Make your own free website on Tripod.com



The "Farmers Insurance News-Alert" website is dedicated to providing the consumer and general public with detailed information concerning the Farmers Insurance Group. This includes fraud reports, consumer complaints, lawsuit's and other legal actions taken against this company. All information contained herein is for educational purposes only. Original sources, when known are sited.

 

MARKET CONDUCT EXAMINATION REPORT

AS OF DECEMBER 31, 1995

FARMERS INSURANCE EXCHANGE

4680 WILSHIRE BLVD.

LOS ANGELES, CA 90010

EXAM LOCATION

3500 NORTH NEVADA AVE

COLORADO SPRINGS, COLORADO 80907

PREPARED BY INDEPENDENT CONTRACTORS FOR

COLORADO DEPARTMENT OF REGULATORY AGENCIES

DIVISION OF INSURANCE

 

PCMC 97-3-AU

V3 - 08/17/97

LARRY N. CAMPBELL, CIE

&

JAMES T. AXMAN, AIE

Independent Market Conduct Examiners

Working in Coordination with

Colorado Division of Insurance

1560 Broadway, Suite 850

Denver, Colorado 80202

(303) 894-7499

 


TABLE OF CONTENTS

I. COMPANY PROFILE

II. PURPOSE AND SCOPE OF EXAMINATION

III. EXAMINATION REPORT SUMMARY

IV. PERTINENT FACTUAL FINDINGS

A. Underwriting

B. Claims Practices

V. SUMMARY OF RECOMMENDATIONS

VI. EXAMINATION REPORT SUBMISSION


May 14, 1997

The Honorable Jack Ehnes

Commissioner of Insurance

State of Colorado

1560 Broadway Suite 850

Denver, Colorado 80202

Commissioner:

In accordance with Sections 10-1-203 and 10-3-1106, C.R.S., an examination of selected underwriting and claims practices of the Private Passenger Automobile Insurance Business of Farmers Insurance Exchange has been conducted. The Company’s records were examined at its Regional office located at 3500 North Nevada Ave., Colorado Springs, Colorado, 80907.

The examination covered the period from January 1, 1995 to December 31, 1995.

A report of the examination is herein respectfully submitted.

Larry N. Campbell, CIE., &

James T. Axman, AIE

Independent Market Conduct Examiners

 


COMPANY PROFILE

Farmers Insurance Exchange, hereinafter referred to as "the Company", was organized on March 28, 1928 in Los Angeles, California and commenced business in California on April 6, 1928. The Company is currently licensed in Alabama, Arizona, Arkansas, California, Colorado, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin and Wyoming. (States in which the Company actively writes property and casualty coverage are indicated in bold)..

Farmers Insurance Exchange was licensed in Colorado on November 6, 1930 as a reciprocal or inter-insurance exchange. Lines of Insurance the Company is currently authorized to sell encompass the following:

Accident and Health, Livestock, Glass, Boiler and Machinery, Burglary and Theft, Fidelity and Surety, Motor Vehicle, Workmen’s Compensation, Liability, Personal Property Floaters, Earthquake, Fire, Aircraft, Inland Marine, Ocean Marine, Homeowners Multiple Peril, Commercial Multiple Peril and Farm Owners Multiple Peril.

In 1995, the Company reported $309,708,135. in total written premiums for all lines of insurance written out of the Colorado Springs Regional office operations. Its Automobile market was $287,619,763. in written premiums, representing approximately 427,504 policies. This volume represents a 16.56% market share (according to the NAIC) of all Private Passenger Automobile insurance written in the State of Colorado.

PURPOSE AND SCOPE OF EXAMINATION

This market conduct report was prepared by independent examiners contracting with the Colorado Division of Insurance for the purpose of auditing certain business practices of insurers licensed to conduct the business of insurance in the State of Colorado. This procedure is in accordance with Colorado Insurance Law 10-1-204, C.R.S., which empowers the Commissioner to supplement his resources to conduct market conduct exams. The findings in this report, including all work product developed in the production of this report, are the sole property of the Colorado Division of Insurance.

The market conduct examination covered by this report was performed on a routine basis to assist the Colorado Commissioner of Insurance to meet statutory requirements, by determining Company compliance with the Colorado Insurance Code and generally accepted operating principles. Additionally, findings of a market conduct examination serve as an aid to the Division of Insurance’s early warning system. The intent of the information contained in this report is to serve only those purposes.

This examination was governed by, and performed in accordance with, procedures developed by the National Association of Insurance Commissioners, the Colorado Division of Insurance, and the Insurance Regulatory Examiners Society. In reviewing material for this report the examiners relied primarily on records and material maintained by the Company. The examination period covered one calendar year of the Company’s operations, from January 1, 1995 to December 31, 1995.

File sampling was based on review of systematically selected samples of underwriting and claims files by category. Sample sizes were chosen based on guidance from procedures developed by the National Association of Insurance Commissioners. Upon review of each file, any concerns or discrepancies were noted on comment forms. These comment forms were delivered to the Company for review. Once the Company was advised of a finding contained in a comment form, the Company had the opportunity to respond. For each finding the Company was requested to agree, disagree or otherwise justify the Company’s noted action. At the conclusion of each sample, the Company was provided a summary of the findings for that sample. The report of the examination is, in general, a report by exception. Therefore, much of the material reviewed will not be contained in this written report, as reference to any practices, procedures, or files which manifested no improprieties were omitted.

An error tolerance level of plus or minus $10.00 was allowed in most cases where monetary values were involved, however, in cases where monetary values were generated by computer a $0 tolerance level was applied in order to identify possible system errors. Additionally, a $0 tolerance level was applied in instances were there appeared to be a consistent pattern of deviation from the Company’s rates on file with the Colorado Division of Insurance.

This report contains information regarding exceptions to the Colorado Insurance Code. The examination included review of the following four Company operations:

1. Complaint Handling

2. Underwriting Practices.

3. Rate Application.

4. Claims Settlement Issues.

All unacceptable or non-complying practices may not have been discovered throughout the course of this examination. Additionally, findings may not be material to all areas which would serve to assist the Commissioner. Failure to identify or criticize specific Company practices does not constitute acceptance by the Colorado Division of Insurance of such practices. This report should not be construed to endorse nor discredit any insurance company or insurance product. Statutory cites and regulation references are as of the period under examination unless otherwise noted. Examination report recommendations which do not reference specific insurance laws, regulations, or bulletins are presented to encourage improvement of company practices and operations and ensure consumer protection. Examination findings may result in administrative action by the Division of Insurance.

EXAMINATION REPORT SUMMARY

The examination resulted in a total of eleven (11) issues, arising from the Company’s apparent noncompliance with Colorado statutes and regulations concerning all property and casualty insurers operating in Colorado. These issues encompassed the following Company operations.

Complaint Handling Procedures:

In the area of complaint handling, no compliance issues were noted.

Underwriting Practices:

In the area of underwriting, five (5) compliance issues are addressed in this report. These issues arise from Colorado statutory and regulatory requirements which must be followed whenever policies are issued, canceled, or non-renewed or the premiums increased or decreased. The incidence of noncompliance in the area of underwriting exhibits a frequency range of 2% to 100%. With regard to these six (6) underwriting practices, it is recommended that the Company review its underwriting procedures and make the necessary changes to assure future compliance with applicable statutes and regulations.

Rating:

In the area of rating, no compliance issues were noted.

Claims Practices:

In the area of claim practices, six (6) compliance issues are addressed. These issues arise from Colorado statutory and regulatory requirements dealing with the fair and equitable settlement of claims, payment of claims checks, maintenance of records, timeliness of payments, accuracy of claim payment calculations, and delay of claims. The incidence of noncompliance in the area of claims practices shows a frequency range of error between 2% and 54%. In regard to the six (6) compliance issues in this area, it is recommended that the Company review its claims handling procedures and make the necessary changes to assure future compliance with applicable statutes and regulations.

PERTINENT FACTUAL FINDINGS

PRIVATE PASSENGER AUTOMOBILE

PERTINENT FACTUAL FINDINGS

for

UNDERWRITING

Issue A: Failure to submit forms for Certification to the Colorado Division of Insurance.

Section 10-3-1104 (u), C.R.S., states:

Certifying pursuant to section 10-4-725 or issuing, soliciting, or using an automobile policy form, endorsement, or notice form that does not comply with statutory mandates. Such solicitation or certification shall be subject to the sanctions described in sections 10-3-1107, 10-3-1108. And 10-3-1109.

Section 10-4-725 (2), C.R.S., Certification of policy and notice forms, states:

(2) All insurers providing automobile insurance and who are authorized by the commissioner to conduct business in Colorado shall also submit to the commissioner a list of any new policy form, endorsement, cancellation notice, renewal notice, disclosure form, notice of proposed premium increase, notice of proposed reductions in coverage, and any other form as may be requested by the commissioner at least thirty-one (31) days before using such policy form, endorsement, cancellation notice, renewal notice, disclosure form, notice of proposed premium increase, notice of proposed reductions in coverage, and any other form as may be requested by the commissioner. Such listing shall also contain a certification by an officer of the organization that to the best of the officer's knowledge each new policy form, endorsement, or notice form proposed to be used complies with Colorado law. The necessary elements of the certification shall be determined by the commissioner.

Colorado Regulation 1-1-6 (7), Annual filing of forms and certification by officer, states

Listing of New Policy Forms for automobile private passenger insurance" shall mean a list of any new automobile private passenger policy forms, endorsements, cancellation notices, renewal notices, disclosure forms, notices of proposed premium increases, notices of reductions in coverage and any other such forms as requested by the Commissioner issued or delivered to any policyholder in Colorado with the description of the form, the form number and edition date, the title of the program or product affected by the form, and the effective date the form will be used.

The Company’s Automobile Private Passenger Forms Certification List, dated June 19, 1995, generated by the Home Office and submitted to the Colorado Division of Insurance for the examination period, was compared to all forms used during the examination period. One (1) form was noted as being used by the Company in their underwriting and claims handling procedures but not contained on the Certification list that was submitted to the Division of Insurance during the examination period. It is as follows:

    • Notice of Increase in Premium (51-0834)

Recommendation # 1:

Within 30 days, the Company should be required to provided evidence demonstrating why the Company should not be considered in violation of Section 10-3-1104 (u), C.R.S., Section 10-4-725, C.R.S., and Regulation 1-1-6. In the event the Company is unable to provide such documentation, the Company should be required to provide evidence demonstrating that the Company has implemented procedures which will ensure complete Certification so that the y will comply with requirements of the Colorado Insurance Law.

Issue B: Failure to notify the insured of their possible eligibility for Automobile Liability insurance through an Assigned Risk Plan.

Section 10-4-606, C.R.S., "Further notice", states:

When automobile bodily injury and property damage liability coverage is cancelled, other than for nonpayment of premium, or in the event of failure to renew automobile bodily injury and property damage liability coverage to which section 10-4-604 applies, the insurer shall notify the named insured of his possible eligibility for automobile liability insurance through an assigned risk plan established pursuant to section 10-4-412 and shall notify the insured as to where he may obtain information concerning such plan. Such notice shall accompany or be included in the notice of cancellation or the notice of intent not to renew.

The following chart illustrates the significance of error versus the population and sample examined:

POLICIES CANCELLED WITHIN THE FIRST 59 DAYS

Population

Sample Size

Number of Exceptions

Percentage to Sample

2420

50

50

100%

An examination of 50 files, representing 2% of all policies cancelled by the Company within the first 59 days, in Colorado during 1995, showed 50 instances (100% of the sample) wherein the Company issued cancellation notices that did not contain the notification to the insured of possible eligibility for Automobile Liability insurance through an Assigned Risk Plan (Colorado Motor Vehicle Insurance Plan) as well as notification specific to where the insured may obtain such information concerning the plan.

Recommendation # 2:

Within 30 days the Company should be required to provide documentation demonstrating why the Company should not be considered in violation of Section 10-4-606, C.R.S. In the event the Company is unable to provide such documentation, the Company should be required to provided evidence demonstrating that it has reviewed Company procedures and pertinent forms regarding Automobile policies cancelled within the first 59 days of inception to ensure that proper notification is contained on the cancellation form so that they will comply with requirements of the Colorado Insurance Law.

Issue C: Failure to provide 30 days written notice to the insured as to the Company’s intention of non-renewing the policy.

Section 10-4-720 (2), C.R.S., Cancellation - renewal - reclassification, states:

(1) Except in accordance with the provisions of this part 7, no insurer shall cancel or fail to renew a policy of insurance which complies with this part 7, issued in this state, as to any resident of the household of the named insured, for any reason other than nonpayment of premium, or increase a premium of any coverage on any such policy unless the increase is part of a general increase in premiums filed with the commissioner and does not result from a reclassification of the insured, or reduce the coverage under any such policy unless the reduction is part of a general reduction in coverage approved by the commissioner or to satisfy the requirements of other sections of this part 7.

(2) An insurer intending to take an action subject to the provisions of this section shall, on or before thirty (30) days prior to the proposed effective date of the action, send written notice by first-class mail of its intended action to the insured at his last known address. The notice shall be in triplicate and shall state in clear and specific terms, on a form certified by the insurer and the insurer has filed a certification with the commissioner that such notice form conforms to Colorado law and any rules or regulations promulgated by the commissioner....

The following chart illustrates the significance of error versus the population and sample examined:

AUTOMOBILE POLICIES NON-RENEWED BY THE COMPANY IN-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

2278

50

3

6%

An examination of 50 files representing 2.19% of all policies non-renewed by the Company in Colorado during 1995, showed 3 instances (6% of the sample) in which a non-renewal notice was issued without giving the insured 30 days advance notice of its intent to non-renew the policy.

Recommendation # 3:

Within 30 days, the Company should provide documentation demonstrating why it should not be considered in violation of Section 10-4-720, C.R.S. In the event the Company is unable to provide such documentation, it should be required to provide evidence demonstrating that the Company has adopted and implemented procedures which will provide at least 30 days notice of its intention to non-renew Automobile policies in compliance with the requirements of Colorado Insurance Law.

Issue D: Failure of the Company to provide 10 days written notice of cancellation for nonpayment of premium.

Colorado Section 10-4-603 (1), C.R.S., "NOTICE", states:

No notice of cancellation of a policy to which section 10-4-602 applies shall be valid unless mailed or delivered by the insurer to the named insured at least twenty days prior to the effective date of cancellation; but where cancellation is for nonpayment of premium, at least ten days notice of cancellation accompanied by the reason therefor shall be given.

The following chart illustrates the significance of error versus the population and sample examined:

POLICIES CANCELLED FOR NONPAYMENT OF PREMIUM IN 1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

23435

100

100

100%

An examination of 100 files, representing .0042% of all policies cancelled by the Company for nonpayment of premium in Colorado during 1995, showed 100 instances (100% of the sample) wherein the Company failed to substantiate compliance with 10-4-603, C.R.S., which requires 10 days advance notice to the insured.

Notices of cancellation for nonpayment of premium are procedurally generated from the Home Office by computer direct to the insured. All physical documentation of this procedure is also retained in the Home Office by date order. The Regional office could not provide the examiners with this documentation to substantiate compliance with the above-captioned Colorado Insurance Law. Additionally, the Regional office computer system does not capture the date of when the notice for nonpayment of premium is actually sent to the insured, therefore, it was impossible for the examiners to ascertain compliance in this regard.

Recommendation # 4:

Within 30 days, the Company should provide documentation demonstrating why it should not be considered in violation of Section 10-4-603, C.R.S. In the event the Company is unable to provide such documentation, it should be required to provided evidence demonstrating that the Company has adopted and implemented procedures which will prove compliance with the requirements of Colorado Insurance Law.

Issue E: Failure of the Company’s Underwriting manual to state the correct "Experience Period", and " Accident Defined" when determining a surcharge.

Section 10-3-1104 (1)(f)(II), C.R.S., Unfair Discrimination, states:

Making or permitting any unfair discrimination between individuals of the same class or between neighborhoods within a municipality and of essentially the same hazard in the amount of premium, policy fees, or rates charged for any policy or contract of insurance or in the benefits payable thereunder, or in any of the terms or conditions of such contract, or in any other manner whatever.

Additionally, Colorado Regulation 5-2-3 (D), RULES LIMITING INSURERS' ACTIONS TO REFUSE TO WRITE, CANCEL, NONRENEW, INCREASE PREMIUM, OR REDUCE COVERAGES, states:

(1). In reviewing protests under Section 10-4-720, C.R.S. (Cancellations). The Division of Insurance will apply the following time limitations: (a) If the insurer bases its action upon the fact that the insured has been involved in an accident which resulted in payment under the policy and/or has been convicted of a motor vehicle violation, the insurer may base its action on convictions or accidents which occurred during the three (3) year period preceding the date of the proposed action.

(5). Unacceptable reasons for an increase in premium (other than a general increase filed with the Commissioner of Insurance) due to a reclassification of the insured under a complying policy include, but are not necessarily limited to the following:

a. The use of reasons under 2. and 4.b.,c.,d.,e.,f.,g.,and i. above. b. The use of an accident resulting in payment of less than $500 unless the insurer has elected to file with the Division of Insurance a rating plan such as a Safe Driver Plan, and Accident Surcharge Plan, which includes statistical data justifying the use of a lesser threshold.

The examiners noted that the Company’s Underwriting manual conflicts with Colorado Regulation 5-2-3 (D). On renewals, the Company uses two guidelines from their manual in determination of Surcharges applicable due to accidents and/or tickets. In one criteria, they define "experience period" as 3 years and 6o days which does not comply with the stated Colorado Regulation using "3 years". In the second criteria the Company uses "accident defined", as $500 or Reserve Pending which also conflicts with Colorado Regulation stating "$500". Auto Renewals with tickets or accidents under the above-mentioned criteria are subjected to an increase in premium (or removal of the accident-free discount) which constitutes a 25% increase or in some cases, an offer to rewrite the policy in the Company with a higher rate, Mid-Century Insurance.

Recommendation # 5:

Within 30 days, the Company should provide documentation demonstrating why it should not be considered in violation of Section 10-3-1104 (1)(f)(II), C.R.S., and Regulation 5-2-3 (D). In the event the Company is unable to provide such documentation, it should be required to provided evidence demonstrating that the Company has adopted and implemented new underwriting procedures that will be in compliance with the requirements of Colorado Insurance Law.

PERTINENT FACTUAL FINDINGS

for

CLAIMS PRACTICES

Issue F: Failure of the Company to obtain specific written assignment from the insured before issuing drafts.

Colorado Regulation 5-1-5 (III), Unfair Claims Settlement Practices, under the authority of Section 10-1-109, C.R.S., requires that:

No insurer shall attempt to settle any claim made by their insured by means of ordering claim checks, drafts or other choses-in-action payable to any person other than their insured (s), without specific written assignment thereof by the insured.

The following chart illustrates the significance of error versus the population and sample examined:

AUTO 1ST PARTY COMPREHENSIVE & COLLISION CLAIMS PAID-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

72620

100

2

2%

An examination of 100 systematically selected claim files representing .0014% of all comprehensive and collision claims paid by the Company in 1995, showed two (2) instances (2% of the sample) in which the Company issued a check made payable to a third-party without a specific written assignment from the insured.

Recommendation # 6:

Within 30 days, the Company should provide written documentation demonstrating why the Company should not be considered in violation of Section 10-1-109, C.R.S., and Colorado Insurance Regulation 5-1-5 (III). In the event the Company is unable to provide such documentation, it should be required to provide written procedures showing that prior written assignment from the insured is required before checks are issued co-payable or directly payable to a repair or service facility.

Issue G: Failure to pay insurance claims in accordance with policy provisions and/or written Company claims handling procedures.

Section 10-3-1104(1)(h)( VI ), C.R.S., defines an unfair claims settlement practice as:

Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.

The Company’s Claims Representative Field Manual, Page D-11. (XV), Total Losses, Settlements, states, in part, the following,

"When making a total loss settlement, sales tax, license and transfer fees must be added to the actual value of the vehicle."

The following chart illustrates the significance of error versus the population and sample examined:

CLAIMS IN WHICH A VEHICLE WAS DECLARED A TOTAL LOSS-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

4410

50

27

54%

An examination of 50 files, representing 1.1% of claims paid by the Company in 1995 in which a vehicle was declared a total loss, showed 27 instances (54% of the sample) wherein the Company either failed to pay the claims in accordance with their claims manual or failed to pay the claims in accordance with auto policy provisions.

There were twenty four(24) instances where the Company failed to follow their own Claims Manual with respect to paying transfer/license fees and these are detailed as follows:

Nine (9) were due to the Company’s failure to pay the correct transfer/license fee of $6.50 and instead incorrectly paid a fee of $5.50. The fee was increased by law effective July 1,1995.

Eight (8) were due to the Company’s failure to pay the correct amounts for transfer/licenses fees. These amounts varied but in all instances were under $10.00.

Seven (7) were due to the Company’s failure to pay any amount for transfer/license fees.

There were three (3) instances where the Company failed to pay the correct total loss amount in accordance with auto policy provisions and these are detailed as follows:

One (1) was due to the Company incorrectly taking a condition adjustment of minus $1,163.00 on a vehicle which had been stolen and not recovered. There was no way for the Company to ascertain the condition due to the theft of the vehicle and therefor actual cash value was not paid as provided in the policy provisions.

One(1) was due the Company’s failure to pay the correct amount to their insured. The correct deductible shown on the policy was $240.00 and the Company incorrectly deducted $500.00 from the loss paid to the insured.

One(1) was due to the Company’s failure to document a total loss adequately enough to establish that the amount paid was the actual cash value. In addition, figures used by the Company did not add-up to what was paid. The amount paid was $8173.80. The amount which should have paid was $8169.97

Recommendation # 7:

Within 30 days, the Company should provide documentation demonstrating why it should not be considered to be in violation of Section 10-3-1104(1)(h)(VI), C.R.S. In the event the Company is unable to provide such documentation, the Company should be required to provide evidence that it has reviewed its procedures regarding the payment of taxes and fees when paying claims in which a vehicle is declared a total loss. After reviewing these procedures, the Company should be required to provide written evidence to assure claims in which a vehicle is declared a total loss will be paid in compliance with the Company’s Field Representative’s manual provisions and any applicable statutory requirements.

Additionally, the Company should be required to conduct a self audit of all total loss claims paid in Colorado from January 1, 1995 to present and make remuneration of any unpaid benefits as found by the audit.

Issue H: Failure to pay claims properly in which Comparative Negligence was used to deny or offset the adjustment of a claim without conducting a reasonable investigation.

Section 10-3-1104 (1)(h)(XV), C.R.S., defines an Unfair Claim Settlement Practice as:

Raising as a defense or partial offset in the adjustment of a third party claim the defense of comparative negligence as set forth in Section 13-21-111 C.R.S., without conducting a reasonable investigation and developing substantial evidence in support thereof. At such time as the issue is raised under this subparagraph(XV), the insurer shall furnish to the commissioner a written statement setting forth the reasons as to why a defense under the comparative negligence doctrine is valid.

The following charts illustrate the significance of error versus the population and sample examined:

CLAIMS IN WHICH A VEHICLE WAS DECLARED A TOTAL LOSS-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

4410

50

1

2%

An examination of 50 files, representing 1.1% of the claims paid by the Company in 1995 in which a vehicle was declared a total loss, showed 1 instances (or 2% of the sample) wherein the Company reduced the amount of a total loss to the third-party without conducting a reasonable investigation.

In this instance, the Company reduced the payment of a property damage liability total loss to the claimant by 25% on basis of speed and no evasive action. It appears to the examiners that the Company did not conduct a reasonable investigation in this matter. Except for the statements of both parties and an indication of 35 mph displayed on the police report, overall, the file lacks substantial developed investigative evidence in order to justify the Company’s action.

CLAIMS IN WHICH THE COMPANY DENIED PAYMENT IN 1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

4450

50

1

2%

An examination of 50 files, representing 1.1% of claims paid by the Company in 1995 in which a claim was denied in Colorado, showed one (1) instance (or 2% of the sample) wherein the Company failed to pay a third-party loss using as its defense the Colorado Comparative Negligence Law.

In this instance the insured and claimant were both backing out of parking-lot stalls. According to the statements and point of impacts, the claimant had already backed out of the stall and was in the process of pulling-forward. The insured alleges that they did not see the claimant vehicle and began backing and immediately impacted the claimant vehicle in the right side. The Company totally denied the property damage liability claim on the basis of 50/50 equal negligence (which would normally bar recovery under the Colorado Negligence Law). Additionally, there is a remark in the adjuster’s notes indicating that he would have negotiated a 75/25% settlement with the claimant, however, the insured had no collision coverage eliminating the Company’s subrogation rights as an offset in the matter.

Recommendation # 8:

Within 30 days, the Company should provide documentation demonstrating why it should not be considered to be in violation of Section 10-3-1104(1)(h)(XV), C.R.S., Unfair Claims Settlement Practices.

Issue I: Delay of PIP benefit payments.

Section 10-4-708(1), C.R.S., requires:

Payment of benefits under the coverage enumerated in section 10-4-706 (1)(b) to (1) (e) or alternatively, as applicable, section 10-4-706 (2) or (3) shall be made on a monthly basis. Benefits for any period are overdue if not paid within thirty days after insurer receives reasonable proof of the fact and amount of expenses incurred during that period; except that an insurer may accumulate claims for periods not exceeding one month, and benefits are not overdue if paid within fifteen days after the period of accumulation. If reasonable proof is not supplied as to the entire claim, the amount supported by reasonable proof is overdue if not paid within thirty days after such proof is received by the insurer. Any part or all of the remainder of the claim that is later supported by reasonable proof is overdue if not paid within thirty days after such proof is received by the insurer. In the event that the insurer fails to pay such benefits when due, the person entitled to such benefits may bring action in contract to recover the same.

Colorado Regulation 5-2-8 (III), Timely Payment of Personal Injury Benefits, (A)(B), Rules, states:

A. Section 10-4-708 (1), C.R.S., provides that benefits under the coverages enumerated in 10-4-706 are overdue if not paid within thirty days after the insurer receives reasonable proof of the fact and amount off expenses incurred.

B. In the usual case, for purposes of triggering the thirty-day time period in section 10-4-708 (1), C.R.S., the following documents are sufficient to establish reasonable proof of the fact and amount of the expenses incurred:

1. A properly executed application for benefits from the PIP claimant;

2. A notice to an insurer which meets the requirements of Section 10-4-708.7, C.R.S.; and

3. A billing statement for a procedure or treatment, which is subject to the obligations of Section 10-4-708.6, C.R.S.

The following charts illustrate the significance of error versus the population and sample examined:

AUTO PERSONAL INJURY PROTECTION BENEFITS PAID-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

13062

100

11

11%

An examination of 100 systematically selected files, representing .0076% of all personal injury protection benefit claims paid by the Company in 1995, showed 11 instances (11% of the sample) wherein the Company failed to pay PIP claims within the statutory standard of 30 days.

AUTO CANCELED DRAFTS FOR PERSONAL INJURY PROTECTION BENEFITS PAID-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

12509

100

6

6%

An examination of 100 systematically selected canceled drafts, representing .0079% of all personal injury protection benefit claims paid by the Company in 1995, showed 6 instances (6% of the sample) wherein the Company failed to pay PIP claims within the statutory standard of 30 days.

Recommendation #_9:

Within 30 days, the Company should provide written documentation demonstrating why it should not be considered in violation of Section 10-4-708 (1), C.R.S., and Colorado Regulation 5-2-8 (III). In the event the Company is unable to provide such documentation, it should be required to provide evidence demonstrating the Company has reviewed its procedures pertaining to timely PIP benefit payments and show that the Company has implemented procedures which will ensure future compliance with the Colorado Insurance Law.

Issue J: Failure to obtain specific written assignment from insureds prior to making direct payment of PIP benefits to health care providers

Section 10-4-708.4(1)(a), C.R.S., provides for the direct payment of benefits as follows:

A policy of motor vehicle insurance which provides coverage pursuant to this part 7 shall allow, but not require, an insured under the policy to assign, in writing, payments due under the policy to a licensed hospital or other licensed health care provider for services provided to the insured which are covered under the policy.

Section 10-4-708.4(2), C.R.S., provides in part:

When a licensed hospital or other licensed health care provider receives an assignment from an insured, it is the responsibility of the provider to bill the insurer, including a copy of the assignment. The provider shall also provide a copy of such bill to the insured, stating on such copy that it is for informational purposes only and that the insurer has been billed for covered benefits. The provider shall also furnish to the insurer a current taxpayer identification number as part of the initial bill and each subsequent billing. Subsequent billing to an insurer need not include a copy of the assignment unless required by the insurer so long as it is clearly noted on each such subsequent billing that the benefits have been assigned. The insurer shall honor such assignment and make payment of covered benefits directly to such licensed hospital or other licensed health care provider.

In addition, Colorado Insurance Regulation 5-1-5 (III), authorized by Section 10-1-109(1), C.R.S., states:

No insurer shall attempt to settle any claim made by their direct insured by means of ordering claim checks, drafts or other choses-in-action payable to any person other than their insured(s) without specific written assignment thereof by the insured.

The following charts illustrate the significance of error versus the population and sample examined:

AUTO PERSONAL INJURY PROTECTION BENEFITS PAID-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

13062

100

19

19%

An examination of 100 systematically selected files, representing .0076% of all personal injury protection benefit claims paid by the Company in 1995, showed 19 instances (19% of the sample) wherein the Company failed to obtain written assignments from insureds prior to making direct payment of PIP benefits to health care providers.

AUTO CANCELED drafts for

PERSONAL INJURY PROTECTION BENEFITS PAID-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

12509

100

42

42%

An examination of 100 systematically selected canceled drafts, representing .0079% of all personal injury protection benefit claims paid by the Company in 1995, showed 42 instances (42% of the sample) wherein the Company failed to obtain written assignments from insureds prior to making direct payment of PIP benefits to health care providers.

Recommendation # 10:

Within 30 days, the Company should provide written documentation demonstrating why the Company should not be considered in violation of Section 10-4-708.4, C.R.S., and Colorado Insurance Regulation 5-1-5 (III). In the event the Company is unable to provide such documentation, it should be required to provide written procedures showing that prior written assignment from the insured is required before making direct payment of personal injury protection benefits.

Issue K: Failure to maintain claims file documentation.

Section 10-4-708(1), C.R.S., requires:

Payment of benefits under the coverage enumerated in section 10-4-706 shall be made on a monthly basis. Benefits for any period are overdue if not paid within thirty days after insurer receives reasonable proof of the fact and amount of expenses incurred during that period; except that an insurer may accumulate claims for periods not exceeding one month, and benefits are not overdue if paid within fifteen days after the period of accumulation. If reasonable proof is not supplied as to the entire claim, the amount supported by reasonable proof is overdue if not paid within thirty days after such proof is received by the insurer. Any part or all of the remainder of the claim that is later supported by reasonable proof is overdue if not paid within thirty days after such proof is received by the insurer. In the event that the insurer fails to pay such benefits when due, the person entitled to such benefits may bring action in contract to recover the same.

Colorado Regulation 1-1-7 (3) , Record Retention, states in part:

3. Claim files shall be maintained so as to show clearly the inception, handling and disposition of each claim. A claim file shall be retained for the calendar year in which it is closed plus the next two calendar years.

The following chart illustrates the significance of error versus the population and sample examined:

AUTO PERSONAL INJURY PROTECTION BENEFITS PAID-1995

Population

Sample Size

Number of Exceptions

Percentage to Sample

13062

100

4

4%

An examination of 100 systematically selected files, representing .076% of all personal injury protection benefit claims paid by the Company in 1995, showed three (3) instances where the Company failed to document billing statements with the "date received". This lack of documentation prevented the examiners from determining compliance with Section 10-4-708 (1),C.R.S.

In one (1) instance (1% of the sample), the Company failed to document the file as to criteria for a Loss of Earnings (LOE) payment coordination in conjunction with a Workers’ Compensation primary reimbursement.

Recommendation #_11:

Within 30 days, the Company should provide documentation demonstrating why it should not be considered to be in violation of Section 10-4-708(1), C.R.S., and Colorado Regulation 1-1-7. In the event the Company is unable to provide such documentation, the Company should be required to provide evidence that it has reviewed all procedures related to documentation of the billing statements as to the date received, has implemented all necessary changes to assure compliance with the Colorado Insurance Law.

SUMMARY OF RECOMMENDATIONS LOCATOR

RECOMMENDATION NUMBER

PAGE NUMBER

ISSUE

1

8

Failure to submit forms for Certification to the Colorado Division of Insurance.

2

9

Failure to notify the insured of their possible eligibility for Automobile Liability insurance through an Assigned Risk Plan.

3

11

Failure to provide 30 days written notice to the insured as to the Company’s intention of non-renewing the policy.

4

13

Failure of the Company to provide 10 days written notice of cancellation for nonpayment of premium.

5

15

Failure of the Company’s Underwriting manual to state the correct "Experience Period", and " Accident Defined" when determining a surcharge.

6

17

Failure of Company to obtain specific written assignment from the insured before issuing drafts.

7

19

Failure to pay insurance claims in accordance with policy provisions and/or written Company claims handling procedures.

8

21

Failure to pay claims properly in which Comparative Negligence was used to deny or offset the adjustment of a claim.

9

23

Delay of PIP benefit payments.

10

25

Failure to obtain specific written assignment from insureds prior to making direct payment of PIP benefits to health care providers.

11

27

Failure to maintain file documentation.

 

Independent Market Conduct Examiners

LARRY N. CAMPBELL, CIE

&

JAMES T. AXMAN, AIE

participated in this examination and in the preparation of this report.

 

Attention! All information contained herein is for educational purposes only. No copyright infringement is intended by any material on these pages. The copyrights of the whole multimedia content on these pages are belonging to their originators, authors, creators... etc. All original content is the property of it's originators. Copyrighted material has been used for non-commercial purposes only. This website is best viewed with your monitor resolution set to 800x600 and your video mode set to true color.