Often times, an insurance adjuster fails to properly investigate the damages to the insured risk and does not properly evaluate the obvious insurance exclusions for many reasons. After suffering a loss, the insured a business owner is making decisions to get the business up and running as soon as possible, and many of those decisions are based upon the representations of the adjuster, or the lack of information given by the adjuster. The business decisions of whether to move to new location, lease more of the building to offset the additional costs or debt, replace or repair the improvements and betterments installed by a tenant, hire security to protect the premises, purchase a new policy that will cover theft and vandalism on a vacant building thought to be insured under the existing policy, etc., have a significant impact on the amount of money the insured will pay out of pocket and may never recover under the policy.

If the insurance adjuster does not identify the coverage issue when presented with it and leads the insured into believing that he/she is insured for the loss, and in reliance on it, the insured makes business decisions that result in more of a loss from additional damages to the property or additional out of pocket expenses, has the insurance company waived the exclusions or is it estopped from denying coverage?

In Texas, the Supreme Court explained the law on waiver and estoppel:

If an insurance contract covers certain risks but the policy contains exclusions or limitations of coverage, when the insured makes a claim for loss from a covered risk, the insurer must assert any applicable exclusion or limitation to avoid liability. Ulico Casualty Company v. Allied Pilots Association, 262 SW 3d 773, 778(Tex. 2008); citing to Employers Cas. Co. v. Block, 744 SW 2d 940, 943-44 (Tex. 1988).

Earlier decisions in Texas are consistent with the analysis above. Republic Ins. Co. v. Hope, 557 SW2d 603 (Tex. Civ. App. 1977); T.I.M.E., Inc. v. Maryland Casualty Company, 157 Tex. 21, 300 S.W.2d 68, 73 (1957); Camden Fire Ins. Ass'n v. Moore, 206 S.W.2d 104, 107 (Tex.Civ.App. Galveston 1947, writ ref. n. r. e.).

In Hope, the insured was a builder for 20 years and was in the process of building a home when vandals stole thousands of dollars worth of equipment. Republic argued the vacancy provision, stating the property was not occupied for 90 days, so theft and vandalism were excluded causes of loss. The Court reasoned that when several instruments form one overall contract, the court will assume in its construction of the contract that the parties honestly intended the terms of the various instruments should be effective to accomplish their purposes, and will reconcile apparently conflicting provisions to give effect to all of them, if possible. The Court construed the instruments in question to provide plaintiffs Builders' Risk coverage on the structure of the house at an increasing value as construction progressed until thirty days after construction was completed. Having construed the insurance policy as an “all risk” policy, in failing to plead the vacancy exclusion, the court held Republic waived the vacancy exclusion.

The first set of depositions scheduled deal with the issues of the 11.2% that TWIA originally determined was the damage caused by wind. The individuals involved in the calculation of the 11.2% are Dr. Schroeder and Dr. Spelman. How did TWIA arrive at the 11.2% figure? What factors were used by these “experts?” Who directed this type of analysis? These are just some of the questions that will soon be answered. These depositions will assist each and every one of us in the pursuit of a fair and equitable resolution of each case.

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

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

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

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

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

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

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

Insurance adjusters will never tell you that

[p]roperty damage estimates may look very rigorous, systematic, and scientific, yet these estimates reflect assumptions about how much labor time and expense is required to do certain work and how much material will cost. These assumptions can be wrong or inappropriate in any given case.

James J. Markham, Kevin M. Quinley & Layne S. Thompson, The Claims Environment, 1st ed. (Insurance institute of America, 1993) p. 176.

However, adjusters are trained to acknowledge this and are encouraged to work with the homeowner or homeowner’s representative to adjust the loss.

A letter of representation by the public adjuster should be careful to address whether the claim presented is the original claim (re-open) or is a supplemental claim. A supplemental claim is one where the damages were not obvious or were not present at the time the insurance adjuster inspected the loss. Therefore, if the letter of representation by the public adjuster refers to the loss as a supplemental claim rather than a re-opened claim, the public adjuster could be acquiescing to the original insurance adjuster’s estimate as the proper and valid estimate of damages. A re-open claim, on the other hand, is one where damage could be observed and was present at the time the field adjuster wrote his estimate, but the adjuster’s estimate is low on value, or is missing items on the scope.

Why don’t you want to call it a supplemental claim if it isn’t one?

If the adjuster got the estimate wrong and the public adjuster sends a letter telling the carrier it is a supplemental claim, he gives the adjuster and the insurance company a free pass; the insurer can argue that they did the estimate correctly the first time and this new claim is for damage that was not present or could not be seen during the first inspection.

When interviewing the policyholder, the public adjuster should be careful and through in documenting whether the damages that are visible today were also visible at the time the insurance adjuster inspected the property. This will help the public adjuster determine whether it is a re-open or supplemental claim.

Yesterday, Michelle Claverol and I had the honor and privilege to speak before a large crowd of public adjusters at the Florida Association of Public Insurance Adjusters (FAPIA) Winter Conference. As Michelle and I were preparing for the presentation, “Tales From the Dark Side,” it occurred to me how difficult and challenging the job of an insurance adjuster is, whether representing the insurance company or the insured. I had felt this way before, about 15 years ago, while sitting in my cubicle working as an adjuster for Crawford & Company out of the Miami office. It’s been nine years now that I have been practicing law as both a defense and plaintiffs attorney, and in those nine years, I had not taken the time to reflect on my life as an adjuster until three days ago.

Insurance provides a great benefit to society, and in this day and age, it is extremely difficult to think about any profession or type of business that is not insured. However, if an insurance company is to remain in existence, it must make a profit. In making profits, insurance companies are insuring businesses and properties with the hopes of earning an underwriting profit. The property insured is referred to as a risk, and if the expenses and claim payments do not exceed one-hundred percent of the insurance premium, then the insurance carrier has earned an underwriting profit. In fact, many underwriters earn large bonuses at the end of the year after the insurance company has determined that the policies they underwrote have earned an underwriting profit. Insureds and public adjusters face a very difficult task, sometimes monumental, when filing an insurance claim in light of the insurance companies business motives and need for survival/profits.

The first step in preparing a claim for a property owner is to carefully interview the property owner about the ownership, maintenance, damage, and yes, even the cause of the damage. In today’s market, real estate ventures, investment properties, and even the homes of many families have gone into foreclosure, or are only a few months away from being served with foreclosure papers. Sometimes, resolution of the insurance claim is what’s needed to keep some of these properties from going into foreclosure, and time is of the essence. Other times, the public adjuster enters into a contract with a property owner that is too far into the foreclosure process and the property is lost before the claim can be resolved. In that instance, the only winner is the insurance company and the underwriter, because it may never have to pay claim--keeping the expenses below the underwriting premium and earning a profit.

In every property insurance policy, lack of maintenance is an exclusion to insurance coverage. Every insurance company adjuster is trained to look and identify potential maintenance problems. If the field adjuster does not identify this condition, his supervisor will question his ability to properly scope a loss. If the issue of maintenance is addressed up front during the public adjuster’s meeting with the insured and inspection of the property, then the issues of maintenance can quickly and easily be addressed during the first meeting with the field adjuster. Telling the adjuster that your interview with the property owner revealed that there was regular maintenance of the roof with documentation or names of service providers, for example, could dramatically shorten the time it might otherwise take to get a claim paid. If the issue of maintenance can be addressed during the first inspection, the filed adjuster will be satisfied that he has met his duty to address the issues of maintenance and will no longer be concerned about his/her ability to do their job.

A public adjuster should NEVER write their estimate in a way that the total damages do not result from damage caused by a covered peril. We cannot look back in time, but the property owner is one very important source when walking the property and preparing your scope of damage. Many times I hear, “I gotta write it as I see it”; I submit to you that this approach is taking a big risk and the bigger the property, the bigger the risk of having your own estimate used against you by the field adjuster, the claims supervisor, and the defense attorney in an EUO, deposition or trial. The credibility of a public insurance adjuster in the eyes of a jury, and even the field adjuster, is only as good as the accuracy of the estimate and detailed notes kept by that public adjuster. When it comes to negotiating with an insurance adjuster, you have the power of knowledge because you have total access to the owner and the property. The more accurate you are in providing the correct information to the field adjuster, the more powerful you become to that field adjuster. The easier it is for the field adjuster to make his/her recommendations for payment, the faster the claim should be resolved.

In the last blog I posted regarding our litigation against Texas Windstorm Insurance Association (TWIA) and the exchange of documents, Current Status of TWIA Discovery for Hurricane Ike Claims in Galveston County, I briefly explained the discovery process in a first party litigation case. In the usual order of discovery, documents are exchanged and then the attorneys take depositions of each party. Due to the thousands of cases filed against TWIA, it was necessary to coordinate these depositions much in the same way that it was necessary to exchange discovery documents.

Although TWIA argued to have these depositions take place in another County, Judge Susan Criss quickly denied their request and ordered the depositions take place in Galveston County.

The depositions will be taken by members of the plaintiff's Ike Steering Committee. The depositions of Jim Oliver, Bill Knarr, and Reggie Warren will each take place over five days, and all others listed in the order will each take place over three days. The number of days allowed for these depositions can change by agreement of the parties or the Court's order.

How does this order affect cases pending in other counties? The order does not at all affect cases pending in other counties.

How does this order affect my individual case? The purpose of the depositions is to learn all of the information necessary to prosecute each client's case with respect to the issues of the institution (TWIA) and TWIA's pattern and practice of handling claims. This means that the topics covered with respect to the institution and institutional practices cannot be discussed again in subsequent depositions. The plaintiff can, however, ask questions specific to each individual case. This process blurs the line of what can and cannot be asked in depositions because a lot of what is asked in a deposition is dependent upon how it is asked. I expect there will be a number of hearings in the near future with respect to what can and cannot be covered in individual depositions.

When are these depositions scheduled to take place? The depositions of the top three (Jim Oliver, Bill Knarr, and Reggie Warren) are scheduled to begin in the middle of February. A February date is necessary because there are more documents due to come in that TWIA has not yet produced.

“WHAT DO YOU MEAN YOU CAN’T TELL ME EVERYTHING THAT YOU HAVE LEARNED ABOUT TWIA?”

No, this is not a typographical error. There are many things that we have learned about Texas Windstorm Insurance Association (TWIA) and many things that we cannot openly discuss.

This sounds easy but it is actually very complicated even in a singular case. Now, how much more complicated does it become when there are approximately ten thousand cases or more against the same insurance company, namely TWIA? In order to keep the judicial process from coming to a halt and to more efficiently litigate all of these cases, it was necessary for both the Plaintiffs Bar and TWIA to make some concessions. These concessions with regard to discovery are in the form of an agreed protective order for the exchange of documents between the Plaintiff’s Bar and TWIA.

The following is a general explanation of the discovery being conducted at the present time between the Plaintiff’s Bar and TWIA. In addition, I will briefly explain some of the limitations imposed during the discovery process.

Our law firm has received over twenty thousand (20,000) pages of documents from TWIA and will continue to receive documents on a regular basis. We anticipate receiving another twenty thousand plus more documents. As a result, we have dedicated attorneys, and numerous full time staff to do nothing other than read through the documents, sorting, indexing, and identifying key information contained within them. Having this information so early in the litigation process is an excellent way to begin the evaluation of each case individually and will allow both the Plaintiffs and TWIA to consider the early settlement value more accurately, especially in regards to the issue of unfair claims handling. This information however, is not obtained without some concessions to the party producing the documents.

In accordance with an agreed Protective Order between the Plaintiff’s Bar and TWIA, documents marked by TWIA attorneys as confidential shall be deemed confidential and shall not be disclosed to any person except in accordance with the terms of the protective order. The information is to be used solely for the purpose of the preparation and trial of Ike cases and other related litigation against TWIA, TWIA employees, third party adjusting firms and their employees. The only persons entitled to learn of the confidential information are the named parties, their counsel, and any experts hired in the case.

Even if you are entitled to learn of this information, you cannot share it with others and must first sign a written acknowledgement to be bound by the protective order. Any violation of the protective order and the violator will be subject to contempt of court. The order requires that the party producing the documents (TWIA for example) be notified of any inadvertent disclosure of documents and provide the name and address of such persons that inadvertently received the confidential information. The protective order also addresses depositions and, as one might expect, deposition testimony is considered to be confidential information protected by the order. Like everything else in our legal system, there is almost always a legal loophole, and here is the loophole for this set of cases: at any time after the delivery of confidential documents, and after making a good-faith effort to resolve any disputes regarding whether the information should be confidential, counsel can send a written challenge to the party producing the information, and eventually a hearing before the court will determine the outcome.

So we can’t gossip about the information, we can’t share it with family and friends, we cant blog about it, and we can’t even consider it a source of information if planning to write a book about this tragic event. Are these concessions necessary? Absolutely; sometimes it can take two months to get a hearing before a court to determine whether or not the insurance company must turn over emails about just one topic, or even just one document. There is a two year statute of limitations in Texas on Ike claims and time is of the essence. The key here is to keep one’s eye on the ball and achieve the goal. The goal as policyholder attorneys is to gather as much information as possible regarding the adversary and use that information to prove each element of the case and ensure that each one of our clients receives the maximum amount of recovery allowed under the law.

Texas Windstorm Insurance Association says you only have 30 days to appeal its determination of damage to your property! DO NOT RUSH TO APPEAL before you learn what TWIA is not telling you; you will give up valuable legal rights and remedies.

“You are hereby notified that an appeal of the Texas Windstorm Insurance Association’s decision must be filed with the Commissioner of Insurance at the Texas Department of Insurance … no later than the 30th day after receipt of this letter.” [emphasis added]

The letter further states that a policyholder can appeal or file suit.

TWIA’s letter implies that a policyholder can appeal and file a lawsuit for violation of unfair settlement practices under Section 541.060 of the Texas Insurance Code. THIS IS NOT TRUE. Texas Statutes Section 2210.552, of the Insurance Code states that a person may appeal the decision with the Texas Department of Insurance OR file a lawsuit under Chapter 541. A policyholder cannot do both.

A person who appeals gives up his or her right to file a lawsuit against the insurance company for unfair settlement practices, such as misrepresenting a material fact or policy provision relating to covered loss, failing to attempt a prompt, fair, and equitable settlement of a claim after the insurer's liability has become reasonably clear, unreasonably delaying a settlement, requiring a release when only a partial payment has been made, or refusing to pay a claim without conducting a reasonable investigation. There is a very good chance that you have faced one of these situations or know of someone who has.

The TWIA letter gives the false impression that if a policyholder does not appeal within 30 days, the decision is final, and the policyholder has no other options or remedies. Texas has some very good consumer protection laws:

• Texas allows an insured to recover attorney fees and costs under Chapter 38 of the Civil Practices and Remedies Code.
• Tex. Ins. Code Section 542.060, Prompt Payment Statute, entitles the insured to collect 18% interest plus additional attorney fees and costs if the insurance company does not promptly pay the claim in violation of the statute.
• Tex. Ins. Code Section 541.152, punishes the insurance company by forcing them to pay the full amount of damages, attorney fees, expenses, and, if the violation is done knowingly, the damages owed by the insurance company are three (3) times the actual damages.

In addition, as some of you already know, an order has been entered in Galveston County directing that all homeowner Ike cases be stayed for 100 days to allow plaintiff and defense counsel to exchange discovery and set mediation. This order is very specific and holds the insurance company in contempt of court if its attorneys attend this mediation without full authority to settle the case or if they fail to settle in good faith. Mediation is not binding, and the insured decides whether to accept or reject the insurance company’s final offer. In my opinion, entering this order was a very wise decision by District Judge Susan Criss and will result in many more settlements. In this instance, mediation is not an alternative but a method within the litigation process, again another great example of consumer protection in Texas. Hopefully, a similar order will be entered in neighboring Harris County, helping to expedite settlements there.

Each policyholder has the right to contest TWIA’s decision through either an administrative hearing or by filing a lawsuit. Policyholders should carefully consider each option before making a decision.

It is important to note that policyholders who have already filed for an administrative hearing may, prior to the hearing date, ask to withdraw their administrative appeal, cancel the hearing and pursue remedies through the courts. A person wishing to do so would be well advised to contact an attorney to make sure that the proper procedure is followed in withdrawing the administrative appeal and preserving the policyholder’s right to file suit.

Texas provides some of the best consumer protection laws in the nation; I truly see no reason not to take full advantage of them.