Previous Page

The examiners initially reviewed files drawn from the category of Closed Claims for the period March 1, 2005 through February 28, 2006, commonly referred to as the "review period". The examiners reviewed 185 HLACIC claim files, 19 HLANIC claim files, 42 HLIC claim files and 14 HLGIC claim files. The examiners cited 34 claim handling violations of the Fair Claims Settlement Practices Regulations and/or California Insurance Code Section 790.03 within the scope of this report. In addition, the targeted review involved claims drawn from a run of Closed Claims for the period January 1, 1999 through December 31, 2002. The examiners reviewed 52 HLACIC Sonoma County Service Employees International Union Local 707 Long Term Disability claim files. As a result of the targeted review, the examiners cited 12 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.


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 Companies, it is the Companies' obligation to ensure that compliance is achieved. Money recovered within the scope of this report was $12,835.72.
A. SUMMARY OF FINDINGS FROM THE INITIAL REVIEW SAMPLE
ACCIDENT AND DISABILITY
1. In 21 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: It is the Companies' procedure to include a statement in its claim denial letters regarding the right of the claimant to have the matter reviewed by the California Department of Insurance. The Companies acknowledge that the instances cited were the result of unintentional oversight. The Companies will address the error through training and quality improvement initiatives to help to ensure compliance with this regulation.

2. In four instances, the Companies failed to conduct and pursue a thorough, fair and objective investigation of a claim. In three instances, the Companies did not verify the disabled person's return to work date or disability period prior to discontinuing benefits. In the first instance, the Companies paid disability through the established standard benefit period and advised the claimant that an Attending Physician Statement or phone call from the Attending Physician would be required to extend benefits through the physician's previously estimated disability date which ended 13 days later. However, no attempt to contact the Attending Physician was made nor was a Statement form provided in order for the Attending Physician to document the need for additional time. In the second instance, the Companies paid disability through the standard disability benefit period based on additional medical information, but did not provide benefits through the projected return to work date, 14 days later, as suggested by the Attending Physician. There was no attempt to verify the actual return to work date in this case. In the third instance, the Companies paid the claim according to their established medical guidelines and stated in the Explanation of Benefits that the claimant must have her physician contact the Companies to provide complications, symptoms, limitations and treatment plan to extend the disability period. No Statement form was sent to the Attending Physician nor was any other contact made by the Companies to establish if there were restrictions and limitations which would prevent the claimant from performing the essential duties of his/her occupation beyond the standard disability period. Disability in this case was paid 21 days short of the expected return to work date according to the Attending Physician's Statement.

Summary of Companies' Response: It is the Companies' procedure to pursue a thorough, fair and objective investigation of every claim received.

The Companies state that they have developed internal guidelines for establishing disability benefit periods, based upon claims experience, industry resources and clinical expertise. The Attending Physician may provide an estimated end date for the benefit period in his evaluation of the claimant; however, it is the Companies' position that, unless the claimant submits medical information demonstrating a work restriction or limitation, the policy definition of disability has not been met outside of the established benefit period. The Explanation of Benefits attached to the final benefit check contains a narrative message, instructing the claimant to notify the Company of any change to the actual return to work date so that benefits may be adjusted, if appropriate. If no such additional information is received, benefits are paid through the established benefit end date, regardless of whether the claimant returns to work.

The Companies note that, with regard to one of the first three instances cited, the benefit period was extended based on additional information submitted by the attending physician. In another, the claims examiner discussed the duration guidelines with the attending physician during the claim intake process, at which time the attending physician indicated that the claimant would be re-evaluated for return to work prior to the expiration of the benefit period established by the Companies. In the last of these three instances, which involved a claim for disability benefits due to pregnancy, the Companies paid benefits for the standard period of six weeks post-partum, as the Companies were not advised of any medical complications necessitating a longer benefit period.

The Companies acknowledge that the fourth instance cited was the result of unintentional oversight. The Companies will address the error through training and quality improvement initiatives to help to ensure compliance with this regulation.

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

3. In four instances, the Company failed to acknowledge notice of claim within 15 calendar days. It is the position of the Department that ERISA does not pre-empt all state laws which regulate insurance, and the timeframe established by the regulation does apply in these instances. The Department alleges these acts are in violation of CCR §2695.5(e)(1).

Summary of Companies' Response: The Companies acknowledge that the four claims cited failed to acknowledge notice of claim within 15 calendar days. The claims at issue arose pursuant to policies, which were governed by ERISA, and the Companies believe that ERISA preempts the acknowledgment timeframe prescribed by CCR §2695.5(e)(1). However, the Companies' internal policies and procedures currently require that all claims be acknowledged within fifteen (15) days of receipt. The Companies will address these issues through training and quality improvement initiatives to help to ensure compliance with the Companies' policies and procedures.

4. In two instances, the Companies failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. In both instances, the Companies denied benefits due to incorrectly determining that the claimants did not meet the policy definition of Total Disability. In the first instance, involving an HLACIC claim for Short Term disability, the Companies failed to reconsider a claim based upon additional medical records provided to the Companies which supported total disability. In the second instance, involving an HLACIC claim for Long Term Disability, the Companies denied continuance of the benefits based on other occupations chosen by the Companies in the employability analysis that were clearly outside of the claimant's ability to perform. The Department alleges these acts are in violation of CIC §790.03(h)(5).

Summary of Companies' Response: It is the Companies' procedure to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. The Companies admit that benefits were denied incorrectly, and as a result of the examination, the Companies reversed their decision to deny in each case. The claims initially denied were reopened, and disability payments issued. The Companies will address these issues through training and quality improvement initiatives to help to ensure compliance with this statute.


5. In two instances, the Companies failed to properly document claim files. In one instance Companies did not retain the death certificate as proof for the claim and in the other instance the Companies did not record adequate file notes or explanations for their decision making. The Department alleges these acts are in violation of CCR §2695.3(a).

6. In one instance, the Companies failed to provide the written basis for the denial of the claim. The Department alleges this act is in violation of CCR §2695.7(b)(1).


LIFE INSURANCE


B. SUMMARY OF FINDINGS FROM THE TARGET REVIEW SAMPLE
ACCIDENT AND DISABILITY

1. In nine instances, the Company failed to represent correctly to claimants, pertinent facts or insurance policy provisions relating to a coverage at issue. In six instances, the Companies incorrectly cited the ERISA (Employee Retirement Income Security Act) provision for a right to appeal on a non-ERISA policy. This may lead to confusion on the part of the claimant or their representative regarding their right to appeal on a disputed claim. In three instances, the denial letter incorrectly defined disability as stated in the policy. Regarding the first six (6) instances cited, the standard ERISA language contained in the denial letters states:

"If you do not have additional information, but you disagree with our denial decision, the Employee Retirement Security Act of 1974 ("ERISA") provides you with the right to appeal our decision and review pertinent documents in your claim file. If you do not agree with the reason why your claim was denied in whole or in part, and you wish to appeal our decision, you must write to us within sixty (60) days of the date of this letter. Your letter, which must be signed and dated by you or your legal representative, should clearly outline your position and any issues or comments you have in connection with your claim and our decision to deny your request for benefits under the Policy."

The standard non-ERISA language contained in the denial letters states:

"If you do not have additional information, but you disagree with our denial decision, you have the right to appeal our decision. To submit an appeal, write to us within one hundred eighty (180) days from your receipt of this letter. Your letter, which must be signed and dated by you or your legal representative, should clearly outline your position and any issues or comments you have in connection with your claim and our decision to deny your request for benefits under the Policy."

It should be noted that policies governed by ERISA have certain restrictions, including the requirement to appeal once to the Insurance Company before being allowed to file an action in court. The appeal must be in writing and be received by the Insurance Company no later than the expiration of 60 days from the date the claim denial was received. As a result of the examination, the Companies have a policy and procedure in place to provide claims adjusters with guidance regarding when to notify a claimant of appeal rights under ERISA.

Regarding the remaining three (3) instances cited, the Companies' Group Policy defines disability as an inability to perform "one or more of the Essential Duties of Your Occupation..." The denial letters in these instances defined disability as being prevented by accidental bodily injury, sickness, mental illness, substance abuse, or pregnancy from performing with reasonable continuity, "the material and substantial duties of your own occupation in the usual and customary way..." Although the examiners did not identify claims that were denied erroneously as a result of these findings, the Department alleges these acts are in violation of CIC §790.03(h)(1).

Summary of Companies' Response: It is the Companies' policy to represent correctly to claimants pertinent policy provisions relating to coverage. Regarding the first six (6) instances cited, the Companies acknowledge that the denial letters incorrectly referenced ERISA as a basis for the right to appeal the denial, as the policy in each of these instances was not governed by ERISA. Regarding the three (3) remaining instances cited, the Company acknowledges that the term disability, as defined in the policy, was incorrectly referenced in the denial letters. The Companies will revise the template denial letters developed for LTD claims to restate the policy definition of disability verbatim.

The Companies note that the County of Sonoma terminated its LTD policy with HLACIC effective July 31, 2002. As a result, the revised template denial letters will be utilized in connection with LTD policies currently in effect. In addition, the Companies are currently revising certain disability policy provisions to comply with the terms of a recently negotiated settlement agreement in California, and further changes to policy definitions and denial letter content may result.

2. 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. In the first instance, the Companies failed to gather information it had internally which supported timely payment, resulting in a delay. In the second instance, the Companies' initial investigation into the claimant's pre-disability earnings was errant causing an overpayment of a claim which was later discovered and collected back from the claimant. In the third instance, the Companies pursued additional medical information not needed to approve claim. When the claimant and doctor did not respond the claim was denied. The Department alleges these acts are in violation of CIC §790.03(h)(3).

Summary of Companies' Response: It is the Companies' policy to implement and perform reasonable standards for the prompt investigation and processing of claims. The Companies acknowledge that the instances cited were the result of unintentional oversight. One instance resulted in an overpayment and one instance resulted in unnecessary delay in settlement. In the third claim, the Companies reopened it for further investigation with a letter sent to the claimant on August 22, 2006 requesting additional records for reconsideration of coverage. The Companies have reported that the consumer has not pursued the claim. In addition, the Companies will address these issues through training and quality improvement initiatives to help to ensure compliance.


Previous PageTop Of Page


Last Revised - April 10, 2007
Copyright California Department of Insurance
Disclaimer