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

Under those same set of facts, if our wannabe Emeril Lagasse fails to properly mitigate those same fire damages, coverage could be reduced or even avoided all together by the insurer.

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.

If the policy is silent as to whether the policyholder is entitled to reimbursement for these expenses, many courts have found that they are. In City of Laguna Beach v. Mead Reinsurance Corp., 226 Cal.App. 3d 822 (Cal.App. 4 Dist. 1990), for instance, the Court focused on the fact that the insured’s duty to mitigate the damages is intended for the benefit of the insurer by lessening the amount that must be paid under the policy. The Court held that since the temporary repairs were intended to benefit the insurer, the policyholder was entitled to reimbursement.

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.

As I mentioned last week, policyholders have a duty to take reasonable measures to protect their property from further damage after a loss. These immediate repairs are not usually intended to be a permanent fix, but instead they intended to temporarily protect the property.

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.

Let's set the stage for how this happens. After a theft or a fire, the insurance company adjuster comes to the loss. One of the items orally requested from the policyholder is a list of all the lost, stolen or destroyed personal property along with all receipts. Exactly what is said becomes a major issue and some of my clients in the past have indicated that they did not make a claim for personal property items because the insurance adjuster said they had to have receipts to verify ownership, value, age, etc. Sometimes, my clients hear the instructions and think they are required to have receipts or they will not get paid.

I have always felt that the proper instruction from an honest insurance adjuster knowing that most people do not keep records or receipts of their covered "stuff" is:

The insurance policy allows us to ask for all the documents you have that help verify the loss. If you have any receipts for the items you are claiming, I would like to see those originals. If I need a copy, I will pay you for the cost of the copy. Please do not think that you have to have a receipt of the purchase of any personal property item you are making claim for, but if you do, I have to see it as soon as possible. Regarding your purchase of replacement items for those that are lost, the policy does require you to keep those documents of purchase and those receipts. You have to keep those post-loss purchase receipts as a condition under the policy to get replacement cost benefits."

(Note: In Florida, a homeowner insured with an admitted carrier gets replacement cost of personal property right away, so that instruction is not entirely accurate in Florida.)

Some insurance adjusters fail to make the highlighted portion clear to the policyholder. Some policyholders fail to hear it. And as a result, invoices are made up or somehow obtained that are not the original but a fabrication. Special Investigative Unit (SIU) adjusters love this game of finding the fraudulent invoice. While I have no problem of them catching frauds, I hate when otherwise honest people are baited into a needless situation of committing a fraudulent act just to get what is already owed to them.

The Claims Magazine article could be such a case or it could be a case of a person trying to justify an intentionally inflated claim:

When Gayland Anthony Oliver suffered a structure fire to his Greensboro, N.C., home in May 2009, he is alleged to have used the opportunity to pad his claim with some pretty fancy duds.

...Oliver claimed that $8,100 in custom-tailored suits had been destroyed in the structure fire. However, State Farm Fire and Casualty Company found the claim suspicious and conducted an investigation. They discovered that the invoices submitted for payment were fraudulent and did not reflect the true cost of the suits.

Oliver was arrested for submitting false claims to his insurance company....

Corey Harris' post was accurate, but there are many of the same traps for the honest policyholder in the theft scenario. The insurance company has many valid reasons to require that the police are notified following a theft loss. Three of those are:

1. Theft is not only a crime against the owner, but one against society. Finding thieves and placing them behind bars helps everybody, including insurance companies and their customers.
2. The police often recover stolen items. To that extent, the recovery of stolen items mitigates the insurer's loss and if recovered soon enough, the policyholder's loss as well.
3. Theft always has a component of a moral risk to the insurer. A few policyholders stage, hide or otherwise claim that a loss occurred as a result of theft caused by a third party when it simply is not true. Unlike a natural disaster, there is always a possibility of fraudulent theft. The requirement to notify the police helps prevent such from occurring, increases the probability of finding it, and therefore reduces the "moral hazard."

The police may ask for a list of what was stolen and the "value" of those items. The important thing for the honest policyholder is to get a revised list to the police if either the items or values change so that the SIU guys do not start asking about discrepancies. They will often check, and they may inquire as to significant differences. If numerous items are stolen, most people will not realize what is missing until they conduct an inventory of what is left and try to remember what may be missing. Sometimes, people simply forget what items they owned or realize that items in another part of their structure were also stolen until they look for them. The important thing is to keep the insurance company and police informed and with the same information about the changes and why the changes are being made.

And always remember, two wrongs never make a right. Never make up an invoice and never claim more than the full value of an item just because the insurance company may threaten not to pay or pay enough. When the insurer does not conduct itself in the right manner, I bet you can guess the type of professional that should be called to do something about that.

Most policies read something like this:

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.

A small theft claim, for instance, may not seem like something that must be reported to the police, however, it is always better to be safe than sorry. Sure, many times the items stolen may be worth less than the policy deductible, but what happens if more items come up missing later? Often, policyholders do not notice that some items are missing until long after a burglary or theft, and failing to notify the police could create issues with the insurance company covering the loss.

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.

I will be speaking on Wednesday afternoon in two sessions involving the same topic, "Gulf Coast Case Law Update: Texas, Mississippi, and Louisiana." The recent case decisions from these three states have many practical applications for adjusters and claims managers. I look forward to the banter and discussion that will undoubtedly occur between myself and my co-presenter, insurance defense attorney, Steve Pate of the Fulbright Jaworksi firm in Houston.

Michelle Griffin has reported that there are over 1300 registrants for the Conference. Our firm is sponsoring the Opening Reception tomorrow night and I hope to see you there.

On another note, Corey Harris who has been blogging every Saturday regarding Proofs of Loss and other post loss obligations, was at the 2010 Community Association Law Conference in Tucson this week. Corey specifically went to the insurance related seminars and events and has promised a report on developments of Condominium and Association insurance.

I plan on reporting in this blog regarding the events, speakers and practical aspects of what the members of the firm learn from the conferences we attend. I have found there is very valuable subtle knowledge shared and learned at conferences such as these. In our firm, we discuss those ideas and knowledge to better serve our clients.

Professionals and those wanting to be the best in a chosen field typically go to such events. I encourage those who want to be the best to do so. For potential clients deciding upon any professional to hire, I suggest looking into whether the professionals you are considering for have such dedication.

While many of these arguments will likely fail because the insurer was timely notified of the loss after the storm and simply did not perform a full investigation to determine the correct extent of the damages, these situations highlight the importance of timely notification.

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.

Many people rarely, if ever, have to submit a major insurance claim dealing with their property. The extent of their knowledge and involvement is sending in the premium check when due. Is it any wonder that the typical homeowner might be confused about who their insurance agent is and where they should send a notice of loss?

Possibly contemplating such confusion, some policies specifically state where the notice of loss should be sent. The language varies; it may be the home office or it may be the individual agent who sold you the policy. No matter who or where the policy designates, the policyholder should do their best to comply.

The situation becomes more complicated when the policy is silent or states that the notice should be given to an “authorized agent” of the insurer. Individuals who are authorized agents of an insurer have actual authority to conduct the business of the insurer. Therefore, notice provided to an authorized agent would normally be sufficient if the policy language allows as much. The appropriate authorized agent of an insurer may be spelled out in the policy or in some cases in relevant statutes, so reading and understanding these is always a good idea.

The plot thickens when the individual accepting the notice of loss is not an authorized agent of the insurer. Many times, direct employees of the insurer are not authorized agents and service of notice of loss on them may be ineffective. While this is never a good situation, the courts have provided some leeway when dealing with this type of case.

First, if the person accepting the notice would be deemed to be an authorized agent by a reasonable person, the individual may be deemed to have apparent authority to transact business on behalf of the insurer and, thus, the notice was effective. This apparent authority might come from the actions and representations of the insurer or the individual; either has the potential to impose apparent authority and cause the notice to be effective.

If a policyholder finds himself in a situation where he must submit a claim, he should read the policy first. Many times, the policy states specifically where the notice of loss should be sent. If it is not listed in the policy or the policy is ambiguous, it is never a bad idea to pick up the phone and call the insurance company. Your local agent might be able to help, and, if not, try the home office. Get an answer and follow up in writing to avoid any confusion later, and then send the notice to the designated person or place. Following these simple steps could prevent problems with the claim and keep the file from ever crossing an attorney’s desk.

Much like the reasoning behind a proof of loss, the duty to provide the insurer with notice that a loss has occurred is intended to put the insurer on notice and enable it to investigate whether coverage exists. One of the most fundamental issues in dealing with notice is who will be able to provide notice of the loss to an insurer.

Most policy language contemplates that notice of a loss will be given by the insured. The language of a notice of loss provision may state that “you” (meaning the insured) must give prompt notice of any loss. Others may state that “you or your representative” must give prompt notice of any loss. Generally, courts have held that notice provided by an agent or representative of the insured is sufficient, even if the policy language reads as “you,” as long the agent/representative is authorized by the insured to give notice. See Johnson v. Westhoff Sand Co., Inc., 62 P. 3d 685 (Ka. App. 2003), KPFF, Inc. v. California Union Ins. Co., 66 Cal. Rptr. 2d 36 (Ca. 1st Dist. 1997),

Courts have found a variety of instances where an individual other than the insured may give notice for the policyholder. For example, a policyholder’s attorney may provide notice of the loss to the insurer. Thomas v. Atlanta Cas. Co., 558 S.E.2d 432 (Ga. App. 2001)(holding notice from the insured’s attorney was sufficient as long as the notice was promptly provided and sufficient to notify the insurer with actual knowledge of a claim or suit).

In some circumstances, notice from another insurer may be enough to satisfy the notice requirement. For instance, in the case of excess insurance polices, notice by the first layer carrier to the excess carrier may be considered enough to fulfill the policyholder’s obligations. The determinative issues are usually whether the notice was enough to provide actual knowledge of the claim and whether the notice is sufficient under both the language of the policy and any relevant statute.

Also, courts have found that notice provided by one insured may be enough to fulfill the notice requirement for other insureds. The most common example of this occurs when a property is mortgaged. In such a situation, the mortgagor and any mortgagee have the right to provide notice to the insurer of a loss. It is not hard to imagine an instance where the mortgage company might provide notice of a loss to the insurer before the homeowner, or vise versa. In these situations, some courts have held that as long as the notice was timely and sufficient to give the insurer actual notice of the claim, notice provided by the first or even second mortgagee will provide notice for the other insureds, even if they do not notify the insurer themselves. Goodman v. Quaker City Fire & Marine Ins. Co., 241 F.2d 432 (1st Cir. 1957).

Finally, some jurisdictions have held that a loss report from the policyholder’s insurance agent or claims adjuster is sufficient to fulfill the requirement for notice, even if the policy specifies that notice be provided in writing by the insured. Security Ins. Co. of New Haven v. Dazey, 78 F.2d 537 (7th Cir. 1935). Relying on the insurance agent or claims adjuster can be dangerous, however, because some courts have held that their failure to provide timely notification to the insurer may bar recovery even though the policyholder relied on them to do so. American Mut. Liability Ins. Co. v. Beatrice Companies, Inc., 924 F. Supp. 861 (N.D. Ill. 1996).

While there may be recourse for the insured in a suit for negligence, this is a headache that is easily avoided if the insured does not rely on a third party to provide notice of the loss. In the end, providing notice of a loss to an insurer is very important to having your claim quickly and fairly adjusted and paid. A policyholder should always notify the insurer as soon as possible of any loss and, if possible, in writing. Even if written notice is not required or not possible, any verbal notices should be followed up in writing so that there is no question later about whether the notice was timely, sufficient, or even occurred at all. Taking a little extra time to do things properly can help the claim move towards a more favorable resolution.

For the past 12 weeks, I have written about one of these post-loss obligations, the Proof of Loss. Over the next few months, I will delve further into other policyholder obligations, such as the duty to notify the insurer of a loss, to protect the property from further harm, to prepare a detailed inventory of damaged personal property, to show the damaged property, and to provide documents requested by the insurer. These obligations, along with the duty to submit to an EUO when requested, are the main post-loss obligations and are a vital part of all insurance policies. If you have not yet read Bob Reynolds’ recent series on EUOs, I highly recommend doing so to supplement my forthcoming posts.

The duty to cooperate in first party claims differs from third party claims in a significant way. In the third party context, the relationship between the policyholder, the insurer, and the third party is constantly changing. Each claim is different, and the information necessary can be vastly different from case to case.

With first party claims, the information necessary to make a determination of whether coverage exists generally remains constant from case to case. Therefore, property policies tend to spell out the duty to cooperate in a cumulative list of “post-loss duties”.

For instance, a homeowner’s policy may contain some variation of the following language:

B. Duties After Loss

In case of a loss to covered property, we have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us. These duties must be performed either by you, or your representative, or an “insured” seeking coverage, if not by you:

1. Give prompt notice to us or our agent;

2. Notify the police in case of loss by theft;

3. Notify the credit card or fun d transfer card company in case of loss as provided for in E.6. Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money under section I- Property Coverage;

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;

5. Cooperate with us in the investigation of a claim;

6. Prepare an inventory of damaged personal property showing the quantity, description, actual cash value and amount of loss. Attach all bills, receipts and related documents that justify the figured in the inventory;

7. As often as we reasonably require:

a. Show the damaged property;
b. Provide us with records and documents we request and permit us to make copies; and
c. Submit to examination under oath, while not in the presence of another “insured”, and sign the same; 

8. Send to us, within 60 days after our request, your signed, sworn proof of loss which sets forth, to the best of your knowledge and belief:

a. The time and cause of loss;
b. The interests of all “insureds” and all others in the property involved and all liens on the property;
c. Other insurance which may cover the loss;
d. Changes in title or occupancy of the property during the term of the policy;
e. Specifications of damaged buildings and detailed repair estimates;
f. The inventory of damaged personal property described in 6. above;
g. Receipts for additional living expenses incurred and records that support the fair rental value loss; and
h. Evidence or affidavit that supports a claim under E.6. Credit Card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit Money Coverages, stating the amount and cause of loss.

These duties are very important to property insurance claims, and the failure to comply with these obligations can delay settlement of the claim or possibly provide an insurer a basis for denial. I hope you will join me over the next few months as I explain what these obligations require.

First, I cannot stress enough how important it is to read and understand the rights and duties under each individual policy. Some policies may only require a Proof be submitted after an insurer demands it, while others may require the Proof to be submitted within a certain time after the loss occurs, even without being requested to do so. If you do not read and understand the policy provisions, a Proof may not be submitted on time or in accordance with the obligations outlined in the policy and could delay recovery.

Also, it is important to know and understand the laws of your particular jurisdiction. While the policy provisions may be clear as to what the obligations of each party might be, the laws of each jurisdiction generally supersede the policy language. If, for instance, a policy requires the Proof to be submitted within 30 days of an insurer’s demand but a state statute provides that a Proof must be submitted within 60 days, the state statute will control. Keep in mind that normally an insurer may not limit the timeframe for submitting a Proof of Loss more than is outlined in the jurisdiction’s statutes, however, they are free to extend that timeframe. Thus, in the example above, if the policy allowed 90 days for submission, the policyholder would be able to take advantage of the extra 30 days afforded by the policy.

Next, if the Proof cannot be filled out within the timeframe requested by the insurer, the insured should not hesitate to ask for an extension. Sometimes estimates have not been fully completed or the damage has not been fully realized, therefore obtaining extensions may be the only way for the correct information to be submitted in the Proof.

It is also important for the policyholder to communicate with the insurer and confirm any verbal conversations in writing. Having a written communication will cut down on the “he said, she said,” which can occur later in the claim if issues about a waiver or extension come up.

As with many other aspects of insurance claims, the details are important. Many times, the insured fails to sign and/or notarize the Proof and .by doing so. may provide the insurer an opportunity to reject it. Each time a Proof of Loss is submitted, make sure that these technical requirements are fulfilled in order to move the claim along.

When an insurer requests a Proof of Loss, a policyholder should seriously consider retaining professional representation if they have not already done so. Insurance claims are not a normal part of most people’s life, and small mistakes may cause large problems in the future. By seeking help from a licensed public adjuster or attorney early in the process, mistakes can be avoided and an amicable resolution can come more quickly.

Later, the insurer came back and demanded a Proof of Loss be submitted. At that point, the public adjuster wanted to dig in our heels and refuse to comply, however, I had a different perspective. Why not submit the Proof as requested, even though they have likely waived their right? Does the potential harm outweigh the good? In the end, we submitted the Proof as requested. The reasoning behind this decision is partially spelled out below. Keep in mind, these reasons applied to this specific case and other instances may call for a different response.

First, when dealing with any litigation it is important not to start so many battles that it takes the focus off the overall goal: recovering the amounts due and owed under the policy. We could have refused to submit a Proof and argued that the insurer waived its right to request one, however, it would have started battle that did not need to be fought. This would have taken our time and attention away from the more important task of proving coverage for the overall claim.

Second, the repercussions of not submitting a Proof of Loss can be far greater than the rewards. As I have discussed in previous posts, failing to submit a Proof of Loss when required to do so can be a breach of the insured’s post loss obligations. Sure, I could have argued that the insurer had waived its right to a Proof of Loss, and there is an excellent chance the court would have agreed. But is the risk worth the reward? Even in a case that seemed as clear as this one I did not believe it was.

Third, the information required for filling out the Proof of Loss was readily available to us. The PA had estimates already put together; it was just a matter of putting the information down on the form. I realize that in many instances the circumstances are different. All of the estimates may not be completed and filling out the Proof may be difficult or impossible because damages have not been fully established. In these cases, the insured should immediately request an extension, indefinite if possible, to make sure the timeframe for filing the Proof does not run out. Let the insurer know that you will comply with the demand, but that you need a longer period of time to gather the necessary information. As always, make sure you get the insurer’s response IN WRITING, so there is no confusion later.

Fourth, I find that avoiding small confrontations like this can help the claim move along much more smoothly. In some instances, complying with requests like this even when the insurer may not have the right to request it, can help garner some good will with the insurer or opposing counsel. Avoiding a potentially large fight by complying with a request that does not harm your client can help move the claim along to a favorable resolution.

Now, I know some of you may think that I am being naïve that there is nothing you can do to make some insurance representatives and defense attorneys behave like civilized and caring human beings. It is important to remember that, for the most part, they do have feelings and a little good will may go a long way. And hey, even if it doesn’t, you can still use the instance to show the court how hard the policyholder tried to cooperate.

Once an insured has submitted a Proof the ball is in the insurer’s court. The carrier must make the determination whether to object or not. Similarly, when a policyholder submits a Proof of Loss he or she can assume that it was adequate unless advised otherwise by the insurer. See John Hancock Mut. Life Ins. Co. v. Highley, 445 P.2d 241 (Okla. 1968).

If the insurer does make a determination that the Proof of Loss is inadequate, it has an obligation to act in good faith and notify the policyholder of the rejection. This notification should not simply consist of a blanket statement that the Proof has been rejected. Instead, the insurer has an obligation to point out the specific defects and allow the policyholder a reasonable amount of time to cure them. By failing to provide the insured with the specific defects or not allowing a reasonable time to cure, the insurer is likely acting in bad faith and could be held liable for its conduct.

So what should the policyholder do if the Proof is rejected? Well, above all else, the insured should attempt to cure the technical defects. If the time to submit the Proof has not expired, the insured can generally submit additional forms. Similarly if an insurer rejects a Proof of Loss just before the deadline for submission, the insured may be allowed a reasonable time to cure the defects even after its expiration. See Hanover Fire Ins. Co. of N.Y. v. Hodges, 37 Ga. App. 229, 139 (1927).

Further, if the time to submit the Proof has expired, a new Proof of Loss may be considered to relate back to the original thus complying with the applicable time limitation. Generally, a Proof can be amended to reflect the correct amount of damages as long as the original was filed within the applicable timeframe and was not filed with the intent to defraud or deceive the insurer. Happy Hank Auction Co. v. American Eagle Fire Ins. Co., 136 N.E.2d 842 (1956). When these questions of motive arise, the court will usually take a close look at the facts and circumstances surrounding the claim to determine whether there was a simple error or something more which might justify precluding coverage. As long as there is no finding of intent to deceive or defraud the carrier, courts are many times hesitant about voiding coverage without giving the insured an opportunity to cure the defects.

As always it is important to note there are many differences in the rules under a homeowner insurance policy and the NFIP flood policy and these general rules may not apply when dealing with the latter. One common theme running through both of these policies, however, is submitting a Proof of Loss is an important step which should not be taken lightly. Dealing with these requirements can be a daunting task for insureds and, as Bill Cornell pointed out in his comment to last week’s post, it is always recommended that a policyholder seek the assistance of an attorney or public adjuster to ensure that the Proof is accurate and properly filled out.

First, when dealing with flood claims it is vital to note that you have 60 days to file a Proof of Loss. The Standard Policy states: “Within 60 days after the loss, [the insured must] send [the insurer] a proof of loss, which is [the insured’s] statement as to the amount [he/she] is claiming under the policy signed and sworn to by [the insured] and furnishing” specific information.

Submitting a Proof on even the 61st day will likely result in the claim being completely denied.

Courts in every jurisdiction have upheld specific and complete compliance with these requirements. See Dawkins v. Witt, 318 F.3d 606 (4th Cir.2003); Mancini v. Redland Ins. Co., 248 F.3d 729 (8th Cir.2001); Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386 (9th Cir.2000); Gowland v. Aetna, 143 F.3d 951 (5th Cir.1998); Phelps v. Fed. Emergency Mgmt. Agency, 785 F.2d 13 (1st Cir.1986). These courts all concluded that there must be strict compliance with the terms and conditions of Federal Flood Insurance Policies and the failure to file a Proof of Loss prohibits a plaintiff from recovery.

Similarly, as I discussed the last few weeks, there is sometimes an argument that compliance with a Proof of Loss requirement was excused because an insurer has waived its right to a Proof based on the insurer’s actions or statements. With flood claims, you can be assured that this argument will fail.

As the policy states, the requirement of a Proof of Loss can only be waived by written authorization from FEMA. Therefore, no matter what the adjuster or Write Your Own Carrier says or does, a Proof still must be submitted for recovery to be possible.

In one of the cases mentioned above, it was undisputed that the Write Your Own Carrier had stated that the 60 day requirement would not be enforced and that the insured had relied on these representations in failing to file the Proof. The court, however, refused to find that strict compliance with the Proof of Loss provisions had been waived because there was no written waiver from the Federal Insurance Administrator. Dawkins at 610-611.

Furthermore, in one unreported Florida case, the 11th Circuit found that the insured was not excused from submitting a Proof of Loss within 60 days despite the fact that the insurer did not send an adjuster to the insured property until 90 days after the damage occurred. With a regular homeowners policy, there might be an argument that the actions of the insurer (not sending an adjuster to investigate the loss until after the period of time for submitting a Proof had expired) constituted an implied waiver of the policy provisions. Because it was a flood claim, however, the court refused to follow this line of reasoning and denied coverage for the loss. Lucien v. U.S. Sec. Ins. Corp., 143 Fed. Appx. 152 (11th Cir. 2005).

While I have mostly covered what happens if a Proof of Loss is not submitted in this post, it is important to note that even a small deviation from the flood policy requirements can result in the claim being denied. If a Proof is filed without being signed or notarized, or is submitted without the required supporting documentation, it is likely that the claim will be denied if the 60 day timeframe expires.

Everyone has heard the saying that the only two things certain in life are death and taxes, however if you fail to comply with the Proof of Loss provisions of the Standard Flood Policy you can likely add a claim denial to this list.

As I’m sure you are aware (After all I do say it every week!), each situation and every jurisdiction and policy are different. In some circumstances a policy may specifically state which agents of the insurer have the ability to waive the Proof requirement. With the National Flood Insurance Program, for instance, neither the “Write Your Own” carrier nor the adjuster has the authority to waive post loss obligations. As the policy states, only FEMA may waive the requirement that an insured submit a Proof of Loss. When a policy is this explicit, relying on a verbal or written waiver by someone other than the individuals listed in the policy may provide the insurer with a reason to deny the claim entirely. In the case of the National Flood Insurance Policies, you can almost be guaranteed of it. See Sanz v. United States Security Insurance Co., 328 F.3d 1314 (11th Cir.2003)(holding the Proof of Loss requirements may be waived, but to be effective the waiver must be made by the Federal Insurance Administrator and must be in writing).

In many instances, however, things are not so clear cut. The policy may be silent as to which individuals may waive post loss obligations, at which time it is important to analyze the actual and apparent authority of the insurer’s agent. Actual authority is fairly straight forward. If the individual has had the authority to waive post loss obligations conferred upon him/her by an agreement with the insurer then they obviously have the authority to bind the insurer by their actions. For instance, an individual has been entrusted to conduct all of the business of an insurer in a particular area likely has actual authority to waive a Proof of Loss requirement.

Where the situation gets more complicated, however, is when the individual does not indeed have authority to waive a post loss requirement. Arguing that an individual has apparent authority is extremely fact intensive and must be analyzed very carefully. Most importantly, the insured must reasonably believe that the individual has the authority to bind the insurer and thus waive the Proof of Loss requirement. This involves looking at the interplay between the insured, insurer, and the insurer’s individual agent.

If the individual purporting to have the authority to waive the Proof of Loss requirement specifically tells the insured that he/she has the ability to do so, it is more likely that a court would find that it was reasonable for the insured to rely upon this assertion. Similarly, if the insurer knows that its agent is claiming to have the authority to waive post loss obligations or has incorrectly done so, the insurer’s failure to act to correct the mistake may also be enough for a court to find that the individual has apparent authority and the waiver is effective.

Also, an individual’s position with the insurer may play a role in whether or not there is apparent authority. For instance, a court may find that an adjuster or executive of the insurer had apparent authority to waive the Proof of Loss requirement and that the insured was reasonable in relying on this authority. A court is not likely, however, to buy an argument that the night watchman at the insurer’s offices had such authority or that the policyholder was reasonable in relying on his waiving the policy provisions

There are numerous circumstances which may play a role in whether an individual has apparent authority to waive a Proof of Loss requirement, however the important thing is that the insured actually believes that the authority is legitimate. An insured has no duty to investigate to determine whether or not the person claiming to waive a post loss obligation indeed has authority to do so. As the court said, “[t]he public has a right to rely upon an agent's apparent authority and are not required to inquire as to his special powers unless the circumstances are such as to put them on inquiry”. Guarantee Mutual Fire Ins. Co. v. Jacobson, 57 so.2d 845, 848 (Fla. 1952). If the insured however has knowledge that the individual purporting to waive the Proof of Loss requirement does not have the authority to do so on behalf of the insurer, or such a belief is not reasonable, the court may find that no apparent authority exists and the claim may be denied if a Proof of Loss is not timely submitted.

Proving waiver of the Proof of Loss requirement and other post loss obligations is possible, but it can be very contentious and difficult. This can be avoided in many situations, however, by simply filing the Proof when possible. If it is not possible or not filed, just be aware that there may be an argument for waiver.

Generally, waiver may be implied from any act or pattern of conduct by the insurer or its authorized agents which reasonably tends to create a belief in the mind of the claimant under the policy that notice need not be given or that proofs of loss will be unnecessary. There is a wide range of acts and conduct which may be used to argue that an insurer has waived its right to have a Proof of Loss filed.

For instance, an insurer may waive its right to a Proof of Loss if its actions or conduct lead the insured to believe that no Proof will be required. As one court held:

Where the insurer or its agents have formed a relationship with the insured or acted towards him in such a way as to cause the insured to reasonably believe written notice and formal proofs of loss will not be required, the insurer will not be permitted to raise such matters as a defense.

Integrity Ins. Co. v. Lindsey, 444 N.E.2d 345, 347 ( Ind. Ct. App. 1st Dist. 1983).

Similarly, an insurer’s failure to demand a Proof of Loss may result in the insurer waiving its right to do so. The laws of some states, and the terms of some policies, only require a Proof be filed if demanded by the insurer. Thus, if a Proof is not demanded and the proper forms are not provided, the insurer may be found to have impliedly waived its right to do so. In King's Gym Complex, Inc. v. Philadelphia Indem. Ins. Co., 433 F. Supp. 2d 256 (N.D. N.Y. 2006), for instance, the court stated:

New York Insurance Law § 3407 provides that the failure to produce proof of loss will not invalidate the claim unless the insurer gives a written notice and a blank form. The purpose of Insurance Law § 3407 is the protection of the insured from the consequences of oversight in failing to timely file a proof of loss which is a condition precedent to recovery.

While this case and others like it may provide an argument for waiver if an insurer does not demand a Proof of Loss or provide the necessary forms, it is important to note that this can occur in very limited circumstances. Unless required by statute or by the terms of the Policy, an Insurer may be under no duty to demand compliance. Therefore, without knowing the policy provisions and the relevant local laws, failing to file a Proof of Loss may give the Insurer an opportunity to deny coverage.

Finally, an insurer’s denial of the claim may waive its right to a Proof of Loss, depending on the law of the jurisdiction and the language of the policy. For example, some courts have held that when an insurer has denied coverage for a loss on grounds other than failure to comply with a proof of loss requirement, the insurer has certified that it has investigated the claim thoroughly enough to make a proper decision as to coverage under the policy. Thus once coverage has been denied, filing a Proof of Loss is pointless and might not be required, as one court pointed out in the following:

It is the law generally that the unconditional denial of liability within the period allowed by the policy for the filing of proof of loss constitutes a waiver of the requirement. The rationale behind such holdings is that the denial of liability on other grounds before the time to file the proof of loss has expired, indicates that the insurer has already made up its mind to refuse payment for any loss and therefore filing of proofs of loss would be a vain and futile act.

Balogh v. Jewelers Mut. Ins. Co., 167 F. Supp. 763 (S.D. Fla. 1958).

It is important to note that there is one major exception that courts have found when addressing waiver of the Proof of Loss requirements when the claim has been denied. When an insurer denies a claim before the Proof is required to be filed but reserves its right to other defenses which are not stated or have not arisen, some courts find that an insured’s failure to submit a Proof may be used as an additional reason for denying coverage.

While an insurer will assume the risk that its denial of coverage and reservation of rights will be allowed by a particular jurisdiction, an insured must be careful to protect his or her interests as well. In many circumstances, filing a Proof of Loss even after denial may be the best way to prevent any future claims of non-compliance with the insured’s post-loss obligations.

Other circumstances exist when an insurer may waive the right to have a Proof of Loss submitted due to the insurer’s actions or course of conduct. Each case is fact specific and should be analyzed extensively and thoroughly documented. As I have discussed previously, an accurate and detailed timeline of events can be critical in framing and supporting any waiver argument, and I recommend that one be created in most instances.

The lesson to take away from this week, as well as my post last week, is that if possible a Proof of Loss should usually be filed. Doing so can cut down on the variety of headaches that can come from having to argue that a waiver has occurred. If filing a Proof is not possible or has not occurred, however, there may be circumstances which may excuse the insured, depending on the individual situation.

Check back next week when we will finish up this three part mini-series on waiver by discussing who has the authority to waive the Proof of Loss requirements.

With that said, it is important to note that, as I discussed in a previous post, What is a Proof of Loss, and What Purpose Does it Serve?, the Proof of Loss requirement protects the insurer. It helps the insurer gain a clearer perspective on the scope of the loss and aids it in determining coverage issues. This protection, like many other policy provisions designed to protect the insurer, can sometimes be waived. When this waiver occurs, the policy is read as if the Proof requirement has been struck from the contract.

There is a split of authority on when waiver may occur, if at all. Some courts have held that for waiver to be effective the insurer must do so before the end of the time period for filing the Proof, in accordance with an applicable policy provision or statute. In other circumstances, such as when a claim has been denied, some courts have found that waiver can occur outside of the normal 60 day period. See Connecticut Fire Ins. Co. v. Fox, 361 F.2d 1 (10th Cir. 1966). Either way, anyone involved in a claim should keep a thorough timeline detailing all statements and actions which might give rise to a claim for waiver so that it can be more easily determined when the waiver was actually effectuated.

There are generally two ways by which an insurer can waive a Proof of Loss requirement. First, the insurer may expressly waive the requirement either verbally or in writing. Second, waiver may be implied from an act or pattern of conduct by the insurer or its authorized agents that reasonably tends to create a belief in the mind of the policyholder that Proofs of Loss will be unnecessary.

Because of the breadth of information on both express and implied waiver, I have decided to break this down into a two week section. This week, I will focus on express, and next week we will delve into implied.

An insurer can expressly notify the insured in writing or verbally of its intent to waive the requirement. There are many reasons why an insurer may want to waive the Proof of Loss requirement, but, as with many other aspects of a claim, it is always a good idea for the insured to obtain a written confirmation. This can help head off any attempt by the insurer to later deny that the waiver occurred. Also, many policies state that no policy provision may be waived except by written agreement or endorsement. If this is the case, you should make every effort to get the waiver in writing. Doing this follow up could make all the difference in a claim and could prevent a plethora of headaches as you go forward.

There are some jurisdictions, however, which have held that such language may not prevent an insurer from orally waiving the Proof requirements. One Colorado case, for instance, stated:

The plaintiff here has raised the issues of waiver and estoppel in his summary judgment pleadings. Although timely compliance is generally a condition precedent to the insurer's liability, a satisfactory excuse for noncompliance may be shown. Capital Fixture & Supply Co. v. National Fire Insurance Co., 131 Colo. 64, 279 P.2d 435 (1955). A subsequent waiver of the conditions would constitute a valid excuse. Thus, there exists a genuine issue of fact as to whether plaintiff was induced by an agent of defendant to delay his filings.

Defendant argues that such a result is precluded here as a matter of law because the policy required all waivers to be in writing. We disagree.

The question of whether a provision in an insurance contract requiring all waivers to be in writing applies to post-loss conditions was settled definitively as early as 1931. Concordia Insurance Co. v. School District No. 98, 282 U.S. 545, 51 S.Ct. 275, 75 L.Ed. 528 (1931). In Concordia, the Supreme Court held that non-waiver provisions “ha[ve] reference to those provisions and conditions which constitute part of the contract of insurance and [do] not apply to a waiver, after the loss occurs, of stipulations in respect of things to be done subsequent to the loss as prerequisites to adjustment and payment.” The overwhelming majority of modern cases follow the Concordia rule. See 5 S. Williston, Contracts § 766 (W. Jaeger 3d ed. 1961).

We are in accord with the Concordia rule and its rationale as expressed in the Tenth Circuit court opinion. In fact, it applies with special strength here, because the language of the non-waiver provision construed in Concordia does not differ in any significant way from the provision construed here. Thus, we hold that the contract's requirements for submitting a proof of loss statement and for filing suit could be waived, even in the absence of a writing, because they were both conditions required to be performed after the loss occurred.

Circle C Beef Co. v. Home Ins. Co., 654 P.2d 869 (Colo. Ct. App. 1982).

This case, and others like it, may afford some important protection to policyholders in various jurisdictions, however, this protection is not certain. Some jurisdictions will hold that any waiver that is not in writing is not effective, and therefore, failing to get a written confirmation of the insurer’s waiver could be problematic to a claim.

So what is the best course of action? Of course, if at all possible, file the Proof of Loss! However, be aware that there may be some circumstance where the requirement may be waived.

An insurance policy is a contract, in which the insurer agrees to indemnify the insured policyholder for sudden and accidental covered losses in return for the policyholder’s agreement to pay a premium and comply with certain post-loss requirements. The filing of a proof of loss is one of these enumerated post-loss obligations, and it can be an essential condition for recovery, depending on how the policy is worded. It can be required under almost all types of insurance policies: property, life, health, and automobile to name a few and has been found in policies for hundreds of years.

While the insured must notify the insurance company of a loss in order to begin the investigation, a proof of loss goes far beyond a mere notice. A proof of loss requires a formal statement of the claim, usually sworn with the notarized signature of the insured, and is designed to facilitate the investigation of the claim and enable the insurer to protect its interests.

Specifically, the purpose of a proof of loss is to provide the insurer with specific information pertaining to the formal claim of damages. The policy will determine what must be in a proof of loss and most often includes:

• The amount of loss claimed;
• The documents that support the amount of loss claimed;
• The parties claiming the loss under the policy;
• The date and cause of the loss; and
• The people who have an interest in the claim.

In many instances, this information is the first documentation provided to the insurer which details the specifics of a claim. As such, it is in both the insurer and the policyholder’s, best interests to comply with the proof of loss requirements, so that the claims process can proceed as quickly and efficiently as possible.

After the proof of loss is submitted by the insured, the insurer must review it and reply. The insurer may accept or reject the proof. While this will be discussed in more detail in later additions of this series, an insurer should only reject a proof of loss for technical reasons, such as the proof is not properly filled out, is missing supporting documentation, is not signed, or is not notarized.

The insurer’s response should include what specific deficiencies exist, as well as what the insured must do to properly comply with the proof of loss requirements. An insurer’s disagreement as to the amount of damages, however, is typically NOT a valid reason for the insurer to reject the proof of loss.

While there are many more proof of loss requirements, in both the insurance policy and various state statutes, it is important at this juncture to note that there are important time requirements that apply to the filing of a proof of loss. Generally, the insured must comply with these time requirements or risk the possibility that the insurer may attempt to deny the claim.

What is the moral of this story, you may ask? Simple: an accurate proof of loss is critical to the claims process.

Although many more advanced topics relating to property insurance are discussed on this blog, the basic fundamentals remain a crucial and consistent requirement. Without a firm grip on these issues, it would be easy to find oneself up the proverbial creek and the subject of litigation.

That being said, I hope you will check back next week when we will dive deeper into the content of a proof of loss and what happens when the proof is not submitted, is inaccurate, or is incomplete.