Property Insurance Coverage Law Blog

How to Prepare for an Examination or Sworn Statement Under Oath if You are a Policyholder or Public Adjuster

rreynolds@merlinlawgroup.com (Bob Reynolds) — Wed, 11 Nov 2009 08:49:49 -0500

(Note: This Guest Blog is by Robert Reynolds, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the eighth of a thirteen part series he is writing on examination under oath).

“I’ve never taken a deposition, what kinds of questions are they going to ask me?”

This is a question posed to me most often by policyholders when they receive that dreaded notice for an examination under oath. As most people have never had the pleasure of sitting under a bare bulb being browbeaten by an overzealous insurance defense attorney, insureds usually have no idea what is in store for them at an EUO. First, as I usually explain EUOs are NOT depositions. As the court distinguished in Goldman vs. State Farm, 660 So2d 300 ( Fla. 4th DCA 1995), depositions are products of law suits, inherently adversarial, while EUOs are part of the policy’s post-loss obligations, where the policyholder has a duty to cooperate and assist the insurer in their investigation and evaluation of the claim. Therefore, as the insured has a duty to cooperate, yet most have never been involved in the EUO process, how should a policyholder prepare for an EUO?

First and foremost, I implore everyone reading this, before you sit for an EUO hire an attorney. While I know that sounds self-serving, I mean it. If a carrier requests an EUO, its representative will undoubtedly say something like, “We are here to evaluate all facts and circumstances surrounding this claim so that the carrier may make an informed assessment of the claim.” And while this may be true sometimes, many other EUOs are called with an eye toward looking for reasons to deny the claim.

Insurance defense attorneys reading this just cringed. Why? Insurance companies are mandated by law to evaluate claims in terms of looking for coverage and, in fact, it is an act of bad faith for insurers to misuse the post-loss obligation in an attempt to search for reasons for denial. With that being said, I attended an EUO recently in which opposing counsel opened the questioning by holding the policyholder’s application for the policy and asking the policyholder the same questions contained within said application. The insured was very confused and asked for a break to confer with me outside the room. I, however, was not confused. Under Florida law, and most other jurisdictions, if a misrepresentation has been rendered by the insured on the application for the policy, it’s possible for the insurance company to void the policy ab initio, that is, as if it never existed and return the policyholder’s premium. Thus, no policy, no claim.

My point is, in the EUO process, the insurance companies have attorneys working very hard for their best interests, most insureds are by no means experts in insurance law, and even a question innocently answered could lead to a denial. If the same question had been answered in a different fashion, but still honestly, no denial would result. For example, let’s suppose an insured suffers a pipe break. Water from the pipe is spraying behind a wall and soaking the dry wall. Within a few days, even if reasonable effort is employed to dry up the area, mold may grow in the effected area. If the insured is called to EUO and innocently testifies that his/her loss consists of mold all over the drywall the defense attorney will squeal with delight, as mold is usually excluded or severely limited under most policies. What should have been said is: the drywall was wet by the water from the broken pipe and later, despite efforts to dry the area, mold grew on the drywall. What’s the difference? The drywall being wet by a broken pipe is completely covered under most policies without limitation. Further, the mold growing on the wet drywall would also be covered up to the limits for mold on the policy, but even if mold is excluded from coverage, the wet drywall is still covered. This is a prime example of why the policyholder needs an attorney advocating for them at an EUO.

With that being said, what can a policyholder do to prepare for an EUO? First, I recommend that a policyholder sit down and create a time line for the claim. When did they become aware of damage? What was the property’s condition prior to the loss? What steps were taken immediately to mitigate the damage (taking steps to temporarily repair the property so it is not further damaged is another post-loss obligation with which an insured must comply)? When was the insurance company called? Were any statements made by the insured to the insurer? And if yes, consistency is a must in the EUO process. What repairs were made? Who effectuated the repairs? How much did they cost? If an estimate has been submitted by a public adjuster or other professional, have the person who generated the estimate explain it to the policyholder so everyone agrees on the damage being claimed. Also, it is important to note that EUOs are not memory tests. If a policyholder wants to write down a list concerning the above questions and refer to it at an EUO they may. One caveat, however: if notes are being used, be prepared for the defense attorney to ask for a copy and possibly attach the notes to the EUO as an exhibit.

Further, the insurer has probably asked the policyholder for documentation to be provided in conjunction with the examination. The policyholder should diligently gather these documents and provide them to defense counsel BEFORE the EUO in order to avoid having defense counsel demand to review the documents and ask the insured to come back for a second examination in which they are asked questions about the documents. In addition to gathering and providing the documentation, the policyholder should review and become familiar with the contents of said paperwork in order to be able to answer questions directed to them by defense counsel. In other words, the policyholder should become an expert about the facts and circumstances surrounding his/her own claim. I know some people reading this are saying, “Why? Isn’t the insurance company there to help me?” In a perfect world, yes, but, unfortunately, the world we live in is all too often imperfect. For even if one is an expert on the facts and circumstances surrounding the claim, they are still not an insurance expert. As a mediator I know is fond of saying: hire a good attorney, get a good result, and this is especially true during the EUO process.

Tune in next week insurance fans when we discuss What Public Adjusters Need to Tell Their Clients About Examinations Under Oath and Why Public Adjusters Need to Be Careful About Giving Legal Advice.

A Recent Florida Court Decision on Subrogation

rDeMinico@merlinlawgroup.com (Ruck DeMinico) — Tue, 10 Nov 2009 11:36:02 -0500

On Target, Inc. v. Allstate Floridian Ins. Co., as Subrogee of Anthony and Nancy Podorski
No. 2D08-4887, ___ So. 3d ___
(Fla. 3rd DCA October 30, 2009)

Nancy and Anthony Podorski hired On Target, Inc., a leak detection service, to locate a leak under the floor of their home. The On Target technician who responded presented Mr. Podorski with a two-page form titled “Customer Information Card and authorization to proceed with the work.” The Customer Information Card authorized On Target to find the leak, provided general information about the nature and extent of the services provided by On Target, and the indemnification provision at issue in this case:

In the process of locating your leak, furniture may need to be moved; carpet may need to be cut and rolled back; tiles or linoleum may need to be lifted and/or other non-tech tasks performed including excavations. If requested and attempted, On Target Technicians will use due care to accomplish these chores, HOWEVER On Target Inc and On Target Technicians shall not be responsible for any damage whatsoever, actual or perceived, which may result from any locating procedures. If the first locate is incorrect, the Technician will return for a relocate. Property owner, tenant and/or guardian hereby agrees to hold harmless On Target Inc and On Target Technicians absolutely in this regard and to defend same in any action which may develop pursuant to any of these activities.

(Bolding in original.)

Mr. Podorski signed the Customer Information Card to authorize the work, and left. The On Target technician found the leak, made a hole through a single floor tile (in the foyer) and into the slab, and performed a temporary repair. A plumber repaired the pipe permanently. The Podorskis could not find a matching tile to replace the tile the On Target technician damaged in locating and temporarily fixing the leak, so they filed a claim with their homeowner's insurance carrier, Allstate. Allstate approved the replacement of all the tile in the Podorski’s home, costing $17,290. Allstate then demanded reimbursement from On Target, and On Target denied liability.

Allstate, as subrogee of Mr. and Mrs. Podorski, filed an action against On Target for breach of contract. On Target filed a third-party complaint against Mr. Podorski for indemnification. After the circuit court denied Mr. Podorski's motion to dismiss On Target’s complaint against him, Allstate filed a notice dismissing its action against On Target.

On Target then sought recovery of the attorney fees and costs incurred in defending Allstate's subrogation action from Mr. Podorski, pursuant to the indemnification provision in the Customer Information Card. The trial court refused to award On Target its attorney's fees and costs, finding that “the vague and ambiguous language on the Customer Information Card renders any intended indemnification unenforceable.” The court relied on the Florida Supreme Court’s decision in Cox Cable Corp. v. Gulf Power Co., 591 So. 2d 627 (Fla. 1992).

Florida’s Second District Court of Appeal reversed the lower court’s decision. In Cox, the Florida Supreme Court held, “that indemnity contracts which attempt to indemnify a party against its own wrongful conduct will be enforced ‘only if they express an intent to indemnify against the indemnitee's own wrongful acts in clear and unequivocal terms.” On Target, 2009 WL 3489396 at * 3 citing Cox, 591 So. 2d at 629. The Second District explained that Cox and the other cases Allstate relied upon applied only when a party wants to be indemnified for a loss caused by its own wrongful acts. The Court noted that in this case, there was no finding or clear allegation that On Target acted in a wrongful manner. Allstate’s complaint against On Target alleged breach of contract for breaking the tile without Mr. Podorski’s express authorization, not negligence. Further, Allstate dismissed the complaint, so there was never a determination of whether On Target acted wrongfully.

Even assuming that the On Target Technician acted wrongfully, the indemnification provision at issue in the Customer Service Card was distinguishable from the provision at issue in Cox because it was much more specific. The final sentence included the phrase “in this regard” and identified On Target and its technicians as the indemnitees. “Thus the owner agrees to hold harmless On Target and its technicians only to the extent that “any locating procedures” undertaken by them cause damage to the owner's property.” On Target, 2009 WL 3489396 at * 5. This provision clearly put Mr. Podorski on notice that the locating procedure may cause limited damage to the property for which On Target could not be held liable. The indemnification provision applied only to the scope of the work, not all possible wrongful acts like the provision at issue in Cox.

As Allstate's complaint sought damages caused by the locating procedures, the indemnity clause applied to On Target's defense of the lawsuit, and On Target was entitled to recover reasonable attorney fees and legal costs from the Podorskis.

Read the complete Court Slip Opinion here.

Hurricane Ida and the Unpredictable Weather

cmerlin@merlinlawgroup.com (Chip Merlin) — Mon, 09 Nov 2009 09:53:56 -0500

No hurricanes all summer. The water is cooling. People are preparing for Thanksgiving and muttering about retail shops putting up holiday lights in the first week of November. And out of the blue comes Hurricane Ida.

I am supposed to be in Poplarville, Mississippi tomorrow morning for an event with former client, Pearl River Community College. I was hoping to see Mississippi Congressman Gene Taylor about his efforts to demand a hurricane policy that covers wind, flood, and storm surge. I doubt any of this will happen, given the wide projections of landfall for Hurricane Ida.

Instead, Florida panhandle clients have been calling and asking what to do. Storm surge is probably the most potentially devastating aspect of Hurricane Ida unless a tornado or microburst hits. Florida panhandle beachfront businesses and residents have suffered pretty significant beach erosion since Hurricane Ivan. Generally, there is far less protection from the impact of waves, surge and flood in most areas from Gulf Shores, Alabama, eastward to Cape San Blas, Florida. These are beautiful white sand beaches that have had significant growth since the early 1970's.

This is what a Florida panhandle resident and meteorologist Rocco Calaci has to say about Hurricane Ida this morning:

Hurricane Ida has shown everyone that she is on her own schedule. The storm moved faster than anticipated and now is weakening sooner than expected. Current sustained winds have dropped from 105 mph to 80 mph and should make landfall as a very minimal Category 1 hurricane and weakening as it moves over land.

Hurricane Ida is moving slightly towards 340 degrees from its' position at 16 miles per hour. This is an increase of 4 miles per hour in the forward speed. The different models seem to agree that Ida will make landfall early Tuesday morning near 7:00AM. The media keeps saying landfall will be at Pensacola Florida, but it will probably be inside the Alabama border at Orange Beach and Gulf Shores Alabama.

No one has sighted Jim Cantore from the Weather Channel, so the exact landfall spot is iffy. Al Roker from NBC will be in Pensacola for the landfall of Hurricane Ida. The last time Mr. Roker was in Pensacola was during Hurricane Ivan and he was a lot heavier then. Hopefully someone will be holding on to him during his live broadcasts tomorrow.

What is interesting is that there are still some numerical models that place the landfall near New Orleans, but the upper level winds at 30,000 feet will keep Ida along the Alabama - Florida border. Winds will steadily increase throughout the day as Ida moves closer to shore. Wind speeds tomorrow morning will be around 50 to 60 miles per hour sustained with higher gusts along the immediate coast line. As Ida continues to weaken, these wind speeds will most likely decrease.

Once Ida makes landfall tomorrow morning, winds will lower to tropical storm strength in general, but be aware of isolated gusts that could be as high as 65 miles per hour. From eastern Mississippi towards New Orleans, winds will be from the Northeast and East at speeds between 45 to 55 miles per hour on the shoreline. Gusts will be a bit higher, but the local environment plays a significant part in gustiness at each location.

Hurricanes release destructive energy over widespread areas. As I am writing this, insurance catastrophe adjusting teams are making final staging plans. There is a myriad of significant decision making at governmental levels. These decisions pertain to evacuation calls for low areas, shelters, governmental closings, etc. The impact on local communities cannot be overstated as a result of Hurricane Ida--even if it is a relatively late storm that is expected to weaken--nobody will take it lightly.

Florida's Valued Policy Law and the "Total Loss" Conundrum in Multiple Causation Losses

mclaverol@merlinlawgroup.com (Michelle Claverol) — Sun, 08 Nov 2009 10:22:01 -0500

(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the third in a series she is writing on valued policy laws).

Valued Policy Laws (VPLs) are relatively easy to define as those that require payment of policy limits in the event of a “total loss” caused by a covered peril, even though the insurance carrier could rebuild the property for less. To therefore speak in terms of a VPL, the loss in question must be deemed total.

Florida’s first VPL was enacted in 1899. The Legislature never defined the term “total loss” and to date, it has been left up to the courts to interpret these elusive words. One can imagine the defense attorneys of the time arguing that if a fire left at least one wall standing, it was to be considered a partial loss and not a total loss for VPL purposes. The Florida Supreme Court has since adopted the “identity test” where a structure is considered a total loss if the building has lost its identity and specific character and it has become so far disintegrated that it cannot be possibly designated as a building, although some part of it may remain standing or be valuable for some purpose. Lafayette Fire Ins. Co., v. Camnitz, 111 Fla. 556 (Fla. 1933). Other courts have narrowed the test to require a total loss of the building, but not necessarily the absolute extinction of all its materials, or even that no part of it is left standing. See, Greer v. Owners, 434 F.Supp.2d 1267 (N.D. Fla. 2006). In a nutshell, we’ll know when we see it.

A building may also be deemed a total loss, for VPL purposes, if it is rendered a “constructive total loss.” A constructive total loss occurs when a building, although still standing, is damaged to the extent that ordinances or regulations actually prohibit or prevent the building’s repair. Netherlands Ins. Co. v. Fowler, 181 So.2d 692 (Fla. 2d DCA 1966). In practice, a constructive total loss finding will greatly depend on opinions from local authorities on the extent of the damage and reparability of the structure.

Today’s VPL requires the total loss be caused by a covered peril for which a premium has been charged and paid. This means that if the total loss was caused by both covered and excluded perils, the VPL will not apply, and the insurer will only be required pay the percentage of the damages attributed to covered perils.

The statute, however, provides that if the covered perils alone could have caused the total loss in a multiple causation scenario, then the VPL will apply and the carrier may not apportion the loss. See, Fla. Stat. §627.702(1)(b). Unfortunately, these modern nuances frequently force both sides to retain experts in a VPL scenario to prove or dispute the total loss and to find that the covered peril could have caused the loss in its entirety, even in the presence of a concurrent and excluded force.

Much has changed since 1899 and some may say that today’s VPL is akin to Mary Shelly’s monster, only endearing once fully understood. Tune in next week where I will examine more valuation issues in property insurance claims.

Site Problems with Posting Comments and Email Notification of New Posts

rDeMinico@merlinlawgroup.com (Ruck DeMinico) — Sat, 07 Nov 2009 09:06:07 -0500

The hosting site for this blog is experiencing problems caused by a massive amount of comment spam generated by 'spambots' automatically posting random junk comments to their network.

The hosting site has temporarily disabled comments on the blog while fixing the issue. They have also had to temporarily disable the email notifications that are sent out when there is a new post to the blog.

We apologize for these problems. The hosting service has estimated the problem will be fixed within the next 48 hours and comments and email notifications will be working again.

Thanks for your understanding.

Proof of Loss: Wavier Part II

charris@merlinlawgroup.com (Corey Harris) — Sat, 07 Nov 2009 08:39:59 -0500

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

As was discussed in my last post, Proof of Loss: Waiver, Part I, if possible you should file a Proof of Loss in the applicable timeframe. Not doing so can cause a myriad of problems and under some policies, National Flood Insurance, for example, can provide the insurer an excuse for denying the claim all together. As previously discussed, however, there are some circumstances in which an insurer may waive the requirement of filing a Proof of Loss. Last week we discussed that express waiver occurs when an insurer explicitly states, either orally or in writing, that the filing of a Proof will not be required. This week we will focus on implied waiver, or waiver which occurs as a result of the actions and/or conduct of the insurer.

Generally, waiver may be implied from any act or pattern of conduct by the insurer or its authorized agents which reasonably tends to create a belief in the mind of the claimant under the policy that notice need not be given or that proofs of loss will be unnecessary. There is a wide range of acts and conduct which may be used to argue that an insurer has waived its right to have a Proof of Loss filed.

For instance, an insurer may waive its right to a Proof of Loss if its actions or conduct lead the insured to believe that no Proof will be required. As one court held:

Where the insurer or its agents have formed a relationship with the insured or acted towards him in such a way as to cause the insured to reasonably believe written notice and formal proofs of loss will not be required, the insurer will not be permitted to raise such matters as a defense.

Integrity Ins. Co. v. Lindsey, 444 N.E.2d 345, 347 ( Ind. Ct. App. 1st Dist. 1983).

Similarly, an insurer’s failure to demand a Proof of Loss may result in the insurer waiving its right to do so. The laws of some states, and the terms of some policies, only require a Proof be filed if demanded by the insurer. Thus, if a Proof is not demanded and the proper forms are not provided, the insurer may be found to have impliedly waived its right to do so. In King's Gym Complex, Inc. v. Philadelphia Indem. Ins. Co., 433 F. Supp. 2d 256 (N.D. N.Y. 2006), for instance, the court stated:

New York Insurance Law § 3407 provides that the failure to produce proof of loss will not invalidate the claim unless the insurer gives a written notice and a blank form. The purpose of Insurance Law § 3407 is the protection of the insured from the consequences of oversight in failing to timely file a proof of loss which is a condition precedent to recovery.

While this case and others like it may provide an argument for waiver if an insurer does not demand a Proof of Loss or provide the necessary forms, it is important to note that this can occur in very limited circumstances. Unless required by statute or by the terms of the Policy, an Insurer may be under no duty to demand compliance. Therefore, without knowing the policy provisions and the relevant local laws, failing to file a Proof of Loss may give the Insurer an opportunity to deny coverage.

Finally, an insurer’s denial of the claim may waive its right to a Proof of Loss, depending on the law of the jurisdiction and the language of the policy. For example, some courts have held that when an insurer has denied coverage for a loss on grounds other than failure to comply with a proof of loss requirement, the insurer has certified that it has investigated the claim thoroughly enough to make a proper decision as to coverage under the policy. Thus once coverage has been denied, filing a Proof of Loss is pointless and might not be required, as one court pointed out in the following:

It is the law generally that the unconditional denial of liability within the period allowed by the policy for the filing of proof of loss constitutes a waiver of the requirement. The rationale behind such holdings is that the denial of liability on other grounds before the time to file the proof of loss has expired, indicates that the insurer has already made up its mind to refuse payment for any loss and therefore filing of proofs of loss would be a vain and futile act.

Balogh v. Jewelers Mut. Ins. Co., 167 F. Supp. 763 (S.D. Fla. 1958).

It is important to note that there is one major exception that courts have found when addressing waiver of the Proof of Loss requirements when the claim has been denied. When an insurer denies a claim before the Proof is required to be filed but reserves its right to other defenses which are not stated or have not arisen, some courts find that an insured’s failure to submit a Proof may be used as an additional reason for denying coverage.

While an insurer will assume the risk that its denial of coverage and reservation of rights will be allowed by a particular jurisdiction, an insured must be careful to protect his or her interests as well. In many circumstances, filing a Proof of Loss even after denial may be the best way to prevent any future claims of non-compliance with the insured’s post-loss obligations.

Other circumstances exist when an insurer may waive the right to have a Proof of Loss submitted due to the insurer’s actions or course of conduct. Each case is fact specific and should be analyzed extensively and thoroughly documented. As I have discussed previously, an accurate and detailed timeline of events can be critical in framing and supporting any waiver argument, and I recommend that one be created in most instances.

The lesson to take away from this week, as well as my post last week, is that if possible a Proof of Loss should usually be filed. Doing so can cut down on the variety of headaches that can come from having to argue that a waiver has occurred. If filing a Proof is not possible or has not occurred, however, there may be circumstances which may excuse the insured, depending on the individual situation.

Check back next week when we will finish up this three part mini-series on waiver by discussing who has the authority to waive the Proof of Loss requirements.

Antitrust Implications for Insurance Trade Organizations that Promote Inter-Company Networking

cmerlin@merlinlawgroup.com (Chip Merlin) — Fri, 06 Nov 2009 10:40:15 -0500

Lately, there has been quite a bit of discussion about insurance industry immunity under the antitrust laws. The most recent discussion has been about health insurance. I have mentioned it somewhat in a past post, Where is the Antitrust Enforcement Anyway?

So, I found it quite fascinating to notice the Antitrust Statement issued by the Property Loss Research Bureau (PLRB) and the Liability Insurance Research Bureau (LIRB) at their Large Loss Conference this week. The statement provided in part:

Presenters and attendees at the LARGE LOSS CONFERENCE must remember that their respective firms are competitors in the marketplace and the McCarran-Ferguson Act and the laws of some states provide the insurance industry with only a very limited immunity from federal and state antitrust scrutiny. Therefore, the presenters and attendees must exercise care during all presentations and discussions, since even the most innocuous discussions of certain topics might later be misinterpreted as evidence of collusion.

There are a number of important aspects to this statement. First, adjusters at conferences must appreciate that their colleagues from other businesses are competitors in the marketplace. Second, since they are competitors, antitrust laws apply to them. Third, the antitrust exemptions and immunities granted to insurance companies are very limited.

One impression I have of the public policy to allow antitrust exemptions is to provide for sharing of loss history and common form coverages to help regulators make certain that insurance companies would not charge too little and risk financial ruin in an attempt to gain market share. Insurance companies going broke and not paying claims after widespread disaster is never good for the public.

Nevertheless, the Antitrust Statement issued by these entities to the claims executives and adjusters attending this conference correctly warned that collusion can (and normally does) take place and of the specific subjects of discussion which should be avoided between adjusters working for different companies:

At the LARGE LOSS CONFERENCENCE, and all educational, social, and business development events connected with this meeting, there should be no discussion or agreement, formal or informal, express or implied, as to any matters which might give rise to an allegation of antitrust laws. Subjects to avoid include:

*rates;

*underwriting practices;

*marketing strategies;marketing responses to legislative, regulatory, or other developments;

*prices or costs of any products or services offered for sale by insurers or purchased by insurers;

*individual insurance company positions on coverage issues and other matters of insurance policy interpretation; agreements or understandings relating to claim practices, policies, or positions;

*standards by which the performance of any insurer could or should be judged; codes of ethics;

*advantages or disadvantages of doing business in particular states;

*refusal to deal with, or boycott of, potential insureds or suppliers of products or services; use of particular suppliers of products or services; and

*costs or profits of any aspect of any of the above.

I am no expert on antitrust laws. When I first read this, I thought, "what the heck can we talk and learn about from our peers and colleagues if we cannot talk about any of this?" Given this extensive list, I suppose you could talk with your colleagues only about the weather or the Yankees winning the World Series at the networking functions.

The PLRB in particular has excellent materials and information regarding coverage and adjusting issues. I encourage my colleagues in the insurance industry to attend so they can do a better job learning the policy coverages and how to adjust and apply the insurance product. While the PLRB presents one-sided views because it prevents policyholder representatives from attending PLRB conferences, it still has very valuable educational information for claims managers and adjusters.

For example, some of the educational sessions involved Chinese Drywall, Complexities in Adjusting and Measuring Builders Risk Losses with Delay, and First-Party Cyber Losses. These are all very important adjusting topics that adjusters need to learn how to approach and then get monies to their customers suffering from these calamities.

Yet, if the purpose of the PLRB is to educate adjusters to do a better job, and if the adjusters are supposed to be concerned with promptly paying the full amount of benefits to policyholders, why are the PLRB proceedings and educational topics a secret only for the insurance industry? The PLRB claims that antitrust laws are supposed to be obeyed, but the educational information concerning how the products of the insurance industry work is withheld from the customers of these PLRB insurers.

Why would the insurance industry want to keep secrets from its customers about how the customers can expect to be treated if they have a claim? From the consumer's skeptical viewpoint, some may question if the motive is to prevent the insurance product form paying as much as it should. The PLRB and all exclusive insurance industry organizations discussing how their products perform should have their leaders and legal counsel determine whether the secrecy is in violation of law and is to help promote a collusive impact to pay consumers less than what is owed. Otherwise, why have the secrecy? Are insurance claims executives afraid that their customers may learn they are not paying all that is owed? In a scenario where the competitors meet together and can learn from each other, but exclude the parties to the other side of the deal, many should question what is really going on and the reason for the policy of exclusion.

As readers noted in my recent post, Safeco and Liberty Mutual Claims Practices Questioned on a National Basis: Policyholders Organize Against Wrongful Claims Practices, where I informed others of our consumer networking activities regarding Safeco’s and Liberty Mutual's claims handling processes and cases, the customers of Safeco and Liberty Mutual would want to know how certain aspects of their property insurance claims may be handled. The PLRB had a seminar, "Ordinance or Law: A Review of the Additional Coverage" that was taught in part by Fritz Lander and Jamie Minich---large loss quality assurance specialists from Liberty Mutual. Many Safeco and Liberty Mutual policyholders with disputes on these issues may wonder what its claims quality assurance specialists say behind closed doors to insurance insiders versus what their hired attorneys argue in open court.

Is the PLRB just paying lip service to the antitrust laws of this country? Remember a topic to be avoided--"advantages or disadvantages of doing business in particular states?" I wonder if the keynote speaker to this conference, lobbyist and insurance industry legislative strategist, Sam Miller of the Florida Insurance Council, touched on this topic when he presented, "Florida: Hurricane Alley & The Country's Trendsetter in Response & Recovery."

Overhead and Profit Ike Cases in Class Action Status and Gaining Media Attention

cmerlin@merlinlawgroup.com (Chip Merlin) — Thu, 05 Nov 2009 07:44:41 -0500

Houston Chronicle reporter, Purva Patel, filed an article, "They Want ‘Profits' of Ike," noting that Hurricane Ike policyholders who have wrongfully been denied payments for expected costs of general contractor overhead and profit are bringing their actions in class action lawsuits. Our law firm has filed some of these cases with Javier Delgado taking the lead. Javier was noted in the article:

"Javier Delgado, the attorney spearheading the lawsuits, said many homeowners who don't hire general contractors for their repair jobs don't realize they may be entitled to overhead and profit payments.

“Oftentimes the insurer is leaving it off the estimates completely,” he said, adding that for some homeowners the money can make the difference between making repairs or letting damage deteriorate.

Manuel Quezada, lead plaintiff in the lawsuit against Farmers, said an independent adjuster estimated Ike caused $12,500 in damage to his Sharpstown home.

Farmers made three estimates and, after accounting for a $5,800 deductible, sent Quezada $915 in advance with $3,000 due after repairs were completed.

The advance check wasn't enough to buy the materials, Quezada said, let alone pay for the skilled roofer, fencing contractor and drywall installer needed to make the repairs.

“I had to fix it myself,” said Quezada, who patched up what he could.

But because he couldn't make full repairs, he said, he couldn't recover the additional $3,000.

And because he couldn't prove he made adequate repairs, Farmers dropped its coverage of the house.

“It becomes a self-fulfilling prophecy,” said Delgado, who is representing Quezada in the lawsuit against Farmers. “They don't give him enough to make the repairs, and then they stop insuring him for not making repairs.”

Quezada has since had his roof repaired by a contractor that agreed to await payment from potential proceeds from the lawsuit.

Because Quezada needed to hire three specialists, he was entitled to at least $1,600 in overhead and profits if he acted as his own general contractor, Delgado said, based even on conservative repair estimates."

For those interested in this coverage topic, I have presented seminars and written a paper, "Withholding Overhead and Profit is Wrong if Insurance Companies are Trying to Act Right," for your study.

I noted this in my 2002 paper:

On June 12, 1998, the Texas Department of Insurance issued Bulletin #B-004598, indicating that the deduction of a prospective contractor’s overhead and profit and sales tax, in determining the actual cash value under a replacement cost policy, is improper. The Department noted that the wrongful interpretation of language in the Texas Standard Homeowner’s Policy generated two class action lawsuits and various inquiries to the Department’s position on the matter.

In explaining its reasoning, the Department noted that “there is no situation in which the deduction from replacement cost of depreciation and contractor’s overhead and profit and/or sales tax on materials will be the correct measure of the insured’s loss.”

Further, the Department noted that insurance companies are not allowed to charge premiums in excess of the risk to which they apply. Thus, under a replacement cost policy, the value of the contractor’s overhead and profit, as well as sales tax on building materials, are included in the premium, and if the insurer receives a premium on insurable values which loss may never be paid, “the insurer reaps an illegal windfall.”

Finally, the Department dispensed with the common argument that contractor’s overhead and profit, as well as sales tax on building materials, should be excluded from Actual Cash Value settlements because the insured has not incurred these expenses as illogical:

"Using this logic, an insured who opts not to repair or replace damaged property would not incur any of the expenses necessary to repair or replace the damaged property, including the costs of building materials, and would collect nothing under an actual cash value loss settlement. This result would be contrary to the purposes of the subject insurance policy."

In 2009, this rule still applies, and insurers that violate it can expect to be sued.

What is the Impact of a Wrong Answer at an Examination Under Oath? Do all Incorrect Answers Lead to Denial?

cmerlin@merlinlawgroup.com (Chip Merlin) — Wed, 04 Nov 2009 08:08:02 -0500

(Note: This Guest Blog is by Robert Reynolds, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the seventh of a thirteen part series he is writing on examination under oath).

Two weeks ago the issue of a policyholder refusing to answer questions was discussed in this blog. Hand-in-hand with that topic is: What if an insured renders an inaccurate answer during an examination under oath? This analysis should begin with the policy language. Every insurance policy I have ever read includes a fraud, misrepresentation, and concealment provision. Fraud is the willful intent to deceive. Misrepresentation is the willful act of presenting knowingly incorrect information. Concealment is the willful act of hiding facts or circumstances. The one common thread to this unholy trinity is that all three acts must be willful. That is, the policyholder must be participating in these acts intentionally. To be clear, over time just about everyone’s memory tends to fade. Hurricane Wilma occurred just over 4 years ago, and I’m quite sure a policyholder misremembering some of the facts of a claim that happened over 4 years ago will not lead to denial.

Therefore, in order for the policyholder to place his/her claim in jeopardy, the incorrect answer must have been asserted intentionally. But do all willfully made incorrect answers place the insured’s claim at risk? For example, suppose an insured was a bit touchy about their age and misrepresented it when asked at the examination. Does this misstatement alone lead to a potential denial? I would tend to doubt that. For unless the policy at issue is a life insurance policy, for example, or for some other reason the policyholder’s age is germane to either the underwriting of the policy or the claim directly, it would not seem just for the insurer to be able to deny a claim over the misrepresentation of a fact or circumstance that had nothing to do with the actual loss or evaluation thereof. Hence, as was previously discussed in this blog, it would appear that an incorrect answer given at an examination must be material to the loss and/or the carrier’s investigation and evaluation of the claim in order to place said claim in danger of denial.

Thus, willfulness and materiality appear to be the hallmarks necessary for an incorrect answer given by a policyholder an examination under oath to lead to the carrier to potentially conjure the specter of denial. In fact, a case from the Supreme Court of the United States of America concurs with this analysis. In Claflin v. Commonwealth Ins. Co,, 110 U.S. 81, 94-95 (1884) the High Court held:

The object of the provisions in the policies of insurance, requiring the assured to submit himself to an examination under oath, to be reduced to writing, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. A false answer as to any matter of fact material to the inquiry, knowingly and willfully made, with intent to deceive the insurer, would be fraudulent.

So there you have it: “A false answer as to any matter of fact material to the inquiry, knowingly and willfully made, with intent to deceive the insurer, would be fraudulent.” Of course, materiality may be viewed as a nebulous term which may be looked upon by a judge or jury as all-encompassing. As such, as in almost all circumstances, but especially when answering questions under oath, honesty is the best policy. Tune in next week insurance fans when we discuss how to prepare for an examination or sworn statement under oath if you are a policyholder or public adjuster.

Slabbers Finally Learn How They All Have Exactly 11.2% Damage

cmerlin@merlinlawgroup.com (Chip Merlin) — Tue, 03 Nov 2009 11:37:44 -0500

The Bolivar Peninsula TWIA policyholders have had the most frustrating insurance claim experience of any group in recent memory. While we have been having success with other Hurricane Ike claims, the Slabbers claims resolutions have proven difficult. They have not just back and taken this abuse either as I noted in Texas Windstorm "Slabbers" and Policyholders March on Austin.

One even made a joke about how, according to TWIA, they each have exactly 11.2% of building value damage, reflected in The Parable of Hurricane Ike Insurance Claims:

The parable is a story of two men, Larry and Moe, who were on the peninsula when Ike hit. Larry was struck by a flying 2X4 launched by the wind, then, when the surge came, he grasped a floating timber and made it to safety. He was treated for his injuries, estimated at 11% of his being.

Moe was not so lucky. He was killed instantly by a flying TV set. The storm surge subsequently swept his body away.

The medical examiner compared Moe's corpse to Larry. After taking several months to consider the situation, the examiner declared that Moe was only 11% killed by wind, because that's what happened to Larry. He opined that 89% of Moe's death must have been due to flooding.

As a result of Javier Delagado following up on evidence produced in an administrative trial, Slabbers finally have the answer of how TWIA performed the calculations that everybody has exactly the same damage. The person making the calculation for TWIA was University of Texas Professor William Spelman. The TWIA attorneys introduced his testimony via a previous administrative hearing to avoid expense—so much for the ability to confront and cross examine a witness. The TWIA pleading was very telling:

Dr. William Spelman provided sworn testimony in a previous contested case hearing involving a "slab" claim (see SOAH docket No. 454-09-3158.E). He has not been retained by T.W.I.A. to specifically evaluate any particular claim, but rather he was reetained to perform a statistical analysis from which all slab claims were evaluated by T.W.I.A. His sworn testimony offered in the previous contested case hearing explained the process by which he performed his statistical analysis, and another witness explained how that statistical analysis was applied to the particular slab claim.

Spelman’s transcript revealed that he has no insurance claim experience. Instead, his education is political science, economics, and public policy. He is not a contractor, estimator, meteorologist, or engineer. He teaches applied math and statistics at the University of Texas-Austin School of Public Affairs.

The “Reader’s Digest” version of what he did to calculate how each of the Bolivar Slabbers would be entitled to 11.2% was to perform a statistical regression analysis where three main variables were considered to provide a statistical expectancy that 95% of all residential Slabbers would fully be indemnified for wind only damage if TWIA paid 11.2% of the insured value of the structure. He was provided information and variables from 387 TWIA estimated claims of partial damage. After consultation with TWIA retained engineers, he considered 18 different variables from those claims, but found that only three of them had a significant impact upon the wind damage. Those three variables were:

Whether the building use was residential or commercial.
Whether the building was constructed before 2004.
Whether the roof was placed on the structure before 1989.

He determined a “loss ratio” which he defined as the Actual Cash Value payment by TWIA on the partial damage buildings divided by the Insured Value. The average residential payment loss ratio was 9.8%. But, if TWIA paid 11.2%, he calculated that 95% of all Slabbers would statistically have their full indemnity on an actual cash value basis.

There is much to criticize with this work. Indeed, from what we have reviewed regarding the accuracy and low-balling of the TWIA estimates of partial damage, the entire population will have to be revised. We will provide more on the extent TWIA underpays wind damage claims on partial losses.

Still, I felt that Slabbers are entitled to know the person and how the amount was arrived at. Here is the pleading and testimony for everybody’s review.

Florida Rates Are Rising--Not So Fast!

cmerlin@merlinlawgroup.com (Chip Merlin) — Mon, 02 Nov 2009 10:24:38 -0500

Last week, I made a statement in my post, Are Wind Mititgation Credits Killing Profits of Florida Insurers, that everybody is predicting insurance rates are going up . Then, the St. Petersburg Times ran a story, Citizens Property Rates Headed Up, or Maybe Down, Depending on Where You Live.

I was amazed. I expected all rates to go up somewhat and did not expect any to drop. I also expected the overall Statewide rate to go up approximately 10% based on the legislation and my work with the Citizens Mission Review Task Force.

Instead, the overall statewide rate will go up only 5.4%. I imagine the private carriers are not happy the rates are rasing so slow by Citizens. But, they must really be miffed that a governmental entity is lowering rates on average 9.3% in St. Petersburg and 8.6% in Hillsborough.

In Associated Industries and Private Insurers Want Florida Policyholders to Pay as Much as Possible for Property Insurance, I gave Barney Bishop a lot of grief for suggesting that each policy would have its rate raised by 10%. Still, I thought the overall average rate on a statewide basis would have increased by an amount much closer to 10%.

I do not think that it should be Florida's public policy to allow Citizens to compete with private insurers unless it is truly an insurer of last resort. When rates drop and Citizens is an active seller of insurance at prices that are competitive with private insurance rather than an insurer of last resort, it kind of smacks of socialism.

There are also all kinds of problems with Citizens executives lobbying our elected representatives to derail consumer protections. When a governmental entity is in a private business, as is Citizens, there are many activites that the government will undertake which are not in the consumer's or private enterprise's long term interest. Manipulation of rates for various purposes, especially political, could be one of the interests not helpful in the long-term to consumers or private insurers.

Valuation Issues in Florida, Part 2: The Current Florida Valued Policy Law

mclaverol@merlinlawgroup.com (Michelle Claverol) — Sun, 01 Nov 2009 08:04:38 -0500

(Note: This Guest Blog is by Michelle Claverol, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the second in a series she is writing on valued policy laws).

Floridians are very lucky. They have great weather, beautiful beaches and a Valued Policy Law (VPL) that requires insurers to pay the face value of a policy in the event of a total loss, without regard to the value of the property at the time of the loss. Only a third of the States have VPLs in effect, and many of those VPLs are only applicable to fire losses. In Florida, the provisions of its Valued Policy Law will be triggered in the event of a total loss caused by any covered peril, including hurricanes.

It is not surprising that in the aftermath of the 2004-2005 hurricane seasons, Florida’s VPL became the subject of heated litigation, academic discussions and legislative debate. The application of Florida’s VPL in cases where the total loss is caused by a covered peril(s) is fairly simple. The plot thickens in multiple causation losses and a solid understanding of the current applicability of Florida’s VPL is an essential requirement for insurance claim professionals.

Florida’s Valued Policy Law is codified under §627.702 of the Florida Statutes. The statute was significantly amended after the controversial decision in Mierzwa v. Florida Windstorm Underwriting Ass’n, 877 So.2d 774 (Fla. 4th DCA 2004). In Mierzwa, the insured’s home was damaged in part by hurricane winds, a covered peril under the policy, and partly by flood waters, an excluded peril. The Court held that pursuant to Florida’s VPL, an insurer was required to pay policy limits even if the total loss was caused in part by an excluded peril. The decision was based on a reading of the Florida’s 2004 VPL. If anyone had a problem with the ruling, they were to take it up with their favorite legislator in Tallahassee, and they did. A litigation frenzy ensued. Eventually, Mierzwa was disapproved by the Florida Supreme Court.

In Florida Farm Bureau Casualty Ins. Co. v. Cox, 967 So.2d 815 (Fla. 2007), the Supreme Court held that pursuant to Florida’s VPL, if a covered peril did not cause a total loss or a constructive total loss, an insurer will only be responsible for the percentage attributable to the covered peril.

In essence, today’s VPL, as amended, requires a causation analysis. Percentages will be allocated among perils, and the policy will govern the coverage and causation questions. However, it may still be argued under Cox, that if a covered peril causes a “constructive total loss” where demolition of the property is required by law, or the cost of repairs exceed more than 50% of the existing value of the building, a policyholder is entitled policy limits and should not be limited to the percentage attributed to the covered peril. This, of course, is the subject of heated litigation and coverage disputes. Luckily, I enjoy these tiffs.

Tune in next week when I will discuss “constructive total losses” under Florida’s VPL and more.

Proof of Loss: Waiver, Part I

charris@merlinlawgroup.com (Corey Harris) — Fri, 30 Oct 2009 23:02:09 -0500

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

Let me begin here by saying that this is only intended to be a general overview of some of the instances where an insurance company may have waived its Proof of Loss requirement. Determining whether a waiver has indeed occurred is usually very fact specific and can vary in different jurisdictions. Proof of Loss requirements under the National Flood Insurance Program, for instance, are very strict and allow waiver only in very limited circumstances. Thus, any waiver questions should be viewed and analyzed on a case by case basis.

With that said, it is important to note that, as I discussed in a previous post, What is a Proof of Loss, and What Purpose Does it Serve?, the Proof of Loss requirement protects the insurer. It helps the insurer gain a clearer perspective on the scope of the loss and aids it in determining coverage issues. This protection, like many other policy provisions designed to protect the insurer, can sometimes be waived. When this waiver occurs, the policy is read as if the Proof requirement has been struck from the contract.

There is a split of authority on when waiver may occur, if at all. Some courts have held that for waiver to be effective the insurer must do so before the end of the time period for filing the Proof, in accordance with an applicable policy provision or statute. In other circumstances, such as when a claim has been denied, some courts have found that waiver can occur outside of the normal 60 day period. See Connecticut Fire Ins. Co. v. Fox, 361 F.2d 1 (10th Cir. 1966). Either way, anyone involved in a claim should keep a thorough timeline detailing all statements and actions which might give rise to a claim for waiver so that it can be more easily determined when the waiver was actually effectuated.

There are generally two ways by which an insurer can waive a Proof of Loss requirement. First, the insurer may expressly waive the requirement either verbally or in writing. Second, waiver may be implied from an act or pattern of conduct by the insurer or its authorized agents that reasonably tends to create a belief in the mind of the policyholder that Proofs of Loss will be unnecessary.

Because of the breadth of information on both express and implied waiver, I have decided to break this down into a two week section. This week, I will focus on express, and next week we will delve into implied.

An insurer can expressly notify the insured in writing or verbally of its intent to waive the requirement. There are many reasons why an insurer may want to waive the Proof of Loss requirement, but, as with many other aspects of a claim, it is always a good idea for the insured to obtain a written confirmation. This can help head off any attempt by the insurer to later deny that the waiver occurred. Also, many policies state that no policy provision may be waived except by written agreement or endorsement. If this is the case, you should make every effort to get the waiver in writing. Doing this follow up could make all the difference in a claim and could prevent a plethora of headaches as you go forward.

There are some jurisdictions, however, which have held that such language may not prevent an insurer from orally waiving the Proof requirements. One Colorado case, for instance, stated:

The plaintiff here has raised the issues of waiver and estoppel in his summary judgment pleadings. Although timely compliance is generally a condition precedent to the insurer's liability, a satisfactory excuse for noncompliance may be shown. Capital Fixture & Supply Co. v. National Fire Insurance Co., 131 Colo. 64, 279 P.2d 435 (1955). A subsequent waiver of the conditions would constitute a valid excuse. Thus, there exists a genuine issue of fact as to whether plaintiff was induced by an agent of defendant to delay his filings.

Defendant argues that such a result is precluded here as a matter of law because the policy required all waivers to be in writing. We disagree.

The question of whether a provision in an insurance contract requiring all waivers to be in writing applies to post-loss conditions was settled definitively as early as 1931. Concordia Insurance Co. v. School District No. 98, 282 U.S. 545, 51 S.Ct. 275, 75 L.Ed. 528 (1931). In Concordia, the Supreme Court held that non-waiver provisions “ha[ve] reference to those provisions and conditions which constitute part of the contract of insurance and [do] not apply to a waiver, after the loss occurs, of stipulations in respect of things to be done subsequent to the loss as prerequisites to adjustment and payment.” The overwhelming majority of modern cases follow the Concordia rule. See 5 S. Williston, Contracts § 766 (W. Jaeger 3d ed. 1961).

We are in accord with the Concordia rule and its rationale as expressed in the Tenth Circuit court opinion. In fact, it applies with special strength here, because the language of the non-waiver provision construed in Concordia does not differ in any significant way from the provision construed here. Thus, we hold that the contract's requirements for submitting a proof of loss statement and for filing suit could be waived, even in the absence of a writing, because they were both conditions required to be performed after the loss occurred.

Circle C Beef Co. v. Home Ins. Co., 654 P.2d 869 (Colo. Ct. App. 1982).

This case, and others like it, may afford some important protection to policyholders in various jurisdictions, however, this protection is not certain. Some jurisdictions will hold that any waiver that is not in writing is not effective, and therefore, failing to get a written confirmation of the insurer’s waiver could be problematic to a claim.

So what is the best course of action? Of course, if at all possible, file the Proof of Loss! However, be aware that there may be some circumstance where the requirement may be waived.

Safeco and Liberty Mutual Claims Practices Questioned on a National Basis: Policyholders Organize Against Wrongful Claims Practices

cmerlin@merlinlawgroup.com (Chip Merlin) — Fri, 30 Oct 2009 07:44:25 -0500

Suppose you knew that your insurance company had started a new claims practice program called “Quantum Leap” to increase corporate practices by making certain no claim was overpaid—would you buy that insurance? Would you feel peace of mine if you knew that secret program was in place and had such a claims philosophy?

Chances are that if such a claims program were in place and advertised to potential purchasers, nobody would buy from that insurance company. Revenues would drop and losses would incur. So, when Safeco Insurance Company started on such a claims program to increase overall corporate profits, do you think the Safeco executives wrote their customers, agents, and potential purchasers about such a program if it were really in the customer’s interest as well? Of course not. But, this is exactly what happened at Safeco.

Last year, Liberty Mutual Insurance Company purchased Safeco Insurance Company. After doing due diligence, the managers and executives at Liberty Mutual knew that Safeco’s claims philosophies fit within Liberty Mutual’s. Liberty Mutual had its own claims payment reduction programs as well. Similar to Allstate, Liberty Mutual hired outside claims consultants to develop claims philosophies that added to corporate profit through claims reduction programs. The purchase of Safeco Insurance Company by Liberty Mutual Insurance Company is a match made in heaven for the short term investors of Liberty Mutual and the executives of those companies.

Our firm has been retained on a number of property insurance disputes involving these companies. As a result of my involvement in one particular matter where I have received no response from Safeco, I have decided to do something about these companies claims problems in the same manner I approached Allstate Insurance Company when I was chair of the Bad Faith Litigation Group for two years in the mid 1990s and Allstate was underpaying claims based upon its wrongful claims program known as Claims Core Process Redesign. I will help organize a cooperative effort of those that have been victimized by these companies to publicly warn other consumers of these companies’ claims practices and raise knowledge with regulators interested helping insurance customer interests.

While Chair of the Bad Faith Litigation Group, I presented numerous seminars regarding Allstate’s claims practices. An example is my 1997 presentation to the Montana Trial Lawyers Association, “Overcoming Allstate's Trade Secrets and Work Product Objections.” The results of these networking activities regarding Allstate were documented in part on previous posts:

My intention is to create similar networking and transparency with Safeco and Liberty Mutual and share the 150,000 internal documents we have already collected regarding the secret claims practices of these companies. In this manner, other victimized policyholders will not suffer the similar consequences without understanding why the claims programs were not isolated just to them and the real motive for the delays and denials by Safeco and Liberty Mutual. Possibly, executives at Liberty Mutual will stop these practices and do right to their customers. If not, at least brokers and customers will know what Safeco and Liberty Mutual are about when it comes time to pay fully and promptly following a loss.

On December 17, 2009, our firm with other consumer law firms will host a claims practice seminar in Houston that will focus on Hurricane Ike claims practices as well as Safeco and Liberty Mutual claims practices. Computerized legal databases now allow us to find all federal and most state lawsuits against Safeco and Liberty Mutual which involve property insurance or bad faith lawsuits. Those attorneys representing the policyholders will start getting their invitations today.

Websites about Safeco and Liberty Mutual along with Facebook sites will be up and running by next week so claims practice information may be shared among consumers, whistleblowers, and victims of these insurance companies. Honest and trustworthy insurance companies should applaud our efforts because companies that cheat on claims should not be allowed to gain market share by having lower rates by such practices than those that fully and promptly pay their claims.

Uninsured Loss Recovery for Policyholders and Subrogation Opportunities for Insurers: True Win/Win Claims Scenarios

cmerlin@merlinlawgroup.com (Chip Merlin) — Thu, 29 Oct 2009 06:29:48 -0500

Ever get a job assignment you wish went to anybody other than you? The First Party Claims Conference had one speaker drop out of a presentation, Subrogation Opportunities Do's and Don'ts, for which Jean Niven of our firm was the co-panelist. I had not prepared materials for a presentation nor given a public speech on subrogation topics since 1984, when I was still with Paul Butler representing insurers. While the novel issues concerning my presentation on The Science of Roof Damage Claims excited me, the truth is that claim issues of subrogation can be tedious for all adjusters. It is often an overlooked area of claims handling-especially from the policyholder's perspective.

I am fortunate that Jean Niven works closely with me on my cases because she is extraordinarily thorough and prepared. She makes me look far better than what I am. We have a tremendously successful track record when working on projects together, primarily due to her efforts.

Regarding the subrogation speech, she put together the cases and basic outline of the speech. As I went through it, I remembered various instances where subrogation rights and issues became significant considerations of a first party claim. As I studied the issue and thought about these experiences, I recalled that subrogation provides significant opportunities to a policyholder that may soften the blow from uninsured losses.

The first rule from the policyholder's perspective is that subrogation should become a major consideration when significant uninsured losses occur. It is becoming more frequent that policyholders have such uninsured damage scenarios for a number of reasons. These include, but are not limited to:

High Deductibles.
Exclusions
Being Under insured.
Having limited amounts of coverage for certain types of loss.
Co-insurance penalties.
Gaps in coverage.
Non-Covered Property

The greater the uninsured loss, the more important for a claims handler to suggest that policyholder counsel be retained to orchestrate a procedure to recover uninsured losses. Our firm strongly suggests that policyholders retain their own counsel, even if it is solely to work out subrogation and litigation agreements with the insurer.

Ethically, we cannot understand how insurance retained counsel can approach a policyholder for dual representation. Yet, it is commonplace and probably a fertile field for malpractice because no attorney can serve competing masters. Indeed, it has been our experience that independent policyholder counsel can work hand in hand with the insurer's counsel far more productively and ethically than if one law firm is representing entities with competing interests in money and control of how the recovery will be attempted, distributed, and paid for.

A primary coverage issue for policyholders to be concerned about following a loss is to do nothing to waive or impair the insurer's right to subrogation. A typical subrogation clause reads:

In the event of any payment made hereunder, the Company shall be subrogated to the extent of such payment to all Insureds' rights of recovery thereof against any person or organization and the Insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing after loss to prejudice such rights.

The problem with the clause in cases of uninsured loss is that the papers and agreements are not indicative of who gets what, in what order of preference, who pays for the expenses of legal fees and costs, who controls decisions of settlement, trial and arbitration, who pays for the insured's efforts to aid the insurer, etc. All these matters should be addressed in agreements that are subject to negotiation. It is legally complex because state laws vary on these issues. In some states and situations, policyholders may be giving away rights to free first reimbursement of uninsured losses by not retaining their own counsel to research and negotiate these issues.

Policyholders should also be concerned with "spoliation of evidence" needed to prove responsibility of third parties. Proper preservation of evidence is crucial in these situations. Insurer subrogation departments and policyholders should be urged to cooperate so that mitigation efforts do not destroy crucial evidence. Again, quickly obtaining counsel to orchestrate the loss scene recovery and contemplate claims against third parties is crucial.

Some teach about subrogation by trying to demonstrate all the different scenarios third parties cause, contribute to, or fail to prevent losses to the policyholder. I suggest that policyholders and their representatives first ask how significant the uninsured loss may be. The more that portion of the loss is uninsured for whatever reason, the more crucial it is to quickly retain counsel that can help orchestrate a plan for potential recovery. My experience is that such counsel can decide if it is best for the policyholder to work with the insurer and how those arrangements can be made. Often, counsel will work on a contingency fee basis and advance all costs towards the recovery.

So, in the end, I was pleasantly surprised at how much I enjoyed presenting views and teaching on this topic. Given that deductibles seem to be getting larger and larger, while coverages are becoming more limited, it is a fairly common occurrence for significant uninsured loss to take place. Thus, this area and topic of claims handling will become more important to policyholders, who may find themselves working closely with their property insurer to recover for losses.

Are Wind Mitigation Credits Killing Profits of Florida Insurers?

cmerlin@merlinlawgroup.com (Chip Merlin) — Wed, 28 Oct 2009 11:09:21 -0500

It is hard to imagine any Florida property insurers not making a killing in 2009. With no hurricanes or significant tropical storms, the most financially devastating peril was eliminated. Yet, over 100 Florida residential property insurers reported losses.

My impression is that a major reason for the loss is wind mitigation credits. I noticed the severe impact such credits had on net premiums when serving on the Citizens Property Insurance Mission Review Task Force. I could never figure out any actuarial or scientific basis for such credits in return for mitigation expenses. While there should be some break in premiums for a building "hardened" against wind loss, it seemed like the premium breaks were very high.

I may give the insurance industry criticism for a number of activities, but my impression is that it may have a point on this topic. Florida needs profitable insurers. If they are not making underwriting profits now, something is amiss or the books are being distorted, as in the case of State Farm charging itself for re-insurance expense.

The October 19 issue of BestWeek had a couple of articles on this point. It noted:

Mitigation credits in Florida have been widely criticized by the industry. Insurers say the credits are not calculated correctly, and there have also been allegations of fraud involving building inspectors who dole out the credits. In the end, insurers say they are unable to get the premium they need. The credits can 'take as much as 90% of the wind premium away.....

The bottom line to policyholders is that everybody is predicting that rates are going up. Assuming the books are being accurately reported, there is simply no way so many carriers can be reporting underwriting losses unless the actuarial expectancy is wrong or the net rate after mitigation credits is not actuarially sound. My impression is the mitigation credits, with little scientific basis to support such premium reductions, have caused many carriers to report more severe losses than expected. I do not think the Florida insurance industry is making an inappropriate objection. This needs to get corrected.

From a social standpoint, tax reductions to rich and poor who spend money solely on targeted building improvements to mitigate from wind damage in coastal areas is something we should encourage. Everybody benefits when a loss is prevented or mitigated.

The Practical Reasons Insurers Take Examinations Under Oath and Why Policyholders Need Representation By Legal Counsel

rreynolds@merlinlawgroup.com (Bob Reynolds) — Wed, 28 Oct 2009 08:47:27 -0500

(Note: This Guest Blog is by Robert Reynolds, an attorney with Merlin Law Group in the Coral Gables, Florida, office. This is the sixth of a thirteen part series he is writing on examination under oath).

“We are here today for your examination under oath. It is being taken subject to the policy’s terms and conditions to illuminate all facts and circumstances surrounding your claim so the insurer may make an informed decision about your claim.” This is the little speech I would give before taking a policyholder’s examination under oath back in the days when I carried the insurers’ water like Gunga Din. Of course, today I often make light of such statements. That is, it seems like the only reasons insurers demand an EUO are: claim delay, intimidation of the policyholder, and looking for reasons to deny the claim. But where does the truth lie? What are the practical reasons insurers demand an examination under oath?

In Claflin v. Commonwealth Ins. Co., 110 U.S. 81 (1884) the Supreme Court of the United States stated:

The object of the provisions in the policies of insurance, requiring the assured to submit him-self to an examination under oath, to be reduced to writing, was to enable the company to possess itself of all knowledge, and all information as to other sources and means of knowledge, in regard to the facts, material to their rights, to enable them to decide upon their obligations, and to protect them against false claims. And every interrogatory that was relevant and pertinent in such an examination was material, in the sense that a true answer to it was of the substance of the obligation of the assured. A false answer as to any matter of fact material to the inquiry, knowingly and willfully made, with intent to deceive the insurer, would be fraudulent.

Id, at 94-95.

That’s all well and good, but hauling a policyholder in to sit in a room and answer questions under oath posed by a defense attorney is a very harrowing experience for most. It’s my opinion that the EUO should only be employed when absolutely necessary and not as a matter of course. For example, defense counsel is often fond of saying, “We need to know the building’s history to evaluate the claim.” In a word: nonsense. Every policy of insurance issued is preceded by the policyholder submitting an application including questions about pre-existing damage and, further, the carrier has the right to inspect the property prior to underwriting the claim, hence, I don’t care what the building’s history is: the insurance company took the premium and wrote the policy, if it failed to investigate the property’s condition prior to agreeing to insure it, why should the carrier be able to roll back time and indemnify its own negligence in failing to operate in due diligence before accepting the risk? The answer: it shouldn’t.

So when do I think an EUO is proper? I will answer in general: under very limited conditions. That is, the vast majority of policyholders have no training in the evaluation of property damage or construction, hence, they may only testify to what they see with the naked eye. So how much does it really assist the insurance company in evaluating the claim to hear the policyholder assert under oath, “After Wilma I saw brown spots on the ceilings in the den, living room, and master bedroom.” I mean, didn’t the pictures your adjuster should have taken during his/her inspection illustrate these water stains infinitely better than the policyholder’s words? Further, to whom should the insurer listen: the policyholder with no training or the Independent Adjuster who is supposedly an expert in evaluating said damage? I’m sorry to sound so negative, but it’s my observation that EUOs are usually called as a tactic to either prolong the post-loss obligations (usually trying to stave off appraisal) or to bully the policyholder, while defense counsel sits there with a copy of Goldman vs. State Farm, 660 So2d 300 (Fla. 4th DCA 1995) in their mitts, checking their watch, hoping vainly that the policyholder doesn’t show up.

So when do I think EUOs should be taken? First, if there is evidence of fraud. And note I said evidence of fraud, not when the insurer takes their canoe, rod, and bait and decides to go on a fishing trip looking for fraud. Second, if there are multiple claims before an insurer during the same policy period. That is, if the insured has, for example, a fire loss and a pipe break and there may be overlapping areas of damage (and, YES, to insurance defense people reading this blog, multiple legitimate claims do happen to good people). Additionally, when a policyholder has no receipts for repairs, but has mitigated the damage. For example, I recently had a claimant explain that after Wilma her brother applied roof tar to the leaking roof and replaced missing tiles. Moreover, I’d like a study performed by the State of Florida to determine exactly how many handymen were roaming door-to-door after Wilma accepting only cash to effectuate temporary repairs. These are the circumstances where the policyholder’s testimony is important and when an EUO is warranted.

The bottom line is this: almost every jurisdiction gives the insurer an unfettered right to take examinations under oath and to force the policyholder to answer seemingly any question, but the mere “illuminating all facts and circumstances surrounding the claim” shouldn’t be substantiation for putting the policyholder through the wringer of an EUO. There really should be some overriding reason the carrier needs this testimony, besides, of course, for defense counsel’s bi-weekly billing bonanza. Furthermore, this is the main reason why every policyholder should be represented by counsel at an EUO. As it is very clear the insurance companies are using EUOs for an agenda other than to merely ferret out “facts and circumstances,” hence the insureds need an advocate who may assist them in navigating the potential mine field of an EUO while also keeping the opposition in check and honest about the process. Tune in next week insurance fans when we discuss What is the impact of a wrong answer at an examination under oath? Do all incorrect answers lead to denial?

Senator Fasano Defends His View Regarding Opting Out of Sinkhole Coverages

cmerlin@merlinlawgroup.com (Chip Merlin) — Tue, 27 Oct 2009 14:54:44 -0500

I wonder how our clients, the Leeds, would feel if they had purchased only catastrophic sinkhole coverage or no sinkhole coverage, rather than the normal sinkhole coverage required when they purchased their "all-risk" insurance policy. Their home slowly but surely cracked, drooped, and sank over several years before it was condemned. If they "saved" money on their premium as Florida Senator Mike Fasano successfully pushed for in legislation, they would have lost the entire investment on their home. They would also still owe money on the mortgage, possibly causing bankruptcy.

I like and respect Senator Mike Fasano. He worries about the people without a lot of financial means. He is a good public servant who is not trying to use his office for personal financial gain.

While we see eye to eye on many issues, I respectfully disagree on the issue of allowing policyholders to "opt out" of sinkhole coverage. It is a very risky proposition--like opting out of "cancer treatment" to save on health insurance premiums. Chances are you won't get it. But, if you do.....

I also think the legislation leads many Floridians into violating most mortgage agreements. Sinkhole coverage is available and most mortgages require broad all-risk coverage to be purchased. I have heard some claim that the banks will purchase sinkhole coverage as "forced placed" and charge a significant amount back to the policyholder anyway. So where's the savings in that scenario?

And, aren't we just begging for people that get stuck with slow moving sinkholes and no coverage to walk from their properties? The properties will not get fixed. Lower property values and blighted neighborhoods will also result from legislation. In this scenario, even the people who did not purchase sinkhole coverage lose. Neighbors are financially harmed when others are allowed to be cheap.

The sinkholes will continue. Many are tempted into a significant gamble of not paying some money today in return for an unlikely financial disaster tomorrow. Fasano's legislation makes many policyholders into gamblers with the financial bet of their lifetimes.

Still, I understand Fasano's concern. If people are driven from their homes because of escalating insurance costs and from other non-discretionary expenses, there is another real social problem. This is especially so for the fixed income retirees in his district. He made a choice and felt this was his best, possibly only, option to combat that issue. I suggest he keep working on other alternatives.

I disagree because he equates "savings" of premiums without also taking away the total impact of policyholders not having insurance when the "big one" starts destroying their nest egg investment. He should also factor the total impact the legislation has on all our property values when people walk away from or cannot fix their sinkhole damaged homes. My guess is that if he made such a calculation, the positive number he cites in the following discourse with the Tampa Tribune would be a large negative loss for individuals and our community at large.

Choice in sinkhole coverage

The Tampa Tribune
Published: October 24, 2009

Regarding "A sinking feeling in Pasco and Hernando" (Our Opinion, Sept. 28):

I disagree with your claim that "property owners in sinkhole-prone Pasco and Hernando counties are getting shafted by the governor and the Legislature." Allowing residents in these two counties to choose for themselves whether they want full sinkhole coverage or catastrophic ground cover collapse coverage gives them economic freedom that was previously prohibited by law.

When I sponsored legislation in 2007 to allow Citizens Property Insurance Corp. customers the option of choosing to drop full sinkhole coverage, it was because insurance rates were extremely high in these two counties due to the number of sinkhole-related claims.

Residents who live in areas that were not sinkhole prone were stuck paying the same rates as those who were more likely to experience sinkhole activity. This was not a "stunt" as you proclaim but an opportunity to give people more choice and control over the decisions they make based on their budget situations and geographic location.

At my request, Citizens supplied some information to demonstrate just how successful the sinkhole option has been. As of June 30 of this year Citizens had a total of 43,881 policies written in Pasco. Of those policies 80.5 percent of homeowners chose to exclude sinkhole coverage. This resulted in a total premium savings of $38,792,481.

During the same period, a total of 22,014 homeowners were covered by Citizens in Hernando County. Of that number, 65.5 percent of residents chose to not purchase full sinkhole coverage. This translates into a savings of $12,417,368.

Combined, homeowners in both counties saved $51,209,849 in premiums.

The $51 million saved in premiums are dollars that remained in the pockets and bank accounts of everyday people. Many of these individuals are seniors living on fixed incomes, families struggling through tough economic times and those trying to make ends meet week after week.

This past spring the Legislature passed a bill that allows private companies in Pasco and Hernando counties to do what Citizens was given the opportunity to do in 2007. With the possibility of premium savings being in the millions of dollars, the "stench" and "scheme" you call this legislation is totally unfounded. I doubt any resident who chooses to have their premiums nearly halved would argue in favor of being forced to keep full sinkhole coverage.

Mike Fasano of New Port Richey represents District 11 in the Florida Senate

The Science of Roof Damage Claims Caused by Wind

cmerlin@merlinlawgroup.com (Chip Merlin) — Tue, 27 Oct 2009 09:14:33 -0500

The inaugural First Party Claims Conference in Providence, Rhode Island, has been a success. Over 200 hundred registrants discussing various aspects of first party property insurance claims have made for a very educational adjusting and legal seminar. Since I have been involved in so many disputes involving damage to roofs following hurricanes and tornados, I thought it would be a good learning experience for me to teach a course on the topic, along with an engineer.

I often feel as if one gets a lot more from teaching a subject than simply being taught by another because you have to research, prepare, write about, present and answer questions on the issues. Teaching aspects of insurance coverage makes me a much better insurance attorney.

Roof damage disputes have been significant areas of contention lately because many of the insurance company expert vendors have been providing opinions, seemingly minimizing the impact that wind has on roofs. Accordingly, I need to know this area to do my job. I felt that others in the field needed more knowledge on the topic as well.

Our law firm has a competitive edge over many other policyholder firms because we have invested in a full time “Knowledge Manager.” Ruck DeMinico is an attorney with a library science background. He can help us find rather obscure, but significant, information regarding our cases that can literally mean the difference between winning and losing. Often, the amounts of recovery for our clients are enhanced because information is power and provides our attorneys with better arguments than the insurance counsel we oppose.

Regarding my presentation on the effects of wind on roofs, I asked Ruck to make a bibliography on the topic so others could have a list of scientific references for use in their cases. Some of the more important papers include:

Baskaran, A., Murty, B. and Wu, J. “Calculating roof membrane deformation under simulated moderate wind uplift pressures”
Xu, Y. L. “Fatigue damage estimation of metal roof cladding subject to wind loading”
Lee, K., Rosowsky, D. V. “Fragility assessment for roof sheathing failure in high wind regions”
Ali, H. M., Senseny, P. E. “Models for standing seam roofs”
Baskaran, B. A., Koa, S., & Molleti, S. “A novel approach to estimate the wind uplift resistance of roofing systems”
Cochran, L. “Wind engineering as related to tropical cyclones”

For readers of my Blog, simply click for a download of the bibliography.

I cannot emphasize enough how important it is to understand the physics of wind loads and flow if you are going to be able to fully find and explain the extent of damage caused by wind. Many of these scientific papers develop concepts of how subtle fatigue damage during a high wind event can lessen a structure’s life expectancy because the fastening and structural systems were altered as a result of having been pushed and pulled by the wind. I have been amazed at the numerous engineering committee comments regarding building integrity issues.

Tim Marshall has been my partner in this presentation. He is the other Tim Marshall, and not the infamous one from HAAG Engineering that is the insurance industry’s darling forensic engineer. I suggest that policyholders may want to hire Tim so that they can freak out the insurance industry by claiming that they have a report from Tim Marshall that found significant roof damage.

To be fair to HAAG and its Tim Marshall, they sponsor an in-depth roofing class that provides significant information regarding roof damage claims. While I have heard grumblings that the class is more concerned about how to not find roof damage and thereby lower claims payments, virtually everybody I have talked with urges others to go and learn from HAAG’s experiences on this topic and from what that Tim Marshall has to teach.

I am sorry that everybody could not attend the seminar here in Providence. I promised that the PowerPoint presentation would be placed up for review by all, and it will be available here following the Conference. I will make this topic part of firm’s regular seminar presentations to public adjusters in the future because it is important to understand these issues.

Business Interruption and Extra Expense Insurance are the Most Important Commercial Coverages--and Often the Most Overlooked at Point of Sale and Adjustment

cmerlin@merlinlawgroup.com (Chip Merlin) — Mon, 26 Oct 2009 08:31:54 -0500

Insurance agents need to do a better job convincing commercial policyholders to purchase business interruption and extra expense coverage. Insurance claims executives need to do a far better job paying those benefits much quicker than they typically do. These two activities would help many more commercial establishments remain in business following a catastrophe.

Christopher Boggs has written a down to earth book regarding business income insurance, "Business Income Insurance Demystified: The Simplified Guide to Time Element Coverages." Buy it if you adjust property insurance claims and want to do a better job adjusting business income claims. If you are an insurance company defense attorney, don't buy it--I will use what he has written against your client and I do not need you more educated than you are. Risk managers need to buy it to explain to your CFO's and CEO's why this coverage is so important. Agents should buy the work to sell more business income coverage.

Do any insurance companies have their own adjusters determine the amount of business income or extra expense coverage is owed? Virtually all hire outside consultants and accountants to make the determination. Most adjusters wait weeks or months following a disaster to have these consultants and accountants do the work of evaluating the income and expenses of a business following a disaster. As a result, most business income and extra expense benefits are delayed at the most crucial time following a disaster. Months, rather than days, are the normal sequence for evaluation and payment of time element losses.

Most insurance agents do not understand how to address the importance of business income coverage. "Fear" is a great motivator in life and maybe agents and risk managers should consider the statistics of failure for commercial enterprises following disaster.

Boggs notes:

The insurance industry has long stated that 25 percent of the businesses that suffer a catastrophic loss (one causing a complete shutdown of more than 30 days) never reopen. The percentage could actually be much higher.

Not included in that often-quoted statistic is the number or percentage of the businesses that do reopen but ultimately close within three to five years after the catastrophic loss, with such failure being directly traceable to the loss. Considering those two classifications of catastrophe- induced business closures, the failure rate of a business due directly to major direct property losses could approach 45 or 50 percent...

The point of this post is two-fold. First, businesses need more and better time element coverage. Second, adjustments of these losses need to be much more prompt.

My suggestion to those commercial policyholders suffering a significant loss with downtime is to immediately ask for payment of income coverages and how extra expense dollars can be used to mitigate the loss and prepare for the ongoing operations after the restoration is complete.

Boggs argues in his book that the business income coverages are the most important coverages available to commercial policyholders, more so than other property coverages. I am not so certain about that. Yet, I agree that they are just as important because commercial enterprises rely upon revenue to exist. Money is blood to a business.

I also suggest all property insurance practitioners add Boggs' work to their library.