Fair Claims Settlement Practices Regulations

 

Effective August 30, 2006
CALIFORNIA CODE OF REGULATIONS, TITLE 10. CHAPTER 5
AMEND SUBCHAPTER 7.5 TO READ:

TABLE OF CONTENTS

SUBCHAPTER 7.5 FAIR CLAIMS SETTLEMENT PRACTICES
REGULATIONS
(RH05044124 / RH05044134)

Section 2695.1.: Preamble
Section 2695.2.: Definitions
Section 2695.3.: File and Record Documentation
Section 2695.4.: Representation of Policy Provisions and Benefits
Section 2695.5.: Duties upon Receipt of Communications
Section 2695.6.: Training and Certification
Section 2695.7.: Standards for Prompt, Fair and Equitable Settlements
Section 2695.8.: Additional Standards Applicable to Automobile Insurance
Section 2695.85.: Auto Body Repair Consumer Bill of Rights
Section 2695.9.: Additional Standards Applicable to First Party Residential and Commercial Property Insurance Policies
Section 2695.10.: Additional Standards Applicable to Surety Insurance
Section 2695.11.: Additional Standards Applicable to Life and Disability Insurance
Section 2695.12.: Penalties
Section 2695.13.: Severability
Section 2695.14.: Compliance Date

Section 2695.1. Preamble
(a) Section 790.03(h) of the California Insurance Code enumerates
sixteen claims settlement practices that, when either knowingly
committed on a single occasion, or performed with such frequency as to
indicate a general business practice, are considered to be unfair claims
settlement practices and are, thus, prohibited by this section of the
California Insurance Code. The Insurance Commissioner has promulgated
these regulations in order to accomplish the following objectives:
(1) To delineate certain minimum standards for the settlement of
claims which, when violated knowingly on a single occasion or performed
with such frequency as to indicate a general business practice shall
constitute an unfair claims settlement practice within the meaning of
Insurance Code Section 790.03(h);
(2) To promote the good faith, prompt, efficient and equitable
settlement of claims on a cost effective basis;
(3) To discourage and monitor the presentation to insurers of false
or fraudulent claims; and,
(4) To encourage the prompt and thorough investigation of suspected
fraudulent claims and ensure the prompt and comprehensive reporting of
suspected fraudulent claims as required by Insurance Code Section
1872.4.
(b) These regulations are not meant to provide the exclusive
definition of all unfair claims settlement practices. Other methods,
act(s), or practices not specifically delineated in this set of
regulations may also be unfair claims settlement practices and subject
to California Insurance Code Section 790.03(h) and/or California
Insurance Code Section 790.06. These regulations are applicable to the
handling or settlement of all claims subject to Article 6.5 of Division
1, Part 2, Chapter 1 of the California Insurance Code, commencing with
Section 790, except as specifically provided below:
(1) Workers’ compensation insurance;
(2) Liability insurance for the professional malpractice of health
care providers as defined in California Code of Civil Procedure Section
364(f)(1);
(3) Self insured or self funded plans which are bona fide Employee
Retirement Income Security Act (“ERISA”) plans which are not also
multiple employer welfare arrangements, to the extent that these ERISA
plans are not covered by insurance;
(4) Any other self funded or self insured plan, to the extent it is
not covered by insurance, which is lawfully conducting business in this
state.
(c) In recognition of both the unique relationship which exists
under a surety bond between the surety, the obligee or beneficiary, and
the principal, and the fact that the processing of surety claims is
subject to the Unfair Practices Act, beginning with California Insurance
Code Section 790, only sections 2695.1 through 2695.6, inclusive,
section 2695.10, and sections 2695.12, 2695.13 and 2695.14, inclusive,
shall apply to the handling or settlement of claims brought under surety
bonds.
(d) These regulations apply to home protection contracts and home
protection companies defined in California Insurance Code Section 12740.
(e) All licensees, as defined in these regulations, shall have
thorough knowledge of the regulations contained in this subchapter.
(f) 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 these regulations.
(g) The California Insurance Code provides the commissioner with
access to all records of an insurer and the power to examine the affairs
of every person engaged in the business of insurance to determine if
such person is engaged in any unfair or deceptive act or practice.
California Insurance Code Section 790.03(h) requires all persons engaged
in the business of insurance to effectuate prompt, fair and equitable
settlements of claims and to otherwise process claims in a fair and
reasonable manner.
The Department considers the use of reliable
information to be an essential element of the fair and equitable
settlement of claims. The fact that information, data or statistical
methods used or relied upon by a licensee to process or establish the
value of insurance claims is obtained through a third party source shall
not absolve the licensee of its legal responsibility to comply with
these regulations or to effectuate prompt, fair and equitable
settlements of claims.
Failure of a licensee to provide the
commissioner with requested information sufficient to examine the
licensee’s claims handling practices may justify a finding that the
licensee was in non-compliance with these regulations or other
applicable insurance code provisions. Any and all information received
pursuant to the Department’s request shall be given confidential
treatment, as provided in California Insurance Code section 735.5 and
California Government Code Section 11180 et seq. When processing or
establishing the value of a claim, a licensee shall not be responsible
for the accuracy of information provided by a governmental entity,
unless the licensee has discovered or been notified of the inaccuracy
and has continued to use the information.
NOTE: Authority cited: Sections 790.034, 790.10, 1871.1, 12340 – 12417,
inclusive, 12921 and 12926 of the California Insurance Code and Sections
11342.2 and 11152 of the California Government Code.
Reference:
Sections 790.03, 790.04, 735.5 and 12740 of the California Insurance
Code, and Section 11180 et seq. of the California Government Code.

Section 2695.2. Definitions
As used in these regulations:
(a) “Beneficiary” means:
(1) for the purpose of life and disability claims, the party or
parties entitled to receive the proceeds or benefits occurring under the
policy in lieu of the insured; or,
(2) for the purpose of surety claims, a person who is within the
class of persons intended to benefit from the bond;
(b) “Calendar days” means each and every day including Saturdays,
Sundays, Federal and California State Holidays, but if the last day for
performance of any act required by these regulations falls on a
Saturday, Sunday, Federal or State Holiday, then the period of time to
perform the act is extended to and including the next calendar day which
is not a Saturday, Sunday, or Federal or State holiday;
(c) “Claimant” means a first or third party claimant as defined in
these regulations, any person who asserts a right of recovery under a
surety bond, an attorney, any person authorized by operation of law to
represent the claimant, or any of the following persons properly
designated by the claimant in the manner specified in subsection
2695.5(c): an insurance adjuster, a public adjuster, or any member of
the claimant’s family.
(d) “Claims agent” means any person employed or authorized by an
insurer, to conduct an investigation of a claim on behalf of an insurer
or a person who is licensed by the Commissioner to conduct
investigations of claims on behalf of an insurer. The term “claims
agent”, however, shall not include the following:
1) an attorney retained by an insurer to defend a claim brought
against an insured; or,
2) persons hired by an insurer solely to provide valuation as to
the subject matter of a claim.
(e) “Extraordinary circumstances” means circumstances outside of
the control of the licensee which severely and materially affect the
licensee’s ability to conduct normal business operations;
(f) “First party claimant” means any person asserting a right
under an insurance policy as a named insured, other insured or
beneficiary under the terms of that insurance policy, and including any
person seeking recovery of uninsured motorist benefits;
(g) “Gross settlement amount” means the amount tendered plus the
amount deducted as provided in the policy in the settlement of an
automobile total loss claim;
(h) “Insurance agent” means:
(1) the term “insurance agent” as used in section 31 of the
California Insurance Code; or,
(2) the term “life agent” as used in section 32 of the California
Insurance Code; or,
(3) any person who has authority or responsibility to notify an
insurer of a claim upon receipt of a notice of claim by a claimant; or,
(4) an underwritten title company.
(i) “Insurer” means a person licensed to issue or that issues an
insurance policy or surety bond in this state, or that otherwise
transacts the business of insurance in the state, including reciprocal
and interinsurance exchanges, fraternal benefit societies, stock and
mutual insurance companies, risk retention groups, California county
mutual fire insurance companies, grants and annuities societies,
entities holding certificates of exemption, non-profit hospital service
plans, multiple employer welfare arrangements holding certificates of
compliance pursuant to Article 4.7 of the California Insurance Code, and
motor clubs, to the extent that they transact the business of insurance
in the State. The term “insurer” for purposes of these regulations
includes non-admitted insurers, the California FAIR Plan, the California
Earthquake Authority, those persons licensed to issue or that issue an
insurance policy pursuant to an assignment by the California Automobile
Assigned Risk Plan, home protection companies as defined under
California Insurance Code Section 12740, and any other entity subject to
California Insurance Code Section 790.03(h). The term “insurer” shall
not include insurance agents and brokers, surplus line brokers and
special lines surplus line brokers.
(j) “Insurance policy” or “policy” means the written instrument in
which any certificate of group insurance, contract of insurance, or non-
profit hospital service plan is set forth. For the purposes of these
regulations the terms insurance policy or policy do not include “surety
bond” or “bond”. For the purposes of these regulations the term
insurance policy or policy includes a home protection contract or any
written instrument in which any certificate of insurance or contract of
insurance is set forth that is issued pursuant to the California
Automobile Assigned Risk Plan, the California Earthquake Authority, or
the California FAIR Plan;
(k) “Investigation” means all activities of an insurer or its
claims agent related to the determination of coverage, liabilities, or
nature and extent of loss or damage for which benefits are afforded by
an insurance policy, obligations or duties under a bond, and other
obligations or duties arising from an insurance policy or bond.
(l) “Knowingly committed” means performed with actual, implied or
constructive knowledge, including, but not limited to, that which is
implied by operation of law.
(m)
“Licensee” means any person that holds a license or
Certificate of Authority from the Insurance Commissioner, or any other
entity for whom the Insurance Commissioner’s consent is required before
transacting business in the State of California or with California
residents. The term “licensee” for purpose of these regulations does
not include an underwritten title company if the underwriting agreement
between the underwritten title company and the title insurer
affirmatively states that the underwritten title company is not
authorized to handle policy claims on behalf of the title insurer.
(n) “Notice of claim” means any written or oral notification to an
insurer or its agent that reasonably apprises the insurer that the
claimant wishes to make a claim against a policy or bond issued by the
insurer and that a condition giving rise to the insurer’s obligations
under that policy or bond may have arisen. For purposes of these
regulations the term “notice of claim” shall not include any written or
oral communication provided by an insured or principal solely for
informational or incident reporting purposes.
(o) “Notice of legal action” means notice of an action commenced
against the insurer with respect to a claim, or notice of action against
the insured received by the insurer, or notice of action against the
principal under a bond, and includes any arbitration proceeding;
(p) “Obligee” means the person named as obligee in a bond;
(q) “Person” means any individual, association, organization,
partnership, business, trust, corporation or other entity;
(r) “Principal” means the person whose debt or other obligation is
secured or guaranteed by a bond and who has the primary duty
to pay the debt or discharge the obligation;
(s) “Proof of claim” means any evidence or documentation in the
possession of the insurer, whether as a result of its having been
submitted by the claimant or obtained by the insurer in the course of
its investigation, that provides any evidence of the claim and that
reasonably supports the magnitude or the amount of the claimed loss.
(t) “Remedial measures” means those actions taken by an insurer to
correct or cure any error or omission in the handling of claims on the
part of its insurance agent as defined in subsection 2695.2(h),
including, but not limited to:
(1) written notice to the insurance agent that he/she is in
violation of the regulations contained in this subchapter;
(2) transmission of a copy of the regulations contained in this
subchapter and instructions for their implementation;
(3) reporting the error or omission in the handling of claims by
the insurance agent to the Department of Insurance;
(u) “Replacement crash part” means a replacement for any of the
nonmechanical sheet metal or plastic parts which generally constitute
the exterior of a motor vehicle, including inner and outer panels;
(v) “Single act” for the purpose of determining any penalty
pursuant to California Insurance Code Section 790.035 is any commission
or omission which in and of itself constitutes a violation of California
Insurance Code Section 790.03 or this subchapter;
(w) “Surety bond” or “bond” means the written instrument in which
a contract of surety insurance, as defined in California Insurance Code
Section 105, is set forth;
(x) “Third party claimant” means any person asserting a claim
against any person or the interests insured under an insurance policy;
(y) “Willful” or “Willfully” when applied to the intent with which
an act is done or omitted means simply a purpose or willingness to
commit the act, or make the omission referred to in the California
Insurance Code or this subchapter. It does not require any intent to
violate law, or to injure another, or to acquire any advantage;
NOTE: Authority cited: Sections 132(d), 790.10, 12340 – 12417,
inclusive, 12921 and 12926 of the California Insurance Code, Section
995.130 of the Code of Civil Procedure and Sections 11342.2 and 11152 of
the California Government Code. Reference: Sections 31, 32, 101, 106,
675.5(b), (c) and (d), 676.6, 790.03(h) and 10082 of the California
Insurance Code.

Section 2695.3. File and Record Documentation
(a) Every licensee’s claim files shall be subject to examination
by the Commissioner or by his or her duly appointed designees. These
files shall contain all documents, notes and work papers (including
copies of all correspondence) which reasonably pertain to each claim in
such detail that pertinent events and the dates of the events can be
reconstructed and the licensee’s actions pertaining to the claim can be
determined;
(b) To assist in such examination all insurers shall:
(1) maintain claim data that are accessible, legible and
retrievable for examination so that an insurer shall be able to provide
the claim number, line of coverage, date of loss and date of payment of
the claim, date of acceptance, denial or date closed without payment.
This data must be available for all open and closed files for the
current year and the four preceding years;
(2) record in the file the date the licensee received, date(s) the
licensee processed and date the licensee transmitted or mailed every
material and relevant document in the file; and
(3) maintain hard copy files or maintain claim files that are
accessible, legible and capable of duplication to hard copy; files shall
be maintained for the current year and the preceding four years.
(c) The requirements of this section shall be satisfied where the
licensee provides documentation evidencing inability to obtain data,
nonexistence of data, or difficulty in obtaining clear documentary
support for actions due to catastrophic losses, or other unusual
circumstances providing the licensee establishes to the satisfaction of
the Commissioner that the circumstances alleged by the licensee do exist
and have materially affected the licensee’s ability to comply with this
regulation. Any licensee that alleges an inability to comply with this
section shall establish and submit to the Commissioner a plan for file
and record documentation to be used by such licensee while the
circumstances alleged to preclude compliance with this subsection
continue to exist.
NOTE: Authority cited: Sections 790.04, 790.10, 12340 – 12417,
inclusive, 12921 and 12926 of the California Insurance Code and Sections
11342.2 and 11152 of the California Government Code.
Reference:
Section 790.03(h) of the California Insurance Code.

Section 2695.4. Representation of Policy Provisions and Benefits
(a) Every insurer shall disclose to a first party claimant or
beneficiary, all benefits, coverage, time limits or other provisions of
any insurance policy issued by that insurer that may apply to the claim
presented by the claimant. When additional benefits might reasonably be
payable under an insured’s policy upon receipt of additional proofs of
claim, 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.
(b) No insurer shall misrepresent or conceal benefits,
coverages, time limits or other provisions of the bond which may
apply to the claim presented under a surety bond.
(c) No insurer shall deny a claim on the basis of the claimant’s
failure to exhibit property, unless there is documentation in the file
(1) of reasonable demand by the insurer, and unfounded refusal by the
claimant, to exhibit property, or (2) of the breach of any policy
provision providing for the exhibition of property.
(d) Except where a time limit is specified in the policy, no
insurer shall require a first party claimant under a policy to give
notification of a claim or proof of claim within a specified time.
(e) No insurer shall:
(1) request that a claimant sign a release that extends beyond the
subject matter which gave rise to the claim payment unless, prior to
execution of the release, the legal effect of the release is disclosed
and fully explained by the insurer to the claimant in writing. For
purposes of this subsection, an insurer shall not be required to provide
the above explanation or disclosure to a claimant who is represented by
an attorney at the time the release is presented for signature;
(2) be precluded from including in any release a provision
requiring the claimant to waive the provisions of California Civil Code
Section 1542, provided that, prior to execution of the release, the
legal effect of the release is disclosed and fully explained by the
insurer to the claimant in writing. For purposes of this subsection, an
insurer shall not be required to provide the above explanation or
disclosure to a claimant who is represented by an attorney at the time
the release is presented for signature.
(f) No insurer shall issue checks or drafts in partial settlement
of a loss or claim that contain or are accompanied by language releasing
the insurer, the insured, or the principal on a surety bond from total
liability unless the policy or bond limit has been paid, or there has
been a compromise settlement agreed to by the claimant and the insurer
as to coverage and amount payable under the insurance policy or bond.
(g) No insurer shall require a first party claimant or beneficiary
to submit duplicative proofs of claim where coverage may exist under
more than one policy issued by that insurer.
NOTE: Authority cited: Sections 790.10, 12340 – 12417, inclusive,
12921 and 12926 of the California Insurance Code and Sections 11342.2
and 11152 of the California Government Code. Reference: Section
790.03(h)(1), (3) and (4) of the California Insurance Code.

Section 2695.5. Duties upon Receipt of Communications
(a) Upon receiving any written or oral inquiry from the Department
of Insurance concerning a claim, every licensee shall immediately, but
in no event more than twenty-one (21) calendar days of receipt of that
inquiry, furnish the Department of Insurance with a complete written
response based on the facts as then known by the licensee. A complete
written response addresses all issues raised by the Department of
Insurance in its inquiry and includes copies of any documentation and
claim files requested. This section is not intended to permit delay in
responding to inquiries by Department personnel conducting a scheduled
examination on the insurer’s premises.
(b) Upon receiving any communication from a claimant, regarding a
claim, that reasonably suggests that a response is expected, every
licensee shall immediately, but in no event more than fifteen (15)
calendar days after receipt of that communication, furnish the claimant
with a complete response based on the facts as then known by the
licensee. This subsection shall not apply to require communication with
a claimant subsequent to receipt by the licensee of a notice of legal
action by that claimant.
(c) The designation specified in subsection 2695.2(c) shall be in
writing, signed and dated by the claimant, and shall indicate that the
designated person is authorized to handle the claim. All designations
shall be transmitted to the insurer and shall be valid from the date of
execution until the claim is settled or the designation is revoked. A
designation may be revoked by a writing transmitted to the insurer,
signed and dated by the claimant, indicating that the designation is to
be revoked and the effective date of the revocation.
(d) Upon receiving notice of claim, every licensee or claims agent
shall immediately transmit notice of claim to the insurer.
(e)
Upon receiving notice of claim, every insurer shall
immediately, but in no event more than fifteen (15) calendar days later,
do the following unless the notice of claim received is a notice of
legal action:
(1) acknowledge receipt of such notice to the claimant unless
payment is made within that period of time. If the acknowledgment is
not in writing, a notation of acknowledgment shall be made in the
insurer’s claim file and dated. Failure of an insurance agent or claims
agent to promptly transmit notice of claim to the insurer shall be
imputed to the insurer except where the subject policy was issued
pursuant to the California Automobile Assigned Risk Program.
(2) provide to the claimant necessary forms, instructions, and
reasonable assistance, including but not limited to, specifying the
information the claimant must provide for proof of claim;
(3) begin any necessary investigation of the claim.
(f) An insurer may not require that the notice of claim under a
policy be provided in writing unless such requirement is specified in
the insurance policy or an endorsement thereto.
NOTE: Authority cited: Sections 790.04, 790.10, 12340 – 12417,
inclusive, 12921, 12926 of the California Insurance Code and Sections
11342.2 and 11152 of the California Government Code.
Reference:
Sections 790.03(h)(2) and (3) of the California Insurance Code.

Section 2695.6 Training and Certification
(a) Every insurer shall adopt and communicate to all its claims
agents written standards for the prompt investigation and processing of
claims, and shall do so within ninety (90) days after the effective date
of these regulations or any revisions thereto.
(b) All licensees shall provide thorough and adequate training
regarding these regulations to all their claims agents. Licensees shall
certify that their claims agents have been trained regarding these
regulations and any revisions thereto. However, licensees need not
provide such training or certification to duly licensed attorneys.
A licensee shall demonstrate compliance with this subsection by the
following methods:
(1)
where the licensee is an individual, the licensee shall
annually certify in writing under penalty of perjury that he
or she has read and understands these regulations and any and
all amendments thereto;
(2)
where the licensee is an entity, the annual written
certification shall be executed, under penalty of perjury, by a
principal of the entity as follows:
(A) that the licensee’s claims adjusting manual contains a copy of
these regulations and all amendments thereto; and,
(B) that clear written instructions regarding the procedures to be
followed to effect proper compliance with this subchapter were provided
to all its claims agents;
(3) where the licensee retains insurance adjusters as defined in
California Insurance Code Section 14021, the licensee must provide
training to the insurance adjusters regarding these regulations and
annually certify, in a declaration executed under penalty of perjury,
that such training is provided. Alternately, the insurance adjuster may
annually certify in writing, under penalty of perjury, that he or she
has read and understands these regulations and all amendments thereto or
has successfully completed a training seminar which explains these
regulations;
(4) a copy of the certification required by subsections 2695.6(b)
(1), (2) or (3) shall be maintained at all times at the principal place
of business of the licensee, to be provided to the Commissioner only
upon request.
(5) the annual certification required by this subsection shall be
completed on or before September 1 of each calendar year.
NOTE: Authority cited: Sections 790.10, 12340 – 12417, inclusive,
12921 and 12926 of the California Insurance Code and Sections 11342.2
and 11152 of the California Government Code. Reference: Section
790.03(h)(3) of the California Insurance Code.

Section 2695.7.
Standards for Prompt, Fair and Equitable
Settlements
(a) No insurer shall discriminate in its claims settlement
practices based upon the claimant’s age, race, gender, income, religion,
language, sexual orientation, ancestry, national origin, or physical
disability, or upon the territory of the property or person insured.
(b) Upon receiving proof of claim, every insurer, except as
specified in subsection 2695.7(b)(4) below, shall immediately, but in no
event more than forty (40) calendar days later, accept or deny the
claim, in whole or in part.
The amounts accepted or denied shall be
clearly documented in the claim file unless the claim has been denied in
its entirety.
(1) Where an insurer denies or rejects a first party claim, in
whole or in part, it shall do so in writing and shall provide to the
claimant a statement listing all bases for such rejection or denial and
the factual and legal bases for each reason given for such rejection or
denial which is then within the insurer’s knowledge. Where an insurer’s
denial of a first party claim, in whole or in part, is based on a
specific statute, applicable law or policy provision, condition or
exclusion, the written denial shall include reference thereto and
provide an explanation of the application of the statute, applicable law
or provision, condition or exclusion to the claim. Every insurer that
denies or rejects a third party claim, in whole or in part, or disputes
liability or damages shall do so in writing.
(2) Subject to the provisions of subsection 2695.7(k), nothing
contained in subsection 2695.7(b)(1) shall require an insurer to
disclose any information that could reasonably be expected to alert a
claimant to the fact that the subject claim is being investigated as a
suspected fraudulent claim.
(3) Written notification pursuant to this subsection shall include
a statement 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, and shall include
the address and telephone number of the unit of the Department which
reviews claims practices.
(4) The time frame in subsection 2695.7(b) shall not apply to
claims arising from policies of disability insurance subject to Section
10123.13 of the California Insurance Code, disability income insurance
subject to Section 10111.2 of the California Insurance Code or mortgage
guaranty insurance subject to Section 12640.09(a) of the California
Insurance Code, and shall not apply to automobile repair bills arising
from policies of automobile collision and comprehensive insurance
subject to Section 560 of the California Insurance Code. All other
provisions of subsections 2695.7(b)(1), (2), and (3) are applicable.
(c)(1) If more time is required than is allotted in subsection
2695.7(b) to determine whether a claim should be accepted and/or denied
in whole or in part, every insurer shall provide the claimant, within
the time frame specified in subsection 2695.7(b), with written notice of
the need for additional time. This written notice shall specify any
additional information the insurer requires in order to make a
determination and state any continuing reasons for the insurer’s
inability to make a determination. Thereafter, the written notice shall
be provided every thirty (30) calendar days until a determination is
made or notice of legal action is served. If the determination cannot
be made until some future event occurs, then the insurer shall comply
with this continuing notice requirement by advising the claimant of the
situation and providing an estimate as to when the determination can be
made.
(2) Subject to the provisions of subsection 2695.7(k), nothing
contained in subsection 2695.7(c)(1) shall require an insurer to
disclose any information that could reasonably be expected to alert a
claimant to the fact that the claim is being investigated as a possible
suspected fraudulent claim.
(d) Every insurer shall conduct and diligently pursue a thorough,
fair and objective investigation and shall not persist in seeking
information not reasonably required for or material to the resolution of
a claim dispute.
(e) No insurer shall delay or deny settlement of a first party
claim on the basis that responsibility for payment should be assumed by
others, except as may otherwise be provided by policy provisions,
statutes or regulations, including those pertaining to coordination of
benefits.
(f) Except where a claim has been settled by payment, every insurer
shall provide written notice of any statute of limitation or other time
period requirement upon which the insurer may rely to deny a claim.
Such notice shall be given to the claimant not less than sixty (60) days
prior to the expiration date; except, if notice of claim is first
received by the insurer within that sixty days, then notice of the
expiration date must be given to the claimant immediately. With respect
to a first party claimant in a matter involving an uninsured motorist,
this notice shall be given at least thirty (30) days prior to the
expiration date; except, if notice of claim is first received by the
insurer within that thirty days, then notice of the expiration date must
be given to the claimant immediately. This subsection shall not apply
to a claimant represented by counsel on the claim matter.
(g) No insurer shall attempt to settle a claim by making a
settlement offer that is unreasonably low. The Commissioner shall
consider any admissible evidence offered regarding the following factors
in determining whether or not a settlement offer is unreasonably low:
(1) the extent to which the insurer considered evidence submitted
by the claimant to support the value of the claim;
(2) the extent to which the insurer considered legal authority or
evidence made known to it or reasonably available;
(3) the extent to which the insurer considered the advice of its
claims adjuster as to the amount of damages;
(4) the extent to which the insurer considered the advice of its
counsel that there was a substantial likelihood of recovery in excess of
policy limits;
(5) the procedures used by the insurer in determining the dollar
amount of property damage;
(6) the extent to which the insurer considered the probable
liability of the insured and the likely jury verdict or other final
determination of the matter;
(7) any other credible evidence presented to the Commissioner that
demonstrates that (i) any amount offered by the insurer in settlement of
a first-party claim to an insured not represented by counsel, or (ii)
the final amount offered in settlement of a first-party claim to an
insured who is represented by counsel or (iii) the final amount offered
in settlement of a third party claim by the insurer is below the amount
that a reasonable person with knowledge of the facts and circumstances
would have offered in settlement of the claim.
(h) Upon acceptance of the claim in whole or in part and, when
necessary, upon receipt of a properly executed release, every insurer,
except as specified in subsection 2695.7(h)(1) and (2) below, shall
immediately, but in no event more than thirty (30) calendar days later,
tender payment or otherwise take action to perform its claim obligation.
The amount of the claim to be tendered is the amount that has been
accepted by the insurer as specified in subsection 2695.7(b). In claims
where multiple coverage is involved, and where the payee is known,
amounts that have been accepted by the insurer shall be paid
immediately, but in no event more than thirty (30) calendar days, if
payment would terminate the insurer’s known liability under that
individual coverage, unless impairment of the insured’s interests would
result. The time frames specified in this subsection shall not apply
where the policy provides for a waiting period after acceptance of claim
and before payment of benefits.
(1) The time frame specified in subsection 2695.7(h) shall not
apply to claims arising from policies of disability insurance subject to
Section 10123.13 of the California Insurance Code, disability income
insurance subject to Section 10111.2 of the California Insurance Code,
or of mortgage guaranty insurance subject to Section 12640.09(a) of the
California Insurance Code, and shall not apply to automobile repair
bills subject to Section 560 of the California Insurance Code. All
other provisions of Section 2695.7(h) are applicable.
(2) Any insurer issuing a title insurance policy shall either
tender payment pursuant to subsection 2695.7(h) or take action to
resolve the problem which gave rise to the claim immediately upon, but
in no event more than thirty (30) calendar days after, acceptance of the
claim.
(i) No insurer shall inform a claimant that his or her rights may
be impaired if a form or release is not completed within a specified
time period unless the information is given for the purpose of notifying
the claimant of any applicable statute of limitations or policy
provision or the time limitation within which claims are required to be
brought against state or local entities.
(j) No insurer shall request or require an insured to submit to a
polygraph examination unless authorized under the applicable insurance
contract and state law.
(k) Subject to the provisions of subsection 2695.7(c), where there
is a reasonable basis, supported by specific information available for
review by the California Department of Insurance, for the belief that
the claimant has submitted or caused to be submitted to an insurer a
suspected false or fraudulent claim as specified in California Penal
Code Section 550 or California Insurance Code Section 1871.4(a), the
number of calendar days specified in subsection 2695.7(b) shall be:
(1) increased to eighty (80) calendar days; or,
(2)
suspended until otherwise ordered by the Commissioner,
provided the insurer has complied with California Insurance Code Section
1872.4 and the insurer can demonstrate to the Commissioner that it has
made a diligent attempt to determine whether the subject claim is false
or fraudulent within the eighty day period specified by subsection
2695.7(k)(1).
(l) No insurer shall deny a claim based upon information obtained
in a telephone conversation or personal interview with any source unless
the telephone conversation or personal interview is documented in the
claim file pursuant to the provisions of Section 2695.3.
(m) No insurer shall make a payment to a provider, pursuant to a
policy provision to pay medical benefits, and thereafter seek recovery
or set-off from the insured on the basis that the amount was excessive
and/or the services were unnecessary, except in the event of a proven
false or fraudulent claim, subject to the provisions of Section
10123.145 of the California Insurance Code.
(n) Every insurer requesting a medical examination for the purpose
of determining liability under a policy provision shall do so only when
the insurer has a good faith belief that such an examination is
reasonably necessary.
(o) No insurer shall require that a claimant withdraw, rescind or
refrain from submitting any complaint to the California Department of
Insurance regarding the handling of a claim or any other matter
complained of as a condition precedent to the settlement of any claim.
(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.
(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.
NOTE: Authority cited: Sections 553, 554, 790.03(h)(5), 790.03(h)(12),
790.10, 1861.03(a), 10350.10, 10111.2, 11580.2(k), 12340 – 12417,
inclusive, 12921 and 12926 of the California Insurance Code and Sections
11342.2 and 11152 of the California Government Code; Egan v. Mutual of
Omaha Insurance Company (1979) 24 Cal.3d 809 [169 Cal.Rptr. 691]; KPFF,
Inc. v. California Union Insurance Company (1997) 56 Cal.App.4th 963 [66
Cal.Rptr.2d 36] (certified for partial publication); Betts v. Allstate
Ins. Co. (1984) 154 Cal.App.3d 688 [201 Cal.Rptr. 528]. Reference:
Section 790.03(h) (2), (3), (4), (5) (13) and (15), and 1872.4 of the
California Insurance Code, Section 6149.5 of the California Business and
Professions Code and California; and Penal Code Section 550.

Section 2695.8. Additional Standards Applicable to Automobile
Insurance
(a) This section enumerates standards which apply to adjustment and
settlement of automobile insurance claims.
(1) the words “automobile” and “vehicle” are used synonymously.
(b) In evaluating automobile total loss claims the following
standards shall apply:
(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.
(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.
(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. In determining the cost of a comparable
automobile, the insurer may use either 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.
(3) Notwithstanding subsection (2), above, upon approval by the
Department of Insurance, an insurer may use private sales data from the
Department of Motor Vehicles, or other approved sources, which does not
contain the seller’s telephone number or street address. Approval by
the Department of Insurance shall be contingent on the Department’s
determination that reasonable steps have been taken to limit the use of
private sales data that may be inaccurately reported to the Department
of Motor Vehicles or other approved sources.
(4) 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,
(C) the 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 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.
(5) In first party automobile total loss claims, the insurer may
elect to offer a replacement automobile which is a specified comparable
automobile available to the insured with all applicable taxes, license
fees and other fees incident to transfer of evidence of ownership of the
automobile paid by the insurer at no cost other than any deductible
provided in the policy. The offer and any rejection thereof must be
documented in the insurer’s claim file. A replacement automobile must be
in as good or better overall condition than the insured vehicle and
available for inspection within a reasonable distance of the insured’s
residence.
(6) Subsection 2695.8(b) applies to the evaluation of third party
automobile total loss claims, but does not change existing law with
respect to the obligations of an insurer in settling such claims with a
third party.
(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 (35) calendar days after the insured receives
the claim payment or final settlement offer that he or she cannot
purchase a comparable automobile for the gross settlement amount, the
insurer will reopen its claim file.
If subsequently notified by the
insured the insurer shall reopen its claim file and utilize the
following procedures:
(1) The insurer shall locate a comparable automobile for the gross
settlement amount determined by the company at the time of settlement
and shall provide the insured with the information required in (c)(4),
below, or offer a replacement vehicle in accordance with section
2695.8(b)(4). Any such vehicle must be available in the local market
area; or,
(2) The insurer shall either pay the insured the difference between
the amount of the gross settlement and the cost of the comparable
automobile which the insured has located, or negotiate and purchase this
vehicle for the insured; or,
(3) The insurer shall invoke the appraisal provision of the
insurance policy.
(4) No insurer is required to take action under this subsection if
its documentation to the insured at the time of final settlement offer
included written notification of the identity of a specified comparable
automobile which was available for purchase at the time of final
settlement offer for the gross settlement amount determined by the
insurer.
The documentation shall include the telephone number
(including area code) or street address of the seller of the comparable
automobile and:
(A) the vehicle identification number (VIN) or,
(B) the stock or order number of the vehicle from a licensed
dealer, or
(C) the license plate number of such comparable vehicle.
(d) No insurer shall, where liability and damages are reasonably
clear, recommend that the third party claimant make a claim under his or
her own policy to avoid paying the claim under the policy issued by that
insurer.
(e) No insurer shall:
(1) require that an automobile be repaired at a specific repair
shop; or,
(2) suggest or recommend that an automobile be repaired at a
specific repair shop, unless all of the requirements set forth in
California Insurance Code Section 758.5 have been met.
(3) require a claimant to travel an unreasonable distance either to
inspect a replacement automobile, to conduct an inspection of the
vehicle, to obtain a repair estimate or to have the automobile repaired
at a specific repair shop.
(f) If partial losses are settled on the basis of a written
estimate prepared by or for the insurer, the insurer shall supply the
claimant with a copy of the estimate upon which the settlement is based.
The estimate prepared by or for the insurer shall be of an amount which
will allow for repairs to be made in a workmanlike manner. 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 the 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 shop that will make the repairs for
the amount of the insurer’s written estimate. The insurer shall cause
the damaged 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 law. The insurer shall maintain documentation
of all such communications; or,
(3) reasonably adjust any written estimates prepared by the repair
shop of the claimant’s choice and provide a copy of the adjusted
estimate to the claimant.
(g) No insurer shall require the use of non-original equipment
manufacture replacement crash parts in the repair of an automobile
unless:
(1) the parts are at least equal to the original equipment
manufacturer parts in terms of kind, quality, safety, fit, and
performance;
(2) insurers specifying the use of non-original equipment
manufacturer replacement crash parts shall pay the cost of any
modifications to the parts which may become necessary to effect the
repair; and,
(3) insurers specifying the use of non-original equipment
manufacture replacement crash parts warrant that such parts are of like
kind, quality, safety, fit, and performance as original equipment
manufacturer replacement crash parts; and,
(4) all original and non-original manufacture replacement crash
parts, manufactured after the effective date of this subchapter, when
supplied by repair shops shall carry sufficient permanent, non-removable
identification so as to identify the manufacturer. Such identification
shall be accessible to the greatest extent possible after installation;
and,
(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.
(h) No insurer shall require an insured or claimant to supply parts
for replacement.
(i) When the amount claimed is adjusted because of betterment or
depreciation, all justification 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 or depreciation. This subsection shall not preclude
deduction for prior and/or unrelated damage to the loss vehicle. The
basis for any adjustment shall be fully explained to the claimant in
writing and shall:
(1) reflect a measurable difference in market value attributable
to the condition and age of the vehicle, and
(2) apply only to parts normally subject to repair and replacement
during the useful life of the vehicle such as, but not limited to,
tires, batteries, et cetera.
(j) In a first party partial loss claim, the expense of labor
necessary to repair or replace the damage is not subject to depreciation
or betterment unless the insurance contract contains a clear and
unambiguous provision permitting the depreciation of the expense of
labor.
(k) After a covered loss under a policy of automobile collision
coverage or automobile physical damage coverage as defined in California
Insurance Code Section 660, where towing and storage are reasonably
necessary to protect the vehicle from further loss, the insurer shall
pay reasonable towing and storage charges incurred by the claimant. The
insurer shall provide reasonable notice to the claimant before
terminating payment for storage charges so that the claimant has time to
remove the vehicle from storage. This subsection shall also apply to a
third party claim filed under automobile liability coverage as defined
in California Insurance Code section 660, however, payment to a third
party claimant may be prorated based upon the comparative fault of the
parties.
NOTE: Authority cited: Sections 790.10, 12921 and 12926 of the
California Insurance Code, Section 3333 of the California Civil Code and
Sections 11342.2 and 11152 of the California Government Code.
Reference: Sections 758.5, 790.03(c) and 790.03(h)(3) of the California
Insurance Code and Section 9875 of the California Business and
Professions Code.

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 to all 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
IDENTIFYALLPARTSASNEW,USED,AFTERMARKET, RECONDITIONED, OR REBUILT.
3. BE INFORMED ABOUT COVERAGE FOR TOWING AND STORAGE SERVICES.
4. BE INFORMED ABOUT THE EXTENT OF COVERAGE, IF ANY, FOR A REPLACEMENT
RENTAL VEHICLE WHILE A DAMAGED VEHICLE IS BEING REPAIRED.
5. BE INFORMED OF WHERE TO REPORTSUSPECTED 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:
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
NOTE:
Authority cited: Sections 790.10, 1874.85, 1874.87 of the
California Insurance Code.
Reference:
Sections 790.03(c),
790.03(h)(3), and 1874.87 of the California Insurance Code; Sections
9884.8, 9884.9 of the California Business and Professions Code; and
California Code of Regulations, Title 10, Chapter 5, Subchapter 7.5,
Section 2695.8(j).

Section 2695.9. Additional Standards Applicable to First Party
Residential and Commercial Property Insurance Policies
(a) When a residential or commercial property insurance policy
provides for the adjustment and settlement of first party losses based
on replacement cost, the following standards apply:
(1) When a loss requires repair or replacement of an item or part,
any consequential physical damage incurred in making the repair or
replacement not otherwise excluded by the policy shall be included in
the loss. The insured shall not have to pay for depreciation nor any
other cost except for the applicable deductible.
(2) When a loss requires replacement of items and the replaced
items do not match in quality, color or size, the insurer shall replace
all items in the damaged area so as to conform to a reasonably uniform
appearance.
(b) No insurer shall require that the insured have the property
repaired by a specific individual or entity.
(c) No insurer shall suggest or recommend that the insured have the
property 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, if the claimant accepts the
suggestion or recommendation, 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.
(d) 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.
(e) 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.
Nothing herein is intended to preclude separate legal proceedings on
issues unrelated to the appraisal process.
(f) 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. Any adjustment for betterment or depreciation shall reflect a
measurable difference in market value attributable to the condition and
age of the property and apply only to property normally subject to
repair and replacement during the useful life of the property. The
basis for any adjustment shall be fully explained to the claimant in
writing.
(1) Under a policy, subject to California Insurance Code Section
2071, where the insurer is required to pay the expense of repairing,
rebuilding or replacing the property destroyed or damaged with other of
like kind and quality, the measure of recovery is determined by the
actual cash value of the damaged or destroyed property, as set forth in
California Insurance Code Section 2051. Except for the intrinsic labor
costs that are included in the cost of manufactured materials or goods,
the expense of labor necessary to repair, rebuild or replace covered
property is not a component of physical depreciation and shall not be
subject to depreciation or betterment.
NOTE: Authority cited: Sections 790.10, 2051, 2051.5, 2071, 12921
and 12926 of the California Insurance Code, Section 7109 of the
California Business and Professions Code and Sections 11342.2 and
11152 of the California Government Code; Reference: Sections
790.03(h)(3), (5) and (7) of the California Insurance Code.

Section 2695.10 Additional Standards Applicable to Surety Insurance
(a) No insurer shall base or vary its claims settlement practices,
or its standard of scrutiny and review, upon the claimant’s, age, race,
gender, income, religion, language, sexual orientation, ancestry,
national origin, or physical disability, or upon the territory of the
property or person insured.
(b) As soon as possible, but in no event later than forty (40)
calendar days after receipt by the insurer of proof of claim, and
provided the claim is not in litigation or arbitration, the insurer
shall accept or deny the claim, in whole or in part, and affirm or deny
liability. Every insurer that denies or rejects a claim in whole or in
part, or disputes liability or damages, shall provide to the claimant a
written statement listing all bases for such rejection or denial, and
the factual and legal bases for each reason given for each rejection or
denial, which are within the insurer’s knowledge. If an insurer’s
denial of a claim in whole or in part is based on a specific statute or
specific bond provisions, the denial shall include reference thereto and
provide an explanation of the application of the statute or bond
provision to the claim. Written notification pursuant to this subsection
shall also include a notification that the claimant may have the matter
reviewed by the California Department of Insurance and shall provide the
address and telephone number of the unit of the Department which reviews
complaints regarding claims practices.
(1) A principal’s absence, non-cooperation, or failure to meet the
bonded obligation shall not excuse unreasonable delay by the insurer in
determining whether a claim should be accepted or denied.
(2) While an insurer may consider all information provided by a
principal, absent reasonable factual and/or legal bases for denying a
claim, no insurer shall deny a claim based solely upon a principal’s
protest of a claim or denial of liability for a claim.
(c) In the event an insurer requires more time than is allotted in
subsection 2695.10(b) to determine whether a claim should be accepted
and/or denied, in whole or in part, the insurer shall provide the
claimant with written notice of the need for such additional time within
the time specified in subsection 2695.10(b). Such written notice shall
specify the reasons for the need for such additional time, including
specification of any additional information the insurer requires in
order to make such determination. The insurer shall provide the
claimant with written notice as to the continuing reasons for the
insurer’s inability to make such a determination. Except in cases where
extraordinary circumstances are present which materially affect the
insurer’s ability to comply, such written notice shall be provided
within 30 calendar days of the date of the initial notification, and
every 30 calendar days thereafter until such determination is made or
notice of legal action is received. If the determination cannot be made
until some event, process, or third party determination is made, then
the insurer shall comply with this requirement by advising the claimant
of the situation and provide an estimate as to when the determination
can be made.
(d) No insurer shall fail to pursue diligently an investigation of
a claim, or persist in seeking information not reasonably required for
or material to resolution of a claim dispute.
(e) No insurer shall deny a claim upon information obtained in a
telephone conversation or personal interview with any source unless the
telephone conversation or personal interview is documented in the claim
file pursuant to the provisions of section 2695.3.
(f) Where the claim is to be settled by payment, and where
neither the claim nor the amount is in dispute, such payment shall be
tendered (1) within 15 calendar days following affirmation of liability
where the insurer does not require the claimant to execute a release, or
(2) within 15 calendar days following the insurer’s receipt of a release
properly executed by the claimant, where such release is required by the
insurer. Such release shall be provided to the claimant within ten (10)
calendar days following affirmation of liability.
Where multiple
claimants are involved, payment shall be made pursuant to this
subsection, provided such payment shall not increase the insurer’s
liability, or impair the rights of other claimants under the bond.
(g) Except where a claim has been settled by payment, every
insurer shall provide written notice of any statute of limitations or
other time period requirement upon which the insurer may rely to deny
a claim. Such notice shall be given to the claimant no less than
sixty (60) days prior to the expiration date. If notice of claim is
first received by the insurer within sixty (60) days of the expiration
date and such date is known to the insurer, then notice of the
expiration date must be given to the claimant immediately. This
subsection shall not apply to a claimant represented by counsel on the
claim matter or to a claim already time barred when first received by
the insurer.
(h) No insurer shall attempt to settle a claim by making a
settlement offer that is unreasonably low. The Commissioner shall
consider any admissible evidence offered regarding the following factors
in determining whether or not a settlement offer is unreasonably low:
(1) the extent to which the insurer considered evidence submitted
by the claimant to support the value of the claim;
(2) the extent to which the insurer considered legal authority or
evidence made known to it or reasonably available;
(3) the procedures used by the insurer in determining the dollar
amount of damages;
(4) any other credible evidence presented to the Commissioner that
demonstrates that the final amount offered by the insurer in settlement
of a claim is below the amount that a reasonable person with knowledge
of the facts and circumstances would have offered in settlement of the
claim.
NOTE: Authority cited: Sections 790.10, 12921, 12921.1 and 12926 of
the California Insurance Code. Reference: Sections 790.03(h)(3), (4)
and (15), 12921.3 of the California Insurance Code, and California Civil
Code Section 2807.

Section 2695.11. Additional Standards Applicable to Life and
Disability Insurance Claims
(a) No insurer shall seek reimbursement of an overpayment or
withhold any portion of any benefit payable as a result of a claim on
the basis that the sum withheld or reimbursement sought is an adjustment
or correction for an overpayment made under the same policy unless:
(1) the insurer’s files contain clear, documented evidence of an
overpayment and written authorization from the insured or assignee, if
applicable, permitting such the reimbursement or withholding procedure,
or
(2)
the insurer’s files contain clear, documented evidence
pursuant to section 2695.3 of all of the following:
(A) The overpayment was erroneous under the provisions of the
policy.
(B) The error which resulted in the payment is not a mistake of
the law.
(C) The insurer notifies the insured within six (6) months of the
date of the error, except that in instances of error prompted by
representations or nondisclosure of claimants or third parties, the
insurer notifies the insured within fifteen (15) calendar days after the
date of discovery of such error. For the purpose of this subsection,
the date of the error shall be the day on which the draft for benefits
is issued.
(D) Such notice states clearly the cause of the error and states
the amount of the overpayment.
(E) The procedure set forth above in (a)(2)(A) through (D) above
may not be used if the overpayment is the subject of a reasonable
dispute as to facts.
(b) With each claim payment, the insurer shall provide to the
claimant and assignee, if any, an explanation of benefits which shall
include, if applicable, the name of the provider or services covered,
dates of service, and a clear explanation of the computation of
benefits.
(c) An insurer may not impose a penalty upon any insured for
noncompliance with insurer requirements for precertification of benefits
unless such penalties are specifically and clearly set forth in writing
in the policy or certificate of insurance.
(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.
(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.
(f) No preauthorization shall be required by an insurer for
emergency medical services.
(g) An insurer shall reimburse the insured or medical service
provider for reasonable expenses incurred in copying medical records
requested by the insurer.
NOTE: Authority cited: Sections 790.10, 12921 and 12926 of the
California Insurance Code and Sections 11342.2 and 11152 of the
California Government Code. Reference: Section 790.03(h)(1), (2), (3),
(5) and (13) and Section 10123.13 of the California Insurance Code.

Section 2695.12. Penalties
(a) In determining whether to assess penalties and, if so, the
appropriate amount to be assessed, the Commissioner shall consider
admissible evidence on the following:
(1) the existence of extraordinary circumstances;
(2) whether the licensee has a good faith and reasonable basis to
believe that the claim or claims are fraudulent or otherwise in
violation of applicable law and the licensee has complied with the
provisions of Section 1872.4 of the California Insurance Code;
(3) the complexity of the claims involved;
(4) gross exaggeration of the value of the property or severity of
the injury, or amount of damages incurred;
(5) substantial mischaracterization of the circumstances
surrounding the loss or the alleged default of the principal;
(6) secreting of property which has been claimed as lost or
destroyed.
(7) the relative number of claims where the noncomplying act(s) are
found to exist, the total number of claims handled by the licensee and
the total number of claims reviewed by the Department during the
relevant time period;
(8) whether the licensee has taken remedial measures with respect
to the noncomplying act(s);
(9) the existence or nonexistence of previous violations by the
licensee;
(10) the degree of harm occasioned by the noncompliance;
(11) whether, under the totality of circumstances, the licensee
made a good faith attempt to comply with the provisions of this
subchapter;
(12) the frequency of occurrence and/or severity of the detriment
to the public caused by the violation of a particular subsection of this
subchapter;
(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
(14) the licensee’s reasonable mistakes or opinions as to
valuation of
property, losses or damages.
(b) This section shall not bar, obstruct or restrict any right to
administrative due process an insurer may be afforded under California
Insurance Code Sections 790.05, 790.06, and 790.07.
NOTE: Authority cited: Sections 790.035, 790.07, 790.08, 790.09,
790.10, 1872.4, 12340 – 12417, inclusive, 12921, 1065, 704, 780-784,
1011, 11690, 12926 and 12928.6 of the California Insurance Code and
Sections 11342.2 and 11152 of the California Government Code.
Reference: Section 790.03(h), 790.035 (a), 790.04, 790.05, 790.06,
790.08, 790.10 of the California Insurance Code.

Section 2695.13. Severability
If any provision or clause of this rule or the application thereof
to any person or situation is held invalid, such invalidity shall not
affect any other provision or application of this rule which can be
given effect without the invalid provision or application, and to this
end the provisions of this rule are declared to be severable.
NOTE: Authority cited: Sections 790.10, 12340 – 12417, inclusive,
12921 and 12926 of the California Insurance Code and Sections 11342.2
and 11152 of the California Government Code.
Reference: Section
790.03(h) of the California Insurance Code.

2695.14 Compliance Date
(a) Any amendments to these regulations shall be complied with
within ninety (90) calendar days after they are filed with the Secretary
of State.
(b) Prior to the compliance date of these regulations, licensees
shall, pursuant to Section 2695.6, adopt and communicate to their claims
agents standards for the prompt investigation and processing of claims,
and provide training and instruction on these regulations.
(c) These regulations shall apply to any claims handling that takes
place on or after the compliance date set forth under subsection
2695.14(a).
NOTE: Authority Cited: Sections 790.10, 12921 and 12926 of the
California Insurance Code and Section 11343.4 of the California
Government Code. Reference: Section 790.03(h) of the California
Insurance Code.