Press Release 2011-02 American Family Mutual Insurance Company Corrects 2010 Claims And Pays An Additional $1,190,657 To Claimants

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Arizona Department of Insurance
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Phoenix, AZ  85007-2630


Starting July 1, 2020, we became the
Department of Insurance and Financial Institutions (DIFI).


Media Contact: Erin Klug Public Information Officer 602.364.3471 or [email protected]

For Immediate Release May 11, 2011

In the course of investigating a complaint, the Arizona Department of Insurance (ADOI) found that American Family Mutual Insurance Company (American Family Mutual), the third largest homeowner insurance company in Arizona, underpaid more than 5,000 Arizona homeowner insurance claims arising from last year’s winter storm (January 2010) and hail storm (October 2010).

Arizona’s insurance claims settlement laws require insurers to determine and pay the appropriate type and amount of all taxes associated with the cost of repairing damage to a home or building. Specifically, in Arizona, building contractors must pay a Transaction Privilege Tax to the Arizona Department of Revenue* and contractors generally include this tax as part of their invoice for repair work to building owners. Since this tax is part of the cost of repairing a home or building, insurers must necessarily include and pay this amount in an insurance company’s equitable claim payment.

In December 2010, an Arizona roofing contractor contacted ADOI and provided credible evidence that American Family Mutual failed to include the Arizona Transaction Privilege Tax in its settlement of his client’s homeowner’s insurance claim. Upon investigation, the ADOI confirmed that American Family Mutual was underpaying property damage claims by including sales tax rather than the requisite Arizona Transaction Privilege Tax. American Family Mutual explained that the errors occurred in claims processed by its temporary Catastrophic Adjusting Team that the company utilized to handle those losses.

American Family Mutual immediately corrected this improper claim settlement practice and ADOI directed American Family Mutual to perform a self-audit of the 2010 claims to determine if the company underpaid any other claims. American Family Mutual recently completed the audit and identified 5,377 claims in 13 Arizona counties in which they needed to recalculate the tax. The bulk of the claims were in Maricopa county (5,142), with the second and third highest claims in Pima county (76) and Pinal county (54).

American Family Mutual discovered that they had underpaid these claims by $1,145,200.52 and promptly sent claim adjustment checks to the affected claimants, plus an additional $45,456.59 in interest. The average claim adjustment was $116, but the additional payments reached as high as $4,778.

American Family Mutual confirmed that it will implement procedures to ensure that its adjusters, including those brought in from out-of-state to handle catastrophic losses, are fully trained to calculate and pay the correct Arizona taxes owed on all claims. Further, the company agreed to pay the correct settlement amount, plus interest, on any other claims where the company determines it paid the taxes incorrectly.

Given the high volume of catastrophic claims in Arizona in 2010, this incident raised ADOI’s concerns that other insurers may have also overlooked Arizona’s Transaction Privilege Tax in their claims settlements, particularly in cases where insurers utilized out-of-state adjusters that are perhaps unfamiliar with Arizona’s particular tax requirements. Accordingly, ADOI will take appropriate steps to determine whether other insurers underpaid such claims and taxes and will consult with the Arizona Department of Revenue as necessary to ensure proper tax payments arising from these insurance claims settlements.

* Address questions about Transaction Privilege Tax to Anthony Forschino, Arizona Department of Revenue, 602-716-6882.

Period: 
2011
Priority: 
02
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Lists insurance companies that are offering health insurance to individuals and families in Arizona in 2020.  Open enrollment starts November 1st and now runs through December 17th, 2019.  Individuals can start shopping for coverage now at healthcare.gov or cuidadodesalud.gov (Spanish)

Notice of Proposed Rulemaking - Corporate Governance Annual Disclosure Model Regulation In 2019, the Arizona Legislature adopted the NAIC Corporate Governance Annual Disclosure Model Act at Arizona Revised Statutes (“ARS”) by enacting the Corporate Governance Act at Title 20, Chapter 2, Article 16 (Laws 2019, 1st Reg. Sess., Ch. 180, § 1).   The Department of Insurance (“Department”) seeks to adopt the correlate Corporate Governance Annual Disclosure Model Regulation.  ARS § 20-492.02 allows the Department to adopt rules to carry out the Act upon notice and an opportunity to be heard.  The Legislature has exempted the Department from Title 41, Chapter 6 for one year after the effective date of the Act.  (Laws 2019, 1st Reg. Sess., Ch. 180, § 2.)
Arizona's Surprise Bill Resolution Report for 2019

As shown in the attached report prepared pursuant to A.R.S. § 20-3118(A), the Department of Insurance received 91 requests for dispute resolution in Calendar Year 2019.  Of those, 53 have been resolved or closed, and health plan enrollees saved $41,538 by submitting their surprise bills for resolution.  

Not all health care bills qualify for the surprise bill resolution process.  The Department's Suprise Out-of-network Billing Dispute Resolution website (https://insurance.az.gov/soonbdr, and especially the section entitled, "I got a surprise bill. Can I submit a request for arbitration?") lists conditions when a health care bill may not qualify under Arizona law for the dispute resolution process.  But for those that do, the enrollee will only be responsible for paying the enrollee's cost-sharing amounts (copay, coinsurance and deductible) if the enrollee provides information the Department needs, and participates in an informal settlement teleconference with the health care insurer and the health care provider.

Fire Readiness and Your Insurance Coverage

Complete three steps to be prepared

STEP ONE: Inventory your contents. 
Making a record of what you have provides two major benefits.  First, it could help you estimate the cost of replacing your contents, which you could use to make sure you have enough insurance coverage.  Second, it will help you identify missing or destroyed items if you need to file an insurance claim. Keep your inventory records in a safe place outside your home, such as a safe deposit box at a bank, or in a secure online location. 

  • The National Association of Insurance Commissioners (NAIC) has a free app called, “MyHome Scr.APP.book,” available from Google Play and from the Apple App Store, which can help you keep track of your personal property. 
  • The Insurance Information Institute provides advice that can make creating a home inventory easier (https://www.iii.org/article/how-create-home-inventory).

STEP TWO: Understand what your homeowners’ insurance policy covers.
If you do not have your policy on hand, get a copy from your insurance company or insurance agent. Then, make sure your policy provides enough coverage for your dwelling, contents and additional living expenses.

  • Dwelling Coverage:  This pays to reconstruct your home, from ground up if necessary.  It does not include the cost of the land on which your home sits because you will still have that, but it should include the cost to remove a destroyed structure and replace it a home that is similar to what you had prior to the fire.
  • Contents Coverage:  This pays to repair or replace your personal belongings. Your policy may provide contents coverage based on a set percentage of your dwelling coverage, but you can pay for more contents coverage if you think you need it. 
    • Check to see if your coverage will pay “actual cash value” or “replacement cost.”  Actual cash value (ACV) means what an item was worth when it was destroyed based on its initial cost minus depreciation or loss in value due to its age, condition and wear-and-tear.  Replacement cost (RC) means the cost to replace or repair damaged or destroyed property with materials of “like kind and quality”. Claims for damaged or destroyed items will initially be paid based on the ACV of the item.  When the item is replaced, a copy of the receipt must be provided to the insurance company to obtain payment of the balance owed.  Many policies require the damaged items to be replaced within six (6) months.
    • If you have expensive items, such as artwork, jewelry or computers, you can purchase or increase “scheduled” property coverage to make sure you have sufficient coverage for those items.
  • Additional Living Expense (a.k.a. Loss of Use) Coverage. This pays additional costs you may resulting from the property damage.  For example, if you are not able to live in your home, your policy may cover the costs of lodging and food, boarding your pets, etc.

Importantly, insurance policies are often lengthy, detailed documents.  Do not hesitate to contact your agent or insurance company representative if you have any questions. 

STEP THREE: Minimize your fire risk.
Periodically inspect your home for overloaded power strips, damaged electrical cords or other potential fire hazards.  Keep vegetation and combustible materials away from your home.  If you are in an area that is at higher risk for wildfire, follow “Avoiding Wildfire Damage” guidelines published by the Federal Emergency Management Agency (https://www.fema.gov/pdf/hazard/wildfire/wdfrdam.pdf). 

Remain organized and keep good records

If you are the victim of a fire, remaining organized after an event can be difficult, but it is essential so that you can receive the benefits that your insurance coverage provides.

  • Keep all receipts for living expenses (housing, food, etc.) and for all items that you replace or repair.  Insurance companies may require that you submit original receipts. You should either copy, scan or take clear photos of receipts to provide yourself a backup. 
  • Take photos of your property and the damage.
  • Keep records of all your conversations, emails and letters about your claim with your insurance company and agent.  Take notes of conversations, documenting who you talked to, when you talked to them and what you were told. When possible, send an e-mail message to the person with whom you had the conversation to confirm your understanding of what you were told.
  • Do not throw away or destroy damaged property until your insurer inspects the property and tells you in writing/e-mail that you can do so.
  • Take an inventory of the damaged contents.  If you have an inventory from before the fire, use it to help identify items that were damaged/destroyed. 
  • When the insurer inspects the damage, do a complete walkthrough of your property and point out any issues or concerns you have.
  • When beginning the repair process, get multiple repair estimates from licensed contractors (look up records on the Arizona Registrar of Contractors “Contractor Search” page at https://roc.az.gov/contractor-search) with good reputations (look up records on the Better Business Bureau website at https://www.bbb.org).
  • Don’t delay.  Insurance policies generally have restrictions on how long after a fire you can file claims.

Persons with disabilities may request materials in an alternative format by contacting our Americans with Disabilities Act Coordinator at (602) 364-0108. 

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