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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 467 Coast National Insurance Company claim files. The examiners cited 57 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 examination was $3,882.08. Pursuant to the findings of the examination referenced in item #2 below, the Company also conducted a closed claim survey resulting in additional payments of $191,894.12. The total amount of money returned to claimants/insureds within the scope of this report was $195,776.20.
PERSONAL AUTOMOBILE

1. In 16 instances, the Company failed to effectuate prompt, fair and equitable

settlements of claims in which liability had become reasonably clear.

In three instances, the Company failed to pay claims involving a supplemental repair, a car rental invoice, and replacement of a vehicle convertible top.

In five instances, the Company failed to pay advance charges related to the loss, including but not limited to labor costs, teardown, additional storage charges, and lien fees legally imposed by the tow yard. These unpaid advance charges were deducted from the total loss settlement of the insured, and were discovered in the collision coverage portion of the claim only.

In eight instances, the Company set a claims estimating system threshold to limit physical damage paint and material costs to no more than $350 maximum regardless of the territory or geographical location of the damaged vehicle. The claims cost estimating for paint and materials in these claims do not conform to the policy insuring agreement or to the Insurance Code requirements. The Company is obligated to restore the insured's vehicle to its pre-loss condition and pay the amount necessary to repair with like kind and quality. In these eight instances, a threshold amount was set for paint and materials which did not reflect the actual cost for each specific vehicle repair. From the sample claim files reviewed there was no documentation or proof that the Company negotiated or discussed an agreement with the auto shop or claimant with respect to paint and material charges.

The Department alleges these acts are in violation of CIC § 790.03(h)(5).

Pertinent to five claims referenced above for advance charges, the Company acknowledges it owes these obligations such as teardown, labor costs, storage fees, et al. The Company acknowledges it legally owes these obligations. The Company attributes these instances to adjuster oversight, and addressed them accordingly with the individual claims staff for corrective action and training reinforcement. However, with respect to lien fees, the Company maintains it has no contractual obligation under its collision coverage policy to pay these charges. In support of its position, the Company provided a legal analysis of its policy, with references to California case law.

With regard to the Department's allegation that setting a threshold for paint and materials violates the Insurance Code or that any actual violations of the Insurance Code occurred in the eight instances cited by the Department, the Company respectfully disagrees. The Company states that the body shops or claimants agreed to the cost of the repair and accepted payment for performing the repairs to the vehicle, and the Company never received a request for supplemental payments. Additionally, the Company maintains the Insurance Code does not create any duties with respect to a third party such as the body shop.

The Company states that it employs a "threshold" designed to make it easier for body shops to obtain reimbursement and make the adjustment process more efficient. Specifically, the Company states that it will pay up to $350 for paint and materials without requiring the body shop to supply any supporting documentation for the expense. Post examination, the Company provided the Department with sample copies of repair estimates wherein the Company paid in excess of the $350 threshold on paint and material items. These estimates were prepared and adjusted by the Company's own estimators/appraisers and covered a four-month period from September 2004 - December 2004. The samples provided by the Company did not include documentation of actual direct requests from auto repair shops or claimants for paint and material payment adjustments above the $350 threshold. The Company states that if the paint shop or claimant incurs costs above this amount, they may provide supporting information to the Company and receive additional payment. The Company maintains that shifting the burden to the claimant or repair shop to submit additional documentation for actual cost above the threshold amount does not violate the Insurance Code or Regulations. However, upon further consideration of the Department's position, the Company has ceased applying a paint and materials threshold in its claims estimating system when preparing estimates. The Company provided the Department with a copy of its instructions/directive for reference dated January 5, 2007.

2. In 11 instances, the Company 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. Errors were made in the calculation of total loss fees in these instances. One-time fees and other miscellaneous transfer fees were not included in the total loss settlement. The Department alleges these acts are in violation of CCR §2695.8(b)(1).

Summary of Company Response: The Company acknowledges that it was not able to update its total loss settlement procedures based on the new California regulations effective on October 4, 2004. The Company sent a directive to its claims staff adjusting California claims in their California, Phoenix and Denver offices addressing the changes in the total loss calculation process in compliance with CCR §2695.8(b)(1). A copy of this training memorandum dated August 26, 2005 was provided to the Department. As a result of the specific findings of the examination on total loss settlements, the Company issued additional payments with interest to the insureds totaling $473. 91. Additionally, the Company conducted a closed claim survey of their total loss claims from the effective date of the new California fair claims practices regulations, October 4, 2004 through August 26, 2005, implementation date of new Company procedure. The Company reviewed 6,066 total loss files, and issued additional monies owed to claimants/insureds totaling $191,894.12. The Company submitted a summary of the audit results to the Department on November 28, 2005.

3. In seven instances, the Company failed to maintain all documents, notes and work papers in the claim file. In five of the cases, the Company was unable to produce proof or documentation to support that a copy of the repair estimate and/or valuation report of the total loss vehicle was provided to the insured. In the other two cases, copies of claims letters to the insured/claimant were not on file. The Department alleges these acts are in violation of CCR §2695.3(a).

Summary of Company Response: The Company acknowledges these findings and indicates it is the Company's procedure to provide the insured with a copy of the estimate and/or valuation report upon which the settlement is based. It is also Company policy to have all pertinent claims documents either on file, or electronically stored. These errors were the result of unintentional oversight on the part of the claims staff, and the individuals involved have been made aware of these errors to reinforce compliance.

4. In six instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. Four instances involved the delay in the investigation, determination, and review of the uninsured motorist coverage issues for approval or denial. One claim involved an investigative delay and contact resulting in a gap in significant file activity. The last claim pertained to the Company's failure to move the insured's salvage vehicle thereby incurring storage costs. The Department alleges these acts are in violation of CIC §790.03(h)(3).

5. In two instances, the Company failed to respond to communications within 15 calendar days. The Company failed to respond to inquiry (telephone) calls from insured/claimant. The Department alleges these acts are in violation of CCR §2695.5(b).

6. In two instances, the Company 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 denial letters sent by the Company to the insured did not contain the appropriate referral language to the California Department of Insurance. The Department alleges these acts are in violation of CCR §2695.7(b)(3).

7. In two instances, the Company failed to provide written notice of the need for additional time every 30 calendar days. The Company delayed sending out the appropriate 30-day status letters to the insureds. The Department alleges these acts are in violation of CCR §2695.7(c)(1).

8. In two instances, the Company failed to conduct and diligently pursue a thorough, fair, and objective investigation. The Company failed to contact, address and verify the claimants' property damages/rental invoice for settlement. The Department alleges these acts are in violation of CCR §2695.7(d).

9. In two instances, the Company failed to represent correctly to claimants, pertinent facts or insurance policy provisions relating to a coverage at issue. The Company sent letters to the insured pertinent to policy provisions which do not conform to CCR §2695.8(f)(1,2,3). Specifically, the Company failed to inform the insureds of their rights under the Fair Claims Regulations with regard to the vehicle repairs, shop choices and possible adjustments of estimates. The Department alleges these acts are in violation of CIC §790.03(h)(1).

10. In one instance, the Company failed to share subrogation recoveries on a proportionate basis with the first party Claimant. The Company failed to remit the insured's proportionate deductible share upon receipt of recoveries from the adverse party. The Department alleges this act is in violation of CCR §2695.7(q).


Summary of Company Response: The Company acknowledges this finding and attributes it to adjuster oversight. The Company has addressed this compliance issue with the pertinent claims staff and has also issued the insured's appropriate deductible share during the on-site examination.
11. The Company 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 one instance, the Company failed to document the basis of betterment, depreciation, or salvage. The basis for any adjustment shall be fully explained to the claimant in writing. The Company's valuation report reflected an inspection of three dealer vehicles with a baseline $436 upward adjustment with respect to the insured's vehicle. The Company was unable to produce inspection/appraiser notes to validate how an exact amount of $436 was assessed for each of the comparable vehicles, taking into account the individual and unique conditions of each of these three "inspected" vehicles. It is the responsibility of the Company to ensure all adjustments are duly supported, regardless of the fact that such adjustment may have been done by an independent evaluation service. The Department alleges this act is in violation of CCR §2695.8(k).

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Last Revised - April 10, 2007
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