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

What is a waiver in Texas? It is an intentional relinquishment of a right actually known, or intentional conduct inconsistent with claiming that right; estoppel prevents one party from misleading another to the other’s detriment or to the misleading party’s own benefit.

If the insurance adjuster does not identify the coverage issue when presented with it and leads the insured into believing that he/she is insured for the loss, and in reliance on it, the insured makes business decisions that result in more of a loss from additional damages to the property or additional out of pocket expenses, has the insurance company waived the exclusions or is it estopped from denying coverage?

In Texas, the Supreme Court explained the law on waiver and estoppel:

If an insurance contract covers certain risks but the policy contains exclusions or limitations of coverage, when the insured makes a claim for loss from a covered risk, the insurer must assert any applicable exclusion or limitation to avoid liability. Ulico Casualty Company v. Allied Pilots Association, 262 SW 3d 773, 778(Tex. 2008); citing to Employers Cas. Co. v. Block, 744 SW 2d 940, 943-44 (Tex. 1988).

Earlier decisions in Texas are consistent with the analysis above. Republic Ins. Co. v. Hope, 557 SW2d 603 (Tex. Civ. App. 1977); T.I.M.E., Inc. v. Maryland Casualty Company, 157 Tex. 21, 300 S.W.2d 68, 73 (1957); Camden Fire Ins. Ass'n v. Moore, 206 S.W.2d 104, 107 (Tex.Civ.App. Galveston 1947, writ ref. n. r. e.).

In Hope, the insured was a builder for 20 years and was in the process of building a home when vandals stole thousands of dollars worth of equipment. Republic argued the vacancy provision, stating the property was not occupied for 90 days, so theft and vandalism were excluded causes of loss. The Court reasoned that when several instruments form one overall contract, the court will assume in its construction of the contract that the parties honestly intended the terms of the various instruments should be effective to accomplish their purposes, and will reconcile apparently conflicting provisions to give effect to all of them, if possible. The Court construed the instruments in question to provide plaintiffs Builders' Risk coverage on the structure of the house at an increasing value as construction progressed until thirty days after construction was completed. Having construed the insurance policy as an “all risk” policy, in failing to plead the vacancy exclusion, the court held Republic waived the vacancy exclusion.

The order is necessary to avoid overlapping questions and motions filed by the plaintiff and defense attorneys. If there is no set method of noticing, scheduling, and taking of these depositions, there would be thousands of depositions scheduled and, in almost all of them, the same questions would be asked over and over again. In my opinion, the manner in which these depositions have been organized thus requires the Plaintiff attorneys to cooperate with each other and use each other’s strengths to gather the best testimony from each of the TWIA representatives.

The first set of depositions scheduled deal with the issues of the 11.2% that TWIA originally determined was the damage caused by wind. The individuals involved in the calculation of the 11.2% are Dr. Schroeder and Dr. Spelman. How did TWIA arrive at the 11.2% figure? What factors were used by these “experts?” Who directed this type of analysis? These are just some of the questions that will soon be answered. These depositions will assist each and every one of us in the pursuit of a fair and equitable resolution of each case.

Appraisal is an often debated topic in Texas. The Symposium will host a special class devoted to Certification of Umpires in the Appraisal process. For those actively participating as or wishing to be appointed as Umpires in Texas appraisals, you simply cannot miss the opportunity to enroll in this class.

WIND Umpire Certification®

This workshop will provide the necessary certification to any¬one who wishes to be included in the Windstorm Insurance Network Umpire Directory. The first segment will focus on eth¬ics and professionalism as an umpire in the appraisal process. Case law will be the subject of the second segment. The final segment will address forms and awards.

Faculty: Janet L. Brown, Esquire, Boehm, Brown, Fischer, Harwood, Kelly & Scheihing, P.A.; John Voelpel, Voelpel Claim Service; Jon Doan, Claims Consulting Group; Dick Tutwiler, Charles R. Tutwiler and Associates; Javier Delgado, Esquire, Merlin Law Group.
REQUIREMENTS: Space is limited to the first 100 registrants.

This is a double-session, Part 1 and Part 2 MUST be taken together.

Javier Delgado and Tina Nicholson have been writing on Texas insurance issues every week in this Blog. Tina addressed Texas appraisals in Recent Court Decision in Texas Regarding Appraisal. Javier is on the Umpire panel for this symposium and will certainly address some of the new issues that are being raised since State Farm Lloyds v. Johnson was decided last year by the Texas Supreme Court.

A highlight of the Symposium and session that nobody will want to miss features two stellar panelists. Fortunately, there is no limit to the registrant size of that workshop:

Gulf Coast Insurance Case Law Update: Texas, Mississippi, and Louisiana

This workshop will discuss and review recent property insur¬ance case law from Texas, Mississippi, and Louisiana. It will include interpretations of how courts in the various states are ruling on insurance related issues. Developments in the three states that take up the western part of the Gulf will become more and more important as the impacts of storms such as Ike, Gustav, and even Rita and Katrina become important on the legal landscape. This panel, composed of a policyholder and a carrier’s attorney, will update you on the latest legal develop¬ments in Texas, Mississippi, and Louisiana and also provide a lively debate on whether the trends are pro-insured or pro-carrier.

Faculty: William “Chip” Merlin, Jr., Esquire, Merlin Law Group; Stephen Pate, Esquire, Fulbright & Jaworski LLP

Dr. Robert Hartwig of the Insurance Information Institute, recently provided a presentation to the National Association of Mutual Insurance Companies. He indicated that Hurricane Ike was the fourth most costly insured catastrophe in the United States and the third most costly hurricane. Hartwig’s statistics indicate that Hurricane Ike resulted in approximately 1,350,000 insurance claims. As this symposium is taking place in Texas, I am sure the material will be especially relevant to adjusters and attorneys dealing with current windstorm claims issues. Don't miss it.

The agenda is listed here.

The inspection and re-inspection process by the insurance carrier serves many purposes. The initial inspection serves to provide the carrier with information about the damage immediately after the loss, and the re-inspection serves to educate the carrier about what repairs if any have been done, what materials were used, how much money was spent in the repairs, as a means for the carrier to bolster their case for an upcoming negotiation, and finally, it serves as a means to wear down and further frustrate the insured. Sometimes, cases can be settled shortly after a re-inspection, many times this is not the case.

It is imperative that the public adjuster control the inspections/re-inspections at all times, particularly when it involves a multi-family condominium or apartment complex. A great deal of preparation is involved in controlling the inspection process and it all begins with a written understanding between the public adjuster and the carrier’s adjuster as to what exactly will take place during the inspection process, when the inspection process will begin, who will be present, and how long the process is expected to take. Answering the question of how long it will take is sometimes impossible, but there should be a minimum timeline. Answering some of the questions:

• What - We have agreed to inspect the interior and exterior of buildings A and B, each building has approximately 55 condominium units each. The inspections will consist of only visual observation and photographs of each unit. There will not be interviews or questions of unit owners or insured’s employees, all questions will be answered by me during the inspection or after the inspection.
• When- The inspections will begin at 9:00 AM on Tuesday February 16, 2010, we will meet in the parking lot in front of the club house located at 1 Clear Pool Lane, Miami, FL.
• Who - You have agreed to provide me the names and title of all individuals who will be attending the inspections with you including the name of the company that employs each individual no later than 3 days prior to February 16, 2010.
• How long - We expect the inspections will take 3 days, but will re-evaluate whether this process can be accomplished sooner after the first day of inspections.

Before the meeting takes place, the property manager or other representative at the property must give notice to the unit owners, in many cases, the notice must be provided at least ten days in advance. The maintenance person should be easily accessible during the inspections to ensure that there is access to the roofs and other portions of the buildings usually locked to avoid accidents or vandalism. The maintenance person should not have direct contact with the carrier’s adjusters if the insured is being represented by a public adjuster or attorney, many times there is a lack of communication between the maintenance person and the carrier’s adjuster and all of sudden the insurance carrier begins to analyze the damages relying on the misinformation provided.

The public adjuster should have plenty of people present to ensure that if the carrier’s adjuster wants to divide the group into two or three separate groups, this can be accomplished while still having the ability to control the inspection process. When you first meet with the carrier’s adjuster and his group of people, make sure that you get business cards from everyone. If the individual does not have a business card, ask that person the same information that you would expect would be on his business card.

You must set the ground rules, one team or two teams, who is in charge on their side for each team, no one goes inside the unit until you have had an opportunity to go inside first and speak with unit owner confirming they can come in, re-affirm no questions or comments to the unit owners, it is expected that all involved will be polite and respectful of unit owners and their property. There have been too many times when ego’s clash during inspections and the process fails, this should be avoided at all costs, the carrier has a right to the inspections, and you do not always have to agree to scope or pricing. If the case is one that should not be resolved in appraisal, then there should not be any attempt to agree on the scope during the inspections. An agreement on scope during inspections will allow the carrier to argue the case belongs in appraisal because the scope was agreed to during the inspections and the only thing left to argue about is value. If the case is one that should be resolved in appraisal then getting an agreement on scope works in your favor.

If the carrier’s adjuster seems to be conducting an inspection that exceeds the agreement in writing, then a judgment call must be made on whether to allow for such inspection or testing because the carrier may claim lack of cooperation. However, because you have documented ahead of time exactly what the carrier will do and not do during the inspection process, you will have the documentation to avoid this problem and refute their defense.

The job of a public insurance adjuster requires a great deal of knowledge of the law, but an adjuster must be careful not to practice law; a great deal of knowledge about insurance policies and principles; a thorough understanding of negotiation principles; the skill of insurance estimating; perfection in his/her analysis of damages; satisfying the needs of the property owner during one of the most difficult times that property owner will ever face. An adjuster is often required to negotiate against some of the most powerful companies in the world. This will be the first of several blogs that I will have the privilege of writing with respect to this topic, in hopes of assisting public insurance adjusters in their difficult and complex profession.

Insurance provides a great benefit to society, and in this day and age, it is extremely difficult to think about any profession or type of business that is not insured. However, if an insurance company is to remain in existence, it must make a profit. In making profits, insurance companies are insuring businesses and properties with the hopes of earning an underwriting profit. The property insured is referred to as a risk, and if the expenses and claim payments do not exceed one-hundred percent of the insurance premium, then the insurance carrier has earned an underwriting profit. In fact, many underwriters earn large bonuses at the end of the year after the insurance company has determined that the policies they underwrote have earned an underwriting profit. Insureds and public adjusters face a very difficult task, sometimes monumental, when filing an insurance claim in light of the insurance companies business motives and need for survival/profits.

The first step in preparing a claim for a property owner is to carefully interview the property owner about the ownership, maintenance, damage, and yes, even the cause of the damage. In today’s market, real estate ventures, investment properties, and even the homes of many families have gone into foreclosure, or are only a few months away from being served with foreclosure papers. Sometimes, resolution of the insurance claim is what’s needed to keep some of these properties from going into foreclosure, and time is of the essence. Other times, the public adjuster enters into a contract with a property owner that is too far into the foreclosure process and the property is lost before the claim can be resolved. In that instance, the only winner is the insurance company and the underwriter, because it may never have to pay claim--keeping the expenses below the underwriting premium and earning a profit.

In every property insurance policy, lack of maintenance is an exclusion to insurance coverage. Every insurance company adjuster is trained to look and identify potential maintenance problems. If the field adjuster does not identify this condition, his supervisor will question his ability to properly scope a loss. If the issue of maintenance is addressed up front during the public adjuster’s meeting with the insured and inspection of the property, then the issues of maintenance can quickly and easily be addressed during the first meeting with the field adjuster. Telling the adjuster that your interview with the property owner revealed that there was regular maintenance of the roof with documentation or names of service providers, for example, could dramatically shorten the time it might otherwise take to get a claim paid. If the issue of maintenance can be addressed during the first inspection, the filed adjuster will be satisfied that he has met his duty to address the issues of maintenance and will no longer be concerned about his/her ability to do their job.

A public adjuster should NEVER write their estimate in a way that the total damages do not result from damage caused by a covered peril. We cannot look back in time, but the property owner is one very important source when walking the property and preparing your scope of damage. Many times I hear, “I gotta write it as I see it”; I submit to you that this approach is taking a big risk and the bigger the property, the bigger the risk of having your own estimate used against you by the field adjuster, the claims supervisor, and the defense attorney in an EUO, deposition or trial. The credibility of a public insurance adjuster in the eyes of a jury, and even the field adjuster, is only as good as the accuracy of the estimate and detailed notes kept by that public adjuster. When it comes to negotiating with an insurance adjuster, you have the power of knowledge because you have total access to the owner and the property. The more accurate you are in providing the correct information to the field adjuster, the more powerful you become to that field adjuster. The easier it is for the field adjuster to make his/her recommendations for payment, the faster the claim should be resolved.

Yesterday, the Court in Galveston County entered an order directing the parties as to who, where, and how the depositions would take place. The depositions of Jim Oliver, Bill Knarr, and Reggie Warren, along with a host of other TWIA claims supervisors whose names are also listed on the order, will be governed by the Court's order.

Although TWIA argued to have these depositions take place in another County, Judge Susan Criss quickly denied their request and ordered the depositions take place in Galveston County.

The depositions will be taken by members of the plaintiff's Ike Steering Committee. The depositions of Jim Oliver, Bill Knarr, and Reggie Warren will each take place over five days, and all others listed in the order will each take place over three days. The number of days allowed for these depositions can change by agreement of the parties or the Court's order.

How does this order affect cases pending in other counties? The order does not at all affect cases pending in other counties.

How does this order affect my individual case? The purpose of the depositions is to learn all of the information necessary to prosecute each client's case with respect to the issues of the institution (TWIA) and TWIA's pattern and practice of handling claims. This means that the topics covered with respect to the institution and institutional practices cannot be discussed again in subsequent depositions. The plaintiff can, however, ask questions specific to each individual case. This process blurs the line of what can and cannot be asked in depositions because a lot of what is asked in a deposition is dependent upon how it is asked. I expect there will be a number of hearings in the near future with respect to what can and cannot be covered in individual depositions.

When are these depositions scheduled to take place? The depositions of the top three (Jim Oliver, Bill Knarr, and Reggie Warren) are scheduled to begin in the middle of February. A February date is necessary because there are more documents due to come in that TWIA has not yet produced.

In any regular first party insurance contract case whether the damages are $1,000 or $10 million dollars, the discovery process is generally the same. In discovery, interrogatories (written questions), Requests for Production (written request for copies of documents or production of evidence), and Requests for Admissions (written assertions asking opponent to admit or deny) are all sent to the opposing side. We determine the witnesses that are necessary to prove our case for breach of contract, fraud, unfair claims handling, etc., and schedule those depositions in a certain fashion to best suit our case.

This sounds easy but it is actually very complicated even in a singular case. Now, how much more complicated does it become when there are approximately ten thousand cases or more against the same insurance company, namely TWIA? In order to keep the judicial process from coming to a halt and to more efficiently litigate all of these cases, it was necessary for both the Plaintiffs Bar and TWIA to make some concessions. These concessions with regard to discovery are in the form of an agreed protective order for the exchange of documents between the Plaintiff’s Bar and TWIA.

The following is a general explanation of the discovery being conducted at the present time between the Plaintiff’s Bar and TWIA. In addition, I will briefly explain some of the limitations imposed during the discovery process.

Our law firm has received over twenty thousand (20,000) pages of documents from TWIA and will continue to receive documents on a regular basis. We anticipate receiving another twenty thousand plus more documents. As a result, we have dedicated attorneys, and numerous full time staff to do nothing other than read through the documents, sorting, indexing, and identifying key information contained within them. Having this information so early in the litigation process is an excellent way to begin the evaluation of each case individually and will allow both the Plaintiffs and TWIA to consider the early settlement value more accurately, especially in regards to the issue of unfair claims handling. This information however, is not obtained without some concessions to the party producing the documents.

In accordance with an agreed Protective Order between the Plaintiff’s Bar and TWIA, documents marked by TWIA attorneys as confidential shall be deemed confidential and shall not be disclosed to any person except in accordance with the terms of the protective order. The information is to be used solely for the purpose of the preparation and trial of Ike cases and other related litigation against TWIA, TWIA employees, third party adjusting firms and their employees. The only persons entitled to learn of the confidential information are the named parties, their counsel, and any experts hired in the case.

Even if you are entitled to learn of this information, you cannot share it with others and must first sign a written acknowledgement to be bound by the protective order. Any violation of the protective order and the violator will be subject to contempt of court. The order requires that the party producing the documents (TWIA for example) be notified of any inadvertent disclosure of documents and provide the name and address of such persons that inadvertently received the confidential information. The protective order also addresses depositions and, as one might expect, deposition testimony is considered to be confidential information protected by the order. Like everything else in our legal system, there is almost always a legal loophole, and here is the loophole for this set of cases: at any time after the delivery of confidential documents, and after making a good-faith effort to resolve any disputes regarding whether the information should be confidential, counsel can send a written challenge to the party producing the information, and eventually a hearing before the court will determine the outcome.

So we can’t gossip about the information, we can’t share it with family and friends, we cant blog about it, and we can’t even consider it a source of information if planning to write a book about this tragic event. Are these concessions necessary? Absolutely; sometimes it can take two months to get a hearing before a court to determine whether or not the insurance company must turn over emails about just one topic, or even just one document. There is a two year statute of limitations in Texas on Ike claims and time is of the essence. The key here is to keep one’s eye on the ball and achieve the goal. The goal as policyholder attorneys is to gather as much information as possible regarding the adversary and use that information to prove each element of the case and ensure that each one of our clients receives the maximum amount of recovery allowed under the law.

"Javier Delgado, the attorney spearheading the lawsuits, said many homeowners who don't hire general contractors for their repair jobs don't realize they may be entitled to overhead and profit payments.

“Oftentimes the insurer is leaving it off the estimates completely,” he said, adding that for some homeowners the money can make the difference between making repairs or letting damage deteriorate.

Manuel Quezada, lead plaintiff in the lawsuit against Farmers, said an independent adjuster estimated Ike caused $12,500 in damage to his Sharpstown home.

Farmers made three estimates and, after accounting for a $5,800 deductible, sent Quezada $915 in advance with $3,000 due after repairs were completed.

The advance check wasn't enough to buy the materials, Quezada said, let alone pay for the skilled roofer, fencing contractor and drywall installer needed to make the repairs.

“I had to fix it myself,” said Quezada, who patched up what he could.

But because he couldn't make full repairs, he said, he couldn't recover the additional $3,000.

And because he couldn't prove he made adequate repairs, Farmers dropped its coverage of the house.

“It becomes a self-fulfilling prophecy,” said Delgado, who is representing Quezada in the lawsuit against Farmers. “They don't give him enough to make the repairs, and then they stop insuring him for not making repairs.”

Quezada has since had his roof repaired by a contractor that agreed to await payment from potential proceeds from the lawsuit.

Because Quezada needed to hire three specialists, he was entitled to at least $1,600 in overhead and profits if he acted as his own general contractor, Delgado said, based even on conservative repair estimates."

For those interested in this coverage topic, I have presented seminars and written a paper, "Withholding Overhead and Profit is Wrong if Insurance Companies are Trying to Act Right," for your study.

I noted this in my 2002 paper:

On June 12, 1998, the Texas Department of Insurance issued Bulletin #B-004598, indicating that the deduction of a prospective contractor’s overhead and profit and sales tax, in determining the actual cash value under a replacement cost policy, is improper. The Department noted that the wrongful interpretation of language in the Texas Standard Homeowner’s Policy generated two class action lawsuits and various inquiries to the Department’s position on the matter.

In explaining its reasoning, the Department noted that “there is no situation in which the deduction from replacement cost of depreciation and contractor’s overhead and profit and/or sales tax on materials will be the correct measure of the insured’s loss.”

Further, the Department noted that insurance companies are not allowed to charge premiums in excess of the risk to which they apply. Thus, under a replacement cost policy, the value of the contractor’s overhead and profit, as well as sales tax on building materials, are included in the premium, and if the insurer receives a premium on insurable values which loss may never be paid, “the insurer reaps an illegal windfall.”

Finally, the Department dispensed with the common argument that contractor’s overhead and profit, as well as sales tax on building materials, should be excluded from Actual Cash Value settlements because the insured has not incurred these expenses as illogical:

"Using this logic, an insured who opts not to repair or replace damaged property would not incur any of the expenses necessary to repair or replace the damaged property, including the costs of building materials, and would collect nothing under an actual cash value loss settlement. This result would be contrary to the purposes of the subject insurance policy."

In 2009, this rule still applies, and insurers that violate it can expect to be sued.

Javier pointed out that although the TWIA letter implies a policyholder can administratively appeal and file suit, this is not the case. If a policyholder chooses the administrative appeal, the policyholder cannot later file suit against TWIA when the administrative judge rules against them:

Texas Windstorm Insurance Association says you only have 30 days to appeal its determination of damage to your property! DO NOT RUSH TO APPEAL before you learn what TWIA is not telling you; you will give up valuable legal rights and remedies.

Many people received a letter from Texas Windstorm Insurance Association explaining how TWIA determined the value of damages to their property. The TWIA letter states:

“You are hereby notified that an appeal of the Texas Windstorm Insurance Association’s decision must be filed with the Commissioner of Insurance at the Texas Department of Insurance … no later than the 30th day after receipt of this letter.” [emphasis added]

The letter further states that a policyholder can appeal or file suit.

TWIA’s letter implies that a policyholder can appeal and file a lawsuit for violation of unfair settlement practices under Section 541.060 of the Texas Insurance Code. THIS IS NOT TRUE. Texas Statutes Section 2210.552, of the Insurance Code states that a person may appeal the decision with the Texas Department of Insurance OR file a lawsuit under Chapter 541. A policyholder cannot do both.

A person who appeals gives up his or her right to file a lawsuit against the insurance company….

An example of why a policyholder should think twice before giving up the right to file suit against TWIA can be seen in the letter below that was forwarded to me. The homeowner had suffered roof damage from Hurricane Ike and chose an administrative hearing to contest TWIA’s determination of damage. My guess is he now regrets having made that choice.

The great teacher John Wooden said, "It's the little details that are vital. Little things make big things happen." So, let's start this discussion of Texas insurance claims practices law at the beginning, with some fundamental insurance concepts.

The special nature of insurance and the role it has played in society has been recognized by courts and legislatures for many years. An insurance policy is not obtained for commercial advantage. It is obtained by people and entities to protect against unknown calamities which may, or may not, ever occur. Often, the policyholder, after paying the premium and expecting protection against calamity, is in an especially vulnerable economic and personal position when a calamity loss occurs. The entire purpose of insurance is defeated if insurance companies and adjusters can refuse or delay the prompt and full payment of monies contractually due.

Hurricane, tornado, and other windstorm losses often involve widespread catastrophic damage. Management of insurance companies anticipate these catastrophes and are often prepared to send armies of adjusters referred to as “CAT” teams to areas devastated by these widespread loss occurrences. Without proper training, incentives, attitude, authority, and support of adjusters in the field, proper adjustments will not occur.

Modern insurance companies are in a much more favorable legal and financial position than the purchasers of their products. An insurance policy contains mutual obligations. Unlike other general commercial contracts, the insurance company promises that it will provide financial security in the event of a catastrophe. It further promises that the policyholder has “peace of mind,” that in the event of a catastrophe, such as a Hurricane Ike, the policyholder will be fully and promptly indemnified. Unlike a typical commercial contract, a non-breaching party (the policyholder) cannot replace the performance of the breaching party (the insurance company) by paying the then prevailing market price for counter-performance. Instead, the policyholder is completely dependent on performance by the insurance company when he or she is most vulnerable. If the insurance company fails to fulfill its obligations completely, the policyholder will likely suffer contractual and extra-contractual damages. Unfortunately, many insurance companies and adjusters delay, refuse, or fail to uphold their part of the bargain.

Newspapers, television and individuals on the internet have picked up this bad faith conduct during the claims handling process following the 2008 Texas hurricanes. These reports indicate that insurance companies are refusing to provide insurance coverage or engaging in sloppy, slow, or deliberate bad claims handling. It does not take a financial genius to figure out than an insurance company can make more money by collecting premiums and not paying claims, than it can make by collecting premiums and paying claims. I recently noted this inherent incentive in Playing the Float and the Wisdom of Warren Buffett. 

“[T]he bargaining power of an insurance carrier vis-à-vis the bargaining power of the policyholder is disparate in the extreme. Unless an insurance company is confronted with the prospect of paying all damages caused by its wrongful conduct, it will have no economic incentive to honor its obligations under its existing insurance policies:

Unlike most other commercial actors fighting for supremacy in a world where possession is nine-tenths of the law, insurers always have the nine-tenths advantage: They hold the money. Consequently, insurers always get to play “play the float” in any dispute. Even where the judicial system acts rapidly and efficiently to provide compensation to wronged policyholders, the carrier may find that it made money by delaying payment of the claim. If its investments have been good, it may even have made money to cover any prejudgment interest, costs, or consequential damages award, or counsel fees collected by the policyholder."

 Jeffrey W. Stempel, Interpretation of Insurance Contracts: Law and Strategy For Insurers and Policyholders § 19.3, at 466-67 (1994).

The insurance industry recognizes its duty of good faith and the scope of the remedies available for breach of that duty. For example, a mandatory text studied by prospective Chartered Property and Casualty Underwriters (CPCUs) discusses the current state of the law of wrongful insurance company conduct: 

1.All insurance contracts contain a covenant of good faith and fair dealing.

 2. If bad faith is a tort in a third-party claim, it should be a tort in a first-party claim as well.

 3. Insurance is a matter of public interest and deserves special consideration by the courts to protect the public.

 4. Insurance contracts are not like other contracts because insurers have an advantage in bargaining power. Insurers should therefore be held to a higher standard of care.

 5. Recovery for breach of an insurance contract should not be limited to payment of the original claim.

 6. The public’s expectations are elevated by the insurer’s advertising, slogans, and promises, which give policyholders the impression that they will be taken care of no matter what happens.

 7. Policyholders buy peace of mind and are not seeking commercial advantage when they buy a policy. In addition, they are vulnerable at the time of the loss.

 8. Policy language is sometimes difficult to understand. The benefit of the interpretation should be given to the policyholder.

 A.E. Anderson, et al., Insurance Coverage Litigation, 11-7 (2nd ed. 1999), citing James J. Markham, et al., The Claims Environment 277-78 (1st ed.1993).

By passing laws which penalize insurers for delay and shoddy claims practices, the Texas Legislature has attempted to level the playing field by making it less profitable and far riskier for insurance companies to breach their insurance policies. These laws make an insurer financially responsible for breach of duty to a customer. Businesses and people that break rules should be held accountable. Accordingly, insurance claims management must emphasize fair, prompt and honest conduct, or pay the price for not doing so.

Policyholders should take action and exercise their valuable legal rights. Insurance companies that act wrongfully should be held accountable for breaking their contractual obligations and the law. Anything else would unfair to insurance customers and the many honest adjusters and insurers that play by the rules.