SLA Urges Increased Diligence in Claims-Handling Compliance After California Supreme Court Decision
Insurers and claims handlers could face significantly increased fines, penalties for inattention to detail
A decision last week by the California Supreme Court could mean significant increases in fines and penalties for failing to comply with state regulations in claims-handling cases. Consequently, the SLA urges its members to employ a sharpened focus on compliance going forward.
The state Supreme Court let stand a lower court's decision in Pacificare Life and Health Insurance Company vs. Dave Jones, who at that time was California's insurance commissioner. This result opens the door for regulators to assess larger fines for more alleged violations, including one-time violations, of California's Fair Claims Settlement Practices Regulation.
Our legal analysis indicates that a single missed deadline by a claims handler can result in a fine, and that if s/he sends a letter that is incorrect, or fails to comply with even a single regulation, fines can be increased even if there was no intent to violate the law.
The ruling clearly increases the stakes for insurers and claim handlers to ensure full training on compliance with all pertinent regulations. Going forward, it is clearer than ever that insurers must insist that employees and claim-handling contractors alike strive for full compliance with all pertinent regulations as they process claims.
The SLA urges all of its members to carefully review their compliance plans relative to state regulations. We recommend implementation of regular compliance training for appropriate personnel (at least once a year) and constant attention to compliance protocols.
Additional background on the case and the court-upheld regulations follows:
The California Department of Insurance (CDI) issued three regulations designed to increase the CDI's ability to fine insurers and claims handlers for errors made in the claims handling process. After a three-year proceeding, the CDI imposed a fine exceeding $173 million on Pacificare for more than 900,000 compliance violations. United Healthcare, Pacificare's successor organization, sued and initially won at the trial-court level, as the court struck down the new regulations. The appellate court reversed the decision, and the state Supreme Court allowed it to stand, which means that the regulations in question remain in force.
The first of these regulations includes language stating that claims handling errors can be penalized if they were knowingly committed on a single occasion or occurred with enough frequency to indicate a general business practice. The second defines "knowingly committed" as being "performed with actual, implied or constructive knowledge, including but not limited to, that which is implied by operation of law." The third defines "willful" or "willfully" as taking an act or omission without any intent to violate the law, cause injury or acquire an advantage.