2003 Amendments to the California Fair Claims Settlement Practices Regulations
The Estimated Effective Date of the Proposed Amendments
The California Fair Claims Settlement Practices (“FCSP”) regulations first became effective on January 15, 1993, and were amended on January 10, 1997. While no private cause of action may be brought for violations of the regulations, the regulations “establish the standard of conduct for insurers” in California (Spray, Gould & Bowers v. Associated Int’l Ins. Co. (1999) 71 Cal.App.4th 1260, 1274), and violation of the regulations may establish unreasonable conduct by a carrier. (See 14:95, Croskey, Heeseman & Johnson, CAL. PRAC. GUIDE: INSURANCE LITIGATION (the Rutter Group, 2002).) It is therefore critical for all California insurance claims personnel, and all California attorneys handling insurance cases to keep current with the requirements of the FCSP regulations.
The California Department of Insurance (“DOI”) has been working on revising the FCSP regulations since March of 2002. The time for public review and comment has now ended. On March 13, 2003, the DOI sent proposed amendments to the FCSP regulations to the California Office of Administrative Law (“OAL”). The OAL has until April 25, 2003, to approve or disapprove the amendments. As of March 19, 2003, no attorney at the OAL had been assigned the task of reviewing the proposed amendments. The OAL will most likely issue its findings on or about its April 25, 2003, deadline. If the OAL approves the amendments, which it is expected to do, the amended FCSP regulations will become effective ninety days after they are filed with the California Secretary of State (“SOS”). Should the OAL approve the amendments on April 25, 2003, and should the amended regulations be filed with the SOS that same day, the amended FCSP regulations will become effective on July 24, 2003.
The Amended FCSP Regulations
Section 2695.85, the Auto Body Consumer Bill of Rights, is a new Section. Other Sections contain whole new subsections and/or revised language. These various changes to the FCSP regulations are discussed more fully below. This analysis does not discuss the unchanged portions of the FCSP regulations.
Section 2695.1: Preamble
Subsection (b): The regulations are not an exhaustive list of all unfair claims settlement practices, because other unlisted methods, acts, or practices may also be unfair claims settlement practices.
[New] Subsection (c): The regulations apply to home protection contracts and home protection companies defined in California Insurance Code section 12740.
[New] Subdivision (e): Policy provisions relating to the investigation, processing, and settlement of claims shall be consistent with or more favorable to the insured than the provisions of the regulations.
Section 2695.2: Definitions
Subsection (i): “Insurer” now includes the California Earthquake Authority, home protection companies (defined by Insurance Code section 12740) and any other entity subject to California Insurance Code section 790.03(h).
Subsection (j): “Insurance policy” now includes a home protection contract, and the California Earthquake Authority.
Subsection (s): “Proof of Claim” now includes evidence or documentation submitted to or received by the insurer, or other evidence that the insurer discovers in the course of its investigation that reasonably supports the claim.
Section 2695.4: Representation of Policy Provisions and Benefits
Subsection (a): No insurer shall misrepresent, conceal, or fail to disclose to a first party claimant or beneficiary all benefits, coverages, time limits, and other provisions of any insurance policy or bond issued by the insurer, and any pertinent statutes and regulations that may apply to the claim presented or that the insurer relies upon to process the claim.
[New] Subsection (a)(1): When additional benefits might reasonably be payable under an insured’s policy, the insurer shall immediately communicate this fact to the insured and cooperate with and assist the insured in determining the extent of the insurer’s additional liability.
Section 2695.5: Duties Upon Receipt of Communications
Subsection (e): Disability and life insurance carriers must now comply with the enumerated duties for responding to a notice of claim.
Section 2695.6: Training and Certification
Subsection (b)(3): This provision (requiring annual certification regarding training) now refers to insurance adjusters as defined in California Insurance Code section 14021, instead of “independent adjusters.”
Section 2695.7: Standards for Prompt, Fair, and Equitable Settlements
Subsection (a): Age discrimination is now expressly disallowed.
Subsection (b): This provision now requires that the amounts accepted or denied, after receiving proof of claim, shall be clearly documented in the claim file.
Subsection (b)(1): These provisions, relating to claim denials, now also apply to surety bond claims. Also, a written denial based upon a specific statute must include a reference to the statute and an explanation of the application of the statute.
[New] Subsection (b)(5): When the amount claimed is adjusted because of betterment, depreciation, or salvage, all justification for the adjustment shall be contained in the claim file. Any adjustments shall be discernable, measurable, itemized, and specified as to dollar amount, and shall accurately reflect the value of the betterment, depreciation, or salvage. The cost of labor is not subject to depreciation. The basis for any adjustment shall be fully explained to the claimant in writing.
Subsection (d): New language provides that every “insurer shall conduct and diligently pursue a thorough, fair and objective investigation.”
Subsection (g)(2): The extent to which the insurer considered legal authority can be considered in determining whether or not a settlement offer is unreasonably low.
Subsection (h): In claims where multiple coverage is involved, amounts that have been accepted by the insurer shall be paid immediately, but in no event more than thirty days later.
Subsection (n): A medical examination can only be requested when the carrier has a good faith reasonable belief that such an examination is reasonably necessary.
[New] Subsection (p): Every insurer shall provide written notification to a first party claimant as to whether the insurer intends to pursue subrogation of the claim. Where an insurer elects not to pursue subrogation, or discontinues pursuit of subrogation, it shall include in its notification a statement that any recovery to be pursued is the responsibility of the first party claimant. This subsection does not require notification if the deductible is waived, the coverage under which the claim is paid requires no deductible to be paid, the loss sustained does not exceed the applicable deductible, or there is no legal basis for subrogation.
[New] Subsection (q): Every insurer that makes a subrogation demand shall include in every demand the first party claimant’s deductible. Every insurer shall share subrogation recoveries on a proportionate basis with the first party claimant, unless the first party claimant has otherwise recovered the whole deductible amount. No insurer shall deduct legal or other expenses from the recovery of the deductible unless the insurer has retained an outside attorney or collection agency to collect that recovery. The deduction may only be for a pro rata share of the allocated loss adjustment expense. This subsection shall not apply when multiple policies have been issued to the insured(s) covering the same loss and the language of these contracts prescribe alternative subrogation rights. Further, this subsection shall not apply to disability and health insurance as defined in California Insurance Code Section 106.
[New] Subsection (r): No insurer shall pursue a claim for subrogation without having conducted a thorough, fair, and objective investigation as to whether subrogation is appropriate.
[New] Subsection (s): Insurers are responsible for the accuracy of data used to evaluate the value of insurance claims. Insurers choosing to use data from a computerized database source or any other source remain responsible for the accuracy of the data they use, whether this data is derived in-house or through third parties. Data which cannot be supported as accurate shall not be used in evaluating and settling insurance claims. An insurer shall consider any credible evidence presented by the claimant to support the actual value of the claim.
(1) When establishing the value of a claim, an insurer shall not be responsible for the accuracy of data provided by any governmental entity, unless the insurer has discovered or been notified of the inaccuracy and has continued to use the data.
[New] Subsection (t): Every insurer shall provide written notice to a third party claimant as required under Business and Professions Code Section 6149.5
Section 2695.8: Additional Standards Applicable to Automobile Insurance
Subsection (b)(1): The insurer may elect a cash settlement that shall be based upon the actual cost of a comparable automobile less any deductible provided in the policy. This cash settlement amount shall include all applicable taxes and one-time fees incident to transfer of evidence of ownership of a comparable automobile. This amount shall also include the license fee and other annual fees to be computed based upon the remaining term of the loss vehicle’s current registration. This procedure shall apply whether or not a replacement automobile is purchased.
[New] Subsection (b)(1)(A): If the insured chooses to retain the loss vehicle or if the third party claimant retains the loss vehicle, the cash settlement amount shall include the sales tax associated with the cost of a comparable automobile, discounted by the amount of sales tax attributed to the salvage value of the loss vehicle. The cash settlement amount shall also include all fees incident to transfer of the claimant’s vehicle to salvage status. The salvage value may be deducted from the settlement amount and shall be determined by the amount for which a salvage pool or a licensed salvage dealer, wholesale motor vehicle auction, or dismantler will purchase the salvage. If requested by the claimant, the insurer shall provide the name, address, and telephone number of the salvage dealer, salvage pool, motor vehicle auction, or dismantler who will purchase the salvage. The insurer shall disclose in writing to the claimant that notice of the salvage retention by the claimant must be provided to the Department of Motor Vehicles and that this notice may affect the loss vehicle’s future resale and/or insured value. The disclosure must also inform the claimant of his or her right to seek a refund of the unused license fees from the Department of Motor Vehicles.
[New] Subsection (b)(2): A “comparable automobile” is one of like kind and quality, made by the same manufacturer, of the same or newer model year, of the same model type, of a similar body type, with options and mileage similar to the insured vehicle. Newer model year automobiles may not be used as comparable automobiles unless there are not sufficient comparable automobiles of the same model year to make a determination as set forth in Section 2695.8(b)(3), below. The cost of a comparable automobile is the asking price or actual sale price of that automobile. Any differences between the comparable automobile and the insured vehicle shall be permitted only if the insurer fairly adjusts for such differences. Any adjustments from the cost of a comparable automobile must be discernible, measurable, itemized, and specified as well as appropriate in dollar amount and so documented in the claim file. Deductions taken from the cost of a comparable automobile that cannot be supported shall not be used. The actual cost of a comparable automobile shall not include any deduction for the condition of a loss vehicle unless the documented condition of the loss vehicle is below average for that particular year, make, and model of vehicle. This subsection shall not preclude deduction for prior and/or unrelated damage to the loss vehicle. A comparable automobile must have been available for retail purchase by the general public in the local market area within ninety (90) calendar days of the final settlement offer. The comparable automobiles used to calculate the cost shall be identified by the vehicle identification number (VIN), the stock or order number of the vehicle from a licensed dealer, or the license plate number of that comparable vehicle if this information is available. The identification shall also include the telephone number (including area code) or street address of the seller of the comparable automobile.
[New] Subsection (b)(3): The insurer shall take reasonable steps to verify that the determination of the cost of a comparable vehicle is accurate and representative of the market value of a comparable automobile in the local market area. Upon its request, the department shall have access to all records, data, computer programs, or any other information used by the insurer or any other source to determine market value. The cost of a comparable automobile shall be determined as follows and, once determined, shall be fully itemized and explained in writing for the claimant at the time the settlement offer is made:
(A) when comparable automobiles are available or were available in the local market area in the last 90 days, the average cost of two or more such comparable automobiles; or,
(B) when comparable automobiles are not available or were not available in the local market area in the last 90 days, the average of two or more quotations from two or more licensed dealers in the local market area; or,
[New](C) the actual cost of a comparable automobile as determined by a computerized automobile valuation service that produces statistically valid fair market values within the local market area; or
(D) if it is not possible to determine the cost of a comparable automobile by using one of the methods described in subsections (b)(3)(A), (b)(3)(B), and (b)(3)(C) of this section, the cost of a comparable automobile shall otherwise be supported by documentation and fully explained to the claimant. Any adjustments to the cost of a comparable automobile shall be discernible, measurable, itemized, and specified as well as be appropriate in dollar amount and so documented in the claims file. Deductions taken from the cost of a comparable automobile that cannot be supported shall not be used.
Subsection (c): In first party automobile total loss claims, every insurer shall provide notice to the insured at the time the settlement payment is sent or final settlement offer is made, that if notified by the insured, within thirty-five days after receiving payment, that the insured cannot purchase a comparable automobile for the gross settlement amount, then the insurer will reopen its claim file and utilize the procedures set forth in subsections (c)(1) through (c)(4).
Subsection (f): Provides that no insurer shall suggest or recommend the use of a specific repair shop, unless the (1) referral was expressly requested by the claimant, or (2) the claimant has been informed in writing of the right to select the repair facility and the insurer shall cause the insured vehicle to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by these regulations.
[New] The following new language is added to subsection (f)(2): If an oral recommendation is made, the insurer shall provide the information contained in this subsection, as noted in the statement below, to the claimant at the time the recommendation is made. The insurer shall send the written notice required by this subsection within five (5) calendar days from the oral recommendation. The written notice required by this subsection shall include the following statement plainly printed in no less than ten-point type:
WE ARE PROHIBITED BY LAW FROM REQUIRING THAT REPAIRS BE DONE AT A SPECIFIC REPAIR SHOP. YOU ARE ENTITLED TO SELECT THE AUTO BODY REPAIR SHOP TO REPAIR DAMAGE COVERED BY US. WE HAVE RECOMMENDED A REPAIR SHOP THAT WILL REPAIR YOUR DAMAGED VEHICLE. AS YOU HAVE AGREED TO USE OUR RECOMMENDED REPAIR SHOP, WE WILL CAUSE THE DAMAGED VEHICLE TO BE RESTORED TO ITS CONDITION PRIOR TO THE LOSS AT NO ADDITIONAL COST TO YOU OTHER THAN AS STATED IN THE INSURANCE POLICY OR AS OTHERWISE ALLOWED BY LAW. IF YOU EXPERIENCE A PROBLEM WITH THE REPAIR OF YOUR VEHICLE, PLEASE CONTACT US IMMEDIATELY FOR ASSISTANCE.
[New] Subsection (g): Any insurer that, by the insurance contract, suggests or recommends that an automobile be repaired in a particular repair shop also:
(1) shall prominently disclose the contractual provision in writing to the insured at the time the insurance is applied for and at the time the claim is acknowledged by the insurer; and
(2) if the claimant elects to have the vehicle repaired at the shop of his or her choice, shall not limit or discount the reasonable repair costs based on charges which would have been incurred had the vehicle been repaired by the insurer’s chosen shop.
Subsection (j): No insurer shall require the use of non-original equipment replacement crash parts in the repair of an automobile unless the requirements of subsections (j)(1) through (j)(5) are met.
[New] Subsection (j)(5): the use of non-original equipment manufacturer replacement crash parts is disclosed in accordance with section 9875 of the California Business and Professions Code.
Subsection (m): The following new language is added regarding third party claimants: Once liability has been determined, an insurer shall pay all reasonable towing and storage charges incurred by a third party claimant and provide reasonable notice to the claimant before terminating payment for storage charges so that the claimant has time to remove the vehicle from storage. Payment to a third party claimant may be prorated based upon the comparative fault of the parties.
[New] Section 2695.85: Auto Body Repair Consumer Bill of Rights
(a) Every insurer that issues automobile liability or collision insurance policies shall provide the named insured(s) with an Auto Body Repair Consumer Bill of Rights either at the time of application for an automobile insurance policy, at the time a policy is issued, or following an accident or loss that is reported to the insurer. If the insurer provides the insured with an electronic copy of a policy, the bill of rights may also be transmitted electronically. If the insurer provides the bill of rights following an accident or loss, the insurer shall also provide the bill of rights to the particular insured filing the insurance claim. If the insurer provides the bill of rights at the time of application or policy issuance, all named insureds that have not previously received the bill of rights shall be provided with a copy upon renewal of the policy.
(b) The requirements set forth in subsection 2695.85(a), above, shall apply toall automobile liability and collision insurance policies issued in California including commercial automobile, private passenger automobile, and motorcycle insurance policies.
(c) The Auto Body Repair Consumer Bill of Rights shall be a separate standardized document and plainly printed in no less than ten-point type. An insurer may distribute the form using its own letterhead, but the language of the Auto Body Repair Consumer Bill of Rights shall be developed by the California Department of Insurance and shall read as follows:
AUTO BODY REPAIR CONSUMER BILL OF RIGHTS
A CONSUMER IS ENTITLED TO:
1. SELECT THE AUTO BODY REPAIR SHOP TO REPAIR AUTO BODY DAMAGE COVERED BY THE INSURANCE COMPANY. AN INSURANCE COMPANY SHALL NOT REQUIRE THE REPAIRS TO BE DONE AT A SPECIFIC AUTO BODY REPAIR SHOP.
2. AN ITEMIZED WRITTEN ESTIMATE FOR AUTO BODY REPAIRS AND, UPON COMPLETION OF REPAIRS, A DETAILED INVOICE. THE ESTIMATE AND THE INVOICE MUST INCLUDE AN ITEMIZED LIST OF PARTS AND LABOR ALONG WITH THE TOTAL PRICE FOR THE WORK PERFORMED. THE ESTIMATE AND INVOICE MUST ALSO IDENTIFY ALL PARTS AS NEW, USED, AFTERMARKET, RECONDITIONED, OR REBUILT.
3. BE INFORMED ABOUT COVERAGE FOR TOWING AND STORAGE SERVICES. THE EVERY INSURER SHALL PAY REASONABLE TOWING AND STORAGE CHARGES INCURRED BY THE INSURED TO PROTECT THE VEHICLE AND PROVIDE REASONABLE NOTICE TO AN INSURED BEFORE TERMINATING PAYMENT FOR STORAGE CHARGES SO THAT THE INSURED HAS TIME TO REMOVE THE VEHICLE FROM STORAGE.
4. BE INFORMED ABOUT THE EXTENT OF COVERAGE, IF ANY, FOR REPLACEMENT RENTAL VEHICLE WHILE A DAMAGED VEHICLE IS BEING REPAIRED.
5. BE INFORMED OF WHERE TO REPORT SUSPECTED FRAUD OR OTHER COMPLAINTS AND CONCERNS ABOUT AUTO BODY REPAIRS.
COMPLAINTS WITHIN THE JURISDICTION
OF THE BUREAU OF AUTOMOTIVE REPAIR
Complaints concerning the repair of a vehicle by an auto body repair shop should be directed to:
Toll Free (800) 952-5210
California Department of Consumer Affairs
Bureau of Automotive Repair
10240 Systems Parkway
Sacramento, CA 95827
The Bureau of Automotive Repair can also accept complaints over its web site at: http://www.autorepair.ca.gov
COMPLAINTS WITHIN THE JURISDICTION
OF THE CALIFORNIA INSURANCE COMMISSIONER
Any concerns regarding how an auto insurance claim is being handled should be submitted to the California Department of Insurance at:
(800) 927-HELP or (213) 897-8921
California Department of Insurance
Consumer Services Division
300 South Spring Street
Los Angeles, CA 90013
The California Department of Insurance can also accept complaints over its web site at: www.insurance.ca.gov
Section 2695.9: Additional Standards Applicable to First Party Residential and Commercial Property Insurance Policies
[New] Subsection (a): Under a replacement cost policy, an insurer shall not withhold payment for a general contractor’s overhead and profit from the actual cash value payment of benefits when those expenses reasonably are expected to be incurred.
[New] Subsection (c): No insurer shall require that the insured have the property repaired by a specific individual or entity.
[New] Subsection (d): No insurer shall suggest or recommend that the insured have the property be repaired by a specific individual or entity unless:
(1) the referral is expressly requested by the claimant; or
(2) the claimant has been informed in writing of the right to select a repair individual or entity and the insurer shall cause the damaged property to be restored to no less than its condition prior to the loss and repaired in a manner which meets accepted trade standards for good and workmanlike construction at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by these regulations.
[New] Subsection (e): If losses are settled on the basis of a written scope and/or estimate prepared by or for the insurer, the insurer shall supply the claimant with a copy of each document upon which the settlement is based. The estimate prepared by or for the insurer shall be in accordance with applicable policy provisions, of an amount which will restore the damaged property to no less than its condition prior to the loss and which will allow for repairs to be made in a manner which meets accepted trade standards for good and workmanlike construction. The insurer shall take reasonable steps to verify that the repair or rebuilding costs utilized by the insurer or its claims agents are accurate and representative of costs in the local market area. If the claimant subsequently contends, based upon a written estimate which he or she obtains, that necessary repairs will exceed the written estimate prepared by or for the insurer, the insurer shall:
(1) pay the difference between its written estimate and a higher estimate obtained by the claimant; or,
(2) if requested by the claimant, promptly provide the claimant with the name of at least one repair individual or entity that will make the repairs for the amount of the written estimate. The insurer shall cause the damaged property to be restored to no less than its condition prior to the loss and which will allow for repairs in a manner which meets accepted trade standards for good and workmanlike construction at no additional cost to the claimant other than as stated in the policy or as otherwise allowed by these regulations; or,
(3) reasonably adjust any written estimates prepared by the repair individual or entity of the insured’s choice and provide a copy of the adjusted estimate to the claimant.
[New] Subsection (f): Once the appraisal provision under an insurance policy is invoked, the appraisal process shall not include any legal proceeding or procedure not specified under California Insurance Code Section 2071.
Section 2695.10: Additional Standards Applicable to Surety Insurance
[New] Subsection (a): No insurer may deny a claim based solely upon a principal’s denial of liability.
[New] Subsection (b): A principal’s absence, non-cooperation, or failure to meet the bonded obligation shall not excuse delay by the insurer in determining whether a claim should be accepted or denied.
[New] Subsection (c): After receipt of notice of claim, no insurer may refer a claimant to the principal for performance under the bond, without first documenting in its claim file the facts relied upon to support its conclusion that the principal would meet the bonded obligation. Within fifteen (15) calendar days of the referral to the principal, the insurer shall provide written notification to the claimant of any statute of limitation or other time period requirement upon which the insurer may rely to deny an untimely claim made under the bond.
Section 2695.11: Additional Standards Applicable to Life and Disability Insurance Claims
[New] Subsection (d): An insurer that contests a claim under California Insurance Code Section 10123.13 shall subsequently affirm or deny the claim within thirty (30) calendar days from the original notification. In the event an insurer requires additional time to affirm or deny the claim, it shall notify the claimant and assignee in writing. This written notice shall specify any additional information the insurer requires in order to make a determination and shall state any continuing reasons for the insurer’s inability to make a determination. This notice shall be given within thirty (30) calendar days of the notice (required under Insurance Code Section 10123.13) that the claim is being contested and every thirty (30) calendar days thereafter until a determination is made or legal action is served. If the determination cannot be made until some future event occurs, the insurer shall comply with this continuing notice requirement by advising the claimant and assignee of the situation and providing an estimate as to when the determination can be made.
[New] Subsection (e): When a policy requires preauthorization of non-emergency medical services, the preauthorization must be given immediately but in no event more than five (5) calendar days after the request for preauthorization. The preauthorization shall be communicated or confirmed in writing to the insured and the medical service provider, and shall explain the scope of the preauthorization and whether the preauthorization is or is not a guarantee of acceptance of the claim. In the event the preauthorization is denied, the reason(s) for the denial shall be communicated in writing to the insured and the medical service provider.
[New] Subsection (f): No preauthorization shall be required by an insurer for emergency medical services.
[New] Subsection (g): An insurer shall reimburse the insured or medical service provider for reasonable expenses incurred in copying medical records requested by the insurer.
Section 2695.12: Penalties
Subsection (a): In determining appropriate penalties to be assessed, the Commissioner shall consider admissible evidence of the following:
(7) the relative number of claims where the violations are found to exist, as contrasted to the total number of claims reviewed by the Department for the relevant time period;
[New] (13) whether the licensee’s management was aware of facts that apprised or should have apprised the licensee of the act(s) and the licensee failed to take any remedial measures; and
[New] (14) the licensee’s reasonable mistakes or opinions as to valuation of property, losses, or damages.
Section 2695.14: Effective Dates
Subsection (a): The regulations will take effect within ninety days after they are filed with the Secretary of State.
Subsection (b): Prior to the effective date of these regulations licensees shall, pursuant to Section 2695.6, adopt and communicate to their insurance agents and claims agents standards for the prompt investigation and processing of claims, and provide training and instruction on these regulations.
Subsection (c): These regulations shall apply to any claims handling that takes place on or after the effective date set forth under subsection 2695.14(a).
Conclusion
California claims personnel and attorneys handling insurance matters need to know and follow these new FCSP regulations, because they will regulate California insurance practices after their effective date.
