PUBLIC REPORT OF THE MARKET CONDUCT EXAMINATION
OF THE CLAIMS PRACTICES OF THE
TABLE OF CONTENTS
May 13, 2005
The Honorable John Garamendi
Insurance Commissioner
State of California
45 Fremont Street
San Francisco, California 94105
Hereinafter referred to as the Company.
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 February 1, 2004 through January 31, 2005, commonly referred to as the "review period". The examiners reviewed 404 Sterling Casualty Insurance Company claims files. The examiners cited 49 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.
1. The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims. In 10 instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. Four of these cases reflect failure to maintain a claims diary resulting in gaps in file activity. Three of the claims reflect delays in extending total loss offers to the insureds. The last three cases involved deviations from company policy and procedure with respect to claims processing and other investigative procedures. The Department alleges these acts are in violation of CIC §790.03 (h)(3).
Summary of Company Response: The Company acknowledges these findings and attributed them to examiner errors. The Company has procedures in place to comply with above law. The Company further advised that performance issues with remaining staff will be addressed and compliance with company procedures and policies will be emphasized. The Company also advised some of the staff handling these claims are no longer with the company due to performance issues.
2. Upon acceptance of the claim the Company failed to tender payment within 30 calendar days. In nine instances, upon acceptance of the claim the Company failed to tender payment within 30 calendar days. Two claims with complete proof of claims/release were omitted for payment. Four claims were delayed for payment while awaiting auto repair shop information while three other claims were not promptly handled for payment. The Department alleges these acts are in violation of CCR §2695.7(h).
Summary of Company Response: The Company acknowledges these findings and issued the appropriate settlements (totaling $9058.64) on the two claims which were inadvertently closed without payment. This resulted in recoveries for aforementioned claims. The Company attributed all these errors to performance issues with pertinent staff. There were claims handled by temporary adjusters who no longer work for the company. The Company will be reiterating procedures with its claims staff and supervisors, particularly with regard to expediting settlements on claims awaiting auto repair shop information. The claims will be kept on a tight diary and diligent efforts will be exerted to issue payment to the insured and lienholder, should auto shop information not be readily available.
3. The Company failed to accept or deny the claim within 40 calendar days. In five instances, the Company failed, upon receiving proof of claim, to accept or deny the claim within 40 calendar days. The Companies did not respond promptly, or closed the files without providing basis for claims handling decision and determination. The Department alleges these acts are in violation of CCR §2695.7(b).
Summary of Company Response: The Company acknowledges these findings and attributed them to adjuster errors. While some claims staff were temporary employees who are no longer with the company, reinforcement of company procedures will be emphasized in subsequent trainings and staff meetings for compliance with CCR§ 2695.7(b). The Company will also review its closure procedures to include confirmation letters to the insureds or claimants as to the final outcome of the claim presented.
4. The Company failed to properly document claim files. In five instances, the Company's files failed to contain all documents, notes and work papers. In four cases, the Direct Repair Program (DRP) shop failed to document that a copy of the repair estimate was sent to the insured. On one claim, the adjuster failed to produce documentation of the claims handling actions pertinent to an insured's inquiry/complaint. The Department alleges these acts are in violation of CCR §2695.3(a).
Summary of Company Response: The Company acknowledges these findings and provided the Department with a copy of their claims procedure reflecting the DRP's responsibility to provide a copy of the estimate to the insured/claimant. The Company sent a directive to all DRP shops dated April 4, 2005 emphasizing adherence to the DRP guidelines at all times. All estimates and supplements should include a notation that a copy was provided to the insured and/or customer. With regard to documentation on claims handling actions on each file, the Company will reiterate compliance with this regulation in staff meetings and additional trainings.
5. 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. In four 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. Three total loss claims were not paid the miscellaneous transfer fees while in one claim, the sales tax was not properly calculated on the total loss vehicle. The Department alleges these acts are in violation of CCR §2695.8(b)(1).
Summary of Company Response: The Company acknowledges these errors and attributed them to adjuster oversight. As a result of this examination, additional payments (totaling $259.45) were issued to the appropriate parties on these four claims. The Company maintains it is their policy to pay all transfer and other fees related to the transfer of evidence of ownership on total loss claims. In these instances, the adjusters erred in their failure to include the miscellaneous fees and in the miscalculation of the sales tax. The Company has addressed this matter with pertinent staff. This issue will be incorporated in subsequent training and staff meetings with claims staff for compliance to CCR § 2695.8(b)(1).
6. The Company failed to provide written notice of the need for additional time every 30 calendar days. In four instances, the Company failed to provide written notice of the need for additional time every 30 calendar days. The insureds and/or claimants were not apprised in writing of the current pending status of the claim. The Department alleges these acts are in violation of CCR §2695.7(c)(1).
Summary of Company Response: The Company acknowledges these errors and will emphasize procedures with its staff to send timely status or extension letters to insureds and/or claimants when applicable. Company management and supervisors will also schedule additional training with each claim unit/division for compliance requirements, and one-on-one training as may be deemed necessary.
7. The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims. In two instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under its insurance policies. In one case, a delay in extending a total loss offer resulted in additional lienholder payoff charges. On the other case, storage charges advanced by the insured were not reimbursed. The Department alleges these acts are in violation of CIC §790.03 (h)(5).
Summary of Company Response: The Company acknowledges these errors. As a result of this examination, the Company issued additional payments (totaling $344.81) to the insureds resulting in monetary recoveries identified in this report. The Company will address performance issues with its staff and conduct additional reminders and training to be in compliance with CIC §790.03(h)(5).
8. The Company failed to record claim data in the file. In two instances, the Company failed to record the date the Company received, date the Company processed and date the Company transmitted or mailed every relevant document in the file. The Department alleges these acts are in violation of CCR §2695.3(b)(2).
Summary of Company Response: The Company acknowledges these errors. The Company views this as a clerical oversight and will incorporate this issue in staff meetings and compliance reminders with its claims staff.
9. The Company failed to respond to communications within 15 calendar days. In two instances, the Company failed to respond to communications within 15 calendar days. Both instances pertain to delayed responses to claimant attorney letters. The Department alleges these acts are in violation of CCR §2695.5(b).
Summary of Company Response: The Company acknowledges these errors and will address this examination finding with its staff through continuing training and reminders of compliance requirements.
10. 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 two instances, 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. Both cases involved betterment reductions which were not fully explained and documented. The Department alleges these acts are in violation of CCR §2695.8(k).
Summary of Company Response: The Company acknowledges these errors. As a result of this examination, the Company will implement a new procedure to ensure compliance to CCR § 2695.8(k). A form letter providing an explanation for any betterment deductions will now accompany repair estimates or settlements when applicable. A copy of this form letter has been provided to the Department.
11. The Company failed to comply with the Fair Claims Settlement Practices Regulations. In one instance each, (for a total of four instances), the Company failed to comply with the following Fair Claims Settlement Regulations: (1) CCR§ 2695.7(b)(3) for failure to include a statement in its claim denial that if a claimant believes the claim has been wrongfully denied or rejected, he or she may have the matter reviewed by the California Department of Insurance; (2) CCR § 2695.8(b)(1)(c) for failure to document the determination of value, including deduction for salvage, that is discernible, measurable, itemized, and specified as well as be appropriate in dollar amount; (3) CCR §2695.8(f) for failure to supply the claimant with a copy of the estimate upon which the settlement is based; and (4) CCR § 2695.4(a) for failure to disclose all benefits, coverages, time limits or other provisions of the insurance policy. The Department alleges these acts are in violation of various fair claims practices regulations.
Summary of Company Response: The Company acknowledges these errors and indicate they are isolated incidences of non-compliance due to examiner errors. The Company maintains it has claims procedures in place that conform to the requirements of fair claims settlement practices. The Company will provide ongoing instructions and training to its staff to discuss these findings and reiterate compliance to these regulations.
