Property Insurance Coverage Law Blog

An Insurer's Actions May Excuse Mitigation Requirements

Corey Harris — Fri, 12 Mar 2010 22:42:52 -0500

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

I recently took the deposition of an independent adjuster who worked on behalf of one of the larger insurers in the state. While most of the deposition was pretty standard, I was shocked when the adjuster said that he had advised the homeowners to stop making temporary repairs to their home. When I asked him to explain why he did not think it was a good idea for temporary repairs to the roof and exterior of the building to be completed, he answered that coverage had not been established yet and he did not think the repairs should be made until it was.

This exchange surprised me for a number of reasons. First, it is a fundamental part of insurance that a policyholder has a duty to take reasonable steps to mitigate damages. Making temporary repairs to a leaking roof would seem like a logical place to start, especially in Florida during the middle of the rainy season. Second, I was surprised that this individual did not seem to understand the potential problems that his advice could have caused.

In my last post, I detailed some of the potentially harsh consequences of a policyholder’s failure to properly mitigate damages, however, an insurer may be estopped from arguing as much if its actions encouraged or led to the insured’s failure to mitigate. See for example Kubista v. Romaine, 549 P.2d 491 (Wash 1976).

An insurer’s agents and representatives can bind the insurer through their actions and statements. See Old Republic Ins. Co. v. Von Onweller Const. Co., 239 So.2d 503, 504 (2d DCA 1970); Hughes v. Pierce, 141 So.2d 280, 284 (Fla. 1st 1961). Thus, if an adjuster tells a policyholder to stop making temporary repairs, it is only logical that the insurer should not be able to later deny coverage based on a failure to mitigate. Furthermore, the insurer may be liable for any further damages that the insured property sustained as a result of the adjuster’s instruction to stop making repairs, even if these damages are not covered under the policy.

The homeowners in my case were lucky that no additional damages occurred as a result of their stopping repairs at the insistence of the adjuster. However, the insurer and adjuster are lucky as well, because they could have been held liable for any resulting damages. This is why educating both adjusters and policyholders about the proper steps to take after a loss is very important to both sides, and failing to do so can cause more coverage disputes than necessary.

Can an Insured Recover Under a Flood Policy and an All Risk Homeowners Policy for the Same Damage?

Chip Merlin — Fri, 12 Mar 2010 07:37:42 -0500

In Louisiana, the answer is probably “yes.” The FC&S pondered this question in its March 2010 Dec Page report titled, “Recovery Under Flood Policy and Homeowners Policy?” The highlighted case was Lightell v. State Farm Fire & Cas. Co., 2009 WL 4505942 (E.D.La. 2009). The article noted the significant facts and issues as follows:

The insured suffered property damage due to the wind and flood caused by Hurricane Katrina. They collected partial payment of their policy limits from both the homeowners and flood insurance policies. Believing that the payments were not indicative of the extent of the actual damage to the home, the insured filed a lawsuit against the insurers. State Farm, the homeowners insurer, filed a motion for summary judgment.

State Farm asserted that the insured is estopped from recovery related to wind claims because he previously alleged that he was entitled to flood policy limits due to the total destruction of the property. And, the insurer said that the insured has the burden of proving the damage was caused by wind (a covered loss) as opposed to flood (not covered).

The Federal Court wrote an interesting section on estoppel, which arises in these types of cases, and the burden of proof. Regarding the estoppel issue, the Court noted:

Defendant argues that summary judgment is proper because according to Defendant, once Plaintiffs alleged, in a separate suit, that their property was totally destroyed by flood damage, Plaintiffs are estopped from asserting claims against their homeowners policy. In support of this argument, Defendant cites Webster v. State Farm, Civ. A. No. 07-4812, 2008 WL 2080907 (E.D .La. May 14, 2008).

…

The Webster Court held that even if a plaintiff received payments from his flood policy, the plaintiff is not estopped from making a claim pursuant to his homeowner's policy…The only stipulation the Court placed on the plaintiff's ability to recover from both the homeowner and flood policy was that the plaintiff's combined recovery cannot exceed the value of the property…Here, Plaintiffs' recovery from their flood policy has not exceeded the value of their property. Further, even if Plaintiffs were to receive their flood policy limits, it appears that they could actually recover at least partial payment from their homeowner's policy without exceeding the value of their property.

Therefore, although Plaintiffs are “not entitled to obtain a windfall double recovery by recharacterizing as wind damage those losses for which [they have] already been compensated by previously attributing them to flood waters”…there is no policy or legal principle preventing them from recovering for previously uncompensated, covered damage, without reference to the amount received under their flood policy...As a result, Plaintiffs are not estopped from asserting homeowner policy claims…

Regarding the burden of proof issue, the Court expressly disagreed with several other district court decisions, finding as follows:

…despite the multiple district courts that have held that the burden shifts back to the insured to segregate the damages between covered an non-covered perils, the United States Court of Appeals, Fifth Circuit, has held that this is not the case. In Dickerson v. Lexington Insurance Company, 556 F.3d 290 (5th Cir.2009), the Fifth Circuit stated,

‘[u]nder Louisiana law, the insured must prove that the claim asserted is covered by his policy. Once he has done this, the insurer has the burden of demonstrating that the damage at issue is excluded from coverage. Thus, once [the insured] proved his home was damaged by wind, the burden shifted to [the insurer] to prove that flooding caused the damage at issue, thereby excluding coverage under the homeowner's policy.’

…
Defendant states that the Fifth Circuit's interpretation of the burden shifting is simply dicta and that courts in the Eastern District addressing this issue have “uniformly” rejected this interpretation. However, this Court respectfully disagrees with the decisions of those courts-specifically Copelin, Weiser, and Nunez-to the extent that they did not follow Dickerson. This Court believes it is bound by the holding in Dickerson and that the analysis of the burden shifting test was not dicta… As a result, Plaintiffs' burden at trial will be to prove that they are entitled to additional payments to damage to their property. Plaintiffs do not have the burden of segregating the damages based on covered and non-covered perils.

I agree with this decision. The all risk policy gives the insurer the burden to prove the amount of the excluded damage. The insured should only have to prove the amount of damage that occurred during the policy period. Under an all risk or open-perils policy, the insurer then has the burden to prove that the loss was excluded in whole or part. If in part, the insurer should prove the amount of that excluded loss the policyholder does not have the burden to segregate the amount--that would essentially defeat the purpose of “all risk” coverage by making the policyholder prove the cause of the damage.

Some Courts have wrongfully turned this principle on its head, noting that the insured has the duty to prove the amount of the covered damage. That is true in a “named peril policy,” but that was not how the “all risk policy” was designed to work. Some Courts are getting this wrong because they are repeating case language from old, named peril cases.

The FC&S editor agrees with me and the Lightell Court:

Editor's Note: Courts will be answering coverage questions raised by Hurricane Katrina for quite some time. This case is noteworthy for its mention of the ruling in the 5th Circuit pertaining to which party, the insured or the insurer, has the responsibility to show what is excluded from coverage. As is customary, this burden falls on the insurer. (emphasis added)

I am certain this case will be analyzed in detail by insurance defense attorney, Stephen Pate, and myself at the Texas Windstorm Insurance Network Symposium Set May 11 in Dallas. In my respectful opinion, Texas law has these traditional principles mixed up as well. Many policyholders in Galveston and the Bolivar peninsula who suffered flood and wind damage from Hurricane Ike should hope that the Texas judges and their attorneys attend this symposium. Stephen Pate and I will set them straight on how burdens of proof in all risk policies were traditionally designed to work.

Have a great weekend!

Are Florida Insurance Companies Really Losing Money? Are Investors Using Management Companies To Take Profits and Leave Little Surplus for Policyholder Claims?

Chip Merlin — Thu, 11 Mar 2010 07:59:25 -0500

An Order by the Office of Insurance Regulation shows one method some Florida insurers may use to “poor mouth” losses to the public and our legislators in Tallahassee while taking millions home through shell accounting techniques. Many of the smaller insurers operate as three corporations--the insurer, a managing general agent, and a holding company. It does not take a financial genius to figure out that investors and managers can siphon off profits by simply charging excessive fees through the managing general agent. The insurance part of the jointly owned enterprise then claims it cannot make any money for various reasons which we have been hearing about in the press and from some insurance lobbyists looking to raise rates and reduce benefits to policyholders.

Here is the important part of the Order showing the scheme:

SOUTHERN OAK has entered into an MGA agreement which the OFFICE finds
…to adversely affect the interests of policyholders by being both unfair and unreasonable. Since inception, the MGA agreement has generated approximately $35 million in profits while the insurance company has consistently generated underwriting losses. While the existing MGA agreement was initially approved based on projections of profitability of the insurance company, representations made to the OFFICE regarding the fee structure have not proven to be accurate.

…

SOUTHERN OAK shall show cause why it should not return the excessive profits in the amount of $10 million earned from the MGA agreement.

Yesterday, the insurance industry press picked up on this important story in Florida's Southern Oak Told to Correct Its Business Plan; Other Companies Are Being Examined. That story reported:

Florida's Southern Oak Insurance Co. has some explaining to do and several other of the state's property insurers may be soon to follow.

…

The OIR is reviewing annual financial statements of all companies and "is currently conducting examinations of a few companies, including the review of MGA agreements," said Brittany Benner, spokeswoman for the OIR, which "intends to conclude these examinations, taking corrective action if necessary…

Insurance companies wanting to raise rates may find a number of ingenious arguments and methods, as exemplified in State Farm's Freakoutnomics. Some reasons and concerns may be legitimate, such as the one raised by Florida Senate Banking and Insurance Chair Garrett Richter regarding the wind mitigation credits having no sound actuarial basis. Given this new revelation, many would suggest that our regulators and elected officials initiate a full investigation and require much greater financial transparency before trusting the Florida insurance industry’s arguments that rates have to go up while policyholder benefits disappear.

Down and Dirty with Neutral Evaluation of Sinkhole Claims

Kristi Demers-Crowell — Wed, 10 Mar 2010 15:42:27 -0500

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

Two weeks ago I wrote on the three ring circus that Florida’s statutory neutral evaluation of sinkhole claims has become. Fla. Stat. 627.7074. This follow up blog focuses on the “down and dirty” reasons why the process is unfair to policyholders.

It is evident why neutral evaluation might have been appealing to lawmakers. It is designed to be an alternative dispute resolution procedure to encourage settlement of sinkhole insurance claims—on its face, a good thing for insureds. However, problems have arisen in the application of the law. Here are a few:

Dirty Problem Number One: How to get a truly “neutral” evaluator

The statute requires the “neutral evaluator” to be a professional engineer or professional geologist who has completed a course of study in alternative dispute resolution designed or approved by the Department of Financial Services (“DFS”) for use in the neutral evaluation process, who is determined to be fair and impartial. The statute does not provide a procedure by which a neutral evaluator is determined to be fair and impartial. However, the DFS Neutral Evaluator Application asks if the candidate, or a business entity with which the candidate is affiliated, receives more than 90% of its gross income or revenue in the past calendar year from either property insurers or from property insurance claimants. Thus, so long as the candidate’s income from insurance companies or policyholders in the last year is only 90% or less, it appears they are determined to be fair and impartial. The vast majority of neutral evaluators on the DFS list are known insurance company expert witnesses, with a couple known to have served as property owner experts. Either way, it must be extremely difficult to be neutral when you have performed studies for your own clients in the very neighborhood where the neutral evaluation is pending.

Dirty Problem Number Two: How to ensure evidentiary protections when the Neutral Evaluator’s Written Recommendation is automatically admissible

According to the statute, neutral evaluation is “an informal process in which the formal rules of evidence and procedure need not be observed.” In spite of this, the neutral evaluator’s written recommendation “is admissible in any subsequent action or proceeding relating to the claim or cause of action giving rise to the claim.” This circumvents a number of Rules of Evidence, which are designed to protect all parties to a dispute and prevent the trier-of-fact (a jury or judge) from deciding cases on an improper basis.

For example, the Florida Evidence Code sets forth a number of tests regarding the qualifications of experts and the basis of expert opinions before they can be presented to a jury. Fla. Stat. 90.702, 90.704, 90.705. These are meant to ensure that witnesses have sufficient knowledge, skill, experience, training or education before they are presented to a jury as “experts,” and that the basis of their opinions is scientifically reliable. It is unclear how these rules will “jive” with the neutral evaluation statute which appears to automatically admit the evaluator’s written expert opinion into evidence without meeting these criteria. And this is just the tip of the iceberg. There are also problems with the unfair prejudice rule (Fla. Stat. 90.403), hearsay (Fla. Stat. 90.801) and substantive due process under the Florida Constitution.

Dirty Problem Number Three: How to keep insurance companies from wrongfully denying coverage for sinkhole claims

If a neutral evaluator opines there is no sinkhole, and a policyholder declines to drop the claim, the statute excuses an insurance company from liability for extracontractual damages. Does this mean there can be no bad faith liability even if a jury finds an insurer wrongfully denied coverage for a sinkhole claim? How does this square with Florida’s Unfair Claims Practice Statute Section 624.155?

Recently, regarding a burden of proof issue with the new sinkhole statute, Florida’s Second District Court of Appeal stated:

“We recognize the legislature’s desire to stem the tide of sinkhole-related insurance claims. . . . But we are hesitant to conclude that this . . . extends to the micromanagement of trial proceedings between private parties.

Warfel v. Universal Ins. Co. of N. Am., No. 2D08-3134, 34 Fla. L. Weekly D 2527, 2009 Fla. App. LEXIS 19070 (Fla. 2d DCA December 9, 2009) at *11-12, n. 7.

We shall see if the appellate courts feel similarly with regard to whether Florida’s sinkhole neutral evaluation statute is on solid ground.

An Interesting Day in Tallahassee and Thoughts on the Pending Replacement Cost Coverage Legislation

Chip Merlin — Wed, 10 Mar 2010 08:49:10 -0500

The Florida legislature is a difficult place to navigate. The place is an adult maze, and it takes effort to find the right room. Possibly, the logistics are a warning to novice citizens such as me that actually try to have some small input regarding the laws we agree to abide.

In Senators Mike Fasano and Rhonda Storms Come to the Rescue of Policyholders, I commented on the Florida Senate proposal that would repeal prompt payment of replacement cost benefits. I was asked if I could participate yesterday in a “workshop” of sorts where Senator Rhonda Storms asked lobbyists from the insurance industry and then some consumer advocates to explain some of the issues underlying the proposed legislation.

People may underestimate the intelligence of Rhonda Storms. She is a lawyer by training and can easily get to the critical issues of a complex problem. Until I spent time discussing insurance related matters with her last year, I was not aware of how bright she truly is. Rhonda Storms is a colorful person and enjoys quips that the media love. I honestly believe her outlandish comments come from boredom during a debate--wasting time by not going to the heart of the matter. She is a bottom line person that expects honesty and candor. Senator Storms takes her job seriously and works hard for the people.

The insurance industry representatives use the word “fraud” to seemingly justify everything they propose. They said it with visceral passion yesterday. If you were from Mars and did not know better, you would think insurance is the most defective product ever made because it makes otherwise honest people into crooks. I hope our representatives can see through this sham and appreciate that their constituents don’t become criminals or morally corrupt as a result of an insurance claim. It almost smacks of McCarthyism applied in an insurance sense.

Being an attorney and having to zealously advocate for clients, I can appreciate that the insurance lobbyists have a job to do and are under pressure. They are successful if they can convince our representatives of the insurance company’s version of reality and persuade those representatives to pass laws favorable to them. That is fair and that is the American way.

"At War With The Weather" is a Must Read for Those Involved in the Debate of the Florida Property Insurance Market. Listening to those insurance lobbyists yesterday, I wondered how many read the book or have studied the Replacement Cost Coverage claim issues. I wondered if they cared why the laws were enacted, thought about the issue from their client’s customers points of view, or whether they even cared because all that matters is pleasing their client on the outcome of the legislation. And, I can appreciate the last concern because when you are retained by a client, “winning” is why you get hired.

After the meeting was over and Senator Storms thanked everyone for educating her, I stopped this amateur endeavor and worked on cases for clients that probably have no idea I was calling from Tallahassee. This concept is important. There are no professional lobbyists for policyholders in Tallahassee. As I pointed out in Sean Shaw is a Refreshing and Intelligent Advocate for Floridians--We Deserve This Type of Representation, Sean Shaw is as close as it gets to a policyholder lobbyist. I also made a “gallows joke” with some others that if the law were repealed, I would personally profit more because there would be more litigation over various and commonly disputed issues, as there was before these Replacement Cost Laws were passed. Only my potential future clients could care about this issue, and there would be far fewer of them if the laws stay the same—I started wondering if it was all worth the effort.

Nevertheless, I have to work on active cases and cannot afford the time to go back and debate the replacement cost benefit issues today in Tallahassee. If I were there, these are some of the points I would try to have our Senators consider. My opinions are not based on speculation, but on my experience in litigating residential claims before these laws passed.

SB 2044 removes the prompt payment of full benefits and places additional requirements on residential policyholders that would repeal all the work done by this Legislature following the windstorms of 2004 and 2005 and end 70 years of common law protections for policyholders suffering partial damage to their homes.

History: The Florida Legislature passed Replacement Cost Laws that require insurers to pay replacement cost benefits to policyholder who purchased “replacement cost insurance.” These laws resulted from claims delays and disputes that were inherent when insurers withheld prompt and full payment of replacement cost benefits. Many policyholders were outraged that many insurance companies sold a “replacement cost policy” only to find that the full “replacement cost benefits” for their real and personal property were withheld. Prior to that time and through the present, Florida common law required that insurers pay for “repairs” to structures suffering partial damage on an actual cash value basis without depreciation taken. Glens Falls Ins. Co. v. Gulf Breeze Cottages, 38 So.2d 828 (Fla. 1949).

SB2044 proposes that policyholders who pay a significant additional premium for replacement value coverage (RCV) and who incur a loss to their home or personal property, then have to accept payment other than on a “replacement cost basis.” The proposed laws allow an insurance company to pay smaller, actual cash value (ACV) benefits and “hold back” any other funds until, (a) on the dwelling, after a contract is signed to replace or repair the home; and, (b) on personal property, until the homeowner provides receipts for the personal property (i.e. pay for replacement and prove the amount of the same with receipts).

• Policyholders are paying premiums for RCV coverage and therefore, should not be limited to ACV or anything other than what is being advertised or suggested as being purchased. Laws should not be made which reinforce that purchasing RCV means getting something else other than full and prompt RCV, as a matter of law.

• Insurance companies have no legitimate basis to withhold policyholder RCV claim amounts when selling RCV policies. However, they will wrongfully profit from such legislation allowing for the same because (1) they get to play the float during the period that they hold onto the RCV money without paying the interest from such withholding to the policyholder (2) policyholders that fail to replace for one reason or another will never obtain the money. Such uncollected RC benefits do not go to help the neighborhood, community, or anybody other than the insurance companies which, through this law, keep money otherwise owed to their customers who paid additional premiums for those benefits. While the insurance industry argues there is a public policy behind their attempt to change the law by influencing people to rebuild, repair and replace, they fail to highlight the obvious—insurance companies make more money by playing the float with the policyholders cash and may make windfall profits the same way a retailer does when the gift card goes uncollected.

• The purported reason that this legislation is needed is to prevent fraud is, therefore, a myth. Prior to 2006, a number of insurance companies honestly advertised “replacement cost coverage,” which actually paid policyholders “replacement benefits” as the current law requires. The current claim that some insurers make that this bill will prevent fraud is disproven by these other companies selling the coverage in Florida before the 2006 Laws. And, those same companies offer it in other states today, without claiming that such prompt replacement benefits result in fraud by their customers.

• Significant delay of payment to policyholders to repair structures is already occurring and does not need to be encouraged. Most mortgages require dual signatures on any insurance check – one from the homeowner and the other from the mortgage company. The mortgage company then has the right to inspect and approve of the progress and repairs to a dwelling before releasing payment of the insurance benefits. Checks and balances are in place for repair. There is no real need to further burden policyholders and delay repair during an already emotionally and financially traumatic time. Policyholders do not need the additional hassle of the insurer arguing how the repair or replacement should be made simply because the insurance adjuster does not like how the construction contract calls for repair or replacement.

• Homeowners who pay a premium for RCV coverage and who sustain a loss, should be able to use the funds as they see fit – it is their money. Whether it is used for nicer tile or wood floors in the home, or to put nicer fixtures in the home, or to remodel the structure in a manner acceptable to the mortgage company and the homeowner but not as it was, it is the homeowner’s money-subject to mortgage requirements-and the homeowner should be able to spend as they think is best for them.

• Litigation, claims disputes, and claims delays have been reduced because insurance company adjusters are not subject to first estimating RCV, holding back an arbitrary depreciation figure which the policyholder may dispute, and then determining when the held back RCV payments are due as the insurance company adjuster inspects the construction contract and the hundreds, if not thousands, of receipts. Simple and prompt claims payment standards, as the current law requires, should be encouraged.

• Any insurer may repair or replace a damaged structure at its own cost without payment of monetary benefits pursuant to the Florida Valued Policy Law and standard insurance policies. These provisions take whatever possible profit incentive that may exist for the policyholder out of the transaction and were written for the insurer’s benefit. Thus, in addition to what has been pointed out previously, there is a fallacy that insurers are looking for a change in the laws to require repair to benefit society or that they cannot require replacement of damaged structures. Insurers currently have the legal right to do so, but they do enforce this legal right because they want the risk and uncertainty of the rebuilding costs and complications of dealing with a construction that goes awry to remain with the policyholders.

• Many policyholders cannot fully replace or repair because they cannot afford the additional and increased cost to upgrade to the new building ordinances which are not paid for under RCV. Thus, many insurers will obtain windfall profits, often at the expense of the less affluent or fixed income policyholder that cannot afford Code Upgrade Coverage. Code Upgrade Coverage is an additional cost above RCV. Many policyholders do not have this coverage or enough of it.

• Many policyholders cannot fully replace or repair because they cannot afford the additional costs of perils limited or excluded under the policy. Thus, insurers obtain windfall profits because of other policy language they can use to prevent the complete repair or replacement from occurring. Many insurance companies limit the amounts paid for damaged items such as debris removal, the increased costs to remove mold following a water loss, asbestos removal and other perils, while excluding portions of damage in their entirety, such a wind driven rain and other certain water losses. Policyholders may not have enough money to pay for the entire cost of repairing a structure as a result of the limitations and exclusions under the policy and never receive RCV benefits that they paid for. Indeed, they cannot even use the RCV benefits to help make up for the limited or excluded items of a claim.

And, for those that read last night’s post, Representative Janet Long Gets a Hug From Chip Merlin, I will follow up on that story at a later date.

Representative Janet Long Gets a Hug From Chip Merlin

Chip Merlin — Tue, 09 Mar 2010 22:29:26 -0500

"You gotta be kidding me" is probably being repeated by many after reading the title to this post. I wrongfully wrote about Representative Janet Long without giving her an opportunity to explain her concerns and longstanding advocacy for policyholders when she worked as a Deputy Insurance Commissioner in a Florida Department of Insurance Branch office. Before the spotlight of politics and public life subjected her to criticism without an ability to fully explain the purpose of the laws she proposes, her job in the Florida Department of Insurance required her to talk with and help policyholders upset about every imaginable wrong that could possibly befall an insurance consumer. I should have been more diligent in my research of her before jumping to conclusions about the framework for her views in this very public blog.

In Flood Insurance Waivers Concerning Proof of Loss are Subject to Judicial Review: A Recent Flood Case that Makes Sense, I made the following statement:

We all make mistakes and sometimes act arbitrary or capriciously—it is human nature. It is also human to not want to admit our wrongs.

If anybody handled as many consumer complaints and battled insurance company decisions as Representative Janet Long did in her position with the Department of Insurance and then had some ignorant attorney (me) write about her being against insurance consumer interests, they would rightfully be upset and deserve an apology. And, I apologize.

This is not the end of the story between Representative Long and myself. Our meeting was longer than I expected-and we did hug at the end. There will be more in the morning's post about pending insurance legislation and my interesting day in Tallahassee.

Court Finds That an Agent's Bad Manners and Technical Violations of Procedures and Rules Does Not Establish Bad Faith

Ruck DeMinico — Tue, 09 Mar 2010 18:56:17 -0500

Allstate Indemnity Co. v. Shoopman
Docket No. 09-cv-0083
(E.D. Ky. February 11, 2010)

In this case, the Shoopmans’ home was substantially damaged by fire. After they filed a claim, Allstate investigated the causes of the fire and suspected the fire was the result of arson and that an “insured person” was involved in the arson and/or concealed or misrepresented material facts relating to the loss. Allstate filed an action, asking the Court to declare that the Shoopmans are not entitled to coverage under their homeowners policy. The Shoopmans filed a counterclaim, alleging violations of the Unfair Claims Settlement Practices Act (“UCSPA”) and the Kentucky Consumer Protection Act (“KCPA”), for bad faith in handling their claim. At issue in this opinion was Allstate’s motion for summary judgment.

Regarding the ”insured person” issue, the policy precludes coverage if “any insured person” under the parties' insurance policy engaged in or directed an intentional or criminal act in setting the fire or concealed or misrepresented any material fact or circumstance to Allstate during the claim investigation. Allstate argued that the Shoopmans’ son, Michael, resided in their home at the time of the fire and is an “insured person” as a matter of law. The Shoopmans argued that Michael was staying in the house temporarily to recover from injuries from a motorcycle accident, so he is not an “insured person” under the Policy. The Court concluded that the evidence supports more than one reasonable inference, so summary judgment was not appropriate on that issue.

Allstate also alleged that Michael misrepresented facts and concealed pertinent information about his father's mandolin, his criminal background and his activities on the day of the fire which were “material” to the investigation. As the jury could find Michael was not an “insured person,” the Court declined to consider that argument.

Allstate also argued that the Shoopmans included a Gibson mandolin on the Proof of Loss but did not tell Allstate that the mandolin had been pawned and did not notify Allstate that the mandolin had been recovered until months later. The Shoopmans argued that Michael pawned the mandolin and they did not know of it until after Michael was arrested, well after they filed the Proof of Loss. The Shoopmans further contended that any alleged “misstatements” on the Proof of Loss related to the mandolin did not affect Allstate's investigation. The Court held that whether the Shoopmans actually misrepresented or concealed information, and whether that information was material to the investigation, are questions for a jury and denied summary judgment.

As for the Shoopmans’ bad faith claim, the Court granted summary judgment in favor of Allstate. The Shoopmans argued that Allstate’s predisposition to blame Michael for setting the fire, failure to comply with its corporate adjusting requirements, and rude behavior towards them constituted more than “mere negligence” and were deliberate acts and reckless disregard for their rights as insured persons. The Court disagreed. “The Shoopmans' assertions simply do not amount to outrageous conduct absent some affirmative act of harassment or deception.” The Court held that to prove a bad faith claim regarding a delay in claims handling, there must be proof or a reasonable inference that that the purpose of the delay was to extort a more favorable settlement or to deceive the insured regarding coverage. Allstate’s adjuster’s and investigator’s bad manners or errors in judgment were not sufficient to support a bad faith claim, nor were its technical violations of its procedures and rules.

Read the full opinion here.

Policyholder Advocate Matt Gaetz Picks Up Endorsement From Jeb Bush

Chip Merlin — Mon, 08 Mar 2010 13:31:57 -0500

Matt Gaetz is running for a seat in the Florida House of Representatives. His chances of getting elected have become better since former Governor Jeb Bush provided his endorsement to Gaetz. Here is Gaetz commenting on the endorsement:

Matt Gaetz and his father, Senator Don Gaetz, are proof that conservative elected officials can also support strong pro-policyholder legislation and stand up to the insurance companies that do not want to be held accountable to their customers and the law. We held a campaign fundraiser for Matt last September and noted his active support for policyholders in Matt Gaetz is a Policyholder's Advocate Running for Public Office.

Senator Don Gaetz filed three very pro-consumer bills last year.

SB 964 - Insurer has a fiduciary duty to treat those it insures in good faith
SB 960 - Civil Remedy against Citizens Property Insurance Corporation
SB 962 - Requiring insurance companies to adopt and implement standards to follow when adjusting claims to reach a proper settlement

The Special Election will take place on March 23. We hope Matt will be able to take part in the debate and advocate for policyholders before this legislative session is over.

A Confusing Oral Argument in QBE vs. Chalfonte Baffles the Florida Supreme Court Regarding First Party Bad Faith

Chip Merlin — Mon, 08 Mar 2010 05:29:20 -0500

Florida Supreme Court justices seemed as bewildered as I when policyholder's counsel explained last Thursday that he was not arguing a "bad faith" case. I will be the first to say that a "bad faith" case is really a lack of "good faith" case since the standard is whether the insurance company breached the obligation of good faith and fair dealing. While I understand what the very accomplished appellate attorney, Bruce Rogow, was trying to argue, I wish his argument had been more simple and to the point because he confused me. I am afraid he may have alienated the Court with his very esoteric argument about a good faith breach of contract issue in a first party insurance situation.

The National Law Journal picked up on this in Florida Insurance Case Could Set Precedent for Hurricane Claims when it noted:

The case came before the justices when the 11th U.S. Circuit Court of Appeals certified five questions of state law to the Florida court.

The biggest issue: Does Florida recognize a claim for breach of implied warranty of good faith and fair dealing? If so, must the claim be brought after the fact like a bad faith claim?

The justices did not seem convinced that lack of good faith and bad faith were separate issues. Justice Charles Canady, who replaced Cantero on the court, said, "What I'm hearing is a distinction without a difference."

Justice Barbara Pariente told Rogow that it's "a little disingenuous" to say it's not a bad faith claim but a lack of good faith claim. (emphasis added)

I agree with the justices. And, it didn't have to be argued that way. We filed an Amicus brief on behalf of United Policyholders in the case. As indicated in A Common Law Remedy For Lack Of Good Faith And Fair Dealing Is Before The Florida Supreme Court, the simple argument is:

Nowhere is the contractual concept of an "implied warranty of good faith and fair dealing" more important than in the insurance setting, due to the unique nature of the product and the disparate circumstances of the parties to the contract. Although Florida courts have previously and explicitly recognized a common law claim arising from the nature of an insurer's obligation to its insured in the third party setting, Florida should join the majority of states that recognize a common law remedy for damages caused by first party insurers breaching their recognized obligations of good faith and fair dealing.

Legislation passed in Florida recognizes the obligation of insurers to act in the utmost of good faith and fair dealing to their insureds. § 624.155, Fla. Stat., and § 626.9541, Fla. Stat. These obligations are further evidenced by pertinent portions of the Florida Administrative Code, requiring claims adjusters to provide ethical and good faith treatment to policyholders. The insurance industry recognizes its obligation to act in the utmost of good faith and fair dealing as evidenced in the training and reference textbooks for claims handlers and in internal claims handling documents prepared by individual insurance companies. Since Florida public policy, demonstrated in legislation and regulation, recognize a duty of good faith, and even the insurance industry recognizes such a duty, it would be a strange quirk in Florida common law for it to not to recognize what everybody else is requiring insurers to do-act in accordance of a duty of good faith and fair dealing to its own customers.

Florida should align itself with that majority of states, and allow this important alternative remedy to stand.

Here is the link to the Oral Argument. The relevant argument starts at 1:39.

Here is QBE's Brief.

Here is Chalfonte's Brief.

Can a Carrier's Delay Toll the Period of Restoration? -- Understanding Business Interruption Claims, Part 10

Michelle Claverol — Sun, 07 Mar 2010 08:41:51 -0500

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

Last weekend, I took a little break from blogging to spend time with my parents and siblings to reconnect and reinforce bonds that sometimes get loosened in the life of a dedicated young attorney, who perhaps wants to accomplish too much, too soon in life. While I learned that family bonds are unbreakable and that I can accomplish anything I want in life, Chip, who I am convinced has a clone, blogged about an interesting topic in business interruption claims that generated some debate.

Ideally, commercial interruption claims should be handled by both, the insured and the insurer, in swift and skilled manner. The expediency in which a commercial interruption claim is handled could make or break a business right after a loss. In last week’s blog, Chip noted that:

My experience is that many insurance company adjusters lack the thorough understanding of finance, business management, and accounting required to properly adjust commercial business income and extra expense claims. Most commercial adjusters never do, and lack the skill to do, the income and extra expense calculations themselves. Instead, usually after a delay, the business income claim is referred to insurance accounting firms that provide the analysis only of the numbers, without also having the business operational skills needed to properly determine the amounts owed.

While there may be many talented commercial insurance adjusters out there with the necessary skills and experience who can avoid this situation and, like I, can accomplish anything they want in life, the reality is that some commercial interruption claims are delayed because of carrier mishandling. This can, in turn, lead to a long and protracted legal battle.

For example, in Omaha Paper Stock Co., Inc. v. Harbor Ins. Co., 445 F.Supp. 179 (D.C. Neb. 1978), the court held that:

Where attorney for insured under business interruption policy wrote to adjusters requesting that they advise insured by letter as to any matter which would expedite resumption of operations, but adjusters never responded to the letter nor verbally accepted responsibility to inform insured of any failure by insured to perform as required under the contract, insured could not rely on silence as an acceptance of its attempt to shift the burden of responsibility under the due diligence clause of the contract, and insurer was not estopped from contending that any delay in resuming operations was attributable to lack of due diligence by the insured.

Further, in Hampton Foods, Inc. v. Aetna Casualty, 787 F.2d 349 (8th Cir. 1986), the insured was forced to vacate its building due to an imminent danger of collapse. Coverage was denied, but the trial court ruled in favor of the insured. However, the parties still quarreled over the business interruption calculation. The carrier argued that the period of restoration should be the amount of time it would have taken Hampton to reenter business, had it received payment from Aetna initially. The appellate court disagreed with the carrier and, relying on Omaha, held that the theoretical period of restoration should be reasonably extended because the delay in recovery was due to actions of the insurance company.

One of my mantras in commercial interruption claims is that policyholders should always consider retaining experts to present their claim to avoid the common dilatory pitfalls in this area of the law. Glad to be back. Stay tuned for more.

Consequences of a Policyholder's Failure to Mitigate

Corey Harris — Sat, 06 Mar 2010 08:07:49 -0500

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

Think about this for a moment. A homeowner accidentally leaves something in the oven before heading off to the mall for an afternoon of shopping. Unfortunately for our hypothetical insured, that once tasty treat has caused a substantial fire which destroyed part of the house. Under almost all homeowner’s insurance policies, these damages would be covered despite the fact that the fire was caused by the insured’s negligence.

Under those same set of facts, if our wannabe Emeril Lagasse fails to properly mitigate those same fire damages, coverage could be reduced or even avoided all together by the insurer.

The general rule in insurance law is that a policyholder’s prior actions will not necessarily void coverage for a loss, even if that loss is directly caused by the negligence of the individual. After the loss, however, failing to take the appropriate measures to mitigate could lead to an increase in the amount of damages and may substantially reduce coverage or even eliminate it in some instances.

In a fire loss, for instance, the insured should make sure to remove any undamaged property if there is a question about the stability of the walls in that particular area. This was the exact situation that one court addressed in Suttir v. Indemnity Co. of America, St. Louis, Mo,. 226 Ill.App. 214, (1st dist. 1922). In this case, the Court refused to hold an insurer liable for damage to a car that occurred when the walls around it collapsed as a result of previous fire damage. The Court reasoned that the insured knew the walls of the building might collapse and had failed to properly mitigate the damages by moving the automobile to a different location. Therefore, the insurer should not be responsible for the further damages.

The exact consequences of a failure to mitigate are determined by the terms of the policy as well as the particular jurisdiction. Normally, the damages that result from the failure to mitigate the loss may not be covered, leaving the insurer responsible for only the original damages. A Louisiana court followed this partial recovery theory when a policyholder’s roof was damaged by wind and the house suffered periodic water damages over a long period of time. Higginbotham v. New Hampshire Indem. Co., 498 So.2d 1149 (La.App. 3 Cir.1986).

In Higginbotham, the Court held that although the insurer was responsible for the cost of replacing the roof, the policyholders were liable for damages sustained after the storm “where measures could have been taken to reasonably protect the premises from further deterioration.”

A similar decision was reached in Texas, when one court was asked to determine whether the duty to mitigate damages was a condition precedent to recovery, meaning that coverage was void if the appropriate steps were not taken. Fortunately for the policyholder, the Court found that “the failure to mitigate damages is an offset to recovery under the generic homeowners policy, and the district court erred and abused its discretion when it instructed the jury that mitigation was a condition precedent to recovery.” Carrizales v. State Farm Lloyds, 518 F.3d 343 (5th Cir. 2008).

There are cases in which a failure to mitigate may void coverage completely. Some courts have found that where the cooperation clause requires an insured to exercise all reasonable means to protect, safeguard, and salvage property, there is a possibility that the policyholder could void coverage altogether if this is not done. See Slay Warehousing Co., Inc. v. Reliance Ins. Co., 471 F. 2d 1364 (8th Cir. 1973).

Regardless of whether coverage is lessened or outright forfeited, these cases all have one thing in common – the problem could be avoided. Generally after loss, the first thing on an insured’s mind is not “how can I mitigate these damages, and have I done enough to comply with my obligations under the policy.” In fact, most insureds do not even know what the cooperation clause is, and who can blame them? How many people spend their lives immersed in insurance case law and treatises?

This is why it is important for homeowners to have professionals working for them as quickly as possible after the loss. Whether it is a public adjuster, attorney, or water remediation specialist, having someone there to guide you and make sure things are done properly can be priceless in the end.

Sinkhole Proposed Law Only Pays Policyholder 25% of Available Coverage--Lessons of How the Insurance Lobby Spins a Message

Chip Merlin — Fri, 05 Mar 2010 00:05:37 -0500

The poor policyholders whose homes cracked, popped, and dipped as a result of sinkholes induced by citrus farmers spraying their crops to prevent freezing damage should be happy it happened to them this year. Newly proposed anti-consumer sinkhole legislation would limit policyholders to 25% of their coverage limits for the most common sinkhole problems.

Florida House Bill 1447 Provides:

Section 10. Subsection (1) of section 627.706, Florida 288 Statutes, is amended to read:

627.706 Sinkhole insurance; catastrophic ground cover collapse; definitions.—

(1) .... In order to reduce the impact of sinkhole-related insurance fraud, the insurer making sinkhole coverage available under this subsection shall specify a sinkhole coverage limit equal to no more than 25 percent of the structure ("Coverage A") limit under the policy. The sinkhole coverage limit does not affect the coverage limit for catastrophic ground cover collapse. The coverage limit for sinkhole losses includes payments for both indemnification and expenses.

The full amount of the limits are available for "catastrophic" sinkholes. But, catastrophic collapse is extraordinarily rare compared to the typical sinkhole collapses that afflict most homeowners. Most sinkhole catastrophes result in a slow death of a structure-- losing its soil support over months and years. Fixing those sinkhole problems in an inexpensive manner has proven difficult and this is where many battles exist between insurer and policyholder.

Insurance companies that have these losses want to pay as little as possible. Policyholders want a repair that will work and not subject them to concern that the home will start sinking again.

The cheap sinkhole fix that insurers want, and many bought and paid for insurance company experts support, is through the use of grout. Grouting a sinkhole loss as a repair method does not work in the long term and often does not work in the short term. I have had policyholders come to me after their home was destroyed during grouting. Neighborhood homes and roads can be impacted by grouting. I had a condominium retain me after the insurer poured so much grout into the sinkhole that no more policy limits remained. Many "grout only" sinkhole clients become repeat clients just a few years later.

Homeowners who repair a sinkhole with grout alone will lose significant market value of their home. It is bad enough that a homeowner loses value just by having a fully repaired home that has the stigma of being inflicted with a sinkhole. Losing additional value because potential buyers know that a "grout only" repair was performed is another reason why this legislation is so bad. The only repair homeowners will be able to afford is to repair with "grout" and in many, if not the majority, of instances, even a "grout only" cheap fix will exceed 25% of the available coverage.

Yesterday, I noted how insurance industry lobbyists used "spin" to sell their agenda to our well-meaning legislators. In this instance, the insurance lobby is using "insurance fraud" and "insurance abuse" as the "spin" to package an idea and agenda that will appeal to our well-meaning officials.

Who is against "insurance fraud?" Everybody is. Even if not fraud, who is against "insurance abuse?" Everybody is.

When insurance industry lawyers and lobbyists start using these terms to justify the reasons to limit coverages and benefits to policyholders, conservative legislators should understand that those lobbyists are "playing" them. Anytime an insurance company claims adjuster wrongly underpays a claim to a customer, the excuse and fall back is that the otherwise innocent and good insurance customer is deviously getting something they do not deserve and "inflating" the claim. The insurance industry would have your legislators believe that their own constituents are evil wrongdoers by requesting and claiming full f benefits when the insurer under-estimates and under-pays. If this were true, insurance would be the most defective product ever devised by mankind because it makes otherwise innocent citizens into crooks whenever they want more than the insurer thinks is owed.

The new mantra of insurance propaganda and the insurance lobby "spin" is:

"It is not only fraudulent claims that are wrong. All "inflated" claims are wrong and we have to do something about it."

Sounds good. And, it is "spin." From the insurance company perspective, "inflated" means more than what the insurance company calculates a claim should be paid. The insurance propaganda suggests that innocent policyholders are manipulating the system to get something they do not deserve, rather than the reality: the sophisticated claims adjusters and insurance company claims technicians have devised methods and arguments of repair, after thousands of similar claims, that are routinely under paying the full benefits owed to a policyholder.

It is extraordinarily profitable and provides a competitive advantage to devise methods to underpay claims and get away with it.

There was a reason why Allstate lied about the existence of and failed to fully turn over secret and internal property insurance claims documents to the Florida Senate and the Office of Insurance Regulation several years ago. Those documents evidenced a homeowners claims methodology that applied Allstate's carefully studied ways to make its property claims department a "profit center" by paying less on homeowners claims than other insurance companies. Allstate was so afraid to turn over these documents that it was sanctioned to not sell policies until it provided the Florida Senate and Office of Insurance Regulation with them.

I sometimes wonder whether our legislators have forgotten about these lessons and problems of underpaid and delayed claims in just a few years. I wonder whether they remember Allstate lawyers refusing to frankly and honestly answer questions. I wonder why they would be so inclined to now listen to insurance industry lobbyists and lawyers today, after they were so discredited just a few years ago.

These experiences and knowledge are sometimes overlooked today because legislators are our representatives for a relatively short time. Many were not present when these issues were raised just a few short years ago. The insurance industry has time on its side and the resources to develop and implement effective strategies to influence legislators.. I can now appreciate how our elected officials can be swayed by the clever insurance lobby.

In contrast, there are not so many insurance consumer advocates. Policyholders are working at their jobs, hoping that their elected officials will protect them. At the same time, full time insurance lobbyists are trying to provide the needed "political protection" to legislators that support the insurance industry proposed laws by providing the "spin" that will be placed into newspapers, magazines, and television so that otherwise anti-consumer legislation falsely appears as good public policy.

Insurance issues are generally not new. Problems that occur generally have arisen in the past or for reasons that are difficult to solve. The current debate about health insurance is an example of how difficult it can be to find a simple answer to these tough questions.

However, having a insurance product that leaves people with only a portion of the money needed to fully and properly repair an unfortunate calamity is a defective insurance product. Laws should not encourage such underpayment. HB 1447 may be grounded upon legitimate concerns which should be addressed, but it is the wrong solution to the problem for the unfortunate policyholder that has suffered sinkhole damage.

Senators Mike Fasano and Rhonda Storms Come to the Rescue of Policyholders

Chip Merlin — Thu, 04 Mar 2010 06:14:46 -0500

The Florida Senate Banking and Insurance Committee has a number of very intelligent and very well meaning members. Two of them, Senator Rhonda Storms and Mike Fasano stood up yesterday to the insurance lobbyists who know little about insurance, but a lot about propaganda and politics. Full time and professional insurance lobbyists have one agenda--achieve their clients agenda. They have an army of lawyers, a ton of money, and their message is "spin" at its finest. No wonder so many public servants can get snowed by the misinformation and insurance industry proposed laws.

Let me give you an example of what every claims adjuster would recognize as complete stupidity in the insurance world and that insurance lobbyists provided as an analogy to support their position that 20 year old roofs should be separated out of the replacement cost coverage. A lobbyist explained that their proposed law allowed insurance companies to take depreciation on old roofs even under a replacement cost policy. He said this was just like a situation where a five year old car is wrecked and the insurance company replaces it with a five year old car rather than a new car. Now, most of the people reading this Blog know that is a ridiculous and misleading example when applied to real property loss. The reason why is that you cannot buy a five year old roof. There is no ready market of five year old roofs to purchase. And, there is no ready market to purchase five year old nails, shingles, tiles, and whatever else is needed to repair a five year old roof. Indeed, finding and acquiring five year old parts as a replacement will be a lot more expensive than using new materials.

An insurance industry lawyer-lobbyist told the Senators that before the 2006 Replacement Cost Laws that require insurers to immediately pay replacement costs for policyholders who purchased replacement cost insurance, Florida did not require claims repairs to be paid that way. Instead, according to that lawyer-lobbyist, under actual cash value principles, insurers could hold back depreciation before repairs were made. Wrong again. Florida is one of many states that require "repairs" of structures on an actual cash value basis to be made without depreciation taken. Glens Falls Ins. Co. v. Gulf Breeze Cottages, 38 So. 2d 828 (Fla. 1949) In Glens Falls, the Florida Supreme Court decided this very issue:

When insured structures suffer damage far less than total loss, appropriately compensable only by repair, is the measure of indemnity the cost of repair, necessary to render the structure habitable, rather than cost of repair less depreciation?

The discussion of this longstanding Florida law that all adjusters learn was strangely similar to the discussion taking place in the Senate hearing room. I wonder why the insurance lobbyists did not tell the Senators about it and its very sound logic followed by many states when considering how much must be paid when partial repairs are made? The Court noted and found:

The appellants urge us to make a distinction between the damage to a roof and to other parts of a building, going so far as to say that no contention is made that depreciation should be allowed on repairs to the ‘main portions' of a building damaged by windstorm; that even though the other parts of the building repaired after damage from a storm would be in better condition than before repair, nevertheless the insurer should not be relieved of his duty to make those repairs. Of course to the insurer there may be reason, from a practical standpoint, why the roof of a building might fall into a separate category, that being the part of the building which always feels the full force of the elements, but we must take into consideration the protection which is sought and granted when an insurance company contracts with an owner of property to insure him against loss.

The appellants and the appellee agree, and the chancellor announced, that the contract was one of indemnity. Appellants themselves in their brief concede that in the case of partial loss it is the duty of the insurer to restore the property to its condition prior to the loss (if the cost of doing so does not exceed the amount of the insurance), although the cost of doing this ‘is proportionately more than the amount of damage bears to the value of the insured building.’ Appellants do not dispute the soundness of that rule. In a contract of that character the companies undertook to save the owner from harm caused by ravages of storm, and we think the responsibility obtained without distinction between the roof and the remaining components of the structure. We are not referred to any provision of the contract making any such distinction.

Since the buildings were only partially destroyed, it was all the more necessary, for the reasons we have given, that the roofs should be in good condition in order that the structures might remain habitable, and there seems no occasion for holding that, although the repair of other parts places them in better condition than they were before the damage, a different yardstick should be employed in measuring the amount due for the repair of roofs.

Bearing in mind that the purpose of the contract was to indemnify the owner against loss, we think...that the property should have been placed in as nearly as possible the same condition that it was before the loss, without allowing depreciation for the materials used. Certainly it was not intended that the repairs should be made with materials which were not new. If depreciation were allowed, it would cast upon the owner an added expense which we do not believe was contemplated by the parties when they entered into the insurance contract.

The Florida Supreme Court therefore followed the line of reasoning that actual cash value of partial losses to real property is the amount to repair without depreciation, limited by the total amount of available insurance. It would be a strange quirk if the Florida legislature not only receded from its recent 2006 laws, but, in doing so, took away seventy years of common law protecting insurance consumers---and have the nerve to call the proposed law a consumer protection bill.

Legislators would be well served if they removed insurance industry lobbyists from their "trusted" advisors and only partly for the example I just provided. These insurance lobbyists use conservative principles as "spin." They package anti-consumer laws that will harm Floridians using phrases that appeal to conservative values, although the laws are illogically anti-consumer, but "sound good." For example, who is against the "free market" or "competition?" Nobody. So, every time these insurance industry lobbyists propose a law, they package it in such terms, although the terms do not apply. Conservative legislators should be outraged that the insurance industry lawyers and lobbyists are misappropriating the terms that describe conservative core values and using them to mislead the legislators into supporting laws that truly do nothing to foster the free market or competition, but only hurt their constituents. Conservative legislators and constituents should be further outraged that these lawyers and lobbyists have such inroads into our democratic process because of enormous wealth and resources.

Still, I must apologize if my rhetoric is too harsh regarding our elected officials . I can be as guilty as anybody of getting excited about an issue. I truly meant the following I posted in The Florida Insurance Lobby Currently Controls the Rhetoric Regarding Public Adjusting in Florida:

Everybody reading this should remember a few important aspects about our democratic process, the need to participate, and the need to reform when criticism is warranted:

1. Most elected officials truly want to make the "world, country, state" a better place to live and work. They are not corrupt, but are truly well meaning people.

2. Politicians viewpoints on issues are often ignorant because nobody knows everything. If full-time insurance lobbyists show propaganda to these elected officials that only shows that policyholders are getting something they do not deserve... you do not need to be a genius to appreciate their impressions and viewpoints.

3. Many insurance companies require and train their employees and agents to speak with elected representatives about issues in such a way to slant impressions to elected representatives about the need for laws that protect insurance company interests over consumer interests. They often have these scripted out as talking points so that the propaganda actually makes it sound like the proposed law is in favor of the policyholder---usually through the promise of lower rates which then never materialize or do so at the cost of not having coverage.

4. Unless interested people take an active role to visit with, write, and support representatives that appreciate the truth and the need for policyholder protection, the full time lobyists and employees of the insurance industry will prevail with their message.

5. You have to participate if you want justice to work in a democracy because large corporate interests have already figured this out and spend massive money and time coordinating special interests by industry.

...

7. Show up and support representatives that appreciate the consumer side of insurance. You need to encourage and provide financial support to consumer organizations...

8. If you want justice, you cannot just sit back and expect others to do it all for you. You have to work at it with your time and money. Make a commitment and stick to it. If it is important enough, make a big commitment and encourage others. One person can make a difference.

9. Do not get discouraged. I have visited with and provided information to various representatives for a number of years. Sometimes, I have felt like it is just me, a few lobbyists I have personally hired because I have to work on my cases, and just a handful of others in Tallahassee trying to push for laws that favor consumers...I feel as if I have wasted a significant amount of money and time while some other colleagues simply do nothing and provide no support. And, I still keep at it.

In contrast, the insurance lobbying effort is massive, professional, and full time. They can outspend and provide greater numbers of individuals in their efforts.

And, policyholders cannot give up because the alternative is unjust laws. Those well meaning political representatives understand the enormous wealth and resources of corporations. Contrary to popular rhetoric and demeaning criticism, most elected representatives are not "paid off" or "corrupt." They will listen if you can present a credible and persuasive impression that is based on genuine and authentic truth of an issue.

I enjoyed providing some of my knowledge and explaining my appreciation for insurance to our elected representatives yesterday. Insurance is a wonderful man-made financial product. The issues before the legislature are not easy. Insurers need to make a profit and we need to develop a larger supply of available insurance. Doing that and providing an affordable product that pays fully and promptly demands lawmaking based on truth, logic, and knowledge.

Complete Disclosure Is Necessary When Applying For Insurance; Otherwise, You May Pay A Lot For Nothing

Donna DeVaney — Wed, 03 Mar 2010 07:00:32 -0500

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

The last time I wrote, I stressed the importance of maintaining sinkhole coverage on property located in Florida and I explained the very restrictive application of catastrophic ground cover collapse coverage. Now, I want to stress the importance of properly completing the insurance application.

Most applications require the applicant to state whether there is any damage or disrepair to the property and whether there are any known sinkholes in the area. This information is important to insurance companies so they can decide whether they want to take the risk and underwrite the policy. I have seen it on far too many occasions where insureds have suffered a confirmed sinkhole loss at their home or business, but their claim is denied because of a misrepresentation on the application.

While most everyone relies on their insurance agent to fill out the application and signs the application without reading it, it is a very bad idea to do so. Everyone who signs an insurance application should read it thoroughly and make sure all information is correct at the time the application is submitted. If there is damage or disrepair at the property (i.e. cracks, etc.) or if there are any known sinkholes in the area at the time the application is filled out, this information must be disclosed. Even if you follow the advice in my last post and purchase sinkhole coverage, if you do not disclose all information on the application, the insurance company may nonetheless deny your covered claim. Don’t let that happen to you.

Be familiar with the condition of your property at the time you fill out the application and disclose all known conditions that are responsive to questions presented in the application. If you don’t, you may be buying a very big headache down the line.

Texas Windstorm Insurance Network Symposium Set May 11 in Dallas

Chip Merlin — Tue, 02 Mar 2010 08:15:30 -0500

Texas is where "the game" is being played regarding insurance coverage disputes in 2010. The Windstorm Insurance Network will hold its second Texas Insurance Symposium on May 11, 2010, in Dallas, Texas, where many of the issues related to windstorm coverage will be discussed. Certainly, the coverage issues raised by Hurricane Ike litigation will be highlighted.

Appraisal is an often debated topic in Texas. The Symposium will host a special class devoted to Certification of Umpires in the Appraisal process. For those actively participating as or wishing to be appointed as Umpires in Texas appraisals, you simply cannot miss the opportunity to enroll in this class.

WIND Umpire Certification®

This workshop will provide the necessary certification to any¬one who wishes to be included in the Windstorm Insurance Network Umpire Directory. The first segment will focus on eth¬ics and professionalism as an umpire in the appraisal process. Case law will be the subject of the second segment. The final segment will address forms and awards.

Faculty: Janet L. Brown, Esquire, Boehm, Brown, Fischer, Harwood, Kelly & Scheihing, P.A.; John Voelpel, Voelpel Claim Service; Jon Doan, Claims Consulting Group; Dick Tutwiler, Charles R. Tutwiler and Associates; Javier Delgado, Esquire, Merlin Law Group.
REQUIREMENTS: Space is limited to the first 100 registrants.

This is a double-session, Part 1 and Part 2 MUST be taken together.

Javier Delgado and Tina Nicholson have been writing on Texas insurance issues every week in this Blog. Tina addressed Texas appraisals in Recent Court Decision in Texas Regarding Appraisal. Javier is on the Umpire panel for this symposium and will certainly address some of the new issues that are being raised since State Farm Lloyds v. Johnson was decided last year by the Texas Supreme Court.

A highlight of the Symposium and session that nobody will want to miss features two stellar panelists. Fortunately, there is no limit to the registrant size of that workshop:

Gulf Coast Insurance Case Law Update: Texas, Mississippi, and Louisiana

This workshop will discuss and review recent property insur¬ance case law from Texas, Mississippi, and Louisiana. It will include interpretations of how courts in the various states are ruling on insurance related issues. Developments in the three states that take up the western part of the Gulf will become more and more important as the impacts of storms such as Ike, Gustav, and even Rita and Katrina become important on the legal landscape. This panel, composed of a policyholder and a carrier’s attorney, will update you on the latest legal develop¬ments in Texas, Mississippi, and Louisiana and also provide a lively debate on whether the trends are pro-insured or pro-carrier.

Faculty: William “Chip” Merlin, Jr., Esquire, Merlin Law Group; Stephen Pate, Esquire, Fulbright & Jaworski LLP

Dr. Robert Hartwig of the Insurance Information Institute, recently provided a presentation to the National Association of Mutual Insurance Companies. He indicated that Hurricane Ike was the fourth most costly insured catastrophe in the United States and the third most costly hurricane. Hartwig’s statistics indicate that Hurricane Ike resulted in approximately 1,350,000 insurance claims. As this symposium is taking place in Texas, I am sure the material will be especially relevant to adjusters and attorneys dealing with current windstorm claims issues. Don't miss it.

The agenda is listed here.

Proposed New Senate Bill Filed: Policyholders Lose Prompt Replacement Cost Payments and Older Roof Insurance Coverage

Chip Merlin — Mon, 01 Mar 2010 18:10:34 -0500

If you are a policyholder, don’t expect prompt payment of replacement cost benefits and payments for damage to older roofs if Florida Senate proposed legislation passes. A proposed bill filed as a substitute that will be heard in the Florida Senate and Banking & Insurance this Wednesday was just released this afternoon. I have not had an opportunity to review it in detail, but a number of anti-consumer provisions are contained within this proposed legislation.

The Florida Senate’s proposed law allows homeowner policies that will not pay the cost to fully repair a damaged roof older than 20 years. This will cause significant hardship to retirees and just about everybody else who is not wealthy. If your 21 year old roof gets destroyed in a fire and you have this new policy, you may get paid only a small amount of money to replace it. This is a significant shift in the historic manner of how insurance works. Insurance typically insures the entire structure and provides sufficient money to repair or replace that structure from an insured event.

Homeowners, especially those on fixed budgets, will suffer even if the roof is perfectly fine. The proposed law takes away provisions that passed just recently requiring the immediate payment of replacement cost for real and personal property. A few insurance companies pay replacement cost right away under their contracts. This proposed law takes away the requirement of prompt payment and allows insurers to hold back benefits until the replacement is made and a construction contract or a receipt is produced. Chances are that claims payments will be delayed, and we will have the same problems we did before laws were passed outlawing the delays associated with replacement cost payments.

More later….

How Profitable and Common is Not Finding Damage and Claim Delay by Insurers?

Chip Merlin — Mon, 01 Mar 2010 08:00:41 -0500

Departments of Insurance throughout the United States regularly conduct examinations of insurance company claim files. These are known as Market Conduct Examinations. The Claims Spot recently noted in 5 Claims Issues Cited for Non-compliance on Market Conduct Exams & 3 Tools to Avoid Them, recurrent wrongful claims practices by insurance companies since 2006 that are not being corrected by the insurance industry. Those highlighted wrongful practices were listed and then explained to be correctable with "basic" action:

1. Failure to acknowledge, pay or deny claims within specified time frames
2. Failure to pay claims properly (sales, tax, loss of use)
3. Improper documentation of claim files
4. Failure to communicate a delay in the settlement of claims in writing
5. Use of unlicensed claims adjusters or appraisers

All of these findings could have been avoided with enforcement of best practices and an internal review process. With some basic actions, a company can minimize or eliminate their risk of being out of compliance.

Numbers one and four seem to answer this post's question about the frequency of delay. The strong probability is that number two is not the result of paying too much. It does not take a genius to figure out that it is more expensive to properly and promptly adjust claims because an insurer has to hire and train enough motivated adjusters looking for all the damage that a catastrophe causes. Not finding all the damage because adjusters do quick and insufficient investigations would seem to save claim expense dollars and claim indemnity dollars that should have gone to the policyholder.

Adjuster Don Phillips and Gary Greenfield had an interesting exchange in their comments to Frank Artiles guest post, Everyone Must Participate In The Political Process. Their observations mirror my impression of the inherent profits that are wrongfully gained as insurers fail to spend a sufficient amount of time and effort looking for all the damages or by placing roadblocks to recovery which lead to many policyholders simply giving up. Here is what Phillips first wrote:

I agree with the statement that it is the dishonest Floridians that cause problems. However that sword cuts both ways:

Isn't it also dishonest for an insurer to fail to promptly investigate a claim and pay for everything covered under the policy?

I disagree with the suggestion that if a claim is made more than 3 years after a loss it is somehow "dishonest". My experience as a claims manager of many years for insurance companies and now as a public adjuster with the people making these claims is that they are far from dishonest. What I have found in the majority of these cases was that the policyholder was always in disagreement with the original adjustment of their claim. However, those policyholders felt powerless to dispute the insurer's hired "experts".

Policyholders are not litigious by nature. They often do not bother to seek legal counsel and insurance companies often end up not paying claims because policyholders simply give up and drop the matter. Until recently, most policyholders did not know what a public adjuster was or how public adjusters could help them. They certainly do not understand the full rights and benefits afforded to them under the policy. Many insurance company adjusters forget to explain those benefits, and the "forget" is being polite.

Does the delay in pursuing these claims cause a hardship on the insurer? I would say yes. Does that hardship trump the insured's right to be compensated for legitimate covered damage? I would say no.

As long as the delay has not prejudiced the insurer's ability to investigate the claim, than all this ruckus about late reporting is nothing more than an attempt by insurers to not fairly compensate their policyholders. Often, the delay in reporting the full amount of damage is brought about by insurance company adjusters not closely inspecting structures for all the damage. And, I often wonder if that failure to closely look for and then pay all the damage is by mistake or a calculated method of underpaying a claim. (emphasis added)

Public adjuster Gary Greenfield then challenged Phillips:

You ask, "Does the delay in pursuing these claims cause a hardship on the insurer?" And you answered "yes."

What hardship is that? Please explain that to me.

From my view, the insurer benefits significantly from the delay. It has been getting premiums paid and investing those funds between the time of the loss and when the claim is paid.

Significantly, if the delay is the result of systematically not finding loss and the full amount of damage as you suggest, delaying payment is a carrier's claim profit strategy.

Insurers, by not spending the time and effort to find and test for all the damage, especially the subtle damages done to roofs and the fastening systems caused by high wind events, then they are leveraging the scale of economics hugely in their favor at the expense and hardship to their policyholders.

Sadly, policyholders pay for these wrongly unpaid damages by having roofs that wear out and need replacing far before their useful life would normally run. (emphasis added)

The reason the Florida legislature passed the pro-consumer legislation following the 2004 and 2005 storms was because of the various claims problems caused by insurance companies. Delay was rampant and so was underpayment. These laws should not be changed, but strengthened. The insurance industry's own consultants say that "basic" changes could stop the delay and underpayment of claims--which has not stopped, according to their own vendors and consultants.

On Friday, I started my "going to the client" campaign that will start to show how insurers really operate. In that case, Hartford delayed, dictated how a fire loss would be repaired, and then underpaid a significant commercial developer. If insurance companies act wrongfully in the claims of policyholders with affluence and influence, insurers will act wrongfully on any claim. My client’s story will be videotaped, shown on this blog, and sent to his representatives. I suggest that my colleagues and public adjusters start a similar campaign to explain what is really going on in the claims industry rather than do nothing and listen to or read propaganda of insurance lawyer lobbyists.

Indeed, Representative Dean Cannon, a Republican leader in the Florida legislature, told me a story of how his homeowners carrier caused difficulty and delayed paying his claim. Things have changed since my discussion with him, and the question now is whether our elected leadership is going to do something about insurer transgressions and protect their constituents or continue the trend that started a year ago by placating the insurance lobby that has been funding many of the campaign coffers of our elected leadership.

The Period of Restoration Does Not End When the Business Is Sold or Operations Cease

Chip Merlin — Sun, 28 Feb 2010 15:50:25 -0500

Michelle Claverol has been writing a weekly post every Sunday regarding business interruption and extra expense issues. I can tell that weekend posts are not read as often as those published during the workweek. I encourage those involved with commercial claims to go back and review her discussions of this important commercial coverage. She went home to visit with her family this weekend, and her leave provides me an opportunity to address a business income question that is asked of me on a fairly frequent basis:

What happens in the valuation of a business income claim when the business closes or is sold after the loss?

What generally "happens," is the insurance company limits the period of restoration to the time that the business decision is made not to re-open or the business is sold. I then get a phone call asking if the insurer can do this. As usual, the best place to start such an analysis is to read the relevant policy language and then check an authoritative source. In this case, I will use IRMI.com, which everybody who claims to be a "professional" in insurance coverage and claims should subscribed to, along with the FC&S Bulletins.

The form CP 00 30 reads:

c. Resumption Of Operations

We will reduce the amount of your:

(1) Business Income loss, other than Extra Expense, to the extent you can resume your "operations," in whole or in part, by using damaged or undamaged property (including merchandise or stock) at the described premises or elsewhere.

(2) Extra Expense loss to the extent you can return "operations" to normal and discontinue such Extra Expense.

d. If you do not resume "operations," or do not resume "operations" as quickly as possible, we will pay based on the length of time it would have taken to resume "operations" as quickly as possible.

Demonstrating its value and proving why it should be subscribed to, the IRMI.com has a specific discussion of both issues:

Election Not To Resume Operations. Note that the resumption of operations provision does not require the insured to resume normal operations as soon as possible. Instead, it establishes that the insured's business income or extra expense loss will be calculated based on the amount of loss that would have been suffered if the insured had resumed normal operations as soon as possible. Thus, an insured who elects not to resume operations at all is entitled to a recovery for the business income that would have been earned or the necessary extra expenses incurred during the time it should reasonably have taken to resume normal operations. The same is true of an insured who does not resume operations as quickly as possible.

Sale of Property during Period of Restoration. In BA Props., Inc. v. Aetna Cas. & Sur. Co., 273 F. Supp. 2d 673 (D.V.I. 2003), Hurricane Marilyn damaged the insured's hotel in the U.S. Virgin Islands. While the hotel was undergoing repairs, the insured sold the facility. The insurer argued that the sale of the hotel during the period of restoration terminated the insured's right to receive further business income coverage. The court disagreed. The court held that the amount of the insured's business income loss was fixed as of the time of the hurricane to the amount of lost profits that would have been earned during the period of restoration. The court noted that the business income policy did not expressly require that the insured actually recommence business activities at the hotel as a prerequisite for coverage. If the insured decided to shut the hotel for good after the hurricane, the insurer would still have been obligated to pay the entire business income loss through the entire time it would have hypothetically taken to rebuild and reopen the hotel. Selling the hotel midway through the period of restoration was no different than belatedly deciding to shut it down. In either situation, the insurer was still obligated to pay out the rest of the business income loss. (emphasis added)

Sometimes, a catastrophe is the perfect time to close or sell a business. Commercial policyholders that make such difficult business decisions can still obtain significant business income benefits which many insurance adjusters may otherwise deny.

My experience is that many insurance company adjusters lack the thorough understanding of finance, business management, and accounting required to properly adjust commercial business income and extra expense claims. Most commercial adjusters never do, and lack the skill to do, the income and extra expense calculations themselves. Instead, usually after a delay, the business income claim is referred to insurance accounting firms that provide the analysis only of the numbers, without also having the business operational skills needed to properly determine the amounts owed.

I suggest that unless the commercial claims representative immediately explains the broad benefits potentially available and shows a willingness to fully pay for them, most commercial policyholders need to promptly retain professional help. Often, an insurance agent or broker has a much more thorough understanding of how the insurance product, through business income and extra expense benefits, can potentially save a business from closure. Still, at this most crucial time following a loss, many commercial policyholders have to wait months to get agreement or payment of these benefits. Closures as a result of these delays can be prevented by insurance companies understanding their products and getting money, the lifeblood of any business, back into the business as soon as possible.

Tiger Woods Scandal Highlights Insurance Protection Needs for Brands, Intellectual Property, and Events

Chip Merlin — Sun, 28 Feb 2010 04:45:28 -0500

Risk managers involved with analyzing a corporation's enterprise risk have a myriad of perils to be concerned about. A risk sometimes overlooked from an insurance perspective is brand value and expenses associated with the investment of brand marketing and advertising. An article in the New York Times, Insuring Endorsements Against Athletes’ Scandals, noted that just seven companies that had endorsements from Tiger Woods lost over $12 billion in market value during the month following the announcement of Woods’ troubles.

The New York Times article indicated that many companies hedge against the risk of such failed celebrity endorsements by purchasing insurance:

"Many companies take out death and disability insurance to cover themselves in the event that an athlete or celebrity endorser dies or is injured while under contract. In a new wrinkle, more companies are trying to insure against the potential loss of sales when an athlete product endorser is involved in a scandal.

...

Dan Trueman, who runs the enterprise risk department at R J Kiln & Company...said his firm had seen an eightfold increase in inquiries into this type of insurance between September and December, the bulk from pharmaceutical and financial service companies. “It’s more than just the flavor of the week.”...

Calculating the amount to insure against is not easy. Insurers said they based their assumptions on how much revenue grew after an athlete or celebrity became a company endorser. In some cases, the cause and effect is direct — for example, in the case of signature Tiger Woods golf shirts sold by Nike. But companies that employ athletes or celebrities for more generic brand building are now also looking for financial protection.

...

Insurance policies can cover money paid to athletes as well as the cost of producing and booking television commercials, print advertisements and other promotions. Some insurers will also cover the costs of new commercials with replacement athletes.

...

According to Trueman, the underwriter at Kiln: “Tiger Woods has made people think about their reputations. These days, people don’t worry about the office burning down, but about their intellectual property being damaged.”

In Woods’ Woes Help Market New Coverage, the National Underwriter noted that Woods' scandal has created a significant demand for a new "reputational risk" insurance. There are a number of valuation issues with this type of coverage which are difficult from an underwriting and claim viewpoint:

"Lori Shaw, sports and leisure practice leader for Aon Entertainment Group, said that quite a few companies use celebrity endorsements in their advertising, while noting that in the United States there are usually moral clauses in the contract allowing sponsors to break ties with the individual spokesperson should they do something criminal or against public policy.

However, while there is usually insurance coverage in place in case of a celebrity spokesperson’s death or disability, allowing the company to recoup costs and expenses for the campaign and launch a new one, coverage for damage due to a celebrity scandal is harder to come by.

The trickiest part is creating a policy that will protect revenues or profits from the loss of a campaign, said Ms. Shaw. That means being able to show something quantifiable about the campaign’s effects on the company’s business. “Sometimes [the client] believes it’s a better idea to bear that risk than to transfer that risk because of the perceived cost,” she noted."

Dewitt Stern offers a "reputational risk" coverage and noted in a press release,'Reputation Risk Insurance' Introduced by 110-Year-Old Risk Advisory Leader, Dewitt Stern, that it will even cover lost sales. I anticipate there will be huge differences of opinion on that claims valuation issue because most of my entrepreneurial business clients are optimistic about endeavors and claims managers are generally more pessimistic than a snowball in a heated oven:

"The Tiger Woods scandal shows how quickly reputations can become tarnished in today's fast-paced media environment," said LeConte Moore... "All the planning in the world cannot protect a brand manager against the unforeseen. Reputation Risk Insurance will provide those forward-looking brand managers and advertisers with a...way to protect their investments."

"Reputation is arguably a company's single greatest asset, and in the era of instant information, it is more vulnerable than ever," said Scott Brady...

DeWitt Stern's Reputation Risk Insurance will compensate policy holders for:
• Lost sales;
• Crisis management fees;
• Lost advertising campaign expenses, and
• Pre-committed and incurred endorsement fees."

We can learn lessons from life's tragedies that happen to others. As indicated in Tiger Woods Affair Highlights the Impact of Separation or Divorce on Insurance, coverage can be affected by those events. Fortunately, as indicated here, the insurance product can often help hedge against the financial loss from them as well. For those involved with events that may be dependent on celebrity appearance, I suggest you also read Event Cancellation Insurance and the Michael Jackson Tour.

Mitigating a Costly Loss: Who Pays the Bill?

Corey Harris — Sat, 27 Feb 2010 06:35:07 -0500

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

Since an insured has an obligation to mitigate any damages that occur, one question is who should pay for these efforts? In many instances, there will be specific policy language which states that the insured will be entitled to reimbursement for any temporary repairs or other mitigation efforts which he/she incurs as a result of a covered loss. Similarly, most policies will state whether these expenses will be added against the policy limit or are considered additional coverages. It is important to read and understand the particular language of the policy in order to make this determination, especially with a large loss where the costs to protect the property from future harm can be very expensive.

If the policy is silent as to whether the policyholder is entitled to reimbursement for these expenses, many courts have found that they are. In City of Laguna Beach v. Mead Reinsurance Corp., 226 Cal.App. 3d 822 (Cal.App. 4 Dist. 1990), for instance, the Court focused on the fact that the insured’s duty to mitigate the damages is intended for the benefit of the insurer by lessening the amount that must be paid under the policy. The Court held that since the temporary repairs were intended to benefit the insurer, the policyholder was entitled to reimbursement.

In McNeilab, Inc. v. North River Ins. Co., 645 F. Supp. 525 (D. N.J. 1986), a New Jersey court came to a similar conclusion. The McNeilab Court found that where an insured took steps to minimize damages which had already occurred, the insurer must reimburse the policyholder for the reasonable expenses incurred.

Also, for mitigation expenses to be reimbursed, the loss being mitigated usually must be covered under the policy. See Swire Pacific Holdings, Inc. v. Zurich Ins. Co., 139 F.Supp. 2d 1374 (S.D. Fla. 2001). Likewise, in Witcher Const. Co. v. Saint Paul Fire and Marine Ins. Co., 550 N.W.2d 1 ( Minn. Ct. App. 1996), the Court held that the policyholder’s obligation to prevent or mitigate harm does not arise until insured subject matter is threatened by covered loss, but if the prevented loss falls within an exclusion, the insured has no right to indemnity for its efforts.

Therefore, if the loss is determined not to be covered by the policy, the insurer may not have an obligation to reimburse the policyholder for expenses associated with temporary repairs. This, however, should not deter anyone from taking all reasonable steps to prevent further harm. Many times, there is coverage for things which at first glance may seem to be excluded by the policy. With the exclusions, exceptions to exclusions, and the like, insurance policies are a maze of coverages, and many require a professional to interpret. Even if you think a loss may not be covered, it is important to take the steps reasonably necessary to prevent any further damage so as not to provide the insurer with a possible basis for denying a claim that turns out to be covered.