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The examiners reviewed files drawn from the category of Closed Claims for the period September 1, 2004, through August 31, 2005, commonly referred to as the "review period". The examiners reviewed 173 claim files. The examiners cited six 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. There were no recoveries discovered within the scope of this report.
There were no citations alleged or criticisms of insurer practices in this line of business within the scope of this report.

1. In five instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies.

The Company reduced monthly benefits for other income Social Security Disability Insurance (SSDI) without conducting an investigation to verify the estimated offset amount. While the Company policy is to request a signed Social Security Administration Authorization when the disability period is 12 months or longer, it does not have a procedure to utilize the obtained authorizations for verification of the SSDI deduction amount. The Company places the burden upon the insured to provide evidence of the Social Security claim status. The Company in three instances did not request signed Social Security Authorization forms per Company policy. In two instances, the Company obtained Social Security Authorization forms and did not use them to contact Social Security Administration to verify the offset amount. The Department alleges these acts are in violation of CIC § 790.03(h)(3).

Summary of Company Response: The Company believes that it had adopted and implemented reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. RSL's Long Term Disability ("LTD") policy typically provides for the offset of Social Security Disability ("SSD") benefits. Where those SSD benefits have not yet been awarded, the policy allows an offset for estimated SSD benefits under certain circumstances. Most claims for SSD benefits are resolved while LTD benefits continue to be paid, allowing the LTD benefit to be recalculated based on the SSD award. Overpayments can then be collected or underpayments disbursed. If the claim for SSD benefits is not resolved until after LTD benefits have stopped, benefits can only be recalculated (and overpayments collected or underpayments disbursed) upon RSL's receipt of SSD award information. However, as a result of the examination, the Company enhanced its procedures to include additional steps to ensure the claimants are aware of the availability of the waiver of the offset in instances of hardship, and to ensure that appropriate steps are taken to procure timely information regarding Social Security Disability awards.
In case where the offset for Social Security Disability may be taken, initial disability claim approval letters will include a copy of the proposed reimbursement agreement and will contain the following language:
In addition, the Company has modified its procedures to require that a Social Security Authorization be sent to the claimant for signature, and to require that the examiner follow-up directly with the SSA to determine the status of the claimant's SSD claim at various intervals during the pending of the claim. The Company has also revised its claim closure process when estimated SSD has been withheld to include a statement which advises that benefits paid may have been reduced by an estimated Social Security Disability amount. The following information will be provided to the claimant in all claim closure letters: "Once you received a final benefit determination notice from Social Security please forward a copy for review. Upon receipt we will determine if a refund or overpayment exists and notify you appropriately regarding the status of any underpayment or overpayment."
2. In one instance, 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 Department alleges this act is in violation of CCR §2695.7(b)(3).

Summary of Company Response: An oversight by an individual claim handler resulted in leaving out the appropriate reference. It is the Company's policy to include in all denial letters reference to the right to contact the California Department of Insurance. The requirements of this regulation were reviewed with the individual and periodic internal audits will monitor for compliance.

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Last Revised - June 29, 2007
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