Every now and then, bizarre losses are reported in the news that start me wondering whether there is any insurance coverage for the poor souls suffering through a disaster. An article, "What One Homeowner Learned from 15,000 Gallons of Raw Sewage" points out just how illusory the hope of "full coverage" is under the modern all risk insurance policy.
Continue Reading...Water pipe breaks arise from all kinds of situations. Following Hurricane Hugo in South Carolina, I represented a number of hotels that were being repaired and then had significant water damage caused by a freeze before the heat could be restored. This winter's cold weather reminded me of these losses, and I came across a couple of articles explaining the severity of them and suggestions to prevent the occurrence.
Continue Reading...In a post last September, State Farm Agents are Fighting State Farm for Economic Survival, I wrote:
"Again, for many different reasons, I hope McCarty and State Farm can work out a deal."
Continue Reading...The Florida Office of Insurance Regulation (OIR) has entered a Consent Order today resolving the attempt by State Farm to leave the Florida property insurance market.
Continue Reading...Our firm is currently running a survey of all Liberty Mutual advertising in Texas since Hurricane Ike struck as part of litigation we have against it and Safeco. Modern insurance companies compete for customers through advertising. Many make some pretty bold statements in the advertisements to win our hearts and minds.
Continue Reading...While reading Michelle Claverol’s post yesterday, Understanding Replacement Cost Coverage: Valuation Issues in Florida, Part 5, I had some personal thoughts on two cases she discussed. I also want to emphasize a very significant case we noted last week in Court Finds State Farm Cannot Withhold Money After Appraisal Award for Sinkhole Remediation. There are some very practical practice pointers for all involved in insurance coverage from these three cases.
Continue Reading...Julie Patel, of the Sun Sentinel, reported that Florida officials and State Farm appear to be working towards a mutual solution to keep State Farm selling property insurance in Florida:
Continue Reading...Insurance Commissioner Kevin McCarty told the Florida Cabinet Tuesday that State Farm may not leave the state's property insurance market as planned and the state is developing a report card on insurers to help consumers and increase competition.
“We’d like them to be a good neighbor so long as they are a fair neighbor," Gov. Charlie Crist said about McCarty's prediction that State Farm will stay in Florida in a smaller form.
While taking the deposition last week of a Pilot Catastrophe flood adjuster that was a former State Farm claims representative, I was thinking about some recent good news for State Farm. The first had to do with a Palm Beach Post report concerning State Farm possibly continuing to write insurance in Florida. The second had to do with a Hurricane Katrina jury verdict in Gulfport, Mississippi.
Continue Reading...Can you imagine a business that is afraid of its own customers? Imagine a business on trial in front of it own customers who were going to judge its products or services and that business was certain those customers would not judge them favorably. What kind of product or service would you think that business produced? Pretty bad, right?
Continue Reading...My appointment by Florida's Governor Charlie Crist to the Citizens Mission Review Task Force afforded me the opportunity to learn about and have a small voice in the Florida insurance marketplace. At War With the Weather: Managing Large-Scale Risks in a New Era of Catastrophes is a significant academic work which our regulators and legislators must read and understand to fully appreciate the complexity of the property insurance issues in Florida and elsewhere. I wish it had been published while I was serving on that Committee. The historic lessons and current conclusions contained in this book are important to everybody living and working along Coastal areas.
Continue Reading...(Note: This Guest Blog is by Ruck DeMinico, Knowledge Manager with Merlin Law Group).
In State Farm Florida Ins. Co. v. Seville Place Condominium Ass'n, Inc., No. 3D08-2538, ___ So. 3d ___ (Fla. 3rd DCA, October 14, 2009) Florida’s Third District Court of Appeal held that an insured could amend their complaint to add a bad faith claim after coverage was admitted by the insurer and an appraisal award had been entered, but before final judgment.
Continue Reading...Yesterday, Chad Hemenway, associate editor of BestWeek, reported that State Farm and
I enjoy good lawyering. Corporate America has the best lawyers defending their actions and figuring out how they can be unaccountable for their bad acts. A formidable New York Ivy League trained lawyer, Sheila Birnbaum, is one of those lawyers. I give her, Corporate America, and especially State Farm, all the credit they deserve for showing that they can beat State Farm’s customers and their attorneys in the appellate courts of America. Birnbaum implied that large corporations have greater influence over federal courts of appeal in her webinar with the Washington Legal Foundation last year.
Continue Reading...State Farm has a tremendous agent organization. Some of the best trained and motivated personal lines agents are found at State Farm. Amy Bach, of United Policyholders, sent a comment to yesterday afternoon's post, McCarty Claims State Farm Trying to Work Out Deal and Expects Property Insurance Rates to Go Up, which asked:
Continue Reading...Will more State Farm agents start diverging from the company line a la United Farmers Agents Association?
I would pay to be a fly on the wall during the discussions the Florida Office of Insurance Regulation is having with State Farm regarding its withdrawal from the Florida property insurance market. As I noted in State Farm Must Love the Clash, many of us suspect that State Farm’s bullying and threatening tactics demonstrate that it does not want to leave Florida, but uses such tactics to get what it wants from Florida’s politicians and regulators.
Continue Reading...A lawsuit was filed by three public adjusting firms seeking to enjoin the State of Florida from enforcing the 48 hour solicitation ban and the fee caps public adjusters may charge to policyholders. The mastermind behind the lawsuit is lawyer turned public adjuster, Pat Catania of East Coast Public Adjusters. The lawsuit is not a surprise. Many public adjusters have been complaining that their business has been significantly impacted by these laws as insurance restoration companies act as surrogate public adjusters since the 48 Hour Ban does not prohibit insurance contractors from actively soliciting work from policyholders immediately after a loss.
Continue Reading...Imagine a situation where a butcher sliced some meat you ordered, weighed your cut, and then told you that you owed $43.79—but refused to tell you how he calculated the price. Would you simply agree and pay the butcher? Of course not. But this is what happens all the time when insurers refuse to turn over engineering reports or honestly explain how evaluations of damage were arrived.
Continue Reading...Insurance defense attorneys will not agree with this post. However, they fear the argument enough to falsely argue in some cases that a hurricane is not a “windstorm,” in order to avoid policy language that may provide coverage for total losses where wind and water combine to destroy a structure. As promised in yesterday morning’s post, The Insurance Industry Recognizes Hurricanes are "Windstorms"--An Important Admission, I am providing legal suggestions to help TWIA policyholders and others “slabbed” to obtain full coverage for their losses. Randy Santa Cruz, William Weatherly, and I came up with this idea while working in Mississippi following the devastation of Hurricane Katrina. I've attached a draft memorandum of law so others may use this argument with their own facts and policy language.
Continue Reading...Two significant pieces of information show a continued trend in the property insurance business and suggests that insurance customers should not rely on the loyalty of their insurance companies. An article by Bea Garcia in the Miami Herald, Florida May Gut Discounts for Hurricane Shutters highlights the industry wide issues raised by State Farm’s requests to eliminate discounts and “recalibrate” the terms of previously granted discounts for measures taken to protect structures from hurricane damage.
Continue Reading...As a follow up to Sunday’s blog, Is Property Insurance Propaganda and its Impact on Public Policy Similar to What the Health Insurance Industry Does?, I have linked to an interview Wendell Potter gave to Democracy Now!, that aired on July, 16, 2009. In this fascinating and engaging interview, Potter explains why he decided to become a whistleblower, and he details the media strategies behind some of the health insurance industry’s biggest embarrassments and most publicized tragedies. He also talks about how the health insurance industry is now consolidated in just a few companies, how it rids itself of risky (sick) policyholders, and the scare tactics they use to influence public opinion and maximize profits.
Continue Reading...I was thinking about the question of property insurance trade associations and lobbying while reading today’s St. Petersburg Times article, At what Cost Care? The article was a question and answer discussion with Wendell Potter, who was a public relations executive for two major health insurers. Potter has given an inside view into the political and social power of the health insurance industry in a manner most Americans probably deplore. I wonder if property insurers are different? I doubt it.
Continue Reading...State Farm is a tenacious opponent. "If you at first you don't succeed, try, try again" is a motto which must be emblazoned in bold letters somewhere in its Bloomington, Illinois, headquarters. But, down in the Sunshine State, some are criticizing State Farm for its creative methods of raising rates.
Continue Reading...I wonder how concerned some insurance companies would be if they learned that one of their former managers who was responsible for claims conduct lawsuits spoke to a group of policyholder attorneys. After hearing and learning from such an individual yesterday, I have a new appreciation for how sophisticated the litigation management can be in some insurance companies and how important discovery involving improper insurance company conduct can be to success for my clients. I also wondered how much of a disservice some attorneys do to their clients by failing to invest time and money in conferences such as this.
Continue Reading...I was going to write on the fascinating topic of errors and omissions aspects of 100 percent coinsurance penalties, but the response to yesterday’s Post, Should the Rust Family Stay in State Farm's Power and Ownership Given the Recent Record of Policyholder and Corporate Citizen Ethics, requires some follow up.
Continue Reading...State Farm lost its most significant claims case while Ed Rust Jr. was the "owner/manager" of State Farm. Ed Rust Jr. was the person who ultimately decided that thousands of State Farm policyholders would be underpaid or denied benefits in Mississippi. He is the chief corporate leader of State Farm Mutual, the corporation that allows its wholly owned subsidiary, State Farm Florida, to essentially lie about its financial situation. Everybody—especially Rust--knows that State Farm Florida is paying millions that would otherwise be profits to State Farm Mutual. I suspect a number of highly qualified agents and claims adjusters wonder why there has been no change in the top management for two generations. After all, in the United States, we believe in earning leadership rather than being born into it.
Continue Reading..."How did you come up with that amount for my (or my client's) claim?" I was thinking of that question while taking the deposition of an Allstate corporate representative in an Indiana claims practice case, and how an insurance adjuster should honestly answer it. It is the same question millions of other policyholders, public adjusters, and attorneys ask insurance company representatives every day.
Continue Reading...Coastal Mississippi policyholders are well served by the daily and in depth reporting by Slabbed. Writing daily for this blog is time consuming; posting two to five in-depth discussions each day must border on a full time job. Lately, Slabbed’s posts have highlighted two important issues regarding insurance coverage and insurance coverage litigation in Mississippi. One, if insurance companies want to pay nothing under the all-risk policy because of the anti-concurrent causation clause, a new form policy is needed--even if the government has to sponsor it. Two, the insurance industry is winning the lawsuits in Southern Mississippi because they are winning the discovery battle over key information.
Continue Reading...(The recent State Farm Lloyds v Johnson decision from the Texas Supreme Court has generated a lot of debate within our firm. It is an important case, but it is important to remember that the Court warned that the record was not developed sufficiently to rule upon State Farm's arguments. Courts do not generally provide advisory opinions, and this opinion is particularly interesting because it addresses several hypothetical scenarios and how the law should be applied to each).
The facts involve a hailstorm that moved through Plano, Texas, in April of 2003, damaging the roof of Becky Ann Johnson's home. She filed a claim under her homeowners insurance policy with State Farm. State Farm's inspector concluded that hail damaged only the ridgeline of the roof, and estimated repair costs at $499.50 (less than the policy's $ 1,477 deductible). Johnson's roofing contractor concluded that the entire roof needed to be replaced at a cost exceeding $13,000. (These facts and degree of disagreement seem typical even for the losses we have encountered following Hurricane Ike).
Johnson demanded appraisal of the "amount of loss" pursuant to the appraisal provision in her standard-form policy, but State Farm refused to participate in an appraisal. State Farm argued that the parties' dispute concerned causation and not "amount of loss," so that appraisal was not appropriate. Johnson filed suit, seeking to compel appraisal. On cross-motions for summary judgment, the trial court agreed with State Farm that no appraisal was warranted. The court of appeals reversed. The Texas Supreme Court affirmed the court of appeals.
Continue Reading..."Should I Stay or Should I Go?" I imagine the State Farm claims employees and agents must be playing these classic lines from The Clash over and over. According to an article in yesterday's South Florida Sun-Sentinel, there is some speculation State Farm wants to stay and may try to politically strong-arm Florida into allowing it.
Continue Reading...Professor Jeffrey Stempel is among the best legal writers of matters pertaining to insurance. When reading his work, I often think "why can't I explain my thoughts so clearly and eloquently?" Maybe that is why he is the insurance law professor, and I am in the middle of legal muck and controversies.
Continue Reading...Some Mondays are more interesting than others. When I go to conferences with adjusters, I make a point to ask about "in the street" information on insurers I am litigating against. The information and leads to witnesses or evidence are often extremely valuable to my clients. Adjusters know when the orders from claims management are wrong and aimed at paying less than what is fairly owed. Most want to disclose facts about insurers that wrongly demand underpayment.
Continue Reading...Governor Charlie Crist just vetoed HB 1171, which was euphemistically titled the "Consumer Choice Bill."
Continue Reading...I do not know why the State Farm Florida President would write a letter to Governor Crist telling him State Farm will remain in Florida if Crist signs the bailout bill. Of course it would. What a competitive advantage a few large insurers would have over the rest of the domestic competition.
Continue Reading...Why are major insurance companies selling insurance with "feel good" messages rather than explaining how many different types of accidents and catastrophes they will not cover? If they were honest, wouldn't they explain to customers what is not covered before the purchase? Sandy Burnette wrote a comment to "Is the State Farm Policy Really Worth Anything?" As I indicated in yesterday's "Some Public Adjuster and Insurance Attorney Concerns and My Blogging Mistakes," he made a valid criticism which I corrected and appreciate him calling to my attention.
Continue Reading...When you write things for the public, mistakes and opposite views will be pointed out. The public nature of blogging is a relatively new experience for me. I speak, write, and advocate in private all the time. Indeed, most of what I do on behalf of clients is very private. Further, some public matters and cases later become private matters much to the chagrin of third parties. So, regarding this Blog, I appreciate comments that point out when I am wrong or when there is a differing opinion or explanation.
Continue Reading...I received an email from a right wing group that has ties to the insurance industry. It is a call to lobby Governor Crist to support State Farm's bailout legislation. Every consumer group I know of has called the bailout another giveaway to the insurance industry at our expense. But the insurance propagandists are still pushing their illogical arguments.
Continue Reading...Judy Guice will argue the policyholder's position in Corban v USAA at 1:30 p.m., Central Time today. You can read the briefs at our prior post and watch the oral argument here. Judy Guice is bright and dedicated to this cause--she was denied her own claim based on similar reasons as her client.
Continue Reading...What is the value of insurance if it does not pay for insured losses? Imagine if you had a significant accidental water damage to your home or business, do you know whether your insurance company has your back? Will it really be there to help you? Don’t count on it. Today, modern insurance companies are re-writing their insurance policies to limit what is covered and excluding many losses that used to be covered under all-risk policies. State Farm, as an insurance industry leader, is leading the charge of making an insurance product that no consumer should trust as providing the amount of coverage the insurance product afforded 25 years ago. It is always important to remember that Policyholders Buy Insurance for Peace of Mind and Not Economic Advantage and that concept is being defeated as carriers try to gain economic advantage by changing small print in the policy that may have significant consequences discovered by the policyholder only after disaster happens. To be Fair And Balanced with State Farm, I could have substituted Allstate, Nationwide and USAA into the title.
Continue Reading...The Consumer Advocate for the Florida Public Interest Research Group, Brad Ashwell, wrote a letter published in the Gainesville Sun calling on consumers to urge Governor Crist to veto the State Farm bailout legislation. He clearly explained how the bill will harm Floridians:
"The problem is that this bill would remove consumer protections by no longer allowing the OIR to protect Floridians from excessive or discriminatory rate hikes as Kevin McCarty and his office have successfully done time and time again.
If HB 1171 becomes law, major insurance carriers would not only be able to charge whatever they like, they would also be able to game the system by manipulating rates, quoting excessive premiums to coastal homeowners, then dropping those policies if they choose to so they can maintain and grow inland policies where there is less exposure. The lack of predictability this would create is exactly what we don’t need in a state with an already fragile and overstrained property insurance market.
And perhaps the most troublesome provision is that the bill would help further grow the surpluses of these larger insurers while preventing small Florida-based carriers from doing the same. In this way the bill aims to provide an unfair competitive advantage to larger companies by discouraging across the board competition with smaller carriers. This would ultimately harm consumers and businesses by fostering an insurance market offering fewer choices in terms of dependable insurers. It’s also important to recognize that there’s no guarantee these large companies will continue writing policies in Florida.
Rather than deregulating the market, which hasn’t worked out in the past, we should be working on policy goals that support a more competitive insurance market that provides consumers with more affordable options. In short, we need more Florida-based companies competing, not fewer large insurers who dominate the market, essentially holding homeowners hostage, charging any rate they choose."
He is right, and nobody disputes his facts. Proponents of the bill argue it gives consumers the “choice” to pay excessive rates if they want. The legislators who voted for the bill did so because of political pressure, without understanding the consequences, or because they like the incentives offered by insurance companies for their votes. Either way, the “choice” is just a way to justify this bad legislation.
The politics of insurance is tough for consumer champions. The insurance lobby has many faces and methods of forcing its position. In Florida, the dirty campaign against those governmental officials who stand up to State Farm and the big insurance industry has begun in earnest. Florida has one of the most respected insurance commissioners in the country, Kevin McCarty. Mike Bennett, a relatively unknown state Senator, is attacking McCarty simply because McCarty voiced the opinion that Bennett’s insurance “choice” bill would hurt Floridians.
Continue Reading...An important evidentiary hearing concerning alleged wrongful claims practices is taking place in Mississippi. Since the allegations partially involve an insurance company obtaining altered or biased reports from experts, it should be studied by those with similar concerns in other areas of the country. The primary issue in this case is whether State Farm adjusted flood losses so that the Federal Government paid too much on those flood claims through the National Flood Program. The lawsuit contends that State Farm had a motive for doing so because it could minimize the amount owed under its own all risk insurance policies which exclude flood damage.
Continue Reading...Imagine – all kinds of legislation, hand in hand with lobbying and political positioning, just in time for the start of hurricane season on June 1. A couple of recent news stories point out the possible direction that several key measures may be heading.
Continue Reading...Motivated claims adjusters need to study, improve, and be noticed for their skills and dedication. The May edition of Claims Magazine featured two stories I found interesting for different reasons. One article every adjuster should read is "Designation Envy-Why CPCU Should Matter to You." The other article, "Emerging Transformed-New Challenges Create Opportunities for Independents," should be read by claims practice attorneys and experts because it provides a glimpse into claims cultures designed to reduce amounts paid to policyholders.
Continue Reading...There are still a number of Hurricane Katrina cases we are actively litigating in Mississippi. One of the cases being followed closely by Slabbed is the Qui Tam litigation, brought by the two Rigsby sisters that worked for State Farm following catastrophes. The Rigsbys claim that the federal government paid more in National Flood payments than what was owed because State Farm altered engineering reports and made outcome oriented adjustments, which maximized flood related damaged so that the amounts paid under State Farm's policies would be minimized.
Continue Reading...My wife and I spent a very pleasurable weekend in Dallas as guests of Charles and Tracey Shreves. They operate the Spink Shreves Auction Galleries and held an informal gathering of serious stamp collectors from across America. I enjoyed viewing some amazing private collections.
Continue Reading...Florida Insurance Commissioner Kevin McCarty is working tirelessly for fair treatment of insurance consumers. It is amusing that the Florida legislature may give into State Farm's bullying and even allow higher insurance rates, which McCarty says are unnecessary. Some of our legislators are pandering to State Farm and the Florida insurance industry by using the usual "word spin" games. Deregulating rates under the guise of "consumer choice" will simply lead to higher premiums.
Continue Reading...Comments are important in the Blogoshpere. What I may or may not write is relevant only if it is important to others. If some wish to comment with views from which we can all learn, progress is made. Sometimes, we do not read the comments to blogs which may be insightful and provide some food for thought. For this reason, I am posting some of those comments which in my opinion provide more provocative thoughts for your review and comment:
Continue Reading...This week I noted the recurrent problem of outcome oriented insurance company claims conduct in Adjusters Cannot in Good Faith Rely Upon Biased or Outcome Oriented Opinions. In Does It Stay or Does It Go? State Farm's Assault on Florida, I then noted a finding regarding State Farm's fitness to conduct insurance which stated:
"State Farm’s actions raise serious questions regarding the fitness and trustworthiness of its officers and directors to engage in the business of insurance."
State Farm is challenging that finding by asking for an administrative review.
Continue Reading...Most of the time, I battle large corporate insurers in David vs. Goliath like battles. I find it amusing that State Farm's attorneys are struggling in this fight, given State Farm’s enormous size and power. Today, State Farm's lawyers, lead by the very able Mark Delegal, are lobbying Florida's leaders on a very anti-consumer bill. This bill would allow State Farm to charge whatever rate it wants. Florida Governor Charlie Crist is reportedly prepared to veto such legislation.
Continue Reading...This is a Blog and not a book. So, I will try to give everybody the Readers Digest version of some thoughts I have on the very complex and important coverage topic.
The Texas Windstorm Insurance Association covers "windstorms." One of the most classical types of windstorms are the hurricanes that menace those of us living along our country's Southern waters in the summer and early fall.
Some modern policies exclude, charge higher deductibles, or cover certain aspects of "Named Windstorms," which are hurricanes or tropical storms named by the National Weather Service. Those policies even limit how long windstorm coverage lasts or is effected after the "Named Windstorm" diminishes.
Continue Reading...(Note: This Guest Blog is by Mary Fortson, Managing Attorney at Merlin Law Group.)
Since Chip is on vacation, I figured it’s time to take the plunge and write on his blog. My initial concern had been whether I’d be able to come up with a topic. Chip is always so creative in his ideas and extremely thorough in his explanations that I imagined I would never be able to follow in his footsteps. However, when I read the blogs Chip had authored recently on TWIA and the concept of “direct physical loss”, ("Physical Direct Loss" Caselaw and TWIA's Roofing Memo; Roof Repair Methods Prove TWIA is Wrongly Denying Roof Claims; The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions; Internal Texas Windstorm Roofing Claims Memo Explains Damage is Not Covered), I realized that was a great topic and that I’d like to comment on that concept as well.
Chip’s blogs made me recall a very interesting case that he and I had worked on in Florida several years ago where another well-known insurer, State Farm, had tried to avoid paying on a part of a claim by denying that a “direct physical loss” could be claimed. It’s interesting how creative insurance companies can be when it comes to arguing about whether they should be paying on a loss.
The case was Three Palms Pointe, Inc. v. State Farm Fire & Cas. Co., 250 F. Supp. 2d 1357 (M.D. Fla. 2003), aff’d 362 F.3d 1317 (11th Cir. 2004). In our case, a condominium association had sued State Farm when that insurer had refused to pay the relocation expenses of the condominium residents, even though the process that was necessary to repair the damaged building was so extensive that the residents absolutely needed to move out of their units. In fact, there were life/safety reasons requiring the relocation of the residents that everyone agreed existed. The argument to the federal district court involved several issues, which included the question of whether the concept of a “direct physical loss” had been implicated when considering the resident relocation expenses. State Farm conceded that construction expenses and expenses to move personal property were covered under the condominium association’s property insurance policy, but argued that the relocation of the residents was a “personal and collateral” expense that was not related to a “direct physical loss”.
In analyzing the situation, the district court judge cited Florida case law that recognizes a “direct physical loss” includes losses that are necessarily more extensive than just the damage to the structure or membrane of the building, and can include other, somewhat intangible things. In fact, as recognized by Judge Moody, the concept of a “direct physical loss” is not defined in the insurance policy, and it is necessary for a court, when interpreting what a policy provision means, to give the benefit of the doubt to the insured in such a situation. Ultimately this judge determined that the important question to consider was whether the reasonable and necessary repair costs included the cost to relocate the residents. The district judge answered that question as a definitive “yes”, and entered judgment in favor of the insured condominium association. State Farm was not willing to accept that decision, and ultimately appealed the ruling to the federal appellate court, which also found in favor of the policyholder.
I was very proud to have worked with Chip Merlin on the Three Palms Pointe case, and to have successfully advocated for our policyholder client. It is a shame that insurers still argue the concept of “direct physical loss” as a way to avoid paying the amount owed on a claim. But as the wealth of case law that Chip explained to his readers shows, this insurance policy provision does not offer insurers the “out” they may hope to find.
-Mary Fortson
On Friday, one hundred and forty-eight Texas public insurance adjusters attended a seminar our law firm sponsored in Houston. I am pretty sure it was the largest ever gathering in Texas of people dedicating themselves to the study of helping property insurance policyholders. It was thrilling, exciting, and taxing for me. I loved every minute of it, and several public adjusters have asked us to hold another seminar this summer.
Continue Reading...Formal discovery in insurance lawsuits is replete with protracted discovery battles, insurers motions for protective orders, and evasive responses from insurers trying to avoid turning over information damaging to their case. Historically, some of our biggest breakthroughs have come from "alternative" sources and by organizing other policyholder attorneys with similar cases against the same insurance company. The value to policyholder attorneys networking to uncover the motives of an insurer seemingly engaged in repeated denials of meritorious claims cannot be overstated.
Continue Reading...Mark Phillips recently posted a comment in Surplus Lines Insurers, Sinkholes, and the Law of Mars, which would probably terminate his employment as an adjuster for telling the truth if he were still an Independent Adjuster:
Continue Reading..."I handled numerous loss adjustments for a South Florida MGA broker who had arranged his own "excess surplus lines" authority overseas. Due to this flexible "hand-shake" authority and with his own customized and approved manuscripted policy designs, he was actually controlling the underwriting data and policy issuance. He was bold and daring enough to "check off" certain boxes misrepresenting building characteristics and histories inaccurately on applications, so that, at time of loss investigation he could promptly deny coverage when it was noted in the adjusting routine that certain building events and maintenances had not occurred as were required to be validated in order to acquire the policy coverage and issuance. He could thus accurately void the contract on grounds of misrepresentation, and have the underwriting questionnaire in the file to back up the denial. His incentive was of course to sustain his flexible contract arrangement and limit his loss ratios, thus enriching his commission contingencies. Worth noting is that many of the insureds represented a class of Hispanic consumers who had no ability to know what was authentically being stated on their final application and were thus caught by surprise when struggling to communicate in English, back to me the adjuster, that they had not confirmed certain property realities that had been "checked off" on their application.
Another compromised policyholder left at the curb."
Fonte vs Audubon Insurance Company, is an important win for policyholders against the arbitrary adjustment of insurance claims. The following is significant language pertaining to the wrongful claims practice to which the policyholders were subjected:
Continue Reading...The Tampa Tribune ran a story, State Farm’s Exit From Florida Proving to Be a Problem for Some, which demonstrates problems consumers will have obtaining new coverage. The on-line edition of the story is somewhat entertaining because the comments show the disparate results of consumers who are shopping for insurance and confusion about underwriting. What is still unclear and troubling is exactly what State Farm hopes to gain from its announcement that it is leaving Florida. Certainly, it is losing revenue and access to a very large insurance market.
Continue Reading...State Farm's announcement to leave the Florida property insurance market has plenty of media attention. It is obvious that State Farm's view of its actions is far different than that of its customers.
Continue Reading...Free enterprise is great until your competitors beat you. Dominant competitors may find it advantageous to combine interests to prevent new players from entering markets, destroying profit margins, and taking market share. It is amazing that there has not been more investigation and calls for transparency into the major personal lines insurance companies’ discussions and agreements which may reveal such a conspiracy. While anti-trust exemptions exist for insurance companies regarding sharing of loss data for rate making and other rate or form issues, there are no anti-trust exemptions for agreements that otherwise restrain trade and competition through collusion.
Continue Reading...I wonder how State Farm’s agents and employees really feel about the officers and managers in Bloomington, Illinois. My bet is not much different than the remaining State Farm policyholders--although State Farm agents and employees are probably not going to say much about it until they get a better job.
While I have my differences regarding what they are taught, State Farm employees and agents are probably the most thoroughly trained in the insurance industry. State Farm has operational guidelines regarding every aspect of company activity. Even agent involvement in the political process is outlined in detail for agents to help the company press its agenda.
Accordingly, the front page story in BestWeek, State Farm Florida Customers Survey Property Market, did not surprise me. Jim Graganella, the CEO of a State Farm competitor, said the remaining State Farm policyholders represent the "cream" of State Farm's book of business. He also highly praised State Farm's Florida underwriters and agents, referring to them as "topnotch." This has been my impression of the agents in Florida for a long time. One of them is my insurance agent.
Locke Burt, an insurance executive and a colleague of mine on the Citizens Mission Review Task Force, was quoted as saying about long time State Farm customers, "A lot of customers are shopping. They are mad."
I wonder what we are going to learn from State Farm’s agents, adjusters and other employees as they start shopping and find work with other insurance carriers looking for "top notch" help. My experience is that there will be more transparency about State Farm's motives and operations once its former employees are free to speak their mind.
Our clients often ask us the following question: "Is there a chance you can get back your attorney fees from the insurance company?" The short answer is yes. The long answer and accurate answer is: "We try to get back all the fees and costs, and may even have a chance through consumer protection statutes and bad faith claims to get back even more. The chances depend on the facts of the case."
For example, Kristin Demers-Crowell recently won an attorney fee Order against State Farm. Kristi represented a condominium on the East coast of Florida which had been hit by Hurricanes Francis and Jean. State Farm estimated the damages at approximately $716,000. The condominium’s public adjuster claimed more and demanded an appraisal to resolve the differences.
Continue Reading...State Farm has a market share in the property insurance business that its competitors envy. These competitors are taking advantage of State Farm's announcement that it intends to leave Florida’s property insurance market.
Continue Reading...Kevin McCarty, of the Florida Office of Insurance Regulation, is not going to get a holiday card from Ed Rust. McCarty issued an order that is an indictment of State Farm's honesty.
Paragraph 9 of the Order states:
State Farm’s cited reasons in the Withdrawal Plan are both disingenuous and misleading to the Office and policyholders they seek to abandon. State Farm created its current “crisis” by failing to pursue the opportunities that were available to reduce its expenses and mitigate its decrease in premium volume. Instead, it chose to attempt to raise rates in order to reduce savings to its policyholders its mitigation discounts provided [sic.] and to seek a profit that was excessive and unreasonable in the current economic conditions while certifying that its rate filing reflected all premium savings that resulted from legislative enactments. State Farm’s actions raise serious questions regarding the fitness and trustworthiness of its officers and directors to engage in the business of insurance.
The findings reminded me of the Utah trial court's order in Campbell vs State Farm. When a judge or official finds dishonesty in a major corporation’s business dealings, it is significant.
McCarty is allowing State Farm to leave Florida under specific conditions. State Farm has a right to challenge the order and the findings of fact, and, indeed, I expect it.
Our firm will certainly raise these factual findings every time we litigate against State Farm. State Farm's Board of Directors should consider whether the management of State Farm should be changed.
Does anybody really know the motivation behind State Farm's announcement that it plans to leave Florida? The executives in State Farm's Bloomington, Illinois, headquarters do, but I doubt many outside of that office understand what State Farm hopes to gain from their announcement.
Continue Reading...Americans love to root for underdogs. It is part of our value system that anybody can become successful in this Country through hard, honest work and perseverance. Floridians are rooting for the small competitors of State Farm since State Farm's announcement that it is leaving Florida's property insurance market.
The St Petersburg Times noted that such a small competitor, Security First Insurance, has announced it will take 50,000 State Farm policies. Security First is run by former Florida State Senator Locke Burt, a fellow member of the Citizens Mission Review Task Force, .
Burt is one of the most knowledgeable individuals of the Florida insurance market, with a historical perspective. He was a politician in the 90's when the insurance problems following Hurricane Andrew first arose. During the Task Force meetings, I listened carefully to him for an understanding of tried and failed attempts to correct the insurance problems which still plague Floridians. I also watched out for his attempts to suggest obvious pro-insurer legislation--he runs an insurance company.
While I have a great deal of respect for Locke Burt and wish his company great success, I quite often found myself at odds with him during debates of the Task Force. He was the one that pushed for a suggested law that would have eliminated sinkhole coverage. At one point during the last meeting, I made a rather pointed comment to Burt which suggested that he wanted to pass such legislation so his company and all other insurers never paid claims and would just collect premiums.
The bottom line is that for property coverage to exist in Florida, we need the smaller companies to succeed. I wish Security First great financial success. I also hope that they provide coverages Floridians need and that they manage their customers’ policies and claims with the highest degree of integrity. As I have said in the past, it does not take a rocket scientist to figure out that it is far more profitable to take premiums and not pay fully and promptly, than to do otherwise.
Can you imagine how “freaked out" twenty-year State Farm policyholders are over State Farm's announcement that it is leaving Florida? Most are asking, “why?” If they look past State Farm’s self serving explanations, the "freaking out" may turn into "furiously upset."
Continue Reading...State Farm has a method and reason for just about everything it does. As indicated in yesterday's post, its actions do not always reveal its strategy.
Continue Reading...State Farm is hard to figure out. They say one thing and often do another. When you finally get to the decision makers, there is usually some logic to why they do things despite disagreement from consumers or regulators. State Farm's announcement that it was leaving the Florida property market really has me wondering--"what's up?" From what I read and hear, I am not the only one.
Continue Reading...Crooks operate in secret and often use code language to avoid prosecution. Most of what they do is never written down in order to avoid detection. Even when speaking among themselves, they will use code words so the police cannot easily follow the plan of criminal conduct. Maybe these mobsters should sign up for the class being offered by the Medical Technology Learning Institute which is entitled, Dangerous Documents: Avoiding Land Mines in Your FDA Documents and Emails.
Continue Reading...I met Ralph Nader in San Diego about a decade ago. He remarked that a major problem with Departments of Insurance is that most have a revolving door to and from the insurance companies they supposedly regulate. Nader implied that unless laws prevent insurance companies, their vendors and law firms from hiring those who supposedly regulate their activities, actual regulation that supports consumers will not exist. The practice of insurers hiring former employees of Departments of Insurance must stop in order to accomplish honest regulation without an appearance of a conflict of interest.
The revolving door is working for at least one employee of the Department of Insurance in Mississippi. Anita Lee, of the Sun Herald, recently reported that the deputy insurance commissioner who "oversaw" the Mississippi Insurance Department's Market Conduct Study of State Farm following Hurricane Katrina has left the Mississippi Department of Insurance. Guess who hired him? The lawyers who represent State Farm in Hurricane Katrina matters.
Given this, you do not need to be a psychic to guess how well State Farm did in the Study. I noted the serious problems with the Mississippi Insurance Department study in a previous blog. In an article published in the Sun Herald, a noted consumer advocate wrote that State Farm could have written the report itself. Only legislation which prevents those regulated from hiring, directly or indirectly, those who recently regulated them can prevent this kind of conflict of interest.
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State Farm has apparently made a significant push in manpower and communications regarding the adjustment of claims in Louisiana and Texas. It takes thousands of adjusters and sufficient communications to get the job done promptly. Delay caused State Farm's old claims mantra under Frank Haines--"pay neither a penny more nor less"--has no place in the claims process, especially following a catastrophe. Good luck to the company with the "Good Neighbor" slogan.
Many of my policyholder colleagues simply hate when I say anything nice about State Farm or any other insurance company. I appreciate that, especially if they feel that they have been wronged by insurance company adjusters or attorneys.
The truth is that most insurers at an executive level kept an open mind regarding initial claims decisions following the 2004 and 2005 storms. Everybody is in a rush following a catastrophe and mistakes happen. Whether the low-balling of hurricane damage claims since 2004 is truly a mistake or a result of studied or inept claims management is a topic of significant debate.
The individuals that run major claims organizations are not stupid. Depending on their culture of claims honesty and ethical perspective, many get it right with hardly a trace of litigation or emotional bickering over payments. Even dishonest insurance company management learned from the 2004 and 2005 storms.
A rapid and overwhelming manpower response can benefit both ethical and unethical adjustment cultures. If a company is interested in "controlling a claim" (an adjustment term meaning to keep the policyholder from hiring his own expert, public adjuster or attorney) and documenting evidence for lower amounts owed, getting out there fast with such a mindset can save money. That is how Allstate and others approach their car accident cases.
Some property insurance companies do act ethically and most sincerely try. However, trying is not the same as doing, and just about everybody I know thinks they are "trying," and will not publicly confess when they do not. It is easy for me to be a critic after problems arise and attribute wrong decisions and actions to unethical conduct. However, handling insurance claims for policyholders is an endeavor with very high ethical standards, and meeting those standards can be difficult without hard work and zealous dedication to the job. Society should stand for nothing less.
So, my hat is off to State Farm. It sounds like they have prepared well. I wish the adjusters God's speed and a fair heart. Hopefully, all Ike adjusters understand ethical standards and the insurance vendors and alleged experts will take them to heart. Time will tell.
Big Insurer's Bid To Up Rates Scary Blow After Two Calm Years The Tampa Tribune Published: July 25, 2008 On its face, State Farm's request to increase rates for hurricane coverage by an average of 47 percent statewide is outrageous and unjustified. If so, it should be rejected. But if the company has based its application on a state-approved formula and solid numbers that don't export profits to its parent company, the implications are ominous after two storm-free years. If State Farm Florida really needs sharply higher rates to stay in business here, that means the state-sponsored Citizens Property may be even more underfunded than has been acknowledged. It could also be a warning that many of the smaller new insurers offering lower rates are gambling on good weather and might not survive a major storm. In Hillsborough, State Farm customers already pay rates about 20 percent higher than those insured by Citizens, according to the state's comparisons at shopandcomparerates.com. Yet State Farm in recent years reports having $1.20 in costs for every dollar it collected in premiums. The storms of 2004 washed away the company's surplus. Those numbers should be troubling to every policyholder. They suggest today's average rates of $2,000 statewide still aren't high enough. If rates really do need to increase about 50 percent to cover the actual risks, that means typical homeowners can expect to pay an extra $70 to $100 each month for property insurance. That's scary. Many lawmakers were quick to call State Farm's request unjustified. All Floridians should hope that a hearing Aug. 12 confirms that general suspicion. Congressman Robert Wexler is calling for a congressional investigation. The Democrat from Boca Raton says State Farm's rate increase is "not consistent with the realities of the conditions in Florida." We concur. But if State Farm's numbers do hold up, they will blow a hole in the Legislature's insurance reforms. Other insurers will be quick to ask for more. And even with higher rates, all ratepayers will remain at risk of paying even more if the statewide cost of storm repairs exceeds the cash available in the Florida Hurricane Catastrophe Fund. We know the state is paying $224 million for the right to borrow up to $4 billion from Berkshire Hathaway in case a major storm hits this year. But that's not half of it. The Legislature, in an attempt to keep rates low, has exposed the state to up to $28 billion in liability. Numbers that big should make all taxpayers nervous. What would make Florida breathe easier would be the return of a healthy private insurance market. An indicator that things are returning to normal will be an attempt by the big insurers to expand their market share. Just the opposite is happening. Winning a 47 percent rate increase is a sure way to lose customers. One bright spot among the many clouds is that the new, smaller companies have learned from others' mistakes. They are spreading their risks and not concentrating in a few counties, especially coastal ones. Every property owner and renter should hope the small companies are right and State Farm is wrong. If not, there are stormy financial times ahead, hurricanes or not.
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When will our legislature learn not to trust insurance executives and, especially, their lobbyists? Maybe when we vote insurance-beholden legislators out of office.
The Tampa Tribune, St. Petersburg Times and Miami Herald ran front page stories regarding State Farm's administrative request for an average rate increase of 47%. At first I thought it was a mistake, until all three papers reported the same increase and the St. Petersburg Times indicated that some increases for existing rates could be 91%.
Something is terribly wrong. State Farm has increased rates for the past several years. Supposedly, those rates were somewhat fair to State Farm and their policyholders. Florida suffered zero hurricane losses the last two years. State Farm, unless it is altering its books, has to be lake every other carrier in Florida over the past two years--raking in the cash. They have collected very high premiums based upon catastrophes that never materialized.
Possibly, State Farm was a lot smarter than Allstate, and simply waited a year to break the promise it made to the legislature. Allstate got the great legislation it wanted, promised a discount, and then requested a forty percent rate increase, which lead to a full blown investigation of its practices. Maybe the State Farm executives were a little smarter and simply waited a year.
State Farm is one of the largest lobbying organizations in Florida and the United States. The management wields a lot of power because it uses customer's premiums to influence regulators and legislators for laws that benefit State Farm, ofter to the detriment of its own customers. It is all legal, and it makes good business sense for the executives of State Farm to influence social laws to its best economic interest.
The question is how long we are going to alow this corporation to control the people we elect and have appointed? Eventually, there must come a recognition that people, not corporations, are the reason laws are made and government exists. When elected officials are asked if a policy or law helps the people and are commited to that function, these crazy situations will occur much less frequently. Only arrogant corporations could expect to do what State Farm did this year and Allstate did the reay before. Are the people of Florida simply pawns in the schemes these insurance companies concoct to enough themselvelves.
Jeffrey Stempel, a long time admired colleague and current Insurance Law Professor at the University of Nevada Las Vegas, has published a wonderful textbook, Litigation Road: The Story of Campbell v. State Farm. I just started reading the book, and will comment in greater detail following the Holiday weekend.
However, as a shameless and free plug, I encourage every attorney or person interested in the finest thoughts about how State Farm operates and how an actual bad faith case is litigated, to pick up a copy of this book.
You can order the book from West Group by clicking on the following link: Litigation Road: The Story of Campbell v. State Farm.
Best is reporting that State Farm continues to retreat from the insurance business in Mississippi. The headline suggests that State Farm merely canceled policies, but the article reveals that State Farm canceled 900 policies, and changed the terms of 5,000 more customers by refusing to insure for wind peril.
As I have explained, our largest insurance carriers are getting out of the risk business. Allstate, State Farm and Nationwide are following a business strategy that reduces their financial risk to catastrophic loss. They want to be in the business of "for sure" profits, which is more commonly found in the automobile and life insurance industries.
These insurers are getting out of a business they once fought to dominate. Like casinos in Las Vegas, they want the odds only in their favor and will change the rules to make this happen. Blackjack was the only game against the casino where careful play could provide an advantage to the player. The casinos have changed those rules, just like the insurance industry is doing to its customers.
State Farm only wants to insure structures where the rates and percentages are so far in its favor, it can never lose. By excluding wind and flood peril from coverage, State Farm truly covers only the very remote peril of fire in its customers' policies. This results because all other ensuing losses can arguably be denied under the anti-concurrent causation language found in their policies.
The implication is that consumers are going to have to help "start up" competitors and have some governmental backup until the private insurance market can develop these new entrants. Regulations should be considered which provide rate incentive for these entrants and penalize the old line carriers for depopulating its pool of customers through the cherry-picking of risks. The old line carriers are simply killing society's ability to have an orderly insurance market.
Could you imagine if the health insurance industry started to cancel policies for people over sixty and women between the ages of 18 and 38? What if we allowed health carriers to cancel or non-renew your policy if you were 15 pounds overweight or had a history of cancer in your family? This is what we are allowing the property and casualty industry to do. We simply have to stop it.
Capitalism and economic venture are alive and well in the Florida insurance market. The Florida Underwriter reported this month that over 1.7 million policies have been written by new insurance companies since the 2004 hurricane season. As Allstate, State Farm and Nationwide retreat from the Florida property insurance market, these new insurance companies are accepting risks that would otherwise end up with Citizens Property Insurance Corporation.
My initial reaction has been that this is a good development. We need an infusion of new companies to take the place of the older established insurers that seem determined to leave the insurance business in an effort to safeguard all the surplus they previously made.
The new economic premise of Enterprise Risk Management has led old lines carriers to get out of the alleged "risky" Florida insurance business to preserve the profits they made and enter other financial arenas--such as banking, life insurance, and pure investment. It is refreshing to see new private insurers take the place of old line carriers in the property insurance market.
This has not occurred without some governmental help and a fortuitous influx of money into the re-insurance markets. The Florida Legislature passed legislation which allowed up to $25 million in matching funds to loan any insurer who was willing to write business in Florida. At the same time, the re-insurance market has greater capacity to write business and the market has "softened" to afford lower rates to these newer carriers. The bottom line is an influx of new carriers entering Florida and writing insurance policies where the old line carriers dare not go.
Florida is still far from being economically insulated should a major storm hit the state. It is a Hurricane Katrina away from financial catastrophe. Still, it is encouraging to see these new companies enter the market. Hopefully, they will enjoy a number of profitable years to build their surplus ("surplus" is the net worth of an insurer) before faced with any widespread catastrophic losses.
The article in today's Tampa Tribune regarding a Federal Wind Insurance debate comes as no surprise. Amazing how big Insurance is adopting Enterprise Risk Theory to further its interest. Since large corporations in the insurance field are not so much interested in how they make money, just that they make as much as safely possible, it is no wonder they are making the case for Federal wind coverage.
Just so everyone understands what is happening, large insurance companies following Hurricane Andrew became fascinated with an actuarial model that better suited "safe" return of capital. This economic theory has been described as Enterprise Risk Theory, where the tolerance of risk to the corporation is measured against the business model. I will write on this more later because one blog is simply too short for an in depth analysis. The main concept to remember is that risks of large losses have to be minimized if the corporation cannot, for any reason, "stomach" the large variances.
So what do the oligopoly of State Farm, Allstate and Nationwide do regarding the wind risk along coastal states? They leave, raise rates and then start a national debate about government taking on the risk that they do not, but do not want new competitors replacing them. What "free enterprise" champions they are!!
Policyholders want one stop shopping for their insurance. They also want to know that they will be able to get insurance, so there exists some strong argument for the coverage. However, it is amazing that an industry built on spreading risks, and making money from it, transfers the variable catastrophic risks to the government---which is really the people---whenever it is to their advantage.
In the long term, we have to promote new entrants into the insurance market willing to accept these risks. We must also continually implement public policy, laws and codes that lower the severity of loss by catastrophic damage. The one thing we should be hesitant about is expecting government to act as well as a private insurance company. Government is not private enterprise.
Allstate and other insurers are notorious for not complying with discovery seeking internal corporate documents which would expose corporate culture in bad faith cases. From the news yesterday and today, it appears the Florida Department of Financial Services has learned the same lesson most policyholder attorneys have known for quite some time.
I, along with two attorneys from my law firm, attended the appellate oral argument in the Broussard vs State Farm case on Wednesday. Last winter, the three of us also attended much of the trial to learn and strategize about how we could improve upon our clients cases. We know the Policyholder attorneys representing the Broussards, the issues, and the facts of the case well.
The Sun Herald quoted me following the verdict in the Broussard trial as saying that State Farm was not going to give up, that they would appeal, and that everyone should be ready for a drawn out battle. Most people do not realize that the landmark bad faith punitive damage case of Campbell vs State Farm lasted well over a decade before State Farm paid a penny in punitive damages. I can't imagine that this case will be any different. State Farm is a very large corporation with significant assets and resources, which it seems all too happy to use to litigate and defend its position.
Most of its customers are not interested in or financially equipped to deal with long term litigation. Customers just want to be treated fairly and get paid fully and promptly for their losses. Unlike in the Tuepker case, where the Tuepkers were paid substantial settlement monies by State Farm prior to the appellate outcome, the Broussards have been paid a mere $2,400 since Katrina. William Walker and Jack Denton represent the Broussards. They tried the case quite differently than my firm would have, but did a very good job. With little pre-trial discovery, they inexpensively and quickly presented the facts to the jury and got to the critical issues of the case on the record.
At trial, Judge Senter directed a verdict in favor of the Broussards, ruling that State Farm committed bad faith in the investigation and adjustment of the case. The jury was allowed to consider, and did find, that State Farm should pay punitive damages for its bad faith conduct. The speed of the trial surprised us, though the result did not. At trial, it appeared that State Farm's only evidence showing the cause of damage to the Broussards' structure was a late guess regarding causation made by experts long after State Farm denied the claim.
Like many homes that were total losses as a result of Hurricane Katrina, State Farm faced the nearly impossible task of proving how much of the damage was caused by flood waters or storm surge which are excluded causes under the policy. In partial loss situations, it is much easier to make this determination because the structure is left for adjusters to examine and determine the amount of covered and uncovered damage. When only a slab remains, the practical problem is that the evidence needed to prove the excluded causes no longer exists and absent direct evidence, State Farm and its experts must rely on a best "guess" as to the amount of damage excluded. Senter essentially ruled that this "guessing" of the excluded cause of damage was manifest bad faith.
The impossibility of determining with any precision the amount of damage caused by the excluded flood perils was exactly what many of State Farm's initial engineering reports were saying. Indeed, many of these early engineering reports from all carriers indicated that wind, a covered peril, did cause damage and that determining the amount of the excluded flood damage was not possible for lack of evidence.
In investigating our own client's claims, we spent time with many carrier catastrophe adjusters immediately following the storm, and even they admitted this and speculated that under traditional "all risk" adjustment principals, most slab claims would have to be paid because the carriers could not prove the exclusion without speculation.
However, what goes on in the field and what insurance representatives agree they are taught about how the policies are supposed to work BEFORE the loss occurs does not reflect what claims management and their attorneys will later argue in denials or to judges that have no such adjustment experience or training. This was exactly what was happening at the 5th Circuit Court of Appeals on Wednesday. Judges rely upon briefs and argument from the attorneys to get rulings right. Most judges are not experts in insurance law. Even the basic principals of adjustment or policy language may seem confusing to those not experienced with the history and lore of insurance.
In Broussard, State Farm sold an all risk insurance policy. Long standing insurance law principals that are taught in basic classes to all adjusters is that an insured under this type of policy need only show that a physical loss has occurred and the dollar amount of the damage. Unless the insurance carrier proves the loss is excluded, the insured gets paid. This type of policy was developed in the 1940's and 1950's and replaced the "named peril" policies. The proof cause requirements are different between the two policies. The difference is significant and has some relevance in Broussard. If a policyholder has a "named peril" policy, the policyholder has to prove that the physical damage was caused by a peril "named" in the policy. If the policyholder does so, the burden then "shifts" to the insurer to prove that the loss was excluded.
There was a great deal of questioning from the appellate jurists regarding these very basic, but sometimes confusing, concepts. Honestly, if insurance companies followed these basic principals and courts did not confuse them, I and my colleagues would have a lot less business.
The "all risk" policy is an enhancement of the "named peril" format because unless excluded, all "physical" damage is typically covered. At trial, the policy holder merely proves that an all risk policy existed, physical damage occurred, and give evidence of a dollar amount of damage to prove a prima facie case of entitlement to benefits. The insurer then has the sole responsibility to prove that the loss was caused by something excluded.
An example as to how the two policies work and produce different results can be helpful. Suppose a person insures a structure in a neighborhood but it cannot be seen by the neighbors because it is set far back on a private road, hidden by trees and vegetation. The person goes on a month long vacation and comes back to find his house completely missing. He learns that during his absence his neighborhood had been ravaged by a fire that destroyed thirty percent of the homes by at least 85 percent of the repair value. Then, tornadoes damaged another thirty percent of the homes and 90 percent of those tornado damaged homes were total losses. Finally, a few days before he arrived home, a tsunami wiped out all the remaining homes and those partially destroyed. No eyewitnesses or direct evidence demonstrated which of these three perils doomed his structure or whether and how much damage occurred as a result of the first two. If the person was insured under a "named peril" policy covering fire only, he has a major problem. While there are probabilities that the fire may have caused some amount of damage, there is no proof that it did. He cannot meet his burden and will lose at trial because he cannot show that fire caused the damage nor the dollar amount of fire damage. The result is the opposite under an "all risk" policy. All he needs to show is physical loss--the structure is gone--and the dollar damage which is easy since it is a total loss. Now, the insurer has the impossible burden of proving the exclusion. While we may learn from the Almighty in our afterlife what really happened, it is simply a guess, speculation and probability as to what caused the amounts of damage to the structure in this life. The insurer should, maybe not happily, but should pay its customer because the exclusion of flood cannot be proven as the cause of loss. This is how the "all risk" product is supposed to work.
Unfortunately, nothing close to this was discussed in Wednesday's oral argument. As masterful as Bill Walker was at trial, Judge Edith Jones accused Walker of being "flip" in his arguments before the court. Walker teaches insurance law at Ole Miss, but there was little taught during his argument. The judges seemed bewildered. For example, one panelist asked whether the policyholder has to prove the amount of "covered" damage and not just a dollar amount following damage. While some of my colleagues would knee jerk respond "no," the correct answer is "yes." The response should have been: "Yes. In a named peril policy, the policyholder must prove that the damage was caused by a named peril and the dollar amount. However, in an "all risk" policy like the one the Broussards purchased, they must show physical damage and prove a dollar amount of damage. State Farm has already stipulated that the house sustained physical damage and that the dollar amount was for the policy limits to the real and personal property." He could have gone a step further, but did not, and said: "The Personal Property section of the policy issued by State Farm covered the contents on a named peril basis. The named peril which caused that damage is "windstorm." State Farm has stipulated that Hurricane Katrina is a "windstorm." In State Farm's manuals and operation guides, it notes that hurricanes are examples of windstorms. Its own claims managers admit this. Thus, the Broussards have met their burden of proof under both sections of the policy. State Farm therefore had the burden to prove the amount of damage excluded and failed to meet this burden."
The problem is that Bill Walker did not have the evidence about the operation guides and claims manuals in the trial record. He may not even know about them. His discovery was not extensive, but he did not need it at trial because of the excellent job he did at simplifying issues and destroying the ridiculous "probabilities analysis" State Farm concocted in an attempt to prove damage.
Judge Senter noted that State Farm admitted that a "windstorm" damaged the property. While the claims management in Bloomington may disagree, the wind/water protocol and the creative, after the fact effort, to prove the amount of "possible" damage by wind through statistical experts is where State Farm damned its customers. Before Katrina, the issue about paying or not paying for physically damaged homes which were destroyed through a covered cause of loss, wind, or by an excluded flood had not arisen frequently enough for State Farm to make an operational guide. I assume, following the aforementioned principals, that State Farm previously paid those claims.
Faced with the dilemma of paying for hundreds, if not thousands, of "slab" homes, upper management of State Farm made a new claims standard known as the "wind/water protocol." In short, it stated that in absence of physical evidence demonstrating wind damage, the claim should be denied. Since slab cases had no physical evidence remaining, the entirety of those claims were denied. Unfortunately for many along the Mississippi Gulf Coast, other insurers, but not all, followed the example of the industry leader. State Farm and many other carriers started denying claims en masse approximately six weeks after the storm. Many of these denials were based on simple and quick field observations by the claims representatives following "marching orders" from home office executives. Indeed, since many engineering reports undermined the analytical basis for complete denial, many companies ordered engineering investigations stopped.
A former CEO of Allstate, Jerry Choate, once said that Allstate would be judged when it came to "moments of truth." Those are the instances where hard decisions would be made to do the "right" thing regardless of the economic consequences. I have remembered those words every time these issues arise because ethical claims behavior calls for a different standard. It is hard for me to believe that somebody in Bloomington did not have the backbone to raise it. It is why have I have frequently asked claims management to reconsider what they have done and possibly have a change of heart.
Nevertheless, Judge Edith Jones commented that nobody paid much attention to the "wind/water protocol" in the briefs and nobody mentioned it in argument until she raised the topic during Clark Holland's rebuttal on behalf of State Farm. Judge Senter, who appears to be of a similar mind to my firm, found this written standard as evidence of bad faith because it violated long standing good faith requirements requiring full investigation and it wrongly changed the burden of exclusionary proof the insurer had under traditional all risk coverage analysis. Holland claimed that the protocol correctly guessed the proper standard which Judge Edith Jones wrote about in Leonard vs Nationwide. While I have publicly criticized portions of Jones' opinion previously, there is nothing in it which comes close to what State Farm made up as a reason to deny slab claims.
From a practical standpoint, it is a ridiculous standard. The strongest winds with the most damage were within the first several miles of the Coast. Many of these structures also sustained flood and storm damage. However, State Farm was paying tens of thousands and sometimes, hundreds of thousands per claim on losses which occurred twenty, fifty and a hundred miles further inland with far less wind strength. Many of these losses were caused by homes that lost shingles, roofing and windows allowing rainwater to soak the inside of the structures and contents. Thus, State Farm created an arbitrary standard resulting in no payment to those who had the highest amount of wind force and knowing that it was paying millions for structures losses which in all probability had sustained much less wind damage than those along the Coast. At the Broussard trial, this was an apparent reason for the grant of punitive damages. However, it was never discussed at oral argument. Possibly the appellate judges or their clerks never thought of this. Most of my clients have because the unfairness is easily discernible to those whom have suffered complete denial.
It is rather strange for one to think you can learn how doctors are supposed to practice medicine or about medical standards by reading medical malpractice appellate cases. Those are taught in medical treatises. Yet, there was no discussion yesterday about how State Farm trained its adjusters before Katrina, what is in their claims manuals, or how the basic claims treatises would handle these issues. Thus, Clark Holland and State Farm were free to argue that the Court should do what they say rather than do what they said and did before the dollar impact of Katrina slab cases created a new way of thinking for the insurance industry.
While watching the arguments before the Court, I wanted to raise my hand or yell, "let me tell you what I know". It is very difficult to be a bystander when you have a lot riding on the outcome of how well others perform; I found it nearly impossible to patiently watch and say nothing. From my perspective and experience, State Farm is trying to have its very able lawyers argue before relatively inexperienced insurance law jurists, to get it out of its known contractual obligations.
Unlike others, this will not be my final venue for fighting wrongful claims practices and misinterpretation of insurance policies. I am very concerned that the overstatement in Leonard will be a wrongful basis for denial or an avoidance of accountability for bad faith conduct. I am concerned about the effect of improperly reasoned decisions on future events. The truth is the Fifth Circuit is guessing about how the Mississippi Supreme Court would rule on these matters. It has the right to request the Mississippi Supreme Court make these legal determinations. My guess is that they will not. Instead, my prediction is that we (plaintiffs attorneys) will have to do everything we can to help Bill Walker, Jack Denton and the Broussards when they have to try their case again and make sure that we get it completely right the second time. If I have to watch from the bench, I can at least try to help anyway I can.
SECTION I - LOSSES NOT INSURED * * * 2. We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following excluded events. We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded event to produce the loss; or (d) whether the event occurs suddenly or gradually, involves isolated or widespread damage, arising from natural or external forces, or occurs as a result of any combination of these: * * * c. Water Damage, meaning: (1) flood, surface water, waves, tidal water, tsunami, seiche, overflow of a body of water, or spray from any of these, all whether driven by wind or not;There is no fair reading of this exclusionary language that would compel a different result from that reached by the District Court with respect to the burden of proof and the fact that State Farm must provide coverage for damage that is not caused by an excluded event. Indeed, in discussing the lead-in language to the losses not insured section of its policy, State Farm conceded in its brief "(i)t plainly states that 'any loss which would not have occurred in the absence of' certain excluded events, including water damage, is not covered under the policy, 'regardless of' the operation or effect of other causes of the loss." Under the Mississippi Supreme Court's allocation of the burden of proof, State Farm then has the burden of proof to establish what portion of the accidental direct physical "loss which would not have occurred in the absence of" an excluded event. Respectfully, I just wish this point had been made more forcefully in the oral argument. These Jurists are conservative by nature and do not want to deviate from the recent Leonard precedent. But, State Farm is having its attorneys argue out of a product and burden of proof that I am certain its claims management is well aware of-just to avoid a significant loss. As a student and critic of this clause for a long period of time, I actually think the State Farm clause may come closest to expressing the intent of what the industry wanted to say in the first place. From our perspective, it is a shame they will not honor the benefit of the all risk nature of the policy they sell when they cannot prove the storm surge exclusion. Mississippi law is pretty clear:
Where there is doubt as to the meaning of an insurance contract, it is universally construed most strongly against the insurer, and in favor of the insured and a finding of coverage. The basic reason that uncertainty is decided in favor of the insured is that the insurer prepares the policy and should not be allowed by the use of obscure or ambiguous exceptions to defeat the purposes for which the policy was sold. Thus, "in accord with the general standard of giving effect to the purpose of the contract, the rule is that provisos, exceptions, or exemptions, and words of limitation in the nature of an exception, are strictly construed against the insurer, where they are of uncertain import or reasonably susceptible of a double construction."Universal Underwriters Ins. Co. v. Buddy Ford Lincoln-Mercury, Inc., 734 So. 2d 173, 176-177 (Miss. 1999) (internal citations omitted). It would seem that if the learned Judge Edith Jones cannot provide a correct example about how an anti-concurrent clause is supposed to work, then there is proof that there is some doubt about the meaning of the clause. Policyholders everywhere are praying that the Tuepker court will work hard at their decision and not simply rubber stamp a poorly reasoned decision in Leonard.
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