Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

In Thompson v. Shelter Mut. Ins., 875 F.2d 1460 (10th Cir. 1989), the policyholder’s home and personal property were damaged by fire. Shelter Insurance admitted coverage under the policy, but only paid $500 of additional living expense money to its insured immediately after the fire. Shelter delayed another five and a half months before paying another $1500. The policy had a limit of $5,000 on additional living expense payments, but Shelter Insurance refused any additional payment because it disputed the amount of the insured’s structure repair claim. The insured refused to accept the estimates of Shelter's contractors as the basis for a settlement.

Shelter argued it did not breach the contract or act in bad faith because,

it had no duty to pay any living expense money until the parties agreed upon Shelter's liability for repair costs, and, because the district court found a bona fide dispute between the parties as to such costs, Shelter's refusal to make the living expense payments was reasonable and in good faith as a matter of law.

The 10th Circuit Court of Appeals declared Shelter’s argument meritless.

This argument does not impress us . . . ‘[u]nwarranted delay precipitates the precise economic hardship the insured sought to avoid by purchase of the policy.’

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This especially is true with additional living expense payments, the function of which is to enable the insured to maintain, insofar as possible, the pre-fire standard of living during the period of repair and replacement. An unresolved dispute as to other policy claims does not as a matter of law excuse the failure of the insurer to pay living expense benefits, when the liability for such benefits is undisputed.

This case shows that a dispute with an insurer over scope of repair or cost to replace does not entitle the insurer to refuse payment under other applicable provisions of the policy.

Unavailability of competent contractors, difficulty in obtaining proper building materials, increased building materials costs, weather, and other factors may also affect Colorado policyholders’ rights. Boulder County includes some areas that are mountainous, remote, and difficult to access due to elevation or steep driveways and narrow dirt roads. The area is generally known to have higher costs of building materials and labor. These factors may prevent policyholders from completing repair or replacement within time limits contained in a policy, or within the time period allowed for payment of additional living expenses.

The Colorado Division of Insurance has made clear that insurers should work with policyholders and allow them additional time based on the above factors. Equally important, the Colorado Division of Insurance specifically noted in its January 2011 bulletin that estimating programs (such as Xactimate) may be used as a tool, however, total reliance on these estimating programs, without consideration of Boulder County market rates for materials, is improper.

Bulletin B.5.28, Equitable Payment of Claims Resulting from the Fourmile Canyon Fire, states,

III. Division Position

On September 7, 2010 Governor Ritter issued Executive Order D 2010-012 declaring a Disaster Emergency due to the Fourmile Canyon Fire.

The Division is aware that 169 residential properties were destroyed as a result of this natural disaster . . . the victims of the Fourmile Canyon Fire may be faced with challenges and limitations which are beyond their control. The availability of contractors and materials as well as inclement weather restrictions may prevent homeowners from beginning the rebuilding process. Additionally, traditional methods of determining the cost to rebuild may not be adequate to fully address the special characteristics of the location and architecture of these properties.

Therefore, the Division is strongly encouraging insurance companies consider the following:

• While some insurance contracts offer more, most standard homeowner contracts include twelve (12) months, or 30 percent, of Additional Living Expense coverage. The Division is requesting insurers extend the twelve (12) month Additional Living Expense time constraint (subject to the coverage limit) to provide adequate time for Fourmile Canyon Fire victims to rebuild their dwellings and other structures.

• Any policyholder with replacement cost provisions shall be entitled to complete repairs to the property and replace contents. If the policyholder has made a good faith effort to adhere to the policy provisions and has requested an extension within the applicable time period, the insurance company should provide a reasonable extension of time to allow the policyholder, with a replacement cost provision, to receive benefits of replacement cost coverage value of the covered damage that has been repaired or replaced, without reduction due to depreciation.

. . .

• While the use of an estimating program may be a tool in determining the cost of rebuilding a dwelling, the insurer should consider other factors which may not be included in the estimating program. Specifically, the slope of land, building grade of the dwelling and availability of labor and materials, generally, will impact the actual cost to rebuild. An insurer’s refusal to consider additional information related to the cost to rebuild a particular dwelling may constitute a violation of § 10-3-1104 (1)(h)(IV), C.R.S.

• Insurers shall also comply with § 10-4-120 (3), C.R.S. and pay the prevailing competitive market price in the geographic area of the Fourmile Canyon Fire.

As September 2011 approaches, victims of the Fourmile Canyon Fire who have been unable to complete repairs, rebuild, or return to their homes should consider further negotiations with their insurer and consult an attorney if the insurer refuses to extend any policy time limits.

The House bill reauthorizes and modifies the program. The reauthorization extends the program through 2016. The bill also authorizes the program to offer business interruption and ALE (additional living expense) coverage.

Regarding the wind vs. water coverage problem that came to the forefront during Hurricane Katrina litigation, the bill allows insureds to gain access to the engineering reports relied on by the NFIP in determining whether damage was caused by wind or water:

(d) Information Regarding Multiple Perils Claims-

(1) IN GENERAL- Subject to paragraph (2), if an insured having flood insurance coverage under a policy issued under the program under this title by the Administrator or a company, insurer, or entity offering flood insurance coverage under such program (in this subsection referred to as a `participating company') has wind or other homeowners coverage from any company, insurer, or other entity covering property covered by such flood insurance, in the case of damage to such property that may have been caused by flood or by wind, the Administrator and the participating company, upon the request of the insured, shall provide to the insured, within 30 days of such request—

(A) a copy of the estimate of structure damage;

(B) proofs of loss;

(C) any expert or engineering reports or documents commissioned by or relied upon by the Administrator or participating company in determining whether the damage was caused by flood or any other peril; and

(D) the Administrator's or the participating company's final determination on the claim.

The bill now moves on the U.S. Senate for a vote. We will keep you posted on the progress of the legislation as it works its way through Congress.

First, the key element of fraud is the intent to deceive. Obviously, intentionally setting one’s property ablaze for the purposes of duping the insurance company demonstrates a clear intent to deceive. The problem is 999 times out of 1,000 there will be no Hollywood-film moment with the dastardly perpetuator of the fraud breaking down in an EUO, admitting the fraud, and begging forgiveness. It just rarely, if ever happens. In fact, out of all the fraudulent fires I investigated this happened once. And the woman did not admit the fraud, she merely asked for a break to use the rest room… never to return to the examination.

But I think it is very important for me to stress this next point to public adjusters and attorneys who handle first party property claims alike: look at your claims with a skeptical eye. If it looks like a duck and quacks like a duck, it’s probably a duck. That is, if you have a fire claim about which you have suspicions, you do not have to represent that person. In this industry the players on both sides of the ball need to weed out fraudulent claims. There are enough legitimate claims to go around, and advancing fraud just gives our industry a huge black eye. For example, raise your hand if you have seen this scenario: “Well, I was cooking fish with a huge pan of hot oil on the stove, when [insert weak excuse here: the doorbell rang, someone called, I fell asleep, I needed an ingredient and went to the store] and I forgot I was cooking and left the stove on.” Twenty minutes later the oil ignited and started a fire in the kitchen. But it was a controlled burn, with smoke damage throughout the house. Ever hear that before?

Well, a few years back there was such an epidemic of this type of claim in Dade County a task force was created. Am I saying this fact-pattern never happens legitimately? Of course not. Unattended cooking is covered under most policies. But I am saying these types of claims occur few and far between without fraud. Certainly attorneys and public adjusters who accept any claim that comes their way, all the while turning into the proverbial three monkeys, “I don’t want to see fraud, hear about fraud, or talk about fraud.” should be ashamed of themselves.

What public adjusters and attorneys should be doing is looking at these types of claims through a filter of skepticism. Ask your client the questions they would be asked at an EUO by defense counsel, not to prepare them for how to lie and get away with the fraud, but to ferret out the fraud before you sign and perpetuate it. First, discuss the facts and circumstances of the claim. For example, I once investigated a kitchen fire claim identical to the facts above where the policyholder stated in a recorded statement after the fire that she was cooking, suddenly remembered she had to pick up her daughter from school, and left the house in a rush, failing to turn off the stove. That could happen, right? Well… the problems were the date of loss was in July after school was out for the summer and further investigation showed that the daughter was not even in the country at the time. That’s pretty damning evidence. Second, you can bet dollars to doughnuts that the carrier is going to delve into the policyholder’s finances attempting to prove economic hardship facilitated a fraudulent fire claim, so ask the policyholder those hard questions during your assessment of the claim’s viability. Hence, perform your due diligence, investigate the facts of a suspicious fire and if the circumstances do not add up, walk away.

Additionally, pay close attention to the rest of the claim. That is, ALE (additional living expenses) and contents, specifically. Greed is inherent to all people. Even Ghandi probably had to fight off urges to take an extra spoonful of rice. This is important when regarding suspicious fire claims, as people who will commit fraud for money are all too often overcome by greed. They very often will make demand for additional living expenses (ALE) which are drastically over-inflated or outright phantom. I cringe when I am meeting a potential new client and I see those little paper receipt booklets for alleged rent payments. For example, I once investigated a claim where a young woman had a kitchen fire and stated under oath that the house was uninhabitable and she had to move in with her grandmother until repairs were made. How nice. Family helping family. Of course, she also produced a lease and little paper receipts claiming Granny was charging her $2000 per month. Unfortunately, she could provide no evidence as to where that money came from (re: cancelled checks, ATM receipt, etc.) and it was plainly obvious she was outright lying. In most jurisdictions if the policyholder is fraudulent with ALE the whole claim may be denied. In Florida, Wong Ken vs. State Farm, 685 so2d 1002 (3rd DCA 1997) holds that very premise.

The other area that must be scrutinized very closely is contents. Fraudulent policyholders will typically include every item they own –and then some—to their contents claim. Review that contents claim with a fine-tooth comb. Be reasonable, that is, if the policyholder is a working-class person making $40,000 per year chances are they do not own three gold Rolexes. And for that matter, how are three gold Rolexes allegedly located in a bedroom on the other side of the house from the kitchen damaged by fire? Much like fraudulent ALE, in most jurisdictions a fraudulent contents portion may lead to the entire claim’s denial. In Florida, see Schneer vs. Allstate, 767 so2d 485 (3rd DCA 2000).

So the moral to this blog: look hard at suspicious fire claims before agreeing to advance them. Ask your potential client the questions posed above, not to prepare them on how to commit fraud, but so potential fraud claims may be unmasked well in advance of EUO where, I promise, any competent defense counsel will unveil any ill intent.

Tune in next week insurance fans when we discuss Typical Questions Asked During an EUO of a Suspicious Theft Loss.