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[IN ACCORDANCE WITH CALIFORNIA INSURANCE CODE (CIC) SECTION 12938, THIS REPORT WILL BE MADE PUBLIC AND PUBLISHED ON THE

CALIFORNIA DEPARTMENT OF INSURANCE (CDI) WEBSITE]

WEBSITE PUBLISHED REPORT OF THE MARKET CONDUCT EXAMINATION OF THE CLAIMS PRACTICES OF

AMERICAN MODERN HOME INSURANCE COMPANY NAIC # 23469 CDI # 2222-8

AMERICAN FAMILY HOME INSURANCE COMPANY NAIC # 23450 CDI # 2961-1

AS OF JUNE 30, 2018

ADOPTED JULY 14, 2020

STATE OF CALIFORNIA

CALIFORNIA DEPARTMENT OF INSURANCE MARKET CONDUCT DIVISION

FIELD CLAIMS BUREAU

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NOTICE

The provisions of Section 735.5(a) (b) and (c) of the California

Insurance Code (CIC) 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. The following examination report is

a report that is made public pursuant to California Insurance

Code Section 12938(b)(1) which requires the publication of

every adopted report on an examination of unfair or

deceptive practices in the business of insurance as defined

in Section 790.03 that is adopted as filed, or as modified or

corrected, by the Commissioner pursuant to Section 734.1.

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TABLE OF CONTENTS

FOREWORD ................................................................................................................... 1

SCOPE OF THE EXAMINATION ................................................................................... 2

EXECUTIVE SUMMARY ................................................................................................ 4

DETAILS OF THE CURRENT EXAMINATION .............................................................. 5

TABLE OF TOTAL ALLEGED VIOLATIONS ................................................................ 7

SUMMARY OF EXAMINATION RESULTS .................................................................. 13

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FOREWORD

This 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

contains a summary of pertinent information about the lines of business examined,

details of the non-compliant or problematic activities that were discovered during the

course of the examination and the insurer’s proposals for correcting the deficiencies.

When a violation that reflects an underpayment to the claimant is discovered and the

insurer corrects the underpayment, the additional amount paid is identified as a

recovery in this report.

While this report contains violations of law that were cited by the examiner,

additional violations of CIC § 790.03 or other laws not cited in this report may also apply

to any or all of the non-compliant or problematic activities that are described herein.

All unacceptable or non-compliant activities may not have been discovered.

Failure to identify, comment upon or criticize non-compliant practices in this state or

other jurisdictions does not constitute acceptance of such practices.

Alleged violations identified in this report, any criticisms of practices and the

Companies’ responses, if any, have not undergone a formal administrative or judicial

process.

This report is made available for public inspection and is published on the

California Department of Insurance website (www.insurance.ca.gov) pursuant to

California Insurance Code section 12938(b)(1).

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SCOPE OF THE EXAMINATION

Under the authority granted in Part 2, Chapter 1, Article 4, Sections 730, 733,

and 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 claim handling practices and procedures in California of:

American Modern Home Insurance Company NAIC # 23469

American Family Home Insurance Company

NAIC # 23450

Group NAIC # 0361

Hereinafter, the Companies listed above will also be referred to individually as

AMHIC, AFHIC, or the Company, and collectively as the Companies.

This examination covered the claim handling practices of the aforementioned

Companies on Private Passenger Automobile, Commercial Automobile, Homeowner,

Pet, and Workers’ Compensation insurance claims closed during the period from July 1,

2017 through June 30, 2018, and Workers’ Compensation claims open as of June 30,

2018. 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.

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 the California Insurance Code,

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Fair Claims Settlement Practices Regulations, and other related statutes, regulations

and case law used by the Company to ensure 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 claim files and related records.

3. A review of the California Department of Insurance’s (CDI) market analysis

results; and if any, a review of consumer complaints and inquiries about these

Companies closed by the CDI during the period July 1, 2017 through June 30, 2018, a

review of previous CDI market conduct claims examination reports on these

Companies; and a review of prior CDI enforcement actions.

The review of the sample of individual claim files was conducted at the offices of

the Companies in Amelia, Ohio and at the offices of the California Department of

Insurance in Sacramento, California.

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EXECUTIVE SUMMARY

The Private Passenger Automobile, Commercial Automobile, Homeowner, Pet

and Workers’ Compensation insurance claims reviewed were closed from July 1, 2017

through June 30, 2018, referred to as the “review period.” The examiners randomly

selected 161 AMHIC claim files and 159 AFHIC claim files for examination. The

examiners cited 114 alleged claims handling violations of the California Insurance Code

and the California Code of Regulations and other specified codes from this sample file

review.

Findings of this examination included the failure to include in automobile total

loss settlements all applicable taxes; the failure to include the license fee and other

annual fees computed based upon the remaining terms of the registration; the failure to

include the one-time fees incident to transfer of evidence of ownership of a comparable

vehicle; the failure to document in the claim file all justification for betterment,

depreciation or salvage; and the failure to explain the basis for any adjustment to the

claimant in writing.

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DETAILS OF THE CURRENT EXAMINATION

Further details with respect to the examination and alleged violations are

provided in the following tables and summaries:

AMHIC SAMPLE FILES REVIEW

LINE OF BUSINESS / CATEGORY CLAIMS IN

REVIEW PERIOD

SAMPLE FILES

REVIEWED

NUMBER OF ALLEGED

VIOLATIONS

Commercial Automobile / Collision 115 39 10

Commercial Automobile / Comprehensive 17 6 4

Commercial Automobile Liability / Bodily Injury 13 3 0

Commercial Automobile Liability / Property Damage

80 22 5

Homeowner / Dwelling 5654 66 26

Inland Marine / Pet Health 30,307 25 1

TOTALS 36,186 161 46

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AFHIC SAMPLE FILES REVIEW

LINE OF BUSINESS / CATEGORY CLAIMS IN

REVIEW PERIOD

SAMPLE FILES

REVIEWED

NUMBER OF ALLEGED

VIOLATIONS

Private Passenger Automobile / Collision 525 37 10

Private Passenger Automobile / Comprehensive

380 26 31

Private Passenger Automobile / Liability Property Damage

274 46 21

Private Passenger Automobile / Liability Bodily Injury

62 11 0

Homeowner / Dwelling 5 2 2

Homeowner / Personal Property 25 1 0

Homeowner / Personal Liability 7 1 0

Workers’ Compensation / Denied 22 2 1

Workers’ Compensation / Open 75 5 0

Workers’ Compensation / Indemnity 106 10 2

Workers’ Compensation /Medical Only 187 18 1

TOTALS 1668 159 68

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TABLE OF TOTAL ALLEGED VIOLATIONS

Citation Description of Allegation

AMHIC Number of

Alleged Violations

AFHIC Number of

Alleged Violations

CCR §2695.8(b)(1) *[CIC §790.03(h)(5)]

The Company failed to include, in the settlement, all applicable taxes.

3 14

The Company failed to include, in the settlement, the one-time fees incident to transfer of evidence of ownership of a comparable automobile.

0 8

The Company failed to include, in the settlement, the license fee and other annual fees computed based upon the remaining term of the current registration.

3 8

CCR §2695.7(c)(1) *[CIC §790.03(h)(3)]

The Company failed to provide written notice of the need for additional time or information every 30 calendar days.

6 5

CIC §11580.011(e) *[CIC §790.03(h)(3)]

The Company failed to ask if a child passenger restraint system was in use by a child during an accident or was in the vehicle at the time of a loss that was covered by the policy.

4 5

CIC §§ 2051 and 2051.5 / CCR §2695.9(f) *[CIC §790.03(h)(3)]

The Company failed to document in the claim file all justification for the adjustment of the amount claimed because of betterment, depreciation, or salvage. Any adjustment for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property.

7 1

CCR §2695.9(f) *[CIC §790.03(h)(3)]

The Company failed to fully explain the basis for any adjustment to the claimant in writing.

7 1

CCR §2695.8(b)(1)(A) *[CIC §790.03(h)(5)]

The Company failed to include, in the settlement, fees incident to the transfer of the vehicle to salvage status.

0 2

The Company failed to deduct a salvage value from the settlement that was determined by the amount for which a salvage pool or a licensed salvage dealer, wholesale motor vehicle auction or dismantler will purchase the salvage.

0 4

CCR §2695.8(b)(4) *[CIC §790.03(h)(3)]

The Company failed to fully itemize in writing the determination of the cost of a comparable vehicle at the time the settlement offer was made. Itemization of all components of the settlement was not provided.

0 6

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Citation Description of Allegation

AMHIC Number of

Alleged Violations

AFHIC Number of

Alleged Violations

CCR §2695.4(a) *[CIC §790.03(h)(1)]

The Company failed to disclose all benefits, coverage, time limits or other provisions of the insurance policy.

5 0

CCR §2632.13(e)(1) *[CIC §790.03(h)(3)]

The Company failed to properly advise the insured that the driver of the insured vehicle was principally at-fault for an accident. The determination of fault letter was not sent.

0 3

The Company failed to properly advise the insured that the driver of the insured vehicle was principally at-fault for an accident. The determination of fault letter did not specify the basis of the liability decision.

0 1

CIC §790.03(h)(3) The Company failed to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.

0 3

CCR §2695.3(a) *[CIC §790.03(h)(3)]

The Company failed to maintain all documents, notes and work papers which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed.

2 0

CCR §2695.7(d) [CIC §790.03(h)(3)]

The Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

1 0

CCR §2695.7(p) *[CIC §790.03(h)(3)]

The Company failed to provide written notification to a first party claimant as to whether the insurer intends to pursue subrogation.

0 1

The Company failed to provide written notification to a first party claimant of its decision to discontinue pursuit of subrogation.

1 1

CIC §2051.5(b)(1) [CIC §790.03(h)(1)]

The Company improperly imposed upon an insured a time limit to collect the full replacement cost of the loss. No time limit of less than 12 months from the date that the first payment toward the actual cash value is made shall be placed upon an insured in order to collect the full replacement cost of the loss, subject to the policy limit.

1 1

CCR §2695.7(g) *[CIC §790.03(h)(5)]

The Company attempted to settle a claim by making a settlement offer that was unreasonably low.

2 0

CCR §2695.8(i) *[CIC §790.03(h)(3)]

The Company failed to document the basis of betterment or depreciation.

1 0

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Citation Description of Allegation

AMHIC Number of

Alleged Violations

AFHIC Number of

Alleged Violations

The Company failed to fully explain the basis for any adjustment to the claimant in writing.

1 0

CIC §790.03(h)(5) The Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear.

0 1

CIC §1871.3(b) *[CIC §790.03(h)(3)]

The Company failed to properly instruct the insured regarding the signing of the theft affidavit.

0 1

CVC §11515(b) *[CIC §790.03(h)(3)]

The Company failed to notify the insured or owner of his or her responsibility to comply with CVC §11515(b).

0 1

CCR §2695.7(b)(3) *[CIC §790.03(h)(3)]

The Company failed to include a statement in its claim denial that, if the claimant believes all or part of the claim has been wrongfully denied or rejected, he or she may have the matter reviewed by the California Department of Insurance.

1 0

CCR §2695.7(h) *[CIC §790.03(h)(5)]

The Company failed, upon acceptance of the claim, to tender payment within 30 calendar days.

0 1

CCR §2695.8(f) *[CIC §790.03(h)(3)]

The Company failed to supply the claimant with a copy of the estimate upon which the settlement was based.

0 1

Total Number of Alleged Violations 45 69

*DESCRIPTIONS OF APPLICABLE UNFAIR CLAIMS SETTLEMENT PRACTICES

CIC §790.03(h)(1) The Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

CIC §790.03(h)(3) The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.

CIC §790.03(h)(5) The Company failed to effectuate prompt, fair, and equitable settlements of claims in which liability had become reasonably clear.

TABLE OF ALLEGED VIOLATIONS BY LINE OF BUSINESS

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PRIVATE PASSENGER AUTOMOBILE

AMHIC 2017 Written Premium: $0 AFHIC 2017 Written Premium: $10,793,612

AMHIC 201$8 Written Premium: $5,604 AFHIC 2018 Written Premium: $11,950,029

AMOUNT OF RECOVERIES $42,012.27

NUMBER OF ALLEGED VIOLATIONS

CCR §2695.8(b)(1) [CIC §790.03(h)(5)] 30

CCR §2695.8(b)(1)(A) [CIC §790.03(h)(5)] 6

CCR §2695.8(b)(4) [CIC §790.03(h)(3)] 6

CIC §11580.011(e) [CIC §790.03(h)(3)] 5

CCR §2695.7(c)(1) [CIC §790.03(h)(3)] 5

CCR §2632.13(e)(1) [CIC §790.03(h)(3)] 4

CCR §2695.7(p) [CIC §790.03(h)(3)] 2

CIC §1871.3(b) [CIC §790.03(h)(3)] 1

CVC §11515(b) [CIC §790.03(h)(3)] 1

CCR §2695.7(h) [CIC §790.03(h)(5)] 1

CCR §2695.8(f) [CIC §790.03(h)(3)] 1

SUBTOTAL 62

COMMERCIAL AUTOMOBILE

AMHIC 2017 Written Premium: $2,393,587 AFHIC 2017 Written Premium: $451,625

AMHIC 2018 Written Premium: $2,380,860 AFHIC 2018 Written Premium: $204,646

AMOUNT OF RECOVERIES $4,287.67

NUMBER OF ALLEGED VIOLATIONS

CCR §2695.8(b)(1) [CIC §790.03(h)(5)] 6

CCR §2695.4(a) [CIC §790.03(h)(1)] 5

CIC §11580.011(e) [CIC §790.03(h)(3)] 4

CCR §2695.3(a) [CIC §790.03(h)(3)] 1

CCR §2695.8(i) [CIC §790.03(h)(3)] 2

CCR §2695.7(p) [CIC §790.03(h)(3)] 1

SUBTOTAL 19

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HOMEOWNER

AMHIC 2017 Written Premium: 42,470,081

AFHIC Written Premium: 397,027 AMHIC 2018 Written Premium: $41,450,249

AFHIC 2018 Written Premium: $-34,639

AMOUNT OF RECOVERIES $1876.70

NUMBER OF ALLEGED VIOLATIONS

CIC §§ 2051 and 2051.5 / CCR §2695.9(f) 8

CCR §2695.9(f) [CIC §790.03(h)(3)] 8

CCR §2695.7(c)(1) [CIC §790.03(h)(3)] 6

CIC §2051.5(b)(1) [CIC §790.03(h)(1)] 2

CCR §2695.7(g) [CIC §790.03(h)(5)] 2

CCR §2695.3(a) [CIC §790.03(h)(3)] 1

CCR §2695.7(b)(3) [CIC §790.03(h)(3)] 1

SUBTOTAL 28

INLAND MARINE / PET INSURANCE

AMHIC 2017 Written Premium: $17,506,127 AMHIC 2018 Written Premium: $12,202,944

AMOUNT OF RECOVERIES $0

NUMBER OF ALLEGED VIOLATIONS

CCR §2695.7(d) [CIC §790.03(h)(3)] 1

SUBTOTAL 1

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WORKERS’ COMPENSATION

AMHIC 2017 Written Premium: $106,484

AFHIC 2017 Written Premium: 15,577,208 AMHIC 2018 Written Premium: $22,711

AFHIC 2018 Written Premium: $15,435,690

AMOUNT OF RECOVERIES $0

NUMBER OF ALLEGED VIOLATIONS

CIC §790.03(h)(2) 3

CIC §790.03(h)(5) 1

SUBTOTAL 4

TOTAL 114

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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.

In response to each criticism, the Companies are required to identify remedial or

corrective action that has been or will be taken to correct the deficiency. The

Companies are obligated to ensure that compliance is achieved.

Any noncompliant practices identified in this report may extend to other

jurisdictions. The Companies should address corrective action for other jurisdictions

when applicable.

Money recovered within the scope of this report was $2,862.57 as described in

section numbers 1, 2, 12, and 22, below. Following the findings of the examination, the

Companies conducted a closed claims survey, as described in section 1 and 12

below, resulting in additional payments of $45,314.07. As a result of the examination,

the total amount of money returned to claimants within the scope of this report was

$48,176.64.

PRIVATE PASSENGER AUTOMOBILE 1. In 30 instances, the Companies failed to comply with the requirements of CCR §2695.8(b)(1).

1(a). In 14 instances, the Companies failed to include, in the settlement, all applicable taxes. The Companies failed to consider applicable sales taxes in total loss settlements. Twelve of these claims were under private passenger automobile contracts with an Agreed Value Endorsement policy on Collectible Vehicles. Two instances pertained to non-Agreed Value Endorsement claims. The Department alleges these acts are in violation of CCR §2695.8(b)(1) and are unfair practices under CIC §790.03(h)(5).

1(b). In eight instances, the Companies failed to include, in the settlement,

the license fee and other annual fees computed based upon the remaining term of

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the registration. Six instances pertained to total loss settlements under Agreed Value Endorsements for Collectible Vehicles. One instance involved a total loss settlement under a non-Agreed Value collision claim and one involved a third liability claim. The Department alleges these acts are in violation of CCR §2695.8(b)(1) and are unfair practices under CIC §790.03(h)(5).

1(c). In eight instances, the Companies failed to include, in the settlement,

the one-time fees incident to transfer of evidence of ownership of a comparable vehicle. Five instances pertained to total loss settlements under Agreed Value Endorsements contracts for collectible vehicles. Three instances pertain to total loss settlements under non-Agreed Value Endorsement contracts.

The Department alleges these acts are in violation of CCR §2695.8(b)(1) and are

unfair practices under CIC §790.03(h)(5). Summary of the Companies’ Response to 1(a)(b)(c): The Companies

disagree with the findings regarding the Agreed Value Endorsement contracts. The Companies believed their total loss settlements for Collectible Vehicles under Agreed Value Endorsement contracts included sales taxes, license fees and other annual and one-time vehicle fees. Specifically, the Companies state:

The Companies have not elected to base our cash settlements on the actual cost

of a “comparable automobile”. The settlements in our Collector vehicle policies are based on an Agreed Value. The agreed value as set forth in the policy is agreed to by us and the Policyholder at the beginning of the policy.

Nonetheless, the Companies reached an agreement with the Department

regarding its practices and procedures on Agreed Value Endorsement contracts and Stated Limit policies. The Companies made the following changes:

Filings were made to amend the definition of Agreed Value for the motorsports and collector vehicle program on stated value for the commercial auto program (RVR) to include all taxes and fees.

All affected advertising, educational material, and website updates pertaining to the changes will be effective on March 2, 2020.

The Companies amended the collector vehicle program and the Department approved the amendment effective January 7, 2020 for new and renewal business.

The Companies amended the motorsport program and the Department approved it effective January 17, 2020 for new and renewal business.

The RV Rental program revisions were approved on January 28, 2020 and changes became effective on March 1, 2020.

Effective June 26, 2019, in addition to the agreed remedial measures identified

above, the Companies conducted a closed claims survey on Agreed Value claims

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identified within the examination review period of July 1, 2017 through June 30, 2018. Of these, nine claims received additional payments for applicable taxes, license fees and other annual fees, or one-time fees not included in the initial claim settlements. The additional amount paid to insureds totaled $41,026.40. These findings were reported to the Department on September 5, 2019.

With regard to the other seven claims identified in this section which were not

Agreed Value Endorsement contracts, the Company (AFHIC) acknowledges sales taxes, license fees, other annual fees and the one-time fees incident to transfer of ownership were not paid. As a result of the findings during the audit examination, the Company reopened each of these seven identified claims and issued claimants additional settlement checks totaling $377.53. 2. In six instances, the Companies failed to comply with the requirements of CCR §2695.8(b)(1)(A).

2(a). In four instances, the Companies failed to deduct a salvage value from the settlement that was determined by the amount for which a salvage pool or a licensed salvage dealer, wholesale motor vehicle auction or dismantler will purchase the salvage. Specifically, the Companies’ procedure is to average three salvage bids as the salvage value for owner retained total loss claims. The Department alleges these acts are in violation of CCR §2695.8(b)(1)(A) and are unfair practices under CIC §790.03(h)(5).

Summary of the Companies’ Response: The Companies do not agree their procedure to determine salvage value is in violation of the regulations. Nonetheless, the Companies changed their practice and processes and will obtain one salvage bid in owner retained total loss settlements. The Companies shared an email with claim adjusters noting the change on January 2, 2019. The Companies also discussed this change in procedure during claims meetings at the time of the audit examination. Further, as a result of the audit examination, in one instance, the Company (AFHIC) discovered a calculation error in the salvage value determination. To correct this error, the Company issued a check to the insured for $608.34 on October 17, 2018.

2(b). In two instances, the Companies failed to include, in the settlement, fees incident to the transfer of the vehicle to salvage status. Specifically, the Companies did not include the salvage certificate fee on owner retained total loss settlements under Agreed Value Endorsement contracts. The Department alleges these acts are in violation of CCR §2695.8(b)(1)(A) and are unfair practices under CIC §790.03(h)(5).

Summary of the Companies’ Response: The Companies disagree with these findings under the Agreed Value Endorsement contracts. Specifically, the Companies stated these fees are included in the agreed coverage limit. Nonetheless, the Companies reached an agreement with the Department regarding its practices and

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procedures on Agreed Value Endorsement contracts and Stated Limit policies as outlined in section one above. The Companies reopened these claims and the total recoveries are included in the self-audit reported in section one above. 3. In six instances, the Companies failed to fully itemize in writing the determination of the cost of a comparable vehicle at the time the settlement offer was made. Itemization of all components of the settlement was not provided. In five instances, the Companies did not provide a comparable valuation report to first or third-party claimants in total loss settlements. In one instance, the Company failed to provide a written total loss settlement offer. The Department alleges these acts are in violation of CCR §2695.8(b)(4) and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: The Companies acknowledge valuation reports were not provided on these five claims. To correct this error, as of October 18, 2018, the Companies mailed the valuation reports on these identified claims. Additionally, the Companies reminded claim handlers to send the respective valuation report with each applicable claim. The Company also agreed that the adjuster did not send a total loss letter to the insured with the total loss settlement. As a result of the audit examination, the Company issued a total loss letter to the insured on September 28, 2018.

4. In five instances, the Companies failed to ask if a child passenger restraint system was in use by a child during an accident or was in the vehicle at the time of a loss that was covered by the policy. The Department alleges these acts are in violation of CIC §11580.011(e) and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: The Companies acknowledges that there are no file notes verifying the presence of child restraint systems in the vehicles at the time of the loss. In these instances, the Companies sent letters to these identified claimants to determine if child restraint systems were in the vehicles at the time of loss. The response to these letters did not result in any additional payments on these claims. As a remedial measure, the Companies sent an email to claim managers to address the items noted in the audit exam. Additionally, the initial contact template was revised to include information about the child passenger restraints and instructions were given on the use of this form on California claims. The template revision become effective on October 18, 2018. 5. In five instances, the Company failed to provide written notice of the need for additional time or information every 30 calendar days. In these instances, the failure to send written notices involved a third party liability claim handled by AFHIC. The Department alleges these acts are in violation of CCR §2695.7(c)(1) and are unfair practices under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company acknowledges these findings and states the adjuster who handled the claim is no longer with the Company.

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The Company states it has a process is in place to send the applicable status notice when additional time is needed to review a claim. 6. In four instances, the Companies failed to properly advise the insured that the driver of the insured vehicle was principally at-fault for an accident. In three instances, the Companies failed to send the determination of fault notice to the insured. In one instance the Company failed to state the basis of the liability determination in the at-fault determination notice. The Department alleges these acts are in violation of CCR §2632.13(e)(1) and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: The Companies acknowledges these findings. As a result of the audit examination, the Companies issued the determination of fault notices to the insureds. In the last instance, the Company issued a corrected determination of fault notice to the insured. 7. In two instances, the Companies failed to comply with the requirements of CCR §2695.7(p).

7(a). In one instance, the Company failed to provide written notification to a first party claimant as to whether the insurer intends to pursue subrogation. The Department alleges this act is in violation of CCR §2695.7(p) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company states the Recovery Specialist intended to withhold the letter until payment. When the pursuit of subrogation ended, the specialist mailed the letter. As of September 28, 2018, the Company advised Recovery Specialists to send the subrogation letter at the time of the initial referral.

7(b). In one instance, the Company failed to provide written notification to

a first party claimant of its decision to discontinue pursuit of subrogation. The Department alleges this act is in violation of CCR §2695.7(p) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company acknowledges it failed

to send written notification to the insured of its determination to discontinue pursuit of subrogation. The Company discussed the matter with the associate involved and sent a communication to the subrogation unit reminding them of the requirement. Specifically, the Company sent an email notification dated September 26, 2018, advising staff to use subrogation letter templates at the opening and closing of subrogation efforts. Additionally, the Company will perform periodic self-audits to ensure processes and procedures and claims handling are followed in accordance with the claims manual. The Claims Compliance Unit will regularly schedule audits to ensure future compliance.

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8. In one instance, the Company failed to properly instruct the insured regarding the signing of the theft affidavit. The Company did not inform the insured that, in lieu of notarization, the form can be signed in the presence of the insurance agent, broker, adjuster, or other claims representative. The Department alleges this act is in violation of CIC §1871.3(b) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company acknowledges proper instructions were not given to the insured with regard to signing the theft affidavit. The Company implemented a revised theft affidavit form which includes the alternative to the notary signature effective December 6, 2019. As a result of the audit examination and as a means to be compliant prior to implementation of the revised form, a communication was sent to claim staff informing them of this requirement.

9. In one instance, the Company failed to notify the insured or owner of his or her responsibility to comply with CVC §11515(b). The Department alleges this act is in violation of CVC §11515(b) and is an unfair practice under CIC §790.03(h)(3). Summary of the Company’s Response: The Company acknowledges it failed to notify the insured or owner of the responsibility to comply with the Department of Motor Vehicle (DMV) code regarding the salvage retention of the total loss vehicle. The Company reviewed this requirement with the handling adjuster and confirmed his understanding to reinforce regulatory compliance. 10. In one instance, the Company failed, upon acceptance of the claim, to tender payment within 30 calendar days. Specifically, the Company received proof of claim and the repair estimate for a property damage claim on July 31, 2017 and issued payment January 30, 2018, a period of 183 days. The Department alleges this act is in violation of CCR §2695.7(h) and is an unfair practice under CIC §790.03(h)(5).

Summary of the Company’s Response: The Company acknowledges this finding in the identified claim. The Company states all adjusters handling California claims undergo annual CA Fair Claim Settlement Practices and Regulations training. The adjuster handling this claim underwent training on June 19. 2017. Because the adjuster who made the error is no longer with the Company, the Company was unable to review the requirement with the individual who failed to follow established Company procedure.

11. In one instance, the Company failed to supply the claimant with a copy of the estimate upon which the settlement was based. The Department alleges this act is in violation of CCR §2695.8(f) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company acknowledges it failed to provide a copy of the estimate to the insured. To correct this error, the Company mailed a letter to the policyholder explaining the settlement. Further, the Company discussed file documentation and settlement details with the adjuster on October 12,

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2018. In addition to the one-on-one discussion with the handling adjuster, the Company also discussed file documentation with all claims personnel on October 11, 2018.

COMMERCIAL AUTOMOBILE 12. In six instances, the Companies failed to comply with the requirements of CCR §2695.8(b)(1). All of the identified instances below pertain to total loss settlements on Stated Value contracts.

12(a). In three instances, the Companies failed to include, in the settlement, all applicable taxes. The Department alleges these acts are in violation of CCR §2695.8(b)(1) and are unfair practices under CIC §790.03(h)(5).

12(b). In three instances, the Companies failed to include, in the settlement,

the license fee and other annual fees computed based upon the remaining term of the registration. The Department alleges these acts are in violation of CCR §2695.8(b)(1) and are unfair practices under CIC §790.03(h)(5).

Summary of the Companies’ Response to 12(a) and 12(b): The Companies

disagree that sales taxes are due for Stated Value policies as the Companies paid coverage limits. Nonetheless, the Companies reached an agreement with the Department regarding its practices and procedures on Agreed Value Endorsement contracts and Stated Limit policies. The remedial measures are outlined in section one above.

In addition to the agreed upon remedial measures identified in section one of this

report, the Companies conducted a closed claims survey on State Value claims identified within the examination review period of July 1, 2017 through June 30, 2018. Of these, four claims received additional payments for applicable taxes, license fees and other annual fees, or one-time fees not included in the initial claim settlements. The additional amount paid to insureds totaled $4,287.67. These findings were reported to the Department on September 5, 2019. 13. In five instances, the Companies failed to disclose all benefits, coverage, time limits or other provisions of the insurance policy. The Department alleges these acts are in violation of CCR §2695.4(a) and are unfair practices under CIC §790.03(h)(1).

Summary of the Companies’ Response: The Companies acknowledge claim

handling activities did not demonstrate disclosure had been given to the insureds in these identified claims. The Companies had a discussion with the handling adjusters explaining the importance of documenting the files with adjuster/claimant discussions and reviewing requirements. To ensure regulatory compliance, the Companies also held

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a separate unit meeting with claims personnel to discuss audit examination findings and remedial measures on October 24, 2018. 14. In four instances, the Companies failed to ask if a child passenger restraint system was in use by a child during an accident or was in the vehicle at the time of a loss that was covered by the policy. The Department acknowledges the Companies write commercial automobile; however, in these instances, there is a potential for commercial passenger vehicles to be operated for personal use. Therefore, the Companies must ask both first and third-party claimants if a child passenger restraint system was in use by a child during an accident or was in the vehicle at the time of loss. The Department alleges these acts are in violation of CIC §11580.011(e) and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: The Companies agree that there were no file notes verifying the presence of child restraints in the vehicles at the time of the losses. The supervisors met with the adjusters and reinforced the car seat requirement. Additionally, the Companies sent letters to the claimants on October 23, 2018 and October 24, 2018 to inquire about car seats at the time of the loss. The Companies also shared an email with staff, on October 11, 2018, regarding the car seat findings from this examination and conducted a training session on October 24, 2018 regarding the car seat requirements. As noted in summary number four above, the Companies revised the contact template on October 18, 2018, to include information about the child seat restraints. 15. In two instances, the Companies failed to comply with the requirements of CCR §2695.8(i).

15(a). In one instance, the Company failed to document the basis of betterment or depreciation. The Company applied 50% depreciation to decals that were damaged in the loss, but did not explain how the depreciation was determined. The Department alleges this act is in violation of CCR §2695.8(i) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response to 15(a): The Company agrees that the adjuster did not adequately document the file. The Company reinforced this requirement with the handling adjuster in a discussion which took place on October 18, 2018.

15(b). In one instance, the Company failed to fully explain the basis for any adjustment to the claimant in writing. In relation to 15(a) above, the Company did not explain the basis for the 50% depreciation in writing to the claimant. The Department alleges this act is in violation of CCR §2695.8(i) and is an unfair practice under CIC §790.03(h)(3). Summary of the Company’s Response to 15 (b): The Company agrees the adjuster did not fully explain the basis for the adjustment in writing. The Claims

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Supervisor counseled the adjuster in October of 2018. Additionally, the physical damage adjusters will receive additional training on this issue on March 31, 2020. 16. In one instance, the Company failed to maintain all documents, notes and work papers which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed. The file notes do not indicate what transpired between August 1, 2017 and August 30, 2017, regarding the third-party claimant’s subrogation pursuit. The Department alleges this act is in violation of CCR §2695.3(a) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company acknowledges the claim file did not document subrogation activities. In this case, the Company paid subrogation to the claimant carrier and out of pocket money was paid directly to the claimant. As a remedial measure, the Company communicated via email the importance of file documentation to claims personnel on October 11, 2018.

17. In one instance, the Company failed to provide written notification to a first party claimant of its decision to discontinue pursuit of subrogation. The Department alleges this act is in violation of CCR §2695.7(p) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company agrees that it did not

send a subrogation abandonment letter to the insured. The Company sent the subrogation abandonment letter to the insured on October 25, 2018. To further ensure regulatory compliance, the Company discussed the requirements regarding the use of subrogation template letters at the opening and closing of subrogation efforts to the subrogation unit on September 26, 2018. Additionally, the Company will perform periodic self-audits to ensure processes and procedure are followed.

HOMEOWNER 18. In eight instances, the Companies failed to document in the claim file all justification for the adjustment of the amount claimed because of betterment, depreciation, or salvage. Any adjustment for betterment or depreciation shall reflect a measurable difference in market value attributable to the condition and age of the property. In these instances, the files did not address age or condition as a component of the depreciation taken on the claim. The estimates show a line-by-line deduction for depreciation; however, there is no supporting evidence in the claim files to justify how the Companies determined applicable depreciation taken on these claims. The Department alleges these acts are in violation of CIC §§ 2051 and 2051.5 /CCR §2695.9(f) and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: The Companies acknowledge these findings and state that age, condition and usage were considered in the evaluation of

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the claim files, however, the adjusters failed to properly document the files. On October 11, 2018, the Companies reinforced the requirement regarding depreciation and proper file documentation with the adjusters. Finally, the Companies required all adjusters to review the claims manual, which details proper file documentation and depreciation, and certify the claims manual review.

19. In eight instances, the Companies failed to fully explain the basis for any adjustment to the claimant in writing. The Department alleges these acts are in violation of CCR §2695.9(f) and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: The Companies acknowledge that it

did not provide the basis of the depreciation applied to the claimants in writing. The Companies communicated to claims personnel this regulatory requirement on October 11, 2018. The Companies also provided training to claims staff on October 18, 2018. Additionally, the Companies required all adjusters to review and certify reading and review of the claims manual which includes depreciation information. 20. In six instances, the Companies failed to provide written notice of the need for additional time or information every 30 calendar days. These six instances apply to one homeowner personal liability claim handled by one adjuster. The Department alleges these acts are in violation of CCR §2695.7(c)(1) and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: The Companies acknowledge the finding in the identified claim. As a remedial measure, on October 29, 2019, the Companies provided counseling with the adjuster and discussed the requirement of providing timely status letters to claimants. To ensure regulatory compliance, the Companies added timely status letters to the Companies’ Compliance Audit schedule. 21. In two instances, the Companies improperly imposed upon an insured a time limit to collect the full replacement cost of the loss. No time limit of less than 12 months from the date that the first payment toward the actual cash value is made shall be placed upon an insured in order to collect the full replacement cost of the loss, subject to the policy limit. The Companies’ replacement cost letter state the insured has six months to make a claim for further depreciation. The Department alleges these acts are in violation of CIC §2051.5(b)(1) and are unfair practices under CIC §790.03(h)(1).

Summary of the Companies’ Response: The Companies acknowledge these findings. The Companies amended the replacement cost letter to state there is one year to make a claim for recoverable depreciation. The Companies also provided the Department with a copy of the amended replacement cost template letter on January 21, 2020. The template letter will be used on a go-forward basis.

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22. In two instances, the Companies attempted to settle a claim by making a settlement offer that was unreasonably low. In the first instance, the Companies failed to include the material sales tax in the claim settlement. In the second instance, the adjuster failed to notice the insureds’ policy contained the extended additional living expenses (ALE) endorsement. Thus, the adjuster improperly calculated the insureds’ out-of-pocket expenses. The Department alleges this act is in violation of CCR §2695.7(g) and is an unfair practice under CIC §790.03(h)(5).

Summary of the Companies’ Response: The Companies acknowledge errors

were made in both instances that resulted in underpayments of the identified claims. In the first instance regarding the material sales taxes, the Companies issued payment for $671.70. The claims adjuster received counseling regarding the importance of including material sales tax in estimates. Further on October 11, 2018, the Companies reiterated this requirement in an email to all claims personnel. This issue was also added to the Claims Compliance Audit schedule. In the second instance, the adjuster recalculated the insureds’ ALE expenses and issued a payment of $1,205.00. 23. In one instance, the Company failed to maintain all documents, notes and work papers which reasonably pertain to each claim in such detail that pertinent events and the dates of the events can be reconstructed. In this instance, the adjuster failed to document the claim file with a detailed description of the desktop computer to ensure a like, kind and quality replacement cost. The Department alleges this act is in violation of CCR §2695.3(a) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company states the adjuster researched online the cost to replace the computer, based on the insured’s description, to arrive at the replacement cost value. The adjuster did not remove depreciation from the settlement amount. In an email to claims personnel, dated October 11, 2018, the Company communicated the importance of file documentation. In addition, the Company requires every adjuster to annually certify the review of the Company claims manual.

24. In one instance, the Company failed to include a statement in its claim denial that, if the claimant believes all or part of the claim has been wrongfully denied or rejected, he or she may have the matter reviewed by the California Department of Insurance. The Department alleges this act is in violation of CCR §2695.7(b)(3) and is an unfair practice under CIC §790.03(h)(3).

Summary of the Company’s Response: The Company agrees and states there are procedures in place for the adjuster to add the Department of Insurance language to the free form letter. The Company reviewed the claim with the adjuster and reinforced the requirement regarding mandatory CDI language in denial letters. In addition, the Company requires every adjuster to annually certify the review of the Company claims manual.

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INLAND MARINE / PET INSURANCE 25. In one instance, the Company persisted in seeking information not reasonably required for or material to the resolution of a claims dispute. The Company requested medical records from the veterinarian which were unnecessary to consider the claim. The Department alleges this act is in violation of CCR §2695.7(d).

Summary of the Company’s Response: The Company acknowledges medical records were unnecessary to process this claim for benefits as the policy was in its third term and in a tenure status. The Company advised that communications are automatically generated when a claim is submitted and a medical review has not been completed. As a remedial measure, the Company revised its process for auto-generated communications concerning medical history effective February 18, 2019. Communication notices requesting medical history are no longer sent when the automated process determines the policy is tenured.

WORKERS’ COMPENSATION 26. In three instances, the Company (AFHIC) failed to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies. The Company failed to comply with Title 8 California Code of Regulations (CCR) §9812(a)(1). The Department alleges this act is in violation of CIC §790.03(h)(2). In three instances, the Company failed to send the required benefit notices to the injured worker within 14 days of knowledge as required by 8CCR 9812(a)(1). Two instances pertained to the notice of regarding the temporary delay of benefits and one instance pertained to the notice regarding the benefit payment start/resume notice of benefits.

Summary of the Company’s Response: The Company acknowledges these

findings. As a result of the audit examination and to ensure compliance, the Company met with claims adjusters to discuss its expectations regarding the 14-day statutory requirements for benefit notices February 2019. 27. In one instance, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. The Department alleges the Company failed to comply with Labor Code (LC) §4603.4. The Company did not process the itemized electronic billing for medical services within 15 working days. The Department alleges this act is in violation of CIC §790.03(h)(5).

Summary of the Company’s Response: The Company acknowledges there was delay in processing of the claims from primary and secondary PPO Networks. As a corrective measure, upon completion of the standard bill review, bills that are subject to PPO review are monitored through system tracking. Any PPO Bill that is not processed

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and completed within five business days generates an alert to management (two supervisors, Vice President of Managed Care and the Vendor Network Manager for the bill review software). Any alerts that are generated are addressed for resolution within 24 hours or one business day. This process became effective in December 2019. Prior to this date, the Company ran a daily report which was reviewed by the Review Manager and/or Supervisor to evaluate turnaround times to ensure timely processing was achieved. The Company believes the new process will resolve the issue identified by the Department. The Claims Compliance Team has placed this on their audit schedule to audit to ensure compliance.