Unfortunately, many associations unknowingly accepted this position from their carriers, their carriers’ adjusters, and even a large insurance broker who helped many associations procure insurance in the first place. (While it may seem strange that a broker was giving coverage opinions, the fact that the broker owned the company handling the claims for the carrier may shed some light on why this was happening).

On the flip side, some associations challenged their insurers’ positions and filed suit to obtain reimbursement for damaged windows and doors. Two main decisions relating to this position were ultimately issued, both finding that windows and sliding glass door systems were covered under the associations’ property insurance. Both decisions were based on a thorough analysis of the relevant condominium documents as well as the relevant portions of Florida Statutes Chapter 718. Mayfair House Ass'n, Inc. v. QBE Insurance Corp., No. 07–80628, 2008 WL 4097663 (S.D. Fla. Aug. 29, 2008) and Royal Bahamian Ass’n, Inc. v. QBE Ins. Corp., 750 F.Supp.2d 1346 (S.D. Fla. 2010).

While the associations finally received payment for these damages, many more were left out in the cold. Some associations spent hundreds of thousands or millions of dollars to replace damaged windows and sliding glass doors, simply believing that their insurance policy did not cover it.

When dealing with an insurance company, an adjuster, or a broker, it is important to follow up and confirm the information they provide. If a large portion of your claim is denied or withheld, you should contact competent legal counsel to ensure that you and your association are protected.

An adjuster is permitted to interview any witness, or prospective witness, without the consent of opposing counsel or party. In doing so, however, the adjuster shall scrupulously avoid any suggestion calculated to induce a witness to suppress or deviate from the truth, or in any degree affect the witness's appearance or testimony during deposition or at the trial. If any witness making or giving a signed or recorded statement so requests, the witness shall be given a copy of the statement.

This provision in the adjuster code of ethics is a mandate, not a suggestion as many adjusters seem to believe. Failure to abide by the requirements of the code, including providing a copy of a signed or recorded statement upon request, may result in administrative action against the adjuster and is considered an unfair claims settlement practice that may subject an insurer to a bad faith lawsuit.

Aside from an insurer’s ethical obligation to provide copies of recorded statements, Florida Statutes provide a potentially severe penalty for failing to provide such a record. Florida Statutes § 92.33 states:

Written statement concerning injury to person or property; furnishing copies; admission as evidence.

Every person who shall take a written statement by any injured person with respect to any accident or with respect to any injury to person or property shall, at the time of taking such statement, furnish to the person making such statement a true and complete copy thereof. Any person having taken, or having possession of any written statement or a copy of such statement, by any injured person with respect to any accident or with respect to any injury to person or property shall, at the request of the person who made such statement or his or her personal representative, furnish the person who made such statement or his or her personal representative a true and complete copy thereof. No written statement by an injured person shall be admissible in evidence or otherwise used in any manner in any civil action relating to the subject matter thereof unless it shall be made to appear that a true and complete copy thereof was furnished to the person making such statement at the time of the making thereof, or, if it shall be made to appear that thereafter a person having possession of such statement refused, upon request of the person who made the statement or his or her personal representatives, to furnish him or her a true and complete copy thereof.

Based on the Adjuster Code of Ethics and the specific language of relevant Florida Statutes, an insurer that refuses to provide an insured with a copy of a recorded statement or EUO transcript does so at its own peril. Not only may the insurer be subject to administrative penalties and bad faith liability, the statement or recording will not be admissible for any purpose in later litigation.

While an insurer may believe it is justified in refusing to produce materials found in a claim file, simply placing a document in the file does not necessarily make it protected. Failing to provide an insured with a copy of such a statement is improper and in direct conflict with obligations to treat each policyholder with the utmost good faith and fair dealing.

If this is like other catastrophic failures of technological systems in modern history, whether it was the sinking of the Titanic, Three Mile Island, or the loss of the Challenger, we will likely discover that there was a cascade of failures and technical and human and regulatory errors.

Many have questioned what BP and others knew about the failed blowout preventer and when it knew. This was a focus during the House hearings this morning. According to Representative Henry Waxman, D-CA., the Committee had uncovered documentation that showed BP and others knew that the blowout preventer on the Deepwater Horizon had a leak in a crucial hydraulic system. This leak is likely one of the predominate causes of the blowout preventer’s failure to stop the oil leak.

BP records also show that the oil well had failed negative pressure tests less than 20 hours before the explosion which sank the mobile offshore drilling unit, killing 11 people, and caused more than four million gallons of oil to be spilled into the Gulf of Mexico. Records show that there was a breach in the well integrity which allowed methane gas and other hydrocarbons to enter the well and likely caused the explosion.

Unfortunately, BP and others did not take these failures seriously, and its neglect has ultimately led to a disaster which threatens the way of life for individuals in more than four states.

While everyone along the Gulf Coast scrambles to find a way to protect his livelihood and property, BP and the others involved continue to “promise” to “pay all legitimate claims.” While this sounds good in a five-second sound bite on the national news channels, many are wondering when this payment will come and whether it will be sufficient to keep their businesses open and their employees on the payroll.

Unfortunately, nobody can answer these crucial questions except for BP and the others involved, and they will not be giving clear answers any time soon. One thing that is clear, however, is that the effects of the Deepwater Horizon oil spill will be felt for years to come.

BP’s stance on what damages it will pay for the disaster caused by its oil varies, depending on what time of day you watch the news. One broadcast on the 5:00 p.m. news shows a BP spokesman saying that the company will take full responsibility for the damages caused by the oil; at 11:00 p.m. the same day, another spokesman says that the disaster was not BP’s fault.

Thankfully, some officials are not fooled by the warm and fuzzy reassurances of BP and others involved in the recent oil spill. “We don't know what is a legitimate claim. That's lawyer speak at a time when we need straight talk and clear answers,” said Alabama Attorney General Troy King.

Florida Senator Bill Nelson has also filed federal legislation to raise the 75 million dollar cap to 10 billion dollars to make sure that those responsible for the current crisis are not off the hook. He follows Attorney General King’s position that “[w]e will do whatever is necessary to make the people of Alabama [and Florida] whole.”

While the current public sentiment is that BP and others responsible for the drilling should be held accountable for the damages their oil spill has created, those companies also know that the tendency is for the public to quit paying attention to these types of stories after a few months. The longer those responsible hold out, dodge tough questions, and avoid answering whether or not they will pay ALL of the economic damages incurred as a result of this spill, the more likely it is that BP and others will avoid full responsibility. Attorney General King is right, this is a time for “straight talk and clear answers,” which can’t come soon enough.

The consequences of the current oil spill will continue long after the spill is stopped or contained and will affect almost every aspect of life in this area. It seems inevitable that the oil slick will reach this area at some point, and the timing could not be worse. A decline in tourism during the summer months will almost surely cripple the condominiums, hotels, restaurants, beach services, retail shops, and many others who depend on the influx of vacationers during this time of year to make a living.

The question I have been asked most often during the numerous phone calls and meetings today is “what can we do to protect our business and our employees?” First, it is important to realize that even though the oil has not made landfall, its effects are far from small. From day one, the spill has created documented damages to businesses and homeowners, and these losses will grow exponentially.

Second, it is crucial that condominiums and other business diligently document the losses that are incurred. If a renter calls to cancel a reservation, the reservationist should specifically ask whether the cancellation is due to the oil spill. If so, the potential renter’s information should recorded and saved in order to document the lost income.

Also, everyone should be proactive in protecting the financial security of the association and the other businesses that are being adversely affected by this disaster. Many condominium associations and other businesses have already contacted the Merlin Law Group and we are in the process of filing a class action lawsuit in order to protect the livelihoods of the hundreds of thousands of people in this part of the country who depend on tourism to survive.

This Tuesday, May 4, 2010, we will be hosting an informational seminar at the San Destin Hilton in Destin, Florida. Beginning at 1:00 pm, a select group of attorneys, accountants, and other professionals will be on hand to answer questions about the steps that are being taken to protect this fragile economy and environment. So far, we have had over 100 businesses, associations, and individuals express interest in this event and we hope that you will be able to join us as well.

In order to deal with the current crisis, we have started a new website to keep the public informed. If you have any questions or wishes to speak to us about representation, you can contact us at the number listed on the website, or you can contact me directly at 813-373-9598.

In Florida, discovery in breach of contract actions usually centers around the mystical “claim file” which insurers guard more closely than their first born child. As most who read this blog already know, the “claim file” has been held to be generally protected by Florida courts, and usually undiscoverable in a breach of contract action.

For condominium associations in particular, many times attorneys become involved in an insurance claim from the very beginning. In many instances, the independent or insurance adjuster is moved to the side early in the process and replaced by the insurer’s attorney, who ends up directing the adjustment and making the final determination of coverage.

For many years, insurers have claimed that all of the work that these attorneys performed in the adjustment of the claim was privileged because of the work product and attorney-client privilege. When insurers acted in bad faith by denying valid claims, the insurer could refuse to produce relevant documents which reflected this improper behavior during the bad faith litigation.

Fortunately, Florida courts caught on to this tactic and have stopped the insurer’s attempts to improperly hide its bad faith conduct by invoking attorney-client and work product privilege on materials in the claim file.

The Florida Supreme Court’s ruling in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005) set the precedent in preventing insurer’s from concealing bad faith activities with claims of privilege. Specifically, Ruiz overruled previous case law and found that work product documents created in the breach of contract action were part of the claim file and must be turned over in subsequent bad faith litigation.

There has been some debate over whether the Court’s ruling in Ruiz prevented insurers from relying on attorney-client privilege to keep from producing documents related to the underlying breach of contract action or adjustment process.

This was the exact question which Sandalwood Estates Homeowner’s Association recently faced in the Southern District Court of Florida. After Hurricanes Frances and Wilma, Sandalwood suffered significant damages. When the insurer did not promptly pay the full amounts due under the policy, the parties proceeded to appraisal. The result of the appraisal was an award of around $5,000,000 more than was originally offered by the insurer.

Sandalwood filed suit alleging that the insurer had acted in bad faith in handling the insurance claims. During the discovery phase of the lawsuit, the insurer claimed that many of the documents requested did not have to be produced because they were protected by the attorney-client privilege.

The District Court disagreed, holding that while the documents may have privileges attached to them in a breach of contract action, documents dealing with the handling of the claim were part of the claim file and discoverable in a bad faith action. As the court stated, “…courts in Florida have consistently held that the Florida Supreme Court intended Ruiz to extend to claim file materials that would otherwise be protected by attorney-client privilege.” Sandalwood Estates Homeowner’s Assn’s Inc. v. Empire Indemnity Insurance Company, No. 09-80787, 2010 WL 411088 (S.D. Fla. January 28, 2010)

With the complexity and amount of money involved in condominium claims, there is a growing trend of insurers bringing in attorneys very early in the process. When acting in this capacity, the materials in the claims file should not be privileged simply because the attorney is involved. While this is obviously not the first time a court has found that these documents should be produced, the Sandalwood case is an important victory for condominium associations and other policyholders who are at the mercy of the insurer after a devastating loss.

One of the most daunting tasks in submitting an insurance claim is the production of documents. Most insurance policies have language similar to the following:

The insured, as often as may be reasonably required, shall produce for examination all writing, books of account, bills, invoices and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by the company or its representatives, and shall permit extracts and copies thereof to be made.

An insurer has numerous motives for reviewing an association’s documents. Often, the insurer is looking for evidence of pre-existing damages. One large condominium insurer in Florida, for instance, has made a practice of conducting exhaustive document inspections. When a loss is reported, the insurer’s legal team rolls into the condominium association with much the same velocity as the windstorm that caused the damage in the first place. Every document available is copied and combed through line by line. This particular insurer even has its own portable copy machines to make the process more efficient.

Condominium associations are a different animal when it comes to documents. Typical associations have a high turn over rate with employees, managers, and even board members. Many times, one hand does not know what the other is doing, and new managers may completely change the filing system. Thus, keeping track of all of the documents can be a consuming process.

Part of cooperating with an insurer in adjusting the loss involves making requested documentation available for inspection and failing to do so may give an insurer a chance to deny the entire claim. In Florida Gaming Corp. v. Affiliated FM Ins. Co., for instance, the insurer argued that Florida Gaming Corp. was not entitled to insurance proceeds for damages resulting from Hurricane Wilma because it had allegedly failed to produce some documentation requested. The policyholder responded that it had made available all documentation in its possession and that it had complied with all of its post loss obligations under the policy. Fortunately for the policyholder, the court agreed that the hundreds of pages of documents produced were sufficient, and the insurer’s motion for summary judgment was denied. Florida Gaming Corp. v. Affiliated FM Ins. Co., 502 F.Supp.2d 1257, 1264 (S.D. Fla. 2007).

While the policyholder in this instance was benefited by a favorable ruling, there was a substantial risk to the solvency of the company if the court had found differently. The claim at issue was in excess of $17,000,000, a substantial potential blow to any organization.

While the revolving door is constantly in motion when it comes to condominium association employees, owners, and directors, it is important to have a plan in place to maintain appropriate records. Some associations believe that they have great insurance and will have no problem if they submit a claim, and in some instances, this may be true. But, as we have seen with the results of the active 2004 and 2005 hurricane season, condominium associations are at great risk of large scale damage.

Having a consistent plan in place to maintain and preserve documents over the years will save a great deal of time. After a loss, the documents will be readily accessible and can be sorted through and produced when necessary to support a claim. This can help large claims be paid more quickly and can help an association get back on its feet faster after a devastating loss.

These days it is hard to find a topic on property insurance law that has not been previously discussed in some way on this blog. However, many new people join our blog each day, so I feel it is important to bring up previous posts in order to learn and build on what has been said before. In a previous blog, (Cooperation Clause Does Not Require Policyholder’s Slavish Obedience), Chip discussed the growing trend of insurers’ threatening letters to policyholders stating that a failure to comply with every single request could void coverage under the cooperation clause.

As the previous post states, in Florida, carriers have a very high burden in order to void coverage with a cooperation clause defense. The carrier must show a number of things in order to prevail on this defense. While the Coconut Key Homeowners Ass'n v. Lexington Ins. Co., case required the insurer to show that there had been a material breach of the clause and that it had been substantially prejudiced as a result of the breach, previous Florida decisions have broken this test down into a four point test.

In Phila. Indem. Ins. Co. v. Kohne, 181 Fed.Appx. 888 (11th Cir. 2006), the court stated:

Under Florida law, an insurer is excused from its obligations under the cooperation clause if the insurer demonstrates: (1) the insured failed to cooperate; (2) the lack of cooperation was material; (3) the insurer suffered substantial prejudice as a result of the insured's failure to cooperate; and (4) the insurer exercised diligence and good faith in trying to bring about the insured's cooperation.

While this is essentially the same test stated in Coconut Key, it breaks the analysis down a few steps further and even ratifies that an insurer has an obligation to act in good faith to try and get the insured to cooperate. This prevents an insurer from being able to sit on its hands and wait for an insured to commit a perceived breach of the cooperation clause to deny coverage.

Other states have similar decisions and requirements. In Louisiana, the courts have held that an insured’s failure to submit an inventory and proof of loss on a fire claim, as well as an insured’s failure to submit to an examination under oath were material breaches of the cooperation clause and could therefore void coverage. Brantley v. State Farm Ins. Co., 865 So.2d 265 (La. App. 2nd Cir. 2004).

While failing to submit a proof of loss or inventory, as well as failing to sit for an EUO are possibly more likely to constitute a material breach, it is important to weigh each request a carrier makes. Guessing wrong may have a significant effect on the outcome of the claim, so it is always important to seek guidance from a professional source before refusing an insurers request. This way you can make sure that you have all the facts and the best guidance before making this type of important decision.

“In the event of loss or damage, we will adjust the loss with you.” This is a common phrase in property insurance policies, but an important phrase nonetheless. The key word in this sentence is the word with. The insurer will adjust the loss with an insured, not the insurer will adjust the loss for the insured. While the word with may not seem too important at first glance, this phrase can play a very important role in determining whether an insurer or insured may have breached the policy.

Most insurance policies have a clause which states that after a loss, the policyholder has an obligation to cooperate with the insurer. Even if this clause is not expressly included, the duty to cooperate is normally implied by law. Stewart Sleep Center, Inc. v. Atlantic Mut. Ins. Co., 860 F. Supp. 1514 (M.D. Fla. 1993).

The purpose of an insured’s duty to cooperate with the insurer in the adjustment of the claim serves multiple purposes beneficial to both the policyholder and the insurer. The obligation is important to the insurer because it gives the insurer an opportunity to collect important facts and details while the information is still fresh on everyone’s mind. It also helps the insurer make an informed coverage decision and prevent fraudulent claims.

The duty of cooperation after a loss does not only run from policyholder to insurer. It also runs from the insurer to the policyholder. Adjusting the loss with the insured cannot be accomplished if there is no duty of cooperation on the part of the insurer. Cooperation between the insurer and the policyholder helps the claim determination be made quickly and causes the claim to be paid for fairly. As is the case if an insured breaches his post-loss obligations, an insurer that fails to cooperate with the policyholder during the adjustment of the claim may breach the contract and be liable for damages.

Attempting to summarize the cooperation clause in one blog post would be inadequate. Therefore, over the next few weeks I will write about this important aspect of law and some of the nuances which it entails.

I have been getting numerous calls from homeowners and public adjusters regarding supplemental claims from Hurricane Wilma. While many of these claims are getting paid promptly and properly, many are not. There are a variety of reasons that these claims are being denied, but the predominate problem I run across is that the insured does not have a record of the repair expenses for work previously performed.

This certainly does not mean that if an insured does not have every receipt or invoice the entire claim will be denied, and an insured should NEVER create a fraudulent invoice in an attempt to satisfy an insurer’s request. Everyone is human and will misplace a receipt from time to time. This does not necessarily result in the claim denied or severely underpaid, but a lack of documentation for repair expenses can cause problems.

Problems arise when the claim is brought or re-opened many years after the storm. One situation I hear often is that the insured received benefits for roof repair but later found that the repairs were inadequate and replacement was the only way to fix the damage. When this happens, the first question the insurance company usually asks is: “Where are the receipts for the previous work?” If the policyholder can show the insurer documentation that the recommended work had been performed, the insurer is more likely to pay for replacement of the roof than if the documentation does not exist.

On the other hand, if the policyholder does not have any documentation of the repair, the insurer is less likely to agree to pay for the replacement of the roof. The insurer will probably question whether the work was performed by a qualified professional or whether the work was even done at all. If an insured cannot show the receipts for what work has been performed, the insurer commonly argues that the damages are the result of the policyholder’s failure to mitigate or repair the damages in the first place, and not the result of the entire roof being damaged from an insured event.

So what is the best practice for policyholders to follow when it comes to a loss? Pay attention to the details and do the best you can to retain documentation of repairs even after the property has purportedly been put back into pre-loss condition. Keeping a separate folder with receipts, invoices, and estimates relating to the claim is always a good idea. Similarly, keeping a timeline of the events surrounding the claim is also very helpful and should consist of the repairs performed and also the individuals involved. Keep this information in one place so that it can be easily located without having to dig through old boxes stacked up in the attic.

I know what most policyholders out there are thinking: “I won’t have a supplemental or re-opened claim in the future so this won’t apply to me.” While this may be true, as with other things in life, hope for the best but plan for the worst.

Over the past few weeks I have written about the necessity of mitigation and the potential consequences of not doing so. Two weeks ago in Consequences of a Policyholder's Faiiure to Mitigate, I wrote that it was important for policyholders to obtain help from experienced professionals in the event of a large loss. While my list of potential professionals was not intended to be all-inclusive, a comment reminded me that I failed to mention that policyholders could call their agent or carrier directly if they had any questions about what was required under the policy.

Unfortunately, as I mentioned in last week’s post, An Insurer’s Actions May Excuse Mitigation Requirements, many times we run across individuals who may lack some of the fundamental knowledge necessary to guide a policyholder through the maze of provisions included in a policy. A comment that I have been mulling over for the past week is this:

Your article only serves to reinforce my continuing comment that education is sorely lacking if an adjuster working for a carrier makes that type of inane comment. Even a rookie should not make such a stupid comment. I guess this situation is like manna from heaven for litigators it however illustrates the industry wide lack of commitment to properly educating claims personnel. With the disappearance of veterans from the field this is unfortunately what the future looks like.

I guess this comment stuck in my head because, even though I recently found a grey hair, I am part of the generation which will attempt to carry this field into the future. I have been extremely blessed to have had the opportunity to learn so much from so many people over the past years, but I understand that not everyone is so fortunate.

While the point of my post last week was to explain how carriers could be estopped from asserting a mitigation defense if its actions cause the insured to not properly protect the property, it definitely highlights the fact that there is a lack of training and education out there. As the comment says, the veterans are beginning to disappear, and, many times, new adjusters are thrown into the mix before they are ready.

While the ideal situation would be for everyone in the industry to have an experienced mentor to show them the way, the reality is that this is not feasible. Therefore, it is important for people who are new to the industry to completely immerse themselves and learn something new at every opportunity.

I recently ran across the following post on Dimechimes:

We receive hundreds of emails yearly if not monthly from new adjusters specifying they now have their adjuster’s license and are ready to go as they look for independent adjuster assignments. Many will have great backgrounds in construction, auto repair backgrounds, insurance agency, and other related fields.

What they do not have that they do not understand is a grasp on the functional essentials to properly adjust a claim. They may have learned state ethics requirements for adjusters, some basic policy to pass the adjuster’s license exam, but little regarding practical file requirements, carrier claim handling guidelines, forms required, proper communication tools and appropriate forms of communication.

If you think you are ready…try taking this self assessment and see how many questions you are comfortable with before you go out on assignments and see if you are ready!

Whether you take our 50 Hour Fundamentals of Claims Class or obtain training elsewhere, please do not go out on assignments without taking much needed training from PROFESSIONAL sources.

The post goes on to provide a 125 question test to help new adjusters determine if they are “ready for action.” While the test is intended for independent adjusters, I think it is helpful for public adjusters, attorneys, and agents as well. To succeed in this business, you need to understand all of the different parts, and finding the answers to these questions is a great place to start.

You can find the Dimechimes post and test here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

One question that generally arises after a loss is what repairs should be made and who will be responsible for paying them. Since most policyholders are not well versed in construction or insurance issues, this question is constantly being asked of adjusters and attorneys alike.

Many insurers have guidelines for their policyholders when it comes to mitigating damages. While doing some research into one Florida insurance company I recently came across these “Tips” on its website:

If your property suffered damage from the storm, you should:

• Report your claim immediately by calling our toll-free claims number
• If safe to do so, make temporary repairs as necessary to prevent further damage and protect your property. Consider contacting a water extraction company to dry out your dwelling.
• Take photos of the damage prior to making temporary repairs
• Keep detailed receipts and present them to the adjuster

This checklist highlights a few important things. First, you should always consider your own safety before attempting to make temporary repairs. Running out to tarp a roof in the middle of a hurricane makes absolutely no sense since the tarp would likely blow off again anyway and the chances of injury or even death more worrisome than the possible damages that may occur. It is a little known fact that most reported in the aftermath of a hurricane occur after the storm has passed.

Second, the insurance company has the obligation to fully investigate a loss. By contacting the insurer quickly to report the loss, the insurer’s representatives can move quickly to adjust the loss. Unfortunately sometimes adjusters do not get to the property as soon as the policyholder would like, many times through no fault of their own. Thus documenting the damages and every stage of repairs can be very helpful in moving the claim along more quickly. Policyholders should attempt to take pictures of the damages, as well as the progression of any temporary or permanent repairs which are being made.

In a recent case, one of my clients was denied coverage for a water loss that significantly damaged her home. When counsel got involved, we were able to document everything that had happened in the claim including the actual damage and every step of the repair process. All in all, this diligent policyholder took somewhere around 2000 pictures of her damaged house and in the end it was enough to bring the insurer to the settlement table quickly. In this case, I guess a picture really is worth a thousand words.

Finally, it is important for policyholders to keep detailed receipts of all expenses incurred as a result of the loss. This could include labor or materials purchased to make repairs, receipts for hotel stays if the property is unlivable, restaurant receipts, gas purchases, etc. Every expense should be well documented and presented to the insurer so that you can be reimbursed.

This small guideline provides a good basic summary of some of the immediate post-loss obligations that a homeowner incurs. By following these steps, policyholders can fulfill many of these duties and keep their claim on track for a quicker settlement.

Over the past few weeks I have posted on the duty to notify the insurer that a loss has occurred. Having sufficiently beaten that horse into the ground, for the next few weeks I will post on what is generally considered to be the second obligation under a policy: the duty to protect the property from further damages.

B. Duties After Loss

4. Protect the property from further damage. If repairs to the property are required, you must:
a. Make reasonable and necessary repairs to protect the property and;
b. Keep an accurate record of repair expenses

In the industry, this is called “mitigating the loss,” which means taking steps to keep the severity of the loss from increasing. While the language of a particular policy may be different, the general principle remains the same and for good reason. Pennsylvania Lumbermens Mut. Fire Ins. Co. v. Nicholas, 296 F.2d 905 (C.A.Fla. 1961). Simply put, this provision is intended to keep the loss from unnecessarily increasing and thus increasing the cost to both the insured and the insurer.

Keep in mind that this does not mean that permanent repairs are immediately required. In most, if not all, cases, this means that temporary repairs must be made to ensure that the damages do not get worse. Tarping a damaged roof to keep rain water out or turning off the water supply to a broken pipe are both common temporary repairs which can be sufficient to mitigate the loss.

While this may seem like common sense, even a cursory reading of the provision above should raise some red flags. There can be many questions raised regarding whether the temporary repairs were “reasonable,” “necessary,” or even possible. This can cause a wide variety of issues with a claim and can provide the insurer with an excuse to avoid prompt payment under the policy and could even lead to the claim being denied.

Over the next few weeks, I will post on many of the issues surrounding this obligation. As always, I welcome and encourage your comments and questions. In the end, these posts are for the readers, so please feel free to chime in.

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

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

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

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

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

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

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

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

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

With the prevalence of supplemental claims, especially in Florida, one issue that has been coming up recently is the requirement that the insurer receive timely notice of a loss. Many times, these supplemental claims are made years after the occurrence (Hurricane Wilma for instance), and some insurers are denying coverage for the damages and refusing to participate in the appraisal process. Their argument is that they did not receive timely notice of the damages and the length of time has substantially prejudiced their investigation of the claim.

In one way or another, most policies state that the insured has a duty to give prompt notice of any loss to the insurer. Some policies may actually list out the exact time in which the notice must occur, and some states even have statutes which cover this exact topic. While this may prove helpful to the policyholder and help answer any questions as what constitutes “prompt” or “timely” notice, these instances are the exception and not the rule. Thus, there has been, and continues to be, an abundance of litigation over what these clauses actually mean.

So how quickly must notice of a loss be given? The general rule of thumb is that you should give notice as soon as possible. The occurrence of a loss usually triggers the policyholder’s duty to inform the insurer and doing so immediately can help reduce or eliminate any argument of noncompliance.

When an issue of whether notice was prompt or timely arises, courts must assess the cases individually. The individual facts surrounding each situation are very important and some jurisdictions may be very strict while others may be more lenient. Courts must determine if the time between the loss and the notice was reasonable under all of the facts and circumstances of the case. Employers Cas. Co. v. Vargas, 159 So. 2d 875, 877 (Fla. 2nd DCA 1964).

In Texas, one court held that without extenuating circumstances, a 54 day delay in reporting a claim was not reasonable and allowed an insurer to deny coverage. McPherson v. St. Paul Fire & Marine Ins. Co., 350 F.2d 563 (5th Cir. 1964).

At the opposite end of the spectrum, the United States District Court for the Southern District of Florida held that notice was not necessarily untimely when given much later than 54 days after the loss, when an insured did not discover the damages until many months after a hurricane. Vision I Homeowners Ass'n, Inc. v. Aspen Specialty Ins. Co., 2009 WL 4927162 (S.Dist. Fla. December 22, 2009). As the Court noted in that case, “the Aspen policy created the possibility of this inherent ambiguity regarding notice by using the term “prompt notice” rather than a finite term, such as requiring notice within sixty or ninety days from the date of the loss.”

These cases show that there is a diverse range of findings that deal with prompt or timely notice of a loss. Some states require that an insurer be prejudiced by the late notice in order to avoid coverage. This is the law in Florida, however, there is a presumption that late notice has prejudiced the insurer and it is up to the policyholder to prove otherwise. While some states take the opposite stance and put the burden of proving prejudice on the insurer, the best way to avoid having to deal with these issues is to give notice as soon as possible. If you are having an issue with whether the notice was prompt, you should have a good understanding of the laws of your particular jurisdiction to determine how best to move forward.

The consequences of a finding that the policyholder did not provide the insurer with prompt notice of a loss can be severe, possibly resulting in complete denial of a claim. Providing notice as soon as possible will help prevent litigation over what constitutes “prompt” or “timely” notice and will move the claim along more quickly. It will also reduce the chances that a claim is denied because of noncompliance with the post loss obligations.