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

In Kimble v. State Farm Fire and Casualty Company, No. 1:09-cv-1798, 2011 WL 1637142 (W.D. La. April 29, 2011), the insured homeowners suffered damage to their home from Hurricane Gustav in 2008. State Farm paid approximately $4,000 for the damage, but the homeowners’ contractor approximated close to $47,000 in damage. State Farm refused to pay more than the $4,000, and the insureds filed suit for statutory violations and bad faith for failing to pay the amount the insureds believed they were entitled to. State Farm moved for summary judgment on the insureds’ suit. Unfortunately, some of the arguments that State Farm’s counsel made were less than accurate about the current state of the law in Louisiana. The court had strong words for counsel:

As defense counsel is no doubt aware, parties have a duty not to misinform the Court. This duty includes the obligation to bring contrary authority to our attention where it exists. We do not know why defense counsel successfully found every case—many of them unpublished—supporting its position, but missed every case to the contrary. This fact is particularly puzzling considering that all of these cases can be found in either Westlaw or Lexis by clicking on the convenient “citing authority” buttons next to the case names, and that Defendant was party to at least one of the suits in which these contrary cases were discussed. See Holmes, v. State Farm Fire & Casualty Co., 2009 WL 413501 (E.D. La. 2009).

It is perhaps understandable, if not appropriate, if a party misses a single lower court case or presents conflicting material in a more ambiguous manner than strictly is warranted. That is not what defense counsel has done here, however. It flatly and repeatedly—in bold text—stated that “bad faith statutes do not apply to actions taken by an insurer once the litigation has commenced.” (Doc. 31, p. 5). This assertion was presented as the current state of the law, without qualification. Moreover, we note that it was made for the first time in Defendant's reply memorandum, rather than in its original summary judgment motion, though that motion otherwise featured seven pages of detailed analysis of cases on this topic, leaving Plaintiffs with no opportunity to correct Defendant's inaccuracies.

We consider this presentation misleading. We do not know if it was deliberate or negligent, though it is difficult for us to imagine that an experienced attorney with such an obviously capable grasp of this area of the law would not be aware of the disagreement at issue here. We are likewise unsure if this behavior is indicative of the conduct engaged in by Defendant in handling Plaintiffs' claim. Regardless, we consider it disreputable and inappropriate, and we advise Defendant in the strongest possible terms not to continue it in the future.

The court did find that some of the arguments that State Farm’s counsel made were not misleading, but once counsel’s credibility was lost with the court on one argument, it was difficult for the court to find in State Farm’s favor on the other arguments. As I discussed in Credibility of Witnesses is Key in Determining the Amount of Loss from Hurricane Damage, credibility can often be the deciding factor in a case. Whether you are a plaintiff, defendant, attorney, public adjuster, independent adjuster, or even an insured, be sure to keep your claims handling clean, because once your credibility is lost, it is almost impossible to get it back.

My client is a Hotel and Hospitality Management Company that had eleven hotels damaged from Hurricane Gustav and Ike. I was retained seven months after Hurricane Ike because my client had received no settlement checks despite promises of undisputed damage payments. Those checks arrived just at the time of my retention for a small fraction of the claimed amounts. Many companies would have been out of business if they had to wait seven months for payment.

The management company executives and I will be conducting a critical re-evaluation of the matter from the beginning of the losses through the end settlement discussions—which are also confidential. While I was able to help get this matter resolved in four months, which is faster than most of my engagements, I feel there are a number of important steps that many commercial owners and managers of significant property interests can take which claims executives of insurance companies will appreciate and help avoid the necessity of hiring somebody like me in the first place. If taken, these actions may stop the insane requests for documentation and second guessing by insurance company claims executives who often have never been to the loss site. Needless claims delays are killing many commercial policyholders who need cash money to run their businesses.

Once we conduct this critical path review of the activities and steps of my client, their public adjuster, and the insurance company, we are determined to make it a case study for the Hospitality and Hotel Management Industry. We already have a title in mind:

"What Hotel Managers and Owners Need to Appreciate and Do to Fully and Quickly Recover From Their Property Insurer Following a Loss"

We hope to have this completed over the next several months and have it ready for others to learn from.

I have to credit the insurer for critically reviewing its positions after my retention. Home office claims adjusters with experience and authority can make a huge difference when significant amounts are in dispute. Sometimes, changes of heart can take place once those individuals see the matter from the perspective of their customer.

For me, I wonder how I can get this matter with significant amounts in dispute resolved in just four months and yet cannot move our firm's other smaller Texas cases with TWIA along much quicker. I even had a client call wondering the same thing. The truth is that I have no answer yet, and most of my legal colleagues don't either, unless you are willing to take a small percentage of what is being claimed.

As I am flying away from Houston over the mouth of Galveston Bay, I can see to my left the Bolivar Peninsula. It is simply wiped out, as if God scraped most of the structures from existence and the coastal communities that made up Bolivar. It is devastation, and I know many of our Bolivar clients are hurting emotionally as well as financially.

On my right is Galveston. It faired much better, but still has significant damage. There are entire business areas still shuttered and plenty of destruction, although not as severe as Bolivar.

Greater Houston is like a checkerboard of damage. Some areas look like nothing happened, and others still have roofs with blue tarps and boarded structures. Hurricane Ike had many severe bands of weather. My impression is that fate played the major role if one of those bands hit a neighborhood or not, although areas on the "right" side of Hurricane Ike had stronger bands and more damage.

The Hurricane Ike and Gustav litigation is in that typical stage where many insurance counsel are trying to "hide" documents and seek protection of internal file materials which reflect what and why certain claims activities occurred. Every imaginable trick and tactic is being used to prevent disclosure. For example, here is a letter Hartford's attorneys are trying to get policyholder attorneys to sign:

Dear Counselors:

This letter will confirm our attorneys' agreement regarding the initial handling of documents produced by Hartford in this case. Under our agreement, Hartford will produce the Policy for the Smiths and the claim file designated "confidential." Plaintiffs and your firm agree to not disclose the documents to anyone outside the above referenced lawsuit or use the documents in any other matters while the parties attempt alternative dispute resoultion. If alternative dispute resolution does not resolve the case, Hartford will then have thirty days to seek a protective order from the Court regarding the produced documents. Plaintiffs and your firm agree to continue to not disclose the documents to anyone outside the above referenced lawsuit or use the documents in any other matters until such time as the Court has ruled on the proposed protective order.

Policyholder attorneys in Texas are a pretty able lot. Maybe the Texas judges will read my blog post from Monday. If they rule on discovery motions in a similar fashion, these cases will move along a lot quicker and without all the problems policyholders have encountered in Mississippi, as Slabbed continues to report.

In the interim, we will keep pushing these cases along as fast and smart as possible. I am certain most policyholders wonder why these insurers are not turning over information and what the companies are afraid it will reveal. The suspicion of most is that their secrets may amount to unfair conduct. I believe insurance company customers are entitled to know the honest reasons why their claim was handled in a certain manner. That honesty does not come without full transparency from the insurer.

Today's discussion has to do with an adjustment myth that seems to be spreading. Since it was raised by Ivy League educated Sleighton Bickford of Adjusters International, I felt that the myth of "adverse proofs of loss" needs to specifically analyzed in the context of federal flood claims. Sleighton is just about one of the smartest people I have yelled at. I kept quiet when he eloquently explained one could wait forever to file a supplemental federal flood proof of loss.

Sleighton may have been extremely effective in the $100m plus claim we successfully litigated together for the Port of New Orleans following Hurricane Katrina, but he is dead wrong about the relatively small flood claims he is cutting his teeth upon in Texas and Louisiana. The proper rule regarding proofs of loss for flood claims is:

File a Documented Proof of Loss for the Full Amount of the Estimated Damage as Soon as Possible and Within the Federal Deadlines.

If anybody says differently, let them comment and tell us who carries their E&O insurance so we can put them on notice. I know this sounds harsh, but I am tired of some wrongly explaining that National Flood will agree to late filed supplements when that is not true. National Flood will only agree to late filed supplements that it agrees are valid. What happens if there is a disagreement and you need a litigator, like me, to prove your case and you have not properly filed a Proof of Loss?

The answer is "game over." This technicality is legally correct and enforceable, even though, in equity, it seems unjust. Under federal law, forms must be filed on time and correctly.

So, why should the filing of a piece of paper determine what is owed on a debt determined by estimates? Why not have Federal Flood pay the correct amount of the loss? I don't know a rational reason. But, this is the federal law judges have made. Form is greater than substance, and how stupid are we to follow this archaic system?

An "adverse proof of loss" is a proof filed knowing that the insurer's adjuster has not approved of the amount claimed in advance. Most of the time, adjusters and policyholders agree on the amount claimed and an "agreed to proof of loss" is filed and the claim ends with payment of that amount. Adverse proofs are becoming more common as policyholders become more disgruntled with the estimated amounts of damage.

For federal flood claims, you have to file whatever you think is the right amount of the claim within the time limits. If you file an amount greater and it is denied, you have one year from the date of denial in the Federal District Court where the loss happened to seek redress. Otherwise, you are in the position of hoping Federal Flood grants a waiver.

To its credit, the current National Flood Management has granted waivers where equity generally allows and they agree with the policyholder's position. They should be applauded for this.

Still, the safer and better practice is to timely file a claim for the full amount owed, even if that means filing an "adverse proof of loss." Better safe than sorry still applies as solid advice in 2009, and even from a Florida Gator to an Ivy League Columbia Lion.

To calculate your proof of loss filing deadline, count 330 days from your date of loss. For example:

• A September 11, 2008, Ike-related loss must have a proof of loss submitted by August 7, 2009.
• An August 28, 2008, Gustav-related loss must have a proof of loss submitted by July 23, 2009.

Policyholders should also keep in mind that:

• Federal flood proofs of loss must be delivered, not mailed (i.e., get it received and in the hands of the company listed on the policy by the deadline. Do not just send it to the adjuster on the deadline day); and
• The proof of loss should be submitted on the standard form utilized by FEMA, and it must be completely filled out.

You can read the June 3, 2009, extension letter here.

Here is the applicable wording from the extension letter:

Due to the recent flooding associated with Hurricanes Gustav and Ike, an extension of the 60-day period within which a proof of loss must be submitted to the Insurer has been granted. Therefore, by means of this memorandum, I am authorizing the extension of this period by 120 days. This extension shall apply to all claims for flood-insured buildings:

• In the States of Alabama, Arkansas, Louisiana, and Mississippi damaged by flood resulting from Hurricane Gustav (dates of loss August 28, 2008, and continuing); and
• In the States of Alabama, Arkansas, Florida, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Ohio, Oklahoma, Tennessee, and Texas damaged by flood resulting from Hurricane Ike (dates of loss September 11, 2008, and continuing).

The extension applies whether the SFIP was issued directly by the NFIP Servicing Agent or through one of the private insurance companies issuing flood insurance coverage under the WYO Program.

An NFIP policyholder who incurred a Gustav-related flood loss on August 28, 2008, would normally have until October 28, 2008, to submit the proof of loss. With the extended deadline, the same policyholder now has until February 25, 2009, to submit the proof of loss. Similarly, an NFIP policyholder who incurred an Ike-related flood loss on September 11, 2008, would normally have until November 10, 2008, to submit the proof of loss. With the extended deadline, the same policyholder now has until March 10, 2009, to submit the proof of loss. In either case, eligible policyholders will be allowed a total of 180 days to submit the proof of loss.

 The following must be followed when completing the proofs for flood claims:

 1. Use the exact Federal Form for the Proof of Loss and not a generic form. Failure to do so may jeopardize payment. It would be similar to filing a Federal Income Tax return with a state form.

2. Figure exact amounts owed. Do not put, "policy limits" or "to be determined."

3. Document the amounts owed and attach the documentation. Do not just "ballpark" or "estimate" an amount. File the proof with actual estimates, proposals, lists, or some type of documentation which "proves" and substantiates the loss amount.

4. Get it received and in the hands of the company listed on the policy by the deadline. Do not just send it to the adjuster on the deadline day.

5. Do not rely upon other oral or written extensions from the field adjuster or his supervisor. Only written extensions coming from the Director or Deputy Director can legally extend the time.

National Flood may, on appeal, rescind these requirements. If you get in this predicament, we strongly suggest you obtain legal counsel. The best course of action is to never place yourself in that position in the first place.

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You can find a complete copy of the extension letter posted on my blog.