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

Here is the holding in Parks v. Farmers Ins. Co., 347 Ore. 374, 388 (Or. 2009):

We hold that plaintiffs' telephone calls to Farmers' agent, and particularly, Mr. Parks's May 19, 2003, call reciting the amounts that he had paid and expected to pay to clean up the contamination caused by the methamphetamine lab, conveyed sufficient information to allow Farmers to ascertain its obligations vis-a-vis a possible claim for methamphetamine damage, taking into account Farmers' duty to investigate and clarify uncertain claims. That telephone call qualified as "proof of loss" for purposes of such a claim.

Here are the relevant facts:

…Eric and Yolanda Parks owned a rental property -- a house -- that was insured…by defendant Farmers Insurance Company... Plaintiffs received notice that police had discovered a methamphetamine lab in the house, had seized the house and placed it under quarantine. Ms. Parks hired a decontamination contractor to evaluate…and deal with any damage to the house.

The contractor told Ms. Parks that insurance companies sometimes help with losses in such cases. On April 14, 2003, Ms. Parks called a Farmers agent, Pascone..and asked if Farmers could "help [her] with [her] loss."…It is undisputed that Ms. Parks told Pascone about the seizure of the methamphetamine lab and subsequent quarantine of the house, and that she provided Pascone with the address of the house and the name and telephone number of the decontamination contractor. Depending on whose testimony is credited, either Ms. Parks or Pascone suggested that there might not be coverage in the policy for methamphetamine lab contamination. It is undisputed, however, that Pascone told Ms. Parks that "other things * * * might be covered," and that Ms. Parks should call her if she got any more information. Ms. Parks did not call Pascone again.

However, Mr. Parks called Pascone about a month later, on May 19, 2003. Mr. Parks told Pascone that a methamphetamine lab had been "busted"…that his wife already had called Pascone about the matter, and that, to date, he had paid $ 6,710 for cleaning up the property and…quoted a figure of $ 2,000 to $ 3,000 to get the property in shape to rent. Mr. Parks testified that he asked Pascone to "reconsider the denial of the claim," and that Pascone told him that there was no coverage for the cleanup because the policy contained an exclusion for "pollution." Although Mr. Parks initially testified at deposition that he told Pascone that some of the damage to the property had been caused by vandalism, he later acknowledged that "all [he] told * * * Pascone about damage to the rental was the methamphetamine contamination."

Pascone's memory of the conversation with Mr. Parks was somewhat different. According to her, Mr. Parks told her that he and his wife did not want to file a claim because they felt that there was no coverage for the methamphetamine contamination and that the cost of repairing the other damage that he had described to her -- two broken windows -- would be less than the insurance policy's deductible. In any event, Pascone did not send any paperwork to Mr. Parks, did not refer him to Farmers' claims hotline, and did not otherwise tell him how to file a claim. Plaintiffs had no further contact with Farmers or its agents until June 11, 2003. On that date, plaintiffs brought an action against Farmers for, among other things, breach of Farmers' duties to them under the insurance policy. Id. at 376-77.

Please note that these were calls to the soliciting company agent rather than to the claims department. While not addressed, it must have been developed that this was a Farmer’s agent for all purposes and the Court specifically noted that this agent did not refer the policyholders to the claims hotline nor indicate how to file the otherwise formal claims documents. The decision might come out far different if the matter were referred to the claims department and other instructions were promptly provided.

The Court did note the position of the parties regarding the proof of loss issue:

Plaintiffs' theory was that, for purposes of the statute, they had filed "proof of loss" by their April 14, 2003, and May 19, 2003, telephone calls to Pascone, and that Farmers had failed to tender its settlement offer within six months of those calls. Farmers denied that the telephone calls qualified as proof of loss and argued that, at best, plaintiffs had triggered the six-month period provided in ORS 742.061 when they filed their complaint on June 11, 2003. The trial court ultimately concluded that the Parks's telephone calls to Pascone and, particularly, Mr. Parks's May 19, 2003, call, constituted a sufficient proof of loss…In explaining its decision, the court explicitly rejected Farmers' contention that, because those telephone calls pertained to methamphetamine contamination, they could not serve as "proof of loss" with respect to the losses that were at the heart of plaintiffs' action (and which Farmers characterized as vandalism losses)…

Farmers appealed, arguing that plaintiffs' telephone calls to Pascone were not "proof of loss" within the meaning of ORS 742.061 for two reasons: (1) a "proof of loss" must be in writing; and (2) a "proof of loss" must allow an insurer to ascertain its liabilities, and plaintiffs' conversations with Pascone about methamphetamine contamination did not provide Farmers with any information that would have allowed it to ascertain its liabilities with respect to the only potentially covered loss that plaintiffs could claim -- a claim for vandalism.

As part of its analysis, the Oregon Supreme Court clearly disagreed with the Farmers’ position citing other Oregon case authority which is similar to Louisiana caselaw:

This is not the first time that this court has considered what ORS 742.061 requires by way of a "proof of loss." In Dockins v. State Farm Ins. Co., 329 Ore. 20, 985 P2d 796 (1999), this court examined the statute and concluded that, when the legislature used that term, it intended something more than the particular form or submission an insurance policy might specify... Based on prior cases dealing with the term, this court held that, in the context of ORS 742.061, "proof of loss" has a functional meaning -- that is, it pertains to any "event or submission" that accomplishes the purpose of a proof of loss. That purpose, the court concluded, is "to afford the insurer an adequate opportunity for investigation, to prevent fraud and imposition upon it, and to enable it to form an intelligent estimate of its rights and liabilities before it is obliged to pay.'… We further concluded (again, based on prior case law), that insurers operate under a duty of inquiry and that, "even if a submission is insufficient to allow the insurer to estimate its obligations, it will be deemed sufficient if the insurer could accomplish that purpose through reasonable investigation." Synthesizing those ideas into a single definition, this court announced that "[a]ny event or submission that would permit an insurer to estimate its obligations (taking into account the insurer's obligation to investigate and clarify uncertain claims) qualifies as 'proof of loss' for purposes of [ORS 742.061]…"

The lesson is that some Courts and policyholders will try to avoid forfeiture of insurance policy benefits based on post loss proof of loss obligations when an insurer has been supplied sufficient information to make an investigation about a claim. That makes sense to most policyholders. From an insurer’s perspective, I would try to make certain that your company agents refer claims to the claims department or you may find that phone calls will be deemed sufficient proof of loss in some states.

First, I cannot stress enough how important it is to read and understand the rights and duties under each individual policy. Some policies may only require a Proof be submitted after an insurer demands it, while others may require the Proof to be submitted within a certain time after the loss occurs, even without being requested to do so. If you do not read and understand the policy provisions, a Proof may not be submitted on time or in accordance with the obligations outlined in the policy and could delay recovery.

Also, it is important to know and understand the laws of your particular jurisdiction. While the policy provisions may be clear as to what the obligations of each party might be, the laws of each jurisdiction generally supersede the policy language. If, for instance, a policy requires the Proof to be submitted within 30 days of an insurer’s demand but a state statute provides that a Proof must be submitted within 60 days, the state statute will control. Keep in mind that normally an insurer may not limit the timeframe for submitting a Proof of Loss more than is outlined in the jurisdiction’s statutes, however, they are free to extend that timeframe. Thus, in the example above, if the policy allowed 90 days for submission, the policyholder would be able to take advantage of the extra 30 days afforded by the policy.

Next, if the Proof cannot be filled out within the timeframe requested by the insurer, the insured should not hesitate to ask for an extension. Sometimes estimates have not been fully completed or the damage has not been fully realized, therefore obtaining extensions may be the only way for the correct information to be submitted in the Proof.

It is also important for the policyholder to communicate with the insurer and confirm any verbal conversations in writing. Having a written communication will cut down on the “he said, she said,” which can occur later in the claim if issues about a waiver or extension come up.

As with many other aspects of insurance claims, the details are important. Many times, the insured fails to sign and/or notarize the Proof and .by doing so. may provide the insurer an opportunity to reject it. Each time a Proof of Loss is submitted, make sure that these technical requirements are fulfilled in order to move the claim along.

When an insurer requests a Proof of Loss, a policyholder should seriously consider retaining professional representation if they have not already done so. Insurance claims are not a normal part of most people’s life, and small mistakes may cause large problems in the future. By seeking help from a licensed public adjuster or attorney early in the process, mistakes can be avoided and an amicable resolution can come more quickly.

Later, the insurer came back and demanded a Proof of Loss be submitted. At that point, the public adjuster wanted to dig in our heels and refuse to comply, however, I had a different perspective. Why not submit the Proof as requested, even though they have likely waived their right? Does the potential harm outweigh the good? In the end, we submitted the Proof as requested. The reasoning behind this decision is partially spelled out below. Keep in mind, these reasons applied to this specific case and other instances may call for a different response.

First, when dealing with any litigation it is important not to start so many battles that it takes the focus off the overall goal: recovering the amounts due and owed under the policy. We could have refused to submit a Proof and argued that the insurer waived its right to request one, however, it would have started battle that did not need to be fought. This would have taken our time and attention away from the more important task of proving coverage for the overall claim.

Second, the repercussions of not submitting a Proof of Loss can be far greater than the rewards. As I have discussed in previous posts, failing to submit a Proof of Loss when required to do so can be a breach of the insured’s post loss obligations. Sure, I could have argued that the insurer had waived its right to a Proof of Loss, and there is an excellent chance the court would have agreed. But is the risk worth the reward? Even in a case that seemed as clear as this one I did not believe it was.

Third, the information required for filling out the Proof of Loss was readily available to us. The PA had estimates already put together; it was just a matter of putting the information down on the form. I realize that in many instances the circumstances are different. All of the estimates may not be completed and filling out the Proof may be difficult or impossible because damages have not been fully established. In these cases, the insured should immediately request an extension, indefinite if possible, to make sure the timeframe for filing the Proof does not run out. Let the insurer know that you will comply with the demand, but that you need a longer period of time to gather the necessary information. As always, make sure you get the insurer’s response IN WRITING, so there is no confusion later.

Fourth, I find that avoiding small confrontations like this can help the claim move along much more smoothly. In some instances, complying with requests like this even when the insurer may not have the right to request it, can help garner some good will with the insurer or opposing counsel. Avoiding a potentially large fight by complying with a request that does not harm your client can help move the claim along to a favorable resolution.

Now, I know some of you may think that I am being naïve that there is nothing you can do to make some insurance representatives and defense attorneys behave like civilized and caring human beings. It is important to remember that, for the most part, they do have feelings and a little good will may go a long way. And hey, even if it doesn’t, you can still use the instance to show the court how hard the policyholder tried to cooperate.

Once an insured has submitted a Proof the ball is in the insurer’s court. The carrier must make the determination whether to object or not. Similarly, when a policyholder submits a Proof of Loss he or she can assume that it was adequate unless advised otherwise by the insurer. See John Hancock Mut. Life Ins. Co. v. Highley, 445 P.2d 241 (Okla. 1968).

If the insurer does make a determination that the Proof of Loss is inadequate, it has an obligation to act in good faith and notify the policyholder of the rejection. This notification should not simply consist of a blanket statement that the Proof has been rejected. Instead, the insurer has an obligation to point out the specific defects and allow the policyholder a reasonable amount of time to cure them. By failing to provide the insured with the specific defects or not allowing a reasonable time to cure, the insurer is likely acting in bad faith and could be held liable for its conduct.

So what should the policyholder do if the Proof is rejected? Well, above all else, the insured should attempt to cure the technical defects. If the time to submit the Proof has not expired, the insured can generally submit additional forms. Similarly if an insurer rejects a Proof of Loss just before the deadline for submission, the insured may be allowed a reasonable time to cure the defects even after its expiration. See Hanover Fire Ins. Co. of N.Y. v. Hodges, 37 Ga. App. 229, 139 (1927).

Further, if the time to submit the Proof has expired, a new Proof of Loss may be considered to relate back to the original thus complying with the applicable time limitation. Generally, a Proof can be amended to reflect the correct amount of damages as long as the original was filed within the applicable timeframe and was not filed with the intent to defraud or deceive the insurer. Happy Hank Auction Co. v. American Eagle Fire Ins. Co., 136 N.E.2d 842 (1956). When these questions of motive arise, the court will usually take a close look at the facts and circumstances surrounding the claim to determine whether there was a simple error or something more which might justify precluding coverage. As long as there is no finding of intent to deceive or defraud the carrier, courts are many times hesitant about voiding coverage without giving the insured an opportunity to cure the defects.

As always it is important to note there are many differences in the rules under a homeowner insurance policy and the NFIP flood policy and these general rules may not apply when dealing with the latter. One common theme running through both of these policies, however, is submitting a Proof of Loss is an important step which should not be taken lightly. Dealing with these requirements can be a daunting task for insureds and, as Bill Cornell pointed out in his comment to last week’s post, it is always recommended that a policyholder seek the assistance of an attorney or public adjuster to ensure that the Proof is accurate and properly filled out.

As you can see, this form is very straight forward and seems simple enough to fill out. To fill out this form you will likely need to have a copy of your policy and declarations page in order to find the information such the policy number and limits, as well as the issue and expiration dates. You will also need to have specific information about the property, including specifics about occupancy and changes in title; abandoned property is not normally covered under standard policies and a change in ownership may affect whether coverage is available or if replacement cost or actual cash value is owed.

Finally, you will need to have information about the loss. As you can see below, the form requests a statement of the property which was damaged and its value. The amount of money claimed by the insured is also requested and should be as accurate as possible at the time that the Proof is submitted.

At the end of this form, as is standard in all Proofs of Loss, the insured must certify that the loss was not intentional and sign and swear that the information is accurate to the best of their knowledge.

While the format of some forms may differ, the information requested is usually the same. It is important to read the form thoroughly and be sure that the information is correct and complete before forwarding it to your insurer. As explained in previous posts, even a small mistake can cause a number of problems in getting your claim paid.

First, when dealing with flood claims it is vital to note that you have 60 days to file a Proof of Loss. The Standard Policy states: “Within 60 days after the loss, [the insured must] send [the insurer] a proof of loss, which is [the insured’s] statement as to the amount [he/she] is claiming under the policy signed and sworn to by [the insured] and furnishing” specific information.

Submitting a Proof on even the 61st day will likely result in the claim being completely denied.

Courts in every jurisdiction have upheld specific and complete compliance with these requirements. See Dawkins v. Witt, 318 F.3d 606 (4th Cir.2003); Mancini v. Redland Ins. Co., 248 F.3d 729 (8th Cir.2001); Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386 (9th Cir.2000); Gowland v. Aetna, 143 F.3d 951 (5th Cir.1998); Phelps v. Fed. Emergency Mgmt. Agency, 785 F.2d 13 (1st Cir.1986). These courts all concluded that there must be strict compliance with the terms and conditions of Federal Flood Insurance Policies and the failure to file a Proof of Loss prohibits a plaintiff from recovery.

Similarly, as I discussed the last few weeks, there is sometimes an argument that compliance with a Proof of Loss requirement was excused because an insurer has waived its right to a Proof based on the insurer’s actions or statements. With flood claims, you can be assured that this argument will fail.

As the policy states, the requirement of a Proof of Loss can only be waived by written authorization from FEMA. Therefore, no matter what the adjuster or Write Your Own Carrier says or does, a Proof still must be submitted for recovery to be possible.

In one of the cases mentioned above, it was undisputed that the Write Your Own Carrier had stated that the 60 day requirement would not be enforced and that the insured had relied on these representations in failing to file the Proof. The court, however, refused to find that strict compliance with the Proof of Loss provisions had been waived because there was no written waiver from the Federal Insurance Administrator. Dawkins at 610-611.

Furthermore, in one unreported Florida case, the 11th Circuit found that the insured was not excused from submitting a Proof of Loss within 60 days despite the fact that the insurer did not send an adjuster to the insured property until 90 days after the damage occurred. With a regular homeowners policy, there might be an argument that the actions of the insurer (not sending an adjuster to investigate the loss until after the period of time for submitting a Proof had expired) constituted an implied waiver of the policy provisions. Because it was a flood claim, however, the court refused to follow this line of reasoning and denied coverage for the loss. Lucien v. U.S. Sec. Ins. Corp., 143 Fed. Appx. 152 (11th Cir. 2005).

While I have mostly covered what happens if a Proof of Loss is not submitted in this post, it is important to note that even a small deviation from the flood policy requirements can result in the claim being denied. If a Proof is filed without being signed or notarized, or is submitted without the required supporting documentation, it is likely that the claim will be denied if the 60 day timeframe expires.

Everyone has heard the saying that the only two things certain in life are death and taxes, however if you fail to comply with the Proof of Loss provisions of the Standard Flood Policy you can likely add a claim denial to this list.

As I’m sure you are aware (After all I do say it every week!), each situation and every jurisdiction and policy are different. In some circumstances a policy may specifically state which agents of the insurer have the ability to waive the Proof requirement. With the National Flood Insurance Program, for instance, neither the “Write Your Own” carrier nor the adjuster has the authority to waive post loss obligations. As the policy states, only FEMA may waive the requirement that an insured submit a Proof of Loss. When a policy is this explicit, relying on a verbal or written waiver by someone other than the individuals listed in the policy may provide the insurer with a reason to deny the claim entirely. In the case of the National Flood Insurance Policies, you can almost be guaranteed of it. See Sanz v. United States Security Insurance Co., 328 F.3d 1314 (11th Cir.2003)(holding the Proof of Loss requirements may be waived, but to be effective the waiver must be made by the Federal Insurance Administrator and must be in writing).

In many instances, however, things are not so clear cut. The policy may be silent as to which individuals may waive post loss obligations, at which time it is important to analyze the actual and apparent authority of the insurer’s agent. Actual authority is fairly straight forward. If the individual has had the authority to waive post loss obligations conferred upon him/her by an agreement with the insurer then they obviously have the authority to bind the insurer by their actions. For instance, an individual has been entrusted to conduct all of the business of an insurer in a particular area likely has actual authority to waive a Proof of Loss requirement.

Where the situation gets more complicated, however, is when the individual does not indeed have authority to waive a post loss requirement. Arguing that an individual has apparent authority is extremely fact intensive and must be analyzed very carefully. Most importantly, the insured must reasonably believe that the individual has the authority to bind the insurer and thus waive the Proof of Loss requirement. This involves looking at the interplay between the insured, insurer, and the insurer’s individual agent.

If the individual purporting to have the authority to waive the Proof of Loss requirement specifically tells the insured that he/she has the ability to do so, it is more likely that a court would find that it was reasonable for the insured to rely upon this assertion. Similarly, if the insurer knows that its agent is claiming to have the authority to waive post loss obligations or has incorrectly done so, the insurer’s failure to act to correct the mistake may also be enough for a court to find that the individual has apparent authority and the waiver is effective.

Also, an individual’s position with the insurer may play a role in whether or not there is apparent authority. For instance, a court may find that an adjuster or executive of the insurer had apparent authority to waive the Proof of Loss requirement and that the insured was reasonable in relying on this authority. A court is not likely, however, to buy an argument that the night watchman at the insurer’s offices had such authority or that the policyholder was reasonable in relying on his waiving the policy provisions

There are numerous circumstances which may play a role in whether an individual has apparent authority to waive a Proof of Loss requirement, however the important thing is that the insured actually believes that the authority is legitimate. An insured has no duty to investigate to determine whether or not the person claiming to waive a post loss obligation indeed has authority to do so. As the court said, “[t]he public has a right to rely upon an agent's apparent authority and are not required to inquire as to his special powers unless the circumstances are such as to put them on inquiry”. Guarantee Mutual Fire Ins. Co. v. Jacobson, 57 so.2d 845, 848 (Fla. 1952). If the insured however has knowledge that the individual purporting to waive the Proof of Loss requirement does not have the authority to do so on behalf of the insurer, or such a belief is not reasonable, the court may find that no apparent authority exists and the claim may be denied if a Proof of Loss is not timely submitted.

Proving waiver of the Proof of Loss requirement and other post loss obligations is possible, but it can be very contentious and difficult. This can be avoided in many situations, however, by simply filing the Proof when possible. If it is not possible or not filed, just be aware that there may be an argument for waiver.

Generally, waiver may be implied from any act or pattern of conduct by the insurer or its authorized agents which reasonably tends to create a belief in the mind of the claimant under the policy that notice need not be given or that proofs of loss will be unnecessary. There is a wide range of acts and conduct which may be used to argue that an insurer has waived its right to have a Proof of Loss filed.

For instance, an insurer may waive its right to a Proof of Loss if its actions or conduct lead the insured to believe that no Proof will be required. As one court held:

Where the insurer or its agents have formed a relationship with the insured or acted towards him in such a way as to cause the insured to reasonably believe written notice and formal proofs of loss will not be required, the insurer will not be permitted to raise such matters as a defense.

Integrity Ins. Co. v. Lindsey, 444 N.E.2d 345, 347 ( Ind. Ct. App. 1st Dist. 1983).

Similarly, an insurer’s failure to demand a Proof of Loss may result in the insurer waiving its right to do so. The laws of some states, and the terms of some policies, only require a Proof be filed if demanded by the insurer. Thus, if a Proof is not demanded and the proper forms are not provided, the insurer may be found to have impliedly waived its right to do so. In King's Gym Complex, Inc. v. Philadelphia Indem. Ins. Co., 433 F. Supp. 2d 256 (N.D. N.Y. 2006), for instance, the court stated:

New York Insurance Law § 3407 provides that the failure to produce proof of loss will not invalidate the claim unless the insurer gives a written notice and a blank form. The purpose of Insurance Law § 3407 is the protection of the insured from the consequences of oversight in failing to timely file a proof of loss which is a condition precedent to recovery.

While this case and others like it may provide an argument for waiver if an insurer does not demand a Proof of Loss or provide the necessary forms, it is important to note that this can occur in very limited circumstances. Unless required by statute or by the terms of the Policy, an Insurer may be under no duty to demand compliance. Therefore, without knowing the policy provisions and the relevant local laws, failing to file a Proof of Loss may give the Insurer an opportunity to deny coverage.

Finally, an insurer’s denial of the claim may waive its right to a Proof of Loss, depending on the law of the jurisdiction and the language of the policy. For example, some courts have held that when an insurer has denied coverage for a loss on grounds other than failure to comply with a proof of loss requirement, the insurer has certified that it has investigated the claim thoroughly enough to make a proper decision as to coverage under the policy. Thus once coverage has been denied, filing a Proof of Loss is pointless and might not be required, as one court pointed out in the following:

It is the law generally that the unconditional denial of liability within the period allowed by the policy for the filing of proof of loss constitutes a waiver of the requirement. The rationale behind such holdings is that the denial of liability on other grounds before the time to file the proof of loss has expired, indicates that the insurer has already made up its mind to refuse payment for any loss and therefore filing of proofs of loss would be a vain and futile act.

Balogh v. Jewelers Mut. Ins. Co., 167 F. Supp. 763 (S.D. Fla. 1958).

It is important to note that there is one major exception that courts have found when addressing waiver of the Proof of Loss requirements when the claim has been denied. When an insurer denies a claim before the Proof is required to be filed but reserves its right to other defenses which are not stated or have not arisen, some courts find that an insured’s failure to submit a Proof may be used as an additional reason for denying coverage.

While an insurer will assume the risk that its denial of coverage and reservation of rights will be allowed by a particular jurisdiction, an insured must be careful to protect his or her interests as well. In many circumstances, filing a Proof of Loss even after denial may be the best way to prevent any future claims of non-compliance with the insured’s post-loss obligations.

Other circumstances exist when an insurer may waive the right to have a Proof of Loss submitted due to the insurer’s actions or course of conduct. Each case is fact specific and should be analyzed extensively and thoroughly documented. As I have discussed previously, an accurate and detailed timeline of events can be critical in framing and supporting any waiver argument, and I recommend that one be created in most instances.

The lesson to take away from this week, as well as my post last week, is that if possible a Proof of Loss should usually be filed. Doing so can cut down on the variety of headaches that can come from having to argue that a waiver has occurred. If filing a Proof is not possible or has not occurred, however, there may be circumstances which may excuse the insured, depending on the individual situation.

Check back next week when we will finish up this three part mini-series on waiver by discussing who has the authority to waive the Proof of Loss requirements.

With that said, it is important to note that, as I discussed in a previous post, What is a Proof of Loss, and What Purpose Does it Serve?, the Proof of Loss requirement protects the insurer. It helps the insurer gain a clearer perspective on the scope of the loss and aids it in determining coverage issues. This protection, like many other policy provisions designed to protect the insurer, can sometimes be waived. When this waiver occurs, the policy is read as if the Proof requirement has been struck from the contract.

There is a split of authority on when waiver may occur, if at all. Some courts have held that for waiver to be effective the insurer must do so before the end of the time period for filing the Proof, in accordance with an applicable policy provision or statute. In other circumstances, such as when a claim has been denied, some courts have found that waiver can occur outside of the normal 60 day period. See Connecticut Fire Ins. Co. v. Fox, 361 F.2d 1 (10th Cir. 1966). Either way, anyone involved in a claim should keep a thorough timeline detailing all statements and actions which might give rise to a claim for waiver so that it can be more easily determined when the waiver was actually effectuated.

There are generally two ways by which an insurer can waive a Proof of Loss requirement. First, the insurer may expressly waive the requirement either verbally or in writing. Second, waiver may be implied from an act or pattern of conduct by the insurer or its authorized agents that reasonably tends to create a belief in the mind of the policyholder that Proofs of Loss will be unnecessary.

Because of the breadth of information on both express and implied waiver, I have decided to break this down into a two week section. This week, I will focus on express, and next week we will delve into implied.

An insurer can expressly notify the insured in writing or verbally of its intent to waive the requirement. There are many reasons why an insurer may want to waive the Proof of Loss requirement, but, as with many other aspects of a claim, it is always a good idea for the insured to obtain a written confirmation. This can help head off any attempt by the insurer to later deny that the waiver occurred. Also, many policies state that no policy provision may be waived except by written agreement or endorsement. If this is the case, you should make every effort to get the waiver in writing. Doing this follow up could make all the difference in a claim and could prevent a plethora of headaches as you go forward.

There are some jurisdictions, however, which have held that such language may not prevent an insurer from orally waiving the Proof requirements. One Colorado case, for instance, stated:

The plaintiff here has raised the issues of waiver and estoppel in his summary judgment pleadings. Although timely compliance is generally a condition precedent to the insurer's liability, a satisfactory excuse for noncompliance may be shown. Capital Fixture & Supply Co. v. National Fire Insurance Co., 131 Colo. 64, 279 P.2d 435 (1955). A subsequent waiver of the conditions would constitute a valid excuse. Thus, there exists a genuine issue of fact as to whether plaintiff was induced by an agent of defendant to delay his filings.

Defendant argues that such a result is precluded here as a matter of law because the policy required all waivers to be in writing. We disagree.

The question of whether a provision in an insurance contract requiring all waivers to be in writing applies to post-loss conditions was settled definitively as early as 1931. Concordia Insurance Co. v. School District No. 98, 282 U.S. 545, 51 S.Ct. 275, 75 L.Ed. 528 (1931). In Concordia, the Supreme Court held that non-waiver provisions “ha[ve] reference to those provisions and conditions which constitute part of the contract of insurance and [do] not apply to a waiver, after the loss occurs, of stipulations in respect of things to be done subsequent to the loss as prerequisites to adjustment and payment.” The overwhelming majority of modern cases follow the Concordia rule. See 5 S. Williston, Contracts § 766 (W. Jaeger 3d ed. 1961).

We are in accord with the Concordia rule and its rationale as expressed in the Tenth Circuit court opinion. In fact, it applies with special strength here, because the language of the non-waiver provision construed in Concordia does not differ in any significant way from the provision construed here. Thus, we hold that the contract's requirements for submitting a proof of loss statement and for filing suit could be waived, even in the absence of a writing, because they were both conditions required to be performed after the loss occurred.

Circle C Beef Co. v. Home Ins. Co., 654 P.2d 869 (Colo. Ct. App. 1982).

This case, and others like it, may afford some important protection to policyholders in various jurisdictions, however, this protection is not certain. Some jurisdictions will hold that any waiver that is not in writing is not effective, and therefore, failing to get a written confirmation of the insurer’s waiver could be problematic to a claim.

So what is the best course of action? Of course, if at all possible, file the Proof of Loss! However, be aware that there may be some circumstance where the requirement may be waived.

It should come as no surprise that there are mechanisms in place to protect mortgage companies named on a policy, when the insured fails to submit a proof. As is true with others who are insured by a policy, submission of a proof of loss by a mortgage company is many times a prerequisite to recovery. Therefore, if an insured fails to submit a proof, a mortgage company often can submit one instead.

While the mortgage company and the homeowners are many times listed on the same policy, some courts have held that the policy, and thus the obligations arising under it, should be read as two separate contracts. One as the policy applies to the homeowner and another as the policy applies to the mortgage company, thus creating severable obligations for each party. See, for example, United States Fire Ins. Co. v. Hecht, 164 So. 65 (Ala. 1935)(holding that the mortgagee had a severable contract with the insurer and could sue to protect its interests). The Alabama Supreme Court’s findings in Hecht are in line with certain other jurisdictions, such as Illinois, New York, and New Jersey, and were largely based on the mortgagee clauses found in individual policies. As one New York Judge opined:

I think the intent of the clause was to make the policy operate as an insurance of the mortgagors and the mortgagees separately, and to give the mortgagees the same benefit as if they had taken out a separate policy, free from the conditions imposed upon the owners, making the mortgagees responsible only for their own acts.

Hastings, et al. v. Westchester Fire Ins. Co., 78 N.Y. 141 (1878)(Rapalls, J. Concurring).

Reading the policy as two separate contracts of insurance has an important effect on the obligations of the mortgage company in regards to a proof of loss. If a homeowner does not submit a proof, it does not necessarily mean that the mortgage company’s rights to recovery under the policy are foreclosed. By interpreting the policy as a separate contract between the insurer and the mortgage company, the courts have allowed for a mortgage company to file a proof of loss even when the primary insured has failed to do so. Thus the mortgage company may be able to recover under the policy even when the homeowner is not.

Often, however, the homeowner and the mortgage company are not on the best of terms when foreclosure has been initiated or is looming. The relationship between the parties has usually soured, understandably so, and communication and good-will are usually at a minimum. Courts have held that the lack of communication and notice to the mortgage company can unfairly affect its rights to recovery. As one court stated:

This court finds it unreasonable that the interest of a mortgagee should be made so vulnerable to the caprice of an insured-mortgagor. This is especially true when consideration is given to the fact that the mortgagee in many, if not most instances, is not only unaware of the failure of the insured-mortgagor to file a claim for loss, but is even ignorant of the fact that a loss has occurred.

First Trust Union Bank v. Aetna Casualty and Surety Co., 462 N.Y.S.2d 992, 996 (1983).

Therefore once an insurer realizes that an insured has not filed a proof of loss as required by the policy, some courts have found that the insurer must notify any mortgage company of the insured’s failure. Without this notification, an insurer may be disallowed from requiring compliance with any proof requirements as they are applied to the company.

Keep in mind that the law of a particular jurisdiction may be different, and the policy language can alter these general principles.

Unfortunately, today’s economic conditions have caused hundreds of thousands of people to lose their homes in every state. While it is unfortunate that cases like the ones listed above even need to be discussed, the housing market makes these issues a reality for people from Florida to California. As such, it is extremely important for both homeowners and mortgage companies to know and understand their rights and obligations under the respective policies.

According to the terms of most policies, a Proof must be submitted by the insured named on the policy. This means that while others, such as a public adjuster, may help the insured gather information necessary, if the Proof of Loss is submitted by anyone other than the insured, the insurer may have a valid reason for rejecting it.

Similarly, some states have statutes which require a Proof of Loss be submitted. Failing to comply with these statutes can create a variety of problems from providing the insurer with a potential reason to deny a claim and waiving any possibility of having attorney fees recouped for a successful action. For instance, Idaho Code § 1835 states:

(1) Any insurer issuing any policy, certificate or contract of insurance, surety, guaranty or indemnity of any kind or nature whatsoever, which shall fail for a period of thirty (30) days after proof of loss has been furnished as provided in such policy, certificate or contract, to pay to the person entitled thereto the amount justly due under such policy, certificate or contract, shall in any action thereafter brought against the insurer in any court in this state for recovery under the terms of the policy, certificate or contract, pay such further amount as the court shall adjudge reasonable as attorney's fees in such action.

In many instances there is more than one person named as insureds on a policy. Situations where a husband and wife are both named on the policy for the family’s home or where numerous partners of a business are named on a businessowners policy are becoming quite common. Thus questions arise about whether all of the insureds must submit a Proof. In many instances, a Proof of Loss submitted by one person named on the policy will be sufficient and will benefit the other insureds. Case law on this subject has found this to be applicable to spouses, business partners, and even family members in some instances. For example see Della Porta v. Hartford Fire Ins. Co., 500 N.Y.S.2d 831 (3d Dep't 1986)(holding that a proof submitted by one owner can be used for the benefit of other owners.) and U.S. Fire Ins. Co. v. Merrick, 171 Md. 476 (1937)(holding husband's signature on proof of loss and signing the name of his wife by himself sufficient where personal property was insured in the name of the husband and wife and the whereabouts of the wife who had left home were not known).

As with all things, however, you should always check your policy language and local laws to determine the exact requirements.

Much like the limitations on who may submit a Proof of Loss, there often are requirements which apply to the representatives of the insurer who may accept a Proof and where one should be mailed. The terms of the individual policy and applicable statutes will usually be controlling, however there are instances where there are no specific provisions which apply.

If this is the case, the general rule of thumb is that the Proof can be submitted to an agent or officer of the insurer. There is sometimes a question about whether the agent or officer has actual or apparent authority to accept the Proof, requiring a determination that is heavily fact intensive and often complicated. It is important to fully comply with the requirements to avoid later problems. For instance, the Tennessee Supreme Court found that mailing a Proof of Loss to the insurer’s local office did not satisfy the policy’s provision stating that a Proof should be mailed to the home office. Fisher v. Travelers Ins. Co., 138 S.W. 316 (Tenn. 1911).

In the end, many courts have been extremely strict when interpreting compliance with post loss obligations. Thus, a close study of the policy and the applicable law is imperative to ensure compliance with all provisions. If a policy is unclear or vague as to the exact requirements, it is always a good idea to get a written explanation from the insurer. This letter could be very useful if there is a dispute later.

As with my last post in this series, please keep in mind that the requirements under flood policies are much different, and failing to follow the flood policy procedures to the letter can result in disaster for your claim.

My general rule is to file proofs of loss as soon as possible and within the time frames required under the policy. I am also aware that I vary from this rule based upon the particular matter and people involved. Often, many claims are resolved and no formal proof of loss is ever submitted because there is no request or the insurer simply waives the requirement. Still, not understanding how technical time requirements work in each jurisdiction may come back to haunt the policyholder.

A good example is in Georgia is Parris v. Great Central Ins. Co., 148 Ga.App. 277, 251 S.E.2d 109 (Ga.App., 1978) which follows the general rule that:

The insurance policy contains no express stipulation to the effect that failure to submit a proof of loss within 60 days of the loss will result in forfeiture. Nor was there an express stipulation in the policy that furnishing a proof of loss within the time specified shall be a condition precedent to the bringing of an action against the insurer. Therefore, maintenance of the suit on the policy will not be barred solely by reason of the failure to timely submit proof of loss within 60 days after the loss…

This is similar to the general rule Corey wrote in his post:

“If a policy of insurance provides that notice and proofs of loss are to be furnished within a certain time after loss has occurred, but does not impose a forfeiture for failure to furnish them within the time prescribed, and does impose forfeiture for a failure to comply with other provisions of the contract, the insured may, it is held, maintain an action, though he does not furnish proofs within the time designated, provided he does furnish them at some time prior to commencing the action upon the policy. And this has been held to be true even though the policy provide that no action can be maintained until after a full compliance with all the requirements thereof.”

Notice that tricky highlighted sentence. Georgia law shows how harsh the result can be when the full rule is provided and contemplated in terms of a short suit limitation clause:

The insurance policy contains no express stipulation to the effect that failure to submit a proof of loss within 60 days of the loss will result in forfeiture. Nor was there an express stipulation in the policy that furnishing a proof of loss within the time specified shall be a condition precedent to the bringing of an action against the insurer. Therefore, maintenance of the suit on the policy will not be barred solely by reason of the failure to timely submit proof of loss within 60 days after the loss so long as proofs of loss were furnished at least 60 days prior to the expiration of the contractual limitation period for filing. Farm Bureau Mut. Ins. Co. v. Bennett, 114 Ga.App. 623(2), 152 S.E.2d 609; … But see Harp v. Fireman's Fund Ins. Co., 130 Ga. 726(1), 61 S.E. 704 noting that in some jurisdictions, use of the word “unless” in the contract provision pertaining to “suit” is construed as a condition precedent to maintenance of suit demanding strict compliance.

This type of rule can be very harsh if there is a one year statute of limitations or suit limitation and a sixty day requirement to file a proof of loss. Thus, some states can effectively have a ten month time frame to file a proof of loss if such a rule is followed. Some require strict compliance. So, be careful and check out the state law you are dealing with regarding proofs of loss and time requirement for filing.

As discussed in the previous post, What is a Proof of Loss, and What Purpose Does it Serve?, many times filing out a proof of loss can be a prerequisite for recovery. Sometimes failing to submit a Proof of Loss may be grounds for the insurer to deny coverage for the loss. The first place to look to see what your obligations are in regards to submitting a Proof of Loss is the policy. Some policies specifically state that an insured’s failure to submit a Proof of Loss may void coverage under the policy and some do not. Courts have looked at these disputes on a case by case basis. If the policy states that a Proof is required, then the insured may be voiding coverage by failing to do so.

If the policy does not state that failing to submit a Proof of Loss will void coverage, some courts have not been willing to find that an insured’s claim can be denied simply by failing to submit one. For instance, in Continental Fire Ins. Co. v. Whitaker & Dillard, 112 Tenn. 151 (Tenn. 1904), a Tennessee court stated:

If a policy of insurance provides that notice and proofs of loss are to be furnished within a certain time after loss has occurred, but does not impose a forfeiture for failure to furnish them within the time prescribed, and does impose forfeiture for a failure to comply with other provisions of the contract, the insured may, it is held, maintain an action, though he does not furnish proofs within the time designated, provided he does furnish them at some time prior to commencing the action upon the policy. And this has been held to be true even though the policy provide that no action can be maintained until after a full compliance with all the requirements thereof.

The Court’s opinion in Continental is in line with cases from numerous other jurisdictions including West Virginia, Michigan, Pennsylvania, and Kentucky. While these rulings stand for the premise that a policy may not be voided for failure to submit a Proof of Loss, they do not mean that a Proof does not ever have to be filed. A Proof of Loss is still a prerequisite for recovery; an insurer may not deny a claim simply because it is not filed within the specific time frame allotted.

Courts also sometimes focus on whether the insured has substantially complied with the policy provisions and what prejudice has resulted from the insured’s actions. If the policyholder has made a good faith effort to comply with the Proof of Loss requirements and there has been no prejudice to the insurer because of a minor technicality, courts are more reluctant to find that the policy has been breached. See for instance, Walker v. American Bankers Ins. Group, where a court found that an insured has substantially complied with the proof of loss provisions if they have submitted enough information to:

afford the insurer an adequate opportunity for investigation, to prevent fraud and imposition upon it, and to enable it to form an intelligent estimate of its rights and liabilities before it is obliged to pay.... to furnish the insurer with the particulars of the loss and all data necessary to determine its liability and the amount thereof. Walker v. American Bankers Ins. Group, 108 Nev. 533, 537 (Nev. 1992).

In Walker, the Court went on to say that the insured had substantially complied with his Proof of Loss obligations by submitting a one-page, unsigned and unsworn, list to the insurer within the time frame allowed under the policy. This was a far cry from what the insurer contemplated when it asked for a Proof of Loss, but the Court found that it was close enough to serve the overall purpose of the obligation.

Many times there will be a problem with the technicalities which makes the Proof incomplete. Some of the most common mistakes include the insured’s failure to sign, failure to notarize, or failure to provide the insurer with the necessary supporting information. In these instances, the insurer will likely reject the Proof of Loss. When such a rejection takes place, the insurer should notify the policyholder that the proof has been rejected and what steps must be taken in order to fix the problems. In most instances, the policyholder can easily make the necessary changes and the insurer will likely accept the Proof.

In the end, we are all human and mistakes happen. While there are many different reasons for which an insurer might reject a Proof of Loss, a disagreement as to the amount of damages contained in the Proof is usually not one of them. This does not mean that submitting an inaccurate Proof of Loss is not a reason that an insurance company might attempt to avoid coverage. In situations where there are incorrect statements in the Proof, courts often look at the nature and circumstances of the error and attempt to determine the insured’s intent.

If the insured filled out the Proof of Loss in good faith and the insurer was not prejudiced by the mistake, courts tend to find that coverage has not been voided. As with other aspects of the policyholder’s duties following a loss, however, if the insured’s errors are not made in good faith or are attempts to defraud the insurer, the insurer may have a valid defense to avoid coverage.

The old adage “if something is worth doing, it is worth doing right” undoubtedly applies to the creation and filing of a proof of loss. By acting in good faith to comply with the post-loss obligations under the policy, the policyholder can avoid many common pitfalls and move their claim along more quickly.

Please take note that the requirements under the National Flood Insurance Program (NFIP) Policies are much different and much of this does not apply. To hear about that, however, you will have to check back in the weeks to come.

An insurance policy is a contract, in which the insurer agrees to indemnify the insured policyholder for sudden and accidental covered losses in return for the policyholder’s agreement to pay a premium and comply with certain post-loss requirements. The filing of a proof of loss is one of these enumerated post-loss obligations, and it can be an essential condition for recovery, depending on how the policy is worded. It can be required under almost all types of insurance policies: property, life, health, and automobile to name a few and has been found in policies for hundreds of years.

While the insured must notify the insurance company of a loss in order to begin the investigation, a proof of loss goes far beyond a mere notice. A proof of loss requires a formal statement of the claim, usually sworn with the notarized signature of the insured, and is designed to facilitate the investigation of the claim and enable the insurer to protect its interests.

Specifically, the purpose of a proof of loss is to provide the insurer with specific information pertaining to the formal claim of damages. The policy will determine what must be in a proof of loss and most often includes:

• The amount of loss claimed;
• The documents that support the amount of loss claimed;
• The parties claiming the loss under the policy;
• The date and cause of the loss; and
• The people who have an interest in the claim.

In many instances, this information is the first documentation provided to the insurer which details the specifics of a claim. As such, it is in both the insurer and the policyholder’s, best interests to comply with the proof of loss requirements, so that the claims process can proceed as quickly and efficiently as possible.

After the proof of loss is submitted by the insured, the insurer must review it and reply. The insurer may accept or reject the proof. While this will be discussed in more detail in later additions of this series, an insurer should only reject a proof of loss for technical reasons, such as the proof is not properly filled out, is missing supporting documentation, is not signed, or is not notarized.

The insurer’s response should include what specific deficiencies exist, as well as what the insured must do to properly comply with the proof of loss requirements. An insurer’s disagreement as to the amount of damages, however, is typically NOT a valid reason for the insurer to reject the proof of loss.

While there are many more proof of loss requirements, in both the insurance policy and various state statutes, it is important at this juncture to note that there are important time requirements that apply to the filing of a proof of loss. Generally, the insured must comply with these time requirements or risk the possibility that the insurer may attempt to deny the claim.

What is the moral of this story, you may ask? Simple: an accurate proof of loss is critical to the claims process.

Although many more advanced topics relating to property insurance are discussed on this blog, the basic fundamentals remain a crucial and consistent requirement. Without a firm grip on these issues, it would be easy to find oneself up the proverbial creek and the subject of litigation.

That being said, I hope you will check back next week when we will dive deeper into the content of a proof of loss and what happens when the proof is not submitted, is inaccurate, or is incomplete.

The case involved a number of late-filed federal proofs of loss for flood claims. The adjusters refused to grant the plaintiffs a waiver for the late filing, while allowing others. I think it is a stupid legal rule to make a piece of paper determinative of whether a proof of loss has been filed on time as an absolute condition precedent to recovery. The best rule, from the policyholder’s standpoint, regarding proofs of loss is in Louisiana, and the most draconian has been under the National Flood Program. Maybe that is about to change. After all, shouldn’t the contract be interpreted to provide coverage and recovery despite immaterial failures of filing pieces of paper? Proofs of Loss are not in the same category as Constitutions, and many documents in commercial settings and life are filed late or imperfectly without releasing the other party from an otherwise valid obligation.

In the National Flood context, most policyholders have “storm trooper” claims adjusters from an independent adjustment company controlled by a “write-your-own” insurer estimate the policyholder’s damage. Usually, the policyholder simply accepts. They may not agree, but they hope money is coming soon and that it is enough to get the structure fixed. Do any of them want to spend their own money to get an independent estimate? Usually, they do not. But, I would suggest that they hire a public adjuster; most estimators make mistakes and Flood estimators make a lot more money by churning out many estimates rather than spending the time getting a few very accurate.

In this case, the administrators for National Flood denied the appeal for the waiver. Usually, that has been the end of the story. Here, the policyholders argued that a court should decide if that decision was right. This is what the Court wrote about the situation before going into its analysis :

Under its regulatory framework, the Federal Insurance Administrator is authorized to waive the proof of loss deadline at his discretion. See 44 C.F.R. § 61.13(d) (2008). Upon receipt of a waiver request, the Administrator, or his delegates, "determine whether it is an appropriate claim to waive the [proof of loss] deadline and whether there is a legitimate reason why the [proof of loss] was not timely submitted"…

During one of several oral arguments before the Court that occurred in these proceedings during 2007, FEMA acknowledged that it had granted waivers for some insureds beyond the January 17, 2004 deadline. But when asked by the Court what criteria were used to determine whose claims might be considered after the deadline and whether such criteria had ever been publicly announced, FEMA was not able at first to articulate the criteria, except to suggest that some claims for additional compensation were deemed to be meritorious and were therefore granted late. Thereafter, per the Woods Affidavit, FEMA advised the Court of the criteria, effectively conceding that they had not theretofore been published.

Because it felt that these criteria for waiver were potentially invalid as to pending claims in that they were not previously-announced, the Court, contingent upon a subsequent finding that the criteria would indeed be held invalid for that reason, granted Plaintiffs leave to file individual requests for waiver of the proof of loss deadline.

Plaintiffs thereupon filed individual waiver requests based upon the newly announced criteria set forth by FEMA. In July and August 2008, FEMA issued a series of letters denying all but five of Plaintiffs' waiver requests. Plaintiffs now seek review of the denials. FEMA submits that the Court lacks authority to review its waiver decisions.

In a footnote, the Court noted the new criteria that FEMA made and used to determine whether a waiver should be granted:

The criteria included: the severity of the damages caused by flood; whether the damage required an expert to evaluate the extent of structural damages caused by flood; whether the damage required a Certified Public Accountant to review the stock and inventory; whether salvage is involved and if the adjuster must either sell it back to the insured or dispose of it, which would further delay the adjustment process; whether the insured experienced difficulty listing all items damaged by flood due to the extent of personal property inventory involved; whether there were settlement disputes which may have caused delay in finalizing the claim adjustments; whether the insured required additional time due to health conditions (i.e., hospitalization) and required a family member’s assistance in the presentation of their claim; whether the claim involved prior losses and the insured was required to document repairs to the structure and replacement of personal property prior to the recent flood loss; and whether the insured demonstrates that there is additional covered damage for which a supplemental payment is appropriate.

After further outlining the legal position of the parties, the Court held:

The Court agrees with Plaintiffs that it possesses authority to review the waiver decisions pursuant to 42 U.S.C. § 4072. That section authorizes judicial review of “any claims for proved and approved losses covered by flood insurance” that the Director disallows. 42 U.S.C. § 4072 (2006). Defendants concede that section 4072 is a limited waiver of sovereign immunity that applies “with respect to circumstances involving the denial of a claim submitted pursuant to a federally-issued SFIP…”

The key question is whether a request for a waiver of a proof of loss deadline to submit a claim for payment of the loss is itself a “claim.” The Court believes it is.

The term “claim” is not defined by section 4072. Is it nonetheless “unambiguous”? The Court concludes that it is not, or stating the proposition directly, that the word “claim” is ambiguous. Black’s Law Dictionary 247 (6th Ed. 1990), for instance, defines a claim inter alia as a “[m]eans by or through which claimant obtains possession or enjoyment of privilege or thing.” In that sense, one makes a “claim” for possession or enjoyment of a waiver of a proof of loss deadline as much as a claim for the loss itself …

The Court holds that a request for waiver of a proof of loss deadline is a “claim” and, as such, is reviewable by a federal district court.

Policyholders with flood insurance may not appreciate how important this ruling is. We should be vigilant that FEMA does not try to make regulations diluting it. Without a process to appeal and challenge the decision, FEMA administrators can do what they want with impunity. Now those decisions can be challenged.

The Court also set out the standard of review when challenging those decisions:

Having determined that it has authority to review FEMA’s denials of waivers of the proof of loss deadlines in this case, by what standard does the Court review the denials? Since section 4072 does not indicate that the Court’s review should be de novo, the Court accepts the basic standard of the Administrative Procedure Act that the denials not be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A) (2006).

This is a fair and just decision. We all make mistakes and sometimes act arbitrary or capriciously—it is human nature. It is also human to not want to admit our wrongs. Having recourse to challenge such unfairness is a basic concept of American jurisprudence upheld in this case.

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

1. Use the exact Federal Form for the Proof of Loss and not a generic form. Failure to do so may jeopardize payment. It would be similar to filing a Federal Income Tax return with a state form.
2. Figure exact amounts owed. Do not put, "policy limits" or "to be determined."
3. Document the amounts owed and attach the documentation. Do not just "ballpark" or "estimate" an amount. File the proof with actual estimates, proposals, lists, or some type of documentation which "proves" and substantiates the loss amount.
4. Get it received and in the hands of the company listed on the policy by the deadline. Do not just send it to the adjuster on the deadline day.
5. Do not rely upon other oral or written extensions from the field adjuster or his supervisor. Only written extensions coming from the Director or Deputy Director can legally extend the time.

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

We have been receiving some wrongful responses to properly complete Flood Proofs of Loss and imagine many others have as well. If you submit a properly filled out Proof of Loss, the insurer either pays the claim, pays part of the claim, and if the policy allows, may even replace or repair the property. The one thing some insurance adjusters wrongfully do is reject a properly completed proof of loss. This is technically a breach of the insurance contract by the insurance company because no property insurance contract, even a Flood contract, allows that to be the response.

When I did property insurance defense early in my career over twenty-six years ago, my mentor, Paul Butler, Jr., made this point in a number of insurance seminars, but the wrongful practice of "rejecting" properly completed Proofs of Loss still exists for some reason. We have received a number of these from National Flood and the adjusters with Fidelity. We have talked with them and they are clueless about what to do when a Flood policyholder sends a properly completed and documented Proof of Loss for a claim amount which is higher than what they agree is the amount of damage. I hope Russ Tinsley and others with National Flood are reading this because it is a problem that is harming policyholders.

Most insurance companies will pay the undisputed portion of the claimed amounts and try to adjust the disputed amounts through good faith discussion. This activity goes on all the time. Most property insurance claims being handled with disagreements can end with each side giving some after consideration for the other's point of view. But, the Proof of Loss is not rejected. Instead, the good faith insurer merely indicates that it disagrees, puts in writing why it disagrees, pays the undisputed amounts, and usually asks to meet right away for a settlement or other adjustment conference trying to resolve differences in good faith.

The alternatives left to resolve the dispute are usually litigation or appraisal. The problem with litigating against National Flood is the unavailability of attorney’s fees and the usual high expense of federal litigation. The policyholder can win the lawsuit, but have no money after attorney’s fees and costs because the disputes are not usually that large.

A good example of this is in Dwyer v. Fidelity National Property and Casualty Insurance Company, 565 F.3d 284 (5th Cir., April 09, 2009). A summary of the facts were:

"...Fidelity paid the policy limit for contents and $86,629 for flooding-related building damages. After the first set of checks did not arrive, Fidelity mailed a second set, which the Dwyers received in December.

On February 21, 2006, Dwyer sent a certified letter to both Fidelity and Traveler's Insurance Company (“Traveler's”), whose homeowner's insurance policy on the Dwyer dwelling covers wind damage. The letter stated that a contractor's estimate to repair the house was roughly $100,000 more than the combined amounts paid by Fidelity and Traveler's. Dwyer wrote that neither he nor the contractor could accurately distinguish between wind and flood damage, so Dwyer recommended each company pay the additional expenses in proportion to the amount it had already paid. Based on this calculation, he requested an additional $85,471.89 from Fidelity.

Fidelity instructed the Dwyers to contact the adjuster and faxed a copy of the letter to him. Apparently no further action occurred, and the Dwyers sued Fidelity on August 25, 2006, seeking additional money under the policy and damages under federal common law for bad faith claim adjustment. The complaint does not limit its allegations to undervaluation of the Dwyers' loss nor does it disavow a claim to increase Fidelity's share of the wind/water allocation, and it includes claims such as “failing to properly train its adjusters and agents,” which could be related to valuation, coverage, or both.

In its answer, Fidelity denied liability and stated:

If these Plaintiffs' SFIP claims dispute reaches a point where it is established that there is (1) full and complete compliance with all conditions precedent to the making of a claim, and (2) resolution and agreement upon all issues of both coverage and the scope of the loss, then in that event (but not until that event) Defendant affirmatively asserts and invokes the appraisal clause of the SFIP. 44 C.F.R. Pt. 61, App. A(1), Art. VII(P).

...

...Fidelity filed a motion to compel appraisal...

Because the trial date was close at hand, the district court denied the motion as untimely. After a four-day bench trial, the court awarded the Dwyers the difference between Velez's estimate and the money already paid by Fidelity. In addition, the court awarded the Dwyers their attorneys' fees, finding that Fidelity qualified as a “federal agency” under the Equal Access to Justice Act. Fidelity appeals both rulings."

I assume there was no bad faith award because there is no federal common law bad faith. But the case is not finished and insurance monies paid because of what the Fifth Circuit did on appeal. It held that the matter had to go to appraisal despite the long time of litigating the matter and also held that no attorney’s fees and costs could be awarded against National Flood or the WYO (Write Your Own) carriers.

The appraisal analysis first noted:

"The Dwyers...argue that appraisal cannot be requested after suit has been filed. They offer no authority support their position. Nothing in the clause or the contract as a whole establishes a time limit for invoking the appraisal clause. Contractual clauses cannot be evaded by racing to the courthouse, and appraisal and arbitration clauses are routinely invoked during litigation. E.g., Hill v. G E Power Sys., Inc., 282 F.3d 343 (5th Cir.2002) (arbitration); Terra Indus., Inc. v. Commonwealth Ins. Co., 981 F.Supp. 581, 600 (N.D.Iowa 1997) (appraisal). Consequently, the appraisal clause may be invoked after suit, provided that the failure to do so has not amounted to waiver.

…The district court incorrectly homed in on the interval between the appraisal request and the trial date. The appropriate waiver inquiry examines Fidelity's knowledge and action-when Fidelity knew that the appraisal clause could be invoked, whether it reacted timely to the knowledge. Fidelity first learned that the Dwyers disputed only the amount of loss, not coverage or other issues, on January 5, when it received the Velez estimate. Five weeks later, after informal requests failed, Fidelity formally moved the court to compel appraisal. Fidelity did not sit on its rights. In the context of the ongoing litigation, Fidelity raised the issue of appraisal in a timely fashion….”

Regarding the attorneys fees, the Court found: 

“Fidelity, a private insurer, cannot be characterized as a department, commission, administration, authority, board, or bureau of the United States. For the Dwyers to recover EAJA fees, Fidelity must qualify as an “independent establishment” or a “corporation in which the United States has a proprietary interest.” An “independent establishment,” however, is “an independent entity within the executive branch.” Scott v. Fed. Reserve Bank of Kansas City, 406 F.3d 532, 535 (8th Cir.2005) (emphasis added). Fidelity is not so situated, nor is Fidelity “a corporation in which the United States has a proprietary interest.” See id.

Finally, although Fidelity acts as a fiscal agent of the United States, “it is possible to be a fiscal agent ... of the government without being a federal agency.” Id. (citing In Re Hoag Ranches, 846 F.2d 1225, 1227 (9th Cir.1988)). The SFIP regulations expressly state:

A WYO Company shall act as a fiscal agent of the Federal Government, but not as its general agent. WYO Companies are solely responsible for their obligations to their insured under any flood insurance policies issued under agreements entered into with the Administrator, such that the Federal Government is not a proper party defendant in any lawsuit arising out of such policies.

… In analyzing the definition of “federal agency” under the Federal Tort Claims Act, the Supreme Court admonished that although “[b]illions of dollars of federal money are spent each year on projects performed by people and institutions which contract with the Government” and “the Government may fix specific and precise conditions to implement federal objectives,” such contracts and regulations do not transform private actors into federal agencies. United States v. Orleans, 425 U.S. 807, 815-16, 96 S.Ct. 1971, 1976-77, 48 L.Ed.2d 390 (1976). Likewise, serving as a fiscal agent and a participant in a heavily regulated federal program did not transform Fidelity into a federal agency under the EAJA.
…

This conclusion is consistent with that reached by several district courts. See Dickerson v. State Farm Fire and Cas. Co., 2007 WL 1537631, at *4, No. 06-5181 (E.D.La. May 23, 2007) (“[W]hile State Farm is a WYO carrier participating in the NFIP as fiscal agent for the United States, it is not an agency of the United States as required by the EAJA.”); Schopen v. State Farm Ins. Co., 1996 WL 696444, at *2, No. 96-1892 (E.D.La. Dec. 2, 1996) (“Section 2412(b) only applies to civil actions which are ‘brought ... against the United States.’ State Farm is neither the United States nor an agency of the United States.”). The district court erred in awarding EAJA fees to the Dwyers.”

I feel for the Dwyers. It appeared they were awarded only another $56,963.19 which easily gets eaten up by deposition and expert costs even before the cost of their attorneys. Now, they will have to pay for an appraiser and half an umpire’s cost as well. Some may correctly figure that it may not pay to fight the National Flood bureaucracy. Something needs to be done in Congress about this because policyholders are economically forced to take less. There is no meaningful way for them to “win” and be made whole, unless they file a lawsuit to only prove a point.

By electing Frank Artiles, a Florida public adjuster, for the Florida House of Representatives in South Florida, I don't see those kinds of things happening. My law firm is dedicated to helping this become a reality, and we need your help.

On Thursday, August 13, we are co-hosting a fundraiser for Frank Artiles with Miami-Dade County Commissioner Jose “Pepe” Diaz in our Coral Gables office from 6 pm to 7:30pm. Frank is a wonderful person and will make a devoted public servant. We need more bright individuals like Frank Artiles in our legislature who are willing to stand up for the average insurance consumer as Senator Mike Fasano does.

The Merlin Law Group is also presenting a continuing education seminar for public adjusters earlier the same day. At 4:00, I will make an hour-long presentation, Ethical Issues in Presenting Claims. I expect this class to be very interactive, as they usually are when a roomful of public adjusters come together to learn and share with fellow professionals. I have applied for 1 ethics credit for public adjusting continuing education for this class. The following topics are on the agenda:

• Unauthorized/Unlicensed Practice of Law: How to recognize it and to ensure you do not do it

• Unauthorized/Unlicensed Public Adjusting: The legal ramifications of contractors and others associated with the building trade who are not licensed public adjusters and who negotiate insurance recoveries with insurance adjusters

• Code of Ethics: Discussion of the public adjuster's ethical requirement to "put the duty for fair and honest treatment of the claimant above the adjusters own interests in every instance."

• Public Adjusting Contracts: Discussion of waiting periods, signing proofs of loss, appearing for EUOs, excessive fees, and all questions you may have on these topics.

The seminar is in the Westin Colonnade Hotel immediately adjacent to our Coral Gables office. We will host a cocktail party/fundraiser thereafter in our Coral Gables office at 6.

Everybody is welcome to attend the fundraiser. All public adjusters along Florida's east coast should make their way down that afternoon for education, political support, and fun.

You never know what can happen in life until you try. We need your help on this endeavor for Frank.

Public Adjusters can register for the Ethics Seminar by clicking here.

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

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

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

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

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

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

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

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

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

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

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

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

Policyholders should also keep in mind that:

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

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

This is what Ruck reported to me:

"I spoke to Russ Tinsley, and he confirmed that the deadline is being extended by 60 days. The letter has not yet been signed; however, he was in a meeting this morning where they were discussing the deadline and that it was being extended. The letter will be up on the Bulletin site once the letter is signed by Edward Connor [Acting Federal Insurance Administrator], but that may be a day or two.‬‪"

There you have it. For me, my paralegal filed three more proofs of loss today. I trust Russ Tinsley. I have litigated cases against him, but still have a deep respect for his views. Still, until I see that signed letter, Edward Connor could change his mind and then what would we do?

I wish that the FEMA web site worked faster, however FEMA is to be congratulated for extending the deadline.

Many policyholders believed they had to accept the amount estimated by the National Flood adjuster. This common assumption is simply wrong. Flood policyholders should get their own estimates of flood damage and submit those with a properly filled out proof of loss if they disagree with the National Flood adjuster's estimate.

The Flood insurance policies sold under the National Flood Program cover damage caused by "flood." Flood is defined in the policy as:

1. A general and temporary condition of partial or
complete inundation of two or more acres of normally
dry land area or of two or more properties (at least
one of which is your property) from:
a. Overflow of inland or tidal waters;
b. Unusual and rapid accumulation or runoff of
surface waters from any source;

A friend of mine who went through the Windstorm Network's flood training told me that the National Flood instructor gave an example of water from an open fire hydrant accumulating so much water over a city block that coverage would be afforded. The current deluge fits that definition.

Where a substantial amount of water enters into a structure during and after bad rains, we should expect to have flood claims under this policy. Where there are claims against any insurer, including National Flood, there are going to be denials and legal fights. Such events seem to be the nature of property insurance claims, and National Flood is no different.

In Donahue v. Am. Family Mut. Ins. Co., 2006 U.S. Dist. LEXIS 9501, 11-13 (D. Minn. Mar. 6, 2006), the issues concerned the definition of "flood” and the proof needed to obtain coverage following heavy rains. The Court's discussion is revealing:

"American Family asserts that Donahue's claimed losses did not result from a "flood" as defined by federal law and the Policy. American Family asserts that Donahue cannot show that two or more properties were all or partly inundated with water. American Family contends that Donahue has not offered any opinion as to the depth of the standing water she observed, other than to indicate that the water was not deep enough for her to have considered it "ponded." Further, American Family asserts that there is no evidence that the area in which Donahue describes having seen standing water is "normally dry land area." American Family contends that Donahue acknowledges that the area where she observed the water was a "swale" between her house and her neighbor's house. Additionally, American Family asserts that there is no evidence of any substantial rapid accumulation of surface waters or runoff from any source.

American Family also asserts that Donahue cannot rely on statements by casualty agents responding to her claim as evidence that her property had sustained a flood. American Family cites 44 C.F.R. § 61.5(e), which states, "accordingly, representations regarding the extent and scope of coverage which are not consistent with the National Flood Insurance Act of 1968, as amended, or the Program's regulations, are void, and the duly licensed property or casualty agent acts for the insured and does not act as agent for the Federal Government, the Federal Emergency Management Agency, or the servicing agent." Pursuant to that regulation, American Family asserts that the statements made by casualty agents upon which Donahue relies are not binding on American Family as a matter of law and should be disregarded.

Donahue, on the other hand, asserts that the fact that Edina received rainstorms between June 23 and June 25, 2003, provides sufficient evidence to conclude that heavy rains had inundated the area. Donahue also contends that she observed standing water between her home and her neighbor's home after the storm. Further, Donahue asserts that the area between the two homes is normally dry... Additionally, Donahue contends that the Court should assume that the Log entry "GFC" stands for "a general condition of flooding." ...

The parties agree that Donahue must show that "two or more properties (at least one of which is [Donahue's] property)" suffered "[a] general and temporary condition of partial or complete inundation … from … unusual and rapid accumulation or runoff of surface waters from any source[.]" ... Neither the Policy nor the regulations define "inundation." See 44 C.F.R. § 59.1. "Inundation" commonly means "a rising and spreading of water over land not usu[ally] submerged." Mathews v. Farmers Ins. Co. of Oregon, 2005 U.S. Dist. LEXIS 39848, No. 04-6117-AA, 2005 WL 1565261, *8 (D. Or. June 27, 2005) (quoting Webster's Third New Int'l Dictionary (unabridged ed. 1993))."

There were two things that worried me from the policyholder's perspective when reading the case. First, never believe the flood adjuster. The federal law presumes everybody, government employee or not, has notice of and know the federal regulations as well as the adjusters. An adjuster cannot bind the government, which is the ultimate paying entity under the National Flood Program. I know the attorneys reading this are wincing, but everybody gets the message--you rely on the federal flood adjusters at your own peril.

Second, the policyholder, after listening to the adjuster, appeared to have little evidence regarding the extent of the flood. Why should she? She was listening to the flood adjuster--BIG MISTAKE.
I had a feeling that this federal judge was about to clobber the poor lady with the flood claim. He did:

"The Court finds that, as a matter of law, Donahue cannot show that two or more properties were all or partly inundated with water. The Court rejects Donahue's assertion that because Edina received rainstorms between June 23 and June 25, 2003, the trier of fact may conclude that heavy rains had inundated the area. Here, Glanzer stated that although parts of Edina sustained storm damage, there was no reported storm damage on Park Terrace, which sits at a higher elevation than other areas...Thus, the evidence here shows that Park Terrace, where Donahue resides, did not sustain storm damage even though Park Terrace is part of Edina.

The Court rejects Donahue's assertion that the Court should assume that "GFC" stands for "a general condition of flooding" without any supporting evidence. Moreover, the Court finds that the plain language of 44 C.F.R. § 61.5(e) renders "void" any "representations regarding the extent and scope of coverage which are not consistent with the National Flood Insurance Act of 1968, as amended, or the Program's regulations." Thus, the Court finds that statements such as "GFC" in the Log do not show that Donahue demonstrated that Donahue's losses resulted from a flood as defined by the Policy.

Further, without knowing the depth of the standing water, it is unclear whether the water "inundated" the properties. Moreover, Donahue acknowledges that the area in question was a "swale" between her house and her neighbor's house. A "swale" is "a low-lying or depressed and often wet stretch of land." Merriam- Webster's Collegiate Dictionary 1189 (10th ed. 1998). Because water is expected to collect in a swale, Donahue cannot establish that the existence of standing water in a swale revealed a partial inundation even if Donahue contends that the area is normally dry. Additionally, there is no evidence of any substantial rapid accumulation of surface waters or runoff from any source. Viewing the evidence in the light most favorable to Donahue, the Court finds that Donahue cannot establish that her losses resulted from a "flood" as defined by the Policy.

B. Exclusions

American Family next asserts that the conditions which caused Donahue's damages were substantially confined to her dwelling and thus excluded by the Policy. Donahue does not rebut American Family's assertion. Additionally, American Family asserts that the cause of Donahue's damage was the overflow of a sump pump as the result of seepage caused by heavy rainfall, another exclusion under the Policy. Donahue admits that water overwhelmed her sump pump and that ground water seeped through her foundation. However, Donahue asserts that both situations are covered by the Policy if there is first a determination of "a flood in the area." ...

First, the Court finds that the conditions that caused Donahue's damage were substantially confined to her dwelling, and thus excluded by the Policy. Here, there is no evidence that the conditions that caused Donahue's damages extended beyond her own home or property. See Bull's Corner Restaurant, Inc. v. Director of FEMA, 759 F.2d 500, 503--04 (5th Cir. 1985) (affirming the district court's conclusion that the damage resulted primarily from a condition solely related to appellant's premises where only one adjacent property experienced water entry). Further, there is no evidence that her street was submerged in water or that water entered any other home on her block. Although some other areas of the Twin Cities may have been subjected to flooding as defined by the Policy, there is no evidence that Donahue's immediate neighborhood experienced flooding. See Mussoline v. Morris, 692 F. Supp. 1306, 1316 (S.D. Fla. 1987) ("the correct focus must be upon the plaintiff's immediate neighborhood, rather than the Miami area, and upon the amount of damage sustained by neighborhood premises, to determine whether a general condition of flooding was present.") On this record, the Court concludes that the conditions that caused Donahue's damages were substantially confined to her dwelling as a matter of law and are excluded from coverage under the Policy.

Second, the Court finds that the cause of Donahue's damage resulted from water that discharged or overflowed from a sump pump or that seeped or leaked on or through the covered property--additional exclusions under the Policy. Donahue correctly asserts that both situations are covered by the Policy if there is first a determination of a flood in the area. However, the Court has determined that Donahue cannot show that there was a flood in the area. Therefore, the exclusions apply to bar Donahue's claim."

Policyholders can learn from cases where coverage is denied. Getting the facts that fit the specific definitions under the policy are extremely important with National Flood Insurance claims because those claims are determined by federal codes and regulations. In those instances, forget about state insurance law and follow the flood law interpreted by federal courts.

Most important,as I indicated in a prior post, Important Reminder on Deadline for Filing Federal Flood Proofs of Loss, file your federal proof of loss on time and completely. Do not trust your flood adjuster to get the amounts right.

Remember, every jurisdiction is different. Case law and regulations need to be checked. Read the policy to see if it has restrictions on matching because we are seeing more policies that exclude payment for costs associated with matching damaged portions of real or personal property. Coverage may be provided for "pairs" or "sets." Again, the policy is the first place to start any analysis of coverage.


The Suggestion:

Get as much proof from experts indicating that to fix the "damaged" property and not be worse off than before, you have to match the property. And, you must show that it is impossible to somehow "patch" the damaged area so it will match. Get experts to back you on the claim and many insurance adjusters will pay.



Two Good Case Examples

In Holloway v. Liberty Mut. Fire Ins. Co., 290 So. 2d 791, 793-794 (La.App. 1 Cir. 1974), the discussion helps show what type of proof is needed: 

Kenneth McKay, plaintiffs' interior decorator, was qualified as an expert in the field of interior design. He testified that, since the color and pattern of the carpeting originally used in plaintiffs' house had been discontinued, it was impossible to replace the damaged carpeting without replacing all of the carpeting in the bedroom wing of the house. Even if the same color and texture of carpeting could be obtained, to replace only the damaged portions of the carpet, would result in unsightly seams at the juncture point, according to Mr. McKay, and contrast between the old and the new carpeting would be readily apparent and would have an adverse effect on the overall market value of the house. Mr. McKay likened the replacement of the damaged carpet to the effect of replacing a sleeve in a suit with other than the same material with which the whole suit had been tailored originally. He also testified that it was the general practice in Baton Rouge in houses of the type of plaintiffs to use one kind of carpeting and one color in all of the bedrooms, and that to do otherwise would depreciate the value of the house. Mr. McKay testified further that he had been consulted by 50 - 100 homeowners in Baton Rouge who had sustained water damage to their carpeting, and that he always recommended replacement of the carpet in the entire bedroom wing, if the damage had been in any part of that area.

W. W. Wilkinson, a qualified realtor, also testified that if carpeting of the same texture and color is not used in the entire bedroom wing of houses such as the Holloways' house, it diminishes the value of the house by $1,000 to $2,000.

In the light of the testimony of the expert witnesses in this case we find no error in the judgment of the trial judge in awarding plaintiffs the cost of the replacement of the carpeting in the entire bedroom wing of their house." (emphasis added)

An Ohio case stands for the proposition that an insurer must not only match, but pay for undamaged covered property if it is necessarily damaged as a result of fixing the damage initially caused by an insured peril. In Mastin v. Sandy & Beaver Ins. Co., 10 Ohio Misc. 2d 22, 23 (Ohio County Ct. 1983) the court noted and found:

The floor was damaged when a hole was cut in it to gain access to the plumbing system in the house. Evidently, there is no basement or crawl space otherwise accessible. It was uncontroverted that plaintiff's home was in fact damaged by the storm and that it was truly necessary to go through the kitchen floor to repair the damage. Defendants, however, wish only to pay for the floor to be patched, and not replaced. The floor is of vinyl covering such as is purchased in a roll. It is not tile.

Plaintiff's insurance agreement states defendant company is obliged to repair or replace damaged property. The court finds that vinyl flooring cannot be said to be repaired if an obvious patch is left, and that the whole floor ought to have been replaced.

One Case to Learn From

A case which could be read for an insured being "unreasonable" without sufficient proof is St. Paul Fire & Marine Ins. Co. v. Darlak Motor Inns, Inc., 3:97-CV-1559-TIV, 1999 U.S. Dist. LEXIS 23283 (M.D. Pa. Mar. 9, 1999). The assertion by the policyholder was set out by the Court:

Darlak asserts that St. Paul must pay for redecorating the non-damaged rooms because it was necessary to replace the wallpaper and carpet in all of the rooms in order to maintain the continuous decor of the third floor of the hotel... "The rooms that did not suffer physical damage as a result of the fire are also considered damaged property under the policy since the undamaged rooms must look the same as the rest of the rooms on the floor." ...Darlak further contends that "failing to match constitutes successive damage and fails to place the insured in a pre-loss condition."

This situation is quite common in hotels and motels where there are requirements that the rooms have to match. In those situations, it is important to get the franchise inspector to testify about why this is an important aspect of hotel and motel management and leads to a devalued property. Many commercial insurers will pay for this. Obviously, St. Paul does not pay for matching.

The finding was based on a lack of evidence and better proof offered by St. Paul:

Here, Darlak has not provided any proof of loss to the undamaged rooms n7 other than the general assertion that it "would be in worse position subsequent to the loss if the premises looked different in one place than in the other." However, Darlak offers no evidence that it cannot match the damaged rooms to that of the undamaged rooms. Darlak's contention that a failure to redecorate the entire third floor would amount to the creation of an 'eyesore" ignores common sense. Logic dictates that the damaged rooms can be decorated to match the undamaged rooms.

n7 St. Paul persuasively notes that because of sophisticated paint matching' techniques and the widespread availability of carpeting, wallpaper and drapes, Darlak should be able to match the decor of the damaged and undamaged rooms.

We are currently representing a number of hotels and motels with similar issues. You can bet we will provide proof to back up our clients' claims, and I suggest you do the same. Sometimes, there are matching techniques which make the issue moot. However, some insurers will not pay the additional costs of those repair techniques since they claim they do not pay for matching or the "additional" cost of matching.

And, some wonder why we have to file lawsuits over insurance claims.

Proofs of loss are generally required in all insurance policies. They have been noted in insurance policies for hundreds of years. Property, automobile, health, life, and surety policies are among the many types of policies where the insured is required to submit a proof of loss.

The property insurance proof of loss usually is for the purpose of providing the insurer with the formal claim including:

• The amount;
• The parties claiming under the policy;
• Those with an interest,
• The date and cause of loss; and
• Some supporting documents of the amount of the loss.

The policy usually requires that the proof of loss be sworn to as truthful and a notarized signature by the insured.

After submittal of the property proof of loss, the insurer must raise any objections to the proof. These objections should only be technical in nature. Thus, where the policyholder has submitted a properly filled out proof of loss, an insurer should not reject the proof of loss merely because it disagrees with the insureds amount of the claim. Texas Windstorm (TWIA) and other insurers are doing this quite often regarding Hurricane Ike claims. It is a wrongful practice.

If there is a technical problem with the proof of loss, the insurer should specifically point out what the deficiency is so the insured can correct it. Usually, it is because the insured has not sworn to the proof or failed to provide supporting inventories of damage along with the proof.

The time to provide a proof of loss varies from policy to policy. Indeed, some states have regulations regarding the time to provide a proof of loss. The important aspect of this is to comply with the time requirements of submitting the proof of loss. In some instances and in some states, a late filed proof of loss may provide the insurer with a basis to deny an otherwise valid proof of loss.

National Flood Insurance has specific regulations which absolutely must be complied with. Under Federal law, the letter of the law is more important than the spirit. The proof has to be filled out timely and correctly per Federal Regulations. Oral waivers to fill out a Flood Proof of Loss are not valid. Please read my prior posts regarding the National Flood Insurance Proof of Loss issues (here and here).

Improperly and untimely filled out flood proofs of loss will be a matter of malpractice and litigation.

The insurance company generally does not have to pay within a time period after a proof is submitted. Most property insurance policies merely require the insurer to state whether it will pay or alternatively repair the property or take salvage. However, if demanded by an insurer, payment may be withheld until a proof of loss is submitted. So, the general rule is to file a proof of loss with estimates of damage and inventories as soon as possible.

If there is any question about a proof of loss, seek counsel for specific questions. Most attorneys in this field will provide such initial advice for a free consultation.

Here is the applicable wording from the extension letter:

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

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

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

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

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

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

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

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

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

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

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

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