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

The National Law Journal picked up on this in Florida Insurance Case Could Set Precedent for Hurricane Claims when it noted:

The case came before the justices when the 11th U.S. Circuit Court of Appeals certified five questions of state law to the Florida court.

The biggest issue: Does Florida recognize a claim for breach of implied warranty of good faith and fair dealing? If so, must the claim be brought after the fact like a bad faith claim?

The justices did not seem convinced that lack of good faith and bad faith were separate issues. Justice Charles Canady, who replaced Cantero on the court, said, "What I'm hearing is a distinction without a difference."

Justice Barbara Pariente told Rogow that it's "a little disingenuous" to say it's not a bad faith claim but a lack of good faith claim. (emphasis added)

I agree with the justices. And, it didn't have to be argued that way. We filed an Amicus brief on behalf of United Policyholders in the case. As indicated in A Common Law Remedy For Lack Of Good Faith And Fair Dealing Is Before The Florida Supreme Court, the simple argument is:

Nowhere is the contractual concept of an "implied warranty of good faith and fair dealing" more important than in the insurance setting, due to the unique nature of the product and the disparate circumstances of the parties to the contract. Although Florida courts have previously and explicitly recognized a common law claim arising from the nature of an insurer's obligation to its insured in the third party setting, Florida should join the majority of states that recognize a common law remedy for damages caused by first party insurers breaching their recognized obligations of good faith and fair dealing.

Legislation passed in Florida recognizes the obligation of insurers to act in the utmost of good faith and fair dealing to their insureds. § 624.155, Fla. Stat., and § 626.9541, Fla. Stat. These obligations are further evidenced by pertinent portions of the Florida Administrative Code, requiring claims adjusters to provide ethical and good faith treatment to policyholders. The insurance industry recognizes its obligation to act in the utmost of good faith and fair dealing as evidenced in the training and reference textbooks for claims handlers and in internal claims handling documents prepared by individual insurance companies. Since Florida public policy, demonstrated in legislation and regulation, recognize a duty of good faith, and even the insurance industry recognizes such a duty, it would be a strange quirk in Florida common law for it to not to recognize what everybody else is requiring insurers to do-act in accordance of a duty of good faith and fair dealing to its own customers.

Florida should align itself with that majority of states, and allow this important alternative remedy to stand.

Here is the link to the Oral Argument. The relevant argument starts at 1:39.

Here is QBE's Brief.

Here is Chalfonte's Brief.

I suggest that every customer of Liberty Mutual and Safeco ask in advance what type of claims payment philosophy the insurer will follow before signing on the dotted line. Would you want to be a customer of a company that had its claims department taking a corporate "quantum leap" to bring back profits into an insurance corporation? That is exactly what Safeco and Liberty Mutual have been doing, and it is time that the insuring public is made aware of what type of treatment the public can expect with that company and its subsidiaries.

Every insurance company selling first party insurance has an obligation to investigate coverage and evaluate damages. That obligation requires the insurer to do so promptly, at its own expense, and in a completely honest manner. There are a lot of insurance company adjusters and insurance company attorneys that subscribe to this blog. Does anybody disagree?

If not, why don't Safeco and Liberty Mutual turn over all consultant reports to their customers in first party claims? Are they afraid to be honest? Why do Safeco insurance adjusters refuse to turn over draft reports of consultant reports, citing "work product" privilege? Maybe every Safeco and Liberty Mutual customer should do the following every night before a loss occurs:

We have had a number of Liberty Mutual policyholders, public adjusters, and policyholder attorneys contact us following our post, Safeco and Liberty Mutual Claims Practices Questioned on a National Basis: Policyholders Organize Against Wrongful Claims Practices.

Here is what one had to say:

Last year, my house caught on fire and liberty mutual has refused to pay invoking appraisal within one month without ever properly presenting or looking over the claim. Detectives, police, and their own cause and effect engineers say we had no fault in the fire. Yet, they have repeatedly used stall tactics.

This past year (they said) they didn't receive receipts or information that I have faxed verification showing successfully doing so. And then, they later admitted they had it the whole time saying "this is what we already had." While they have had beds to sleep in and warm food on the table, they have left me and my four kids homeless sleeping on the cold hard floor of one of the rooms that caught on fire. [They were] spending more money for detectives and fighting the claim than if they had paid and now because the adjuster that invoked appraisal and then found out the umpire sided more towards me and my children, they are arguing his decision [is wrong] and them selecting him. DSS is about to take my kids due to the living conditions and everyone is dragging their feet...what can be done??

This afternoon, I spoke with another Texas corporate policyholder attorney with a similar story. I have a corporate policyholder client whose CPA consultant has accused the Safeco adjuster of lying to her about facts of the adjustment.

As a result of Safeco and Liberty Mutual delaying turning over information about reports and estimates in that case, we have now uncovered over 150,000 claims manual operation procedures and guidelines which address how Liberty Mutual and Safeco go about their claims procedures and documents evidencing Safeco's profit oriented program of "quantum leap."

When I have asked Liberty Mutual and Safeco adjusters and attorneys if they agree they have an obligation to adjust in good faith and act honestly, promptly and in cooperation, they say, "yes." When I ask for them to do so or why they have not, this is the type of response I get and what others are reporting to me when they ask the same question:

If you are an insurance customer, I suggest a few companies that compete on service. For example, here is what I have had to say about Chubb in Chubb Calls Competitors Cheap And Unfair. Buy from companies you can trust. How cheap is insurance from Liberty Mutual if it does not pay fully, promptly or in good faith?

A public insurance adjuster asked that the following question be addressed at our September 11 Seminar, Hurricane Ike-What a Difference A Year Makes?:

When the insurer calls in the Engineer for an opinion and the insurer uses that opinion as an excuse to drag out a claim for several more months, is the insured and the insured’s public adjuster entitled to the engineer’s report? What is a reasonable time to wait for a report to be completed? We were told that we have no right to the report.

Instances such as this demonstrate why there is a strong need for laws that protect insurance consumers. Without fair claims laws, some insurers give into the temptation to cheat their own customers at the most opportunistic time—following a loss. Most insurance companies that are truly consumer oriented and honest have no trouble turning over these reports and even the drafts. For them, good faith is part of their company claims culture. Honesty requires transparency rather than one party to a contract advantageously keeping secrets. Does anybody disagree?

The Restatement (Second) of Contracts § 205, Duty Of Good Faith And Fair Dealing provides:

Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.

At comment d., the Restatement provides:

Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further: bad faith may be overt or may consist of inaction, and fair dealing may require more than honesty.

These are legal principals many would anticipate the law requires. The problem is that many of my colleagues and I fail to discuss them, and the insurance company attorneys are not about to do so, since they are trying to defend their client’s bad faith actions. It is their job to protect those types as much as it is my job to call them out.

Courts in states throughout the nation have concluded that all contracts-- including insurance policies--impose on each party an implied obligation to act fairly and in good faith. For example, in 1930, the Wisconsin Supreme Court stated that the rights of the insured “go deeper than the mere surface of the contract written for him by the defendant” and implied obligations are imposed “based upon those principles of fair dealing which enter into every contract.” The New Jersey Supreme Court's decision in Bowler v. Fidelity & Casualty Co. of New York, which involved a time limitation on the right to sue under a disability insurance contract, provides an excellent summary of how some courts view this duty:

Insurance policies are contracts of the utmost good faith and must be administered and performed as such by the insurer. Good faith “demands that the insurer deal with laymen as laymen and not as experts in the subtleties of law and underwriting.” In all insurance contracts, particularly where the language expressing the extent of the coverage may be deceptive to the ordinary layman, there is an implied covenant of good faith and fair dealing that the insurer will not do anything to injure the right of its policyholder to receive the benefits of his contract.

So, the answer is that insurers should turn over those reports. They should make certain those engineers are working as fast as possible knowing that claims require promptness. They should not hire consultants that are overtaxed, given the nature of the promptness required of claims investigation and evaluation. My experience is that many consultants never get asked this question regarding the promptness of work, but instead have other criteria which seem to be more important to many claims departments.

To be fair, in situations where the insurer legitimately has reason to be concerned about fraud, the timing of turning over reports and information can be somewhat changed. A bad actor may be given additional opportunity to change or escape the scheme if the reports or information are promptly turned over. Many courts have recognized various “work product” protections in similar situations and especially when insurers have retained counsel to help protect them. I am certain that expert insurance fraud attorneys such as Barry Zalma and Sandy Burnette could provide much greater information on that topic.

State Farm gets bashed too often at times. In March 2007, I took the deposition of one of its Home Office Bloomington based claims consultants, Stephan Hinkle. He indicated that he expected all reports, including drafts before modifications, to be turned over to policyholders. As I recall his deposition, I felt he understood that honesty was important to State Farm’s customer although the final decision might not be favorable. The transparency of the logical basis for denial of a claim or part of it is extraordinarily significant and will usually be found in the information Hinkle expected would be turned over.

In my experience, many adjusters refuse to operate this way. Therefore, the question posed above is repeatedly asked.

Being Fair And Balanced, I first became aware that my post, Partial and Advance Payments--An Insurance Company Attorney Claims that There is No Legal Obligation to Pay Undisputed Benefits, may have been a little too harsh when my former legal assistant wrote the following comment:

According to the "Tennessee Insurance Litigation Blog" website which contains Mr. Chastain's Resume, he certainly holds himself out to be an "expert" defense attorney in advising and representing insurance companies.

I just viewed the site for about a 1/2 hour and found it to be a very nice and informative site. One day it "gives the floor" to a defense attorney (like Mr. Chastain) to write an article and offer advice to insurance companies and the next day it "gives the floor" to a Plaintiff's attorney (can't recall his name) to write an article and he, in turn, offers his advice and opinions for the Plaintiffs/policyholders. I enjoyed the site.

Finally, I would venture to say that (maybe) Attorney Chastain takes this "hardnose" approach to attract insurance company clients. In #1 of his article that you cited, Chip, he says:

"1. Generally speaking, MOST insurance policies do not require the insurance carrier to make an advance..."

He's not saying that they SHOULD NOT make an advance. He just wrote that "...MOST insurance policies do not require the insurance carrier to make an advance." Indeed, it could be that, behind closed doors, he's advising and suggesting to the carrier that they should make an advance to help the insured during their time of need to avoid (or minimize) the potential of a bad faith lawsuit down the road.

Just my thoughts.

SHIRLEY HEFLIN

Shirley was no friend of any insurance company, its attorneys or assistants when in my employ. So, I was a little concerned when she appeared critical of my post.

Parks Chastain then responded to my post with Policyholder's Advocate's Blog Questioning Misconceptions on Advances Shows Extent of Misconceptions, and the Reasons Why They Are Problematic. He stated in part:

“Anyway, thanks to Chip for pointing out exactly why we needed to clear up misconceptions. His blog demonstrates my point exactly, although I really had not thought that anyone would have these misconceptions.

And, let me add this, my blog notes that some carriers do make advances and some do not. It is not a condemnation of advances, but rather an attempt to clear up misconceptions to which some policyholder attorneys contribute. These misconceptions evidenced by Chip’s posting cause a problem, when the attorney for the policyholder convinces the insured that a company is treating them unfairly by not making advances. The insured often decides to become adversarial, to the benefit of the policy holders attorney, when it is often not necessary. If attorneys would be objective in their assessments as to policy obligations, much litigation could be avoided.

I enjoy the challenge of litigating with lawyers who know the rules, and understand the issues involved. When I deal with lawyers new to coverage litigation, I find that they have many of the same misconceptions I have set forth, and perhaps those that Chip has evidenced. In many cases, the companies I have represented have made advances, but the insured claimed they were not enough. The policyholder’s attorney usually writes a letter demanding an advance, copies to his client. That creates a perception it the mind of the policyholder that an advance is required, when it may not be. Things are never the same after that, as the policyholder is convinced the carrier has failed to do something required. In most cases, nothing could be further from the truth.”

I agree with Parks on the sentences I have highlighted, especially the latter sentence. The action and risk of my job is fun, if you enjoy competition. The former needs some explanation.

For a decade, I have been teaching that public adjusters and policyholders need to be smarter and more professional about their rhetoric when confronting insurers. I did so as a result of some criticism in 1995, which pointed out that I needed the same advice. After learning from the criticism and seeing the positive results, I firmly believe that one can win and still be nice, direct, tough, gentleman-like, and a fierce advocate, without being a jerk or a lot worse. Aggressive can be accomplished in a very professional manner. Lessons like these took me from a few million dollar cases to a few hundred million dollar cases—with many in between. Giving up one’s ego in front of others may be hard to do for some of us insecure types, but if you accept Harvard educated attorney Rick Friedman’s teachings, it opens up an entire new world of positive possibilities and results.

The point I want to emphasize as I close this post, and where I disagree with Parks Chastain, is that we are not dealing with “advance” payments. The word “advance” implies that insurers are giving policyholders something to which they are not entitled. What I strongly detest is the practice of some insurers to delay payment for parts of undisputed claims owed. This is an effort to leverage the disputed portions of a claim debt downward. The insurer plays the “let’s make them suffer” game of nonpayment of partially agreed amounts to force a lower overall payment through settlement. I never use the word “advance” because that implies the wrongful insurer is doing the policyholder a favor by promptly paying "partially owed" amounts. Instead, insurers have an almost universally recognized good faith obligation to pay undisputed amounts of a claim promptly. If they do not, they should get the brunt of legal accountability.

First, "bad faith" is a wrong term. Bad faith cases are truly a breach of the obligation of good faith. So, what is an insurer's obligation of good faith in a first party property insurance claim?

Most insurers would agree this describes their good faith obligations:

"Provide a sufficient number of properly trained and motivated adjusters with sufficient authority to promptly, honestly, and fully investigate facts at its own expense to find, and evaluate, all coverages, damages, and benefits of loss so that the amounts of all covered benefits are paid as soon as possible."

Don't hold your breath for this to happen in the field, but a number of claims managers agree. Why not--unless you are an insurer that wants to advertise that you consider profits a higher obligation than your legal duties to your customers?

I think this is enough to answer the question. What do you think?

A special product of insurance coverage exists called “event” or “private event coverage.”  From weddings, to outdoor events, corporate outings, and concerts, those who host these events should consider calling an agent for quotes. Coverage available depends on the event, and can help with extra expenses, lost income, and liabilities to others in the event something goes wrong and the event does not take place. Call your insurance agent to get this valuable coverage.

In researching the issue, I found a case where the coverage discussion is applicable to general insurance disputes, not just canceled Def Leppard concerts. In Celebrate Windsor, Inc., d/b/a Summerwind Performing Arts Center, vs Harleysville Worcester Ins. Co., No. 3:05cv282, 2006 WL 1169816 (D.Conn. May 2, 2006), damage to a canopy lead to a protracted dispute with an insurer and difficulty dealing with the expenses of holding events during a period when the auditorium was not ready for performance. Much of the decision is irrelevant, but the following remark will strike remarkable relevance to many of our current clients and policyholders with delayed insurance claims:

“Harleysville argues that it is not required to pay SummerWind anything because SummerWind never filed a proof of loss. But Harleysville never asked for a proof of loss and continued to process the claim in the absence of one. Therefore, Harleysville waived that requirement. Harleysville also contends that it is not required to pay for any loss until the structure is actually repaired or replaced, and obviously that has not happened yet. But courts have found a duty on the insurer to reimburse the insured before rebuilding takes place when, as here, the insured does not have the means to rebuild the facility without the insurance proceeds. See, e.g., Zaitchick v. American Motorists Ins. Co., 554 F.Supp. 209, 217 (S.D.N.Y.1982); Pollock v. Fire Ins. Exch., 423 N.W.2d 234, 237 (Mich.Ct.App.1988). The Court believes that Connecticut courts would adopt those decisions as the law of Connecticut and, therefore, the Court rejects Harleysville's claim. Finally, Harleysville argues that its policy obligations are conditioned upon the insured replacing the property within a reasonable time after incurring the loss and that SummerWind has not done so. However, if Harleysville's failure to pay Soper's estimate was the reason why the facility has not been repaired sooner, then surely Harleysville could not defend its conduct on this basis. Therefore, this argument by Harleysville does not add anything to its main argument, which is that it is not required to pay the full cost of Soper's 2004 estimate.”

This issue is very important to policyholders. Replacement cost policies contemplate that policy proceeds of at least actual cash value are paid promptly as possible so that replacement can take place. When that does not happen, the entire purpose of insurance is defeated. Insurers that refuse to pay replacement cost benefits when the policyholder seeks judgment should not be allowed to take advantage of the policy terms requiring actual repair or replacement unless they have fully paid all actual cash value amounts owed. This seems common sense, as the Court found above, but not all courts are so inclined.

In Pollock v. Fire Ins. Exch., 423 N.W.2d 234 (Mich.Ct.App.1988), the Michigan case cited by the Celebrate Windsor court had an excellent discussion of the issue:

“…case law and equitable considerations render replacement cost the appropriate method of valuing plaintiffs' damages. The defendant does not challenge the plaintiffs' contention that a bank would be chary to lend money on the basis of an unlitigated law suit in which the defendant and its vast resources intend to present several defenses to payment. Nonetheless, defendant asserts, case law precludes plaintiffs' recovery of replacement value, citing American Universal [Ins Co v Falzone, 644 F2d 65 (CA 1, 1981); Kolls v Aetna Casualty & Surety Co, 503 F2d 569 (CA 8, 1974); Lerer Realty Corp v MFB Mutual Ins Co, 474 F2d 410 (CA 5, 1973); Bourazak v. North River Ins Co, 379 F2d 530 (CA 7, 1967); Higgins v. Ins Co of North America, 256 Or 151; 469 P2d 766 (1970) ]. These cited cases, however, are distinguishable from the instant case. In all the relevant cases cited by defendant save Lerer Realty, the defendant paid actual cash value, and was only litigating the issue of whether additional monies would be due under the relevant replacement cost contract provisos. Thus plaintiffs in the cited cases had at least some money with which to begin rebuilding their property.

The language of the Zaitchicks' insurance contract also supports my emphasis on whether cash value has been paid or not. The contract states that “[t]he Named Insured may elect to disregard this [replacement cost] condition in making claim hereunder, but such election shall not prejudice the Named Insured's right to make further claim within 180 days after loss for any additional liability [for replacement cost].” Defendant's Exhibit M, “Additional Conditions,” ¶ 1(f). In other words, insureds can obtain the necessary funds to begin rebuilding their home, and subsequently upon completion of the construction, obtain additional amounts up to the replacement value. In the instant case, plaintiffs were refused any monies under the insurance contract. Not surprisingly, they were unable to replace their home. This conduct by defendant made it impossible for plaintiffs to fulfill the condition precedent, and therefore, excuses plaintiffs from performance of the replacement condition…

While Zaitchick is foreign law, the concept of not permitting an insurance company to benefit from its own misdeeds is not foreign to the jurisprudence of this state. In Wendt v. Auto-Owners Ins. Co., 156 Mich.App. 19, 27-28, 401 N.W.2d 375 (1986), which considered a somewhat different question than that presented in the case at bar, this Court held that an insurance company is liable for its conduct and may suffer a pecuniary loss as a result of that conduct even where a loss would not ordinarily be imposed by statute:

We see no reason to hold an insurer less accountable for its actions than another contracting party. Consequently, we hold that the breach of an insurer's obligation to process a claim in good faith renders an insurer liable for pecuniary losses which are not otherwise compensated for by statute.

In the instant case, defendant impeded any progress in this matter by refusing to deal with plaintiff prior to her contacting an attorney, by failing to appoint an appraiser after plaintiff's attorney requested they do so and by forcing plaintiff to bring this lawsuit. Defendant failed to make any substantial payment to plaintiff until twenty-five months after the fire. Defendant does not even argue any good faith defenses to its actions of delay. At most, in its answer to plaintiff's complaint, defendant asserted as an affirmative defense that plaintiff failed to provide proper documentation of her loss. Defendant does not argue this defense on appeal. We conclude that, in the face of such lack of good faith processing of plaintiff's claim, the trial court correctly chose to award the replacement cost value to plaintiff based upon equitable considerations.

In short, defendant's failure to pay on the claim hindered, and quite possibly even prevented, plaintiff from complying with her obligation to repair or replace the building. Had defendant immediately paid in good faith the actual cash value of the loss, holding the additional amount due under the replacement cost provision in reserve until the replacement was made or contracted for, or had otherwise worked with plaintiff to insure her financial ability to immediately proceed with the replacement or repair, a different result might be called for. However, defendant did not work with plaintiff to promptly pay the claim and enable her to repair or replace the building; rather, it did as much as possible to hinder plaintiff and delay or prevent the payment of the claim. We will not now allow defendant to raise as a defense plaintiff's failure to perform an act which defendant itself greatly hindered plaintiff from performing…

For the above-stated reasons, we conclude that the trial court properly determined that plaintiff was excused from performing her obligation under the policy to repair or replace the building due to defendant's dilatory tactics.”

Sometimes, I start researching one area of insurance law just to find other gems more relevant to my current cases. I find it amazing how rock and roll can impact my “edgy” interests and then lead to more meaningful understandings in other areas of life. I guess I have to give credit to Def Leppard, a band that will “Rock for the Ages,” for their moving music. Their music made me a better lawyer and lead me to law that supports my clients’ cases.

Enjoy:

I have the honor of representing a number of complex commercial policyholders in this category. The business owners and corporate officers not being paid promptly on undisputed portions of claims can be just as upset and frustrated as individual policyholders feeling they have been “jerked around” waiting for monies. Indeed, when you have responsibilities to others as most businesses do, cash is the blood that keeps businesses alive. Benefits from commercial insurers should be especially prompt.

A recent federal court ruling in Penford Corp. v. National Union Fire Insurance Company of Pittsburgh, PA, No. 09-CV-0013, 2009 WL 2030377 (N.D.Iowa July 13, 2009) highlights the fact that an insurer can be subject to a bad faith lawsuit for wrongfully delaying payment of an undisputed portion of coverage, even if it correctly denies coverage on other parts of a claim.

The facts of this property damage claim indicated that:

“ …In June 2008, Penford's Cedar Rapids plant was flooded and suffered substantial property damage. Defendants provided insurance coverage for Penford's facility…Defendants have paid Penford $20 million for flood damages…

In addition, the policy contained certain “time element coverages,” providing coverage for losses caused by business interruption. The policy also provided additional coverages for debris removal, decontamination costs, contaminant or pollutant clean up, and professional fees. Penford claims that it is entitled to additional benefits for losses falling under the time element coverages and additional policy coverages. According to Penford, its covered losses will exceed $50 million. Penford requests that the Court “declare Penford's rights and Defendant Insurance Companies' obligations under the Policy,” and that it award compensatory damages for breach of contract….of particular significance to the instant motion, Penford asks that the Court award it additional damages for Defendants' alleged bad faith in denying Penford benefits which are due under the policy, and “unreasonably delaying undisputed payments under the Policy.”

The defendant insurers moved to bifurcate the contract and bad faith trials and stay discovery of the bad faith aspects of the case, arguing:

“…that recovery by Penford on its declaratory judgment and breach of contract claims is a “condition precedent” to its recovery on the bad faith claim. Defendants argue that the discovery required on the bad faith claim is “not relevant” to the discovery associated with the declaratory judgment and breach of contract claims. Therefore, according to Defendants' argument, bifurcating the trial and staying discovery on the bad faith claim will promote judicial economy.”

This is the same argument insurers use in many cases. In my experience, judicial economy is best served by denying the stay order and then deciding if matters should be bifurcated at trial. The gamesmanship and lack of good faith, if any, is explored early in the litigation and the matters resolve for all much quicker. This practical experience seems lost on some judges, which is why these motions are so common. When judges do not get sidetracked into granting the motions and instead order full discovery, judicial economy is swiftly served by eager settlement discussions by insurers that may have problems in their claims handling.

 The policyholder’s response was:

“…that much of the discovery “intermingles” between the contract and bad faith claims….a number of witnesses have knowledge regarding both the flood loss and the subsequent adjustment of the insurance claim, and staying discovery on the bad faith claim would necessitate deposing those witnesses twice. In addition, Penford argues that even if it does not prevail on the breach of contract claim, it nonetheless has a viable bad faith claim for Defendants' alleged failure to timely pay the benefits due under the policy. Finally, Penford argues that even if bifurcation of the trial is otherwise appropriate, the parties should be permitted to proceed with discovery on all claims.”

The Court ruled for the policyholder, and the ruling is much more significant than a mere finding about the bifurcation and discovery, because it correctly noted that delay of the previous payments could be an independent basis for the bad faith claim:

“…Defendants argue that it is unnecessary to address discovery and trial on the bad faith claim unless Penford first prevails on its contract claims. This argument fails, however, to address Penford's claim that Defendants acted in bad faith in delaying the payment of insurance benefits. Even if it is determined that Penford has been paid all of the benefits it is entitled to receive under the policy, a claim for bad faith may lie if Defendants knowingly acted unreasonably in delaying payments. Galbraith v. Allied Mut. Ins. Co., 698 N.W.2d 325, 328 (Iowa 2005) (a bad faith claim may lie if “the insurer lacked a reasonable basis for denying or for delaying payment of the claim”)… Accordingly, Penford is entitled to discovery regarding the adjustment of its loss, even if Defendants ultimately prevail on the contract claims.

…Bifurcating the trial and staying discovery on the bad faith claim until after the contract claims have been resolved would unnecessarily delay this action and, therefore, prejudice Penford…In Agrawal v. Paul Revere Life Ins. Co., 182 F.Supp.2d 788 (N.D.Iowa 2001), the court ordered bifurcation of trial on the coverage and bad faith claims...The court did not, however, stay discovery. The court envisioned that the bad faith claim would be tried immediately following coverage claim, if necessary…Discovery on both claims proceeded, notwithstanding the court's decision to bifurcate the trial.

…

The Court concludes that discovery on the bad faith claim should not be stayed… As set forth above, Penford may pursue a bad faith claim for defendants' alleged delay in the payment of benefits, even if it is not entitled to any additional recovery under the contract.”

This is a common scenario in insurance claims. Part of the claim is paid after a period of time that the policyholder thinks is not within the standards of good faith conduct, and the remaining portion of the claim is denied. Discovery generally moves along much quicker and with a greater chance of complete resolution of all matters if courts do not stay any portion of the discovery. While the Court in this case did not bifurcate the trial, my impression is that justice is best served by usually reserving that decision until right before trial because the evidence at that time may better clarify how the trial should proceed.

The practice tip for the policyholder attorneys is to seek independent actions and remedies for the payments that were delayed. Specific pleadings indicating that the bad faith action is based on the delay of payments for coverage that was acknowledged will help judges recognize that the entire case is not just about the unsettled coverage controversy.

The practice tip for insurers is to act in good faith and not just focus on what might not be paid. Having a sufficient number of properly motivated adjusters with authority to promptly investigate a loss in an honest manner so that all the benefits owed following a loss are determined and paid promptly is the good faith service commercial policyholders purchased long before the loss ever occurred. Claims managers should make certain their adjusters perform to this standard.

In our Motion For Leave Of Court to file the brief, we wrote:

“1. The financial security that insurance policies provide is critical to business and property owners and to the fabric of our economy and our society. United Policyholders ("UP") is a unique non-profit charitable organization founded in 1991 that is helping preserve the integrity of the insurance system by serving as an information resource and a voice for policyholders' interests. Donations, grants and volunteer labor support the organization's work.

2. United Policyholders monitors the national insurance marketplace with a particular focus on regions impacted by large-scale natural disasters. The organization hosts and participates in public forums, disseminates information about the claim process, works with individuals and elected officials to solve insurance problems, and files amicus briefs in cases involving coverage and claim disputes. UP serves as a clearinghouse for information on coverage and claim issues related to commercial and personal lines insurance products.

3. United Policyholders has focused its efforts since the 2005 hurricane season on providing education and support to businesses and homeowners in the Gulf Coast states and working to help solve insurance problems. The organization hosts a free on-line "Road Map to Recovery" for Florida, Louisiana and Mississippi, and created and is maintaining a Hurricane Claim Help Library for residents of the impacted states. For more information, visit www.unitedpolicyholders.org.

4. United Policyholders seeks to fulfill the "classic role of amicus curiae in a case of general public interest, supplementing the efforts of counsel, and drawing the court's attention to law that escaped consideration." Miller-Wohl Co. v. Commissioner of Labor & Indus., 694 F.2d 203,204 (9th Cir. 1982). This is an appropriate role for amicus curiae. As commentators have often stressed, an amicus is often in a superior position to "focus the court's attention on the broad implications of various possible rulings." Robert L. Stem, et al., Supreme Court Practice 570-71 (1986), quoting Ennis, Effective Amicus Briefs, 33 Cath. U. L. Rev. 603, 608 (1984).

5. United Policyholders has filed over two hundred and thirty-five amicus briefs, since it was founded, in state and federal appellate courts throughout the United States. United Policyholders' amicus brief was cited in the U.S. Supreme Court's opinion in Humana Inc. v. Forsyth, 525 U.S. 229 (1999). UP was the only national consumer organization to submit an amicus brie/in the landmark case of State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). The organization has participated by court invitation in briefing and oral argument, and many of the arguments from United Policyholders' amicus curiae briefs have been cited with approval by reviewing courts.

6. The issue involved in this case, concerning whether or not Florida law recognizes a claim for breach of the implied warranty of good faith and fair dealing by an insured against its insurer based on the insurer's failure to investigate and assess the insured's claim within a reasonable period of time, has significant ramifications for insurance policyholders seeking to hold their insurance companies responsible for their insurers' actions. This is an area of law in which United Policyholders and the undersigned attorneys submit it would be useful to the Court to allow the insurance policyholders' perspective to be heard.

7. The undersigned counsel for United Policyholders have significant experience in first-party property insurance litigation against major insurance companies, such as QBE Insurance Corporation, and honestly believe that they will be able to provide assistance to jurists analyzing the insurance issues of this case and their public policy implications in a way that compliments and dovetails with the arguments raised by counsel for the parties to this appeal. Counsel for United Policyholders is retained pro bono, and will accept no money for their legal work in this case.”

Obviously, this matter is extremely important to Florida policyholders. Florida has never recognized a common law cause of action for the breach of the duty of good faith arising from a first party property insurance claim. In the summary of our argument, we noted:

“Nowhere is the contractual concept of an "implied warranty of good faith and fair dealing" more important than in the insurance setting, due to the unique nature of the product and the disparate circumstances of the parties to the contract. Although Florida courts have previously and explicitly recognized a common law claim arising from the nature of an insurer's obligation to its insured in the third party setting, Florida should join the majority of states that recognize a common law remedy for damages caused by first party insurers breaching their recognized obligations of good faith and fair dealing.

Legislation passed in Florida recognizes the obligation of insurers to act in the utmost of good faith and fair dealing to their insureds. § 624.155, Fla. Stat., and § 626.9541, Fla. Stat. These obligations are further evidenced by pertinent portions of the Florida Administrative Code, requiring claims adjusters to provide ethical and good faith treatment to policyholders. The insurance industry recognizes its obligation to act in the utmost of good faith and fair dealing as evidenced in the training and reference textbooks for claims handlers and in internal claims handling documents prepared by individual insurance companies. Since Florida public policy, demonstrated in legislation and regulation, recognize a duty of good faith, and even the insurance industry recognizes such a duty, it would be a strange quirk in Florida common law for it to not to recognize what everybody else is requiring insurers to do-act in accordance of a duty of good faith and fair dealing to its own customers.

Florida should align itself with that majority of states, and allow this important alternative remedy to stand.”

I suggest those interested in this topic to read our entire brief—it may also be better than a sleeping pill for those in need of a good night’s rest. The last paragraph of the argument sums up my feelings on this issue:

“Making an insurer accountable for causing additional damages that naturally flow from the breach of its mandated obligation of utmost good faith is good public policy and logically required if accountability is important to the law. Without accountability for breaches of these insurance good faith duties that most recognize as involving the public trust, the law would minimize these concepts and the importance of personal responsibility for insurers to do what they are obligated to do.”

Currently my favorite case on the topic of an insurer's obligation to investigate fully for facts supporting coverage (rather than facts supporting only denial) is Jordan v. Allstate Ins. Co., 148 Cal. App. 4th 1062 (Cal. App. 2d Dist. 2007). The case has language which seems very even handed. Indeed, defense attorneys often cite this case. The facts and legal history are a little confusing. However, the "Readers Digest" version is that a claim was submitted for water related damages including fungus, wet rot, dry rot, and collapse caused by hidden decay. On the coverage issue, the Court found:

"First, we could conclude that a collapse due to ‘hidden decay’ would be covered, but not if such decay was caused by ‘wet or dry rot’; or, second, we could conclude that coverage for a collapse due to ‘hidden decay’ was provided, but noncollapse damage caused by ‘wet or dry rot’ was excluded. Each of these constructions of the policy language is reasonable. The first is consistent with Allstate's contention that the exclusion for ‘wet or dry rot’ precludes coverage irrespective of whether there is a basis for coverage under the exception to the collapse exclusion. On the other hand, the second interpretation is advanced by Jordan and supports her claim for coverage under the collapse provisions of the ‘additional coverage’ section of the policy. Thus, when read in the context of the entire policy, particularly the provision granting coverage for a collapse caused by ‘hidden decay,’ the effect and application of the exclusion for a loss caused by wet or dry rot is not at all clear.”...

Applying settled principles of policy construction, we resolved this ambiguity by looking to the insured's objectively reasonable expectations and construed the policy language against Allstate and in favor of Jordan.... This meant that Jordan could demonstrate the existence of coverage for her loss if she could show that an “entire collapse” had occurred. Because the record was unclear on this issue, we remanded the matter back to the trial court to give Jordan an opportunity to prove that an actual collapse had occurred and had resulted in her claimed damage."

After reading that, most of you can imagine why I sometimes take an afternoon for a little wine. Yes, I read this all day, and it sometimes seems that what I am reading is in the Choctaw language with logic from Jimmy Hendrix. Admittedly, I enjoy it; I am a little bit of a nerd.
 

But, the point Jordan was making is that Allstate should have been looking for facts supporting a collapse loss which was covered. In deciding the issue, the Court first provided some general rules regarding good faith investigative obligations:

"An insurer is said to act in “bad faith” when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured. “A covenant of good faith and fair dealing is implied in every insurance contract.... The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement's benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort. And an insurer cannot reasonably and in good faith deny payments to its insured without fully investigating the grounds for its denial.... Indeed, in Egan v. Mutual of Omaha Ins. Co... the Supreme Court emphasized that, in order to protect the interests of its insured, it was “essential that an insurer fully inquire into possible bases that might support the insured's claim.”

...[I]t must be remembered that “an insurer is not required to pay every claim presented to it....Such a practice inevitably would prejudice the insurance seeking public because of the necessity to increase rates, and would finally drive the insurer out of business. Indeed, analysis of the leading first party cases demonstrates that a rule has never been applied which holds under any circumstances that an insurer which refuses to pay benefits claimed to be due under the policy did so at its own risk. Clearly, both logic and good policy dictate that no such rule ever be applied in first party cases.”

Then, the Court explained the legal ramifications for failing to fully investigate the claim:

"...an insurer owes a duty to its insured to investigate all of the possible bases of an insured's claim. The insurer's duty to give as much consideration to the insured's interests as it does to its own obligates it to investigate a claim thoroughly. An insurer must fully inquire into the bases for the claim; indeed, it “cannot reasonably and in good faith deny [benefits] to its insured without thoroughly investigating the foundation for its denial.... An insurance company may not ignore evidence which supports coverage. If it does so, it acts unreasonably towards its insured and breaches the covenant of good faith and fair dealing...see also Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 882 [93 Cal. Rptr. 2d 364] [the record “suggests that [the insurer] looked the other way when confronted with facts revealing the possibility of first party coverage, resisting both reasonable interpretation of policy language and a compelling history of negotiation to secure this coverage”]; Amadeo v. Principal Mut. Life Ins. Co. (9th Cir. 2002) 290 F.3d 1152, 1163 [even assuming the insurer's interpretation of its policy was not adopted in bad faith, its failure to investigate the facts surrounding the claim was evidence of bad faith].)

...where an insurer denies coverage but a reasonable investigation would have disclosed facts showing the claim was covered, the insurer's failure to investigate breaches its implied covenant. The insurer cannot claim a “genuine dispute” regarding coverage in such cases because, by failing to investigate, it has deprived itself of the ability to make a fair evaluation of the claim....Thus, although Allstate's interpretation of a policy exclusion was reasonable, it also had a duty to investigate Jordan's coverage claim that was based on the “additional coverage” provisions relating to an “entire collapse,” which we held, in Jordan I, was also reasonable and consistent with Jordan's objectively reasonable expectations."

The Jordan case is not over. The Court sent it back again for trial. It looks like some damage may be covered and some not, but the facts are not fully developed. However, the Court correctly noted that every adjuster has a good faith obligation to fully and honestly investigate all facts: those supporting coverage and those suggesting no or limited coverage.

Insurance companies do not want to be held accountable for wrongful conduct. "Cheat and get away with it"-- is the mantra of many insurers. This is wrong and it has to stop.

Honest insurers should push for consumer protection laws that hold dishonest insurers accountable. Do they? Not that I have seen. Only crooks and cheats oppose laws that punish cheating--where is the property and casualty insurance industry?

I know most independent adjusters would support these laws. Company adjusters publicly would as well if they were not subject to termination. The property and casualty industry needs to clean itself up. Honest insurers and adjusters should support penalties when others break rules. As Alex Sink suggested yesterday, there needs to be accountability for those that do not honor insuring promises. Who is against that? I suggest that the answer is only those that break those rules.

Yesterday, I tried to teach public adjusters how to prevent otherwise innocent policyholders from wrongfully inflating claims because they believe the insurer will always try to reduce what is rightfully owed. Two wrongs never equal a right. However, many policyholders lack faith in insurance company claims practices and believe they can’t be straight forward and get paid a fair amount. This must stop. Nobody benefits.

"The first question presented is whether an insured may prosecute a common law claim for breach of the covenant of good faith and fair dealing by an insurer based on the alleged failure of the insurer to investigate and assess the insured's claim within a reasonable time. Such a claim is alleged by the homeowners to be an independent basis for recovery, one distinguishable from a statutory bad faith claim under Section 624.155(1)(b), Florida Statutes (2008). Citizens maintains that the “breach of the covenant of good faith and fair dealing” claim is merely a “disguised” statutory bad faith claim and that no such common law claim is recognized in Florida."

Later in the opinion, the Court noted the issues raised are currently before the Florida Supreme Court in another matter:

"[T]he United States Court of Appeals for the Eleventh Circuit has certified these questions to the Supreme Court of Florida pursuant to Florida Rule of Appellate Procedure 9.150(a). See Chalfonte Condo. Apartment Ass'n. v. QBE Ins. Corp., No. 08-10009, 2009 WL 580775, at *7 (11th Cir. Mar. 9, 2009) [21 Fla. L. Weekly Fed. C1627a]. The Supreme Court has docketed the certified questions as QBE Insurance Corp. v. Chalfonte Condominium Apartment Ass'n., Case No. SC09-441."

QBE Insurance Corp. v. Chalfonte Condominium Apartment Ass'n., will be a landmark case in Florida. Mary Fortson and I have been working on an amicus brief on behalf of United Policyholders. My opinion is that it would not make sense for Florida law to not recognize the duty of good faith when every adjuster is trained from day one that insurers have such a duty. The duty of good faith and fair dealing is accepted as the most basic principal of an insurance company's primary obligation in the insurance industry.

Why in the world would a judge say that a good faith duty does not exist? To do so would not only be legally wrong, it would be factually wrong as well.

We will file our amicus brief and post in here in a couple of weeks. The decision in this case and the Corban case in Mississsippi are going to be very significant to the rights of policyholders.

His questions and the article reminded me of the first prize paper in the 2008 Student Writing Competition of the Tort Trial and Insurance Practice Section of the American Bar Association: Whitney Mauldin’s Good Business/Bad Faith: Why the Insurance Industry Should Adopt a Good Faith Model, 43 Tort & Ins. Prac. J. 151 (Summer 2008). It is an excellent paper which should be studied by all in this field. Claims managers and adjusters should reflect upon the author's findings.

The paper noted "most insurance companies...are for-profit corporations, and their desire to increase profits frequently results in the implementation of business practices that are adverse to the insured." It went on to note four modern claims trends which were made to increase profits but have "gone awry" to the detriment of the insurance industry's customers. Those listed are:

1. Computers in Claims Handling.
2. Compartmentalization of Claims Handling.
3. The Use of Outcome Oriented Experts.
4. Use of Corporate Consultants that do not Appreciate the Ethics of Good Faith Claims Handling.

The author's conclusion is worthy of quoting:

CONCLUSION: A CALL FOR A GOOD FAITH MODEL

Part of the problem documented here is the result of a fundamental change in the insurance industry. Insurance companies used to be, at least primarily, mutual companies, meaning that they were owned by policyholders, for the benefit of the policyholders. However, since the 1970’s there has been a shift toward a for-profit corporate structure, with insurance companies being owned by shareholders. This puts the company in the position of deciding whose interests to serve, that of the shareholders or those of the policyholders. It has a fiduciary duty to both.

The laws of the fifty states regarding bad faith are inconsistent. Therefore, if insurance companies want to avoid costly litigation and want to fulfill the role they were created to fulfill, then the industry should adopt a good faith model. Clear, common sense guidelines designed to build solid business practices would eliminate the uncertainty of claims handling and protect the insureds as well as the insurer. It could be argued that the current profit driven model not only leads to a breach of the fiduciary duty of good faith to the insured but also to the company’s duty to its shareholders. To the extent that these expensive and highly publicized bad faith law suites cause damage to not only the profitability but the reputation of the insurer management may have caused long term damage to the share holders by lowing the overall value the corporation.

There are some basic concepts that will form a foundation for a good faith claims handling model. First, avoid the use of any mechanism that will standardize claims. Claims are unique and efforts to rubber stamp them, will likely lead to a breach of the duty of good faith. Second, maintain communication with the insured through the claims handling process. Ensure that the adjuster can access the insured personally and that one person is in charge of all correspondence with the insured. The adjuster should have an integral role and therefore a holistic understanding of the investigation as it proceeds so that they can communicate progress to the insured. Third, use experts appropriately. Do not use them to create a one-size-fits-all investigation and do not ignore them when they provide evidence of a valid claim. Finally, make the policyholder more important that the shareholders. The duty is owed to policyholder.

Companies should establish protocols that alert the company when they are making increased sums of money and are not paying claims. Efforts to increase profits are a part of business but those efforts should be directed towards planning the business carefully, changing marketing strategies, selling more policies, and carefully selecting reinsurance. These strategies should leave the good faith claims handling model alone. This model is necessary, because the courts have repeatedly shown that in the war between shareholders and policyholders, the policyholders will win every time, whether it is initially by a fair settlement of the claim or later with loss of customers or punitive damages.