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

Adam and Sylvia Spector purchased a home in 2000. The home was built by a company called Bentley Homes. The record lists the Spectors’ home size in excess of 8,000 square feet. Fireman’s Fund Insurance Company provided insurance to the Spectors and to other homeowners in the area who also owned Bentley built homes.

At times, the Spectors noticed water on the inside of their window sills but did not report the water to the insurance company. The Court recognized the Spectors were not experts in moisture intrusion and understood the homeowner had to hire experts to help them determine the problem.

The insureds did not hire the experts at the first sign of water.

The Court’s record reads:

During heavy rain storms, Plaintiffs experienced some minor dripping problems which were limited to isolated areas, usually window sills. However, during dry seasons, there were many consecutive months where Plaintiffs had no water leakage problems.

It was not until 2006 when the window paint started to peel away that the insureds determined they needed help. First, they hired a construction consultant to inspect the home. This expert only did a visual inspection and then explained to the Spectors they should hire a stucco expert. A firm was then hired to evaluate the external stucco of the home. The firm tested the property with a moisture meter and found areas of concern, but, unsure of the problem, the firm recommended destruction of walls.

At this point, the Spectors also learned other Bentley built homes were experiencing serious problems due to water damage. However, after hiring two experts, they were still not sure if there was a problem or what was happening. Finally, the Spectors consulted a plaster expert who tested the property. In November of 2007, the plaster expert was able to provide the Spectors with information about the water damage he discovered.

After sending an adjuster and an engineer to evaluate the property, Fireman’s Fund denied the Spectors’ claim.

This policy, like many other policies for residential insurance, includes exclusion for water damage caused by repeated leakage or seepage. An exception in the policy does provide coverage for hidden or concealed damage reported to the insurance company within 30 days of detection or within 30 days of when the damage could have been detected.

I am sure many public adjusters have reviewed policies with similar language and have claims where the date of discovery or manifestation of the damage is at the heart of the adjustment.

In this case, the record indicates Fireman’s Fund sent an adjuster to the property to investigate the loss, and the Spectors testified the adjuster told them “the claim should be covered.” The record also reflects that during the same meeting the adjuster told the insureds to hire a lawyer for the claim, and even recommended a lawyer! Why would the insurance company’s adjuster encourage the insureds to hire a lawyer?

Perhaps this was because of the three other homes in the neighborhood with water damage claims against Fireman’s Fund. Or, maybe, it was the insurance company’s engineer’s influence -- the same engineer assigned to this claim found similar damage at another property and Fireman’s Fund paid.

The Court wrote a detailed Memorandum of fact findings from the trial. It discussed the other water damage claims against Fireman’s Fund and listed other insureds who were paid by Fireman’s Fund for similar damages. The insurance company expert appears to have determined the damages from the Spectors home were exactly the same as damages to the other Bentley homes. Fireman’s Fund paid more than $120,000.00, on the other claim.

The claim is complicated because Fireman’s also alleged the property damage was excluded because of construction defects. The insureds had replaced the roof of the home and many windows. The insurer stated it would not pay for the damages caused by the faulty or defective roof or windows,

The Court ultimately determined that the insureds were entitled to damages for the water damage which was hidden from view.

The Court wrote:

The exception requires that the insureds report the hidden or concealed damage within thirty (30) days…[t]he Court finds that the Policy provided allows an insured party a ‘rolling” thirty (30) day grace period each time new damage is discovered, or where there is an ongoing discovery of damage. (Emphasis added)

The Spectors had the burden to prove they complied with the 30 day rule and the Court agreed the applicable time period began when the third expert found the damage and ended when the claim was reported. This length of time was only a few weeks and qualified for coverage based on the wording of the policy.

The Court awarded $104,432.50 for water damages at the property.

At the same time the Court decided this breach of contract case, it also considered allegations of bad faith and deceptive business practices. The Court denied these counts because the insureds failed to establish by clear and convincing evidence the bad faith requirements—that the insurer lacked a reasonable basis for the denial and it used deceptive practices.

My sources tell me a public adjuster was not hired by the insureds to help with this claim. So, I am wondering if any public insurance adjusters have comments about how other claims are being handled with similar issues in Pennsylvania and elsewhere. And also, what services could have been provided to the Spectors if they had retained a public adjuster?

Johnson recently wrote a piece in the Florida Underwriter, Public Adjusters, Part 2, which I suggest every public adjuster should contemplate. The part I have considered and disagree, only in part, with is the following:

Your readers need to understand that their homeowners' insurance premium already includes payment for claim service and post-claim consultation and that hiring a public adjuster results in paying "again." After a claim, one of the first things a policyholder should do is call their insurance agent. Many are "independent" and, while appointed by carriers, they hold licenses, which include state-sanctioned authority to adjust claims and assist policyholders in receiving fair payment. Not only are they prohibited from charging additional sums for this service, their locally-owned business and livelihood is based on customer satisfaction.

I am pretty familiar with the adjuster and public adjuster licensing statutes. I have never heard an insurance agent claim he or she can legally do all the activities that constitute being an adjuster. If so, maybe that is an entirely new area of insurance agent errors and omissions I should investigate when things go wrong after a loss. I cannot find where a statute that gives a Florida insurance agent the legal right to act as an adjuster. While they do cover instances where the agent fails to forward notice of the loss to the insurer, I have seen no insurance agent errors and omission policies that would cover negligent adjustment conduct. Perhaps I have been missing the boat.

Indeed, my reading of the Florida licensing statutes seem to indicate otherwise: 

626.112 License and appointment required; agents, customer representatives, adjusters, insurance agencies, service representatives, managing general agents.--
(1)(a) No person may be, act as, or advertise or hold himself or herself out to be an insurance agent, insurance adjuster, or customer representative unless he or she is currently licensed by the department and appointed by an appropriate appointing entity or person.
(b) Except as provided in subsection (6) or in applicable department rules, and in addition to other conduct described in this chapter with respect to particular types of agents, a license as an insurance agent, service representative, customer representative, or limited customer representative is required in order to engage in the solicitation of insurance. For purposes of this requirement, as applicable to any of the license types described in this section, the solicitation of insurance is the attempt to persuade any person to purchase an insurance product by:
1. Describing the benefits or terms of insurance coverage, including premiums or rates of return;
2. Distributing an invitation to contract to prospective purchasers;
3. Making general or specific recommendations as to insurance products;
4. Completing orders or applications for insurance products;
5. Comparing insurance products, advising as to insurance matters, or interpreting policies or coverages; or

6. Offering or attempting to negotiate on behalf of another person a viatical settlement contract as defined in s. 626.9911.
...

(3) No person shall act as an adjuster as to any class of business for which he or she is not then licensed and appointed.

...

(9) Any person who knowingly transacts insurance or otherwise engages in insurance activities in this state without a license in violation of this section commits a felony of the third degree.... (emphasis added)

On the other hand, some public adjusters, even "consultants," have started a new type of business, signing up Florida policyholders to provide advice and compare insurance policies. They provide these additional services if a policyholder signs a public adjusting contract in advance of a loss. This is illegal because those individuals are acting as an insurance agent without a license. Attorneys are exempt from both license requirements, so yours truly has no such problem. Public adjuster errors and omission policies do not cover these agent activities either.

Further, the most important part of Scott Johnson's message might get lost in all this statutory legal discussion. For that, you have to read Johnson's prior article, Public Adjusters and RCV - The Messenger and the Message. I think that Johnson wrongfully takes advantage of a wrongful incident I reported on in Public Adjusters Arrested in Broken Tile Insurance Fraud Scheme. He uses it to buttress an argument that smears all public adjusters and justifies taking away policyholders legal rights:

Facts of his arrest reveal an intimate marriage between PAs and replacement cost coverage — one is the messenger; the other, the message.

The message — the pot of gold that used to be at the end of the rainbow — is now at the beginning. Instead of actually spending new dollars to replace old property, you can get all your money up front, and, even better, you can spend it however you want: on a new big screen TV, on a new car, a vacation, some lingering bad debts, or all of the above. All you have to do is give 20 percent to the messenger.

...

For those who still believe that a purchase of replacement cost coverage warrants replacement cost payments without a hold back, consider this: The price for RCV is roughly 25 percent more than ACV with a hold back provision! Without a hold back provision (ala Espinosa) it's more like 75 percent more and climbing. Florida is the only venue in the entire world that does not have a hold back provision for replacement cost. Replacement cost would not exist if it were not for the hold back provision.

Look at what Espinosa and other bad PAs are doing (though most not as overtly) and ask yourself: Is it any wonder that frequency and severity have skyrocketed? Is it any wonder that losses per policy are up 65 percent? Is it any wonder Florida has 3,200 new PA messengers, almost 90 percent of who are located in Dade and Broward counties?

There's no room for subtlety. Senate Bill 2044 was just a start. For a return to normalcy, we must limit the activities of PAs and completely eliminate the prohibition against a replacement cost hold back provision. (emphasis added)

Scott Johnson is wrong about replacement cost holdbacks not existing absent the provision. A number of insurance carriers sell this product in states without the law and seem to do very well making profits--they keep selling the product. Further, Florida has a longstanding common law allowing for no holdbacks for real property loss. I noted the fallacy of his arguments in An Interesting Day in Tallahassee and Thoughts on the Pending Replacement Cost Coverage Legislation. Scott Johnson is bootstrapping two different issues:

1. Should we reduce policyholder benefits by removing consumer protection statutes?
2. Should there be stronger oversight of public insurance adjusters?

From the policyholder's viewpoint, I think the answers are:

1. No
2. Yes

I will understandably catch grief from insurers and public adjusters for these answers. Yet, when I helped form the Florida Association of Public Insurance Adjusters eighteen years ago, I told those in attendance that they would succeed so long as they always looked at their vocation as first serving policyholders. If so, they would always be "on the side of angels." I suggest that the same should hold true for those managing insurance companies, insurance agencies and those making laws for Florida citizens.

Nobody likes to read bad press. It is worse when some suggest that criminal acts are automatically attributable to the group, as Scott Johnson suggested. Yet, his views are shared by many within the leadership of Florida's insurance industry. While I acknowledge that it is in the insurance industry's interest to have this viewpoint, the same way it was in the interest of Halliburton to support the view that Saddam Hussein had a significant number of weapons of mass destruction, the question posed to public adjusters should be:

Can you better serve policyholders by raising the professional bar of what is expected of you and your peers?

Scott Johnson is an honorable person and his perception that some public adjusters charge too much in return for too little is worthy of reflection. I have talked with Johnson on various insurance matters and have read his book regarding the history of Florida's independent agents, From Cartel's To Competition (2004). He has a deep commitment to Florida's insurance market and to the extent he has expressed a view, I am certain many others share it as well.

I have been very up-front when people ask me what changes I would suggest could be made. Keeping it simple, I suggest a significant raise in the public adjuster licensing fee so that more market conduct studies of public adjusters files would routinely be conducted by the Office of Insurance Regulation. The law is already in place to do so, but it is rarely done regarding public insurance adjuster files. Knowing that regulators will periodically be looking at files and talking with clients is one sure way of raising the professional bar of public insurance adjusters.

Could you imagine how honest all Americans would be regarding income tax if there were no audits? This simple regulatory step would be significant if used with significant penalties for non-compliance. Hardworking, honest and professional public adjusters would support this change as well because it would show either their industry has significant problems, as suggested by the insurers, and help clean it up, or, alternatively, it would help prevent wrongful conduct by adding a significant risk that otherwise honest public adjusters would be caught.

Maybe we can come together and make some win-win laws and regulations. And with that kumbaya thought, how about this appropriate song from one of the best rock and rollers of all time:

In the insurance world, parties often demonize their opposition. I suppose that I am as guilty as anybody--but just because somebody disagrees and advocates a position opposed to yours does not make them unethical or deserving of ridicule.

The Insurance Journal has a Webcast of CPCU President Marvin Kelly regarding the bad rap many well meaning and dedicated professionals get in the insurance industry. The CPCU Society has an exemplary Code of Ethics and stellar educational program. Many CPCU's are in claims management and dedicated to serving their company's policyholders.

Since my legal practice and work for policyholders generally involves claims denials and problems, I am surrounded by situations where the insurance industry is (I argue) wrong. I do not always recognize the things insurance companies do that benefit individual customers and society. There are occasions when we get retained immediately following a loss and the claim runs smoothly from the beginning to end, with the policyholder being fully indemnified, happy, and the relationships between us and the insurer are professional and very cooperative. Those instances do not make the paper, and even I admit we fail to give enough credit to those insurance adjusters and attorneys in the trenches that do their job professionally and ethically day after day.