, one disability claim was terminated for payment after the Company's repeated requests to an insured to submit duplicative claim forms. The Company made no attempt to contact the insured or her physician directly for proper investigation. The named insured has been a paraplegic for more than 30 years (since 1974) and has been wheelchair-bound since then, with no anticipated change in medical condition. The insured sent claim forms to the Company on 6/15/04, 8/5/04, and 9/15/04. The Department alleges these acts are in violation of CCR §2695.7(d).
Summary of Companies' Response: "It is the Companies' practice to conduct and diligently pursue a thorough, fair and objective investigation, and seeking information that is reasonably required for the resolution of a claim. The Department's three findings are an exception and are not indicative of the Companies' practices. Additional claims training to reinforce California regulations and compliance was conducted on September 20-22, 2005.
With regard to one disability claim cited, the Companies disagree with the department's conclusions that the Companies requested duplicative information, failed to secure the appropriate investigative reports, and closed the claim without any diligent effort to settle the claim. In this case the Companies requested information to verify continued disability, and ample time was provided to respond to each regular request for information. Three requests were made before benefits were terminated, and upon subsequent receipt of the information, benefits were reinstated retroactive to the termination date. As a result of this examination, the claim has been transferred to a unit specializing in stable and mature claims situations, and less-frequent reviews will be requested."
12. The Company failed to respond to communications within 15 calendar days. In three instances, the Company failed to respond to communications within 15 calendar days. These cases pertain to correspondence from the insured and the insured's attorney. The Department alleges these acts are in violation of CCR §2695.5(b).
Summary of Company's Response: "It is the Companies' practice to respond to communications within 15 calendar days. The Department's findings are an exception and are not indicative of the Companies' practices. Additional claims training to reinforce California regulations and compliance was conducted September 20-22, 2005."
13. The Company failed to provide written notice of any statute of limitation 60 days prior to the expiration date. In two instances, the 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. These cases involved bodily injury claims of non-represented claimants (or with no legal representation). The Department alleges these acts are in violation of CCR §2695.7(f).
Summary of Company's Response: "It is the Companies' practice 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's findings are an exception and are not indicative of the Companies' practices. Additional claims training to reinforce California regulations and compliance was conducted September 20-22, 2005."
14. The Companies failed to comply with the Fair Claims Settlement Practices Regulations. In one instance each, (for a total of three instances), the Companies failed to comply with the following Fair Claims Settlement Regulations: (1) CCR § 2695.5(e)(1) for failure to acknowledge notice of claim within 15 calendar days; (2) CCR§ 2695.5(e)(3) for failure to begin investigation of the claim within 15 calendar days; and (3) CCR § 2695.8(k) for failure to document the basis of betterment, depreciation, or salvage. The Department alleges these acts are in violation of various fair claims practices regulations.
Summary of Companies' Response: "It is the Companies' practice to acknowledge notice of claim within 15 calendar days; begin investigation of the claim within 15 calendar days; and document the basis of betterment, depreciation, or salvage, fully explaining the basis for any adjustment to the claimant in writing. Training to reinforce these requirements was conducted September 20-22, 2005."
