When it Comes to Penalizing Insurance Companies for Bad Behavior, it’s Better Late than Never

This past week, the California Department of Insurance (CDI) settled an enforcement action against an insurer over claims handling practices from the November 2008 Sayre wildfire. The insurer charged with wrongdoing was New Hampshire Insurance Company (“New Hampshire”), a subsidiary of AIG. The Sayre fire burned in Sylmar, California, and was the eighth most damaging wildfire in California history in terms of structural damage. It destroyed over 600 structures.

The CDI charged New Hampshire with a number of violations of the Insurance Code. The more frequently violated sections included:

• Cal. Ins. Code section 2060, which requires that when a loss results in a claim for additional living expenses, the insurer must provide the insured with a list of items that the insurer believes may be covered under the policy as covered expenses. (There was no evidence that New Hampshire provided their insureds with lists.)

• Cal. Ins. Code section 2695.4(a), which requires the insurer to disclose to a first party claimant all benefits and the policy provisions that may apply to the presented claim. (The CDI found that New Hampshire delayed for months in advising many of its insured of additional amounts of insurance from a coverage endorsement.)

• Cal. Ins. Code section 790.03(h)(1), which prohibits the misrepresentation of insurance policy provisions to clients. (In this case, New Hampshire advised its insureds that they had endorsements providing an additional 110% in dwelling coverage, but the insureds actually had endorsements providing an additional 125%.)

Altogether, the CDI accused New Hampshire of 125 separate violations. The settlement amount was $285,000. In the grand scheme of things, the sum may put only a very small dent in this insurance company’s profits. With the CDI watching more closely, hopefully more insurance companies are getting the messag,e and unfair claims practices can be curbed. Although we are often skeptical of what government can actually do for the consumer, at least in this instance, it’s good to see our taxpayer dollars being put into good use.