[THIS VERSION OF THE REPORT IS MADE AVAILABLE IN ACCORDANCE WITH CIC SECTION 12938] REPORT OF THE MARKET CONDUCT EXAMINATION OF THE CLAIMS PRACTICES OF THE CIVIL SERVICE EMPLOYEES INSURANCE COMPANY NAIC # 10693 CDI # 1398-7 CSE SAFEGUARD INSURANCE COMPANY NAIC # 18953 CDI # 3008-0 AS OF APRIL 30, 2006 ADOPTED ON November 12, 2008 STATE OF CALIFORNIA DEPARTMENT OF INSURANCE MARKET CONDUCT DIVISION FIELD CLAIMS BUREAU
NOTICE REGARDING CONFIDENTIALITY The provisions of Section 735.5(a) (b) and (c) of the California Insurance Code describe the Commissioner s authority and exercise of discretion in the use and/or publication of any final or preliminary examination report or other associated documents. Section 12938 of the California Insurance Code requires the publication of certain legal documents and examination reports.
TABLE OF CONTENTS SALUTATION....1 FOREWORD......2 SCOPE OF THE EXAMINATION........3 EXECUTIVE SUMMARY OF CLAIMS SAMPLE REVIEWED...4 RESULTS OF CONSUMER COMPLAINTS AND INQUIRIES, PREVIOUS EXAMINATIONS AND PRIOR ENFORCEMENT ACTIONS...5 DETAILS OF THE CURRENT EXAMINATION 6 TABLE OF TOTAL CITATIONS.....8 TABLE OF CITATIONS BY LINE OF BUSINESS... 11 SUMMARY OF EXAMINATION RESULTS....... 14
STATE OF CALIFORNIA DEPARTMENT OF INSURANCE Consumer Services and Market Conduct Branch Field Claims Bureau, 11th Floor 300 South Spring Street Los Angeles, CA 90013 Steve Poizner, Insurance Commissioner November 12, 2008 The Honorable Steve Poizner Insurance Commissioner State of California 45 Fremont Street San Francisco, California 94105 Honorable Commissioner: Pursuant to instructions, and under the authority granted under Part 2, Chapter 1, Article 4, Sections 730, 733, 736, and Article 6.5, Section 790.04 of the California Insurance Code; and Title 10, Chapter 5, Subchapter 7.5, Section 2695.3(a) of the California Code of Regulations, an examination was made of the claims practices and procedures in California of: Civil Service Employees Insurance Company NAIC # 10693 CSE Safeguard Insurance Company NAIC # 18953 Group NAIC # 0323 Hereinafter, the Companies listed above also will be referred to as CSEICO, CSE Safeguard, the Companies, or collectively as CSE or 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. 1
FOREWORD The examination covered the claims handling practices of the aforementioned Companies during the period May 1, 2005 through April 30, 2006. The examination was made to discover, in general, if these and other operating procedures of the Companies conform to the contractual obligations in the policy forms, the California Insurance Code (CIC), the California Code of Regulations (CCR) and case law. This report contains alleged violations of Section 790.03 and Title 10, California Code of Regulations, Section 2695 et al. The alleged violations of other relevant laws which resulted from this examination are included in a separate report. The report is written in a report by exception format. The report does not present a comprehensive overview of the subject insurer s practices. The report c 2
SCOPE OF THE EXAMINATION To accomplish the foregoing, the examination included: 1. A review of the guidelines, procedures, training plans and forms adopted by the Companies for use in California including any documentation maintained by the Companies in support of positions or interpretations of fair claims settlement practices. 2. A review of the application of such guidelines, procedures, and forms, by means of an examination of a sample of individual claims files and related records. 3. A review of consumer complaints and inquiries about these Companies handled by the California Department of Insurance (CDI) during the period May 1, 2005 through April 30, 2006, a review of previous CDI market conduct claims examination reports on these Companies, and a review of prior enforcement actions. The review of the sample of individual claims files was conducted at the offices of the Companies in Sacramento, California. 3
EXECUTIVE SUMMARY OF CLAIMS SAMPLE REVIEWED The claims reviewed were closed from May 1, 2005 through April 30, 2006, referred to as the review period. The examiners randomly selected 411 CSEICO claims files and 185 CSE Safeguard claims files for examination. The examiners cited 567 alleged claim handling violations of the Fair Claims Settlement Practices Regulations and/or California Insurance Code Section 790.03 from this sample file review. Within the scope of this report, findings of this examination included failure to pay interest on delayed homeowners claims, failure to provide accurate communications, failure to respond timely, and failure to conduct adequate and timely investigations. 4
RESULTS OF REVIEWS OF CONSUMER COMPLAINTS AND INQUIRIES, PREVIOUS EXAMINATIONS AND PRIOR ENFORCEMENT ACTIONS The Companies were the subject of 13 California consumer complaints and inquiries closed from May 1, 2005 through April 30, 2006, in regard to the lines of business reviewed in this examination. The CDI alleged six improper denials of claims, six claims handling delays and one unsatisfactory settlement offer. The examiner focused on these issues during the course of the file review. The previous claims examination reviewed a period from May 1, 2000 through April 30, 2001. The most significant noncompliance issues identified in the prior examination report were the Companies failure to provide the claimant with a copy of the repair estimate, failure to disclose policy provisions, failure to provide a written itemized explanation of the determination of the cost of a comparable vehicle, failure to explain the basis of depreciation, and failure to adhere to a standard of prompt investigation and processing of claims. These issues were identified as problematic in the current examination. The Companies were the subject of a CDI enforcement action on July 7, 2004, which resulted in a Cease and Desist and a penalty of $155,000. The action identified 412 claims handling violations. Significant noncompliance issues identified in the enforcement action were a failure to provide the insured with the Auto Body Repair Consumer Bill of Rights, a failure to provide the claimant with a copy of the repair estimate, a failure to properly advise the insured of the determination of fault, a failure to disclose policy provisions, a failure to provide a written basis for the total loss settlement, a failure to pay all fees and taxes incident to a total loss settlement, a failure to explain the basis of depreciation, a failure to maintain all documents pertaining to the claim, and a failure to adhere to a standard of prompt investigation and processing of claims. With two exceptions, failing to provide the Auto Body Repair Consumer Bill of Rights and failing to pay all fees and taxes incident to a total loss settlement, these issues were identified as problematic in the current examination. 5
DETAILS OF THE CURRENT EXAMINATION Further details with respect to the examination and alleged violations are provided in the following tables and summaries: CIVIL SERVICE EMPLOYEES INSURANCE COMPANY SAMPLE FILES REVIEWED LINE OF BUSINESS / CATEGORY CLAIMS IN REVIEW SAMPLE FILES REVIEWED CITATIONS PERIOD Private Passenger Automobile / Collision 1,761 40 50 Private Passenger Automobile / Comprehensive 355 39 26 Private Passenger Automobile / Medical Payment Private Passenger Automobile / Property Damage 274 38 17 1,210 40 35 Private Passenger Automobile / Bodily Injury 333 35 19 Private Passenger Automobile / Uninsured Motorist Bodily Injury Private Passenger Automobile / Uninsured Motorist Property Damage 85 27 27 76 26 58 Private Passenger Automobile / General Citation - - 1 Homeowners / Property 1,494 52 46 Homeowners / Liability 96 30 18 Homeowners Dwelling Fire / Property 245 50 54 Homeowners Dwelling Fire / Liability 23 7 6 Commercial Multiple Peril (COMPAK) / Property Commercial Multiple Peril (COMPAK) / Liability 87 16 23 19 11 7 TOTALS 6,058 411 387 6
CSE SAFEGUARD INSURANCE COMPANY SAMPLE FILES REVIEWED LINE OF BUSINESS / CATEGORY CLAIMS IN REVIEW PERIOD SAMPLE FILES REVIEWED CITATIONS Private Passenger Automobile / Collision 1,163 27 34 Private Passenger Automobile / Comprehensive 189 21 26 Private Passenger Automobile / Medical Payment Private Passenger Automobile / Property Damage Private Passenger Automobile / Bodily Injury Private Passenger Automobile / Uninsured Motorist Bodily Injury Private Passenger Automobile / Uninsured Motorist Property Damage 143 20 6 814 26 19 249 26 10 64 20 18 50 18 28 Homeowners/ Property 452 11 18 Homeowners/ Liability 27 8 6 Homeowners Dwelling Fire / Property 28 6 10 Homeowners Dwelling Fire / Liability 4 2 5 TOTALS 3,183 185 180 7
TABLE OF TOTAL CITATIONS Citation Description CSEICO CCR 2695.4(a) CCR 2695.5(a) CIC 790.03(h)(3) CCR 2695.7(b) CIC 790.03(h)(1) CCR 2695.8(f) CCR 2695.8(b)(1)(A) CCR 2695.8(c) CCR 2695.7(f) CCR 2695.7(c)(1) CCR 2695.8(g)(3) CCR 2695.5(e)(2) CCR 2695.8(b)(3) CIC 790.03(h)(5) The Company failed to disclose all benefits, coverage, time limits or other provisions of the insurance policy. The Company failed to respond immediately to a Department of Insurance inquiry. The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies. The Company failed, upon receiving proof of claim, to accept or deny the claim within 40 calendar days. The Company misrepresented to claimants pertinent facts or policy provisions relating to any coverages at issue. The Company failed to supply the claimant with a copy of the estimate upon which the settlement is based. The Company failed to notify the insured in writing that it must report the salvage retention to the DMV and that this may affect the resale and/or insured value of the vehicle. The Company failed to inform the insured of his/her right to seek a refund of the unused vehicle license fees from the DMV. The Company failed to notify the insured that the file will be reopened if the Company is notified within 35 days that the insured cannot purchase a comparable automobile for the settlement amount offered or paid. 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 Company failed to provide written notice of the need for additional time every 30 calendar days. The Company required the use of non-original equipment manufacturer replacement crash parts without warranting that such parts are of like kind, quality, safety, fitness and performance as original manufacturer replacement crash parts. The Company failed to provide necessary forms, instructions, and reasonable assistance within 15 calendar days. The Company failed to fully itemize and explain in writing the determination of the cost of a comparable vehicle at the time the settlement offer is made. The Company failed to take reasonable steps to verify that the determination of the cost of a comparable vehicle is accurate and representative of the market value in the local market area. The Company failed to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. CSE Safeguard 68 16 47 34 31 10 22 9 26 3 17 11 16 12 13 12 19 5 13 8 13 7 12 7 10 7 11 5 8
TABLE OF TOTAL CITATIONS Citation Description CSEICO CCR 2695.7(b)(1) CCR 2695.7(g) CCR 2695.7(h) CCR 2695.3(a) CCR 2695.7(d) CCR 2695.5(b) CCR 2695.8(g)(5) CCR 2695.8(i) CCR 2695.8(e)(2)(A) CCR 2695.7(p) CCR 2695.3(b)(2) CCR 2695.4(d) CIC 790.03(h)(15) CCR 2695.5(e)(1) CCR 2695.5(e)(3) CCR 2695.7(k)(1) The Company failed to provide the written basis for the denial of the claim. The Company attempted to settle a claim by making a settlement offer that was unreasonably low. The Company failed, upon acceptance of the claim, to tender payment within 30 calendar days. The Company failed to maintain all documents, notes and work papers in the claim file. The Company persisted in seeking information not reasonably required for or material to the resolution of a claim dispute. The Company failed to respond to communications within 15 calendar days. The Company required the use of non-original equipment manufacturer replacement crash parts without the use of such parts disclosed in accordance with 9875 of the California Business and Professions Code. 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 directed, suggested or recommended that an automobile be repaired at a specific repair shop without such referral expressly requested by the claimant. The Company failed to provide written notification to a first party claimant as to whether it intended to pursue subrogation. The Company failed to provide written notification to a first party claimant of its decision to discontinue subrogation. The Company failed to record in the file the date the Company received every relevant document. The Company improperly required a claimant to give notification of a claim or proof of claim within a specified time. The Company misled a claimant as to the applicable statute of limitations. The Company failed to acknowledge notice of claim within 15 calendar days. The Company failed to begin investigation of the claim within 15 calendar days. The Company failed, upon receiving proof of claim, to accept or deny the claim within 80 calendar days. CSE Safeguard 8 4 11 1 6 4 8 1 4 5 5 3 5 2 5 2 3 2 3 1 2 1 3 0 0 2 2 0 1 1 1 1 9
TABLE OF TOTAL CITATIONS Citation Description CSEICO CIC 790.03(h)(12) CCR 2695.7(b)(3) CCR 2695.8(b)(1) CCR 2695.8(b)(2) CCR 2695.85 CCR 2695.8(b)(1)(A) [General] The Company failed to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage. 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 Company failed to include, in the settlement, all applicable taxes and one-time fees incident to transfer of evidence of ownership of a comparable automobile. The Company failed to support the deduction from the cost of a comparable vehicle. Any adjustment from the cost of a comparable automobile must be discernible, measurable, itemized, and specified as well as appropriate in dollar amount and so documented in the claim file. The Company failed to provide the insured with the Auto Body Repair Consumer Bill of Rights. The Company failed to include, in the settlement, sales tax and/or fees incident to the transfer of the vehicle to salvage status. CSE Safeguard 0 1 0 1 0 1 0 1 1 0 1 - Total Citations 387 180 10
TABLE OF CITATIONS BY LINE OF BUSINESS PRIVATE PASSENGER AUTOMOBILE 2005 Written Premium: $40,188,519 NUMBER OF CITATIONS AMOUNT OF RECOVERIES $7,773.86 CCR 2695.5(a) 81 CCR 2695.8(b)(1)(A) 29 CCR 2695.8(f) 28 CCR 2695.8(c) 25 CCR 2695.4(a) 21 CCR 2695.7(b) 20 CCR 2695.8(g)(3) 20 CCR 2695.8(b)(3) 17 CIC 790.03(h)(3) 16 CCR 2695.5(e)(2) 16 CCR 2695.7(c)(1) 12 CCR 2695.7(f) 11 CCR 2695.7(d) 7 CCR 2695.7(h) 7 CCR 2695.8(g)(5) 7 CCR 2695.8(i) 7 CIC 790.03(h)(5) 6 CCR 2695.5(b) 6 CCR 2695.7(g) 5 CCR 2695.8(e)(2)(A) 5 CIC 790.03(h)(1) 4 CCR 2695.3(a) 4 CCR 2695.7(b)(1) 4 CCR 2695.7(p) 4 CIC 790.03(h)(15) 2 CCR 2695.5(e)(1) 2 CCR 2695.7(k)(1) 2 CIC 790.03(h)(12) 1 11
TABLE OF CITATIONS BY LINE OF BUSINESS PRIVATE PASSENGER AUTOMOBILE 2005 Written Premium: $40,188,519 NUMBER OF CITATIONS CCR 2695.3(b)(2) 1 CCR 2695.4(d) 1 CCR 2695.8(b)(1) 1 CCR 2695.8(b)(2) 1 CCR 2695.85 1 SUBTOTAL 374 HOMEOWNERS 2005 Written Premium: $51,840,641 NUMBER OF CITATIONS AMOUNT OF RECOVERIES $5,332.05 CCR 2695.4(a) 58 CIC 790.03(h)(1) 20 CIC 790.03(h)(3) 20 CCR 2695.7(f) 10 CCR 2695.7(b) 9 CIC 790.03(h)(5) 7 CCR 2695.7(b)(1) 7 CCR 2695.7(g) 7 CCR 2695.7(c)(1) 6 CCR 2695.3(a) 3 CCR 2695.5(e)(2) 3 CCR 2695.7(h) 3 CCR 2695.3(b)(2) 2 CCR 2695.5(b) 2 CCR 2695.5(e)(3) 2 CCR 2695.7(d) 2 12
TABLE OF CITATIONS BY LINE OF BUSINESS HOMEOWNERS 2005 Written Premium: $51,840,641 NUMBER OF CITATIONS CCR 2695.4(d) 1 CCR 2695.7(b)(3) 1 SUBTOTAL 163 COMMERCIAL MULTIPLE PERIL 2005 Written Premium: $13,164,447 NUMBER OF CITATIONS AMOUNT OF RECOVERIES $1,024.24 CIC 790.03(h)(1) 5 CIC 790.03(h)(3) 5 CCR 2695.4(a) 5 CIC 790.03(h)(5) 3 CCR 2695.7(c)(1) 3 CCR 2695.7(f) 3 CCR 2695.3(a) 2 CCR 2695.7(b) 2 CCR 2695.4(d) 1 CCR 2695.7(b)(1) 1 SUBTOTAL 30 TOTAL 567 13
SUMMARY OF EXAMINATION RESULTS 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. The Company is obligated to ensure that compliance is achieved. Any noncompliant practices identified in this report may extend to other jurisdictions. The Companies were asked if they intend to take appropriate corrective action in all jurisdictions where applicable. The Companies indicate that they intend to implement corrective actions in all jurisdictions where applicable. Money recovered within the scope of this report was $14,112.15 as described in sections number 8, 17, 20, 22, 34, 41, 42 and 56 below. Following the findings of the examination as referenced in section number 2(b) below, a closed claims survey was conducted by the Companies resulting in additional payments of $18. As a result of the examination, the total amount of money returned to claimants within the scope of this report was $14,130.15. Following the findings of the examination as referenced in sections 41 and 56 below, the Companies are conducting additional closed claims surveys. The results of the surveys and additional payments, if any, shall be reported to the Department on or before August 31, 2008. PRIVATE PASSENGER AUTOMOBILE 1. In 81 instances, the Company failed to respond immediately to a Department of Insurance inquiry. Specifically, Company responses to 81 written inquiries were received 24 to 59 calendar days following the date the inquiry was made. The Department alleges these acts are in violation of CCR 2695.5(a). Summary of Company Response: CSE understands the importance of timely communication. The Company takes the matter of a prompt reply to an inquiry from the Department very seriously and offers a sincere professional apology. CSE tried very hard to look into all concerns and issues noted in the referrals, taking the matters seriously, spending much time and effort in conference calls in order to provide the Department with substantive, not perfunctory, responses. The untimely responses were not done intentionally, willfully or with malice. Once CSE realized the severity of the delays, the Company took immediate steps to marshal the necessary resources to provide a prompt response to those outstanding referrals as well as to ensure its timely handling of referrals going forward. 2. In 14 instances, the Company failed to notify the insured in writing that it must report the salvage retention to the Department of Motor Vehicles and this may affect the resale and/or insured value of the vehicle. In 14 instances, the Company failed to inform 14
the insured of his or her right to seek a refund of the unused vehicles fees from the Department of Motor Vehicles. In one general instance, the Company failed to include, in the settlement, sales tax and/or fees incident to the transfer of the vehicle to salvage status. a) In 28 instances, the Company failed to provide the insured with three written notices specific to owner-retained salvage settlements. The Department alleges these acts are in violation of CCR 2695.8(b)(1)(A). b) The examination revealed that CSE inconsistently paid the correct salvage certificate fee during the review period. Specifically, in 2005 and 2006, the Company s northern California regional claims office underpaid the fee by $1.00 in the total loss settlement. The southern regional claims office paid the correct fee. The Department alleges one general violation of CCR 2695.8(b)(1)(A). Summary of Company Response: a) CSE modified its settlement offer letter such that it now informs the owner that: 1) the DMV will be notified about the loss; 2) a vehicle with a salvaged title may have a lower resale value; 3) the owner may obtain unused vehicle license fees from the DMV. Following the findings of the examination, the Company issued a special letter containing the three advisories to each insured who should have received these notices at the time of settlement. b) CSE acknowledges that one of its claims offices inadvertently overlooked the change from $15.00 to $16.00 for the salvage title transfer fee charged by the California Department of Motor Vehicles beginning January 1, 2005. However, in the instances in which the salvage certificate was underpaid, CSE paid an additional $15.00 for a transfer of title fee, which is not required when the owner retains salvage. Consequently, CSE states it overpaid the salvage certificate fee by a net of $14.00. Nonetheless, in order to be certain that the salvage certificate fee had either been paid correctly or overpaid, the Company conducted an internal survey of owner-retained salvage claims settled by its northern and southern California claims offices in 2005 and 2006. As a result, the Company found 18 claims out of 263 in which they owed an additional $1.00. Accordingly, the Company paid a total of $18.00 to the identified policyholders along with a letter of explanation. The Company provided the Department with proof that payments were made. 3. In 28 instances, the Company failed to supply the claimant with a copy of the estimate upon which the settlement is based. The failure to provide the claimant with a copy of the original and/or supplementary repair estimate was identified as a significant noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.8(f). Summary of Company Response: CSE adopts and implements the following procedures with four layers of redundancy to ensure compliance in all instances: 1) The Company will require its third party appraisers to indicate, either on the appraisal or on the cover page, whether or not a copy has been given to the vehicle owner. The appraiser must also indicate how the estimate was delivered. 2) The Company will place its third party vendors on notice that compliance with CCR 2695.8(f) is required for a continued business relationship. Vendors must indicate on each and 15
every invoice presented to the Company for payment that a copy of the estimate, including any supplementary estimate, has been given to the vehicle owner. This will be an absolute precondition for the Company s consideration of payment of any such invoices or statements for services rendered. 3) The Company s claim handler assigned to the file will have the responsibility to review each appraisal and each supplement to verify that the vehicle owner was provided with a copy. If this cannot be confirmed, the claim handler will mail or fax a copy of the appraisal to the vehicle owner and will note this action in the WINS notepad. 4) Every morning the Company s claims handling branches will match each settlement check listed on the check-writer report with the corresponding notes in the claim file for the purpose of verifying that the vehicle owner was provided with a copy of the appraisal or supplement. This final verification will also be noted in the WINS notepad. 4. In 25 instances, the Company failed to notify the insured that the file will be reopened if a comparable automobile cannot be purchased for the amount offered or paid. The Department alleges these acts are in violation of CCR 2695.8(c). Summary of Company Response: CSE modified its settlement offer letter such that it now informs the insured that the Company will make further efforts to adjust the claim if notified within 35 calendar days of the settlement offer that a comparable automobile cannot be purchased. The Company provided the Department with a copy of the modified settlement letter. 5. In 21 instances, the Company failed to disclose all benefits, coverage, time limits or other provisions of the insurance policy. The Company s standard procedure is to send a letter that explains coverage afforded under the insured s policy and to document the WINS notepad system that coverage was explained. In 10 instances, the claim file does not provide evidence that coverage was disclosed to the insured. In three instances, in which additional proofs of claim were presented that confirmed uninsured motorist status, the Company failed to immediately communicate this fact to the insured. In three instances, the Company failed to disclose either the amount of medical payment coverage or the time limit to seek medical treatment. In three instances, the Company failed to disclose rental reimbursement coverage and the transportation expense provision. In one instance each, the Company failed to disclose the collision damage waiver and the limits of liability. The failure to disclose all benefits, coverage, time limits or other provisions of the insurance policy was identified as a significant noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.4(a). Summary of Company Response: Although CSE believes it has been in compliance with the requirements of CCR 2695.4(a), the Company understands that the documentation in the reviewed files does not clearly demonstrate this. The Company is committed to disclosing policy benefits, coverage, time limits or other provisions of its insurance policies that may apply to the claim presented. To accomplish this, the Company will continue its procedure to send a coverage letter upon receipt of notice of claim; and, effective immediately, the Company will place an electronic field in the WINS system that prompts the disclosure of coverage. This note will be entitled Coverage and will recapitulate the actions taken to disclose the coverage 16
applicable to the claim. This action may be in the form of a discussion with the policyholder that covers the various policy benefits, deductible, coverage, and limits. 6. In 20 instances, the Company failed, upon receiving proof of claim, to accept or deny the claim within 40 calendar days. This was identified as a noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.7(b). 7. In 20 instances, the Company required the use of non-original equipment manufacturer replacement crash parts without warranting that such parts are of like kind, quality, safety, fitness and performance as original manufacturer replacement crash parts. The Department alleges these acts are in violation of CCR 2695.8(g)(3). Summary of Company Response: CSE modified its claim acknowledgement letter such that it now includes the following language: Civil Service Employees Insurance Company [or CSE Safeguard Insurance Company] has the right to inspect and reasonably adjust any written estimate, require non-original equipment manufacturer replacement crash parts and make adjustments for betterment, depreciation or salvage. The Company warrants that any nonoriginal part used on your vehicle will be of like, kind, quality, safety, fit and performance as original equipment manufacturer replacement crash parts. 8. In 16 instances, the Company failed to explain in writing the determination of the cost of a comparable vehicle. In one instance, the Company failed to take reasonable steps to verify that the determination of the cost of a comparable vehicle is accurate and representative of the market value in the local market area. a) In 16 instances, CSE failed to provide the insured either with a copy of the valuation report or with a detailed and itemized explanation of the determination of the cost of the comparable vehicle. This was identified as a significant noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.8(b)(3). b) In one instance, the Company failed to obtain the average cost of two or more quotes from two or more licensed dealers in the local market area when comparable automobiles were not available in the local market area in the last 90 days. The Department alleges this act is in violation of CCR 2695.8(b)(3). Summary of Company Response: a) CSE recognizes that explanations must be incorporated into the loss settlement procedure and communicated to the insured. Compliance with this procedure is incorporated into the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern 17
b) The Company will review each valuation report to verify that the method used by the independent valuation service reflects the value of the local market area. 9. In 16 instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies. The examiners found 16 instances of processing delay, inadequate investigation, inconsistent investigative activity or failure to adhere to policy provision. Specifically, six instances of delay in obtaining an inspection, estimate or total loss valuation are noted. Five instances of gaps in investigative activity ranging from 30 days to 14 weeks are noted. In three medical payment claims, the Company either failed to identify the passengers to rule out potential medical payment coverage when it had reasonable belief that such exposure exists; or it failed to seek medical claim information on a hospitalized passenger; or it failed to extend medical payment coverage until an investigation was completed. In two uninsured motorist claims, the Company failed to trigger uninsured motorist coverage immediately upon notice that the adverse carrier was investigating a coverage question which, by policy provision, defines Uninsured Motorist. The failure to adhere to standards of investigation and processing was identified as a significant noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CIC 790.03(h)(3). Summary of Company Response: a) The processing delays will be remedied by the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern 10. In 16 instances, the Company failed to provide necessary forms, instructions, and reasonable assistance within 15 calendar days. The Department alleges these acts are in violation of CCR 2695.5(e)(2). 11. In 12 instances, the Company failed to provide written notice of the need for additional time every 30 calendar days. This was identified as a noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.7(c)(1). 18
12. In 11 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. In two of the instances involving Uninsured Motorist coverage, the Company failed to provide the written statute not less than 30 days prior to the expiration date. The Department alleges these acts are in violation of CCR 2695.7(f). Summary of Company Response: As a remedial measure, CSE issued the appropriate statute letter to each claimant identified in these instances. The corrective action for this claims practices error is incorporated into the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern 13. In three instances, the Company failed to conduct and pursue a thorough, fair and objective investigation of a claim. In four instances, the Company persisted in seeking information not reasonably required for or material to the resolution of a claim dispute. a) In two instances, involving the calculation of the value of the loss vehicle, the Company either failed to obtain the correct odometer reading or failed to use the odometer reading claimed by the insured. In one instance, the Company failed to obtain the loss history of a vehicle prior to the settlement offer and retracted the offer after learning the vehicle had a prior salvage title. b) In three uninsured motorist claims, the Company continued to seek proof that the adverse driver was uninsured although it had reasonable proof as such based on a police report or a lack of response from the adverse driver. In one instance, the Company persisted in obtaining a police report despite the fact that no police report was written because the loss occurred on private property. The Department alleges these acts are in violation of CCR 2695.7(d). Summary of Company Response: The corrective action for these errors is incorporated into the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern insurance operations. 14. In seven instances, the Company failed, upon acceptance of the claim, to tender payment within 30 calendar days. This was identified as a noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.7(h). 19
15. In seven instances, the Company required the use of non-original equipment manufacturer replacement crash parts without the use of such parts disclosed in accordance with 9875 of the California Business and Professions Code. In these instances, the repair estimate failed to include the warranty language from the manufacturer of the nonoriginal manufacturer replacement crash parts. The Department alleges these acts are in violation of CCR 2695.8(g)(5). Summary of Company Response: The Company stipulates the use of CAPA certified replacement parts. The Company s remedial action for providing each claimant with a copy of the repair estimate, as explained in section number 2 in this Summary, will place responsibility on the appraiser and on the file adjuster to see to it that the warranty language appears on the estimate. 16. In seven 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. This claims practices error was identified as a significant noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.8(i). Summary of Company Response: Betterment will be clearly identifiable on the estimate. The policyholder will be contacted and the issue of betterment (i.e., how and why it is applied) will be explained in a telephone conversation. The claims handler will confirm that the policyholder understands the concept and the amount of the deduction. Upon mutual agreement and resolution of any issues regarding betterment, the conversation will be documented in the WINS notepad. A confirmation letter detailing the basis for the betterment, along with a copy of the estimate, will be sent to the policyholder. A settlement check will be issued, under separate cover, in accordance with the agreement. 17. In six instances, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. a) In four instances, the Company failed to effectuate an equitable settlement as follows: 1) the Company processed a comprehensive claim as a collision claim which carried a higher deductible; 2) the Company had sufficient information to identify the hit and run driver and failed to extend Uninsured Motorist coverage; 3) the Company failed to pay a medical bill; 4) the Company failed to cash out the insured for the cost of repairs. b) In two instances, the Company set an arbitrary limit to the cost of paint materials used in the repair of the vehicle at an automobile repair shop outside of its preferred network. The Department alleges the setting of a limit is arbitrary and is not supported by a method of appraisal recognized by the automotive repair industry. The Department alleges these acts are in violation of CIC 790.03(h)(5). Summary of Company Response: a) The Company issued payments totaling $1,638.50 to compensate the settlement errors identified in a) above. The corrective action for these errors 20
b) To remedy the setting of an arbitrary paint allowance in two instances, CSE recalculated the refinish time based on the number of hours at the hourly rate and issued a supplemental payment to each repair shop for a combined total of $196.40. CSE has agreed to discontinue the practice of paint material capping at a repair shop outside of its preferred network as of February 15, 2008. It will instruct its appraisers and adjusters to calculate number of paint refinishing hours by the applicable hourly rate to arrive at a cost for the paint materials. 18. In six instances, the Company failed to respond to communications within 15 calendar days. In six instances, the Company failed to respond timely to requests or demands from a claimant attorney. The Department alleges these acts are in violation of CCR 2695.5(b). 19. In five instances, the Company attempted to settle a claim by making a settlement offer that was unreasonably low. In four instances, the Company failed to reimburse the insured s deductible under the Collision Damage Waiver provision or failed to include all vehicle equipment from the total loss valuation. In one instance, the Company asserted a credit for payment made under the Medical Payment coverage to the policy limits of the Uninsured Motorist coverage. The Department alleges these acts are in violation of CCR 2695.7(g). Summary of Company Response: As a result of these findings, the Company issued payments to the identified claimants for a combined total of $2,246.96. The corrective action for these errors is incorporated into the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern 20. In five instances, the Company directed, suggested or recommended that an automobile be repaired at a specific repair shop without such referral expressly requested by the claimant. Specifically, the insured accepted the Company s oral recommendation of an automotive repair dealer and the Company failed to send the written notice required by CIC 758.5 within five days of the recommendation. The Department alleges these acts are in violation of CCR 2695.8(e)(2)(A). Summary of Company Response: This error is not in line with Company procedures. The corrective action for this claims practices error is incorporated into the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern 21
21. In four instances, the Company misrepresented to claimants, pertinent facts or insurance policy provisions relating to any coverages at issue. In four instances, the Company misstated a pertinent fact pertaining to the claim as follows: 1) the Company created a detrimental reliance by first approving the repairs under Uninsured Motorist Property Damage coverage and subsequently denying the claim on the basis that the insured did not carry Uninsured Motorist coverage; 2) the Company misinformed the insured that physical contact between vehicles is required in order to pay benefits under the Medical Payment provision; 3) the Company denied the claim on the basis that the identity of the at-fault driver was unknown, although the Company had the identity four months prior; 4) the Company told the insured that rental reimbursement was not covered, although the insured carried such coverage. The Department alleges these acts are in violation of CIC 790.03(h)(1). Summary of Company Response: CSE issued $3,500 to the insured whose claim was denied as described in 1) above. The corrective action for these errors is incorporated into the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern 22. In four instances, the Company failed to maintain all documents, notes and work papers in the claim file. In three instances, the Company failed to document whether or not it had submitted the completed form REG 481, Salvage Vehicle Notice of Retention by Owner, to the Department of Motor Vehicles. In one instance, the Company failed to retain the repair supplement. The Department alleges these acts are in violation of CCR 2695.3(a). Summary of Company Response: The Company verified that the DMV had received the referenced notices for each of the three vehicles. The failure to retain the repair supplement is an isolated error, as the Company has a procedure for imaging documents as they are received. The corrective action for these errors is incorporated into the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern 23. In four instances, the Company failed to provide the written basis for the denial of the claim. This practice was identified as a noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.7(b)(1). 24. In two instances, the Company failed to provide written notification to a first party claimant as to whether the insurer intends to pursue subrogation. In two instances, the Company failed to provide written notification to a first party claimant of its decision to discontinue subrogation. This was identified as a noncompliance issue in the prior claims 22
practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.7(p). 25. In two instances, the Company misled a claimant as to the applicable statute of limitations. The Department alleges these acts are in violation of CIC 790.03(h)(15). 26. In two instances, the Company failed to acknowledge notice of claim within 15 calendar days. The Department alleges these acts are in violation of CCR 2695.5(e)(1). 27. In two instances, the Company failed, upon receiving proof of claim, to accept or deny the claim within 80 calendar days. The claims involved suspected fraud. The Department alleges these acts are in violation of CCR 2695.7(k)(1). 28. In one instance, the Company failed to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage. Specifically, the settlement of the physical damage was delayed until the bodily injury claim was settled. The Department alleges this act is in violation of CIC 790.03(h)(12). 23
29. In one instance, the Company failed to record the date the Company received every relevant document. Specifically, the proof of loss document is not recorded with the date it was received. The Department alleges this act is in violation of CCR 2695.3(b)(2). 30. In one instance, the Company improperly required a claimant to give notification of a claim or proof of claim within a specified time. The Department alleges this act is in violation of CCR 2695.4(d). 31. In one instance, the Company failed to include, in the settlement, the license fee and other annual fees, computed based upon the remaining term of the registration. Specifically, CSE Safeguard failed to include the unused vehicle license fee in the total loss settlement. The Department alleges this act is in violation of CCR 2695.8(b)(1). Summary of Company Response: CSE has systems in place to correctly calculate and pay all fees associated with a total loss settlement. This is an isolated error. The Company issued payment for $174.00 to the named insured for the unpaid vehicle license fee. The corrective action for this claims practices error is incorporated into the Company s internal claims audit program which is explained in the Addendum following section number 61 in this Summary. CSE re-formulated its audit program to respond to the challenge of ensuring compliance with the laws and regulations that govern 32. In one instance, the Company failed to support the adjustment from the cost of a comparable automobile. Specifically, the basis for an adjustment for a prior salvage title from the cost of the comparable automobile is not discernable, measurable, itemized and specified in dollar amount. The Department alleges this act is in violation of CCR 2695.8(b)(2). Summary of Company Response: CSE relies on a Salvage Title Adjustment chart provided by an independent valuation company. The chart reflects a percentage amount to be deducted from the value of a comparable vehicle based on the category of vehicle being valued, the model, year, price, type of loss vehicle and the presence of prior damage. Summary of the Department s Response to the Company Response: This is an unresolved issue and may result in further administrative action. 24
33. In one instance, the Company failed to provide the insured with the Auto Body Repair Bill of Rights, either at the time of application for automobile insurance, at the time a policy is issued or following an accident. The Department alleges this act is in violation of CCR 2695.85. Summary of Company Response: CSE routinely sends out the referenced Bill of Rights upon notice of claim. This is an isolated error. Nonetheless, compliance will be monitored in the Company s internal claims audit program that is detailed in the Addendum following section number 61 in this Summary. HOMEOWNERS 34. In 58 instances, the Company failed to disclose all benefits, coverage, time limits or other provisions of the insurance policy. This was identified as a significant noncompliance issue in the prior claims practices examination conducted as of April 30, 2001. The Department alleges these acts are in violation of CCR 2695.4(a). Summary of Company Response: Although CSE believes it has been in compliance with the requirements of CCR 2695.4(a), the Company understands that the documentation in the reviewed files does not clearly demonstrate this. The Company is committed to disclose policy benefits, coverage, time limits or other provisions of its insurance policies that may apply to the claim presented. To accomplish this, the Company will continue its procedure to send a coverage letter upon receipt of notice of claim. Effective immediately, the Company will place an electronic field in the WINS notepad that prompts the disclosure of coverage. This note will be entitled Coverage and will recapitulate the actions taken to disclose the coverage applicable to the claim. This action may be in the form of a discussion with the policyholder that covers the various policy benefits, deductible, coverage, and limits. 35. In 20 instances, the Company misrepresented to claimants, pertinent facts or insurance policy provisions relating to any coverages at issue. California Insurance Code Section 2051.5(b) states that an insured has no time limit of less than 12 months from the date that the first payment toward the actual cash value is made to claim the full replacement cost of the loss. In the cited instances, one of the Company s various settlement letters sent by an independent appraiser states the insured has 12 months from the date of the first payment...to claim the full replacement cost of the loss subject to your policy limits. The Department alleges these acts are in violation of CIC 790.03(h)(1). Summary of Company Response: CSE has changed its procedure to advise its policyholders when they submit a loss that they have a minimum of 12 months to inform the Company that the holdback amount will be claimed. 36. In 20 instances, the Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies. a) In the settlement of a property claim, CSE contracts with an independent adjusting company to complete the inspection and the loss adjustment. Nine investigative delays ranging from 14 days to 60 days are noted in either completing an inspection, preparing a loss adjustment or in transmitting the loss adjustment to the Company for final approval and payment. Three 25