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The examiners reviewed files drawn from the category of Closed Claims for the period November 1, 2003 through October 31, 2004, commonly referred to as the "review period". The examiners reviewed 528 Commerce West claim files. The examiners cited 148 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 $2,538.98. Following the findings of the examination, a closed claim survey conducted by the Company resulted in additional payments of $3,024.00. As a result of the examination, the total amount of money returned to claimants within the scope of this report was $5,562.98.
PERSONAL AUTOMOBILE

1. In 37 instances, the Company failed to maintain all documents, notes and work papers in the claim file. Specifically, in 26 instances, the Company failed to document the file that the claimant received a copy of the repair estimate. Specifically, in these instances, the Company failed to retain the cover sheet to the independent appraisal that indicates a copy of the estimate was given to the claimant.

In six instances, the Company failed to document the file that the insured was provided with copy of the Auto Body Repair Consumer Bill of Rights.

In three instances, the Company failed to retain a copy of the signed release in the claim file. In one instance, the Company failed to retain the medical bill from a provider. In one instance the Company failed to document the reason for closure of the claim. The Department alleges these acts are in violation of CCR §2695.3(a).

Summary of Company Response: The Department's Claims Practices Examination as of July 31, 2001 found that a copy of the repair estimate was not consistently being provided to the claimant. In response, Commerce West established a written procedure for the independent appraiser to fax or e-mail the appraisal to the Company, along with an appraisal report or cover sheet. The appraisal report briefly summarizes the facts of the appraisal and indicates whether or not a copy has been provided to the claimant. In the 26 instances cited in this examination, the Company failed to download or retain the appraisal report cover sheet at the time the appraisal was received. The adjusters are now responsible for retaining the appraisal report and for verifying that the estimate has been provided to the claimant. This practice will be targeted in ongoing reviews and audits by supervisors.

The Claims Practices Examination as of July 31, 2001 identified a failure to issue the Auto Body Repair Consumer Bill of Rights. To correct the problem, the Company developed a procedure to include the document along with the acknowledgement letter. In the six instances cited in this examination, the Company failed to check the box on the menu of the acknowledgement letter indicating that the bill of rights was included.

It is the Company's procedure to retain signed releases in the claim file. In the three instances cited, the signed release may have been received following the settlement and may have been misfiled. To correct these errors and the remaining two errors described above, the Company scheduled ongoing training of claims staff in 2005. Supervisors will review proper file retention requirements with adjusters and with all Company personnel.

2. In nine instances, the Company failed to provide written notice to a first party claimant as to whether the insurer intends to pursue subrogation. The notice of intent to pursue subrogation is a function of the Company's acknowledgement letter. Specifically, the acknowledgement letter contains a menu of coverage information and instructions. The current procedure is to mark the box that indicates the Company will subrogate when such circumstances exist. In these instances, the Company failed to check the appropriate box on the letter. Non-compliance with this regulation was identified also in the Department's Claims Practices Report as of July 31, 2001. The Department alleges these acts are in violation of CCR §2695.8(i).

3. In nine instances, the Company failed to provide written notice of the need for additional time every 30 calendar days. Non-compliance with this regulation was identified also in the Department's Claims Practices Report as of July 31, 2001. The Department alleges these acts are in violation of CCR §2695.7(c)(1).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

4. In eight instances, the Company failed, upon acceptance of the claim, to accept or deny the claim within 40 calendar days. Non-compliance with this regulation was identified also in the Department's Claims Practices Report as of July 31, 2001. The Department alleges these acts are in violation of CCR §2695.7(b).

Summary of Company Response: The Company has scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

5. In five instances, the Company failed to explain in writing for the claimant the basis of the fully itemized cost of the comparable automobile. In three 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. Specifically, in five instances, the Company's claim file does not provide proof that the insured received an itemized explanation of the determination of the actual cash value of the total loss vehicle. Non-compliance with this part of the regulation was identified also in the Department's Claims Practices Report as of July 31, 2001.

In three instances, the Company underpaid the amount of fees associated with an owner-retained salvage vehicle. It is noted in the examination that the Company has paid the correct amount of fees in non-owner-retained salvage settlements. The California Code of Regulations in force during the review period stipulates payment of both the transfer of title fee ($15) and the salvage certificate fee ($15) in owner-retained salvage settlements. In the three cited instances, the Company underpaid the total fees by $8.00. Non-compliance with this part of the regulation was identified also in the Department's Claims Practices Report as of July 31, 2001. The Department alleges these acts are in violation of CCR §2695.8(b)(1).

Summary of Company Response: Regarding the itemized cost of the comparable automobile, it is the Company's practice to provide the insured with the option to receive both the independent valuation and a detailed itemization letter either by standard mail or by download from the Internet. In these five instances, the Company cannot provide evidence that it complied with the regulation. The Company has scheduled remedial training in its procedure for completion of the itemized letter and placement of a copy into the claim file. This procedure will be monitored by the total loss supervisor in the course of routine file reviews, audits and closed-file reviews.

Any errors that were made by Commerce West in payment of fees on first party owner-retained total losses are unintentional. The Company based its payment of fees on information it received from the Department in 2003, which turned out to be incorrect information. Nonetheless, the Company is committed to paying the correct fees. The Company reimbursed $8.00 to each of the three owners identified in the examination and voluntarily reimbursed $8 to 275 of its California insureds with owner-retained salvage claims that were resolved between November 1, 2001 and November 1, 2004. As a result, the total amount of money the Company returned to insureds for the three year period is $2,200.00. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

6. In seven instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies. In three instances, the Company failed to follow its own procedure to follow up on outstanding issues in order to move the claim to a conclusion. Gaps in file handling activity caused excessive delays.

In two instances, the Company failed to follow its own procedure to obtain a required document prior to settlement. Specifically, in one instance, the Company failed to obtain a signed release; and in one instance, the Company failed to obtain a declaration of no other medical insurance prior to the settlement.

In two instances, the Company failed to follow its own subrogation procedure. Specifically, in one instance, the Company failed to subrogate for the uncovered interest of the insured and for its own financial interest. In another instance, the Company failed to pursue subrogation. The Department alleges these acts are in violation of CIC §790.03(h)(3).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005. Supervisors will review file handling for compliance on an ongoing basis, using audits, regular reviews and closed-file audits.

7. In seven instances, the Company failed to respond to communications within 15 calendar days. Specifically, in two instances, the Company failed to respond timely to an inquiry from a representing attorney. In two instances, the Company failed to respond timely to a demand letter from a representing attorney. In two instances, the Company failed to respond timely following receipt of proof of claim documents. In one instance, the Company failed to respond to a counter offer made by a claimant representing himself. Non-compliance with this regulation was identified also in the Department's Claims Practices Report as of July 31, 2004. The Department alleges these acts are in violation of CCR §2695.5(b).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

8. In seven instances, the Company failed to document the determination of value. Any deductions from value, including deduction for salvage, must be discernible, measurable, itemized, and specified as well as be appropriate in dollar amount. Specifically, the Company applied an unsubstantiated baseline adjustment in determining the actual cash value of the total loss vehicle. The Department alleges these acts are in violation of CCR §2695.8(b)(1)(C).

Summary of Company Response: The Company relies on the services of an independent valuation company to properly determine the actual cash value of a total loss automobile and has accepted the baseline adjustment as part of the determination. Nonetheless, the Company accepts the Department's criticism. The California Code of Regulations that became effective October 4, 2004 has remedied the use of the baseline adjustment.


9. In five instances, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. Specifically, in two instances, the Company underpaid the fees associated with a third party total loss claim. It is noted that the Company's procedure is to pay all fees associated with a third party total loss although such payment is not required by the California Insurance Code. In two instances, the Company failed to refund the collision deductible under the Collision Deductible Waiver coverage, when an uninsured motorist is the cause of the accident. In one instance, the Company failed to reimburse the medical provider for billed medical expenses. The Department alleges these acts are in violation of CIC §790.03(h)(5).

Summary of Company Response: Any errors that were made by Commerce West in payment of fees on third party owner-retained total losses are unintentional. The Company based its payment of third party owner-retained fees on information it received from the Department in 2003, which turned out to be incorrect information. The Company does not find a statutory basis for a duty to provide transfer fees to third party claimants with owner-retained salvage of total loss vehicles. Nonetheless, in a good faith effort to conclude the matter, the Company issued $8.00 to each of the two claimants identified in the examination and voluntarily paid $8.00 to 103 California claimants with owner-retained total loss claims that were resolved between February 2003 and October 2004.

To correct the oversight in refunding the collision deductible, Commerce West reimbursed the $500 deductible to the two claimants identified in the examination.

Regarding the unpaid medical bill, the Company reimbursed the provider $781.00, representing the full amount of the charges presented.

The Company scheduled both remedial and ongoing training throughout 2005 to target these issues. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.


10. In four instances, the Company 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 Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

11. In four instances, the Company failed to supply the claimant with a copy of the estimate upon which the settlement is based. Specifically, in all four instances, the independent appraiser's report indicates that the claimant was not provided with a copy of the estimate. Non-compliance with this regulation was identified also in the Department's Claims Practices Report as of July 31, 2001. The Department alleges these acts are in violation of CCR §2695.8(f).

Summary of Company Response: The Company relies on the independent appraiser to provide a copy of the estimate to the claimant and it will continue to demand this from each independent appraiser. To ensure compliance, the Company has instituted an internal double-check system. First, a change in procedure holds the Company adjuster responsible for providing the estimate to the claimant. Second, additional training is being given to all Company adjusters to download coversheets from the independent appraiser to verify that the estimate has been given to the claimant. If the appraisal cover sheet fails to indicate whether the estimate was provided, the Company adjuster will send the estimate.


12. In three instances, the Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue. Specifically, in two instances, the Company stated the incorrect time period in the statute of limitations letter sent to the claimant. In one instance, the Company misstated the amount of coverage available under the Medical Payment provision of the policy. The Department alleges these acts are in violation of CIC §790.03(h)(1).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

13. In three instances, the Company 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 Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.


14. In three instances, upon acceptance of the claim, the Company failed to tender payment within 30 calendar days. Non-compliance with this regulation was identified also in the Department's Claims Practices Report as of July 31, 2001. The Department alleges these acts are in violation of CCR §2695.7(h).

Summary of Company Response: The Company scheduled both remedial and ongoing refresher training throughout 2005 to target this issue. The Company modified specific procedures on its Medical Payment desk in order to expedite payments. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

15. In three instances, the Company failed to secure the average of two or more quotations from two or more licensed dealers in the local market area when comparable automobiles are not available in the local market area in the last 90 days. Specifically, in these instances, the location of the automobiles used as comparables range from 113 miles to 425 miles away from the insured's residence. The Department alleges these acts are in violation of CCR §2695.8(b)(1)(B).

Summary of Company Response: The Company relies on the independent valuation company to locate comparable vehicles in the local market area. Nonetheless, if the geographical range of vehicles contained in the independent valuation report exceeds the local market for the vehicle, the Company will create and implement procedures to obtain two or more quotes with the local market area. In one of the instances cited in the examination, the Company recalculated the actual cash value and reimbursed $117.98 to the named insured. This practice will be monitored by supervisors through routine reviews, audits and closed-file audits.

16. In two instances, the Company failed to maintain hard copy claim files or maintain claim files that are accessible, legible and capable of duplication to hard copy for five years.

The Department alleges these acts are in violation of CCR §2695.3(b)(3).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

17. In one instance, the Company failed to record in the file the date the Company received every relevant document. Specifically, the Company failed to note the date the appraisal was received as an attachment to an e-mail. The Department alleges this act is in violation of CCR §2695.3(b)(2).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

18. In one instance, the Company failed to acknowledge notice of claim within 15 calendar days. The Department alleges this act is in violation of CCR §2695.5(e)(1).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

19. In one instance, the Company failed to provide necessary forms, instructions and reasonable assistance within 15 calendar days. Specifically, the insured notified the Company of the intent to use the Medical Payment benefit and the Company failed to send the claim forms and instructions within 15 calendar days. The Department alleges this act is in violation of CCR §2695.5(e)(2).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

20. In one instance, the Company attempted to settle a claim by making a settlement offer that was unreasonably low. Specifically, the Company failed to offer the rental reimbursement benefit to the insured. The Department alleges this act is in violation of CCR §2695.7(g).

Summary of Company Response: The Company reimbursed the insured $600 to correct this oversight. It is an isolated incident. The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

21. 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. Non-compliance with this regulation was identified also in the Department's Claims Practices Report as of July 31, 2001. The Department alleges this act is in violation of CCR §2695.8(k).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.


COMMERCIAL AUTOMOBILE

22. In nine instances, the Company failed to maintain all documents, notes and work papers in the claim file. In six instances, the Company failed to document the file that the insured was provided with copy of the Auto Body Repair Consumer Bill of Rights. In two instances, the Company failed to document the file that the claimant received a copy of the repair estimate. Specifically, the Company failed to retain the cover sheet to the appraisal report that indicates the independent appraiser provided a copy of the estimate to the claimant. In one instance, the Company failed to retain a copy of the signed release in the claim file. The Department alleges these acts are in violation of CCR §2695.3(a).

Summary of Company Response: Prior to this examination, Commerce West developed a procedure to include the Auto Body Repair Consumer Bill of Rights along with the acknowledgement letter to the insured. In the six instances cited in this examination, the Company failed to check the box on the menu of the acknowledgement letter indicating that the bill of rights was included. To correct this error, the Company scheduled ongoing training of claims staff in 2005. The Company will monitor compliance through ongoing reviews and closed-file audits.

Prior to this examination, Commerce West established a written procedure for the independent appraiser to fax or e-mail the appraisal to the Company, along with an appraisal report or cover sheet. The appraisal report briefly summarizes the facts of the appraisal and indicates whether or not a copy has been provided to the claimant. In the two instances cited in this examination, the Company failed to download or retain the appraisal report cover sheet at the time the appraisal was received. The adjusters are now responsible for retaining the appraisal report and for verifying that the estimate has been provided to the claimant. This practice will be targeted in ongoing reviews and audits by supervisors.

It is the Company's procedure to retain a copy of the signed release in the claim file. The form may have been received following the settlement and misfiled. Supervisors will review document retention requirements with adjusters and with all Company personnel to ensure that incoming documents are properly filed.

23. In three instances, the Company failed to document the determination of value. Any deductions from value, including deduction for salvage, must be discernible, measurable, itemized, and specified as well as be appropriate in dollar amount. record claim data in the file. Specifically, the Company applied an unsubstantiated baseline adjustment in determining the actual cash value of the total loss vehicle. The Department alleges these acts are in violation of CCR §2695.8(b)(1)(C).

Summary of Company Response: The Company relies on the services of an independent valuation company to properly determine the actual cash value of a total loss automobile and has accepted the baseline adjustment as part of the determination. Nonetheless, the Company accepts the Department's criticism. The California Code of Regulations that became effective October 4, 2004 has remedied the use of the baseline adjustment.

24. In two instances, the Company failed to supply the claimant with a copy of the estimate upon which the settlement is based. Specifically, in each instance, the independent appraiser's report indicates that the claimant was not provided with a copy of the estimate. Non-compliance with this regulation was identified also in the Department's Claims Practices Report as of July 31, 2001. The Department alleges these acts are in violation of CCR §2695.8(f).

Summary of Company Response: The Company relies on the independent appraiser to provide a copy of the estimate to the claimant and it will continue to demand this from each independent appraiser. To ensure compliance, the Company has instituted an internal double-check system. First, a change in procedure holds the Company adjuster responsible for providing the estimate to the claimant. Second, additional training is being given to all Company adjusters to download coversheets from the independent appraiser to verify that the estimate has been given to the claimant. If the appraisal cover sheet fails to indicate whether the estimate was provided, the Company adjuster will send the estimate.

25. In two instances, the Company failed to provide written notice to a first party claimant as to whether the insurer intends to pursue subrogation. The notice of intent to pursue subrogation is a function of the Company's acknowledgement letter. Specifically, the acknowledgement letter contains a menu of coverage information and procedural instructions. The current procedure is to mark the box that indicates the Company will subrogate when such circumstances exist. In these instances, the Company failed to check the appropriate box on the letter. The Department alleges these acts are in violation of CCR §2695.8(i).


26. In one instance, the Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue. Specifically, the Company provided the incorrect time period in the statute of limitations letter to the claimant. The Department alleges this act is in violation of CIC §790.03(h)(1).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

27. In one instance, the Company failed to acknowledge notice of claim within 15 calendar days. The Department alleges this act is in violation of CCR §2695.5(e)(1).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

28. In one instance, the Company failed, upon acceptance of the claim, to accept or deny the claim within 40 calendar days. The Department alleges this act is in violation of CCR §2695.7(b).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.

29. In one instance, the Company failed to provide written notice of the need for additional time every 30 calendar days. The Department alleges this act is in violation of CCR §2695.7(c)(1).

Summary of Company Response: The Company scheduled both remedial and ongoing training throughout 2005 to target this issue. Supervisors will review file handling for compliance on an ongoing basis through audits, regular reviews and closed-file audits.


30. In one instance, the Company failed to explain in writing for the claimant the basis of the fully itemized cost of the comparable automobile. The Department alleges this act is in violation of CCR §2695.8(b)(1).

Summary of Company Response: It is the Company's practice to provide the claimant the option to receive a copy of both the independent valuation and a detailed itemization letter either by standard mail or by download from the Internet. In this instance, the Company cannot provide evidence that it complied with the regulation. The Company scheduled remedial training in its procedure for completion of the itemized letter and placement of a copy into the claim file. This procedure will be monitored by the total loss supervisor in the course of routine file reviews, audits and closed-file audits.


GENERAL CATEGORY
31. In two instances, the Company failed to maintain a copy of the certification required by §2695.6(b)(1), (2) or (3) at the principal place of business. Specifically, the Company failed to maintain the annual certification for the years 2003 and 2004 which apply to the review period of the examination. The Department alleges these acts are in violation of CCR §2695.6(b)(4).

Summary of Company Response: Commerce West complies with the requirements of CCR §2695.6(a) and provides required claims training to its adjusters. The Company's claims adjusting manual contains a copy of the California Code of Regulations including all amendments and they are made available to all adjusters. The Company maintains annual certifications from its independent adjusters and appraisers. The Company was unaware of the requirement to maintain an annual letter of certification. Commerce West will comply immediately.

32. In one instance, the Company failed to disclose all benefits, coverage, time limits or other provisions of the insurance policy. A criticism is noted in the Company's procedure to settle a claim made under the medical payment provision of one of the Company's personal automobile policies. Specifically, if the Company receives an itemized medical bill directly from the provider, the Company will pay the full amount presented on the bill. On the other hand, if the claimant presents proof in the form of an invoice or explanation of benefits, the Company will pay the claimant's out of pocket expenses, not the total charges. The subject policy allows the insured claimant to claim the total amount of the charges, up to the policy limit, regardless of other medical expense insurance held by the claimant. The procedure to pay only the claimant's out-of-pocket expense may be considered inconsistent with the policy provision; and it may be construed that the Company failed to disclose to a first party claimant all benefits, coverage, time limits or other provisions of the insurance policy issued by the Company that may apply to the claim presented by the claimant. The Department alleges a general violation of CCR §2695.4(a).

Summary of Company Response: With regard to Medical Payment coverage under the Company's Select and Group programs, it is the Company's practice to pay for reasonable expenses incurred within one year from the date of accident. Coverage is explained initially to a covered individual by telephone and in writing. The Company prefers to receive an itemized medical bill for payment. However, as a courtesy to the Company's customers who may not be able to obtain itemized medical bills, the Company will accept a receipt or balance forward type of document produced by a medical provider when the covered expense is clearly evident. If it is unclear what an insured is demanding, the Company will contact the individual to clarify the demand. The Company will follow up with a fill-in form letter stating the amount shown on the explanation of benefits, the full amount the claimant is entitled to and the amount the claimant has demanded. The claimant has 15 days to reply.

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Last Revised - July 06, 2006
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