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

The post quoted from a legal filing that indicates State Farm made up its own flood adjustment rules:

The NFIP Claims Manual requires that “repair estimates should be prepared room-by-room,on a unit-cost basis, clearly indicating dimensions and unit costs, except when the building has been completely destroyed.” NFIP Director David Maurstad testified that prior to Hurricane Katrina, flood claims had to be adjusted using a line-by-line stick build estimate. Maurstad also testified that following Hurricane Katrina, he tasked the NFIP Director of claims to come up with a method that “I could ultimately approve that could guide the Write Your Own Companies to handle claims in an expedited process specific to this . . . disaster, to Katrina.”

Maurstad testified that FEMA Directive W-5054 embodied the only expedited claims procedures that he authorized. That directive allowed adjusters to use a square foot value estimator instead of a line-by line estimate in two very narrow circumstances: (1) when a home “had standing water in it for an extended period of time”; or (2) when a home was “washed off its foundation by flood water.”

Discovery revealed that State Farm ignored the NFIP and Memorandum W-5054. Rather than follow the NFIP’s rules, State Farm expressly applied their own rules, which directly conflicted with Memorandum W-5054. David Maurstad testified that that in developing W-5054, he solicited ideas from various insurance companies for FEMA to consider. As part of that process, State Farm submitted a proposal to the NFIP on September 13, 2005, just one week before David Maurstad issued the actual directive. Remarkably, Juan Guevara, State Farm’s principle contact with the NFIP, testified that unlike all the other insurers, State Farm did not have to follow Memorandum 5054, but rather could play by its own rules, as stated in State Farm’s September 13th proposal.

Specifically, Guevara asserted that “5054 is different than the document we received approval to use,” and in fact, that State Farm’s claims handling practices did not change as a result of W-5054 being issued because it continued to adjust claims based on the September 13th proposal. Guevara’s admission is an enormous and dispositive indictment because there is a very important difference between State Farm’s September 13 proposal and the actual directive that was issued by FEMA.

Under the September 13 proposal, State Farm sought permission to use Xact Total “where a site visit was completed and [the damage] appeared to exceed policy limits.” But that part of State Farm’s proposal was not adopted in Maurstad’s final Memorandum. Rather, under FEMA Directive W-5054, Xact Total could be used only if the home had been in standing water for at least five days, or if the home had been washed off its foundations. In addition to his testimony, Juan Guevara’s emails reveal State Farm’s intent to ignore FEMA Directive W-5054. On September 22, 2005, the day after W-5054 was issued, Juan Guevara emailed Jim Shortley because he wondered why State Farm’s proposal regarding the use of Xact Total for policy limit losses was rejected. Mr. Guevara quoted the language in W-5054 requiring all claims (other than those related to slabs or homes in standing water) to be adjusted using the company’s “normal claims handling procedures,” and he stated, “I read this as having to write a complete line by line estimate even if the repairs will exceed the policy limits.”

The Windstorm Insurance Network has national flood adjusters classes regarding flood adjustment methodologies. Indeed, adjusters normally have to be certified as flood adjusters. I, and probably many adjusters from other firms, find it amazing that State Farm would unilaterally set its own standards for the adjustment of flood claims.

Today is the five-year anniversary of Hurricane Katrina. My experience from most hurricane disasters is that it is pretty difficult to find evidence of a storm five years afterwards. It may be difficult for many to see signs of the Katrina disaster. But when you get along the Gulf Coast, there are still many slabbed structures and obvious indications that a catastrophe occurred. Since we have not solved the wind versus water coverage issue, we can expect this to repeat in the future. 

I was thinking of this while reading the August issue of the Insurance Fraud Letter  by Barry Zalma. Zalma, like many in the insurance industry, takes great glee in publicizing when the well known consumer champions fall. I appreciate that those that make a living serving the insurance industry have an allegiance to it and a utilitarian need to pander to those that provide for their living. Still, those self righteous antidotes have worthy lessons and, within the rhetoric, there are often a few jewels. Zalma gave one in his recent newsletter:

"Without Insurance the economy of the world would collapse. No entrepreneur would dare invest money in a business if he could not spread the risk of loss of his property by insurance. No business would dare manufacture a product without the ability to spread the risk of suit from people injured by the product through insurance.

...Insurance is not supposed to be an adversarial relationship. That it has become so is obvious from the volume of suits filed by and against insurers faced with claims."

On a similar point, people often ask why our law firm is so busy. While we certainly have capable, dedicated attorneys and staff focused only on insurance law for policyholders, I think much of it has to do with the rise in litigation in that area of law and the war many insurance companies are waging on their own customers at the point of performance. While Zalma does not say who is to blame for the current "adversarial relationship," I agree with his observation. I find his candor refreshing and surprising because he has little to gain in the eyes of his masters that would rather keep this state of affairs from the general public.

Zalma's truthfulness needs to be highlighted and critically analyzed when considering public policy. As Zalma correctly indicates, insurance is crucial to the world economy. It is a product that touches our lives everyday, although consumers rarely think about it except at the point of sale. Who wants to think about impending doom? Yet, it is obvious that there is a tremendous need for insurance consumer protection at the point of performance because that is the only time the insurer is put to the test.

Some in the business of helping policyholders become upset even when I write anything negative about them or activities they undertake that do not seem to be in the policyholder's best interest. They dislike any publicity or reference to issues raised by the insurance industry that demonstrate a problem or issue casting negative implications upon their ability to make money in the insurance business or that would change the status quo. I suggest that the courage to listen to one's opponent, recognize valid criticism and act upon it is far superior to what is so common in modern culture--making up one's mind solely based upon the source of the message.

In Bill Adding Wind To NFIP Introduced, May Be Discussed This Week, the National Underwriter addressed this recent development:

The House will likely consider legislation on Thursday that would add wind coverage to the National Flood Insurance Program, a plan opposed by the insurance industry.

The bill, H.R. 1264—“the Multiple Peril Insurance Act”—is sponsored by Rep. Gene Taylor, D-Miss. In discussions leading up to the House’s passage of a five-year NFIP extension last week, Rep. Taylor sought to attach an amendment adding wind coverage to the NFIP. But the House Rules Committee ruled it “non-germane” to the main bill, H.R. 5114, the “Flood Insurance Reform and Priorities Act of 2010.”

In a note to colleagues sent today urging their support, Rep. Taylor argued that the bill would save taxpayers billions of dollars by reducing future disaster assistance costs after hurricanes and tropical storms. “As long as wind and flood coverage are in separate policies, there will be gaps in coverage and lengthy disputes over causation after hurricanes,” he said. Rep. Taylor contended that almost all companies in the private property insurance market would benefit from adding wind to the program.

“The NFIP relies on insurance companies to sell federal flood insurance policies,” he said. “The companies keep about 30 percent off the top for agent commissions, administrative expenses and profits, yet bear none of the risk.” This arrangement would continue under his legislation, Rep. Taylor said.

Reflecting the property and casualty industry’s position, Blaine Rethmeier, a spokesman for the American Insurance Association, said, “The entire industry opposes the bill, and no one thinks adding wind exposure to a program that is already $19 billon in debt is a good idea.” (emphasis added)

The strong insurance industry opposition to this legislation was also echoed by the Insurance Networking News in "Insurers’ Wild Week." The article included speculation by one insurance industry lobbyist that Taylor's language was included because of the upcoming election and had little chance of ever becoming law:

"While the Senate ratification of regulatory reform was largely perfunctory, the passage of H.R. 5114, the Flood Insurance Reform Priorities Act of 2010, was replete with last-second drama.

To the consternation of insurers, one of three amendments offered by Rep. Gene Taylor (D. –Miss.), passed by a voice vote and was included in the final bill. The amendment would require private insurers participating in the NFIP “Write Your Own” (WYO) program to remove anti-current causation clauses from their policies. Taylor, whose home was destroyed during Hurricane Katrina and later reached a settlement with State Farm, says the clauses enable participating insurers to shift damage caused by wind to the NFIP.

To be sure, the issue of whether to include coverage for wind damage has been one of the primary issues blocking a long term funding resolution for the NFIP. With the defeat of two of his amendments, a multi-peril insurance bill sponsored by Taylor may come up on the floor as a standalone bill this week. “It’s never over,” jokes Ben McKay, SVP, federal government relations for the Property Casualty Insurers Association of America. Surprisingly, given the number of Republicans representing coastal districts, the vote for H.R. 5114 fell largely along party lines. “There’s a lot of extra stuff in the bill, so if you wanted to find something to love or hate, it’s in there,” McKay tells INN.

[An insurance lobbyist] says that Taylor’s efforts may be largely quixotic, noting that when a bill that included wind coverage appeared in the Senate, there was 85 votes against it. “The Senate won’t pass a bill with wind and [even if they did] the president has said he’ll veto it,” he says. “This may a bit of political gift in a tough election year for Gene Taylor—at our expense.”

Yet, in his remarks on the House floor last week, Taylor’s ardor to include wind coverage seemed genuine as he challenged his colleagues to take up the cause. "Quite honestly, I would like to see which shill for the insurance companies wants to defend what they did to individuals in the Gulf Coast and what they have done to the taxpayers as a whole," he said." (emphasis added)

In April, Slabbed updated everybody on Gene Taylor's efforts in "Let’s talk multi peril insurance and NFIP reauthorization as Slabbed updates the Washington front." That post contained a link to Gene Taylor's testimony on the issue and Anita Lee's coverage of the topic.

Having met with Taylor on this issue and other claims conduct issues following Katrina, I am glad to see he has not given up on finding a way to prevent the insanity of this coverage issue in the future. On his website, Taylor made the following observation regarding what this bill would accomplish:

Another focus of this hearing is H.R. 1264, “the Multiple Peril Insurance Act” which has been introduced by Rep. Gene Taylor (D-MS). After Hurricane Katrina, property owners with an insurance policy expected to be reimbursed for the full damage suffered. However, insurers declined to cover wind damage under the homeowner’s policy if some of the damage was deemed due to flooding, and the NFIP supplement to the policy would only cover flood-related damage. In effect, property owners who had been paying for years for this insurance were caught in the middle of a legal dispute between insurers and the NFIP.

The Multiple Peril Insurance Act would allow homeowners to buy comprehensive insurance and know that hurricane damage would be covered without lengthy legal disputes over how much damage was caused by wind and how much was caused by flooding. Premiums for the wind coverage would be risk-based and actuarially sound. Coverage would be limited. The CBO has scored the bill as budget neutral.

The bill would also reduce future property damage by requiring participating communities to adopt International Building Codes. Windstorm insurance would be available only where the local governments adopt and enforce the International Building Code or equivalent building standards. Thus the bill would not only prevent insurers from shifting liability back to the federal government, it would also save taxpayers money by increasing the number of properties that are mitigated against future wind damage and paid for by insurance premiums rather than post-disaster federal assistance.

In the long run, we will have to pay for the losses we incur. We can do this privately, through the social product of insurance which spreads losses among geographic and time parameters. Similar to the debate about the investment in an energy efficient infrastructure not dependent on carbon, we need promote investment in buildings better hardened against perils of loss. Many of these steps will help reduce the severity of loss risk to private insurers doing business in coastal states.

I hate to sound pessimistic, but I cannot imagine that many insurers would remove a fairly standard clause found in most property insurance policies just to write insurance under the National Flood Insurance Program. I would expect that any final legislation extending the National Flood Program will not require the anti-concurrent clause to be removed from Write-Your-Own policies. And that may be a shame because Taylor's bill would stop the problem many devastated coastal policyholders are forced to resolve following a significant hurricane storm surge.

The civil litigation in the Rigsby qui tam litigation seems to move as slow as my sailboat on a calm day. The McIntosh's claim is a focal point, as the very able qui tam team representing the Rigsby sisters tries to prove that State Farm conspired to overpay national flood claims to reduce its own exposure for amounts owed on State Farm all risk policies. Since State Farm adjusted flood claims, it was an obvious temptation to overpay the non-covered flood peril through Write Your Own National Flood coverage and pay a smaller remainder under State Farm’s own all risk policy. The Rigsby sisters, acting as Relators for the general benefit of the federal government to recoup these overpayments in a qui tam litigation, are attempting to prove this occurred in the Katrina claims handling.

Slabbed has done a masterful job keeping abreast of these developments. The discovery has obtained emails and other State Farm documents not previously made available in the prior individual State Farm Katrina litigation. Policyholder attorneys and those with actions against State Farm should be studying this case as it progresses. As indicated, the litigation has taken quite a bit of time, but the qui tam counsel are doing a masterful job in a very complex matter.

My father is somewhere in Louisiana working on the oil spill mess as a consultant for the state. When we last spoke, he indicated that the oil spill sheen may grow quickly and make the dense and more dangerous part of the spilled oil appear to be coming to shore much quicker than it is really moving. We may have a little more time to prepare for the oil slicks than previously indicated.

Unfortunately, once the slick starts appearing on beaches, it is not just going to stop. Oil is patchy and will deposit on our beaches in various forms, including tar balls. Some marine engineers have sent us private emails suggesting that we will get daily doses of tar balls along the northern Gulf Coast later in the fall and continuing for years.

I will try to get more information on the speed of the oil slick spread. The point is that the water and fishing from Gulfport to Panama City Beach is fantastic right now. People were on water jet skies in Biloxi and there was no scent of petroleum in the air as some previously reported. There is even a contingent of Florida fishermen meeting with officials today in an attempt to open the Snapper season early.

Preparation and steps to mitigate potential damage are always important. Do not panic. Sometimes, things move a little slower than first anticipated--like my sailboat on those calm sunny days.

The Gulf of Mexico oil spill could be leaking at a rate of 25,000 barrels a day, five times the government's current estimate, industry experts say.

Basing their calculations on government data and standard industry measurement tools, the experts said the Gulf spill may already rival the historic 1969 Santa Barbara, Calif., and 1989 Exxon Valdez disasters.

Ian MacDonald, professor of oceanography at Florida State University who specializes in tracking ocean oil seeps from satellite imagery, said there may already be more than 9 million gallons of oil floating in the Gulf now, based on his estimate of a 25,000 barrel-a-day leak rate. That's compared to 12 million gallons spilled in the Valdez accident.

Interior Department officials said it may take 90 days to cap the leaking well. If the 25,000 barrels a day is accurate and it leaks for 90 days, that's 2.25 million barrels or 94.5 million gallons.

Mr. MacDonald and his colleagues at the Earth, Ocean and Atmospheric Science Department have worked jointly with National Oceanic and Atmospheric Administration in the past on oil spill tracking, and have shared their estimates with NOAA scientists. He said the NOAA scientists didn't dispute the calculations.

A NOAA spokeswoman said the government estimate of 5,000 barrels a day leaking from the BP PLC deep sea well was based on collaborative assessments produced by BP, NOAA and the U.S. Coast Guard. NOAA scientists weren't immediately available to comment.

The 5,000-barrel figure was first announced late Wednesday and marked a five-fold increase from the previous estimate. News of the higher estimate ratcheted up the pressure on officials to take more-aggressive steps to contain the spill and heightened concerns about potential environmental damage and disruption to the Gulf Coast economy.

Climate Now called this an Oilpocalypse Now! That blog provides a detailed report on the serious issues confronting Gulf Coast states.

In Safety Device Questioned in '04, the Wall Street Journal also noted that safety devices could have been better:

Some newer rigs have blowout preventers with two separate pairs of shear rams—providing an added safeguard in case one shear malfunctions or hits an obstruction in the pipe. The Deepwater Horizon had a single pair of shear rams.

The Interior Department's Minerals Management Service, which regulates offshore drilling, questioned whether shear rams were strong enough to shear through a pipe.

In two offshore incidents in 2001, the rams didn't work as expected. The agency issued new rules in 2003 instructing the oil industry to make sure the rams would work reliably.

In 2004, a study commissioned by the MMS raised significant questions about the ability of rams to cut through the stronger pipes used in deep-water drilling. Those thicker pipes—as well as the shear rams—must withstand the enormous pressures found at 5,000 feet below sea level.

The study noted there was no agreement on how to determine if the sheer rams would work properly in deep-water conditions. Only three of 14 newly build rigs had blowout preventers that were able to squeeze off and cut the pipe at the water pressure likely to be experienced at the equipment's maximum water depth, the study noted. (emphasis added)

I will be flying over the Gulf of Mexico to Galveston on Hurricane Ike litigation matters as many are reading this post. I am certain that the spill will be even more unbelievable to see than this past Thursday when I last flew over the disaster. The Gulf Coast needs a reprieve from these heartbreaks. The recent post in Slabbed, “We interrupt this interruption of our regularly scheduled disaster blogging to report that levees have failed above Memphis” – said the Editilla this soggy Sunday morning, is sadly accurate of what we have been experiencing lately.

Most people never admit they made a mistake, even after reflecting upon it and knowing they have. I make plenty of them everyday and made one in Friday afternoon's post, Amy Bach and United Policyholders Supports Mississippi Insurance Protections by not pointing out that the proposed Mississippi legislation may not accomplish enough to be worth anything and is worded incorrectly. Slabbed fairly slammed my post in "Merlin – Amy Bach and United Policyholders Supports Mississippi Insurance Protection" for failing to point this out, as they did in "Watered Down Policyholder Legislation Still Hanging on in the Mississippi Legislature."

Mississippi already has a very limited Policyholder Bill of Rights. I feel that the proposed requirement that the Policyholder Bill of Rights "must include a provision establishing reasonable time frames for the processing and payment of homeowners insurance claims" is something very worthwhile because delay of payment is the most common complaint of insureds following a loss. I also believe that eliminating the citation to the Fifth Circuit Court of Appeals decision in Leonard vs. Nationwide, 499 F.3d 419 (5th Cir. 2007), in the current Policyholder Bill of Rights is a valid change by substituting the language:

If a policyholder sues to recover under the insurance policy, the insurance company has the burden of proof as to the application of any exclusion in the policy and any exception to or other avoidance of coverage claimed by the insurer.

However, the following language in the proposed bill makes no sense:

Unless based on sound actuarial principles, an insurance company may not treat a policyholder differently from other individuals of the same class and essentially the same hazard when evaluating a claim.

Actuarial principles typically apply to rates and underwriting. They never apply to claims handling. Here are a couple of examples of how a slight modification of the proposed language may help policyholders:

Unless based on sound actuarial principles, an insurance company may not treat a policyholder differently from other individuals of the same class and essentially the same hazard when underwriting a policy.

or

Unless based on sound actuarial principles, an insurance company may not treat a policyholder differently from other individuals of the same class and essentially the same hazard when evaluating whether an application for insurance is acceptable.

So, is the quest of one motivated private individual, Kevin Buckel, to get a revised Policyholder Bill of Rights a practical attempt to add a little meaningful law for policyholders (assuming the wrong language can be corrected) or a Don Quixote waste of time that does more harm than good, as Slabbed suggests? Could it be a little of both?

United Policyholders noted Kevin Buckel in its 2007 Newsletter:

One person making a difference in Mississippi:
During the summer you’ll find Kevin Buckel keeping kids safe at the water park he manages, but since Katrina blew his home away, he’s become a self-taught citizen lobbyist working to enact a Policyholders Bill of Rights in his home state. With drafting and strategy help from UP, he’s refined the bill and is connecting with other MS citizens working to strengthen protections for policyholders in that state.

Visit Kevin’s site to read his proposal: http://www.msbillofrights.com/msinsurancebillforus.html, and check out “Homeowner Rights Battleground”
http://www.gulfcoastnews.com/GCNnewsHomeownersRightsBattleground.htm.

I give credit to Slabbed for demanding that my posts are accurate and that laws are written to make sense and advance justice. I also give all the credit to non-professional lobbyists, such as Buckel, who are actually meeting with our representatives, writing proposed legislation to advance policyholder rights, and trying to encourage others to take time and participate in our democracy. Policyholders need all the help we can get to protect our rights against the army of lawyers, public relation consultants, and governmental affairs types that the insurance industry has lobbying full-time in every state legislature.

I also had major cases in Florida which were caused by the four historic Florida hurricanes occurring in 2004 and then the forgotten Hurricane Wilma in 2005. I needed to find one additional attorney dedicated to my Mississippi clients on cases I was personally working on. Tina Nicholson then came into my life.

Her interview was unique. I asked her what her dream was to accomplish as an attorney. She told me the practice of law had not been everything she hoped it would up to that point of her career. So, her dream was to find a legal job that would allow her time in the evening to write a novel. Character is important for a lawyer and, combined with her obvious legal writing skills, I felt she would do fine working directly with me, even if her dedication did not seem to be what we expected from the attorneys in our firm.

Like a bee to honey, Tina Nicholson took to the representation of Mississippi Gulf Coast policyholders. She is tireless and relentless in her advocacy. She made me look far too good, far too often. As is often the case, the people doing the yeoman's job never get enough credit.

Slabbed paid a nice little tribute to Tina in a recent post, "Chip Merlin’s Gulf Coast Case Law Update Provides Context for SLABBED Update on Recent Developments in Selected Katrina Cases UPDATED." Slabbed noted:

Considering these points, it’s only natural the both Politz v Nationwide and Hillier v USAA settled as both insurers went far beyond what the related State law required in their demands related to plaintiffs’ mental distress claims. SLABBED wishes both full sails and fair seas and makes note of the tireless effort of their counsel – Kris Carter of Denham Law for Mrs. Politz and Tina Nicholson of Merlin Law Group for the Hillier litigation.

The truth is that Slabbed should have also noted in recent posts, "Let’s Talk Bad Faith Insurer Prime Insurance Syndicate and Appraisal" and "A Kuehn Appraisal Postscript: Hired Guns and Childrens Imagination Station v Prime Insurance Syndicate," that it was Tina Nicholson who was responsible for advancing the policyholder's winning arguments in the The Children’s Imagination Station vs. Prime Insurance Syndicate, Inc.

She was the one that litigated the case and made some jumbled ideas of mine into legal prose worthy of a decision that now helps policyholders when insurers still fail to pay the disputed insurance claim following an appraisal.

Slabbed also noted that in a recent blog, Recent Comments Worthy of Posts Regarding Insurance Coverage Issues, I explained that I believed blogs should not just be propaganda, but a forum to share accurate information and opinions that otherwise might not be available to those who are interested:

One agenda of my blog is to provide an honest opinion of what is going on in the insurance coverage and claims field. I could "dump" on insurance companies to gain business, but that would be a false statement about the truth. Such propaganda would just placate those that want to say that insurance companies are bad. In my view, one of the major problems in our modern culture is not giving credit to those with different opinions just because you do not have the same view. We need to have more mature debate as well as transparency about the "elephants in the room" without fear of reprisal.

To be transparent and keep with that view, Tina Nicholson, along with others, also deserve credit for a lot of the work some may attribute to me in our Mississippi litigation. Tina left the Mississippi Gulf Coast to open our Houston office in June 2008. She is still litigating her heart out for Mississippi clients in a few remaining Katrina cases. And, as a result of finding an area of law with purpose, she appears to have forgotten completely about that novel. All of us are better off for her change of heart and renewed dedication to the practice of law.

"Perhaps Lynda can explain why this is the policyholder’s fault?" is a Slabbed post where the absurdity of an insurer's argument is brought to light. Rarely do I find my attorney colleagues calling each other out for such stupid arguments. I do not often say "stupid" but some insurer arguments have been accepted as "arguable" when most courts should have chastised counsel so that these embarrassing arguments are never made. My hat is off to a non-commercial social blog, Slabbed, for pointing this out.

On this topic of concurrent causation, I made the following posts which others studying this topic should consider:

1. Concurrent Causation Analysis Applied by FC&S---Learning From an Insurance Industry Source;
2. Corban Mississippi Supreme Court Case Decided, Part 2;
3. Corban Part Three: A Win for Policyholders and a Decision Following Rossmiller's Causation Analysis of the Anti-Concurrent Causation Clause;
4. Personal observations of the Tuepker vs. State Farm oral argument

Dan Luby forwarded me an article, “State Farm Will Continue Homeowners Insurance in Florida, Insurance Commissioner Predicts,” which indicated that:

State Farm might not pull out of Florida's homeowners insurance market after all, Florida Insurance Commissioner Kevin McCarty said…

McCarty said he's "cautiously optimistic" that State Farm will keep at least some of its homeowners policyholders in Florida. Bloomington, Ill.-based State Farm is Florida's largest private insurer of homes, and it said in January that it would stop writing property policies in Florida, where it covers 700,000 homes.

"We've really been having intense negotiations with the company at very high levels," McCarty said.

This morning, the St. Petersburg Times similarly reported the findings in “State Farm May Stay for Florida Homeowners.” The on-line article provided some plausible reasons for the change:

State Farm's threat to pull out came after the state rejected its request for an average rate increase of 47 percent. Since then:

• Insurance regulators have approved numerous homeowners rate increases across the state. Universal Property and Casualty, the second-biggest private insurer behind State Farm, got the green light for an average 14.6 percent increase.

• Citizens Property Insurance, the state-run insurer for those who cannot find coverage in the open market, was approved for an average 5.4 percent rate hike for its base homeowners' policies and has a pending request for an average 7.7 percent increase for high-risk properties.

• Regulators said State Farm Florida could eliminate or reduce some discounts it offers its policyholders, effectively increasing premiums for homeowners as much as 28.4 percent. The decision will bring in $278 million in additional premiums for the company after all policies come up for renewals starting Dec. 1.

• There's a growing backlash against state-mandated mitigation credits that property insurers must give to those who take steps to shore up their homes against potential hurricane damage.

Insurers have criticized the program for depleting their premiums and say it is susceptible to fraud. Citizens Property recently approved a controversial $60 million "emergency plan" to inspect for cases of fraud among 400,000 policyholders who have received credits.

Arguably one of the most significant changes: Regulators have toned down their rhetoric against State Farm and other insurers. Despite another mild hurricane season, McCarty recently said he is sympathetic that property insurers deserve increases because they are receiving less in premiums and paying more for reinsurance.

State Farm spokesman Chris Neal said his company appreciates the attitude change.

"The tone has changed from last January when we filed our withdrawal," he said. "At least we're talking.

As I indicated awhile ago, State Farm Must Love the Clash because of its indecision regarding this matter. It is obvious that State Farm was bullying Florida’s government into giving higher rate hikes. It is also obvious that this has been a bluff game for a long time where a corporation of immense wealth wants to continue in Florida but not lose face in compromising its position. The recent newpaper articles seem to confirm my September post, McCarty Claims State Farm Trying to Work Out Deal and Expects Property Insurance Rates to Go Up. I hope they can work something out.

The good litigation news last week for State Farm was the verdict of zero punitive damages in the Bossier vs. State Farm Katrina case. I would not equate the verdict with indicating that State Farm did nothing wrong—it underpaid its policyholder’s contents claim and forced a lawsuit for those benefits to get paid. The jury did rule that no further dwelling benefits were to be paid. Slabbed reported on this case in “While today’s Bossier verdict is still a rumor, chew on this!” and “Slabbed Scoops the News: Bossier gets nothing in Phase 2.”

I was aware of the case before the trial started and we provided the Bossiers’ very able counsel, Judy Guice, with some information and depositions in other matters. Certainly, we will talk with Judy and study the case. We will try to determine where arguments and evidence can be presented in a different manner to help provide a different result. We were pleased that Judge Senter allowed the issue of punitive damages to be presented to the jury.

I was thinking about these two different matters during the deposition because the catastrophe adjuster said that she could recall seeing only one structure in Mississippi that had any wind damage---even inland structures. She testified that she was instructed to determine the amount of pre-existing wind damage by going to the wind data for Bay St. Louis and Waveland to see if there were any strong gusts. She said she found no such data that suggested such strong wind speeds. So, she simply paid everything on flood claim which is under the National Flood Program and nothing for damage under the all-risk policy issued by State Farm.

Sounds crazy, right? Just about as crazy as thinking that State Farm really wanted to bankrupt its agents and stop doing business in Florida? I guess that reading about beating a customer’s punitive damage insurance claim in court and getting approval to raise customer rates in the newspapers is “good news” in the eyes of State Farm. And to most of us, I bet that sounds a little crazy as well.

Robert Hartwig, who heads the Insurance Information Institute, said the ruling could affect the cost and availability of homeowner policies on the Mississippi Coast.

“What this basically suggests is that the cost of claims is going to be higher than insurers anticipated,” Hartwig said, “so there are direct consequences for the price of insurance in Mississippi and potentially for the availability as well.

If the state of Mississippi is going to take a different tack from the federal courts, the policies will have to be priced and underwritten appropriately. It makes selling policies in Mississippi risky and, on average, more expensive. There’s just no other way around that."

The propaganda threat and point is obvious—suggest to those who interpret policies against the insurance industry’s version (judges) that the case is wrongly decided and that those venues with a similar view will have unaffordable insurance, if any at all. This has been the mantra of his propaganda and that of the insurance industry wherever repeated catastrophes have occurred.
 

My response is:

How affordable is insurance that does not pay fully and promptly after a catastrophic loss?

And

Why does the insurance industry find that “good” judicial decisions only happen when denials of coverage are upheld and customers get nothing, unless the insurance industry is more interested in its own profits than caring for its customer and providing a product that serves a purpose after a catastrophe?

Many of my retail corporate clients and their general counsel have told me that if they advertised and then performed in the manner of their insurer, the federal and state trade commissions would be holding “bait and switch” hearings. But, this is exactly the type of treatment insurance executives are calling for when they support the propaganda against their own customers through spokespersons such as Hartwig.

I am not the only one to have noticed this. Slabbed had two posts on the topic, The Push Back on Corban – “You’re gonna pay for this” and Da Corban spin continues: AIA prefers denial while the National Underwriter carries III press release calling it news. The editors of Slabbed were pretty blunt about what they think about Hartwig:

The ink was still wet on that post when 2 days ago the Mississippi Supreme Court ruled that the ACC clause as interpreted by the notorious, corporation loving 5th Circuit ain’t the law in Mississippi. The tragedy is that hundreds of thousands of claims were illegally mishandled for 4 years before we got word. Anyway, State Farm, Allstate, Nationwide and USAA got bitch slapped, and they’re some kinda pissed. I knew there’d be press statements coming, all calculated to terrorize homeowners as soon as the shills got their poison pens loaded. We all know who they are: Robert Hartwig being foremost among them….
…
You see how this sick SOB thinks nothing of threatening us? What he’s saying is “you’re gonna pay for this . . . we’re gonna jerk policies if we have to, or raise rates on you . . . but one way or the other, you’re gonna pay for this!”

In other words, if policyholders dare invoke the rule of law to reign in these monolpolies, they come back with “You’re gonna pay for this!” See how this is just like “whipsawing” rate increases? I’ve said it over and over, big insurance is openly engaged in racketeering…
…
I think it is time we put such intellectually dishonest drivel to bed. Long standing legal principles were restored with the Corban decision which overturned the flawed anti concurrent causation analysis contained in Leonard as well as firmly setting out well established legal principle that insurers have the burden of proof to establish a non covered peril caused a loss on a all perils policy. Insurers, knowing full well the meaning of their policy language were no doubt overjoyed at the gift Edith Jones gave them in Leonard overturning literally hundreds of years of case law but make no mistake they knew the risk they were taking in Mississippi and Louisiana way before Katrina ever struck. To assume these highly paid execs were ignorant of their own policy langauage or that Corban somehow changes the coverage equation is wacky.

I agree completely with the highlighted portion of the quote from Slabbed. However, the equally important aspect of its post should be how insurance customers and regulators throughout the country should start to view most of the property and casualty insurance companies—they are purely interested in their own profits and self interest and do not look at the historical role of insurance as a social product. Insurance companies advertise peace of mind and all kinds of emotional messages. The truth is that many are engaged in a social propaganda campaign to make it appear as if their own customers are wrong to get fully and promptly paid after a disaster strikes. It is almost as if the intended message is that customers suffering a catastrophe are “bad” and getting their benefits is wrong because the poor insurance companies will leave markets or raise rates for the customers that did not suffer a loss in that catastrophe. The message is clear—try to pit the customers that did not suffer a loss that day against those that did to gain additional allies to the insurance industry agenda.

We need political, regulatory and thought leaders, like Slabbed, to make certain that the insurance industry propagandists are called out when they engage in a war against their customers. Until insurance industry executives accept the ethical obligations they have to their customers, there is an ever increased need for strong regulations and legislation mandating honest and fair conduct by this industry. We cannot trust insurance companies to be honorable or do the right thing when the moment of truth is at hand.

I am thrilled as well. Our firm spent over sixty thousand dollars in costs for experts, deposition costs of USAA’s experts, deposition transcripts, and trial exhibits. All of it plus our time was on the line pending the outcome of the trial. Without spending the money to properly prepare and present the case, we certainly would have lost. I am fairly certain that USAA spent a considerable sum above that for its able attorneys and their costs. Its pockets are a lot deeper than ours because it can use its own customers’ premiums to finance litigation against them.

Craig Kubiak has tried approximately ninety cases to a jury verdict. I asked him what he felt was a significant deciding factor in the case. He claimed it was the credibility of the insurance company experts at trial. Sinkholes involve very complex geological concepts. Unfortunately in Florida, they are not rare. However, the distress sinkholes place on structures mimics a number of other geologic and subsurface activities which manifest in cracks or downward subsidence. Without precise and thorough investigation, much sinkhole damage to structures can improperly be attributed to a number of causes excluded under most property insurance policies. Indeed, except for Florida statutes mandating the sinkhole coverage, insurance policies generally exclude this cause of loss.

Craig felt that the pre-trial depositions taken by his wife Kelly lead to a number of flaws and admissions by the insurance company experts. Apparently, some of the soil borings taken by USAA sinkhole experts were discarded before we could have our experts review them. We felt this was improper and tried to exclude the experts’ opinions, but the trial court did not rule with us on the spoliation of evidence issue. We were surprised by this trial ruling. Indeed, the destruction of evidence certainly prevented us from fully questioning the basis for their findings. In the future and as a result of this case, it is my understanding that USAA will require its experts to retain the physical evidence gathered to support their experts’ opinions.

Craig also said the opposing counsel was one of the finest and most effective trial attorneys he has faced. Most insurance counsel are pretty good at trial or they would not be hired by insurance companies on a repetitive basis. Craig and I discussed how it must feel to represent insurance companies on such a basis and if there is joy in a sense of winning for an insurance company. The biggest litigation machines in America are insurance companies and they are savvy at legal representation. We are aware of a number of insurance defense counsel who pour their hearts out, win at trial, and then get rewarded with a fight about the amount of the legal bill or having other less skilled competitors ready to take over an account for cheaper fees.

Under Florida law, we are now allowed to request interest on the amount owed since the time of the denial. We will also ask for taxable costs and an award of reasonable attorneys fees. Had we not prevailed, USAA had filed an Offer of Judgment against its policyholder which it threatened to enforce. Such an action by USAA would have effectively bankrupted its customer merely for filing an insurance claim with USAA and challenging USAA in court. I mention this because, while many USAA customers think USAA is such a nice and good company typically catering to the military, it has a litigation history which can only be described as quite harsh with their member policyholders. The Mississippi Katrina litigation is such an example where USAA has tried nearly as many cases as State Farm, despite having a much smaller market share. Slabbed reported on one such a case in Judge Bridges: the negligence was not “gross.” Still, there are many insurers with a much more “difficult” claims culture than USAA and I feel the Katrina litigation was an aberration for the typical claims decision making for USAA.

Trials are important for society. Lessons are learned from them. Future litigation and controversies can be avoided from the lessons, if applied. I am certain that our mid-fifty year old single mother of two is relieved that she is not facing bankruptcy. Whatever USAA pays in judgment of the verdict and ancillary amounts owed has no such impact upon it. USAA executives and claims managers probably are not worried about any accountability for their wrong decision. I doubt they regret anything.

The Washington Legal Foundation is one of those “ultra conservative” tobacco, manufacturing, and insurance interest dominated “think tanks” that espouses legal theories that limit consumer interests. Insurance defense firms and lobbying groups use these groups for propaganda. They try to get their board members appointed to government and judicial positions. Unless you are supported by one of these groups or you represent those product manufacturers, you could not dispute me. This group is as much anti-consumer as communists are anti-capitalist.

These groups use their vast financial resources to substantially affect our laws, even though they have no vote or legitimate need to affect public policy and the rights of millions of consumers. They hire the most highly paid lawyers, like Sheila Birnbaum. So long as these corporate interest groups are allowed to use their money to influence politicians and the media, Americans will always have the problem of their government ultimately working for the corporations and against their best interests. British Tories were the “corporate interests” at the time of the American Revolution, and corporations represented by lawyers like Birnbaum are the new American Tories of the twenty-first century. Their law firms pretend to do good while they rake-in millions from corporate representation, public relations advertisements, political support, and corporate propaganda. Individual and consumer interests have much less affluent financial political help. Guess who is winning?

Over the weekend, I came across a webinar by the Washington Legal Foundation featuring Sheila Birnbaum. I first thought that Slabbed would have noted this. But, I searched the term “Birnbaum” on Slabbed search and found the following five posts:

• Kodrin v State Farm: a Writ with its wits about it
• The Jawbone of an Ass: Unbridled Arrogance and Regulatory Capture at the NAIC
• Cat scratch fever strikes insurance industry – State Farm has bad case
• The House is Burning Down and Methuselah is Bitching a Blue Streak
• Hello! Hello! Is this the party to whom I am speaking?

None of these were what I found on the video I reviewed. Instead, the video was quite revealing regarding the impressions of Ms. Birnbaum. The main points in her webinar start at minute thirty-eight and end at minute forty-four in the webinar. (Click here to view the video).

My impression from her primary points of the Webinar regarding the State Farm Katrina litigation were:

1. Conduct previously thought was Civil could be made as Criminal by the Insurer’s Conduct.
2. Corporations must have a coordinated defense. Somebody in the insurance corporation must know all the facts and the “big picture.”
3. Insurance Corporations must pursue facts in “dogged” manner and in the face of overwhelming obstacles.
4. Must be willing to persevere after a loss at a trial level to get to judges willing to listen to the legal issues that could be won. She mentioned the Fifth Circuit which most now think is dominated by jurists appointed by interests that support corporations rather than individuals.
5. Prepare for media attention. Cannot sit idle with “no comment” while awaiting resolution from the judicial system.
6. Cannot be cautious but pro-active. Example: Go to the Federal Courts where they gave injunctions to State Farm that may not have been given by State Courts.
7. Respond to the media. You cannot sit idle waiting for resolution to tell your story.
8. “Luck” is important. Scruggs’ problems with unrelated bribery charges helped State Farm’s perception in Court and the media.

I am not a person loved by insurance companies trying to escape accountability for harming others. They wield significant financial resources not unlike those that many in this Country were trying to escape from at the time of our Country’s formation. State Farm may have found comfort in a worthy advocate from New York. Yet, many long-time State Farm customers along the Mississippi Coast know exactly where they stand when it comes to promises of “being there,” when ads require reality rather than just hype.

Let me give you the Reader’s Digest version of this analysis. The relevant policy language is fairly standard in most homeowner policies. The language regarding “collapse” caused by a “windstorm” is significant to this claim. “Collapse” is usually excluded under many insurance policies. However, it is then granted back as an additional coverage because it is “excepted” out of exclusions. This exception to the exclusions only happens if the “collapse” is caused by certain causes. One of those causes is “windstorm.” If a “hurricane” is a “windstorm,” and hurricanes are a combination of wind and flood, the logical reading of the policy is that hurricanes that cause complete destruction will provide coverage because the collapse language excepts the damage out of the “flood” exclusion.

Here is the relevant language from a standard State Farm policy:

SECTION I – ADDITIONAL COVERAGES

* * *

11. Collapse. We insure only for direct physical loss to covered
property involving the sudden, entire collapse of a building or any
part of a building.

Collapse means actually fallen down or fallen into pieces. It does
not include settling, cracking, shrinking, bulging, expansion,
sagging or bowing.

The collapse must be directly and immediately caused only by one
or more of the following:

a. perils described in SECTION I – LOSSES INSURED,
COVERAGE B – PERSONAL PROPERTY. These
perils apply to covered building and personal property for
loss insured by this Additional Coverage;

* * *

SECTION I - LOSSES INSURED

COVERAGE A – DWELLING

We insure for accidental direct physical loss to the property described in
Coverage A, except as provided in SECTION I - LOSSES NOT
INSURED.

COVERAGE B – PERSONAL PROPERTY

We insure for accidental direct physical loss to property described in
Coverage B caused by the following perils, except as provided in
SECTION I – LOSSES NOT INSURED:

* * *

2. Windstorm or hail. This peril does not include loss to property
contained in a building caused by rain, snow, sleet, sand or dust.
This limitation does not apply when the direct force of wind or hail
damages the building causing an opening in a roof or wall and the
rain, snow, sleet, sand or dust enters through this opening.

** *

SECTION I - LOSSES NOT INSURED

 1. We do not insure for any loss to the property described in
Coverage A which consists of, or is directly and immediately

caused by, one or more of the perils listed in items a. through n.
below, regardless of whether the loss occurs suddenly or gradually,
involves isolated or widespread damage, arises from natural or
external forces, or occurs as a result of any combination of these:

a. Collapse, except as specifically provided in SECTION I
ADDITIONAL COVERAGES, Collapse.(emphasis added)

* * *

2. We do not insure under any coverage for any loss which would not
have occurred in the absence of one or more of the following
events. We do not insure for such loss regardless of: (a) the cause
of the excluded event; or (b) other causes of the excluded event; or
(c) whether other causes acted concurrently or in any sequence
with the excluded event to produce the loss; or (d) whether the
event occurs suddenly or gradually, involves isolated or
widespread damage, arises from natural or external forces, or
occurs as a result of any combination of these:

* * *

c.Water Damage, meaning:

Flood, surface water, waves, tidal water, tsunami, seiche, overflow of a body of water, or spray from any of these, all whether driven by wind or not;

* * *

3. We do not insured under any coverage for any loss consisting of one or more of the items listed below. Further, we do not insure for loss described in paragraphs 1. and 2. immediately above regardless of whether one or more of the following: (a) directly or indirectly cause, contribute to or aggravate the loss; or (b) occur before, at the same time, or after the loss or any other cause of the loss:

* * *

c. Weather Conditions

However, we do insure for any resulting loss from items a., b., and c. unless the resulting loss is itself a Loss Not Insured by this Section.

* * *

Although a loss caused by “collapse” is listed under subsection (1) of “Losses not
Insured,” that portion of the policy tells the insured that coverage will be afforded if the
contingencies of the policy’s additional coverage for “collapse” are triggered. That
additional coverage is triggered if the “collapse” involves the sudden entire collapse of a
building or a part of a building. The policy’s “collapse” coverage must also be caused by
certain enumerated actions. In the case of a policyholder that has been “slabbed,” it is undisputed that their property was reduced to a slab, or that the insured dwelling sustained a “collapse,” as that term is defined in the policy. It is also undisputed that the “collapse” of such an insured home was caused by one of the required events listed in the policy, a peril described in Section 1 – “Losses Insured, Coverage B – Personal Property.” According to the policy, State Farm’s “collapse” coverage is triggered by a “windstorm.” In this case, the loss was caused by a “windstorm” event, Hurricane Katrina. State Farm’s insured is, therefore, entitled to rely upon the policy’s additional coverage for “collapse” as an alternative theory to obtain benefits.

It is important to note that the “water damage” exclusionary language is found under Subsection (2) of the policy’s “Losses not Insured.” The introductory language of Subsection (2) contains State Farm’s notorious, “anticoncurrent causation” clause. The policy’s “collapse” provision is grounded under Subsection (1)’s “Losses not Insured” language, and the authority to add the coverage back in is found there.

As Subsection (1) contains different lead-in language, with a much different level of exclusionary authority, it does not make sense for the policy’s Subsection (2) lead-in language to apply to a “collapse.” Essentially, the provisions conflict, creating an ambiguity with respect to the additional “collapse” coverage. Courts routinely hold that conflicting language must be interpreted in the policyholder’s favor. Accordingly, the lead-in language of Subsection (2) and its resulting “water exclusion” cannot be used to defeat coverage in any way.

Importantly, the policy must be read as a whole, and all policy provisions must be harmonized. The additional coverage for “collapse” allows coverage for a “windstorm,” not just for “wind.” Yet, if State Farm (or any other insurer) is allowed to apply the anti-concurrent causation language and/or its “water damage” exclusion to the additional “collapse” coverage, the coverage for “windstorm” would be illusory and meaningless. See York Ins. Co. v. Williams Seafood of Albany, Inc., 544 S.E.2d 156 (Ga. 2001) (explaining, under Georgia law, that an insurer cannot rely upon an exclusion contained in a separate section of the policy as a way to defeat coverage for an additional coverage provision, when the applicability of the exclusion would render the additional coverage meaningless).

Further, if the “water damage” exclusion and the “anti-concurrent causation” clause were to apply under the circumstances of a “slabbed” structure, there would be no need to have the additional coverage for “collapse” caused by “windstorm.” The provision would be meaningless and illusory.

A “windstorm” typically implicates and involves some type of water damage when the windstorm is a hurricane. Similarly, in this instance, the coverage obligation for “windstorm” creates, at best from State Farm’s view, an ambiguity when looking at the exclusionary language at hand. State Farm chose its words carefully, recognizing that a “windstorm” is different than loss caused from “abnormally fast wind.”

If State Farm and other insurers wanted to exclude “collapse” from the flood waters of a hurricane and keep the “collapse” language from “excepting” out the “anti-concurrent” loss language, it should have written the policy in that manner. I think nobody thought about how the “collapse” peril as an exception to the exclusions would apply to a hurricane with storm surge. I predict the ISO and other carriers writing their own standard forms will change the language in the future just to prevent policyholder attorneys from noting this claim to coverage.

I am certain our draft brief can be improved upon. For others who make this argument, please send us whatever you write.

The St. Peterburg Times and Florida Today have written highly critical editorials regarding State Farm's announcement that it would cease all discounts for policies issued in Florida. The Times editorial stated in part:

"...Now the state's largest private property insurer wants to pick the pockets of its customers one last time as it flees the state. Florida Insurance Commissioner Kevin McCarty should not allow that to happen.

The Florida subsidiary of Illinois-based State Farm informed regulators Friday that it wants to trim nearly all of its discounts for homeowners insurance. The changes would eliminate discounts for customers with multiple policies, for those who have hardened homes against hurricanes and even for customers who have been claim-free for years. State Farm's message: We don't care if you have been loyal or invested thousands of dollars to mitigate hurricane losses after the state required premium discounts in return. Just give us more money before we drop you."

Florida Today points out how customers cannot trust State Farm to hold a promise for a small decrease in rates once they harden their homes at great financial cost:

"Reducing or eliminating discounts for homeowners who mitigate against potential storm damage such as by hardening garage doors or installing shutters. The giant insurer was one of the biggest backers of mitigation discounts as one way to ease the insurance crisis in the state after the bad storms of 2004-05.

State Farm also wants to gut longstanding discounts for multiple policies, installing burglar alarms or never having filed a claim."

It also called the recent rates requests by State Farm a rip off:

 "Keep in mind State Farm is a lucrative operation, pocketing $5.5 billion in profits last year.

And that, despite being granted a 52 percent premium rate increase in 2006, it’s threatening to leave Florida, dumping 1.2 million policies statewide if regulators don’t allow more huge and unwarranted hikes.

Insurance Commissioner Kevin McCarty should make sure this latest shady tactic to rip off consumers is rejected too.

For its part, State Farm should drop plans to abandon faithful clients and start playing by the rules. That means submitting reasonable rate increase requests based on independently verifiable risk models, not rigged numbers."

I have to give State Farm credit for its "never give up" attitude. Some, like Slabbed, may suggest what this insurer has failed to give up is an unwavering attitude to generate as much revenue as possible for a product that expenses as little as possible. As I indicated in an earlier Post, this may be a company that has simply forgotten that the insurance business is unique in that its purpose is to serve the public trust rather than private gain.

Ed Rust Jr. is very capable and bright, but is he earning the position or does he just get to keep it because of his dad and long standing family ownership of State Farm's management?

For example, in the 2001 case of Campbell v. State Farm Mut. Automobile Ins. Co., the Utah Supreme Court in 2001 found:

"2. The Nature of State Farm's Misconduct

This factor specifically analyzes the nature of the defendant's conduct in terms of its maliciousness, reprehensibility, and wrongfulness. It mirrors the "reprehensibility" factor described by the United States Supreme Court in BMW of North America, Inc. v. Gore, 517 U.S. 559, 134 L. Ed. 2d 809, 116 S. Ct. 1589 (1996). There, the Supreme Court stated that the defendant's misconduct is "perhaps the most important indicium of the reasonableness of a punitive damages award." ...Repeated "trickery and deceit" targeted at people who are "financially vulnerable" is especially reprehensible and worthy of greater sanctions. ... Moreover, "deliberate false statements, acts of affirmative misconduct, or concealment of evidence of improper motive" also warrant larger awards. ...

With these standards clearly in mind, the trial court made nearly twenty-eight pages of extensive findings concerning State Farm 's reprehensible conduct. We summarize here three examples from those findings of State Farm 's most egregious and malicious behavior.

First, State Farm repeatedly and deliberately deceived and cheated its customers via the PP&R scheme. See Court's Findings, Conclusions and Order Regarding Punitive Damages and Evidentiary Rulings, Campbell, at 17-27. For over two decades, State Farm set monthly payment caps and individually rewarded those insurance adjusters who paid less than the market value for claims... Agents changed the contents of files, lied to customers, and committed other dishonest and fraudulent acts in order to meet financial goals...For example, a State Farm official in the underlying lawsuit in Logan instructed the claim adjuster to change the report in State Farm's file by writing that Ospital was "speeding to visit his pregnant girlfriend." ...There was no evidence at all to support that assertion. Ospital was not speeding, nor did he have a pregnant girlfriend. Id. The only purpose for the change was to distort the assessment of the value of Ospital's claims against State Farm's insured. As the trial court found, State Farm's fraudulent practices were consistently directed to persons--poor racial or ethnic minorities, women, and elderly individuals--who State Farm believed would be less likely to object or take legal action.

Second, State Farm engaged in deliberate concealment and destruction of all documents related to this profit scheme....State Farm's own witnesses testified that documents were routinely destroyed so as to avoid their potential disclosure through discovery requests....Such destruction even occurred while this litigation was pending... Additionally, State Farm, as a matter of policy, keeps no corporate records related to lawsuits against it, thus shielding itself from having to disclose information related to the number and scope of bad faith actions in which it has been involved.

Third, State Farm has systematically harassed and intimidated opposing claimants, witnesses, and attorneys... For example, State Farm published an instruction manual for its attorneys mandating them to "ask personal questions" as part of the investigation and examination of claimant in order to deter litigation... Several witnesses at trial, including Gary Fye and Ina DeLong, testified that these practices had been used against them... Specifically, the record contains an eighty-eight page report prepared by State Farm regarding DeLong's personal life, including information obtained by paying a hotel maid to disclose whether DeLong had overnight guests in her room...There was also evidence that State Farm actually instructs its attorneys and claim superintendents to employ "mad dog defense tactics"--using the company's large resources to "wear out" opposing attorneys by prolonging litigation, making meritless objections, claiming false privileges, destroying documents, and abusing the law and motion process...

Taken together, these three examples show that State Farm engaged in a pattern of "trickery and deceit," "false statements," and other "acts of affirmative misconduct" targeted at "financially vulnerable" persons.... Moreover, State Farm has strategically concealed "evidence of [its] improper motive" to shield itself from liability, which was furthered by State Farm's treatment of opposing witnesses and counsel.... Such conduct is malicious, reprehensible, and wrong.

State Farm responds by arguing in its brief that even if its conduct was wrong, it does not "after all, involve murder, torture, or deliberate poisoning of the environment," and thus cannot warrant millions of dollars in punitive damages. Additionally, State Farm argues that under Crookston II, willful calculated fraud was not sufficient to justify a higher than ordinary ratio of punitive to compensatory damages...

State Farm fails to realize that, while Crookston II held that fraudulent conduct alone was insufficient to justify a large punitive damage award, it also observed that fraud combined with other factors justifies a higher award....the company's 'calculated and calloused attitude' toward settling valid claims." ...In this case, the jury was convinced, and the evidence shows, that State Farm engaged in a widespread pattern of fraud. Moreover, the evidence of its PP&R scheme demonstrates that State Farm specifically calculated and planned to avoid full payment of claims, regardless of their validity. Thus, the nature of State Farm's conduct supports the imposition of a higher than normal punitive damage award."

The United States Supreme Court reversed the amount of punitive damages and sent the case back further review of State Farms's claims culture. This occurred in 2004, before Hurricane Katrina, and the conservative Utah court held:

" In insurance each party must take a risk. But it is inaccurate to assert that if the insured event does not occur then the insured receives nothing in return for the premium payment made. Each insured receives at the time of contract formation present assurance of compensation if the loss occurs which is a valuable peace-of-mind protection.

....

Insureds buy financial protection and peace of mind against fortuitous losses. They pay the requisite premiums and put their faith and trust in their insurers to pay policy benefits promptly and fairly when the insured event occurs. Good faith and fair dealing is their expectation. It is the very essence of the insurer-insured relationship. In some instances, however, insurance companies refuse to pay the promised benefits when the underwritten harm occurs. When an insurer decides to delay or to deny paying benefits, the policyholder can suffer injury not only to his economic well-being but to his emotional and physical health as well. Moreover, the holder of a policy with low monetary limits may see his whole claim virtually wiped out by expenses if the insurance company compels him to resort to court action.

....As the facts of this case make clear, misconduct which occurs in the insurance sector of the economic realm is likely to cause injury more closely akin to physical assault or trauma than to mere economic loss....When an insurer callously betrays the insured's expectation of peace of mind, as State Farm did to the Campbells, its conduct is substantially more reprehensible than, for example, the undisclosed repainting of an automobile which spawned the punitive damages award in Gore....

...

This deceitful conduct can only be explained as part of a scheme to reduce State Farm 's economic exposure. The possibility that its dissembling would expose the Campbells to an excess judgment must have been apparent to State Farm . To react as it did when the excess judgment became a reality only confirms the toxicity of State Farm 's behavior.

...

When considered in light of all of the Gore reprehensibility factors, we conclude that a 9-to-1 ratio between compensatory and punitive damages, yielding a $ 9,018,780.75 punitive damages award, serves Utah's legitimate goals of deterrence and retribution within the limits of due process."

Unlike the vast majority of American corporations whose boards and regulatory audit committees would have cast out a CEO after such findings, State Farm's board of directors and audit committees did nothing. This financial and independent giant thumbed its nose at regulators and the courts. It made no change. I would be more than happy to share anything that anybody has to offer to explain how such a small amount of punitive damages changed one of America's largest corporations (allegedly non-profit).

Utah has Mormon conservatives, but what about Florida, where people from the north and south, liberal and conservative, must agree upon ethics? Is State Farm honest in Florida? How about this finding, which I reported in "State Farm's Freakoutnomics:"

"The recommended Order from the Judge who reviewed the rate increase explains how State Farm’s theory of loss is sham economics. Starting at page 15:

"...State Farm Florida also paid State Farm Mutual $12.8 million for a credit risk provision....
...
Of the total $700 million paid to private re-insurers, State Farm Florida paid approximately $151 million to private re-insurers other than State Farm Mutual. State Farm Florida paid $549 million to its parent company, State Farm Mutual.
...
Payments to unrelated private re-insurers represent arms-length transactions between a willing buyer and willing seller of reinsurance coverage. However, the fact-finder is unable to determine from a preponderance of the evidence whether either the cost of reinsurance purchased from State Farm Mutual or the cost of the credit risk provision purchased from State Farm Mutual is excessive or reasonable....

The economic reality is that State Farm Florida is merely the legal form in which State Farm Mutual chooses to do business in Florida. State Farm Mutual and its wholly-owned subsidiaries, including State Farm Florida, comprise a "group or combination" that the Legislature defines as a "person" ...

Transactions between State Farm Mutual and State Farm Florida for reinsurance and credit risk provisions totaling approximately $561.8 million, when viewed in the light of economic reality... may be transactions which State Farm Mutual engages in with itself and which lack any independent economic significance. Transactions with no independent economic significance would be sham transactions which may distort the economic costs... Such economic distortions may enable the group to derive a rate advantage from the legal form in which State Farm Mutual chooses to do business in Florida."

That is what the judge said and this is what I said:

"The above findings cannot be overstated. The judge made these findings after State Farm and Florida's Office of Insurance Regulation fought over the details of State Farm's request for a rate increase. The bottom line is that what State Farm Florida wishes to report as expense, is largely payments made to its parent company. Essentially, it is moving income from one pocket to another, while claiming it as an expense.

If the media would report on this finding with headlines such as, "Judge Rules State Farm Engages in Sham Transactions," I do not think that State Farm's explanation of financial loss and threats to leave Florida would have such an impact. If people knew the whole story, they would know State Farm’s tales of financial loss in Florida are nothing more than propaganda."

In Mississippi, so many clients had altered engineering reports that it was obvious the problem was not just a mistake. Every time the change was made, it was to lessen the amount owed. Who in any position of leadership would allow this to wrongfully happen without picking up the phone and asking to quietly resolve the matters? I have never spoken to Ed Rust Jr. Other insurers have been understanding enough to have their officers call their policyholders who have catastrophic claims. Slabbed and Anita Lee are reporting events necessary for an understanding of State Farm's litigation culture.

This week, the Florida Appellate Court decided the issue against State Farm and for Florida policyholders and for Kevin McCarty. The important thing is that a "sham" transaction and argument has been made to Florida Regulators and judges. Why should State Farm be able to hold a license in any state given the findings here and in Campbell? Because they have a tremendous amount of money and lots of really nice and friendly local agents? Maybe to keep the license throughout the rest of the country, State Farm should have to change culture at the very top. Do any of you think that you should run your family's business by birthright? Why should Ed Rust, Jr.?

What do you think?

Could you imagine what would happen if a wife asked her husband, "Honey, where were you," and one of two answers were given:

1. "I am not going to tell you where I was because there is no law or regulation that says I have to tell you."
2. "I stopped by the Alibi Lounge to have a drink with the guys." Which may have been true, but only after also seeing "my girlfriend" for an hour outside the lounge.

You can imagine the response. Do insurance company managers understand how their policyholder customers feel with an analogous answer? Yet, it is commonplace.

Even when corporate and commercial policyholders ask if the property insurance adjuster or the insurance counsel can provide drafts of reports or whether they are editing drafts of an alleged expert engineer, the questions are unanswered. Many insurers refuse to answer claiming such information is "work product." Many send the "last" draft which is allegedly the most accurate. It is amazing how often the last draft lowers claims payments.

There are claims managers that mandate full transparency of issues and questions. One State Farm senior claims manager even said that his company has an obligation to provide all drafts to policyholders. This type of transparency in the claims process should be applauded, even if it eventually ends up in a dispute. Honest and good faith differences of opinion can occur. Why not be honest about those?

Even in Great Britain, I notice that policyholders perceive that the claims process is "gamed" against policyholders. While trying to put myself to sleep last night, I read a book from the Oxford University Press, "Policies and Perceptions of Insurance Law in the Twenty-First Century," M. Clarke (Oxford Univ. Press 2007), that verified people in England have the same perceptions regarding an insurer's honest reasons for claims decisions:

"First, it has been doubted whether adjusters come to claims with an open mind. Secondly, why, when the adjuster's investigation is complete, is the report drawn up by the 'independent' adjuster available to the insurer but not to the claimant? The answer is that, in reality and in law, adjusters are the agents of the insurer. The perception of many claimants, who view adjusters with resentment and distrust, is that adjusters are brought in only to beat the claim down."

I can imagine that Slabbed and my policyholder friends in Texas, Mississippi, and Florida can take some refuge in the fact that other legal systems, even one much older than ours, are battling the same problems.

Below is an exchange between a Mississippi Justice and Nationwide’s lawyer during the Corban oral argument. Justice Pierce stretches a hypothetical position to show the illogic of Nationwide’s argument. I found it most recently at the end of Slabbbed’s post, Have we seen the end of rational economics? Behavioral Economics explains the Scheme:

“Justice Pierce:…. if 95 percent of the home was destroyed (by wind), and then we have the event of the storm surge, then you would not pay a dime?

MR. LANDAU: Your Honor, if we prove that the storm surge was sufficient to cause – we have that burden, again, and that is absolutely crystal clear.

If we can prove that the storm surge was sufficient to cause all of this, it is no answer then to say, ‘Yeah, but I’m going to show it — I’m going to have somebody come in and say, “Look, guess what, the window was broken before the storm surge came and then wiped away the whole house.

But you don’t get into those kinds of issues precisely because of the sequencing of the damage.

JUSTICE PIERCE: So you wouldn’t pay a dime?

MR. LANDAU: If – again, we wouldn’t pay a dime for things where we can carry our burden, which is right there in the policy, of showing that the loss was caused concurrently –

JUSTICE PIERCE: I’m giving you — the example is 95 percent of the home is destroyed, the flood comes in and gets the other five percent, and you know that.

Does your interpretation of the word “sequence” mean you pay zero?

MR. LANDAU: Yes, your Honor.”

If this is Nationwide’s position, they should make it clear to every policyholder. Then policyholders and potential customers would have fair warning that Nationwide is not on any policyholder’s side. Some may suggest that insurance policies need warning labels that there is no peace of mind because that position clearly contemplates illusory coverage. To be fair, I have found that Nationwide adjusters in the field do not adjust claims using this interpretation. Why Nationwide allows its attorneys to do so in court is beyond me. Slabbed is to be congratulated for publishing this absurd legal argument and for publicizing the problems resulting from Nationwide’s anti-concurrent causation clauses.

Slabbed highlighted Nationwide’s argument in Breaking: Gene Taylor sends letter to DHS Secretary Napolitano on Nationwide’s stunning admissions in Corban. Representative Gene Taylor has repeatedly tried to prove that insurance products available cannot adequately protect policyholders when a hurricane is accompanied by storm surge. Slabbed has reported in depth on Taylor’s efforts to pass legislation correcting this problem.

Discovery in Mississippi Katrina litigation has proven difficult. There is little downside for an insurer to refuse to turn over information and either objecting for a myriad of reasons or requesting a Protective Order which prevents policyholder attorneys from checking the veracity of the discovery the insurer did turn over. Early in litigation, State Farm would answer the same requests with different responses and far different documents. This did not last long. Now, State Farm objects to disclosure of internal information regarding the claims decisions impacting Mississippi claims. This evidence is crucial to reveal the true story of what, why and how the insurer created its wind/water protocol.

Slabbed reported on this recurrent issue recently in Keeping score #3 – Who has the balls?. The post quoted Mississppi attorney Judy Guice’s brief argument that a federal magistrate was not following longstanding discovery precedent. Her rhetoric shows that she has the guts to pointedly stand up to a federal judge:

“For no good reason expressed, State Farm unilaterally rewrote Plaintiff’s discovery and produced only limited documents relating to claims…This arbitrary restriction was approved by the Magistrate Judge. Given that such discovery is not only allowed within the broad parameters of the Federal Rules of Civil Procedure but more specifically by the same Magistrate’s own orders in similar cases, the restriction in this case is clearly “contrary to law.

…

Plaintiff has sought discovery of documents relating to meetings conducted by State Farm concerning the handling of Hurricane Katrina claims. Acting in a manner contrary to law, the Magistrate Judge protected State Farm from this discovery. Indeed, State Farm has not even been required in this case to produce documents it has produced in other cases.”

I feel for Judy Guice because we have experienced the same frustration. Possibly, this type of pointed argument will be more successful. For a non-lawyer social media web site, Slabbed has done an excellent job portraying the emotional frustrations advocates and policyholders are living through in the Katrina litigation. I will reenergize my efforts in our remaining cases and become more active in coordinating efforts among policyholder attorneys along the Mississippi Gulf Coast to do my best to ensure that those lingering matters also achieve justice and consideration.

I simply do not have time to read Slabbed everyday. Yet, I have no hesitation in suggesting that many can learn a great deal from the posts. The ideas are exceedingly original. I am certain that those in the insurance industry dislike Slabbed because it does have a tendency to demonize the industry and those supporting their status quo. Imagine if all your best friends, neighbors, and family had to endure financial ruin caused by insurance not paying following a devastating catastrophe like Hurricane Katrina. I imagine your rhetoric towards insurers and their agents would not be very complimentory either.

The parties bringing the action, Kerrie and Cori Rigsby, are two former independent adjusters that worked catastrophe claims for Sate Farm,. The hearing is being covered extensively by Slabbed and Anita Lee of the Sun Herald. I wrote a comment a couple days ago in response to SLABBED Daily – May 20 (qui tam Hearing), which sets out how I feel about the Rigsby sisters:

“The Rigsby sisters deserve a big “thank you” from many along the Mississippi Coast. It is a very courageous action to go against one of the largest and most powerful corporations in the world.

As with any that leave a culture complaining of unethical conduct, the first attack is from the company they leave. It is an awful position to be in as a whistleblower.

The information that the Rigsby sisters suggested existed is what lead us to follow up with clients and then engineers that claimed that second reports were far different and limiting than the first reports which indicated different opinions supporting more coverage. In an early lawsuit, we attached both the first and then second report to quiet insurance industry spokesman, Bill Bailey, who challenged and disclaimed the existence of two reports.

Whatever the outcome of this action, the Rigsby sisters decision to leave State Farm and bring this action have significantly helped many of their friends and neighbors. My hat is off to them and to their new counsel.”

I met and spent considerable time with Kerrie Rigsby. She is a very nice and polite person. She is not the rumble and tumble stereotypical catastrophe adjuster that I so often deal with. She looks and acts like a soft spoken third grade teacher. I am certain that the State Farm attorneys will try to show her in a different light. However, if you are a nice person, Kerrie is the type you want to call your friend.

As indicated in Judge Senter’s Order the current hearing concerns the following issues:

“My reading of the Amended Complaint and the documents submitted in
connection with the pending motions leads me to the following conclusions:

1. The merits of this action depend on evidence that the defendants, acting
in concert, systematically submitted false flood insurance claims to the
United States, claims that were not valid under the terms of the Standard
Flood Insurance Policy (SFIP) used in the National Flood Insurance
Program (NFIP).

2. It is the amount of the flood insurance claims that the Relators allege to
be false, i.e. the allegation is that the defendants acted in concert to
submit flood insurance claims in an amount greater than the flood
damage that actually occurred.

3. The Relators allege that the motive for the submission of these false
claims was the defendants’ desire to reduce the exposure under State
Farm homeowners policies, which covered wind damage, by exaggerating
the extent of the flood damage where both types of policies were in force
on the same property.

4. The Relators allege that the defendants had the opportunity to submit
these false claims because the insurers are authorized to evaluate and
settle claims for both wind damage and flood damage, and the adjustors
and engineers the insurers hired were in a position to inflate the amount
of flood damage they observed.

5. There is no allegation that the defendants ever submitted claims to the
United States that were fabricated, only that the defendants acted in
concert to inflate or exaggerate the amount of the legitimate flood insurance claims that they submitted.”

I would strongly suggest that those with an interest of how State Farm operates its catastrophe operations read the Lecky King deposition.

Slabbed has a number of articles on this case including a recent one suggesting that State Farm has invited me to sue it for “settlement fraud.”

To the extent I can, I will comment more on this topic of flood adjustment later.

One of the central figures in many of the State Farm cases is Lecky King, a State Farm adjuster. For a period of time, she invoked her Fifth Amendment privilege and said nothing at depositions relating to her role in adjustments. There were criminal investigations underway after dozens of altered engineering reports surfaced; each initial report was changed to reflect greater flood damage and less damage that would be covered under State Farm policies. Lecky King was allegedly at the center of this controversy, in part, because she reviewed a stack of engineering reports that were subsequently modified.

State Farm did not voluntarily reveal the original engineering reports showing greater wind related damage to its policyholders or the federal government. A State Farm claims executive has rightly indicated that those reports should have been disclosed to the policyholders, along with the "modifications." While Slabbed has a tendency to poke and demonize insurers, there are many in the claims function that understand honesty and good faith mean a complete explanation of the truth, not just a disclosure of information supporting denial or less payment.

In a recent post, Slabbed noted an email from the Rigsby’s counsel that the deposition of Lecky King had been taken. It should be interesting, and we will attempt to get a copy of it. This is a coverage related case worth following because it provides some glimpse at the pressures that claims supervisors demonstrate when faced with a claims organization that never wants to "overpay" a claim. If you never "overpay," there is only one way to go.

Yesterday, Slabbed reported on a blockbuster Hurricane Katrina case where State Farm's conduct is at issue. Allegedly, State Farm attorneys threatened their own appraiser:

 "Tucker and Spragins, both through their representations and their omissions to Minor, attempted to “set up” the Kuehns (as well as Minor; see Exhibit “B,” Second Deposition of John Minor, p. 108) in such a way as to further interfere with the appraisal process as outlined by the policy language, delay the payment of the Kuehns’ claim, and pursue their own anti appraisal agenda on behalf of State Farm. According to Minor’s testimony, the attorneys communicated with him during the appraisal process in such as way as to make him feel they were trying to “blackball” him, or “play dirty pool,” and he felt threatened. See Exhibit “B,”Second Deposition of Minor, pp.159-161. This is the man that State Farm, through Lucky Tucker and Scot Spragins, hired. The only specific instructions regarding the appraisal which Minor could actually remember were squarely in contradiction to what is actually provided for by the subject policy."

State Farm's counsel, Scot Spragins has opposed us in a number of cases. While tough as nails, sometimes confrontational, and very competitive, I have never found him to be unethical. To me, Scot is very typical of the strong stable of attorneys State Farm retains in its defense. While I wholeheartedly applaud Slabbed for bringing this important case into the public awareness, I think their post was a bit strong and premature regarding the alleged findings. Proof is another matter which everyone deserves before making such serious final judgment of someone's character.

I vividly recall getting an agreement from State Farm (which made the infamous wind/water protocol) that a hurricane was a windstorm and that the State Farm claims manual listed "hurricane" as a windstorm. During the Katrina trial in Broussard v State Farm, Judge Senter noted that under the policy, Hurricane Katrina was a windstorm that damaged the real and personal property of the policyholders. In that case, State Farm admitted Hurricane Katrina was a windstorm. All adjusters are taught that hurricanes are windstorms.

So, when Texas Windstorm Insurance Association policyholders think that they have hurricane coverage that covers the waters in a hurricane, and they find the small print of their policy attempts to exclude storm surge and flood related damage, there should be empathy for them. I find it troubling that some might actually display distain for those policyholders confused by TWIA’s policies. It certainly was not the policyholders’ fault or choice to have Hurricane Ike devastate their homes.

The writers from Slabbed hit the mark in their post, Slabbed Welcomes Texas Windstorm Association and Ike victims to "the scheme.” The Slabbers in Texas are just like the Slabbed in Mississippi. For me, the legal causation facts and issues are like deja vu all over again.

The primary coverage difference is that most Slabbers are covered by TWIA while most Slabbed in Mississippi had private all risk carriers. Of course, both the all risk policies litigated in Mississippi also had a named peril of "windstorm" for personal property and "collapse" coverage which is the same as the "windstorm" peril covered for real and personal property in the TWIA policy.

Still, I am going to prove that my clients suffered windstorm damage. Even if the flood and storm surge exclusions will be found as valid in Texas, TWIA is going to have to prove those exclusions. In the Slabbers cases there is nothing left and TWIA will have the same problem all the insurers had in Mississippi proving the fact of the its exclusions. Still, it is going to be a legal fight.

So, for those anticipating and predicting how the litigation may be fought and argued in Texas, I suggest some of the Katrina cases and analysis may provide some guidance. If you read them all, they will most likely provide you some sleep as well.

For non-slabbed structures, which are those that were not completely blown or washed away, the causation and proof of the amount of damage becomes paramount. Some of the recent discussions on Slabbed concerning the Mississippi Rigsby case (which came about from the McIntosh case) demonstrate the numerous factual disagreements.

For those inflicted with insomnia and interested in Slabbers, I suggest that you read the following:

1. Broussard Oral Argument: Warming The Bench Is No Easy Task. (This is very interesting and will not cure insomnia. I wrote it).

2. Two posts by insurance defense lawyer, David Rossmiller: Kodrin Katrina case: Fifth Circuit vacates punitive damage award against State Farm, upholds verdict of wind damage and Abracadabra:anti-concurrent cause and the search for "illusory" insurance coverage. (You may at least be yawning after reading these. I hope Rossmiller does not take a Scruggs-like jab at me for warning you).

3. Northrop Grumman v Factory Mutual 538 F 3d 1090 (9th Cir. 2008). (Sleep time. But, this case and its briefing says a lot about the litigation that I expect will come in Texas.)

There are a couple of fun Texas cases regarding windstorm and some other legal issues I will address in Sunday's post.

An internet article provided to me contained an open letter to Reggie Warren about improper roof adjustments two years before Hurricane Ike struck: 

“Let's review;
~ Allstate has 35,000 South East Texas Hurricane Rita claims.

~ Allstate, using Pilot Claim Service, sets the stage for invisibly transferring their liability for paying claims.

~ Allstate denies/pretends that the most common and abundant 90-100+ MPH wind caused damage* to fiberglass shingles, is really not damage they recognize, and owe for.

~ Allstate claims to contractors and claimants, through Pilot Claim Service cooperation, that Allstate engineers do not (now) recognize what the most historically common wind damage* is, to shingles.

To Jim Oliver, Randy Wipf and Reggie Warren at the TWIA -

Many thousands of people and their children have been effectively 'duped' by Allstate's/Pilot Claim Service (and State Farms') synthetic damage assessment / pseudo indemnification scheme.

* The wind damage denied consists of partially, or completely, wind lifted shingles that can not reseal because of wind debris contamination. Wind damage evidence is very different from workmanship or manufacturing flaws.

To the untrained eye, and without checking by hand, shingle integrity can look fine from the ground.

Being [debris packed], they won't thermally lock down again, and leave a property very vulnerable to wind and water damage, and all that that means.

Too, the abrasive action of hours and hours of 90-100+ MPH wind borne debris slamming across and into the body of a fiberglass shingle, can greatly damage the outer layer, even down to the fiberglass mat.

Allstate, Pilot Claim Service and State Farm know these historical storm damage issues are true, and also know the general public may not, and by systematically denying common damage, have shifted their liability back to their customers, or other unsuspecting property owners, and to the TWIA / General Public in Texas.”

Properly investigating and evaluating roof damage takes time and money. Indeed, evaluating structures for damage to shingles, walls, roofs, brick ties, fasteners, in attics and under roofs, and all windows takes a significant amount of time and training. Many of the effects of windstorm, including wind borne debris, are subtle. Still, these types of damage result in significant depreciation and breakage of a structure’s component parts.

The problem is that most catastrophe adjusters do not spend enough time looking for damage. This is because most catastrophe adjusters are paid on a percentage of estimated covered damage. Many insurance company attorneys try to argue that such a payment method provides an incentive for the adjuster to find more damage rather than less on a claim. However, in practice, the adjuster has an incentive to complete as many estimates as possible. From the catastrophe adjuster’s financial viewpoint, why do one eight hour structural estimate for $665,732.47, when eight superficial estimates in one day can yield $2.4 million in damages. Many catastrophe firms require five to ten estimates a day from an adjuster rather than paying based on thoroughness and accuracy of work.

From the policyholders’ viewpoint, catastrophe adjusters can be wildly inaccurate. It is possible to be overpaid, but I never hear about those instances. I hear of the opposite because policyholders typically only call me when they have not been paid enough. By then, the insurer has usually responded to my clients’ first complaints with a more concerted attempt to justify the quick and inaccurate work of the first field adjuster. This is accomplished by hiring outcome oriented adjusters and “experts” that fail to comprehend any opinion other than those very close to the original estimate.

Catastrophe adjustment firms need more and better trained adjusters, who focus on accuracy rather than expediency. Re-inspectors should be available to look at losses without an attitude of correctness based on previous adjustment. Where the amount of disagreement is relatively small, I think that most policyholders must simply drop the matter, because most cases brought to us involve disputes with a significant percentage disagreement.

It is no wonder why Hurricane Ike policyholders are so upset and our phones are ringing off the hook. The insurance companies had their opportunity to get their job right and they failed. The policyholders not properly paid by this time are furious and upset. While civil lawsuits are about money, quite a few Texans have asked if we can arrange for ten minutes in a closed room with a manager from their carrier.

One of the leaders, Brenda Cannon Henley, recently spoke with me at length regarding her perceptions and anger over the situation TWIA has caused businesses and residents. She is an investigative journalist by training and has experience with the media. My prediction is that her considerable organizational talents and the determination of those from Bolivar are going to land much of this story in the media. Brenda also has a fabulous Blog, where she shares her perceptions of being a coastal Texan. She recently wrote about her experiences with Hurricane Ike and her community's frustration with TWIA:

"I can also still see great piles of debris, parts of fallen in houses, abandoned vehicles, lawn mowers, boats (did I mention boats?), pieces of trailers to move those boats, blown sand piles, heavy equipment, tools of various degrees and flying American and Texan flags. Bolivar, for all of the hard work by so many, still resembles a war zone where much combat took place. It is discouraging at times and heartening at other times. Clean up is dirty work and our beloved Peninsula will remain in this stage for a long time to come. The cleared areas, for whatever reason that they have been worked, are encouraging and new growth is appearing here and there.

Many of our people cannot come home because many of them have no home left to come to. Most are in a battle for their life against the huge Texas Windstorm Insurance Association and we've found that this sad group is not playing by the rules. More than 100 (at this point) of our friends, neighbors and family members are protesting their action (or lack of) in Austin in front of TWIA's offices on Friday, March 13, the exact anniversary of the day our lives changed so drastically. Many have come home — sort of, anyway — to RVs, fifth wheels, and partially repaired properties. We laughingly call ourselves "slabbers" the name TWIA dubbed us early on after the storm. Many others we know simply cannot face coming here to the Peninsula where they believe their dreams of a lifetime died violently six months ago. One of our neighbors has never been back and her husband says she cannot come back. She has developed a raging fear of the water, a fear of diseases she surmises are here, and a fear of losing her life, as at least four of our immediate neighbors did.

For me, personally, once I see the Gulf, with her lazy waves rolling in, or even on a windy day, when the waves beat their way to the shoreline, hear the cry of the gulls, watch the ships come and go, and see little children playing in the sand, I remember vividly why I nailed my mast to the staff here in this place and why I will fight to the bitter end to have my life continue where I choose to live. Bolivar Peninsula is for me the very closest place I've found to the heart of God and what I most imagine Heaven to be like. Until I change locations, love me, but don't worry about me. I am a survivor. I have good friends and a husband who are also survivors. We will be back strong, vibrant, happy, peaceful and content, and, hey, you can come see us on vacation or any time you get an off day from your work. We'd love to have you — as long as you behave yourselves, don't dirty up our beaches, treat the land and water respectively, and join us in our effort to get fair treatment at the hand of our insurance companies. We need your support and involvement as this battle continues."

As I read this, I felt a sense of déjà vu. It was like the Mississippi Gulf Coast following Hurricane Katrina. SLABBED welcomes Texas Windstorm Association and Ike victims to “the scheme” predicted this last year.

Brenda Cannon Henley reminds me of my former Diamondhead, Mississippi client, Judy Dutruch and her organization, "The Slingshot Gang." Slabbed reported on Judy's case in Insurance News You Can Use.

One of TWIA’s preposterous findings in nearly every case is that "slabbers" have exactly the same amount of damage to the estimated replacement cost of the structure--11.2%. Ms. Henley told me she has seen 53 adjusters’ estimates to total loss structures and each of them show only 11.2% damage. All our clients have only 11.2% estimated damage as well. Last week, I posted a sad joke about this, The Parable of Hurricane Ike Insurance Claims.

An adjuster comment was posted to Views From Hurricane Ike TWIA Insurance Adjusters which helps voices additional causes for the anger and need to protest TWIA’s disgraceful claims handling:

"You cannot imagine the hurdles TWIA put property adjusters through on "Ike" claims. I really felt sorry for the Texans that had to suffer three times for one storm. (the actual hurricane), (the TWIA claims process), (contractors repairs)

I hope that Texas can get its act together when it comes to state windpool. When an adjuster calls the carrier regarding a claim, you would think the carrier would understand that it must be an important call for the adjuster to stop what he is doing and contact them. Phones turned off at 3PM, no return phone calls, no communication on payments to insured, and the best excuse is "We have 50 file reveiwers and it will take some time to get to each file." This is a clear misunderstanding of logistics for a storm that created more than 75,000 claims. They should have tried for 500 file reviewers and provide the service the policy holder paid for."

Honest and fair claims handling requires adjusters to fully and honestly explain how an estimate is calculated. None of these TWIA customers have been given this information. I do not expect the full, honest reason will be revealed until TWIA management is put under oath to explain the adjustments. Until then, maybe the protest will spur some action from the Texas Department of Insurance. Hopefully, those good regulators will start investigating the absurd claims behavior, and encouraging TWIA to follow the rules required of all insurers.

Slabbed is probably going nuts because I am indicating that another case may be resolved confidentially and without public scrutiny. So, to help Slabbed understand a little (there is more) of what we do and provide Dimechimes with some more adjuster training lessons, I am publishing the Reports of the Claims Expert and the CPCU expert in the case.

If this post is not removed, I would appreciate any ideas on this case and would love to share information about AIG and Lexington Insurance Company with those who are having claims problems with them.

Deborah Trotter in our Gulfport office is the primary attorney on this matter. She has flown from one side of the country to the other working on this case. We are on a contingency fee and we report to a receiver in the Bankruptcy Court. The client went into bankruptcy long before we were retained and the Court approved as counsel.

The mediator for the case is Jim Perry. He has an excellent reputation and was the mediator in our Port of New Orleans case. From my one experience with him, he deserves the reputation.

One commentator with personal knowledge about our firm in replying to The Parable of Hurricane Ike Insurance Claims, indicated that our files are "thick" when we go to settlement conferences. Our experience is that most good counsel prepare their cases thoroughly.

However, there is significant debate whether all facts should be used as leverage at a mediation. Even in our law firm, I have seen a strategy that "less is more" at mediation since the lawyers just end up arguing about which case is factually better. As mediation is purely about money, the attorneys following that theory do the trial analysis and simply give a one page summary: pay or go to trial.

I prefer to provide information prior to the mediation and discuss the facts less while there. As indicated in a post last week, our firm is discussing trial technique because we expect that more carriers will try to delay their day of reckoning through trial and appeal as the current economic climate worsens. Still, I have my trusted presentation advisor, Jack Stein of Trial Exhibits, with me because I feel compelled to make a few more points.

Will this case settle? Who knows? If it does, you may be one of the few who will know it existed.

I should have just agreed and told him to hire the Merlin Law Group. Instead, I wrote:

"Experience certainly helps do a better job for the client. But, it is no guarantee.

When I was a younger attorney, I hated to admit that experiences as a lawyer, and in life, made a difference in the quality of my representation. Now that I am older, there are so many reasons why I know that I am a much better attorney than 25 years ago. Much of it has to do with learning subtle aspects of human communication and interaction.

Still, I sometimes have the opportunity to get brought into a case with less experienced attorneys that look at matters with a fresh viewpoint. There are many very bright and hardworking attorneys, with little prior insurance experience, that do a very fine job helping policyholders. I try to learn from them as well, and take from them the best of their ideas..."

Nowdoucit was right, and I was wrong.

I thought about this on Saturday morning while eight of our attorneys were in deep discussion with an expert claims consultant about the presentation of insurance cases to juries. It was a beautiful day outside; I could see people milling about and enjoying a free concert. I wondered how many other law firms were working on such a beautiful day, flying in attorneys from other offices to teach how to do a better job for their clients -- specifically on insurance cases where they represent policyholders. I'll bet that the answer to that is zero.

The discussion among us was pretty brutal at times. You do not help others get better at something by just letting them slide by when they do the wrong technique. Eventually, the trial presentation topic changed to reaching settlement after a heated battle with an insurance company. Kelly Kubiak has been quite successful for her clients over the past year and she was trying to articulate her perception of what was working for her. I interrupted and said, "Kelly, you are passionate about your clients and you have experience and maturity. You are a better attorney than you were five years ago because you now have a deeper feeling and anticipation for what works and does not work in a given situation."

Practice makes virtually everything better. Golfers, tennis players, piano players, and poker players get better through practice, study, and experience. The practice of law is no different. And when it comes to representing clients with serious issues, the practice part should have been done long ago.

The email was an advertisement from Compuweather. Here is the advertisement:

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Policyholders should be concerned when experts for the insurance company are getting business by advertising: 

“WIN MORE CASES - PAY LESS CLAIMS - SAVE YOUR COMPANY MONEY”

As I read the advertisement, I remembered my old post, Policyholders File RICO Suit Against State Farm In Handling Of Katrina Claims, where the pressure by State Farm upon engineers was brought to light. I recently posted in Why Causes Of Loss Are Important To You, that:

“Unfortunately, it is sometimes my experience that insurance company adjusters are experts in telling policyholders how little damage occurred following a loss, and they fail to describe how such perils often affect parts of structures which are not readily available for inspection. Indeed, HAAG, an engineering consultant company retained by insurance adjusters, even has courses for adjusters which demonstrate to the adjusters how HAAG can prove that the damage is less than what meets the eye or common sense may expect. The reason other engineering firms generally do not get insurance company business is because they typically lack an orientation to find ways to minimize claims or refuse to accept the low rates insurance engineering firms charge. Guess whether the low rates correspond to low quality work?”

My observations are supported in numerous cases and complaints by policyholders. For example, Slabbed reported in Aiken V USAA Casualty Insurance Company Day 3: The Experts, that Rimkus changed its engineering report with no notice to its policyholder and without even asking permission from the engineer that authored the first report.

The point is that judges and regulators need to understand that the insurance experts hired by insurance companies are often not there to provide truthful opinions but to help underpay claims. Policyholders need to be forewarned about the reality of the experts hired by many insurance claims adjusters.

In today's world, information comes from so many sources. Blogs are increasingly providing significant information from those with particular expertise in various disciplines. Some blogs are very amateurish, including mine, and some are extremely commercial. Regardless of the format, they can be a useful additional source of information. One Blog in particular provides great information for policyholders faced with an insurance claim following a catastrophe. It is aptly called SLABBED. Recent posts have correctly noted some of the issues we have encountered in the McIntosh case. One particular post described how wind pulls, lifts, and sucks on the exterior of a building. It details the discussion of an expert, Dr. Sinno. I recommend Slabbed to anybody who has an interest in anything I write about--it is that good and from a policyholder perspective.