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

The significant facts in Luse are as follows:

This case arises out of a fire that occurred in Plaintiffs Robert and Kay Luses' (the “Luses”) home on August 4, 2007, in York County, Pennsylvania...At the time of the fire, the Luses were insured under a LibertyGuard Condominium Policy which had been issued by Liberty... The Luses promptly reported the fire to Liberty, and on August 6, 2007, a home inspection was scheduled...On August 7, 2007, an inspection was done by William Kishbaugh, an employee of Liberty...During this visit, only Mrs. Luse was present. Mr. Kishbaugh observed fire and smoke damage in the kitchen, and significant sooting in the kitchen, as well as into the living room/dining room area...Despite the damage, Mr. Kishbaugh determined that the house was nonetheless liveable, and no request was made by Mrs. Luse to have the family moved out of the condominium...During this visit, Mr. Kishbaugh informed Mrs. Luse that Liberty would only provide secondary coverage for the damage because the Luses had a condominium policy, in addition to the Liberty policy, which provided primary coverage...Mr. Kishbaugh also requested a copy of the master condominium insurance policy, which Mrs. Luse indicated she did not have at that time...At the time of the inspection, Mr. Kishbaugh had not seen a copy of the Luses' separate condominium policy, and had only briefly reviewed the Liberty policy with regard to its scope of coverage, the effective date, and any limits or special endorsements...Thus, Mr. Kishbaugh's determination that the Liberty policy would nonetheless be secondary to the condominium policy was made based on his previous experience because “[t]hey always are.”... Later, Mr. Kishbaugh confirmed that the master condominium policy was in fact the primary policy with regard to building and structure coverage, but that it had policy limits when it came to additional living expenses, such as relocation coverage, and that any additional living expenses were to be covered under the Liberty policy...This was not explained to Mrs. Luse at the time of the inspection. In any event, Mr. Kishbaugh did not believe it was necessary to explain relocation costs for “such a small incident” and because the house did not seem to him to be unliveable....

On August 10, 2007, Mrs. Luse called Anthony Waslesyn, Mr. Kishbaugh's supervisor, to discuss the case...Mr. Waslesyn made a note of this phone call, which indicated that Mrs. Luse asked for authorization to have the house cleaned because there were two people living there with respiratory issues-Mr. Luse and the couple's grandson....Authorization was given to have the house cleaned. Nothing in Mr. Waslesyn's notes indicated that Mrs. Luse asked to have the family relocated....Four days later, Mr. Waslesyn received a call from Mr. Luse...Mr. Waslesyn's deposition indicates that Mr. Luse again requested authorization to have the house cleaned, and that Mr. Waslesyn informed Mr. Luse that he had already authorized cleaning during his conversation with Mrs. Luse on August 10, 2007....Plaintiffs contest this fact to the extent that they claim it does not fully reflect the conversation. Plaintiffs state that Mr. Luse called to express his frustration over the information that the master condominium policy would be the primary provider of insurance coverage, and his confusion over what coverage Liberty was willing to provide....

On August 24, 2007, Paul Schrembeck, Mr. Waslesyn's supervisor, received a call from Barbara Shultz, Mr. Luse's respiratory therapist...Mr. Schrembeck was told by Ms. Shultz that the conditions in the home might be adversely affecting Mr. Luse's respiratory issues...Mr. Schrembeck then took immediate action to have the family relocated...

Prior to this phone call, but over two weeks after the fire had occurred, on August 21, 2007, Ms. Shultz tested Mr. Luse and found that there had been a drop in his oxygen saturation levels...Ms. Shultz indicated in her report that the fire could “perhaps” have been a cause of the decreased oxygen levels...Ms. Shultz also testified that, if someone from Liberty had contacted her right after the fire she would have informed them that the conditions were inadequate for Mr. Luse's respiratory condition...There is no indication in the record that anyone from Liberty knew that Mr. Luse was seeing a respiratory therapist. (emphasis added)

The pleadings indicated that the Luces retained a claims practice expert. The expert filed an affidavit indicating, in part, the following:

To comply with good faith claims-handling standards, an insurer must thoroughly and proactively investigate and evaluate each claim. Such duties must also be undertaken with open-mindedness by the insurer as well as a willingness to give the insured's best interest at least the same weight as the insurer's self interest. This consideration would certainly include the insurer's careful attention to any potential health hazards faced by an insured as a result of a covered loss during the course of claims-handling.

In the case of the Luse's claim, it is undisputed from Liberty Mutual Insurance Company's (hereinafter LMIC) own claims log notes that Liberty was aware within days of the fire that two people in the Luse's household (Mr. Luse and his grandson) both had respiratory issues. While an insurer generally has a good faith duty to proactively investigate each claim timely and act upon facts discovered thereby, good faith practices compel the insurer to act swiftly and affirmatively when facts suggests potential health risks to the insured as they relate to the covered loss. In this case, LMIC failed to conduct any investigation into the severity of their insured's medical condition or the health risks posed thereby from the insured continuing to remain in the smoked-damaged, soot-filled home. It was not until Mr. Luse's respiratory therapist made multiple calls to multiple LMIC claims personnel that it finally approved payment of insurance benefits needed for the Luse's to move into a hotel. Such approval took place approximately two weeks after LMIC was placed on notice of the Luse's respiratory issues. This claims-handling conduct/failure to investigate and respond accordingly was without any reasonable basis...The fact remains that the Luse's paid for coverage that would allow them to reside elsewhere and be removed from the hazardous conditions, yet LMIC failed to reasonably investigate this issue and afford benefits in a timely and reasonable manner.

Regarding Mr. Kishbaugh's sworn testimony at the magistrate's hearing regarding his alleged lack of knowledge of the insured's respiratory issues, such testimony is contrary to the claim's log confirmation that Liberty had such information within days of the fire. The author notes that good faith practices (as well as the Unfair Insurance Practices Act/Unfair Claims Settlement Practices regulations) specifically prohibit an insurer from misrepresenting facts pertinent to an insurance claim. The claim was still pending at the time of such hearing; this misrepresentation made to a court of law would certainly breach the good faith standard and be done with direct knowledge that there is no reasonable basis for such misrepresentation.

Finally, this author notes that Mr. Kishbaugh testified in his deposition that in the time-frame leading up to the Luse's claim, Mr. Kishbaugh and several other LMIC adjusters had repeatedly complained to LMIC claims management that the adjusters were overworked and unable to keep up with their claims handling due to the volume of cases assigned to them. This testimony certainly raises the specter of systemic bad faith. However, this author must stress that I reserve any opinions on this issue at this time and can comment further only after review of complete discovery, including the upcoming depositions of LMIC's supervising claims personnel. (emphasis added)

All adjusters have access to their own insurance company's policies. All adjusters know that to determine whether one policy is primary or not, they have to read both policies. All adjusters know that fires contain smoke and particulates that are extremely toxic. Indeed, even the cleaning process and deodorizing can be toxic. People should be removed from the vast majority of all fire scenes unless an expert can show it is safe. All adjusters know that they should ask if anybody may have allergies or other physical concerns that might be exacerbated by smoke or noxious particulates. This is fairly standard training for most fire insurance companies---like Liberty Mutual Fire Insurance Company, whose adjusters are in the business of adjusting fire scenes.

Nevertheless, the Court ruled in favor of the insurance company. It first noted the Pennsylvania standard for bad faith:

To establish a claim, a plaintiff must show: “(1) that the insurer did not have a reasonable basis for denying benefits under the policy, and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim.”...While the cases usually speak in terms of the denial of benefits, “[f]ailure to conduct a reasonable investigation based on available information may” also support a claim of bad faith on the part of an insurance company...

...Furthermore,...

[t]o defeat a bad faith claim, the insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusions. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.

...

In addition, there is a heightened burden of proof in bad faith claims, and a plaintiff must demonstrate by clear and convincing evidence that an insurer acted in bad fath. “The clear and convincing standard requires evidence of bad faith so clear, direct, weighty and convincing so as to enable the factfinder to make its decision with clear conviction.” ...Thus, a plaintiff's burden is quite high when opposing summary judgment... (emphasis added)

The Court seemed to indicate that an unreasonable adjustment is nearly impossible to prove. And with the following legally flawed logic placing the blame on the policyholder and overlooking the wrong coverage determination, maybe it is impossible to prove in Pennsylvania:

While there, the representative noticed some soot and smoke damage, but determined that the house was liveable. Only Mrs. Luse was present, and she did not mention that anyone had respiratory problems and did not ask that the family be relocated.

Three days later, on August 10, 2007, Mrs. Luse placed a call to Liberty and spoke with Mr. Waslesyn, the supervisor of the individual who conducted the initial evaluation of the home. During this call Mrs. Luse asked for permission to have the house cleaned, and at this time informed Liberty that there were two individuals living in the home with respiratory problems. Mr. Waslesyn authorized the cleaning of the home. Nothing in the record indicates that Mrs. Luse asked that the family be relocated.

On August 14, 2007, Mr. Waslesyn received a call from Mr. Luse. Mr. Luse again requested authorization to have the house cleaned. Mr. Waslesyn informed him that such authorization had already been provided. There is some dispute about whether this conversation also involved discussion of the extent of Liberty's policy coverage. However, there is nothing in the record to suggest that Mr. Luse told Liberty about his respiratory problems or he asked to be relocated.

On August 24, 2007, Liberty first learned of the extent of the respiratory problems suffered by Mr. Luse. This information was received through a phone call from Mr. Luse's respiratory therapist, Barbara Shultz, to Mr. Shrembeck, Mr. Weslesyn's supervisor. Ms. Shultz informed Mr. Shrembeck that the conditions in the house might be affecting Mr. Luse's respiratory issues. After this phone call, Mr. Shrembeck took action to have the family relocated from the residence.

Plaintiffs argue that the investigation was unreasonable because Liberty did not do enough to ascertain the extent of the respiratory issues in the household and immediately have the family relocated, and that they acted in bad faith when they informed the Luses that they would be the secondary provider to the Luses condominium policy. Given the facts before the court, these allegations do not constitute bad faith.

As soon as Liberty learned of the extent of Mr. Luse's respiratory problems they took action to relocate the family. Before this they had received one comment regarding the health of the individuals living in the house, and this was a comment by Mrs. Luse mentioning the health problems and requesting permission to have the residence cleaned. The cleaning was immediately authorized. It is well understood that insurance companies must conduct a reasonable investigation; however, Plaintiffs cite to no case law suggesting they must conduct some heightened investigation. This is particularly true in light of the fact that Plaintiffs did not initially apprise Liberty of the extent of Mr. Luse and his grandson's respiratory complications. Plaintiffs never requested to be moved before August 24, 2007, when Mr. Luse's respiratory therapist called to make this request. As soon as Liberty learned of this, it authorized the Luses to relocate from the residence. Given these facts, Liberty's conduct was arguably negligent, and “mere negligence or bad judgment is not bad faith.”...

Plaintiffs' second allegation of bad faith is equally as flawed. Liberty's failure to apprise the Luses on the first inspection of the home that any additional living expenses would be covered by Liberty does not establish bad faith. Mr. Kishbaugh informed Mrs. Luse that Liberty's coverage was secondary to that of the condominium association, a representation which was true, except for the fact that the Luses had additional living expense coverage through Liberty. At the intitial inspection, Mr. Kishbaugh did not believe additional living expense coverage would be necessary because in his judgment it was a small incident, he was not aware of any health concerns, and no one requested that the family be relocated. Thus, the fact that Mr. Kishbaugh did not know that Liberty provided this coverage at the time of the inspection cannot be said to be bad faith. This is particularly true given that Liberty never denied Plaintiffs the right to relocate, and paid all of Plaintiffs' relocation expenses once relocation was requested. As such, Plaintiffs have failed to show bad faith on the part of Liberty.

Since the adjuster wrongly told the policyholders that the Liberty Mutual policy would not cover the relocation expenses, why would the policyholder ask for Liberty Mutual to pay? For an adjuster, not reading the other policy and not knowing the policy he or she is adjusting before making a coverage determination is bad faith because it is based on an unreasonable investigation of coverage. All coverage investigations mandate that the adjuster first read the policies at issue, investigate and ask questions for facts. Everybody in the adjustment business would know this.

The point is that policyholders and their advocates cannot assume judges will understand an insurance adjuster’s duties, even if an expert explains them. Most judges have no clue what training goes into being an adjuster. Many judges rely on case law or gut instinct in deciding these issues, without appreciating the professional training, ethical duties and oversight that adjusters are put through before insurers allow them to go into the field. Adjusting is a profession that is learned with books, classes and experience, and it is an honorable profession when it is done "reasonably."

Since this case involved "fire," and I am hoping my Friday night is going to as hot as this Florida afternoon, how about starting off the weekend with a song from the Boss:

Here is the Motion to Dismiss Standard noted in Johnson:

In addressing a motion to dismiss a complaint under Rule 12(b) (6), the Court must “accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine, whether under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir.2008). At this stage, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal...129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 554, 556 (2007)). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-that the ‘pleader is entitled to relief.’ ” Iqbal, 129 S.Ct. at 1950....

This how the Johnson court analyzed the plaintiff's pleadings:

The plaintiff asserts that the defendant “negligently failed to act in good faith and otherwise failed to exercise reasonable care in investigating and adjusting” her underinsured motorist claim...She fails, however, to provide sufficient factual support to accompany this assertion. (Id.) The Complaint does not indicate that the defendant has either denied payment without a fairly debatable reason for doing so or unreasonably delayed the processing of a valid claim. Rather, the plaintiff states that her underinsured motorist claim proceeded to arbitration, and acknowledges that it was her choice not to accept the arbitrator's award. (Id.) Although she contends that there are “facts that would lead to the conclusion that defendants [sic] acted in bad faith,” she fails to set forth those facts in the Complaint, and instead states they must be “gleaned through continuing discovery. (emphasis added)

Given what I have written so far, I bet you can guess what is coming next in the opinion:

Lacking any factual support, the plaintiff's claim of bad faith stands alone as a “bare averment” that she “wants relief and is entitled to it.”...Such conclusory statements are not entitled to be accepted as true and are not enough to survive a motion to dismiss. See Iqbal, 129 S.Ct. at 1950 (explaining that the “doors of discovery” are not unlocked for a plaintiff “armed with nothing more than conclusions”). Thus, even when viewed in the light most favorable to the plaintiff, the Complaint has “failed to raise a right to relief above the speculative level” as is necessary to survive a motion to dismiss...Accordingly, the plaintiff's bad faith claim will be dismissed.

Policyholders are usually not given the true details of the bad faith conduct that give rise to a valid bad faith claim. Can you imagine an insurance company that uses an outcome oriented expert to provide a false or unreasonable basis for denying or delaying a claim explaining to the policyholder that such conduct is what caused the claim outcome? Even the most jaded insurance adjusters know when real bad faith conduct occurs, everybody is trying to hide it. So, since the policyholder merely knows that the claim was not paid fully or promptly, how is the exact factual pleading supposed to be made to meet the standard?

Federal court judges will certainly be getting more insurance controversy removals from state to federal court. Motions to dismiss were usually not filed in federal court because they rarely prevailed. I predict they will be commonplace with insurance controversies involving claims practice violations.

A typical policy defines the duty to mitigate as follows:

The Insured has an obligation to incur any expense with the object of minimizing a loss hereunder, such expenses subject to prior agreement of Insurers being for Insurers account, provided that the loss is reduced as a result of such expenditure, and provided such expenditure is not recoverable from other policies taken out by the Insured. Insurers have the right to require the Insured to incur any expense which would reduce Insurers liability under this policy provided such expense is for Insurers account.

Metalmasters of Minneapolis v. Liberty Mutual, 461 N.W. 2d 496 (Minn. App. 1990) is an example of what can happen if the insured and insurer are not the same page with respect to mitigation costs.

Metalmasters manufactured precision computer disk drives and other small machine parts. A two-inch overhead pipe carrying water for cooling and air conditioning ruptured during the night and flooded Metalmasters' shop. Metalmasters was shut for nine weeks, with partial production resuming after three weeks.

Metalmasters began using its clean rooms within four months after the water damage, but in order to produce a rust-free product (and protect its product from the water intrusion due to the pipe loss), Metalmasters incurred an additional expense of $4.90 for each of 15,500 spindle assemblies, totaling $75,590.

Unfortunately, Metalmasters was not able to recover $193,500 of loss of net sales during the nine week interruption period because Metalmasters was not able to show a loss in gross earnings since it had a buyer purchase all of its non-damaged goods. However, Metalmasters was able to recover the $75,590 as a mitigation cost under the Extra Expense provision of the policy, despite Liberty Mutual’s hard fight.

I am always tickled by case law that restates obvious principles and where the court’s frustration with one of the parties is apparent.

These additional production expenses were expenses of mitigation. Liberty cannot have it both ways. If, as they strenuously urge, the insured has a contractual as well as a common law duty to mitigate damages, then the expenses of that mitigation must be covered. If the mitigation efforts take longer than the interruption period, then the business interruption clause cannot limit coverage to that period, since the activity is in the interest of the insurer. In this case the expense continued beyond the four weeks during which the clean rooms were inoperable.

Mitigation is a duty the insured performs for the insurer's benefit. Mitigation cost is recoverable so long as it is reasonable and less than the damages would have been without it. In this case the cost of mitigation is unquestionably less than damages would have been without the additional production expense.

Mitigation costs are generally recoverable under a range of coverages, but to avoid a Catch-22 situation where the insurer denies payment for mitigation efforts taken because they do not meet a certain definition under the policy, I suggest that after a business loss, the inusured or its representative openly discuss the insurer’s expectations with respect to mitigation efforts and how these costs should be presented for recovery.

A Product Line Manager for Safeco explained that there is more than one type of severity:

I have three severity goals, an APD which was property damage on auto for third parties; an ABI {Auto Bodily Injury} goal that’s capped for Colorado; and an ABI goal that is uncapped for Colorado.

(Deposition of Sean Vizyak, a Product Line Manager for the Personal Lines Liability Department for Safeco in 2005; in the matter of Brown v. American States Preferred Insurance Company).

He went on to explain that “capped” severity is where the insurer takes all the ABI payments and then ascertains whether any particular individual accounted for more than a certain dollar amount in an effort to get a more consistent look at how the payments are being made. “Uncapped severity” is looking at pure dollars paid, divided by the number of claims settled, over a certain period. Typically, these figures are monitored on a monthly basis and on a 12-month rolling basis. As mentioned last week, the lower the severity for an adjuster, the better the adjuster’s performance is deemed to be.

Liberty Mutual has implemented a program that works very much like Safeco’s severity. A claims Manager for Liberty Mutual defined severity as a “median of all claims” and went on to explain how it morks. (Deposition of Jay Anderson, at one time a Liberty Mutual Claims Manager for Property Claims, in the matter of O’Toole v. Liberty Mutual Insurance Company). Annually, Liberty Mutual makes sure that the property loss payments are within the goals or established limits. When evaluating the performance of a claims employee, one of the business objectives was to control property loss payments. The objective criteria used to evaluate how the claims operation was controlling property loss payments was called “pure premium.” “Pure premium” is the total amount paid on claims, exclusive of claims expenses, divided by the number of homes insured by Liberty Mutual. A reduction in pure premium is favorable to Liberty Mutual. As such, claims adjusters were evaluated upon how much they were able to reduce their pure premium payments within a particular time period.

Claims handling experts will tell you that programs like Safeco’s severity goals and Liberty Mutual’s pure premium criteria have both been used to measure company profitability and to evaluate employee performance. They are both well thought out processes that involve a very detailed analysis of claims handling. They may vary in terms of how the calculations and formulas are set up, but the end result is virtually the same.

The problem arises when those well thought out processes are aimed at increasing company profits at the expense of policyholders who paid a pretty premium for coverage. You can see the conflict: claims adjusters receive bonuses and job security by paying less on claims, while policyholders need prompt payment of the insurance they purchased so that they can put their home or business back together. It is this conflict that many find offensive and it is the reason claims handling experts opine that severity should not be used to evaluate the performance of claims personnel or as a basis for bonuses.

I have never met the attorney that brought the lawsuit, to the best of my memory, but he is not a member of the American Association for Justice's Bad Faith Litigation Group. Had he been a member, he could have requested information about other instances and procedures Liberty Mutual has regarding its claims handling. Members of this group help their clients by sharing such information with one another so that claims practices of insurance companies are made transparent. Kelly Kubiak of our firm is the current Co-Chair of that organization.

The lawsuit involved an insurance claim for a leaky roof which started from the Hurricanes in 2004. Liberty Mutual was an insurer. The leak was apparently never fixed and the policyholder suffered from living in a mold infested structure. The judge noted these facts and the complaint as follows:

The insured obtained a homeowner's policy from the insurer, which policy provided coverage from 2004 to 2007. In August and September, 2004, hurricanes Charlie and Francis damaged the roof on the insured's home. In order to stop “minor leaking,” the insured employed a repairman to patch the roof. In 2005, under pressure from the homeowner's association, the insured hired someone to pressure clean the roof. However, the cleaner refused to wash the roof after discovering several loose tiles. The plaintiff submitted a claim to the insurer. Because of the insured's inability to locate a roofing contractor, the insured “hired people to remove the old roof and [ ]place [thirty] [pounds] [of] felt and tarp[ ]” on the roof. Excessive rain and wind blew the felt and tarp off of the roof and caused “extensive leaking.” The insured again called the insurer and requested benefits under the policy.

The leak in the roof resulted in “extensive damage” inside the house consisting of black mold in the attic and on the walls. The insurer refused to pay (1) for a repair of the roof because the roof “was not built to code” or (2) for mold remediation because the roof continued to leak. In 2005, the insured located a roofing contractor and agreed to pay $32,500 for a new roof. After the contractor replaced the roof, the insured sued and refused to pay the contractor because “the contractor had not fully replaced damaged wood [ ]or repaired fascia appropriately.” In due course, the insured settled the lawsuit and paid the contractor, because the insured wished to sell his home.

During this time, the insurer on four occasions offered “to settle the claims” of the insured. The insured refused each offer as inadequate. The insured alleges (1) that the insurer “with full[ ] knowledge” of the insured's “infirmities” and disabilities “engaged in a willful and outrageous pattern of delay and withholding of benefits ....;” (2) that, [n]otwithstanding the immediate danger presented by the increasing mold infestation, the [insurer] withheld payments and living expenses which forced [the insured] to live longer in the mold infested house and aggravated mold condition;” and (3) that the insurer's conduct “was outrageous and deliberate and, knowing [of] [the insured's] infirmities, designed to force [the insured] to discount the full value of his claim.” In 2007, due to the mold's effect on the insured's health, the insured vacated the house.

I wonder if the attorney would have changed the complaint if he knew of Liberty Mutual's claims practices as we noted in Liberty Mutual Claims Documents Ordered Produced. Many other attorneys, knowing of these practices, have sued Liberty Mutual with facts of those claims practices which some would suggest would give rise to "outrageous motives" to reduce the amounts paid on claims. Whether those facts would have been enough to convince a judge to let the matter proceed is not known because they were never plead. Instead, the Court ruled the following:

In order to state a claim for intentional infliction of emotional distress, a plaintiff must allege facts showing outrageous conduct by the defendant. See Dependable Life Ins. Co. v. Harris, 510 So. 2d 985, 986 (Fla. 5th DCA 1987). “Whether alleged conduct is outrageous enough to support a claim of intentional infliction of emotional distress is a matter of law, not a question of fact.” Gandy v. Trans World Computer Tech. Grp., 787 So. 2d 116, 119 (Fla. 2nd DCA 2001). A plaintiff fails to show outrageous conduct even if the plaintiff alleges that the defendant's conduct was (1) intentionally tortious or criminal, (2) intended to inflict emotional distress, (3) malicious, or (4) aggravated enough to warrant punitive damages. The defendant's conduct must qualify as “‘so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.’“ Metro. Life Ins. Co. v. McCarson, 467 So. 2d 277, 278-79 (Fla.1985) (quoting RESTATEMENT (SECOND) OF TORTS § 46 (1965)).

In this action, accepting the insured's factual allegations as true, the insurer's conduct fails to rise to the level of outrageous conduct. The insurer offered four times in three years to settle the insured's claim. Even if the insurer's offers were either inadequate or “designed to force [the insured] to discount the full value of his claim,” the insurer's conduct fails qualify as “outrageous” for the purpose of stating a claim for intentional infliction of emotional distress.

I know that Vivian Persand will follow up with the attorney to provide him the information we have regarding Liberty Mutual. I hope he uses that information and joins the Bad Faith Litigation Group so the policyholder comes out better in the future.

More and more courts are realizing that insurers have gone too far for too long. Those same courts are applying laws that hold insurance companies responsible for their improper claims handling procedures. How? Courts are granting plaintiffs’ motions to compel and ordering insurers to turn over their top secret “attorney-client” “work product” “confidential” and, sometimes, “trade secret” materials. So how do you get your hands on the goods? Remember the “time, extra effort and investment” from last week’s blog? Well, we here are a few more examples of how that works.

Our first insightful plaintiff’s attorney started planning his Motion to Compel against Safeco before he even drafted his discovery requests. This attorney researched extensively until he found a case compelling an insurer to produce the kind of materials he needed in his case. The opinion he found included details of the specific discovery requests at issue, and he modeled his own discovery requests after those in the opinion. After serving his discovery requests, he got the usual “work product” and “attorney client” objections, along with a few others that you can expect to see when insurers respond to discovery. Our colleague then filed his Motion to Compel citing, as persuasive authority (and among other things), the case upon which he had modeled his discovery requests. His “merely persuasive” authority consisted of facts and issues so similar to those in his case and presented an analysis so precise that the Judge ordered Safeco to produce a complete and unredacted portion of its claims file. 

The Court’s Order compelling production from Safeco explained that in a bad faith case, an insured is entitled to the insurer’s work product and attorney-client material containing information relevant to how the insured’s claim was handled. This information that is discoverable includes the insurer’s internal determination to deny benefits, its evaluation as to how a jury may value the insured’s claim and the insurer’s approach to settlement. The Order also ruled that the materials within the claims file that were generated before the date of Safeco’s denial letter are not protected by either the attorney-client or work product privileges because those materials bear directly on how and why Safeco handled the insured’s claim the way that it did. As such, the Court ordered Safeco to produce, in their entirety, any and all materials from the claims file that are dated up to and including the date of Safeco’s denial letter.

The Judge in our colleague’s case also ordered the production of certain materials after the date of Safeco’s denial letter because they were relevant to the plaintiff's bad faith claim and were not protected by the attorney-client and work product privileges. This ruling, however, is not one of a kind.

A few weeks ago, Chip mentioned in his blog post, Liberty Mutual Claims Documents Ordered Produced, the similar success of a second plaintiff’s attorney in West Virginia who has a case against Liberty Mutual. The Court Order in that case compelled Liberty Mutual to produce the following: the insurer’s employees’ performance evaluations; the manuals containing explanations and abbreviations and other claims handling procedures; the personnel files of employees who worked on the case, no matter how small their role, including, bonuses, job descriptions, work responsibilities, training, experience on the job, work qualifications/history and any discipline relating to work. Great progress, right?

It gets better.

The Court also ordered Liberty Mutual to:

…disclose the McKenzie [sic] documents, upon which defendant bases its claims handling procedures…and other documents relevant to defendant’s business model of claims handling…

Courts are now forcing insurers to divulge documents and information regarding consulting services that they received for their claims handling practices. Remember, in a bad faith case, how the insurer handled the claim is at the heart of the lawsuit. It only makes sense for the plaintiff to obtain any and all materials regarding the manner in which the adjuster(s) handled the claim. It makes even more sense to obtain information regarding how the company, as a whole, evaluates, implements and provides training for claims handling practices and what consulting services, if any, were used in doing so. If a plaintiff’s attorney is not entitled to such critical discovery, then what’s the point of allowing a plaintiff to file a lawsuit for bad faith? It’s like putting a chef in a kitchen with a stove that doesn’t boil water and an oven with a maximum temperature of 200 degrees.

These attorneys are only two examples of colleagues across the country who are putting their nose to the grindstone and making discovery work in their cases. Keep in mind, though, that these motions are not your “form” motions. Remember that our first plaintiff’s attorney started strategizing and preparing his case to win on a motion to compel discovery from day one. For our colleague in West Virginia, it took five (5) motions to compel to get the order compelling the production of discovery that he was entitled to.

Strategic planning and perseverance were the secret to these attorneys’ success and there is no reason why you can’t succeed in a similar situation. (By the way, wouldn’t you like to know which one of these brilliant attorneys also worked closely with one of the experts we talked about in last week’s blog?)

Bottom line folks: it works, and it can work really well for you too.

Tune in next week for a continued discussion of rulings across the country regarding information that is discoverable in a bad faith lawsuit.

Happy Friday!

So how do you battle devious discovery tactics? First, do you have an expert? Let me guess - you’re thinking “sure, I have a great roof engineer who put together a detailed report with pictures and a thorough calculation of damage to the property….” Well, that’s not the kind of expert I’m thinking about. Get yourself someone who knows the insurance business – someone who knows the tricks of the trade - someone that is going to stump those smart and cunning defense attorneys. Find an expert who has some particular knowledge about the insurer you are up against. If it’s State Farm, you might want to give Steve Strzelec a call. If it’s Safeco or Liberty Mutual, consider Charles Miller.

Now, what can folks like the masterful Mr. Strzelec and the very capable Mr. Miller do for you? First, they can educate you on what you can and should be looking for and why it is critical to your case. You must first become educated about your client’s insurer and its internal policies that affect the way your insured’s claim was handled. Let your expert teach you about the types of policies and procedures that the insurer implemented to decrease payments on claims in general and to provide incentives to employees for paying less. Is each adjuster required to turn over a certain percentage of his/her claims to SIU? Is each adjuster required to turn over a certain percentage of his/her claims to the subrogation department? What type of monetary bonus does an adjuster get for meeting the SIU referral goals? How much does an adjuster get for each claim referred to subrogation? These types of internal policies will almost certainly reflect the menial amount paid on your insured’s claim, and whether your insured’s claim was turned over to SIU or subrogation merely for the purpose of meeting the adjuster’s quota. Once you learn about the specific procedures for the insurance adjuster or claims handler, work with your expert to draft specific discovery requests which target the policies and programs (by name, no less) that will help you demonstrate to the judge and jury how your insured’s claim was improperly and unfairly handled by the insurer.

Once you have served your carefully tailored discovery requests, get ready for the “overbroad, unduly burdensome and not likely to lead to the discovery of admissible evidence” objections. And prepare yourself for the production of a plethora of useless documents, as discussed in last week’s blog. But never fear - this is where your expert comes to the rescue, again.

In a number of cases across the country, expert affidavits have been instrumental in the discovery battle against insurers, including Safeco and Liberty Mutual. Charles Miller, for example, has provided both deposition and affidavit testimony regarding claims practices for insurers, including but not limited to, Safeco and Liberty Mutual. The overriding theme in his affidavits is how the insurer intentionally and brazenly implemented practices and policies to cheat insureds.

In one of his affidavits in a case against Safeco, Mr. Miller’s affidavit reflects, in part, as follows:

Based on my thirty plus years of knowledge and experience regarding insurance company claims handling it is my opinion that the documents and information requested…are highly relevant to the operations of a claims department including the handling of individual claims such as this one…The documents and information that I reviewed with regard to several other insurers describe their respective programs to reduce claim payments in order [to] improve corporate profitability. Such programs are improper when it comes to the handling of insurance claims [footnote omitted]. Programs which emphasize profit in the handling of claims put the claims handler in a conflict of interest, wherein the claims handler can either fulfill the insurer’s full obligation to its insured or act in the insurance company’s interest because the claims handler will be financially or otherwise rewarded if he/she does so. In my opinion, and based on my experience in reviewing handling thousands of claims files, when placed in such a conflict claims handlers will handle a claim in a manner that benefits the insurance company to the detriment of the policyholder.

In a case against Liberty Mutual, Mr. Miller’s affidavit reflected, in part, the following:

Through consultation with consultants like McKinsey and Accenture, insurers have sought to turn their claims operation into profit centers by seeking to reduce claims payment through artificial measurements such as leakage coupled with goals to reduce average paid claims and/or the combined ratio.

Mr. Miller artfully creates a very real and accurate picture for the judge and jury. What picture is that? The reality of the situation – the insurer will stop at nothing, will spend as much as it takes and will consider any opportunity to devise unprincipled, cost-cutting methods aimed at giving its insureds the shaft. So once your expert has taught you the particulars of the insurer’s internal procedures, and once you’ve applied what you learned to drafting carefully constructed discovery, don’t stop there. Take it to the next level. Work with your expert to prepare an expert affidavit that will provide the court with a thorough, precise and undeniable explanation for why the internal documents you seek are directly relevant to the claim(s) at issue.

So, what’s your “take away” from today’s blog? Your expert is your friend. Allow your expert to enlighten you and maximize the skills he has to offer. Be like the insurer – be creative and stop at nothing to get your hands on the discovery to which you are entitled and that may very well prove your case.

Your expert is one of many effective and powerful weapons at your disposal. Next week, I will write about how discovery motions and perseverance can win the case.

Happy Friday!

For example, have you ever seen a Safeco "Round Table," where your insured’s claim was discussed or evaluated? What about internal training materials suggestive of steering insureds away from retaining counsel? Have you ever seen documents regarding compensation programs that are set up to reward claims management who, on average, have their departments pay less on their claims? Have you ever seen the Safeco Accenture Consulting documents that changed the profitability of Safeco? Has any discovery made you aware of Safeco's PDRF or Lost Economic Opportunity claims management programs? No, you probably haven’t.

What you can expect NOT to see are the insurer’s internal claims handling procedures, internal claims department goals, discussions on how the claims department is performing, and items specifically explaining how an insured’s claim was handled. Many policyholders, policyholder counsel, and judges are not even aware that insurance companies have internal documents that reveal how claims decisions and actions impact the insurer's management goals.

What most policyholders and their counsel probably have seen in response to discovery requests are wordy, lengthy and completely useless privilege logs reflecting vague descriptions of otherwise relevant documents. Is the document about the amount of loss? Does it discuss an independent estimate/report such as an engineering report on a roof? Does the document contemplate the need for an expert? Is the document related to compliance with post-loss obligations? Does it address the expected outcome of a potential claims decision or action?

If you find yourself nodding your head thinking – “gosh, I know exactly what you’re talking about” – then it’s time to exchange some ideas and techniques to change this litigation gamesmanship. Tune in for weekly fun Fridays, when I will share about what I have learned from others on these matters. My weekly discussion will be about combating evasive discovery tactics, explaining what is found in these internal documents and how they impact good faith obligations and duties of insurers.

My job is to network around the country with other attorneys involved with Safeco and Liberty Mutual claims practice cases. In doing this, I have learned there are legions of practical examples of how others have successfully obtained important discovery which proves that claims actions and decisions were not done in good faith attempts to fully and promptly pay a claim. Also, internal insurance company documents reflect that insurers acknowledge broad duties of good faith conduct. Obtaining this information and evidence is crucial if policyholders are to be protected from wrongful claims handling.

In this battle against very bright insurance attorneys who are doing their best to protect their clients, it is important to remember that you are never going to get every piece of evidence which will prove your case. However, the wisdom of the Rolling Stones gives some optimism:

"You can't always get what you want,
You can't always get what you want,
You can't always get what you want,
But if you try sometimes, you might find,
You get what you need."

Have a great weekend.

Vivian Persand has been busy in our efforts to obtain information about how Safeco and Liberty Mutual operate their claims departments and make decisions on claims. I recently noted and published some of her efforts in Liberty Mutual Claims Documents Ordered Produced. As soon as we learned of the last minute deposition cancellations, we flew her from our Coral Gables office to review the discovery and documents produced by Safeco in Houston.

While not counsel to Safeco or Liberty Mutual, Vivian represented other insurance companies before coming to work with us. She is familiar with the practice of many insurance counsel to object to, rather than turn over, discovery that could otherwise help prove the policyholder's case. This discovery abuse is a significant problem in civil insurance coverage litigation, and there is usually no consequence. Despite the obviousness of the potentially important evidence, many insurance company coverage and claims counsel base objections on  trade secret or work product privileges.

After spending a day with Vivian and coming across three other cases where attorneys obtained affidavits from a claims expert supporting motions to compel the production of evidence against Safeco or Liberty Mutual, we decided that Vivian will post every Friday on the Property Insurance Coverage Law Blog regarding lessons and experiences gleaned from Safeco and Liberty Mutual claims practice cases.

Many of the insurance coverage litigation techniques and practices in these cases are just as applicable to other insurance carriers and insurance coverage cases. Vivian's weekly posts will also provide some recognition to the efforts and creativity of other insurance coverage and claims practice attorneys with whom we have the privilege of collegial discussion and learning.

An example of an insurance discovery technique which leads to evidence is a discovery declaration by insurance claims practice analyst Charles M. Miller of California. Policyholder attorneys should obtain these affidavits as a normal part of their insurance discovery practice. This type of affidavit can help courts understand why requested discovery is relevant and important in insurance coverage litigation. Regarding Safeco, Miller noted the following:

...the documents sought in Plaintiff’s First Request encompass documents which describe Safeco’s programs and policies, such as Quantum Leap, which are directed at reducing Safeco’s claims payments in order to improve Safeco’s profits. Programs which emphasize profit in the handling of claims put the claims handler in a conflict of interest, wherein the claims handler can either fulfill the insurer’s full obligation to its insured or act in the insurance company’s interest because the claims handler will be financially or other wise rewarded if he/she does so. In my opinion, and based on my experience in reviewing handling thousands of claims files, when placed in such a conflict claims handlers will handle a claim in a manner that benefits the insurance company to the detriment of the policyholder. Such conduct is directly contrary to any claims handling standard and practice that I am aware of, and would be, in my opinion, bad faith. This information would be relevant to evaluating Safeco’s claims handling in this case.
...

Plaintiffs also seek information concerning Safeco’s bonus and compensation programs...Bonuses are available to Safeco claims department employees depending on how the company as a whole does in reaching its corporate goals...Bonuses play an important role at Safeco in providing motivation to claims department employees to improve Safeco’s profits. As pointed out in Respondent’s and Cross-Appellant’s Brief in the matter of Parks v. Safeco, “[Safeco] claim representatives were instructed that they could increase profitability as well as increase their retirement benefits and personal bonuses by reducing claims payments.

The financial incentives and motivations of insurance claims managers and employees can be extremely important when explaining claims behavior. This discovery tool teaches what to look for and why the evidence impacts good faith claims conduct. Sharing these lessons, helping colleagues, and promoting justice, is why Vivian Persand's posts will be important to read every week.

An example of how networking and sharing of information helps policyholder litigants is found in a West Virginia discovery Order in Ebbert v. Liberty Mutual Insurance. There, the Court appointed a special Master to aid in the discovery and specifically noted:

The Court is quite concerned about Liberty Mutual's answers and responses to Plaintiff's discovery requests.

...

The Court is not precluding the possibility of fines.

Some insurance defense counsel and insurers provide little or no useful information in response to discovery requests. They hope that the policyholder's counsel will be lazy and not compel the production of good faith answers or that overworked Courts will not get around to ordering responses. A book I noted in The Value of Networking and Sharing Insurance Claims Information Between Policyholders, "Full Disclosure," explains these tactics and what to do about those insurance defense attorneys and insurers that operate in less than good faith during the discovery process.

The Order in Ebbert v. Liberty Mutual also required the production of specifically named internal claims management documents which alert the rest of the policyholder's bar to what they should specifically demand from Liberty Mutual. This includes:

documents regarding the CFR program, Claims Outcome Advisor ("COA"), as well as documents that deal with bonuses, incentives and the processes for claims settlements.

Vivian Persand will be following up with West Virginia attorney David Jividen, who obtained this order. I strongly encourage any policyholder attorney with litigation involving Safeco or Liberty Mutual to contact Vivian Persand at 305-448-4800. I also encourage policyholder counsel to join the American Association for Justice Bad Faith Litigation Group, which David Pettinato, of our firm, chairs. The Bad Faith Litigation Group will meet at the AAJ's Annual Convention July 10-14 in Vancouver. We plan to hold a networking meeting among the attorneys with Safeco and Liberty Mutual claims practice cases.

The important aspect of these internal documents is how close State Farm comes to complete agreement with me regarding the obligations of good faith claims conduct. Susan Hood, the top claims official for State Farm indicated in part:

• Explaining coverages. It's such an important part of our job in Claims to explain to our policyholders all coverages available to them. This can be complex sometimes, but we must take time to thoroughly review the policy and circumstances of the loss in order to ensure our policyholders receive the full benefits of their coverages according to the terms of their policy. This is just the right thing to do. When a claim is not covered, we must promptly and courteously explain why.

• Investigation and evaluation. Thorough investigation, evaluation, and timely resolution of a claim also are critical parts of what we do. By knowing the facts of the loss and understanding the terms of the policy, we are able to make sure our customers receive the benefits available to them. Our evaluations must be objective, and each claim must be evaluated on its own merits.

State Farm should be congratulated for teaching its adjusters these ethical practices. It is important for attorneys, judges and the public to appreciate that insurers recognize they owe these good faith obligations to their customers.

We are proud to announce the retention of attorney Vivian Persand, who will coordinate the networking and collection of information regarding Safeco and Liberty Mutual Insurance Company on a full time basis. I strongly encourage anybody with information about the claims practices of Safeco or Liberty Mutual, who may have a claim, former employees, vendors with problems, and those attorneys trying to help customers of Safeco or Liberty Mutual to contact Vivian at:

As previously indicated in Should Liberty Mutual and Safeco Insurance Company Customers Expect Great Rates for Poor and Wrongful Claims Performance:

"As a result of Safeco and Liberty Mutual delaying turning over information about reports and estimates...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."

We think this information can be very important to explaining Safeco’s claims practices of Safeco and strongly encourage others to contact Vivian for them. There is no reason to reinvent the wheel and go through costly litigation when others have already blazed the trail. In addition, we have other evidence collected such as Charles Miller's affidavit, which explains some of Liberty Mutual's claims programs. We had an investigator obtain this from an Arizona Court.

Information is power. Transparency demonstrates whether insurers walk the walk, or simply talk the "good faith" talk, while routinely delaying or underpaying claims.

Nationwide's "Life Comes at You Fast" campaign had a number of hilarious ads. We use one of my favorites to show that insurers expect many losses to be caused by unique and multiple chains of events which should not give rise to an excluded occurrence:
 

I bet Allstate would think twice about using the "neglect" exclusions in its policies if it was reminded of this very funny commercial:
 

But these commercials were not always so entertaining, as this older Allstate commercial demonstrates:
 

I intend to use the words and message of this ad when Liberty Mutual and Safeco claims adjusters fail to act in the manner they advertise:
 

And the message by Liberty Mutual is not just "puffing," as the following video demonstrates:



 

Finally, there is a very funny video with a great point about not judging too quickly--a great thought to remember as we start out this fantastic year.
 

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?

So, I found it quite fascinating to notice the Antitrust Statement issued by the Property Loss Research Bureau (PLRB)  and the Liability Insurance Research Bureau (LIRB) at their Large Loss Conference this week. The statement provided in part:

Presenters and attendees at the LARGE LOSS CONFERENCE must remember that their respective firms are competitors in the marketplace and the McCarran-Ferguson Act and the laws of some states provide the insurance industry with only a very limited immunity from federal and state antitrust scrutiny. Therefore, the presenters and attendees must exercise care during all presentations and discussions, since even the most innocuous discussions of certain topics might later be misinterpreted as evidence of collusion.

There are a number of important aspects to this statement. First, adjusters at conferences must appreciate that their colleagues from other businesses are competitors in the marketplace. Second, since they are competitors, antitrust laws apply to them. Third, the antitrust exemptions and immunities granted to insurance companies are very limited.

One impression I have of the public policy to allow antitrust exemptions is to provide for sharing of loss history and common form coverages to help regulators make certain that insurance companies would not charge too little and risk financial ruin in an attempt to gain market share. Insurance companies going broke and not paying claims after widespread disaster is never good for the public.

Nevertheless, the Antitrust Statement issued by these entities to the claims executives and adjusters attending this conference correctly warned that collusion can (and normally does) take place and of the specific subjects of discussion which should be avoided between adjusters working for different companies:

At the LARGE LOSS CONFERENCENCE, and all educational, social, and business development events connected with this meeting, there should be no discussion or agreement, formal or informal, express or implied, as to any matters which might give rise to an allegation of antitrust laws. Subjects to avoid include:

*rates;

*underwriting practices;

*marketing strategies;marketing responses to legislative, regulatory, or other developments;

*prices or costs of any products or services offered for sale by insurers or purchased by insurers;

*individual insurance company positions on coverage issues and other matters of insurance policy interpretation; agreements or understandings relating to claim practices, policies, or positions;

*standards by which the performance of any insurer could or should be judged; codes of ethics;

*advantages or disadvantages of doing business in particular states;

*refusal to deal with, or boycott of, potential insureds or suppliers of products or services; use of particular suppliers of products or services; and

*costs or profits of any aspect of any of the above.

I am no expert on antitrust laws. When I first read this, I thought, "what the heck can we talk and learn about from our peers and colleagues if we cannot talk about any of this?" Given this extensive list, I suppose you could talk with your colleagues only about the weather or the Yankees winning the World Series at the networking functions.

The PLRB in particular has excellent materials and information regarding coverage and adjusting issues. I encourage my colleagues in the insurance industry to attend so they can do a better job learning the policy coverages and how to adjust and apply the insurance product. While the PLRB presents one-sided views because it prevents policyholder representatives from attending PLRB conferences, it still has very valuable educational information for claims managers and adjusters.

For example, some of the educational sessions involved Chinese Drywall, Complexities in Adjusting and Measuring Builders Risk Losses with Delay, and First-Party Cyber Losses. These are all very important adjusting topics that adjusters need to learn how to approach and then get monies to their customers suffering from these calamities.

Yet, if the purpose of the PLRB is to educate adjusters to do a better job, and if the adjusters are supposed to be concerned with promptly paying the full amount of benefits to policyholders, why are the PLRB proceedings and educational topics a secret only for the insurance industry? The PLRB claims that antitrust laws are supposed to be obeyed, but the educational information concerning how the products of the insurance industry work is withheld from the customers of these PLRB insurers.

Why would the insurance industry want to keep secrets from its customers about how the customers can expect to be treated if they have a claim? From the consumer's skeptical viewpoint, some may question if the motive is to prevent the insurance product form paying as much as it should. The PLRB and all exclusive insurance industry organizations discussing how their products perform should have their leaders and legal counsel determine whether the secrecy is in violation of law and is to help promote a collusive impact to pay consumers less than what is owed. Otherwise, why have the secrecy? Are insurance claims executives afraid that their customers may learn they are not paying all that is owed? In a scenario where the competitors meet together and can learn from each other, but exclude the parties to the other side of the deal, many should question what is really going on and the reason for the policy of exclusion.

As readers noted in my recent post, Safeco and Liberty Mutual Claims Practices Questioned on a National Basis: Policyholders Organize Against Wrongful Claims Practices, where I informed others of our consumer networking activities regarding Safeco’s and Liberty Mutual's claims handling processes and cases, the customers of Safeco and Liberty Mutual would want to know how certain aspects of their property insurance claims may be handled. The PLRB had a seminar, "Ordinance or Law: A Review of the Additional Coverage" that was taught in part by Fritz Lander and Jamie Minich---large loss quality assurance specialists from Liberty Mutual. Many Safeco and Liberty Mutual policyholders with disputes on these issues may wonder what its claims quality assurance specialists say behind closed doors to insurance insiders versus what their hired attorneys argue in open court.

Is the PLRB just paying lip service to the antitrust laws of this country? Remember a topic to be avoided--"advantages or disadvantages of doing business in particular states?" I wonder if the keynote speaker to this conference, lobbyist and insurance industry legislative strategist, Sam Miller of the Florida Insurance Council, touched on this topic when he presented, "Florida: Hurricane Alley & The Country's Trendsetter in Response & Recovery."

Chances are that if such a claims program were in place and advertised to potential purchasers, nobody would buy from that insurance company. Revenues would drop and losses would incur. So, when Safeco Insurance Company started on such a claims program to increase overall corporate profits, do you think the Safeco executives wrote their customers, agents, and potential purchasers about such a program if it were really in the customer’s interest as well? Of course not. But, this is exactly what happened at Safeco.

Last year, Liberty Mutual Insurance Company purchased Safeco Insurance Company. After doing due diligence, the managers and executives at Liberty Mutual knew that Safeco’s claims philosophies fit within Liberty Mutual’s. Liberty Mutual had its own claims payment reduction programs as well. Similar to Allstate, Liberty Mutual hired outside claims consultants to develop claims philosophies that added to corporate profit through claims reduction programs. The purchase of Safeco Insurance Company by Liberty Mutual Insurance Company is a match made in heaven for the short term investors of Liberty Mutual and the executives of those companies.

Our firm has been retained on a number of property insurance disputes involving these companies. As a result of my involvement in one particular matter where I have received no response from Safeco, I have decided to do something about these companies claims problems in the same manner I approached Allstate Insurance Company when I was chair of the Bad Faith Litigation Group for two years in the mid 1990s and Allstate was underpaying claims based upon its wrongful claims program known as Claims Core Process Redesign. I will help organize a cooperative effort of those that have been victimized by these companies to publicly warn other consumers of these companies’ claims practices and raise knowledge with regulators interested helping insurance customer interests.

While Chair of the Bad Faith Litigation Group, I presented numerous seminars regarding Allstate’s claims practices. An example is my 1997 presentation to the Montana Trial Lawyers Association, “Overcoming Allstate's Trade Secrets and Work Product Objections.” The results of these networking activities regarding Allstate were documented in part on previous posts:

1. "Deal, or No Deal?"
2. The Good Hands Gets the Iron Fist
3. Ed Liddy
4. David Berardinelli's Fight Against Allstate's Claims Culture
5. Allstate Does the Right Thing
6. Allstate Testifies Today
7. States Seek McKinsey Reports

My intention is to create similar networking and transparency with Safeco and Liberty Mutual and share the 150,000 internal documents we have already collected regarding the secret claims practices of these companies. In this manner, other victimized policyholders will not suffer the similar consequences without understanding why the claims programs were not isolated just to them and the real motive for the delays and denials by Safeco and Liberty Mutual. Possibly, executives at Liberty Mutual will stop these practices and do right to their customers. If not, at least brokers and customers will know what Safeco and Liberty Mutual are about when it comes time to pay fully and promptly following a loss.

On December 17, 2009, our firm with other consumer law firms will host a claims practice seminar in Houston that will focus on Hurricane Ike claims practices as well as Safeco and Liberty Mutual claims practices. Computerized legal databases now allow us to find all federal and most state lawsuits against Safeco and Liberty Mutual which involve property insurance or bad faith lawsuits. Those attorneys representing the policyholders will start getting their invitations today.

Websites about Safeco and Liberty Mutual along with Facebook sites will be up and running by next week so claims practice information may be shared among consumers, whistleblowers, and victims of these insurance companies. Honest and trustworthy insurance companies should applaud our efforts because companies that cheat on claims should not be allowed to gain market share by having lower rates by such practices than those that fully and promptly pay their claims. 

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.