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The examiners reviewed files drawn from the category of Closed Claims for the period July 1, 2004, through June 30, 2005, commonly referred to as the "review period". The examiners reviewed 21 CIC claim files, 114 NFICH claim files, 142 TIC claim files, 149 TRIC claim files, 124 VFIC claim files, 1 FCCNY claim file, 497 GFIC claim files, 1BOCIC claim file and 45 CNIC claim files. The examiners cited 105 claim 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 Company is 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 Company, it is the Company's obligation to ensure that compliance is achieved. Money recovered within the scope of this report was $592.27. Pursuant to the findings of the examination referenced in item 4 below, the Companies are conducting a closed claim survey. The results of the survey and additional payments, if any, shall be reported to the Department by July 1, 2006.
COMMERCIAL AUTOMOBILE

1. In six instances, the Companies failed to conduct and pursue a thorough, fair and objective investigation of a claim. In the instances cited, there were gaps noted in the investigation and handling of the claims. The Department alleges these acts are in violation of CCR §2695.7(d).

Summary of Companies' Response: The Companies agree that in six of the citations there were time gaps during the investigation and handling of the claims. However, the Companies respectfully disagree that these gaps demonstrate that it failed to conduct and pursue a thorough investigation of the claim. Nevertheless, in order to mitigate potential gaps, the company has emphasized through education and training the effective use of the diary system to assure timely follow-up. Further, Claim Management has emphasized to claim staff the expectation that any gaps in file activity are properly documented and that status letters are sent when appropriate.

2. In five 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: We have emphasized with claim staff the need to include the contact information for the California Department of Insurance in the event that the claimant would like the claim reviewed, and have re-emphasized the use of form letters that include this information.

3. In three instances, the Companies 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 Companies' Response: The Companies agree with two of the citations, and will continue to educate and train claim staff to focus on the California claim handling guidelines. Claim management has emphasized to the claim staff the expectation that any gaps in file activity are properly documented, and that resolution is timely once all information is received.

With respect to the third citation, the Companies do not believe that the circumstances of this claim constitute evidence of a failure to adopt and implement reasonable standards for the prompt investigation and processing of claims. Specifically, the consistency of file activity demonstrates that the Company actively pursued the processing of this claim. The single occasion in which more than 30 days passed without action reflected in the file followed a request to the insured for additional information, and does not demonstrate a violation of CIC §790.03(h)(3).

4. In three instances, the Companies failed to include, in the settlement, the license fee and other annual fees, computed based upon the remaining term of the registration. In these instances the pro-rata registration and license fees were not included in the claim settlement. The Department alleges these acts are in violation of CCR §2695.8(b)(1).

Summary of Companies' Response: The Companies acknowledge these errors. Payment has been made to the vehicle owner for the pro-rata registration, licensing, and transfer fees that were inadvertently not paid previously.

5. In two 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: We have emphasized through education and training how to use the diary system for timely follow-up, and stressed the need for a specific diary date for 30-day status letters. Claim management has emphasized to the claim staff the expectation that any gaps in file activity are properly documented, and status letters sent timely until all matters are resolved.


6. In two instances, the Companies required the use of non-original equipment manufacture replacement crash parts without warranting that such parts are of like kind, quality, safety, fitness and performance as original manufacturer replacement crash parts. The Department alleges these acts are in violation of CCR §2695.8(g)(3).

Summary of Companies' Response: As a general practice the Company does not require the use of non-OEM parts. However, when non-OEM parts are used the Company will properly disclose their use to include a statement that the non-OEM parts used are to be of like kind, quality, safety, fit and performance as original equipment manufacturer replacement crash parts.

7. The Companies failed to comply with the Fair Claims Regulations Practices. In one instance each, the Company failed to comply with the following Fair Claims Regulations Practices: CCR §2695.8(f)(3), CCR §2695.3(a), CCR §2695.7(b).

Summary of Companies' Response: With respect to 2695.8(f)(3), claim management has emphasized with the claim staff the need to properly document and communicate with the claimant the basis for all depreciation. With respect to 2695.3(a), the Company has implemented a process to review California claims for compliance with California requirements, and the use of a checklist to verify consistent handling of all California claims. With respect to 2695.7(b), claim Management has emphasized with claim staff the need to accept or deny a claim within 40 days.

HOMEOWNERS

8. In five 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: Encompass Insurance acknowledges this finding on behalf of the Company. Each of these instances was the result of the handling by one claim adjuster, who has been counseled and the performance issue addressed. This area will be emphasized with all other adjusters in their next training session.


9. 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: Encompass Insurance acknowledges this finding on behalf of the Company. Each of these instances was the result of the handling by one claim adjuster, who has been counseled and the performance issue addressed. This area will be emphasized with all other adjusters in their next training session.

10. The Companies failed to comply with the Fair Claims Regulations Practices. In one instance each, the Companies failed to comply with the following Fair Claims Regulations Practices: CCR §2695.7(f), CCR §2695.7(d), CCR §2695.3(a), CCR §2695.7(b), CCR §2695.7(h), CCR §2695.4(a).

Summary of Companies' Response: Encompass Insurance acknowledges these findings on behalf of the Companies. All but one of these instances was the result of the handling by one claim adjuster, who has been counseled and the performance issue addressed. The other adjuster has been counseled, as well. This area will be emphasized with all other adjusters in their next training session.

WORKERS COMPENSATION


11. In five instances, the Companies failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. In four of the instances cited there was a failure to send the required benefit notices timely. In the one remaining instance there was a failure to pay or object to medical bills within 60 days of receipt of the bills. The Department alleges these acts are in violation of CIC §790.03(h)(3).

Summary of Companies' Response: The Companies agree that the isolated instances cited above were related to timeliness under CIC §790.03(h)(3). The Companies have re-emphasized with all its California Workers' Compensation Claims Specialists the importance of complying with relevant timeliness requirements. This acknowledgement of the above findings does not in any way constitute a waiver of the Company's right to challenge the applicability of CIC §790.03(h)(3) to workers' compensation claims and workers' compensation insurance.


12. In three instances, the Companies failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In the three instances cited the Companies failed to calculate and pay benefits in a timely manner. The Department alleges these acts are in violation of CIC §790.03(h)(5).

Summary of Companies' Response: The Companies agree that the isolated instances cited above were related to the timely payment of benefits. The Companies will reevaluate the claims cited to determine if interest is due under the applicable workers' compensation laws. The Companies have re-emphasized with all its California Workers' Compensation Claims Specialists the importance of complying with relevant timeliness requirements. This acknowledgement of the above findings does not in any way constitute a waiver of the Companies' right to challenge the applicability of CIC §790.03(h)(5) to workers' compensation claims and workers' compensation insurance.


COMMERCIAL MULTIPLE PERIL
13. In nine 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: We have emphasized with claim staff the need to include the contact information for the California Department of Insurance in the event that the claimant would like the claim reviewed, and have re-emphasized the use of form letters that include this information.

14. In five 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: Claim management has emphasized to the claim staff the expectation that any gaps in file activity are properly documented, and status letters sent timely until all matters are resolved.


15. In five instances, the Companies failed to conduct and pursue a thorough, fair and objective investigation of a claim. In the instances cited, there were gaps noted in the investigation and handling of the claims. The Department alleges these acts are in violation of CCR §2695.7(d).

Summary of Companies' Response: We have emphasized through education and training how to use the diary system for timelier follow-up. Claim management has emphasized with the claim staff the expectation that any gaps in file activity are properly documented, and status letters sent timely until all matters are resolved.

16. In five instances, the Companies failed to maintain all documents, notes and work papers in the claim file. In three of the instances cited, adjuster log notes and/or correspondence was missing from the claim files. In the remaining two instances, depreciation was applied to the claim settlement but there was no documentation in the file to support the depreciation reduction. The depreciation that was taken in these instances was reasonable however it was not documented in the claim file how the depreciation that was taken was arrived at. The Department alleges these acts are in violation of CCR §2695.3(a).

Summary of Companies' Response: There has been a recent change to the computer systems so that copies of all letters and correspondence generated by the claim staff are now electronically attached to the claim file. In addition, claim management has emphasized with claim staff the need to properly document and communicate the basis for all depreciation.

17. In three instances, the Companies failed to provide necessary forms, instructions, and reasonable assistance within 15 calendar days. The Department alleges these acts are in violation of CCR §2695.5(e)(2).

Summary of Companies' Response: Our new claim system generates a diary activity for contact of all parties and acknowledgment letters. If these activities are not done timely, the activity triggers an escalation to the claim manager.

18. In three 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: When denying a first party claim, we have emphasized with claim staff the need to provide the denial in writing, including all bases for the denial, and any applicable policy exclusions or provisions. When denying a third party claim, we have emphasized with claim staff the need to do so in writing.

19. In two 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: Claim management has emphasized with the claim staff the need to accept or deny a claim within 40 days.

20. In one instance, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In the instance cited material sales tax was not included in the claim settlement. The Department alleges this act is in violation of CIC §790.03(h)(5).

Summary of Company Response: Claim management has emphasized with claim staff the need to include material sales tax on estimates, including those submitted by independent adjusters. In the case cited, the applicable refund has been made.

21. The Companies failed to comply with the Fair Claims Regulations Practices. In one instance each, the Companies failed to comply with the following Fair Claims Regulations Practices: CCR §2695.7(h), CCR §2695.5(b), CCR §2695.5(e)(1).

Summary of Companies' Response: With respect to 2695.7(h), claim management has emphasized with the claim staff the need to pay claims within 30 days upon acceptance of the claim. With respect to 2695.5(b), claim management has emphasized to the claim staff the expectation that any gaps in file activity are properly documented and status letters sent timely until all matters are resolved. With respect to 2695.5(e)(1), our new claim system generates a diary activity for contact of all parties and acknowledgment letters. If these activities are not done timely, the activity triggers an escalation to the claim manager.

PERSONAL AUTO

22. In six 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: Encompass Insurance acknowledges these violations on behalf of the Companies. One involved the use of a form that might be misperceived as a denial. While it is not a denial, to address the Department's concerns Encompass Insurance will discontinue the use of this form. Encompass Insurance has counseled the individual file adjusters regarding the use of the proper state-specific denial form letter and the requirement as set forth above. Encompass Insurance has also re-communicated this requirement to all claim adjusters.

23. In three 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: Encompass Insurance practice is for the estimate of repairs to be provided to the claimant by the repair shop or adjuster at the time the vehicle is inspected. On these three instances, file documentation did not support that this practice had been complied with. Encompass Insurance has re-communicated this requirement to its claim adjusters.

24. In two instances, the Companies failed, upon receiving proof of claim, to accept or deny the claim within 40 calendar days. In one instance the claim was not paid until 109 days after the proof of claim was received. In the second instance the claim was not paid until 90 days after the proof of claim was received. The Department alleges these acts are in violation of CCR §2695.7(b).

Summary of Companies' Response: Encompass Insurance acknowledges these findings on behalf of the Companies. Encompass Insurance has counseled the individual file handlers and re-communicated the requirement to its claim adjusters.

25. In two instances, the Companies failed to conduct and pursue a thorough, fair and objective investigation of a claim. The Department alleges these acts are in violation of CCR §2695.7(d).

Summary of Companies' Response: Encompass Insurance acknowledges these findings on behalf of the Companies. Encompass Insurance has counseled one of the two file handlers; the other is no longer employed by Encompass Insurance. This area will be emphasized in their next training session.

26. In two instances, the Companies failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. In one instance there was a three month gap in the handling of the claim. In the second instance the liability decision was made based on the police report only. The Department alleges these acts are in violation of CIC §790.03(h)(3).

Summary of Companies' Response: Encompass Insurance acknowledges these findings on behalf of the Companies with respect to delays in handling on these two isolated instances. Encompass Insurance does have standards and they are communicated in new adjuster training. They have counseled one of the claim handlers; the other is no longer employed by them. The two instances cited do not reflect their practice - one occurred in 2002. The standards will be re-reviewed with all claim handlers in their next training session.

27. In two 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: Encompass Insurance acknowledges these findings on behalf of the Companies. They have counseled their individual file handlers, and re-communicated this requirement to all their claim handlers.

28. In two 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: Encompass Insurance acknowledges these findings on behalf of the Companies. They have counseled their individual file handlers, and re-communicated this requirement to all their claim handlers.

29. In one instance, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In the instance cited DMV fees were not included in the total loss settlement. The Department alleges this act is a violation of CIC §790.03(h)(5).

Summary of Company Response: Encompass Insurance has issued a supplemental payment in the amount of $52.50 to the policyholder. They will emphasize this requirement in their next training session.

30. The Companies failed to comply with the Fair Claims Regulations Practices. In one instance each, the Companies failed to comply with the following Fair Claims Regulations Practices: CCR §2695.8(b)(1), CCR §2695.5(d), CCR §2695.3(a), CCR §2695.5(e)(2).

Summary of Companies' Response: Encompass Insurance acknowledges these findings on behalf of the Companies. With respect to these individual citations:

CCR §2695.8(b)(1) - It was determined that an additional $15 (DMV transfer fee) was owed to one of their policyholders, and a supplemental check has been issued. This subject has been re-communicated to their claim handlers involved in the settlement of total losses.

CCR §2695.5(d) - In one instance, an independent agent delayed submitting notice of claim to the Company. All agents marketing the Encompass Insurance products have been trained to promptly notify the Company of any claim. This appears to be an isolated incident.

CCR §2695.3(a) - The claim handler, who is no longer with Encompass Insurance, failed to maintain all proper documentation in the claim file. This was an isolated instance, but the requirement will be re-communicated in their next training session.

CCR §2695.5(e)(2) - The claim handler failed to advise the insured of the need to file a police report. Encompass Insurance has counseled their claim handler regarding this requirement. They will also re-communicate this requirement in their next training session.

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Last Revised - June 30, 2006
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