california - public report of the targeted ... conduct exam...790.03 v3 05-10-11 [in accordance with...

790.03 v3 05-10-11

[IN ACCORDANCE WITH CALIFORNIA INSURANCE CODE (CIC) SECTION 12938, THIS REPORT WILL BE MADE PUBLIC AND PUBLISHED ON THE

CALIFORNIA DEPARTMENT OF INSURANCE (CDI) WEBSITE]

PUBLIC REPORT OF THE TARGETED MARKET CONDUCT EXAMINATION OF

LIBERTY MUTUAL FIRE INSURANCE COMPANY NAIC #23035 CDI #0811-0

LIBERTY INSURANCE CORPORATION NAIC #42404 CDI #3184-9

SAFECO INSURANCE COMPANY OF AMERICA NAIC #24740 CDI #1442-3

FIRST NATIONAL INSURANCE COMPANY OF AMERICA NAIC #24724 CDI #0978-7

GENERAL INSURANCE COMPANY OF AMERICA NAIC #24732 CDI #0732-8

SAFECO INSURANCE COMPANY OF ILLINOIS NAIC #39012 CDI #3056-9

GOLDEN EAGLE INSURANCE CORPORATION NAIC #10836 CDI #4453-7

PEERLESS INSURANCE COMPANY NAIC #24198 CDI #1234-4

AMERICAN ECONOMY INSURANCE COMPANY NAIC #19690 CDI #1822-6

AMERICAN STATES INSURANCE COMPANY NAIC #19704 CDI #1819-2

NETHERLANDS INSURANCE COMPANY (THE) NAIC #24171 CDI #2423-2

PEERLESS INDEMNITY INSURANCE COMPANY NAIC #18333 CDI #4834-8

WAUSAU UNDERWRITERS INSURANCE COMPANY NAIC #26042 CDI #2353-1

WAUSAU BUSINESS INSURANCE COMPANY NAIC #26069 CDI #3613-7

AND THEIR PRACTICES AND PROCEDURES RELATING TO DEPRECIATION IN PROPERTY INSURANCE CLAIMS

AS OF MAY 31, 2014

ADOPTED AUGUST 4, 2016

STATE OF CALIFORNIA

CALIFORNIA DEPARTMENT OF INSURANCE

MARKET CONDUCT DIVISION

FIELD CLAIMS BUREAU

790.03 V3 05-10-11

NOTICE

The provisions of Section 735.5(a) (b) and (c) of the California

Insurance Code (CIC) describe the Commissioner’s authority

and exercise of discretion in the use and/or publication of

any final or preliminary examination report or other

associated documents. The following examination report is

a report that is made public pursuant to California Insurance

Code Section 12938(b)(1) which requires the publication of

every adopted report on an examination of unfair or

deceptive practices in the business of insurance as defined

in Section 790.03 that is adopted as filed, or as modified or

corrected, by the Commissioner pursuant to Section 734.1.

790.03 V3 05-10-11

TABLE OF CONTENTS

SALUTATION ................................................................................................................. 1

FOREWORD ................................................................................................................... 2

SCOPE OF THE EXAMINATION ................................................................................... 4

EXECUTIVE SUMMARY OF CLAIMS SAMPLE REVIEWED ........................................ 6

RESULTS OF REVIEWS OF CONSUMER COMPLAINTS AND INQUIRIES AND

PREVIOUS EXAMINATIONS ......................................................................................... 9

DETAILS OF THE CURRENT EXAMINATION ............................................................ 11

TABLE OF TOTAL ALLEGED VIOLATIONS .............................................................. 18

TABLE OF ALLEGED VIOLATIONS BY LINE OF BUSINESS ................................... 20

SUMMARY OF EXAMINATION RESULTS .................................................................. 21

1 790.03 V3 05-10-11

STATE OF CALIFORNIA

Dave Jones,

Insurance Commissioner

DEPARTMENT OF INSURANCE

Consumer Services and Market Conduct Branch Field Claims Bureau, 11th Floor 300 South Spring Street Los Angeles, CA 90013

SALUTATION

August 4, 2016

The Honorable Dave Jones Insurance Commissioner State of California 300 Capitol Mall Sacramento, California 95814 Honorable Commissioner:

Pursuant to instructions, and under the authority granted under Part 2, Chapter 1,

Article 4, Sections 730, 733, 736, and Article 6.5, Section 790.04 of the California

Insurance Code; and Title 10, Chapter 5, Subchapter 7.5, Section 2695.3(a) of the

California Code of Regulations, a targeted examination was made of the claims

handling practices and procedures in California of:

LIBERTY MUTUAL FIRE INSURANCE COMPANY, NAIC #23035 LIBERTY INSURANCE CORPORATION, NAIC #42404

SAFECO INSURANCE COMPANY OF AMERICA, NAIC #24740 FIRST NATIONAL INSURANCE COMPANY OF AMERICA, NAIC #24724

GENERAL INSURANCE COMPANY OF AMERICA, NAIC #24732 SAFECO INSURANCE COMPANY OF ILLINOIS, NAIC #39012 GOLDEN EAGLE INSURANCE CORPORATION, NAIC #10836

PEERLESS INSURANCE COMPANY, NAIC #24198 AMERICAN ECONOMY INSURANCE COMPANY, NAIC #19690

AMERICAN STATES INSURANCE COMPANY, NAIC #19704 PEERLESS INDEMNITY INSURANCE COMPANY, NAIC #18333 NETHERLANDS INSURANCE COMPANY (THE), NAIC #24171

WAUSAU UNDERWRITERS INSURANCE COMPANY, NAIC #26042 WAUSAU BUSINESS INSURANCE COMPANY, NAIC #26069

Group NAIC #0111

Hereinafter, the Companies listed above also will be referred to individually as

LMFIC, LIC, SICA, FNICA, GICA, SICI, GEIC, PIC, AEIC, ASIC, PIIC, TNIC, WUIC,

WBIC, or the Company, and collectively as the Companies.

This report is made available for public inspection and is published on the

California Department of Insurance website (www.insurance.ca.gov) pursuant to

California Insurance Code section 12938(b)(1).

http://www.insurance.ca.gov/

2 790.03 V3 05-10-11

FOREWORD

The targeted examination sought to identify whether the aforementioned

Companies’ handling of first-party Homeowners’ Property (Homeowner) and

Commercial Property insurance claims complied with the provisions of California

Insurance Code (CIC) §§2051 and 2051.5, and California Code of Regulations (CCR)

§2695.9(f) pertaining to depreciation. Specifically, the examination focused on whether

the Companies documented and considered the actual condition of each item when

making an assessment regarding the amount of depreciation to be deducted. The

claims reviewed were closed during the period of June 1, 2013 through May 31, 2014.

The examination did not include an evaluation of how the Companies determine the

depreciation percentage per year or an evaluation of how the Companies determine the

useful life of structural components and personal property.

The report is written in a “report by exception” format. The report does not

present a comprehensive overview of the subject insurer’s practices. The report

contains a summary of pertinent information about the lines of business examined,

details of the non-compliant or problematic activities that were discovered during the

course of the examination and the insurer’s proposals for correcting the deficiencies.

When a violation that reflects an underpayment to the claimant is discovered and the

insurer corrects the underpayment, the additional amount paid is identified as a

recovery in this report. While this report contains alleged violations of law that were

cited by the examiner, additional violations of CIC §790.03, or other laws, not cited in

this report may also apply to any or all of the non-compliant or problematic activities that

are described herein.

All unacceptable or non-compliant activities may not have been discovered.

Failure to identify, comment upon or criticize non-compliant practices in this state or

other jurisdictions does not constitute acceptance of such practices.

3 790.03 V3 05-10-11

Alleged violations identified in this report, any criticisms of practices and the

Companies’ responses, if any, have not undergone a formal administrative or judicial

process.

4 790.03 V3 05-10-11

SCOPE OF THE EXAMINATION

To accomplish the foregoing, the examination included:

1. A review of the guidelines, procedures, training plans and forms pertaining to

depreciation adopted by the Companies for use in California in the handling of their first-

party property claims, including any documentation maintained by the Companies in

support of positions or interpretations of the California Insurance Code, Fair Claims

Settlement Practices Regulations, and other related statutes, regulations and case law

used by the Companies.

2. A review of the application of such guidelines, procedures, and forms, by

means of an examination of a sample of individual claim files and related records. The

individual claim files consisted of file notes, correspondence, estimates, inventories,

photographs, receipts and any other documentation related to the claimed property. In

the review of the individual claim files, the following factors were considered for

compliance when the amount claimed was adjusted as a result of depreciation:

Justification for the adjustment in the claim file

Adjustment is discernible, measurable, itemized, and specified as to dollar

amount

Adjustment reflects a measurable difference in market value attributable to

both the condition and the age of the property

Adjustment for physical depreciation is based upon the pre-loss physical

condition of the damaged, lost or stolen property at the time of the loss

Basis of the adjustment was provided in writing to the claimant and reflects a

measurable difference in market value attributable to the condition and age

of the property

Adjustment for betterment or depreciation is applied only to property

normally subject to repair and replacement during the useful life of the

property/structure

5 790.03 V3 05-10-11

Adjustment for depreciation is not applied to the expense of labor necessary

to repair, rebuild or replace covered property

Treatment of recoverable depreciation, including disclosure of how a claim

for recoverable depreciation can be accomplished, and application of time

limit of no less than 12 months from the date first payment toward actual

cash value is made to collect the recoverable depreciation.

3. A review of consumer complaints and inquiries about the Companies closed

by the CDI during the period June 1, 2013 through May 31, 2014 and a review of prior

CDI market conduct claim examination reports on the Companies.

The review of the sample of individual claim files was conducted at the offices of

the Companies in Sacramento, California.

6 790.03 V3 05-10-11

EXECUTIVE SUMMARY OF CLAIMS SAMPLE REVIEWED

The Homeowner and Commercial Property first-party claims reviewed were

closed from June 1, 2013 through May 31, 2014, referred to as the “review period”. A

sample of claims was selected from the initial claim population provided by the

Companies, which for the Homeowners line was comprised of closed paid claims with

both dwelling and personal property, and closed paid claims with dwelling losses only.

Since the initial Homeowners population provided by the Companies did not contain

personal property only claims as had been requested by the Department, an additional

population covering personal property only claims was requested. A sample was

selected from this additional population. The Commercial Property claims sample

claims was selected from populations comprised of closed paid claims with both

building and business personal property losses, and closed paid claims with business

personal property only.

If the Companies waived depreciation due to any internal thresholds, the

Department requested the omission of these claims in the populations. As a result of

the Companies’ internal thresholds, the claims populations excluded Homeowner claims

with payouts of $2,500.00 or less for dwelling only, personal property only or both

combined. Additionally, the claims populations excluded Commercial Property claims

with payouts of $2,500.00 or less for business personal property or for a single item in

which the replacement cost value was $300.00 or less. The Companies indicated no

thresholds existed for Commercial Property building payments.

The examiners randomly selected a combined total of 70 Liberty Mutual Group

(LFMIC and LIC) Homeowner claim files, 70 Safeco Group (SICA, FNICA, GICA and

SICI) Homeowner claim files, and 70 Commercial Property claim files for examination in

proportion to the number of claims in each underwriting Company from these

populations. Additionally, the examiners randomly selected a combined total of 70

Liberty Mutual Group Homeowner claim files and 70 Safeco Group Homeowner claim

7 790.03 V3 05-10-11

files for examination in proportion to the number of claims in each underwriting

Company from the expanded populations of personal property only claims.

The examiners cited 576 alleged claims handling violations of the California

Insurance Code and the California Code of Regulations from this sample file review.

The examination found that:

The Companies’ claim files did not include evidence that condition was used in

the calculation of depreciation deducted from the identified claim files.

The Companies failed to fully explain the basis for adjustments for depreciation

to claimants in writing, which reflect a measurable difference in market value

attributable to the condition and age of the property.

The Companies improperly applied betterment or depreciation to property not

normally subject to repair and replacement during the useful life of the property.

The Companies improperly applied depreciation or betterment to the expense of

labor necessary to repair, rebuild or replace covered property.

The Companies improperly imposed upon an insured a time limit to collect the

full replacement cost of the loss. No time limit of less than 12 months from the

date that the first payment toward the actual cash value is made shall be placed

upon an insured in order to collect the full replacement cost of the loss, subject to

the policy limit.

In addition, subsequent to the examination the Department identified cases in the

selected sample of claims in which the Companies applied depreciation to overhead

and profit. The Department alleges these acts are in violation of CIC §2051(b)(2) and

are unfair practices under CIC §790.03(h)(5).

The Companies responded to this allegation. The Companies state the claims

involved replacement cost policies and insureds generally return to claim recoverable

depreciation after repairs are completed. In many cases, the insureds are able to

complete repairs for the amount of the actual cash value payment and, therefore, do not

8 790.03 V3 05-10-11

make a claim for recoverable depreciation. The Companies also indicated that while

CCR §2695.9 does not clearly address the depreciation of overhead and profit, the

Companies have discontinued the depreciation of overhead and profit on a prospective

basis. The Companies implemented changes to the vendor system effective August

31, 2015.

As a result of the Department’s allegation, the Companies reexamined the claims

identified by the Department in section numbers 3, 4, 8, and 9 of the Summary of

Examination Results below for overhead and profit. The Companies issued payments

totaling $3,484.55 for depreciated overhead and profit line items in claims where the

Companies did not pay recoverable depreciation in these sections. The Companies

response does not include a reexamination of the claims identified in section numbers 1

and 5 of the Summary of Examination Results for overhead and profit. The Companies

also identified four additional claims outside the section numbers noted above and

issued payments totaling $874.91 where the Companies did not pay recoverable

depreciation for overhead and profit. The Company has not provided a measure to

address reimbursement for all claimants whose claims were adjusted for depreciation

on overhead and profit outside of the identified claims in this examination.

9 790.03 V3 05-10-11

RESULTS OF REVIEWS OF CONSUMER COMPLAINTS AND INQUIRIES AND

PREVIOUS EXAMINATIONS

The Companies were the subject of 93 California consumer complaints and

inquiries related to Homeowner and Commercial Property first-party claims closed from

June 1, 2013 through May 31, 2014. Within these 93 complaints, the CDI alleged 25

violations of law and determined 15 complaints were justified. Of the violations of law,

two pertained to the depreciation practices of the Companies. One violation of law

pertained to the Company’s failure to explain recoverable depreciation. The second

violation of law pertained to the Company’s failure to document justification for the

depreciation taken. In this claim, the Company applied depreciation based on age only

and failed to determine the condition of the items claimed prior to applying depreciation.

The examiner focused on these issues during the course of the file review.

WUIC and WBIC were the subjects of a prior regularly scheduled claims

examination that reviewed claims closed during the period of April 1, 2003 through May

31, 2004. The examination did not include Homeowner and Commercial Property first-

party claims. The examination covered the claims handling practices related to

Commercial Automobile, Commercial General Liability, and Workers’ Compensation

only.

LMFIC and LIC were the subjects of a prior regularly scheduled claims

examination that reviewed claims closed during the period of April 1, 2004 through

March 31, 2005. Depreciation practices were not specifically targeted in the

examination, and no findings related to depreciation were noted.

GEIC, TNIC and PIC were the subjects of a prior regularly scheduled claims

examination that reviewed claims closed during the period of September 1, 2005

through August 31, 2006. While depreciation practices were not specifically targeted in

the examination, one alleged violation related to improperly applying betterment or

depreciation to property not normally subject to repair and replacement during the

10 790.03 V3 05-10-11

useful life of the property, and one alleged violation related to the misrepresentation for

the length of time the insured has to make a claim for recoverable depreciation. These

issues were identified in the current examination. GEIC, TNIC and PIC were also the

subjects of a prior regularly scheduled claims examination that reviewed claims closed

during the period of December 1, 2010 through November 30, 2011. The examination

covered the claims handling practices related to Commercial Automobile only.

SICA, FNICA and SICI were the subjects of a prior regularly scheduled claims

examination that reviewed claims closed during the period of August 1, 2009 through

July 31, 2010. Depreciation practices were not specifically targeted in the examination,

and no findings related to depreciation were noted.

GICA, AEIC and ASIC were the subjects of a prior regularly scheduled claims

examination that reviewed claims closed during the period of June 1, 2010 through June

30, 2011. The examination did not include Homeowner and Commercial Property first-

party claims. The examination covered the claims handling practices related to

Commercial Automobile and Workers’ Compensation only.

PIIC was not the subject of any prior claims examinations.

11 790.03 V3 05-10-11

DETAILS OF THE CURRENT EXAMINATION

Further details with respect to the examination and alleged violations are

provided in the following tables and summaries:

LFMIC SAMPLE FILES REVIEW (A)

LINE OF BUSINESS / CATEGORY

CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS

Homeowner Multiple Peril / Original Review / First Party

2287 66 141

Homeowner Multiple Peril / Expanded Review / First Party Personal Property Only

554 65 107

Commercial Property / *Fire, Allied lines, Commercial multiple peril (non-liability portion), Ocean marine, Inland Marine, Earthquake, Burglary and theft, Boiler and machinery / First Party

99 3 2

TOTALS 2940 134 250

*Per LFMIC, claims were drawn from the above policy types/categories.

LIC SAMPLE FILES REVIEW (B)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS


132 4 7


43 5 10

Commercial Property / *Commercial multiple peril (non-liability portion), Inland marine, Earthquake, Burglary and theft / First Party

2 0 0

TOTALS 177 9 17

*Per LIC, claims were drawn from the above policy types/categories.

12 790.03 V3 05-10-11

SICA SAMPLE FILES REVIEW (C)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS


2885 37 55


251 16 27

Commercial Property / *Fire, Allied lines, Commercial multiple peril (non-liability portion), Inland marine / First Party

8 0 0

TOTALS 3144 53 82

*Per SICA, claims were drawn from the above policy types/categories.

FNICA SAMPLE FILES REVIEW (D)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS


907 12 24


398 26 47

Commercial Property / *Fire, Allied lines, Commercial multiple peril (non-liability portion), Inland marine, Earthquake, Burglary and theft, Boiler and machinery / First Party

43 1 3

TOTALS 1348 39 74

*Per FNICA, claims were drawn from the above policy types/categories.

13 790.03 V3 05-10-11

GICA SAMPLE FILES REVIEW (E)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS


804 10 19


168 11 18


47 1 2

TOTALS 1019 22 39

*Per GICA, claims were drawn from the above policy types/categories.

SICI SAMPLE FILES REVIEW (F)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS


815 11 20


263 17 29

TOTALS 1078 28 49

GEIC SAMPLE FILES REVIEW (G)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS

Commercial Property / *Fire, Allied lines, Farmowners multiple peril, Commercial multiple peril (non-liability portion), Inland marine, Earthquake, Burglary and theft, Boiler and machinery / First Party

871 26 33

TOTALS 871 26 33

*Per GEIC, claims were drawn from the above policy types/categories.

14 790.03 V3 05-10-11

PIC SAMPLE FILES REVIEW (H)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS

Commercial Property / *Fire, Allied lines, Commercial multiple peril (non-liability portion), Farmowners multiple peril, Inland marine, Earthquake, Burglary and theft, Boiler and machinery / First Party

794 24 25

TOTALS 794 24 25

*Per PIC, claims were drawn from the above policy types/categories.

AEIC SAMPLE FILES REVIEW (I)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS


282 9 5

TOTALS 282 9 5

*Per AEIC, claims were drawn from the above policy types/categories.

ASIC SAMPLE FILES REVIEW (J)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS

Commercial Property / *Fire, Allied lines, Farmowners multiple peril, Commercial multiple peril (non-liability portion), Inland marine, Earthquake, Burglary and theft, Boiler and machinery / First Party

97 3 2

TOTALS 97 3 2

*Per ASIC, claims were drawn from the above policy types/categories.

15 790.03 V3 05-10-11

TNIC SAMPLE FILES REVIEW (K)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS

Commercial Property / *Fire, Allied lines, Commercial multiple peril (non-liability portion), Inland marine, Earthquake, Boiler and machinery / First Party

45 1 0

TOTALS 45 1 0

*Per TNIC, claims were drawn from the above policy types/categories.

PIIC SAMPLE FILES REVIEW (L)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS


32 1 0

TOTALS 32 1 0

*Per PIIC, claims were drawn from the above policy types/categories.

WUIC SAMPLE FILES REVIEW (M)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS


21 1 0

TOTALS 21 1 0

*Per WUIC, claims were drawn from the above policy types/categories.

16 790.03 V3 05-10-11

WBIC SAMPLE FILES REVIEW (N)


CLAIMS IN

REVIEW

PERIOD

SAMPLE

FILES

REVIEWED

NUMBER OF

ALLEGED

VIOLATIONS

Commercial Property / *Fire, Allied lines, Commercial multiple peril (non-liability portion), Earthquake, Burglary and theft, Boiler and machinery / First Party

2 0 0

TOTALS 2 0 0

*Per WBIC, claims were drawn from the above policy types/categories.

Of the combined 140 Liberty Mutual Group Homeowner claims reviewed, 23 did

not involve depreciation and 117 were subject to depreciation. The 23 Homeowner

claims with no depreciation involved the following: mitigation/emergency services;

claims subject to limits (e.g. jewelry, cash, etc.); no reasons provided by the Companies

for not applying depreciation; estimate under Companies’ $2,500.00 internal threshold;

repairs only or repairs already paid prior to payment of the claim; actual cash value and

replacement cost value are one and the same; vendor was paid for the replacement of

the item(s); or fine jewelry was involved. Other than the claims in which no explanation

was provided by the Companies for not applying depreciation, depreciation is not

applicable to these claims.

Of the combined 140 Safeco Group Homeowner claims reviewed, 37 did not

involve depreciation and 103 were subject to depreciation. The 37 Homeowner claims

with no depreciation involved the following: no reasons provided by the Companies for

not applying depreciation; claims subject to limits (e.g. jewelry, cash, etc.); repairs only

or repairs already paid prior to payment of the claim; mitigation/emergency services;

vendor was paid for the replacement of the item(s); item(s) replaced prior to payment of

the claim; estimate under Companies’ $2,500.00 internal threshold; fine jewelry was

involved; adjuster’s estimate was higher than the insured contractor’s estimate; or labor

only was involved. Other than the claims in which no explanation was provided by the

Companies for not applying depreciation, depreciation is not applicable to these claims.

17 790.03 V3 05-10-11

Of the 70 Commercial Property claims reviewed, 37 did not involve depreciation

and 33 were subject to depreciation. The 37 Commercial Property claims with no

depreciation involved the following: repairs only or repairs already paid prior to payment

of the claim; business property inventories; no reasons provided by the Companies for

not applying depreciation; item(s) replaced prior to payment of the claim; policy limits

paid; actual cash value and replacement cost value are one and the same;

mitigation/emergency services; or the file notes indicate no depreciation or holdback

taken as under a certain amount even though the Companies indicated it had no

Commercial Property thresholds for building payments. Other than the claims in which

no explanation was provided by the Companies for not applying depreciation,

depreciation is not applicable to these claims.

18 790.03 V3 05-10-11

TABLE OF TOTAL ALLEGED VIOLATIONS

Company (See Company Key Provided Below)

Citation Description of Allegation A B C D E F G H I J K L M N

CIC §§2051 and 2051.5/CCR §2695.9(f) *[CIC §790.03(h)(3)]

The Company failed to document in the claim file all justification for the adjustment of the amount claimed because of 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.

113 8 34 31 17 22 14 13 2 1 0 0 0 0

CCR §2695.9(f) *[CIC §790.03(h)(3)]

The Company failed to fully explain the basis for any adjustment to the claimant in writing.

113 8 36 31 17 22 14 12 3 1 0 0 0 0

CCR §2695.9(f) *[CIC §790.03(h)(5)]

The Company improperly applied betterment or depreciation to property not normally subject to repair and replacement during the useful life of the property.

23 1 3 3 1 1 1 0 0 0 0 0 0 0

CCR §2695.9(f)(1) *[CIC §790.03(h)(5)]

The Company improperly applied depreciation or betterment to the expense of labor necessary to repair, rebuild or replace covered property.

1 0 4 2 2 1 3 0 0 0 0 0 0 0

CIC §2051.5(b)(1) *[CIC §790.03(h)(1)]

The Company improperly imposed upon an insured a time limit to collect the full replacement cost of the loss. No time limit of less than 12 months from the date that the first payment toward the actual cash value is made shall be placed upon an insured in order to collect the full replacement cost of the loss, subject to the policy limit.

0 0 5 7 2 3 0 0 0 0 0 0 0 0

CIC §790.03(h)(5)

The Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear.

0 0 0 0 0 0 1 0 0 0 0 0 0 0

Total Number of Alleged Violations 250 17 82 74 39 49 33 25 5 2 0 0 0 0

19 790.03 V3 05-10-11

Company Key: A = Liberty Mutual Fire Insurance Company (LMFIC) B = Liberty Insurance Corporation (LIC) C = Safeco Insurance Company of America (SICA) D = First National Insurance Company of America (FNICA) E = General Insurance Company of America (GICA) F = Safeco Insurance Company of Illinois (SICI) G = Golden Eagle Insurance Corporation (GEIC) H = Peerless Insurance Company (PIC) I = American Economy Insurance Company (AEIC) J = American States Insurance Company (ASIC) K = Netherlands Insurance Company (The) (TNIC) L = Peerless Indemnity Insurance Company (PIIC) M = Wausau Underwriters Insurance Company (WUIC) N = Wausau Business Insurance Company (WBIC)

*DESCRIPTIONS OF APPLICABLE UNFAIR CLAIMS SETTLEMENT PRACTICES

CIC §790.03(h)(1) The Company misrepresented to claimants pertinent facts or insurance policy provisions relating to any coverages at issue.

CIC §790.03(h)(3) The Company failed to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.

CIC §790.03(h)(5) The Company failed to effectuate prompt, fair, and equitable settlements of claims in which liability had become reasonably clear.

20 790.03 V3 05-10-11

TABLE OF ALLEGED VIOLATIONS BY LINE OF BUSINESS

HOMEOWNER (Liberty Mutual Group)

2013 Written Premium: $163,092,340 2014 Written Premium: $152,589,930

AMOUNT OF RECOVERIES $15,659.22

NUMBER OF ALLEGED VIOLATIONS

CIC §§2051 and 2051.5/CCR §2695.9(f) [CIC §790.03(h)(3)] 120

CCR §2695.9(f) [CIC §790.03(h)(3)] 120

CCR §2695.9(f) [CIC §790.03(h)(5)] 24

CCR §2695.9(f)(1) [CIC §790.03(h)(5)] 1

SUBTOTAL 265

HOMEOWNER (Safeco Group) 2013 Written Premium: $242,061,731 2014 Written Premium: $253,461,867

AMOUNT OF RECOVERIES $3,835.94


CIC §§2051 and 2051.5/CCR §2695.9(f) [CIC §790.03(h)(3)] 102

CCR §2695.9(f) [CIC §790.03(h)(3)] 104

CIC §2051.5(b)(1) [CIC §790.03(h)(1)] 17

CCR §2695.9(f)(1) [CIC §790.03(h)(5)] 9

CCR §2695.9(f) [CIC §790.03(h)(5)] 7

SUBTOTAL 239

COMMERCIAL PROPERTY

2013 Written Premium: $408,887,373 2014 Written Premium: $353,669,588

AMOUNT OF RECOVERIES $967.98


CIC §§2051 and 2051.5/CCR §2695.9(f) [CIC §790.03(h)(3)] 33

CCR §2695.9(f) [CIC §790.03(h)(3)] 33

CCR §2695.9(f)(1) [CIC §790.03(h)(5)] 3

CCR §2695.9(f) [CIC §790.03(h)(5)] 2

CIC §790.03(h)(5) 1

SUBTOTAL 72

TOTAL 576

21 790.03 V3 05-10-11

SUMMARY OF EXAMINATION RESULTS

The following is a brief summary of the criticisms that were developed during the

course of this examination related to the violations alleged in this report.

In response to each criticism, the Companies are required to identify remedial or

corrective action that has been or will be taken to correct the deficiency. The

Companies are obligated to ensure that compliance is achieved.

Money recovered within the scope of this report was $20,463.14 as described in

the Executive Summary of Claims Sample Reviewed above and in section numbers 1,

3, 5, 8, 9, 12, 13 and 14 below. Pursuant to the findings of the examination as

described in section numbers 8 and 12 below, the Companies are conducting closed

claim surveys. The results of the surveys and additional payments, if any, shall be

reported to the Department by February 2, 2017.

HOMEOWNERS’ PROPERTY INSURANCE CLAIMS (HOMEOWNER) (Liberty Mutual Group) 1. In 120 instances, the Companies’ claim files failed to contain all justification for the adjustment of the amounts claimed because of betterment, depreciation or salvage, and the adjustments failed to reflect a measurable difference in market value attributable to the condition, in addition to the age of, the property. Seventy-three instances pertain to the depreciation of personal property. Forty-seven instances pertain to the depreciation of the dwelling. In the files reviewed, the following situations were observed. The number of instances identified below total more than 120, as some claim files include more than one of the described situations. a) In 115 instances related to both personal property and the dwelling, no

letters or file notes could be located addressing condition as a component to the depreciation taken on the claim.

b) In 71 instances related to personal property, during the review period, the

Companies made available their inventory form to assist the insured in providing a listing of personal property. The information obtained from the insured on this form is used to generate the personal property estimate

22 790.03 V3 05-10-11

that the Companies used as their written explanation for the basis of depreciation. The form does not include a column pertaining to condition. It includes columns for the quantity, description, brand/type/model, age, place of purchase, original cost, repair cost, replacement cost, and tax amount, if any. Additionally, the instructions provided either on the phone or in an initial letter do not include any direction related to the inclusion of the condition of the items when completing the form.

c) In 67 instances related to both personal property and the dwelling, one

estimate in each file includes “Age” and “Use” columns or an “Age/Use/Life” column. In 63 of these instances, “Use” is identified as “Normal” for all items in the loss. The rationale for the “Normal” identifier was not explained or supported. The files do not reflect that condition of the items was considered when applying depreciation as the file notes are silent in this regard. In four of these instances, “Use” is identified for some items as either “Light”, “Heavy” or “New”. While it appears that some consideration was given for the “Use” of some items, no notes could be located in the file providing an explanation for the deviations. Additionally, use/usage and condition do not have the same meaning. Usage is the amount of something that one uses and condition is the physical state of something.

d) In 45 instances related to both personal property and the dwelling, the

estimate sent to the insured includes standard language that the depreciation shown in the estimate is based on the “age and condition” of the items. However, the file does not provide evidence that condition was used in the calculation of depreciation. These instances support a line by line deduction based on age alone.

e) In 44 instances related to both personal property and the dwelling, the file

did not include an estimate with an “Age/Use/Life” column. However, as a result of this examination, the Companies provided “behind the scenes” information with columns identified as “USAGE”, “AGE”, and “USEFUL LIFE” for items subject to depreciation. Other than some items on one claim identified as the insured replaced, “USAGE” is identified as “Normal” for the remainder of all items. The files do not reflect that condition of the items was considered when applying depreciation as the file notes are silent in this regard.

f) In one instance related to the dwelling, the adjuster commented on the

general condition of the risk. However, there are no comments regarding how the overall condition of the risk was used in the calculation of depreciation to the specific structural components damaged in the loss.

g) In one instance related to personal property, the Company offered and

settled the claim based on an arbitrary amount of $25,000.00 without

23 790.03 V3 05-10-11

consideration for both age and condition. The insured paid a premium for replacement cost coverage and personal property limits of $41,540.00. The justification for the personal property settlement was based on the adjuster being able to negotiate a settlement “substantially under the liability”. The adjuster also stated that the process of tallying all personal property that has been damaged, issuing a check for actual cash value (ACV), having the insured submit receipts, and then reimbursing for replacement cost value (RCV) will take a few months. Furthermore, the adjuster noted the amount of damages could be closer to the limits “the longer this drags on” since damages were substantial. Additionally, the independent adjuster (IA) secured several photographs of the water damaged property. Given that the IA was able to view and inspect all damaged property as opposed to a theft or fire loss, there is no explanation in the file for not going over the individual personal property items with the insured and creating a line item inventory.

Specifically, there is no evidence that the Companies used condition in the calculation of the depreciation deducted in these claims. The Department alleges these acts are in violation of CIC §§2051 and 2051.5, and CCR §2695.9(f), and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: In 119 instances, the Companies disagree with these allegations. The Companies assert that their claim files include information concerning the basis for any adjustments as well as a line by line itemization of depreciated amounts. The Companies utilize XactContents, the program for personal property, and Xactimate, the program for the dwelling, for input of personal property items and structural components with the Companies’ vendor, Xactware. Claims staff inputs information based on the adjuster’s investigation. The Companies’ processes, during the review period, automatically default items to “normal” condition. Where the adjuster’s investigation; through inspections, photographs and communications with claimants, reveals other than “normal” such as “light” or “heavy” use, the item is changed to reflect that condition. The Companies state the basis for the adjustment or deviation from “normal” condition would be contained or documented in either the claim file notes, photographs or the Xactware reports. The Companies believe this process gives the benefit of the doubt to the insured in situations (e.g. thefts and fire losses) where there is no information to base a determination of the condition. The Companies consider it unreasonable to expect their adjusters to specifically provide the rationale for each and every item defaulted to “normal” condition.

As a result of the findings of this examination, the Companies provided “behind

the scenes” Xactware depreciation data for each of the claims reviewed from the original populations. The Companies believe this data reflects documentation that age and condition were taken into account for items depreciated.

24 790.03 V3 05-10-11

In the one instance described under 1(g) above, the Company states it was an isolated incident and was not handled in accordance with the Company’s protocols and documentation standards. The Company further states it resolved this claim in a good faith manner intended to address the policyholder’s concerns about providing an exhaustive property inventory. As a result of this finding, the Company issued payment of $12,227.12 to reflect the full policy limits for personal property. Additionally, the Company reinforced proper property claims handling protocols to adjusters and management.

Although they disagree with the allegations in 119 of the cases, following the

examination, the Companies updated their claim processing materials. Additionally, in an effort to better elicit condition-specific information from the insured, the Companies updated their forms submitted to the insured to pursue information on the age and condition of each property item claimed. Part of this update included adding a column to the inventory form for the insured to specify the condition of each item claimed. The Companies also enhanced training programs to remind adjusters to converse with insureds and explain that age and condition are factors in determining the ACV. The training includes documenting these conversations related to condition and age of personal property and the dwelling in the claim file. The updated forms for insureds to complete inventories and provide property descriptions were implemented in Xactware in the third quarter of 2015. The Companies began conducting training sessions in February, 2015 with claims staff and completed the training with the majority of the adjusters that handle California property claims in April, 2015. The Companies may use adjusters outside the region during catastrophes. The Companies completed their training with all adjusters, including these catastrophe adjusters, as of June, 2015.

The Companies do not believe their actions are in violation of CIC §790.03. Summary of the Department’s Evaluation of the Companies’ Response: The justification of depreciation taken is required to include sufficient itemization of the amounts deducted and the reasons for doing so. The adjustments are required to be discernible, measurable, itemized, and specific as to dollar amount, must accurately reflect the value of the betterment, depreciation or salvage, and must take into consideration condition and age of the item. The Companies’ process that automatically defaults items to “normal” condition and only changes or deviates from this condition when the investigation reveals something other than “normal” does not comply with the insurance code or the regulations to include both condition and age in the calculation of depreciation. The insurance code and regulations do not speak to reasonableness; rather it speaks to what must be considered in order to adjust a claim for depreciation. With regard to thefts or fires in which the personal property or dwelling are not available for an inspection of pre-loss condition, the Companies must rely upon the insured given that the items cannot be independently verified by an inspection. While the Department recognizes the Xactware estimates include a line by line itemization providing the amounts deducted for depreciation, the personal property inventories and dwelling estimates did not include information regarding the condition of

25 790.03 V3 05-10-11

the property. Also, in those claims in which “Use” or “Usage” was identified, the condition of the property was not reflected in the file. The claim files failed to contain information that the Companies considered the condition of each item when applying depreciation.

The revisions to the Companies’ inventory process and vendor reports appear to

allow for consideration of the condition of items in determining the amount of depreciation to apply. The Department will continue to evaluate how the Companies document condition and apply depreciation.

However, the Companies have not agreed to reopen the identified claim files to

reconsider reimbursement of the depreciation taken in claims where depreciation was not recovered, including a measure to correct past harm in claims which were outside the sample files examined in the review period. Therefore, this is an unresolved issue that may result in administrative action. 2. In 120 instances, the Companies failed to fully explain the basis for any adjustment to the claimant in writing. Seventy-two instances pertain to the depreciation of personal property. Forty-eight instances pertain to the depreciation of the dwelling. The information provided by the Companies does not demonstrate that the Companies have provided claimants with written explanation of the basis for depreciation in these claim files. A copy of the estimate and settlement letter was provided to the insured in most instances. However, these documents do not fully explain the basis for depreciation, which reflects a measurable difference in market value attributable to the condition and age of the property. The estimate that was included with the settlement letter details the replacement cost, depreciation amount applied, and actual cash value of each property item.

Specifically, there is no evidence that the Companies have provided claimants with written explanation of the basis for depreciation, which takes condition and age into consideration.

The Department alleges these acts are in violation of CCR §2695.9(f) and are unfair practices under CIC §790.03(h)(3). Summary of the Companies’ Response: The Companies state the estimates and letters sent to claimants fully explain the basis for any adjustments. This documentation reflects a line by line itemization of the depreciated amounts that are discernable based on the item description, measurable based on the percentage of depreciation noted and specified as to dollar amount. Moreover, the Companies state the estimates contain specific language up front explaining that any depreciation is based on age and condition.

Nonetheless, as result of this examination, the Companies instructed their vendor Xactware to initiate new programming regarding the factors affecting the amount of depreciation deducted. Instead of the factor and heading entitled “Use/Usage”, the

26 790.03 V3 05-10-11

Companies instructed Xactware to utilize a factor and heading for “Condition”. The Companies further instructed Xactware to revise the definitions from the use-related descriptions of “Heavy”, “Normal”, and “Light”, to the condition-related descriptions of “Below Average”, “Average”, and “Above Average”. An additional Xactware Report has been developed to accompany the current “Insured Report”. The new report provides details on the age, life, and condition of the property. The Companies completed the programming and revised the reports in the third quarter of 2015.

Additonally, the Companies began conducting training sessions in February,

2015 with their claims staff and completed the training with the majority of the adjusters that handle California property claims in April, 2015. The Companies may use adjusters outside the region during catastrophes. The Companies completed their training with all adjusters, including these catastrophe adjusters, as of June, 2015.

The Companies do not believe their actions are in violation of CIC §790.03.

Summary of the Department’s Evaluation of the Companies’ Response:

The estimate that was sent to the insured in each instance did not provide detail pertaining to the condition of the items subject to depreciation. There was no additional correspondence that explained the basis for any adjustment in writing sent to the insured. In the instances in which the estimate sent to the insured included standard language that the depreciation shown in the estimate is based on the “age and condition” of the items, this language did not provide justification for the specific depreciation taken on the claim.

The written explanation explaining the basis for any adjustment is required to

include sufficient itemization of the amounts deducted and the reasons for doing so. The adjustments must be discernible, measurable, itemized and specific as to dollar amount, must accurately reflect the value of the betterment, depreciation or salvage, and take into consideration condition and age.


allow for appropriate written explanation to the claimant of the adjustment made, taking into account both the condition and the age of items depreciated. The Department will continue to evaluate the application of this process. 3. In 24 instances, the Companies improperly applied betterment or depreciation to property not normally subject to repair and replacement during the useful life of the property. In each instance, the Companies applied depreciation to one or more structural components not normally subject to repair and replacement during the useful life of the structure. The structural components in the instances noted are not normally subject to repair or replacement during the items’ lifespan absent some known reason to do so, such as damage sustained in an insurance loss. Additionally, the file notes at issue were void of any specific documentation regarding the condition of the items that would warrant betterment or depreciation. The Department alleges these

27 790.03 V3 05-10-11

acts are in violation of CCR §2695.9(f) and are unfair practices under CIC §790.03(h)(5). Summary of the Companies’ Response: The Companies disagree with these allegations in all instances. The Companies believe that the rule as implemented is ambiguous such that the code does not identify specific property components that are “normally subjected to repair and replacement” or property that is excluded from depreciation. Additionally, the Companies state that this regulation does not provide notice to regulated entities as to the specific conduct that violates the regulation.

Nonetheless, the Companies amended their procedures and estimating software so that depreciation on items that have a particularly long useful life will only be applied when there is observed prior damage, wear or tear. A specific notation as to the observed condition and corresponding judgment of applicable depreciation of the item will be entered in the file. In addition, the Companies began conducting training sessions in February, 2015 with their claims staff and completed the training with the majority of the adjusters that handle California property claims in April, 2015 to support the change in procedure. The Companies may use adjusters outside the region during catastrophes. The Companies completed their training with all adjusters, including these catastrophe adjusters, as of June, 2015.

The Companies also state the claims involved replacement cost policies and

insureds generally return to claim recoverable depreciation after repairs are completed. In many cases, the insureds are able to complete repairs for the amount of the actual cash value payment and, therefore, do not make a claim for recoverable depreciation. As a result of the findings of this examination, the Companies reviewed identified claims and issued payments totaling $192.63 on claims where the Companies did not pay recoverable depreciation. The insured claimed recoverable depreciation in seven of the 24 identified claims.


Summary of the Department’s Evaluation of the Companies’ Response: The revisions the Companies have implemented in order to comply with the referenced insurance code and regulations appear to address items not normally subject to depreciation. The Department will continue to evaluate how the Companies document condition and apply depreciation to these structural components.

The Companies’ response does not address reimbursement for claimants whose claims were adjusted to property not normally subject to depreciation without considering the condition of each item outside of the identified claims in this examination. Therefore, this is an unresolved issue that may result in administrative action. 4. In one instance, the Company improperly applied depreciation or betterment to the expense of labor necessary to repair, rebuild or replace covered

28 790.03 V3 05-10-11

property. Specifically, the Company improperly applied depreciation to the per hour expense of labor related to painting. The Department alleges this act is in violation of CCR §2695.9(f)(1) and is an unfair practice under CIC §790.03(h)(5). Summary of the Company’s Response: The Company agrees depreciation was not appropriate for the identified labor related activity and it is not the Company’s customary practice to do so. To ensure future compliance, the Company rolled out an automated change to the system between October and December, 2014. The system is now programmed such that it prevents the adjuster from selecting the wrong state and ensures that the correct settings are in place so that labor is not improperly depreciated. The Company reviewed the identified claim and no payment was issued as the insured returned to claim recoverable depreciation.

While the Company acknowledges this finding, the Company does not believe its actions are in violation of CIC §790.03.

HOMEOWNERS’ PROPERTY INSURANCE CLAIMS (HOMEOWNER) (Safeco Group) 5. In 102 instances, the Companies’ claim files failed to contain all justification for the adjustment of the amounts claimed because of betterment, depreciation or salvage, and the adjustments failed to reflect a measurable difference in market value attributable to the condition, in addition to the age of, the property. Fifty-nine instances pertain to the depreciation of personal property. Forty-three instances pertain to the depreciation of the dwelling. In the files reviewed, the following situations were observed. The number of instances identified below total more than 102, as some claim files include more than one of the described situations. a) In 98 instances related to both personal property and the dwelling, no

letters or file notes could be located addressing condition as a component to the depreciation taken on the claim.

b) In 56 instances related to personal property, during the review period, the

Companies made available their Contents Inventory form to assist the insured in providing a listing of personal property. The information obtained from the insured on this form is used to generate the Content Valuation Report (CVR) that the Companies used as the written explanation for the basis of depreciation. The form does not include a column pertaining to condition. It includes columns for the quantity, description, original place of purchase, original cost, age, manufacturer, model, and features, if any. Additionally, the instructions provided either on the phone or in an initial letter do not include any direction related to the inclusion of the condition of the items when completing the form.

29 790.03 V3 05-10-11

c) In 43 instances related to both personal property and the dwelling, as a result of this examination, the Companies provided “behind the scenes” information with columns identified as “USAGE”, “AGE”, and “USEFUL LIFE” for items subject to depreciation. In two of these instances, “USAGE” is identified for some items as “Light” or “New”. “USAGE” is identified as “Normal” for the remainder of the instances. While it appears that some consideration was given for the “Use” of some items in the two noted instances, no notes could be located in the file providing an explanation for the deviations. Additionally, use/usage and condition do not have the same meaning. Usage is the amount of something that one uses and condition is the physical state of something. The files do not reflect that condition of the items was considered when applying depreciation as the file notes are silent in this regard.

d) In 18 instances related to the dwelling, the estimate includes a notation

related to the age and/or useful life of some structural components. However, these instances do not also include a notation pertaining to the condition of the structural components.

e) In six instances related to the dwelling, the estimate sent to the insured

includes standard language that the depreciation shown in the estimate is based on the “age and condition” of the items. However, the file does not provide evidence that condition was used in the calculation of depreciation. These instances support a line by line deduction based on age alone.

f) In two instances, one related to the dwelling and one related to personal

property, the file includes some notes addressing condition. In the one instance related to the dwelling, the insured questioned the depreciation related to a heating system including its wear and tear, usage, and life span. The insured indicated that the risk sits mostly vacant and is rented out approximately seven weeks out of the year. The insured also stated radiant heat can last forever as there are no moving parts. There is no evidence that this information was used in the calculation of depreciation even though the adjuster stated that depreciation took into account the type of heating system, its expected useful life, condition, and age of the unit. In the one instance related to personal property, the file notes include documentation related to the condition of a snow blower, but not to all of the personal property subject to depreciation.

Specifically, there is no evidence that the Companies used condition in the calculation of the depreciation deducted in these claims, except in certain limited cases, as described above, in which condition was considered for part of the claim. The Department alleges these acts are in violation of CIC §§2051 and 2051.5, and CCR §2695.9(f), and are unfair practices under CIC §790.03(h)(3).

30 790.03 V3 05-10-11

Summary of the Companies’ Response: The Companies disagree with these allegations in all instances. The Companies assert that the claim files include information concerning the basis for any adjustments as well as a line by line itemization of depreciated amounts. The Companies utilize Xactimate, the program for the dwelling, for input of structural components with the Companies’ vendor, Xactware. Claims staff inputs information based on the adjuster’s investigation. The Companies’ processes during the review period automatically default items to “normal” condition. Where the adjuster’s investigation; through inspections, photographs and communications with claimants, reveals other than “normal” such as “light” or “heavy” use, the item is changed to reflect that condition. The Companies state the basis for the adjustment or deviation from “normal” condition would be contained or documented in either the claim file notes, photographs or the Xactware reports. The Companies believe this process gives the benefit of the doubt to the insured in situations (e.g. thefts and fire losses) where there is no information to base a determination of the condition. The Companies consider it unreasonable to expect their adjusters to specifically provide the rationale for each and every item defaulted to “normal” condition.

During this examination for personal property depreciation, the Companies used rates derived from the Joint Military Industry Depreciation Guides (JMIDG). The rates reflect the total serviceable life (useful lifespan) of various property categories and factors one may consider beyond the property category. This includes age, the remaining serviceable life, the general condition or past usage of the item, and obsolescence. The Companies converted their method for personal property to XactContents, which was in use during the review period for the Liberty Mutual Group. The Companies implemented the conversion for the Safeco Group to occur concurrently with the changes to Xactware in the third quarter of 2015.

As a result of the findings of this examination, the Companies provided “behind

the scenes” Xactware depreciation data for each of the claims reviewed from the original populations. The Companies believe this data reflects documentation that age and condition were taken into account for items depreciated.

In the one instance pertaining to the dwelling described under 5(f) above, the Company believes the item was appropriately subject to depreciation as a heating system is normally subject to repair or replacement. Moreover, the claim file reflected a significant amount of dialogue on the issue with the insured and various experts. Nonetheless, as a result of this finding, the Company issued payment of $2,084.55 to the insured.

Nonetheless, following the examination, the Companies updated their claim

processing materials. Additionally, in an effort to better elicit condition specific information from the insured, the Companies updated their forms submitted to the insured to pursue information on the age and condition of each property item claimed. Part of this update included adding a column to the inventory form for the insured to specify the condition of each item claimed. The Companies also enhanced their training

31 790.03 V3 05-10-11

programs to remind adjusters to have a conversation with their insureds and explain that age and condition are factors in determining the ACV. The training includes documenting these conversations related to condition and age of personal property and the dwelling in the claim file. The updated forms for insureds to complete inventories and provide property descriptions were implemented in Xactware in the third quarter of 2015.

The Companies began conducting training sessions in February, 2015 with their

claims staff and completed the training with the majority of the adjusters that handle California property claims in April, 2015. The Companies may use adjusters outside the region during catastrophes. The Companies completed their training with all adjusters, including these catastrophe adjusters, as of June, 2015.


Summary of the Department’s Evaluation of the Companies’ Response: The justification of depreciation taken is required to include sufficient itemization of the amounts deducted and the reasons for doing so. The adjustments are required to be discernible, measurable, itemized, and specific as to dollar amount, must accurately reflect the value of the betterment, depreciation or salvage, and must take into consideration condition and age of the item. The Companies’ process that automatically defaults items to “normal” condition and only changes or deviates from this condition when the investigation reveals something other than “normal” does not comply with the insurance code or the regulations to include both condition and age in the calculation of depreciation. The insurance code and regulations do not speak to reasonableness; rather it speaks to what must be considered in order to adjust a claim for depreciation. With regard to thefts or fires in which the personal property or dwelling are not available for an inspection of pre-loss condition, the Companies must rely upon the insured given that the items cannot be independently verified by an inspection. While the Department recognizes the Xactware estimates and CVRs include a line by line itemization providing the amounts deducted for depreciation, the personal property inventories and dwelling estimates did not include information regarding the condition of the property. Also, in those claims in which “Use” or “Usage” was identified, the condition of the property was not reflected in the file. The claim files failed to contain information that the Companies considered the condition of each item when applying depreciation.

The revisions to the Companies’ inventory process and vendor reports appear to allow for consideration of the condition of items in determining the amount of depreciation to apply. The Department will continue to evaluate how the Companies document condition and apply depreciation. However, the Companies have not agreed to reopen the identified claim files to reconsider reimbursement of the depreciation taken in claims where depreciation was not recovered, including a measure to correct past harm in claims which were outside

32 790.03 V3 05-10-11

the sample files examined in the review period. Therefore, this is an unresolved issue that may result in administrative action.

6. In 104 instances, the Companies failed to fully explain the basis for any adjustment to the claimant in writing. Fifty-nine instances pertain to the depreciation of personal property. Forty-five instances pertain to the depreciation of the dwelling. The information provided by the Companies does not demonstrate that the Companies have provided claimants with written explanation of the basis for depreciation in these claim files. A copy of the CVR, dwelling estimate and settlement letter was provided to the insured in most instances. However, these documents do not fully explain the basis for depreciation, which reflects a measurable difference in market value attributable to the condition and age of the property. The instances related to section 5(d) above do not provide a sufficient written explanation for the basis of the depreciation taken to include condition as well even though the files include a notation related to the age and/or useful life.

Specifically, there is no evidence that the Companies have provided claimants with written explanation of the basis for depreciation, which takes condition and age into consideration.

The Department alleges these acts are in violation of CCR §2695.9(f) and are unfair practices under CIC §790.03(h)(3). Summary of the Companies’ Response: The Companies state the CVRs, estimates, and letters sent to claimants fully explain the basis for any adjustments. This documentation reflects a line by line itemization of the depreciated amounts that are discernable based on the item description, measurable based on the percentage of depreciation noted and specified as to dollar amount. Moreover, the Companies state the dwelling estimates contain specific language up front reflecting that any depreciation is based on age and condition.

Nonetheless, as a result of this examination, the Companies converted their

method for personal property to XactContents, which was in use during the review period for the Liberty Mutual Group. Additionally, the Companies instructed their vendor Xactware to initiate new programming regarding the factors affecting the amount of depreciation deducted. Instead of the factor and heading entitled “Use/Usage”, the Companies instructed Xactware to utilize a factor and heading for “Condition”. The Companies further instructed Xactware to revise the definitions from the use-related descriptions of “Heavy”, “Normal”, and “Light”, to the condition-related descriptions of “Below Average”, “Average”, and “Above Average”. An additional Xactware Report has been developed to accompany the current “Insured Report”. The new report provides details on the age, life, and condition of the property. The Companies completed the programming and revised the reports in the third quarter of 2015.

Additionally, the Companies began conducting training sessions in February,

2015 with claims staff and completed the training with the majority of the adjusters that

33 790.03 V3 05-10-11

handle California property claims in April, 2015. The Companies may use adjusters outside the region during catastrophes. The Companies completed training with all adjusters, including these catastrophe adjusters, as of June, 2015.


Summary of the Department’s Evaluation of the Companies’ Response:

The estimate or CVR report that was sent to the insured in each instance did not provide detail pertaining to the condition of the items subject to depreciation. There was no additional correspondence that explained the basis for any adjustment in writing sent to the insured. In the instances in which the estimate sent to the insured included standard language that the depreciation shown in the estimate is based on the “age and condition” of the items, this language did not provide justification for the specific depreciation taken on the claim.

The written explanation explaining the basis for any adjustment is required to include sufficient itemization of the amounts deducted and the reasons for doing so. The adjustments must be discernible, measurable, itemized and specific as to dollar amount, must accurately reflect the value of the betterment, depreciation or salvage, and take into consideration condition and age.


allow for appropriate written explanation to the claimant of the adjustment made, taking into account both the condition and the age of items depreciated. The Department will continue to evaluate the application of this process. 7. In 17 instances, the Companies improperly imposed upon an insured a time limit to collect the full replacement cost of the loss. No time limit of less than 12 months from the date that the first payment toward the actual cash value is made shall be placed upon an insured in order to collect the full replacement cost of the loss, subject to the policy limit. In all instances, the Companies imposed a more restrictive time limit to claim recoverable depreciation. In ten instances, the Companies’ settlement letters state the insured has 365 days from the date of loss in order to recover depreciation under the replacement cost extension of coverage. In five instances, the Companies’ settlement letters state that the insured has 180 days from the date of loss to recover depreciation. In one instance, the settlement letter inadvertently states the insured has 360 versus 365 days from the date of loss to recover depreciation. In one instance, the Company’s letter states that the insured “must replace” and submit receipts within 180 days from the date of loss to recover depreciation. However, the insurance code states that no time limit of less than 12 months from the date that the first payment toward the actual cash value is made (not from the date of loss) shall be placed upon an insured in order to collect the full replacement cost. The Department alleges these acts are in violation of CIC §2051.5(b)(1) and are unfair practices under CIC §790.03(h)(1).

34 790.03 V3 05-10-11

Summary of the Companies’ Response: The Companies agree the letters do not properly address the time limits to make a replacement cost claim for recoverable language. As a remedial measure, the Companies amended their form letter to bring the language into compliance. The Companies implemented the amended form letter in May, 2015 and the Companies notified claims staff via an email communication regarding the usage of the new form.

8. In nine instances, the Companies improperly applied depreciation or betterment to the expense of labor necessary to repair, rebuild or replace covered property. Specifically, the Companies improperly applied depreciation to mask and preparation activities for painting, floor preparation, drywall repair, and sand and finish to wood floors. The Department alleges these acts are in violation of CCR §2695.9(f)(1) and are unfair practices under CIC §790.03(h)(5). Summary of the Companies’ Response: The Companies agree depreciation was not appropriate for the identified labor related activities and it is not the Companies customary practice to do so. To ensure future compliance, the Companies rolled out an automated change to the system between October and December, 2014. The system is now programmed such that it prevents the adjuster from selecting the wrong state and ensures that the correct settings are in place so that labor is not improperly depreciated.

The Companies also state the claims involved replacement cost policies and insureds generally return to claim recoverable depreciation after repairs are completed. In many cases, the insureds are able to complete repairs for the amount of the actual cash value payment and, therefore, do not make a claim for recoverable depreciation. As a result of the findings of this examination, the Companies reviewed identified claims and issued payments totaling $128.88 on claims where the Companies did not pay recoverable depreciation. The insured claimed recoverable depreciation in three of the nine identified claims.

In response to the concern that the Companies did not address reimbursement for claimants whose claims were improperly adjusted for depreciation of labor outside the identified claims in this examination, the Companies are conducting an internal survey of Homeowner claims closed over a review period of January 1, 2013 through December 31, 2015. The Companies estimate it will complete this survey by February 2, 2017.

While the Companies acknowledge these findings, the Companies do not believe their actions are in violation of CIC §790.03.

9. In seven instances, the Companies improperly applied betterment or depreciation to property not normally subject to repair and replacement during the useful life of the property. In each instance, the Companies applied depreciation to one or more structural components not normally subject to repair and replacement during the useful life of the structure. The structural components in the instances noted

35 790.03 V3 05-10-11

are not normally subject to repair or replacement during the items’ lifespan absent some known reason to do so, such as damage sustained in an insurance loss. Additionally, the Companies internal guidelines outline certain types of structural components that are not normally subject to depreciation. Furthermore, the files notes at issue were void of any specific documentation regarding the condition of the items that would warrant betterment or depreciation. The Department alleges these acts are in violation of CCR §2695.9(f) and are unfair practices under CIC §790.03(h)(5). Summary of the Companies’ Response: The Companies disagree with these allegations in all instances. The Companies believe that the rule as implemented is ambiguous such that the code does not identify specific property components that are “normally subjected to repair and replacement” or property that is excluded from depreciation. Additionally, the Companies state that this regulation does not provide notice to regulated entities as to the specific conduct that violates the regulation.

Nonetheless, the Companies amended their procedures and estimating software so that depreciation on items that have a particularly long useful life will only be applied when there is observed prior damage, wear or tear. A specific notation as to the observed condition and corresponding judgment of applicable depreciation of the item will be entered in the file. In addition, the Companies began conducting training sessions in February, 2015 with claims staff and completed the training with the majority of the adjusters that handle California property claims in April, 2015 to support the change in procedure. The Companies may use adjusters outside the region during catastrophes. The Companies completed their training with all adjusters, including these catastrophe adjusters, as of June, 2015.

The Companies also state the claims involved replacement cost policies and insureds generally return to claim recoverable depreciation after repairs are completed. In many cases, the insureds are able to complete repairs for the amount of the actual cash value payment and, therefore, do not make a claim for recoverable depreciation. As a result of the findings of this examination, the Companies reviewed identified claims and issued payments totaling $502.51 on claims where the Companies did not pay recoverable depreciation. The insured claimed recoverable depreciation in four of the seven identified claims.



The Companies’ response does not address reimbursement for claimants whose claims were adjusted to property not normally subject to depreciation without considering the condition of each item outside of the identified claims in this

36 790.03 V3 05-10-11

examination. Therefore, this is an unresolved issue that may result in administrative action. COMMERCIAL PROPERTY INSURANCE CLAIMS 10. In 33 instances, the Companies’ claim files failed to contain all justification for the adjustment of the amounts claimed because of betterment, depreciation or salvage, and the adjustments failed to reflect a measurable difference in market value attributable to the condition, in addition to the age of, the property. Twenty-one instances pertain to the depreciation of business personal property. Twelve instances pertain to the depreciation of the building. In the files reviewed, the following situations were observed. The number of instances identified below total more than 33, as some claim files include more than one situation. a) In 28 instances related to both business personal property and the

building, no letters or file notes could be located addressing condition as a component to the depreciation taken on the claim.

b) In seven instances related to business personal property, during the

review period, the Companies made available their inventory form or the form included on the Companies’ theft form to assist the insured in providing a listing of business personal property. The information obtained from the insured on this form is used to generate the business personal property estimate that the Companies used as their written explanation for the basis of depreciation. The form does not include a column pertaining to condition. It includes columns for the description, brand name and model number, place of purchase, date of purchase, original cost, and replacement cost. Additionally, the instructions provided either on the phone or in an initial letter do not include any direction related to the inclusion of the condition of the items when completing the form.

c) In six instances related to business personal property, the Companies

applied an arbitrary or fixed percentage of depreciation to property and there is no evidence condition was considered in the calculation of the depreciation percentages taken.

d) In five instances, three pertaining to the dwelling and two pertaining to

business personal property, the file includes either a comment on the general condition of the risk or notes addressing condition to only some of the items. With regard to the general reference on the risk, there are no comments regarding how the overall condition of the risk was used in the calculation of depreciation to the specific structural components damaged in the loss. With regard to comments related to some of the property

37 790.03 V3 05-10-11

being claimed, there are no supporting file notes related to all of the property subject to depreciation.

Specifically, there is no evidence that the Companies used condition in the calculation of the depreciation deducted in these claims, except in certain limited cases in which condition was considered for part of the claim. The Department alleges these acts are in violation of CIC §§2051 and 2051.5, and CCR §2695.9(f), and are unfair practices under CIC §790.03(h)(3).

Summary of the Companies’ Response: The Companies disagree with these allegations in 30 instances. The Companies assert that the file documentation meets regulatory requirements and includes information concerning the basis for any adjustments, as well as a line by line itemization of depreciated amounts. The Companies utilize XactContents, the program for personal property, and Xactimate, the program for the dwelling, for input of business personal property items and structural components with the Companies’ vendor, Xactware. The Companies also use Enservio, another vendor for business personal property. The Companies understand that the vendors’ calculations are based upon research and analysis conducted that accounts for both age and condition. If other vendors are utilized or the business personal property is manually handled, depreciation needs to be consistently addressed and documented on every claim. In the instances in which the Companies secured photographs, the Companies state this justifies and supports the depreciation determination. Where an adjuster identifies that condition is above average or worse than average, an adjustment to the estimate is made. Therefore, the Companies assert that both age and condition were accounted for and the files are reflective of the depreciation taken.

In situations involving theft losses to business personal property where the

Companies are unable to inspect and photograph the property’s condition at the time of the loss, the Companies’ ability to evaluate the condition of the stolen property is diminished. The Companies stated that it could only rely upon the information provided by the insured and adjusted the losses based upon information received from the insured. The information extends beyond mere age, as the Companies requested that the insured provide as much information as possible. While the form provided to the insured in these situations did not specifically request condition related information, the Companies further state the insured had an opportunity in verbal communications to express opinions related to condition.

In three instances, the Companies acknowledge these findings. The Companies

cannot locate documentation or file notes explaining how it calculated depreciation. The Companies state this handling is not their usual and customary practice.

Although the Companies believe the file documentation meets regulatory

requirements except in the three instances noted above, in an effort to improve their practices and better conform to the insurance code and regulations, the Companies

38 790.03 V3 05-10-11

developed procedural updates and corresponding training to emphasize the importance of providing explanatory documentation within the claims file. In so doing, the Companies updated their claims processing materials and enhanced and developed training for adjusters. The Companies’ enhanced training programs include reminding adjusters of the importance of documentation. The adjusters must converse with insureds regarding age and condition, and explain that these are factors in determining the ACV. This conversation must also be noted in the claim file. Additionally, in an effort to better elicit condition-specific information from the insured, the Companies updated the forms submitted to the insured to pursue information on the age and condition of each property item claimed. Part of this update included adding a column to the inventory form for the insured to specify the condition of each item claimed. The updated inventory form has been in use since November 2014. As an additional remedial measure, the Companies conducted training with claims staff in November 2014 that emphasized the need to document and support the depreciation taken on the claim. Training materials were provided to claims staff including a job aid to assist with properly calculating depreciation.


Summary of the Department’s Evaluation of the Companies’ Response: The justification of depreciation taken is required to include sufficient itemization of the amounts deducted and the reasons for doing so. The adjustments are required to be discernible, measurable, itemized, and specific as to dollar amount, must accurately reflect the value of the betterment, depreciation or salvage, and must take into consideration condition and age of the item. With regard to thefts or fires in which the business personal property or building are not available for an inspection of pre-loss condition, the Companies must rely upon the insured given that the items cannot be independently verified by an inspection. The Companies stated that it did rely upon the insured in theft losses; however, the file documentation does not support that condition was considered in the calculation of depreciation for these claims.

While the Department recognizes the Xactware estimates include a line by line itemization providing the amounts deducted for depreciation, the business personal property inventories and building estimates did not include information regarding the condition of the property. The claim files failed to contain information the Companies considered the condition of each item when applying depreciation.

The revisions to the Companies’ inventory process and documentation guidelines appear to allow for consideration of the condition of items in determining the amount of depreciation to apply. The Department will continue to evaluate how the Companies document condition and apply depreciation.

However, the Companies have not agreed to reopen the identified claim files to reconsider reimbursement of the depreciation taken in claims where depreciation was not recovered, including a measure to correct past harm in claims which were outside

39 790.03 V3 05-10-11

the sample files examined in the review period. Therefore, this is an unresolved issue that may result in administrative action. 11. In 33 instances, the Companies failed to fully explain the basis for any adjustment to the claimant in writing. Twenty-one instances pertain to the depreciation of business personal property. Twelve instances pertain to the depreciation of the building. The information provided by the Companies does not demonstrate that the Companies have provided claimants with written explanation of the basis for depreciation in these claim files. A copy of the business personal property inventory, building estimate and settlement letter was provided to the insured in most instances. However, these documents do not fully explain the basis for depreciation, which reflects a measurable difference in market value attributable to the condition and age of the property. Specifically, there is no evidence that the Companies have provided claimants with written explanation of the basis for depreciation, which takes condition and age into consideration. The Department alleges these acts are in violation of CCR §2695.9(f) and are unfair practices under CIC §790.03(h)(3). Summary of the Companies’ Response: The Companies disagree with these allegations in 28 instances. The Companies considered sending a settlement letter along with a copy of the inventory or the building estimate as valid means of satisfactorily explaining to the insured in writing the basis for the adjustment. This documentation reflects a line by line itemization of the depreciated amounts that are discernable based on the item description, measurable based on the percentage of depreciation noted, and specified as to dollar amount. In addition, as a business practice, the claim adjusters discuss the specific basis for depreciation taken on each claim to ensure the insured understands the basis for the payments and has an opportunity to answer any questions.

In five instances, the Companies acknowledge these findings. The Companies cannot find documentation to support that it followed their usual and customary practice of sending a settlement letter with a copy of the estimate or inventory to the insured as the written explanation of the basis for depreciation.

Although the Companies consider the documentation sent to be in compliance

except in the five instances noted above, as a result of this examination, the Companies instructed their vendors Xactware and Enservio (for personal property only) to initiate new programming regarding the factors affecting the amount of depreciation deducted. Instead of the factor and heading entitled “Use/Usage”, the Companies instructed Xactware to utilize a factor and heading for “Condition”. The Companies also instructed Enservio to add a “Condition” column to their inventory sheets and software program. Any other personal property inventory sheets will similarly include a “Condition” column. The Companies further instructed Xactware to revise the definitions from the use-

40 790.03 V3 05-10-11

related descriptions of “Heavy”, “Normal”, and “Light”, to the condition-related descriptions of “Below Average”, “Average”, and “Above Average”. Enservio has also revised the condition-related descriptions to “Below Average”, “Average”, and “Above Average”. The Companies completed the programming and revised the reports in the third quarter of 2015.

Additionally, the Companies updated their building estimating guidelines and

procedures. The Companies conducted training with claims staff in November 2014 that emphasized the regulatory requirement to provide the basis of depreciation in writing. Furthermore, training materials including a job aid were provided to claims staff.

The Companies do not believe their actions are in violation of CIC §790.03. Summary of the Department’s Evaluation of the Companies’ Response:

The estimate or inventory that was sent to the insured in 28 instances did not provide detail pertaining to the condition of the items subject to depreciation. No other additional correspondence that explained the basis for any adjustment in writing was sent to the insured.

The written explanation explaining the basis for any adjustment is required to

include sufficient itemization of the amounts deducted and the reasons for doing so. The adjustments must be discernible, measurable, itemized and specific as to dollar amount, must accurately reflect the value of the betterment, depreciation or salvage, and take into consideration condition and age.

The revisions to the Companies’ inventory process and vendor reports to allow

for appropriate written explanation to the claimant of the adjustment made, taking into account both the condition and the age of items depreciated. The Department will continue to evaluate the application of this process.

12. In three instances, the Companies improperly applied depreciation or betterment to the expense of labor necessary to repair, rebuild or replace covered property. Specifically, the Companies improperly applied depreciation to cleaning, detaching and resetting equipment, repairing glass, and labor for reconnecting electrical units. The Department alleges these acts are in violation of CCR §2695.9(f)(1) and are unfair practices under CIC §790.03(h)(5).

Summary of the Companies’ Response: The Companies agree depreciation was not appropriate for the identified labor related activities and it is not the Companies customary practice to do so. To ensure future compliance, the Companies delivered virtual training sessions to claims staff and independent adjusters in November, 2014. A job aid was provided with the training.

The Companies also state the claims involved replacement cost policies and insureds generally return to claim recoverable depreciation after repairs are completed. In many cases, the insureds are able to complete repairs for the amount of the actual

41 790.03 V3 05-10-11

cash value payment and, therefore, do not make a claim for recoverable depreciation. As a result of the findings of this examination, the Companies reviewed identified claims and issued payments totaling $833.10 on claims where the Companies did not pay recoverable depreciation. The insured claimed recoverable depreciation in one of the three identified claims.

In response to the concern that the Companies did not address reimbursement for claimants whose claims were improperly adjusted for depreciation of labor outside the identified claims in this examination, the Companies are conducting an internal survey of Commercial Property claims closed over a review period of January 1, 2013 through December 31, 2015. The Companies estimate it will complete this survey by February 2, 2017.

While the Companies acknowledge these findings, the Companies do not believe their actions are in violation of CIC §790.03.

13. In two instances, the Companies improperly applied betterment or depreciation to property not normally subject to repair and replacement during the useful life of the property. In each instance, the Companies applied depreciation to one or more structural components not normally subject to repair and replacement during the useful life of the structure. The structural components in the instances noted are not normally subject to repair or replacement during the items’ lifespan absent some known reason to do so, such as damage sustained in an insurance loss. Additionally, the file notes at issue were void of any specific documentation regarding the condition of the items that would warrant betterment or depreciation. The Department alleges these acts are in violation of CCR §2695.9(f) and are unfair practices under CIC §790.03(h)(5). Summary of the Companies’ Response: The Companies disagree with these allegations in all instances. The Companies believe that the rule as implemented is ambiguous such that the code does not identify specific property components that are “normally subjected to repair and replacement” or property that is excluded from depreciation. Additionally, the Companies state that this regulation does not provide notice to regulated entities as to the specific conduct that violates the regulation.

Nonetheless, the Companies amended their procedures and their estimating software so that depreciation on items that have a particularly long useful life will only be applied when there is observed prior damage, wear, or tear. A specific notation as to the observed condition and corresponding judgment of applicable depreciation of the item will be entered in the file. In addition, the Companies conducted training with the adjusting staff to support the change in procedure.

The Companies also state the claims involved replacement cost policies and

insureds generally return to claim recoverable depreciation after repairs are completed. In many cases, the insureds are able to complete repairs for the amount of the actual cash value payment and, therefore, do not make a claim for recoverable depreciation.

42 790.03 V3 05-10-11

As a result of the findings of this examination, the Companies reviewed the two identified claims and issued a payment of $15.51 on one claim where the Companies did not pay recoverable depreciation. The insured claimed recoverable depreciation in the other claim.



The Companies’ response does not address reimbursement for claimants whose claims were adjusted to property not normally subject to depreciation without considering the condition of each item outside of the identified claims in this examination. Therefore, this is an unresolved issue that may result in administrative action. 14. In one instance, the Company failed to effectuate prompt, fair and equitable settlements of claims in which liability had become reasonably clear. Specifically, the insured provided the Company with an invoice for the purchase of an item subject to depreciation and the Company failed to issue payment for the recoverable depreciation and final costs including taxes and shipping. The Department alleges this act is in violation of CIC §790.03(h)(5).

Summary of the Company’s Response: This was an isolated finding. To correct the error, the Company issued payment of $119.37 to the insured.

california - public report of the targeted ... conduct exam...790.03 v3 05-10-11 [in accordance with...

Documents