Property Insurance Coverage Law Blog

The Art of Adjusting First Party Property Losses - Part 3, Inspections and Re-inspections

Javier Delgado — Tue, 09 Feb 2010 17:02:14 -0500

(Note: This Guest Blog is by Javier Delgado, an attorney with Merlin Law Group in the Houston, Texas, office. This is the eighth in a series he and fellow attorney Tina Nicholson will be writing on Texas property insurance issues).

The ideal inspection process would have both the carrier’s adjuster and the public adjuster respect each others responsibilities and agree to jointly inspect and evaluate the damages resulting in a fair and equitable estimate documenting the damages resulting from a covered peril under the subject insurance policy, but many times this is not the case.

The inspection and re-inspection process by the insurance carrier serves many purposes. The initial inspection serves to provide the carrier with information about the damage immediately after the loss, and the re-inspection serves to educate the carrier about what repairs if any have been done, what materials were used, how much money was spent in the repairs, as a means for the carrier to bolster their case for an upcoming negotiation, and finally, it serves as a means to wear down and further frustrate the insured. Sometimes, cases can be settled shortly after a re-inspection, many times this is not the case.

It is imperative that the public adjuster control the inspections/re-inspections at all times, particularly when it involves a multi-family condominium or apartment complex. A great deal of preparation is involved in controlling the inspection process and it all begins with a written understanding between the public adjuster and the carrier’s adjuster as to what exactly will take place during the inspection process, when the inspection process will begin, who will be present, and how long the process is expected to take. Answering the question of how long it will take is sometimes impossible, but there should be a minimum timeline. Answering some of the questions:

What - We have agreed to inspect the interior and exterior of buildings A and B, each building has approximately 55 condominium units each. The inspections will consist of only visual observation and photographs of each unit. There will not be interviews or questions of unit owners or insured’s employees, all questions will be answered by me during the inspection or after the inspection.
When- The inspections will begin at 9:00 AM on Tuesday February 16, 2010, we will meet in the parking lot in front of the club house located at 1 Clear Pool Lane, Miami, FL.
Who - You have agreed to provide me the names and title of all individuals who will be attending the inspections with you including the name of the company that employs each individual no later than 3 days prior to February 16, 2010.
How long - We expect the inspections will take 3 days, but will re-evaluate whether this process can be accomplished sooner after the first day of inspections.

Before the meeting takes place, the property manager or other representative at the property must give notice to the unit owners, in many cases, the notice must be provided at least ten days in advance. The maintenance person should be easily accessible during the inspections to ensure that there is access to the roofs and other portions of the buildings usually locked to avoid accidents or vandalism. The maintenance person should not have direct contact with the carrier’s adjusters if the insured is being represented by a public adjuster or attorney, many times there is a lack of communication between the maintenance person and the carrier’s adjuster and all of sudden the insurance carrier begins to analyze the damages relying on the misinformation provided.

The public adjuster should have plenty of people present to ensure that if the carrier’s adjuster wants to divide the group into two or three separate groups, this can be accomplished while still having the ability to control the inspection process. When you first meet with the carrier’s adjuster and his group of people, make sure that you get business cards from everyone. If the individual does not have a business card, ask that person the same information that you would expect would be on his business card.

You must set the ground rules, one team or two teams, who is in charge on their side for each team, no one goes inside the unit until you have had an opportunity to go inside first and speak with unit owner confirming they can come in, re-affirm no questions or comments to the unit owners, it is expected that all involved will be polite and respectful of unit owners and their property. There have been too many times when ego’s clash during inspections and the process fails, this should be avoided at all costs, the carrier has a right to the inspections, and you do not always have to agree to scope or pricing. If the case is one that should not be resolved in appraisal, then there should not be any attempt to agree on the scope during the inspections. An agreement on scope during inspections will allow the carrier to argue the case belongs in appraisal because the scope was agreed to during the inspections and the only thing left to argue about is value. If the case is one that should be resolved in appraisal then getting an agreement on scope works in your favor.

If the carrier’s adjuster seems to be conducting an inspection that exceeds the agreement in writing, then a judgment call must be made on whether to allow for such inspection or testing because the carrier may claim lack of cooperation. However, because you have documented ahead of time exactly what the carrier will do and not do during the inspection process, you will have the documentation to avoid this problem and refute their defense.

When the Saints Go Marching In -- Finally!!

Chip Merlin — Tue, 09 Feb 2010 06:12:06 -0500

September 1970 was a time of big personal change for me. We were living outside Washington, D.C. and my father had just received orders to the National Data Buoy Project at NASA’s Mississippi Test Facility, now known as the Stennis Space Center. My mother, who grew up in Philadelphia, Pennsylvania, was in tears wondering how her children were ever going to get an education in Hancock County, Mississippi. Three years later, she was crying as we left for Southern California. Rather than follow my father right away, we stayed an extra year, using an excuse that my father would be gone for nine months on a Coast Guard icebreaker. The best education and lessons I have ever had were from brothers of the Sacred Heart at Saint Stanislaus during seventh and eighth grades. Drew Brees had it right when he spoke of how much the New Orleans Saints football team means to New Orleans and the Mississippi Gulf Coast Region.

According to the Pro Football Hall of Fame, the name “Saints” was chosen by popular vote in a fan contest staged by the New Orleans States-Item. The franchise was awarded on All Saints Day, November 1, 1966. New Orleans is famous worldwide as the city of jazz and the famous marching song, "When the Saints Go Marching In.”

Except for a small number, almost all of our Hurricane Katrina insurance coverage cases in New Orleans and the Mississippi Gulf Coast are over. I was honored to use whatever talents and knowledge I have in this area of insurance law to represent some of the finest and nicest folks you would ever want to have as clients. I did it with some help from lifelong friends I first met when living in the area as a teenager. My parents received “thank yous” from friends of theirs who I was able to help.

The State Farm cases we litigated and resolved provided a significant milestone to our law firm’s success. The Port of New Orleans litigation was certainly the most challenging and fun case packed into ten months that any policyholder’s coverage counsel could hope. Saying “thank you” is important and I am looking forward to this Thursday evening’s dinner at former client, Pearl River Community College. Indeed, we hosted a thank you Thanksgiving Luncheon just for the rank and file employees at the Port of New Orleans. This kind of leads me to the point of this post.

It has been my experience that attorneys sometimes get far too much credit for winning cases. Often, the facts that make or break an insurance coverage matter are with the people you represent or the folks that are working for the organization you represent. Far too often, arrogant attorneys simply need to ask for some help from their own clients and treat them like equals rather than jump to conclusions and spend far too much money on experts that know less about the loss than the people who lived through it.

For example, employees in the maintenance department of the Port of New Orleans had never talked in depth with anybody before we were retained a couple years after Hurricane Katrina. A bright paralegal retained by my co-counsel suggested donuts and coffee in the morning and an offer of after hours beer for the guys who have to spend their own time away from their already busy jobs just to meet with the attorneys. This helped set a tone for discussion and they provided me all the help I needed to get the case resolved quickly.

I recall spending a great deal of time with one maintenance worker who had a tattoo of the Louisiana Tigers on one arm and the Dallas Cowboys on the other. I asked him why he did not have a tattoo for the Saints, and he told me that they had caused him too much heartbreak over his life. Maybe he has changed his mind.

In a post, The Port of New Orleans Employees, I noted these lessons and thoughts:

“Life's lessons can be very beneficial if you actually remember them and change your behavior according to what you have learned. I was lucky to watch my father as he lead various tours of duty in the Coast Guard. Both the ordinary seaman and the Chiefs that ran the ships seemed to respect him. He always treated everybody as important because they were. He always thanked them, and then showed his appreciation.

We had a settlement that had the Board of the Port Authority of New Orleans doing "high-fives" largely because the rank and file Port employees helped the legal team. As is customary in many of the cases we litigate, I cannot comment about the amount of the settlement even though this one is of public record. What I can say is that we held a very public "thank you" luncheon for the Port employees. Without their help, we would not have been as successful…

After the Port retained us in November 2007, it became obvious that those responsible for putting their claim together had not adequately discussed it with the employees out on the wharves, docks, in the maintenance departments, and those outside the main office building. …

A number of Port employees left their families before Katrina struck New Orleans because they had to work during the catastrophe. As a result, a number of them knew their homes had been destroyed and did not know for several weeks where their spouses and children went. A few broke down when they recounted their hardship and trauma. Many still have not rebuilt their homes. The Port Police Department helped us track down eye witnesses to the destruction. They told us of the numerous rescue efforts in the Lower Ninth Ward and how much flood damage had occurred along the Industrial Canal. They found video and photographs taken during and immediately after the storm, helping us prove our theories of loss and damage.

I often say that I am a "Johnny come lately" to the cases I get retained upon. We come after the fact and then pry into the business and past of our clients. We were a major disruption to the Port because we looked into every employee's memory about what the Port was doing before and then after Katrina. We went through six million of their documents, invaded their computers, and took time away from their pressing jobs to get our own jobs done. We completely dislodged and stole office space from the marketing department. I am certain we were silently cursed.

The employees' help and their understanding of what we were trying to do for them and the Port paid huge dividends in this case. We owe a great deal of thanks to the "rank and file…”

I could not be happier that the New Orleans Saints are the World Champions. Their fans, who have been through so much, deserve it more than most will ever realize.

So, as part of the celebration, I would suggest everyone join in with the song from the Great Louis Armstrong:

Sink Appeals Public Adjuster Suit: Delay Possible For Miami-Dade County Public Adjuster Lawsuit

Chip Merlin — Mon, 08 Feb 2010 15:49:46 -0500

There are two active lawsuits with very good attorneys representing public adjusters who are challenging the 48 hour solicitation ban and the fee caps. The first one was filed in Miami-Dade County, as I reported in Florida Public Adjusters File Lawsuit to Overturn 48 Hour Solicitation Ban and Fee Caps. The second lawsuit challenging only the solicitation ban was filed in Leon County, as I reported in Second Public Adjuster Constitutional Solicitation Ban Challenge Filed. The later filed lawsuit seems to be moving along quicker; the first lawsuit has been delayed by a fight about venue.

In Public Adjuster Lawsuit Challenging State's Cap on Fees and Solicitation Ban Survives Venue Change, I noted that the trial court in Dade County ruled that the matter could proceed there. Unfortunately for those public adjusters, Alex Sink appealed that ruling. By the time those appellate issues are finally resolved, the second lawsuit may be over.

These are important cases raising important constitutional questions. We will keep abreast of the developments in both.

Oh My Cheese! What Can Dairy Farmers Teach Us About Contingent Business Coverage? -- Understanding Business Interruption Claims, Part 7

Michelle Claverol — Sun, 07 Feb 2010 17:58:06 -0500

(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the seventh part in a series she is writing on business interruption claims).

The Saputo Cheese USA Plant in Hinesburg, Vermont, was a successful mozzarella cheese enterprise until a catastrophic fire destroyed its facility. According to claimsjournal.com, Saputo Cheese was receiving about a million pounds of milk a day from 88 dairy farmers in Vermont and New York, which totaled 10-12 percent of Vermont’s entire milk production. Each of the 88 dairy farmers, on average, supplied Saputo Cheese with more than 11,300 pounds of milk every day. Saputo Cheese announced its closure about a month after the fire; the 88 dairy farmers were frantic to say the least. Unless alternate buyers could be found, the dairy farmers would lose a major source of income for months. The dairy farmers were at a loss.

Every day, businesses develop and thrive on symbiotic relationships, where the entities rely on the continued operational viability of each other (or even exclusively beneficial relationships). Few businesses, however, consider the risk and exposure of losing that relationship due to an unexpected calamity. Businesses that are dependent on a non-related entity’s operations should talk to their agents about attaching “dependent business interruption” endorsements to avoid suffering the dairy famers’ fate.

Contingent business coverage is a type of business interruption coverage will protect the “dependent business” from the external business income exposure. There are four (4) types of dependent business ISO endorsements: 1) contributing premises, such as the businesses that deliver materials to the insured, 2) recipient premises, such as the businesses that receive the insured’s products, 3) manufacturing premises (businesses that make products for delivery to the insured and 4) leader premises, such as businesses that bring the customers to the insured. In lay terms, 1) suppliers, 2) buyers, 3) providers, and 4) drivers.

Depending on the relationship the dairy famers had with Saputo Cheese, the dairy farmers could have purchased coverage to pay for the loss of income resulting from Saputo Cheese’s suspension of operation until its closure, since most endorsements provide coverage until the dependent business resumes operations or alternate sources are found.

Notifying the Police in the Case of a Theft Loss

Corey Harris — Sat, 06 Feb 2010 06:15:10 -0500

(Note: This Guest Blog is by Corey Harris, an attorney with Merlin Law Group in the Tampa, Florida, office. This is the seventh part in a series he is writing on post-loss duties).

Most policies have specific conditions that apply to theft losses. The most common is the duty of a policyholder to notify the police, as well as the insurer, of the theft. While this may seem like common sense, there may be a variety of instances where the policyholder fails to notify the police, and this could cause problems in getting the claim paid.

A small theft claim, for instance, may not seem like something that must be reported to the police, however, it is always better to be safe than sorry. Sure, many times the items stolen may be worth less than the policy deductible, but what happens if more items come up missing later? Often, policyholders do not notice that some items are missing until long after a burglary or theft, and failing to notify the police could create issues with the insurance company covering the loss.

Policyholders should also make sure to understand that notifying the police of a loss does not relieve them of their duty to report the loss to the insurer. As discussed in previous posts, if the insurer is not given notice of the loss, coverage could be denied.

The best practice when dealing with a potential theft loss is to immediately notify the police and insurance company. Most insurers closely evaluate theft claims many with an eye towards fraud. If notice is not given to the police or is unreasonably late, the insurer will likely take a more skeptical view. This can cause substantial delays, even if coverage is ultimately not denied.

With that said, this will conclude my posts on Notice of Loss. I have received some great questions and comments both on this blog and by email. I really appreciate those of you who take time to read my posts. While I will be moving on to other post-loss duties, if anyone has any questions about notice or any other topic I cover, please do not hesitate to contact me.

Sewer Back Up Losses: A Stinking Coverage Issue for Policyholders

Chip Merlin — Fri, 05 Feb 2010 12:42:58 -0500

Every now and then, bizarre losses are reported in the news that start me wondering whether there is any insurance coverage for the poor souls suffering through a disaster. An article, "What One Homeowner Learned from 15,000 Gallons of Raw Sewage" points out just how illusory the hope of "full coverage" is under the modern all risk insurance policy.

The story delves right into the insurance coverage problem:

Joey Roche never set out to be a leading voice in educating homeowners on protecting their investment.

But in the more than two years since 15,000 gallons of raw sewage spewed into his newly purchased house in Oregon City, he's ended up instructing more than a few people on how to steer clear of his own fate.

"Looking back, I, of all people, should have known better," Roche said. "I'm a licensed general contractor. So I figure if this could happen to me, it could happen to anyone."

He's far from alone in assuming that the insurance policy he bought to protect his vintage 1940 house in the city's historic Canemah neighborhood would cover any contingency.

In fact, it covered almost nothing. And even the $10,000 he collected from State Farm Insurance to pay to clean up the muck came through a previous purchase of a separate endorsement -- an addition to his policy -- that if not for his contractor's background he might never have thought to ask about.
...

But whether it's a freak sewage backup, flooding, landslide or earthquake, a majority of homeowners probably assume the insurance policy they've taken out to cover such contingencies will pay off in time of need, Roche and others say.

Often, that's simply not the case.

"I get calls every single day from people who are outraged to find out that they simply aren't covered for things they thought they were," said Ron Fredrickson, who manages the Oregon Insurance Division's consumer advocacy unit. "In the end, unfortunately, there's usually not much I can do for them."

I think that State Farm agents must get some of the best "how to be likeable" training in the insurance business. I say this because as I pointed out in Is the State Farm Policy Really Worth Anything? the policy they sell does not really offer broad coverage and after all those commercials suggesting that State Farm will be there for you after the disaster, it simply is not true. Joey Roche had State Farm coverage. He got paid a fraction of his loss, but he loves his agent who sold him the coverage.

"Roche praised his State Farm agent for making good on everything the policy provided.

"Unfortunately and to our ultimate chagrin," he added, "it just didn't cover very much."

To be Fair And Balanced, standard homeowners forms, like most property forms in current use, exclude all loss "caused directly or indirectly by any of the following . . . water which backs up through sewers or drains or which overflows from a sump." Newer homeowners forms expand the exclusion to include "water-borne material which backs up through sewers and drains." It also adds "which overflows or is discharged." And, "a sump pump or related equipment" now accompanies a sump. The bottom line: most insurance companies only cover this occurrence under endorsements that offer little extra coverage.

In Rodin v. State Farm Fire & Casualty Co., 844 S.W.2d 537 (Mo. App. 1993) the insureds argued that damage done to their dwelling was caused by sewage, not by water. Tree roots in the outside sewer system caused sewage to back up into the homes of the Rodins and their neighbors. Rodin described the eight inches of effluent that entered his basement as an odorous, viscous, black liquid with solid matter floating in it. He added that the liquid definitely was not water. However, the court stated that the plaintiffs’ argument that the policy excluded only water damage overlooked the totality of the exclusion. The Court noted that the loss that would not have occurred in the absence of the water backing up through sewers or drains, regardless of other causes acting "concurrently . . . with the excluded event to produce the loss." Therefore, whether the loss was caused by water or pollutants contained in the sewage acting concurrently with water, it was excluded under State Farm's policy.

What a stinking mess and unexpected uninsured event from the policyholder's standpoint.

The Hospitality Industry Has Significant Insurance Coverage Issues: Lessons Taught at the 2010 Hospitality Law Conference

Chip Merlin — Fri, 05 Feb 2010 07:58:16 -0500

I represented a Houston based hotel management company last spring regarding Hurricane Ike insurance claim disputes with eleven hotels they owned or managed in Texas. Some cases simply go right, and this one settled after two months. My client’s owners went out of their way to call to my attention that managers in the hospitality and real estate management business needed to be taught about the insurance claim game. The next thing I knew, they were putting a phone to my ear and I was talking to Stephen Barth of HospitalityLawyer.com.

Barth is a dynamo and runs the Hospitality Law Conference. He convinced me that I needed to participate, become somewhat of a legal sponsor and speak at the 2010 Conference in Houston. It is a wonderful conference. I highly recommend that general counsel, risk managers, loss prevention managers, franchisees, developers and outside counsel of hotels, resorts, condo hotels, timeshare rentals, restaurants, bars and other businesses that provide a place to eat or stay attend this very specialized legal conference.

Many plan details of their travel agenda and logistics far in advance. Not me. I was surprised when I found out yesterday afternoon that this conference was at the Omni Hotel next to our firm’s Houston office. The professional and friendly Omni Hotel staff has come to know me over the past year, and they were laughing that I was speaking at “their” type of conference.

The insurance considerations that pertain to the hospitality services industry are extraordinarily unique and complicated. The risks and operations of these businesses require study by professionals to appreciate how the insurance should be placed and property insurance claims handled. I can appreciate that many of the lawyers attending this conference devote their entire practice to the myriad of significant legal issues facing the operators and owners of these businesses. I can also appreciate the need for insurance agents and brokers who specialize in only this industry. Without such specialization, insurance brokers and agents would be much more likely to sell insurance coverage with gaps, leaving hospitality policyholders uninsured or underinsured.

My presentation was the “Insurance Litigation Survey.” I presented trends and lessons from recent hospitality property insurance cases. My co-panelist, David Shaneyfelt, taught about third party liability coverage. Just as last week at the Windstorm Conference, we presented practical points from cases rather than explaining legal reasoning. While I could cite from the eight case examples, this post will be a lot more important to most if I provide an outline of the points:

I. Insurance Disputes can be voided if Proper Coverage is Purchased.

A. Get an insurance agent or broker who thoroughly understands the hospitality industry. Most owners are not aware of all the risks facing them and needed coverages to properly insure their business. Most have little knowledge of or appreciation for the impact of exclusions and limitations contained in policies.
B. Develop and demand that the agent thoroughly review your particular business and push your agent to do so with letters and agreements setting forth exactly the type of relationship and service expected, the broadness of coverage desired, and the thoroughness of value investigation needed to be fully and safely insured.
C. Most property underinsured and uninsured situations occur because of:

1. Improper values for replacement/reconstruction.
2. Wrong ownership/title/ipterest on the Policy
3. Not covering all the property—some do not appreciate that many coverage forms exclude certain types of property or limit recovery. Endorsements or separate stand alone policies are often needed to have all the insurable property actually insured.
4. Inclusive coverage of all perils. For example, flood and earthquake are often not covered under a standard form, but may be insured through a difference in conditions policy. Economic loss arising from criminal or fraudulent conduct may have to be insured under various Crime Forms.

II. Trends of Concern Where Coverage and Claims are at Issue:

A. Occupancy and Vacancy clauses must be met or losses otherwise covered may be excluded. See my post FC&S Warns Agents and Policyholders to Watch the Vacancy Exclusionary Clause.
B. Post loss duties have time limits with harsh penalties in some states if not timely met.

1. Provide timely notification of a loss.
2. Proofs of loss time frames should be met or extended in writing.
3. Hire experts to segregate covered amounts from uncovered perils.
4. With any significant loss, consider whether the causation sequence could lead to a possible excluded loss. Hire coverage counsel if the insurer starts investigating anything other than value. Concurrent causation clause interpretations in some states provide insurers an incentive to retain engineers and experts to opine a cause or result of the loss is excluded.

III. Insurers are Starting to Place “Dispute” Clauses into Contracts. Check for:

A. Choice of law agreements.
B. Choice of forum for litigation.
C. Arbitration agreements.
Many of these are invalid under state insurance codes. However, many state insurance code protections do not apply to surplus lines policies. These types of provisions are becoming very common in excess or layered policy formats. Demand that these not exist and list that request to the agent or broker. The law where the property exists is usually the best because that is typically how the property is being underwritten and expected to be adjusted when calculating premium.

IV. Claims Practice Lawsuits are increasingly brought by Commercial Policyholders Following Delay and Partial Denial

A. Insurers increasingly are taking more time and denying parts of claims—even to the largest of clients. My post Large Complex Losses Invariably Suggest that the Policyholder Hire Licensed Professionals shows that even the business insurance media have surveyed support for this claims trend.
B. Document every person, activity, verbal promise, and statement made by the insurance company representative and consultants.
C. Obtain independent valuations promptly.
D. Obtain lines of credit to repair and operate because insurers may be slow to pay partial losses or will hold those to leverage or bargain for agreements lowering benefits otherwise owed.
E. Claims practice actions (wrongly dubbed “bad faith” lawsuits long ago) can often be brought to provide compensation for the various wrongful conduct by claims departments that refuse to do their job in good faith. Extracontractual losses and expenses are often incurred by businesses when the insurance company adjustment performance is delayed and otherwise wrongful.

The only economic incentive most insurers have today to provide a sufficient number of trained and motivated adjusters that will promptly investigate the loss and evaluate the damage so that the policyholder will be promptly paid the full amount of the benefits the insurance product was designed to provide is to have such “bad faith” claims brought and hold insurance companies accountable when they fail to properly perform.

Do not support Chamber of Commerce efforts to repeal laws that provide for such lawsuits because they hurt businesses and support notions that people should not be responsible for the harm they cause when they break rules they promise to perform. What kind of society would we have if rules could be broken and nobody accepted personal responsibility? Insurance industry interests in the Chamber of Commerce are behind some of these recent lobbying efforts, but such efforts are bad for corporate and business policyholders.

The last point I made was highlighted by reported hospitality case decisions. It was supported by the panel presentation that followed me. Further, I had a friend and very able colleague in the audience, Gary Thompson, who represented a large hotel chain at trial last year. The hotel chain won a $24 million verdict after litigating a partially denied claim. This major hotel chain actually did the reconstruction at its own expense and the insurer still would not honor its obligation. There are not many businesses that can go out and finance $24 million worth of construction in today’s business climate. Imagine how much leverage an insurer has to force a wrongfully compromised settlement upon a business when that business was only requesting the benefit it purchased: full and prompt payment for a covered loss. Knowing of that matter, I used his real life situation to demonstrate what is going on in the field during many claims adjustments.

I will write a separate post about the following panel lead by the excellent Arthur J. Gallagher hospitality insurance broker, Wes Brandt. If any insurance adjuster thinks that my rhetoric is pointed about the current condition of commercial claims practices, they should have been in the audience when Brandt and his panel delved into this topic.

A Man of His Word: Unlike Other Flip Flop Politicians on Insurance Rates, Crist Sticks to His Promise

Chip Merlin — Thu, 04 Feb 2010 12:06:09 -0500

The Florida legislator is full of "flip flop" legislators that are reversing laws made in 2005 and 2006 which supported lower insurance rates and protected insurance consumers from unscrupulous insurers. Governor Charlie Crist ran on a platform of helping Floridians keep insurance rates down and he is sticking to that promise even as other politicians who once voted for such laws are now firmly supporting the opposite measures. These "flip flop" politicians are filing laws that would allow rates to go as high as the insurance industry can make them and laws that take benefits away from consumers following disaster. Crist seems to be standing tall against the insurance industry and for the people, unlike other politicians who are currently getting their responses and "speaking points" from insurance lobbyists.

In a National Underwriter article, "Gov. Crist Says No To Proposed Insurance Deregulation Bill," Crist was on record as saying he does not support the current rate deregulation bill. Consumer groups agree with the Governor:

"The consumer groups reacted favorably to the news. Consumer Federation of America’s (CFA) director of insurance, Bob Hunter, said in a statement, “It is outrageous to claim that this bill falsely promises ‘consumer choice,’ when its purpose is to let insurance companies charge whatever high rate they want with no consumer protections in a market with virtually no competition. The bill is an insurance industry wolf wrapped in consumer-choice-like lamb clothing.”

Birny Birnbaum, executive director for the Center of Economic Justice (CEJ), told NU Online that the bill is similar to legislation that passed the legislature last year but was vetoed by Gov. Crist.

That bill would have allowed homeowners insurers to charge rates not approved by the OIR if they met certain surplus requirements.

Mr. Birnbaum called this year’s bill a “little more far-reaching,” as the capital level limits in last year’s bill do not apply.

“It’s unclear what you’re trying to accomplish with a deregulation bill,” Mr. Birnbaum said.

He noted that the Florida market has shown that it is not competitive, and so competition and market forces will not lead to favorable prices for consumers. Regulatory oversight, he stated, is the only thing protecting consumers from excessive rates."

Birny Birnbaum and Bob Hunter are just about the smartest people I know who are not employed by the insurance industry when it comes to understanding insurance rates. Florida legislators who want to do "the right thing" for Florida and their constituents should listen to them. Governor Crist and Senator Fasano have listened to these scholars and read what they have written about this proposed legislation and that is why their views make a lot more sense. Other legislators are adopting the insurance lobby’s attempts to "spin" this craziness into law and policy.

Sinkhole Claim Denial Blaming Organics or Clay? Dig Deeper . . .

Kristi Demers-Crowell — Wed, 03 Feb 2010 13:45:39 -0500

(Note: this Guest Blog is by Kristin Demers-Crowell, an attorney with Merlin Law Group in the Tampa, Florida, office. This is a series that she and fellow attorneys Donna DeVaney and Amy Boggs will be writing on sinkhole issues).

When I took Geology to satisfy my science requirement in college I never dreamed a future legal career would lead me to spend so much time on the subject. Anyone with the misfortune of having a sinkhole claim soon learns that “Rocks for Jocks” is not as straightforward as that moniker suggests.

While insurers typically cover sinkhole losses, other earth movement is excluded. Often, geotechnical engineering firms hired by insurers blame damage on decaying buried organics or expansive clays. These claims are worth a second look.

Two experts widely used by insurance companies to investigate sinkhole claims, Anthony Randazzo of GeoHazards, Inc., and Sam Upchurch of SDII Global Corporation, say in their treatise, The Geology of Florida: The Environmental Geology of Florida:

Shrinking/swelling clays and organic materials are commonly associated with alluvial sinkholes and may be concentrated within sinkholes.

So, if you have been denied coverage for cracking damage, dig deeper and get a second opinion. Those organics or clays could be associated with sinkhole activity.

Sinkhole Coverage Analysis Every Wednesday and Dimechimes is a Good Blog for Adjusters to Follow

Chip Merlin — Wed, 03 Feb 2010 09:02:48 -0500

Sinkhole loss and coverage issues are commonplace in areas of karst activity. We are plagued with it in many areas of Florida. Today we are beginning a series of sinkhole posts detailing many complex issues. The sinkhole posts will be released each Wednesday for the next several weeks. Kristin Demers-Crowell, Amy Boggs, and Donna DeVaney will author these posts starting later today.

For insurance adjusters, I recommend that you also follow Dimechimes. It has training information, news, and career information for those in the company and independent adjusting business. For example, in one of yesterday's posts, Texas full of claims news! TWIA Adjuster 2010 classes, TX Appraisal update, TWIA Class Action lawsuit from January 2010, there was useful information about the Texas adjustment scene. The comments about me were "dead on."

FC&S Warns Agents and Policyholders to Watch the Vacancy Exclusionary Clause

Chip Merlin — Tue, 02 Feb 2010 12:27:13 -0500

Vacancy problems are becoming widespread as the economy and real estate market deteriorate. The FC&S Bulletin recently published an article, Active Occupancy: Elucidating the Vacancy Exclusion, which ran in the January edition of Claims Magazine. The article discussed this troubling clause which is becoming more commonplace. I suggest that all claims and coverage professionals subscribe to these publications because they usually have relevant discussions of claims issues such as this exclusionary clause.

The article correctly noted the generally accepted difference between a structure that is "vacant" and one that is "unoccupied."

“Vacant” or “Unoccupied”?

Courts have long defined “vacant” in insurance policies as meaning empty of inanimate objects — as opposed to “unoccupied,” which they have defined as being void of human habitation. For example, in Myers v. Merrimack Mut. Fire Ins. Co., 788 F.2d 468 (7th Cir. 1986), an apartment building was deemed “vacant” and not merely “unoccupied” in regard to a fire loss. The court found that the loss was excluded where apartments in a building, except for some stoves and refrigerators, were entirely empty for approximately 18 months, lacking both tenants and inanimate objects. (emphasis added)

A very interesting discussion in the article concerned seasonal businesses:

One area that conjures up questions about the meaning of “vacancy” stems from insureds with seasonal businesses. For instance, insureds with motels, restaurants, and shops along the Maine coastline may close their businesses during the off season. Contents, such as equipment, furniture, and other personal property can stay, but all perishables are removed. Properties are winterized by draining pipes and shutting off water and heat.

Carriers know these properties are seasonal and accept the risks. Therefore, in the event of a loss, would these property types be deemed vacant by the policy language on a commercial property policy?

The Insurance Services Office (ISO) CP 00 10, Building and Personal Property Coverage Form states that a building is vacant unless 31 percent of its square footage is used by the building owner to conduct customary operations. As the customary operations of seasonal businesses are to rent rooms and service customers, and those customary operations are not being performed in the months they are closed, the buildings would meet the definition of “vacant” set out in the policy, and those provisions would apply.

I had never thought about that coverage issue as it applies to seasonal businesses. I find unusual but very important topics are routinely discussed in the FC&S and that is why I find the product so important to adjusters and coverage counsel.

Recent Court Decision in Texas Regarding Appraisal

Tina Nicholson — Tue, 02 Feb 2010 07:45:40 -0500

(Note: This Guest Blog is by Tina Nicholson, an attorney with Merlin Law Group in the Houston, Texas, office. This is the seventh in a series she and fellow attorney Javier Delgado will be writing on Texas property insurance issues).

Since the Texas Supreme Court rendered its opinion in last summer’s landmark decision regarding insurance appraisals --- State Farm Lloyds v. Johnson --- the appraisal process has been in the legal spotlight. Last week, the United States District Court for the Southern District of Texas (Houston Division), interpreting Texas law, issued an opinion which outlined the factors that should be considered when deciding whether an insurer has waived its right to demand appraisal. In the case of Sanchez v. Property and Casualty Insurance Company of Hartford, 2010 U.S.Dist. LEXIS 6295 (Jan.27, 2010), the homeowner opposed the insurer’s invocation of the appraisal clause, asserting that the insurer had waived its right to appraisal.

The federal court cited an eighty-year-old Texas case, American Century Ins. Co. v. Terry, 26 S.W.2d 162 (Tex. 1930), regarding the factors to be considered. According to Sanchez and Terry, waiver of the right to appraise a loss can be established by the conduct of an insurer, including the following acts:

(a) parol waiver;
(b) refusal to appraise;
(c) denial of liability;
(d) failure to demand appraisal;
(e) actions inconsistent with intention to appraise;
(f) appointment of a prejudiced appraiser; and
(g) improper conduct during appraisement.

In Sanchez, the court analyzed whether the insurer had denied liability or had failed to demand appraisal in a timely manner. The court determined that the insurer had not unconditionally denied liability because it had accepted coverage for a very small amount of damage. Although the amount of the accepted damage was less than the deductible and did not result in any payment, the court ruled that the acceptance of any amount of damage constituted acceptance of liability. Consequently, the court decided that the insurer had not denied liability of the claim so as to constitute waiver of appraisal.

The court then examined whether the insurer had failed to timely demand appraisal. The court noted the rule that where the policy does not set a deadline by which appraisal must be invoked, the demand for appraisal must be made within a reasonable amount of time. Of course, the amount of time that would be “reasonable” would vary with the facts of each claim.

The homeowner, Sanchez, reported his Hurricane Ike claim in October 2008. On October 31, 2008, the insurer sent Sanchez a letter stating that, in the insurer’s opinion, the damage did not exceed the deductible. On November 1, 2008, Sanchez telephoned the adjuster and informed him that he, Sanchez, disputed the insurer’s evaluation of the loss. Approximately one year later, after Sanchez had filed a lawsuit against it, the insurer demanded appraisal. The court determined that the insurer had waived its right to appraisal by failing to timely demand it.

The insurer had protested that the delay was caused by its attempts to adjust and settle Sanchez’s claim. An insurer does not waive its right to demand appraisal while it is actively attempting to adjust the claim. The court noted in this case, however, that the insurer presented no evidence that it was actively attempting to adjust Sanchez’s claim during the six-month period between the November 1, 2008 telephone conversation and the filing of Sanchez’s lawsuit. Moreover, the insurer did not request appraisal until more than four months after Sanchez filed his lawsuit. The court ruled that the insurer had waived its right to appraisal by its failure to demand it in a timely manner.

Due to the strong public policy favoring insurance appraisals in Texas, as established in State Farm Lloyds v. Johnson, we are sure to see a continuing evolution of the case law concerning insurance appraisal. The insurance professional should read Sanchez carefully for guidance on any possible waiver of the right to demand appraisal.

Should Insurance Companies Have Claims Manuals Explaining Procedures and Standards for Adjustment?

Chip Merlin — Mon, 01 Feb 2010 11:23:59 -0500

This question was the topic of an article in Claims Magazine, Putting Procedures in Writing: Is a Claim Manual an Asset or a Liability? From a policyholder's advocate viewpoint, I think an insurer would be crazy not to have a claims manual or claims procedure guidelines. Most state unfair claims trade practice laws generally require insurers to adopt and implement those standards and procedures. Still, I can appreciate an insurer's claims management wondering whether such procedures, if violated or followed, could give rise to liability. I found the article to be thought provoking and worth consideration by many of the readers of this blog who represent insurer interests.

I agree with this observation in the article:

In terms of bad-faith worries and claim manuals, it is often better to explain one miscue than to tell a judge or jury that the insurer has nothing in writing for claim personnel to use as their guide, and that there are no minimum performance requirements.

At its best, a superb claim manual is current; addresses known issues; and offers guidance for lesser-known issues. It can be an excellent education tool for adjusters and can represent a company’s best effort to comply with legal and ethical standards. The shelf life of a claim manual deserves recurring attention, though. Competent legal counsel should review and finalize the document, assuring consistency with local laws.

Some tips regarding these manuals were also addressed:

Review, update, and "vet" the claim manual regularly. It should not be a static document or a "credenza decoration" that gathers dust. Drafting a claim manual is a job that is never "done" or completely finished. Company management should update it to reflect current practices and standards.
Make the manual available in an electronic format, on-line to adjusters. Corporate intranets are effective for this. Further, electronic versions lend themselves to easy updating and revision. Adjusters are more likely to click an on-screen tab to access a claim manual than to walk down the hall and physically pull a book off of a shelf.
In any document preface, include verbiage stating that the claim manual is simply a guide, rather than a book of rules to be followed mechanically or blindly, no matter what.
Incorporate ongoing training and "refresher" courses with the claim staff periodically using the manual as a resource. A claim manual should be an ongoing cornerstone of continual staff training, not a one-time project that is checked off a list and then forgotten.
Have outside legal counsel visit the claim department periodically for training sessions, round-table discussions, and Q&A exchanges. Themes here can relate to points and principles contained in the manual, whether they apply to three-point contact, handling suit papers, or drafting reservation-of-rights letters. Ambitious offices could arrange for a bad-faith attorney to visit and speak to what gets insurers and claim departments in trouble. In turn, this might generate ideas about new areas to incorporate in the claim manual, or existing areas to excise.

The best insurance companies train their adjusters constantly. Adjusting concepts are taught, repeated, and reinforced. I know that my rhetoric and that from my colleagues can be very pointed regarding any individual case or when claim decisions are being determined by economic considerations detrimental to a policyholder rather than the merit of a particular loss. As a result, many routine and very good claims practices are often never mentioned by anybody from the policyholder's side. This is because it is easy to simply stereotype an opponent insurer rather than to understand, appreciate, and acknowledge meritorious and well meaning attempts at training and preparing adjusters to provide outstanding service to customers after a loss. Many of my policyholder colleagues do not appreciate that this effort exists in many claims departments because they do not take time to study claims management and adjustment.

Consumer Advocates Call "Insurance Choice" Legislation Misleading

Chip Merlin — Mon, 01 Feb 2010 06:10:34 -0500

Three consumer advocates published a letter, Property Insurance Deregulation Too Costly, which claims that currently proposed Florida legislation calling for no regulation of insurance rates is bad for Floridians "because the average consumer does not have the resources or information to determine when a rate is excessive, the opportunity for the [insurance] company to abuse consumers exists." I agree, and for many more reasons than just that.

The three who wrote the letter are Sean M. Shaw, Florida's Insurance Consumer Advocate, Brad Ashwell, democracy and consumer advocate for the Florida Public Interest Research Group, and, Bill Newton, Executive Director of the Florida Consumer Action Network (FCAN). FCAN's Blog recently posted, Insurers Record "Stellar" Profits in 2009, which noted:

According to a news report in National Underwriter, "Panelists said the relative calm of the 2009 hurricane season, as well as some reserve releases, were seen as the key reasons p&c insurers’ net income after taxes totaled $16.2 billion during the first nine months of 2009, nearly quadruple the $4.4 billion in profits earned a year earlier."

Will we see price reductions in Florida now that insurers have banked another year's profits with no hurricanes?...

Despite the good times, the insurers keep crying. We need to see through their game and call their bluff as Insurance Commissioner Kevin McCarty did with State Farm (although later negotiations are questionable.)

Now insurers are saying that deregulation will lead to lower prices. Why should anyone believe them? Their track record is not one of truthfulness. They are exempt from anti-trust laws. If they are now making "stellar" profits, where's the fire?

Call your legislators to put a stop to these games.

I agree with that. This is not a law dreamed up by consumers looking to solve an insurance rate problem. It was devised by the insurance industry to free it from regulation in order to charge whatever the market will bear. I believe that most legislators truly want to make society better with laws they propose and pass. The truth is that insurance lobbyists have done a wonderful job for their clients, providing significant political contributions to key legislators. In return, it is only reasonable to assume they are asking for those legislators to support their agenda.

Yet, this law does nothing for insurance consumers and I said so when it was first introduced in Do Florida Legislators Think We Are Stupid? Similarly, the consumer advocates noted the following:

The sponsors of this legislation mistakenly call this bill the "Consumer Choice" insurance bill. However, the only choice that consumers are given is between higher premiums (based on recent rate filing requests of anywhere for 25 percent to 50 percent) or a move to Citizens' property insurance.

However, this bill does not accomplish any improvement - instead it would significantly hurt Florida's consumers. Deregulation of our property insurance industry rates would allow insurance companies to abuse consumers through excessive rate increases and would hurt Florida financially by overburdening Citizens. We also do not see any hard evidence this bill can achieve its stated goal of attracting new companies to the state.

We call on members of the Florida Legislature to vote against the proposed deregulation bill. If this legislation should pass, we urge Gov. Crist to again veto this type of proposal. We encourage the Legislature to choose what's in the best interest of the citizens of Florida.

Interestingly, the letter indicates what legislators will say regarding their support for the law and the false premise that it proponents sponsor:

Proponents of deregulation claim that it will bring new insurers to the market. However, no insurer has said publicly that they would enter Florida if the property insurance market were deregulated.

The truth is that if rates go through the roof because of this law, there will be more insurance available because many Floridians will not be able to afford to buy as much of it, if at all. Many will just go to another state to do business or live where it is less expensive.

Understanding Business Interruption Claims, Part 6: Competent Proof

Michelle Claverol — Sun, 31 Jan 2010 16:26:51 -0500

(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the sixth part in a series she is writing on business interruption claims).

A very insightful reader posted this comment to my blog last week, Understanding Business Interruption Claims, Part 5:

I'd guess that many small businesses, such as mom and pop stores, independent contractors, sales agents etc might not be able to benefit from this ruling if they don't project forward. Many small business owners are not trained in business management, and might not be aware of techniques they can use to plan their business success.

Could the small business owner therefore have difficulty making a claim for projected earnings and expenses if they don't have a business plan?

I agree. Some mom and pop stores and small businesses may not be able to generate fancy projected earning and expense reports with pretty graphs, etc. However, as a matter of law, a carrier cannot deny a claim for a small business’ inability produce or generate these documents.

As a matter of Florida law, business interruption losses should be determined in a practical way, having regard for nature of business and methods employed in its operation, in order to give practical effect to intentions of parties and purpose of insurance as evidenced by terms, conditions, and provisions of policy. See, Travelers Indem. Co. v. Kassner, 322 So.2d 80 (Fla. 3rd DCA 1975).

The holding in Travelers does not mean that “anything goes” in business interruption claims. A speculative claim will never be covered by a policy and it is always the insured’s burden to provide competent proof of an actual monetary loss as a result of the suspensions of its operations.

In order to avoid this evidentiary pitfall, small businesses should consider retaining forensic accountants to help them review their financial statements and general business objectives and prepare reports in support of their claim.

Failure to Give Timely Notice: The Role of Prejudice in Florida

Corey Harris — Sat, 30 Jan 2010 09:08:23 -0500

(Note: This Guest Blog is by Corey Harris, an attorney with Merlin Law Group in the Tampa, Florida, office. This is the sixth part in a series he is writing on post-loss duties).

In Florida, as in other states, failure to give an insurer timely notice of a loss can provide an insurer with a potential basis for denying a valid claim. Ideal Mut. Ins. Co. v. Waldrep, 400 So.2d 782, 785 (Fla. 3d DCA 1981). This can be a harsh result for policyholders, but, as I mentioned last week, some jurisdictions such as Florida hold that the late notice must prejudice the insurer as well.

To make an initial determination that notice is late in Florida, a court generally must look at whether the policy provisions for notice have been complied with and whether the timing of the notice was reasonable under the circumstances of the case. See Waldrep at 785.

If it is determined that notice is late, it does not always provide a valid reason for not paying the claim. In Florida, late notice must prejudice the insurer in order to deny coverage. If the insurer has not been prejudiced by the late notice, the claim should be paid.

While this requirement does provide some protection for policyholders, proving that there is no prejudice is not always as easy as it seems. In Florida, late notice creates a rebuttable presumption of prejudice to the insurer. Bankers Ins. Co. v. Macias, 475 So.2d 1216 (Fla.1985). This means that from the beginning, the insurer is presumed to have been prejudiced by the late notice and the burden is on the policyholder to prove otherwise.

The main prejudice that an insured must overcome occurs when the late notice substantially affects the insurer’s ability to investigate a claim. For instance, if a policyholder does not notify the insurance company of damage to a roof, passing time may worsen the condition and the insurer can argue that any repairs deprived the insurer of an opportunity to fully investigate the cause of the loss.

These arguments by the insurer do not always succeed, however, they will take time away from the general goal of getting the claim paid and will cause headaches that may have been avoided. Having to overcome a prejudice argument can be difficult, and the consequences of not proving this argument in Florida may unnecessarily void coverage.

Large Complex Losses Invariably Suggest that the Policyholder Hire Licensed Professionals

Chip Merlin — Fri, 29 Jan 2010 09:32:05 -0500

Risk & Insurance^® recently ran an article, Paving the Potholes of Big Property Claims (updated), about large losses indicating that the claims process is anything other than perfect. Harvey Goodman, a public adjuster I mentioned in this morning's post, was quoted in that article. I first met Harvey Goodman at the Annual Convention of the National Association of Public Insurance Adjusters (NAPIA) at Carmel, California in 1985. I gave a speech about Proofs of Loss and Examinations Under Oath. Harvey is one of those people in the audience who raises his hand, often. He asks the tough questions with unique facts that are often situations he faces. Harvey is a past president of NAPIA and one of the finest public adjusters.

The article noted a growing trend of delay and nonpayment many months following a loss:

A large property insurance claim can turn into a soap opera, with dozens of high-end, big personalities trying to steer the plot line. It's not a secret to claims experts, or any risk manager who's faced one, that settling a large loss has only gotten more dramatic, and difficult, in the last couple decades....

...34 percent of physical damage claims are settled before the property is repaired or replaced and 37 percent up to six months after.

Only 17 percent of time/element claims, on the other hand, were settled before the end of the period of liability, while 68 percent took one to 12 months after the period for settlement.

The general trend, however, is that larger, complex losses are taking more time to settle...

As Harvey Goodman often does, he disagreed in part with the article's conclusion that more complex claims require various claims experts or consultants that slow the claim process. He made an important point that the survey never considered public adjusters, which is kind of interesting since they are the only legally licensed individuals who can adjust the loss for policyholders. Goodman commented:

"Take the question about what types of outside professionals were hired by the insured. Goodman took umbrage with the fact that he and his colleagues--public adjusters--weren't even an option...

Insureds bring in Goodman and his colleagues to make sure their interests are being represented as the claims resolution plot unfolds. And we're not just talking about large Fortune 1000 clients. He's dealt with $50 million companies with multimillion dollar losses and no in-house risk management.

"They are so thinly staffed they often have no resources to dedicate to the insurance claims process," he said.

Goodman disagreed with the survey's finding that insureds' expectations about the extent of their insurance coverage diminish significantly during the course of claims settlement. His experience is that expectations increase the longer a settlement takes.

The veteran adjuster also didn't agree with the key takeaway, that property insurance can never fully cover a loss. Sure, there might be disagreement over numbers. But there is coverage out there to cover other economic hits, like loss of value and potential damage to business relationships: for instance, extended business income coverage.

Most importantly, Goodman stressed, it's up to insureds to properly measure their loss. If you don't ask for the right amount, you're not going to get it."

It has been my impression that many get around state licensing requirements by calling themselves "consultants." These "consultants" are out of control in the insurance claims business. Insurance regulators and State Legal Bars need to start prosecuting so called unlicensed "loss consultants" and "claims consultants" for adjusting without a license and practicing law. Legal rules regarding licenses need to followed and those responsible for enforcing the rules need to do their jobs because the rules were made to protect the public from exactly what is going on in the claims industry.

Policyholders should hire licensed, experienced, and dedicated professionals. They should be careful about any individuals or organizations claiming to be "loss consultants." These “loss consultants” are violating the regulatory, and often criminal, laws of most states and have no regulator looking over their ethics and work to determine whether they are acting in accordance with the law.

Zalma Provides A View Shared by Others Regarding Appraisal and a Warning About the Unauthorized Practice of Law

Chip Merlin — Fri, 29 Jan 2010 06:07:12 -0500

My post, Appraiser Disinterest and Impartiality California Style, lead to a number of comments and opinions about the topic. Yesterday morning Terry Butler, Senior Legal Counsel to the Florida Insurance Consumer Advocate, reported on the various views concerning appraisal at the final session of the Windstorm Conference. Butler sat next to me at the January 6 Alternative Dispute Resolution Roundtable. I previously posted on that meeting in Impressions Following the Alternative Dispute Resolution Roundtable.

Barry Zalma wrote a comment worth sharing and pointing out my incorrect explanation of his law practice:

Thanks for the reference.

For your information, most of my work does not involve insurance fraud, it involves insurance coverage. I do write a twice monthly newsletter called "Zalma's Insurance Fraud Letter" because I saw a need. I am an insurance coverage lawyer and an insurance claims and coverage consultant and expert witness who testifies for any party who has a case against a party with whom I have no conflict. I also have written books that are available from my site or from the publishers that are useful to anyone interested in insurance.

In California "appraisal" is an arbitration whose result can be made into a judgment so impartiality -- or, at least, a lack of serious conflict must be shown.

Appraisal, in my opinion, should be used as a last resort. It is often less efficient than trial especially when the appraisers have little or no experience in valuing property or legal procedures.

Regards,

Barry Zalma

Harvey Goodman, a public adjuster from Goodman-Gable-Gould/Adjusters International, once told me that his firm rarely went to appraisal. He felt that they understood their client’s loss better than anybody else and should be able to explain and adjust it to resolution without having to risk third parties coming to a wrong conclusion. He wanted to keep control of the claim and suggested that many bitter disagreements regarding the value of a loss could be resolved through intensive good faith dialogue and negotiation with insurance company representatives. I know a number of prominent public adjusters who share that same philosophy, although most concede that appraisal is invoked much more often today than two decades ago--for a number of reasons.

Zalma’s opinion is not that different than Harvey Goodman’s. I agree that there are a number of case examples where appraisals take longer than litigation or can come out much worse for policyholders. On the whole though, I believe appraisals in most states usually reach resolution faster than litigation and at less cost.

One thing that is missing from the discussion is that the client policyholder should have a say and some legal advice whether the resolution should be through appraisal or litigation. A public adjuster should not unilaterally demand appraisal. The demand for appraisal and a suggestion that appraisal, rather than legal remedy, should be done is a legal decision with considerations of laws to the facts of a case. Adjusters who give advice as to one over the other in a given situation are giving advice that is commonly referred to as practicing law without a license. I am certain there will be a lot of public adjusters who claim that I am pointing this out because it is in my and other attorneys’ economic benefit to do so. On the other hand, it is illegal and a crime for public adjusters to practice law. Every public adjuster agrees to that, but I would suggest that a few do not want to adhere to that rule if it is not in their economic interest.

Indeed, I have met a few public adjusters in Texas who prepare their policyholder clients’ cases for settlements or litigation. They take the view that the Texas consumer protection statutes generally provide significant interest and other remedies that make most cases where an insurer offers an unfair settlement better resolved with attorney involvement. They always seek legal counsel for the client to help make the decision regarding appraisal or litigation.

The National Association of Public Insurance Adjusters, its general counsel, and officers have maintained my view and have warned against the unintentional practice of law by public adjusters for decades. There should be no question that only licensed lawyers should explain legal rights and actions to a client.. Many dedicated public adjusters are concerned that the legal bars of various states will question the licensing of public adjusting if public adjusters continually overstep their authority and provide legal, rather than adjustment, advice.

Practical Points From Gulf Coast Case Law Update

Chip Merlin — Thu, 28 Jan 2010 12:50:30 -0500

Adjusters hate to listen to lawyers pontificate about case law. I know because of surveys we have done asking adjusters what they want to get out of presentations and how they best can learn. Instead, adjusters want lawyers that are making presentations to explain the practical implications of how they can better do their job.

In my presentations at the Windstorm Conference with Steve Pate yesterday afternoon, I tried to do just that. Adjusters, whether company, independent or public, are travelling to disaster sites in many states. The subtle differences in each state's insurance laws have to be considered by all adjusters in their day to day activities. And, there are some general themes and trends common to all.

Here is the list of cases we discussed in our presentation that we believe will affect those adjusting claims in Gulf Coast areas outside of Florida:

Fonte v. Audubon Ins. Co., 8 So. 3d 161 (Miss. 2009)
Certain Underwriters at Lloyds London v. Law, 570 F.3d 574 (5th Cir. 2009)
Guideone Mut. Ins. Co. v. Rock, No. 06-218, 2009 WL 1854452 (N.D. Miss., June 29, 2009)
Corban v. United Services Automobile Association, 20 So. 3d 601 (Miss. 2009)
Watson v. Allstate Ins. Co., Slip Copy, No. 07-3462, 2009 WL 1704730 (E.D. La., June 17, 2009)
Dickerson v. Lexington Ins. Co., 556 F.3d 290 (5th Cir. 2009)
Campbell v. Shelter Mutual Ins. Co., No. 07-1983, 2009 WL 56003 (E.D. La., Jan. 7, 2009) (Following Dickerson)
Korbel v. Lexington Ins. Co., 308 Fed. Appx. 800 (5th Cir. 2009)
Copelin v. State Farm Ins. Co., No. 06-4115, 2009 WL 36188 (E.D. La., February 12, 2009)
Marketfare Canal, LLC v. United Fire & Cas. Co., 594 F.Supp 2d 724 (E.D. La. 2009)
Grilletta v. Lexington Ins. Co., 558 F.3d 359 (5th Cir. 2009)
State Farm Lloyds v. Johnson, 290 S.W. 3d 886, 52 Tex. Sup. Ct. J. 1042 (Tex. 2009)
Spicewood Summit Office Condominiums Ass'n, Inc. v. America First Lloyd's Ins. Co., 287 S.W. 3d 461, (Tex. App.-Austin, 2009)
Temcharoen v. United Fire Lloyds, 293 S.W. 3d 332 (Tex .App.-Eastland 2009)
Moffett v. Computer Sciences Corp., et al., 647 F.Supp. 2d 517 (D. Md. 2009)

Here are some practical points of adjustment that should be implemented and considered:

1. Flood exclusions are being upheld in cases throughout the Gulf Coast. Policyholders may have coverage for hurricanes as a "windstorm," but the law is recognizing that the flood/storm surge damage from the hurricane is excluded.

2. Mental distress claims brought about by wrongful claims conduct will be recognized in Mississippi and Louisiana. The Louisiana standard to support such a claim is very low. Adjusters must be trained to use the "golden rule" with adjustment activities and appreciate the emotional distress caused by a catastrophe followed by a serious discussion of adjustment.

3. Arbitrary guidelines suggesting an outcome for an investigation will give rise to claims practice violations or bad faith lawsuits.

4. Adjusters must make a full investigation of a loss. In slab situations, engineers will almost always have to be consulted on a case by case basis to support a claims decision.

5. In Mississippi, the insurer bears the burden to prove the amount of excluded flood damage under an all risk policy. The policyholder must prove the amount of wind damage caused to contents under a named peril policy.

6. Louisiana has very liberal proof of loss requirements for policyholders to satisfy. Insurers must be very prompt paying undisputed amounts of claim damage to avoid penalties.

7. Second homes that are not primary residences raise a number of potential coverage defenses which may apply to underwriting and application misrepresentations. These are often not raised by adjusters in the field. Agents need to make certain second home coverages are properly written to avoid errors and omission claims.

8. Safe is better than sorry. While one Texas case suggests a method to avoid the two year and a day statute of limitation in Texas, the safer practice is to file litigation on claims disputes within two years from the date of loss.

9. Insurers have a "reasonable basis" defense to claims of bad faith. Adjusters should promptly and fully investigate losses detailing findings and obtaining bona fide consultant opinions when needed to show a good faith basis for a claims decision. And, they must fairly consider all evidence and not be selective as to evidence indicating less or no coverage.

10. Appraisals in Texas are going to be much more common. While the law is very unclear, courts are tending to enforce appraisal first and review causation and coverage issues later in most situations.

11. National Flood Proofs of Loss have to be filed on time and completely. If not, there is an appeal procedure that is now subject to judicial review if National Flood arbitrarily denies a request for a late filing or claims determination change.

12. Texas practically places a much higher burden of proof on the policyholder to prove the amount of covered versus non-covered loss. Recent Louisiana decisions also follow this reasoning by making the policyholder segregate the amount of covered versus non-covered loss. Engineers, contractors and consultants often give a percentage of covered versus non-covered loss with support to meet this burden.

I hope these points are helpful. It sure beats reading all those cases.

Engineer Bruce Holmes Calls Out Fellow Engineers

Chip Merlin — Wed, 27 Jan 2010 16:05:46 -0500

The Windstorm Conference is in full swing. I was introduced to an engineer, Bruce Holmes. He told me that he was very upset with his colleagues and others in the insurance industry. He asked if I could refer others to his website where he has a proposal for change and action.

Here is what he has to say:

Background

I have been very involved over the past two years in conducting forensic engineering investigations for public adjusters, attorneys and individual policyholders that have had and are still having problems with their roofs from the effects of Hurricane Wilma, particularly in Palm Beach, Broward, and Dade counties. I have conducted over 500 such investigations in the past year and half. In this work, I have also reviewed dozens of "engineering reports" prepared by licensed Florida Professional Engineers on behalf of their insurance company clients. As a result, I have written over 80 effective rebuttals of their work which generally can't stand up under scrutiny.

In many cases, a homeowner gets one of these reports and not being a skilled professional reads the report and gives up on proceeding with a claim. Probably for the 500 such clients I have worked for there are thousands more homeowners that read the "engineer's report" prepared on behalf of their insurance company and just gave up. I probably am just working the tip of the iceberg.

In particular, the engineers and the different casualty companies all come up with the same reasons for why damage observed is not a result of hurricane actions and all use the "same" reasons. It would seem that they all got together and decided to tell the "same" story.

As you may recall, in 2005 Hurricane Katrina first crossed the Florida peninsula before making landfall in the Gulf Coast region. In October, 2005, Hurricane Wilma made a path from just south south east of Naples traveling northeast and exiting the state just north of West Palm Beach. It was a large storm and during its transit produced many strong wind gusts that reached from 100-110 MPH that lasted for a brief period.

As a result of the impact of Hurricane Katrina on the Gulf Coast, most Florida based adjusters were dispatched there. After Hurricane Wilma produced widespread damage to southeast Florida, adjusters were brought here from many different locations throughout the US. In many cases, these adjusters had very little knowledge of the construction of tile roofs that were mortar adhered or mechanically fastened with nails or screws. Also, I know, based on discussions with homeowners, many insurance adjusters did not even look at the roofs and offered small sums for "repairs" or told them the problem was "wear and tear" and not covered by their policy.

There are literally hundreds of thousands of tile roofs that were either mechanically fastened with nails or screws and adhered to the roof with mortar patties that were affected by this storm.

The result for mechanically fastened tile roofs is that the lifting action of the wind gusts move the nails creating leak points into the roof or the mortar patties are un-bonded in a particular pattern that occurs on the roof. This empirical evidence is supported by research conducted by the International Hurricane Research Center at Florida International University.

Un-bonded mortar roofs will be flying missiles in the next storm. Due to the slow nature of the leaks from mechanically fastened roof, evidence of the failure will ultimately show up in the house's interior first as stains on the ceiling. This latter effect is a slow process and droughts in 2006 and 2007 have delayed the occurrence of these symptoms.

However, insured clients only have till October, 2010 to make a claim as the statutory limit of 5 years after the storm comes into play.

I can assure you there are going to be many hundreds of thousands of policy holders that are going to be left holding the bag as a result of what appears to be collusion on the part of the insurance industry and the apparently complicit licensed Professional Engineers that work for them.

I have encouraged many clients to file complaints with the Florida Board of Professional Engineers regarding these "engineering reports". To date, the Board has done nothing that I am aware of. As a result of this experience, I am disgusted and ashamed to say that I am a licensed Professional Engineer having been so for the past 33 years.

Proposal For Action
This will be a two pronged approach.

First, We will be developing a web site with multiple domain names directed to it relating to individuals that have had claims denied, improperly settled, or gave up after getting the insurance company's "engineering report". The goal will be to identify such individuals for a potential class action and provide incentive for political action. We will gather names, addresses, contact info, claim information/denial/partial settlement info etc. for a potential class action described below.

Second, another action would be to obtain a ground swell of support by homeowners, public adjusters and attorneys working for claimants to extend the 5 yr. statutory limit for Hurricane Wilma claims by say.....two more years as a result of the 2006 and 2007 droughts and pursue this through the Legislature.

Potential
Casualty Insurance Action
In Florida
related to Hurricane Wilma

Possible Claim and Action:
Fraud and collusion to commit fraud

Global Allegation:
The casualty insurance industry has apparently acted in a manner to defraud its clients of full and proper payment of their rightful claims under their policies for damages incurred from Hurricane Wilma. This includes directions to employees and adjusters to not fully investigate claims, offer minimal settlements for such claims and collude with Florida licensed Professional Engineers they retained in order to deny claims on the basis of fallacious reasons for damage observed.

Specific Allegations:

Adjusters were employed that were knowingly not competent to assess damages being adjusted and/or were directed to not investigate damages including not assessing roofs for damage and to offer minimal settlements to clients while assuring clients that such funds offered was sufficient to “repair” damages.

Florida licensed Professional Engineers were engaged by the industry and encouraged and/or directed to offer assessments of damages that would result in limited or minimal settlements for roof damages by unsubstantiated allegations of reasons for damages observed that were not related to Hurricane Wilma. Such unsubstantiated reasons include but are not limited to “foot traffic”, “wear & tear”, “thermal expansion”, “improper installation”, etc.

Many casualty insurance companies have resisted or refused to open or reopen claims for damages from Hurricane Wilma that are now showing effects of damages from Hurricane Wilma which in many cases result from insufficient settlements for damages and/or their apparently fraudulent efforts to limit initial claims by not properly assessing damage or assigning unfounded reasons for damages in order to limit the financial effect on the companies.

One of the interesting aspects of this conference is the varied opinions of the attendees. I was speaking with an insurance defense attorney who told me that he implores his clients to come to this conference, rather than the PLRB, because the adjusters and claims managers can hear the other side of an issue and anticipate or develop a response.

I am certain that many will disagree with Bruce Holmes. On the other hand, I am quite certain many agree and are pondering how to deal with the issues he has raised.