Zalma on California Claims Regulations

 

Updated March 11, 2013 to include changes made to the Regulations effective March 30, 2013

This E-book was designed to assist insurance personnel who do business in the state of California. It will assist all insurance claims personnel, claims professionals, independent insurance adjusters, special fraud investigators, private investigators who work for the insurance industry, the management in the industry, the attorneys who serve the industry, public insurance adjusters, policyholders and counsel for policyholders working with insurers doing business in California.

All insurers doing business in California must comply with the requirements of California Fair Claims Settlement Practices Regulations (the "Regulations") or face the ire of, and attempts at financial punishment from the California Department of Insurance ("CDOI"). That punishment is now in question because some courageous insurers fought the CDOI and succeeded before an administrative law judge.

Regardless of difficulties in assessing punishment the state of California requires all who are involved in the claims process even if only tangentially to be trained with regard claims handling in compliance with the Regulations and attest to completion of such training under oath or that the claims person has read and understood the Regulations.

It is necessary that insurance personnel who are engaged in any way in the presentation, processing, or negotiation of insurance claims in California be familiar with the Regulations. Counsel for insurers and policyholders should be familiar with the Regulations since they set a minimum standard for claims handling.

Whether the insurer fulfilled the requirements or not can assist the lawyer in evaluating the exposure faced by an insurer or policyholder client. The existence of compliance with the Regulations is important to the evaluation of a claim for breach of the covenant of good faith and fair dealing and evaluation of a claim of damages resulting from the tort of bad faith.

Fair Claims Practices Regulations

In 1993, the California Department of Insurance started the regulatory process to control, through regulatory micromanagement, claims handling in the state of California. The first version of what was then called the "Unfair Claims Settlement Practices Regulations" were issued to comply with the direction of the California Supreme Court made as part of the ruling in a case known as Moradi Shalal1 that concluded: "Neither section 790.03 nor section 790.09 was intended to create a private civil cause of action against an insurer that commits one of the various acts listed in section 790.03, subdivision (h)." The Supreme Court concluded that enforcement was the obligation of the CDOI.

The CDOI, five years after receiving instruction from the Supreme Court, issued the first version of the Regulations in 1993 and modified the Regulations in 1996, 1997, 2004, 2007 and 2009. The 1997 changes renamed the Regulations the "California Fair Claims Settlement Practices Regulations," which name remains.

The Regulations imposed on all insurance personnel a detailed laundry list of actions the CDOI considered wrongful or in violation of the Fair Claims Practices Act, California Insurance Code Section 790.03(h).2

The Regulations impose on all insurance claims personnel the requirement that they read and understand the Regulations or attend an annual training program no later than September 1 of each year. They require that insurers ascertain that every employee involved in any way in the claims process is trained about the Regulations or has submitted a sworn statement that he or she has read and understands the Regulations. The Regulations even require that the insurance claims managing executive attest, under oath, that each employee has been trained with regard to and/or understands the Regulations. This requirement must be complied with in order to avoid the possibility of administrative penalties upon the insurer or prosecution of the officer for perjury

Created March 11, 2013

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