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

Policyholder attorneys agreed to settle the cases, in part, because of a legal requirement that shifts the burden to plaintiffs to prove how much damage was caused by wind, since the destruction also could have been caused by water.

"At the end of the day it's going to be difficult," Mostyn said, noting attorneys were able to use models to show at least about 30 percent to 40 percent of damage was from wind. "I don't like the way the law is, but it is what it is." (emphasis added)

While Mostyn and I may have our differences regarding the slab claims in Galveston and Bolivar, I agree with his statement regarding Texas insurance law and the resolution of the claims in the manner we reached. I discussed this legal problem over a year ago in Causation Issues to Note in Texas Property Insurance Coverage Disputes-Part II.

Texas Courts apply antiquated insurance law which predates the development of the all-risk insurance policy. Texas insurance law fails to recognize the accompanying change in the burden of proof that is inherent in the all-risk policy. Every adjuster is taught--as basic insurance adjustment--that the insurer bears the burden to show the exclusion and amount of damage excluded from coverage under an all-risk policy. Indeed, most insurance claims departments teach their adjusters to "give the benefit of the doubt to their policyholder" in close situations.

The Texas legislature tried to fix this problem over a decade ago, and in Wallis v. United Servs. Auto. Ass'n, 2 S.W.3d 300, 303-304 (Tex. App. San Antonio 1999), the policyholders made the same argument I would make today:

The Wallises contend that the insured's burden to segregate damages has been legislatively overruled by article 21.58 of the Texas Insurance Code. Pursuant to article 21.58, USAA had the burden to establish what part of the Wallises' damage was caused by an excluded peril.

Unfortunately, they lost. The Texas jurists are seemingly intent on applying reasoning that involves named-peril policies without noticing that the insurance industry changed its product more than sixty years ago. The changes were made, in part, to avoid this legal causation problem. It is as if the Texas insurance causation law is stuck in a place that used to exist a long time ago and refuses to change. It makes me think of a movie:
 

"The most important thing is the court realized the key thing to look for is to identify the "loss," because that is what the policy covers, not "damage." The Supreme Court also well understood that once loss has occurred and is covered, it can never become uncovered no matter what happens later." (emphasis added)

When considering a policy that covers "accidental physical risks of loss," I wonder what a "loss" would be if there were no "damage" that occurred with it. I cannot think of such a situation. Therefore, I do not think Rossmiller is right. When advocating for his insurance company clients, I am certain Rossmiller would argue that there must be "damage" for a "loss" to occur.

Indeed, this situation arises in many cases where adjusters determine whether "damage" is pre-existing (resulting from wear and tear) and not covered or caused by a non-excluded peril and covered. "Causes" of loss necessarily means "physical damage" in most property insurance policies, and this is what adjusters and courts should focus upon when considering coverage issues involving concurrent causation language. Property can be damaged by a sequence of causes.

For those who want a practical perspective about anticoncurrent clause situations, I suggest Concurrent Causation Analysis Applied by FC&S---Learning From an Insurance Industry Source. Additionally, as I noted in the comment I wrote for the Mississippi Law Journal and cited in Anticoncurrent Causation Clause Explained in Relation to Hurricane Losses, Rossmiller wrote excellent discussions of the topic for more academic types.

"Perhaps Lynda can explain why this is the policyholder’s fault?" is a Slabbed post where the absurdity of an insurer's argument is brought to light. Rarely do I find my attorney colleagues calling each other out for such stupid arguments. I do not often say "stupid" but some insurer arguments have been accepted as "arguable" when most courts should have chastised counsel so that these embarrassing arguments are never made. My hat is off to a non-commercial social blog, Slabbed, for pointing this out.

On this topic of concurrent causation, I made the following posts which others studying this topic should consider:

1. Concurrent Causation Analysis Applied by FC&S---Learning From an Insurance Industry Source;
2. Corban Mississippi Supreme Court Case Decided, Part 2;
3. Corban Part Three: A Win for Policyholders and a Decision Following Rossmiller's Causation Analysis of the Anti-Concurrent Causation Clause;
4. Personal observations of the Tuepker vs. State Farm oral argument

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

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

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

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

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

The format of the seminar seemed to work very well, so once again we expect this event to be very interactive. The agenda will include the following topics:

• TWIA Issues – Status of Litigation, Whistleblowers, Overhead & Profit, Flood, Depreciation, Co-operation
• Causation and Sufficient Proof, Texas-style—It’s Different Here
• Valuation – Estimates That Have Impact and Hold Up in Appraisal or in Court
• Update on TAPIA
• Expert Panelist Analysis—Topics: Wind Speeds, Roof Damage, Wall Damage, Flood vs. Wind Damage, Sliding Glass Door or Window Damage, and Wind-driven Rain

The conference will begin with registration at 7:30 am and conclude at 2:00 pm. To register and receive additional details, you will need to go to www.adjusterlife.com. Please register by May 28, 2009.

This is an invitation-only event for Texas-licensed public adjusters. Be sure to register today, and please bring your Texas Public Insurance Adjuster license with you to the seminar.

It’s been nearly nine months since Hurricane Ike. Both Merlin Law Group and you, the public adjuster, have been working hard to hold insurance companies accountable so that policyholders see the results to which they are entitled.

Merlin Law Group is pleased to once again provide this free seminar as an opportunity to share knowledge we have gained by serving our clients and each other.

Florida follows the nearly unanimous view that all-risk insurance policies provide very broad coverage and all that needs to be shown is a physical loss during the policy period. Indeed, some may suggest that the Florida cases only require a "physical loss" and, to deny coverage, the insurer must also prove the loss occurred outside the policy period. Florida sinkhole cases and broken pipe under structure cases highlight these causation issues.

Sinkholes can appear overnight or move slower than we would appreciate during our lifetime. Was a small "settlement" crack in the driveway noticed ten years ago the result of a sinkhole or was it just an isolated crack caused by concrete settlement or even a heavy car? Some insurance adjusters in Florida will do everything they can to try to link those minor cracks to the possibility that the sinkhole or pipe loss occurred at some time when the insurance company was not on the hook. And, since the pipe that broke under the structure cannot be seen, how does the policyholder really know that the pipe was not installed that way by the contractor? Without creative insurance company adjusters looking to raise these factual questions to deny coverage, policyholders would not need legal counsel, like me, writing how their cases end up getting denied and warning them to be careful and accurate about facts said to an adjuster.

The language found in Hudson v. Prudential Property & Casualty Ins. Co., 450 So. 2d 565, 568 (Fla. Dist. Ct. App. 2d Dist. 1984), is pretty standard of these type of cases: 

"To determine the burden of proof on the parties, we must examine the policy...the policy is not a specific peril policy, such as a policy of fire and lightning insurance, where the policy insures only against certain named risks. Rather, the policy insured against "all risks" except as otherwise excluded. Recovery under such an "all risks" policy generally extends to all losses not resulting from misconduct or fraud unless the policy contains a specific provision expressly excluding the loss from coverage. Phoenix Insurance Co. v. Branch, 234 So.2d 396 (Fla. 4th DCA 1970); 13A G. Couch, Cyclopedia of Insurance Law 2d § 48:141 (rev. ed. 1982).

As already noted, sinkhole coverage was provided for the Hudsons by virtue of the mandatory endorsement to the policy. That endorsement did not change the "all risks" nature of the underlying policy; it merely narrowed the earth sinking exclusion. See Strubble v. United Services Automobile Ass'n, 35 Cal.App.3d 498, 505 n. 6, 110 Cal.Rptr. 828, 832 n. 6 (1973). This harmonizes with the law in Florida that insurance coverage must be construed broadly and its exclusions narrowly. Demshar v. AAACon Auto Transport, Inc., 337 So.2d 963, 965 (Fla. 1976); National Merchandise Co. v. United Service Automobile Ass'n, 400 So.2d 526, 532 (Fla. 1st DCA 1981).

Applying these principles...the general rule of evidence is that a plaintiff seeking to recover under an "all risks" policy has the burden of proving that, while the policy was in force, a loss occurred to the insured's property. Egan v. Washington General Insurance Corp., 240 So.2d 875 (Fla. 4th DCA 1970); Phoenix Insurance. Once the insured establishes a loss apparently within the terms of an "all risks" policy, the burden shifts to the insurer to prove that the loss arose from a cause which is excepted. Phoenix Insurance; Jewelers Mutual Insurance Co. v. Balogh, 272 F.2d 889 (5th Cir. 1959). The plaintiff is not required to disprove any excepted causes. Stonewall Insurance Co. v. Emerald Fisheries, Inc., 388 So.2d 1089 (Fla. 3d DCA 1980).

As the parties point out, there was a direct conflict in the evidence as to the cause of the damage to the Hudsons' home. Thus, the trial court's allocation of the burden of proof on the issue of Prudential's liability became of critical importance. Since Prudential's defense was based on an exclusion to the policy, the court's instructions had the effect of improperly placing the burden on the Hudsons to prove that their home was damaged by a sinkhole. Consequently, the jury was apparently under the mistaken impression that the Hudsons, as plaintiffs, had to "tip the scales" to prove that sinkhole activity caused the damage." (emphasis added to highlight the general principals of causation proof in Florida) 

The following damaged pipe case, Widdows v. State Farm Fla. Ins. Co., 920 So. 2d 149, 150-151 (Fla. Dist. Ct. App. 5th Dist. 2006), is an amusing example of how little proof of damage is needed under an all risk insurance policy by the policyholder and how the insurer has the burden to prove that the loss is entirely excluded. I know the attorneys on either side of the case and a little about the facts of the case not recited in the court's opinion. The facts in dispute and language of the court should be read closely:

"The issue in this case is whether Appellee has an obligation to repair a plumbing abnormality under a provision in the insurance policy that covers "accidental direct physical loss" to the property. The evidence established that Appellant called a plumber to repair a backed-up toilet. During his investigation of the cause of the problem, the plumber discovered that the drain pipe connecting the toilet to the sewer pipe had become "backpitched," thereby impeding the flow of water. Because the pipe was beneath the slab and had not been excavated at the time of trial, the plumber could not determine the exact cause of the abnormality. Among the possible causes advanced by the plumber, however, were settlement under the pipe, erosion or a sinkhole. The plumber concluded that the condition was neither a construction defect nor the result of erosion caused by a leak in the plumbing system.

At the conclusion of Plaintiff's case, the trial judge granted an involuntary dismissal for two reasons: First, because there was no evidence of damage from the obstructed toilet, the court concluded that there was not a "physical loss" to the property. Second, the court concluded that, even if a "physical loss" were sufficiently proven, the policy exclusion for earth movement applied. We disagree with both conclusions.

As to the issue of whether evidence was adduced of a "physical loss," we conclude that the abnormality in the pipe itself was such a "loss." Under the language of the policy, it was not necessary for Appellant to establish any resulting damage from this condition. n1

The second basis for the involuntary dismissal, the earth movement exclusion, was likewise erroneous at this juncture of the trial because the burden of proof was on Appellee to establish that the exclusion applied. State Farm Mut. Auto Ins. Co. v. Pridgen, 498 So. 2d 1245 (Fla. 1986). The evidence adduced by Appellant offered several possible causes for the backpitched pipe, not all of which would have been excluded under the earth movement provision. Because the burden was on Appellee to establish that the exclusion applied, the dismissal was premature.

FOOTNOTES

n1 On appeal, Appellee argues that insufficient proof was adduced to show that the loss was "accidental," in that no testimony was offered to show that the condition was sudden and unexpected. See Braley v. American Home Assurance Co., 354 So. 2d 904, 905 (Fla. 2d DCA 1978) ("accident" is "[a]n event which takes place without one's foresight or expectation; an undesigned, sudden and unexpected event"). Although not the basis on which the trial court ruled, Appellee did briefly advance this argument below. Nevertheless, we decline to affirm the trial court on this basis. We think that the reasonable inferences from the evidence on this point are sufficient to overcome involuntary dismissal." (emphasis added)

Importantly, the policyholders only had to prove a "backpitched" pipe with some explanation of a "possible cause" which was not excluded. The pipe had not even been examined by the policyholder's causation expert--a plumber--at the time of trial.

This minimal proof burden on the policyholder in Florida is not the same as found in Texas caselaw. These two Florida cases emphasize what adjusters are taught in their training manuals and in basic adjusting courses. It is the majority rule followed in the United States. Indeed, the vast majority of insurance companies have a requirement that the policyholder get the benefit of the doubt in these causation cases. In cases where we are retained before the coverage decision, we see instances where supervisors apply that standard, pay the policyholder, close the file and move on.

Unfortunately, that has not been happening too often in the Lone Star state since last September. Tomorrow, I'll explore reasons why some case decisions may be causing this and offer suggestions as to what Texas policyholders need to do about it.

 I expect we will litigate that type of case en masse. If history teaches a lesson, Hurricane Ike - damaged policyholders with private all risk carriers need representation, or at least their own experts determining the loss.  I have not seen a significant change in the culture of claims management to honest and fair adjustment. Claims management has an obligation to provide a sufficient number of properly trained and motivated insurance adjusters so that prompt, full, honest, and fair adjustments of claims are made and full benefits are promptly paid to policyholders.  One of the most senior claims managers in the insurance industry, Gerry Alonso, of Factory Mutual, agreed with this idea, under oath, during a deposition on Friday.  We'll see if this obligation is met where "the rubber meets the road" in the Hurricane Ike claims adjustments.