No wonder Commissioner Chaney sat on this for so long as the results are damning towards State Farm and the way they handled claims after Katrina. The lipstick in the title was applied by Mr Chaney’s himself via his remarks on the exam as he tapped danced his way around the results. Let’s start with the press release:
Although there were questionable decisions and irregularities by State Farm in handling claims, no scheme or plan to systematically mistreat policyholders was found.
After numerous complaints and accusations by policyholders, State Farm agreed to reopen all slab cases through a MID-monitored program, which resulted in an additional $88 million dollars being paid to policyholders.
Chaney added; “Hurricane Katrina was an extremely trying situation for everyone involved. The real brunt was borne by the people on the coast who lost their homes and businesses. We do not and should not expect insurance companies to pay claims that are not covered by the policy, however, we expect them to promptly pay every penny that policyholders are owed on policies paid in good faith. To this end, I will continue to advocate and require that policies be written in plain, simple understandable language. I am committed to working with insurance companies to provide a good business environment in Mississippi, but I won’t tolerate unfair treatment of policyholders. I’m confident we can use findings of the exam as a constructive tool to help make policyholders’ lives easier the next time disaster strikes.”
I have my doubts captured regulators in the vast the majority of state insurance commissioners will use this report to benefit consumers. Mr Chaney immediately went back on his major campaign promise to make the office appointed and we’ve duly noted the GOP controlled Mississippi Senate steadfastly refuses to pass a policyholder bill of rights. IMHO this is classic politics, say one thing and do another and hope people don’t pay attention.
Let’s start with a major conclusion of the examination and then blow that up against the detailed test results:
Although the examination team identified certain areas and instances where some policyholders could have been treated more appropriately, no specific violations of the Unfair Trade Practices statute were identified.
Bear in mind denying a claim without basis (a proper adjustment) is civil bad faith by definition. The results of the examiner’s statistical testing tells the story:
The investigation of the claims files in conjunction with knowledge obtained from the review of thousands of pages of claims related documents revealed that on multiple occasions the Company failed to completely fulfill its obligations to its policyholders in the lower three counties where wind and water were at issue. On occasions, this resulted in a failure to pay portions of the damage attributable to wind. These failures are outlined in detail under the captions below. It should be noted that, at times, the failures were related to each other and may be discussed in more than one of the captioned areas.
The results are overwhelming, a full 25% of their sample lacked documentation the claim was adjusted at all beyond it being denied:
As referenced in the table above, 173 of the claim files reviewed did not contain adequate documentation to support a full or thorough investigation such as: adequate photographs of the loss or neighboring structures; notes or diagrams evidencing the adjusters’ investigation; evidence gathered from eyewitnesses; documentation of physical evidence or water lines; or, incomplete activity log entries. On multiple occasions claims were denied plior to the receipt of engineer reports.
The report continues:
….the Company’s documentation of its activities, or lack thereof, was all that the examiners had to review. The Company’s own Operation Guide states that “claim files should always completely reflect all activities and support the conclusions reached.” Stated succinctly by one of the Company’s Team Managers, “the file speaks for itself.” Another Team Manager acknowledged that all pertinent information used to make a coverage determination should be in the file. The examiners reviewed the claim files and considered the adequacy, or not, of the applicable investigation under this premise.
And now the damning part, purposeful bad faith:
As shown in the table, 64 claim files or 63.3 percent of these files contained indications of wind damage either to the insured’s property, neighboring property, or simply the existence of damaging wind in the area of the loss. Of the remaining 37 files, some claims also appeared in the category of claims lacking adequate documentation of a full or thorough investigation making it impossible to know whether wind damage occurred or not.
The Company, through sworn testimony and correspondence to the MID, stated that when there was “credible evidence” of wind damage or “discemable” wind damage, the company would pay for this. Although “discemable” is not found in the Company’s homeowners policies, the Company appeared to use this as the determining factor as to whether or not a payment was made for wind damage. This relates closely to the issue of lack of adequate documentation to support a full or thorough investigation. At least some State Farm supervisors, team managers and independent adjusters appear to have chosen a narrow interpretation when it applied the standard of “discernable.” As one State Farm team manager stated, “If you can’t see the damage, we can’t pay for it.” One State Farm manager stated that his “take on discernable just means sometlling you can see with your own eyes.” Obviously if there was nothing but a slab remaining, you may not be able to see the wind damage, but that is not conclusive evidence that there “was no wind damage, especially in an area where there were millions of dollars of wind damage in close proximity. This relates closely to the caption ”Failure to Prove Exclusion.”
The investigation also revealed a few instances where claims representatives advised policyholders that “State Farm had informed him that it would be the company policy to deny wind coverage to every policy holder in MY GENERAL AREA” or “if water touched it, we were told not to pay for wind.” These quotes came directly from the Company’s claims files or from specific complaints filed by policyholders with the MID. Despite these direct quotes, every State Farm representative that was questioned under oath regarding this practice, denied this was the policy. It should be noted that although these instances were not widespread, similar statements were made by more than one adjuster on more than one occasion.
As I continue through the document I’ll update this post and ask our readers and my fellow blog partners to do likewise as I’m out of blogging time today. This report is damning toward State Farm despite the lipstick applied by the Insurance Commissioner. IMHO this report indicates the market conduict exam was conducted to a high standard of professionalism and to that extent we give props to the Department of Insurance examiners as well as Commissioner Chaney.