Regulators to Scrutinize Claims Process at Farmers

Citing a legal case that resulted in a $58-million bad-faith judgment against a Farmers Insurance Group unit, state Insurance Commissioner John Garamendi on Monday announced a special regulatory examination of Farmers.

In the “market-conduct examination,” insurance examiners will visit Farmers offices and look through files to determine how certain types of claims are handled.

A department spokesman said the examination will be limited to cases where Farmers denied customers’ large liability claims--cases similar to that involving Surgin Surgical Instrumentation Inc. of Placentia, which an Orange County Superior Court judge last month awarded damages of $58 million.

The department is trying to determine whether a pattern exists of Farmers illegally denying liability claims.

“If this abuse is widespread . . . we may have the authority to revoke their license,” Garamendi said.

Judge C. Robert Jameson cited Truck Insurance Exchange, a Farmers subsidiary, for failing to provide Surgin with a legal defense in a patent fraud case.

Farmers, which says it will appeal the judgment as soon as Jameson issues his order, contends it had no duty to protect Surgin because patent infringement is not covered by the commercial general liability policy that Truck sold to Surgin.

Farmers said in a statement that “out of respect for due process and for the constitutional separation of powers,” the examination should be put off until the appeal is decided.