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

Purva Patel has done a marvelous job reporting on insurance claim issues arising as a result of Hurricane Ike. Her article, Windstorm Insurer to Settle Some Ike Cases, in yesterday's Houston Chronicle noted that TWIA still does not recognize that its methodology was wrong:

TWIA has, and continues, to argue that it calculated claims properly.

"The proposed settlement represents a compromise as a result of mediation," TWIA general manager Jim Oliver said in a written statement. "TWIA does not believe its adjusting methods were flawed, and it has not admitted liability by entering into a settlement."

The TWIA attorneys have also done a remarkable job protecting TWIA. Most claims practice criticisms and evidence our firm has regarding TWIA have not seen the light of day, so far. Still, I think a more honest response by TWIA regarding Slab adjustments would have been to note that the science of adjusting slabbed structures following a hurricane is difficult and that the methodologies always have to be reviewed for improvement. I bet Jim Oliver would agree over a beer that the 11.2% adjusted figure we have poked fun at in The Parable of Hurricane Ike Insurance Claims is wrong. I would hate to think he would order his adjusters to do the same methodology again. If so, some future Slabbers will be doing more than just looking to protest in Austin as they did following Hurricane Ike.

While it took me a while to agree, I am also happy that these matters appear to be resolving. We represented almost 200 Slabbed clients in this phase of settlement. There was obviously a lot of gnashing of teeth and frustrating moments for all concerned during the negotiations. Judge Susan Criss did a wonderful job riding herd on the attorneys and should be congratulated for her efforts. She can be pretty tough, but always seemed fair and understanding of the complex issues. It was pretty obvious to many in an open Courtroom that while not mentioning me by name, she expressed some concern about my views of the resolution efforts and negotiations. I may write on some of those matters after the releases are signed.

Still, many more cases are actively being litigated where policyholders have still not been paid fully. The truth is that I am burning up the airways by phone and plane between Tampa and Houston. So, this story about TWIA and other insurance carriers' claims practices is not over. There are reasons why so many in the Houston area have had to wait for so long to obtain fair resolution. Our legal work is not close to being finished regarding Hurricane Ike. At best, I would say we are about in the top of the sixth inning. And with the statute of limitations approaching with new clients calling, these last innings are going to be very slow.

We have now "successfully" represented hundreds of policyholders in Texas, Mississippi and Florida in three different hurricanes with the same exact problem...is it wind or water that caused the damage? Hurricanes Ivan, Katrina and Ike all posed the same legal questions and practical adjustment problem. From my view as a professional nomad helping those with insurance policies obtain recovery where their homes and businesses have disappeared as a result of a hurricane, it is an extraordinarily difficult proposition to see vast areas of destruction knowing that we will have to tell clients that their claims will be denied en masse because the insurance industry will first battle their customers in court before paying a fair sum towards recovery of a total loss caused by an excluded cause of flood waters and a covered peril of wind. For those that retained attorneys and fought, those policyholders have generally done well. I know just about every trick and argument in the book regarding these claims. Yet, there has to be a better way.

As a society, we need to come up with a resolution that pays insurance fully rather than requiring this massive and repeat litigation to occur after each hurricane that carries a significant storm surge. Some in the Florida panhandle are still litigating 2004 Hurricane Ivan slab claims. Until we mandate this change, we are doomed to repeat this scenario.

And since it is Friday, how about a song with a much better reason to do something again:
 

A recent Government Accounting Office (GAO) report of state sponsored catastrophe programs brought this to my attention. The report summary mentioned:

Officials from some state programs said that they limit participation in the reinsurance or ILS markets because the coverage they want is not available at a price they are willing or able to pay without significantly increasing premium rates charged to homeowners.

The result is that most state sponsored programs rely upon the luck of not having a catastrophe where they would have to call upon a state's general revenue obligations to pay for the debt. Alternatively, our state politicians hope the federal government will bail out the state's fiscal irresponsibility. The "bail out" nation mentality is alive and well in state sponsored insurance.

Claire Wilkinson's post at the Insurance Information Institute, State-Run Insurers Lack Risk-Based Pricing, brought this report to my attention. I agree with her observation and the finding of the GAO which concluded that "most state natural catastrophe programs do not charge premium rates that reflect the full risk of loss."

In Florida, I publicly commented on some of these issues while serving on the Citizens Property Insurance Mission Review Task Force, and noted some of them in Taking Tough Positions On Citizens Property Insurance Task Force. Citizen's is correcting this problem by allowing rates to rise gradually. In Texas, TWIA tries to enforce mitigation as a condition to get insurance and therefore lower severities of its expected losses.

When it comes to insurance and public policy, there are probably two concepts all should remember:

1. There is no free lunch.
2. We are all in this together.

Have a great weekend.

TWIA is in trouble. In recent discovery, it's 11.2% maximum damage exposure calculations on Slab claims have been shown to be both arbitrary and wrongly determined. At the Windstorm Symposium in Dallas two weeks ago, my presentation highlighted how TWIA's calculation was arbitrary. My post, Practical Points From Gulf Coast Case Law Update, noted a recent Mississippi case, Fonte v. Audubon Ins. Co., 8 So. 3d 161 (Miss. 2009), which described how such a pre-determined outcome, despite evidence to the contrary, could give rise to a finding of bad faith. Property Insurers Have An Obligation To Investigate All Facts Supporting Coverage, and the refusal to do so because of some arbitrary statistical analysis is bad faith conduct.

I made fun of TWIA's 11.2% logic in The Parable of Hurricane Ike Insurance Claims. The frustration to TWIA customers caused by such illogic and failure to act in a transparent nature and explain the basis for the calculation resulted in protest, as noted in Texas Windstorm "Slabbers" and Policyholders March on Austin. TWIA's attorneys, if they are honest, have to acknowledge that the calculation was wrongly determined. Even assuming the methodology is sound, the data is wrong and the calculation is far too low. TWIA should be voluntarily paying more benefits, interest and attorneys fees---assuming the current TWIA executives understand their obligation of good faith, which requires such immediate action. Most have a hard time admitting failure and accepting full accountability for wrong decisions. We'll see what spin those crafty and able insurance defense attorneys are able to place on this situation.

Texas insurance coverage disputes also have more causation issues than most states. Much of this comes from case language and logic pre-dating the development of the all-risk insurance policy. At dinner with three different law firms last night, we discussed the burden of proof in an all-risk scenario, as I did in Can an Insured Recover Under a Flood Policy and an All Risk Homeowners Policy for the Same Damage? Texas case precedent needs to reflect what the rest of the country has long noted regarding the burden of proving damage under an all-risk policy. Virtually all the insurance companies selling all-risk policies in Texas have claims manuals which indicate that the policyholder merely needs to prove that damage occurred during the policy period. Those manuals then indicate that the insurer has to prove the amount of the excluded damage or happily pay its customer. Amen.

Given the popularity of Texas Hold'em, the raging litigation battles we are fighting, and the change of heart needed by many Texas insurers for settlement, this movie and song clip seems fitting:
 

In Slabbers Finally Learn How They All Have Exactly 11.2% Damage, I discussed how Dr. Spelman explained in another case his statistical methodology for determining how much damage occurred to structures that were obliterated by Hurricane Ike.

The “Reader’s Digest” version of what he did to calculate how each of the Bolivar Slabbers would be entitled to 11.2% was to perform a statistical regression analysis where three main variables were considered to provide a statistical expectancy that 95% of all residential Slabbers would fully be indemnified for wind only damage if TWIA paid 11.2% of the insured value of the structure. He was provided information and variables from 387 TWIA estimated claims of partial damage. After consultation with TWIA retained engineers, he considered 18 different variables from those claims, but found that only three of them had a significant impact upon the wind damage. Those three variables were:

1. Whether the building use was residential or commercial.
2. Whether the building was constructed before 2004.
3. Whether the roof was placed on the structure before 1989.

He determined a “loss ratio” which he defined as the Actual Cash Value payment by TWIA on the partial damage buildings divided by the Insured Value. The average residential payment loss ratio was 9.8%. But, if TWIA paid 11.2%, he calculated that 95% of all Slabbers would statistically have their full indemnity on an actual cash value basis.

There is much to criticize with this work. Indeed, from what we have reviewed regarding the accuracy and low-balling of the TWIA estimates of partial damage, the entire population will have to be revised. We will provide more on the extent TWIA underpays wind damage claims on partial losses.

I expect that two of the many reasons to criticize his conclusions will be that TWIA has paid significantly more on partially damaged structures after policyholders retained public adjusters and that the most significantly damaged structures were not part of the population giving rise to his conclusions. In other words, the data on which he based his determination of 11.2% is fundamentally flawed and his numbers should be higher---assuming his methodology is valid.

To the extent permitted by the Court, we will make the deposition transcript available to the public. It would be interesting to hear others’ views on how TWIA handled the slab claims and on Spelman’s methodology in determining wind versus flood damage.

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

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

I found my fellow Texas attorneys working on these cases are impressive and motivated. In other situations, meetings tend to drag on and decisions are delayed. That is not what occurred with this group.

The work, findings and discovery will be shared. The assignments were made and agreements entered into regarding the logistics. It took a little over an hour. I have been in other venues and with other attorney groups where a discussion about how such a meeting would be conducted took over an hour.

About this time last year, the Texas TWIA policyholders were protesting, as I posted in Texas Windstorm "Slabbers" and Policyholders March on Austin. The "Slabbers" had been predetermined to have exactly the same amount of damage caused by wind, as punned in The Parable of Hurricane Ike Insurance Claims. Later, we found out how that amount was determined, as posted in Slabbers Finally Learn How They All Have Exactly 11.2% Damage.

While many TWIA cases are being settled, many of the Slab cases are not. The Galveston Court has made a very efficient and cost effective method of depositions and examination of issues for all. TWIA executives and experts who made policy and decisions regarding payment will now be subject to examination in these cases. One way or another, these cases will move much quicker towards resolution this year.

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

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

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

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

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

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

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

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

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

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

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

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

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

I have often indicated that when insurance company claims executives start developing attitudes of ensuring no overpayments occur, there is only one way for a claims adjustment to go. Implied threats to field adjusters' financial incentives through a number of methods is one method claims executives use to create a culture of underpaying claims. This appears to be the case as disclosed in the article which referred to internal TWIA documents:

Worried About Overpayment

But when USAA, a private insurer that also handled some claims for TWIA, used prices from industry software, a TWIA manager worried that USAA was paying more on losses than other adjusters. “This could create a problem at TWIA in the long run if it is discovered that USAA was allowed to do something different than the other” adjusting firms, Reggie Warren, vice president of claims, wrote in an e-mail to USAA.

In the same e-mail, he grants USAA permission to use the software, but suggests the association should rethink its contract with the company. A spokesman for USAA declined to comment.

The implication is obvious to USAA--"lower your prices or risk the possibility that your catastrophe adjustment contract will be terminated." Can there be any other reasonable implication meant by the email from the TWIA claims executive to USAA? Such an email is far different than:

We have very different pricing numbers for construction. We need to meet with you to go over how you have determined your numbers to reconcile the differences. If you are right and we are wrong, TWIA has been severely underpaying our customers for amounts owed and we will have to start re-opening claims to make certain our customers get every penny they deserve.

The documents referred to in the article are far from that type of attitude. Yet, such an attitude should be easily apparent from claims executives memos and training if an insurer truly has a claims culture based upon "good faith."

Instead, TWIA attorneys are spinning the claims attitude as TWIA executives being responsible for preserving assets. Those same attorneys are also seeking to avoid accountability for the wrongful claims conduct as indicated in Purva Patel's article "Windstorm Insurer Seeks Immunity in Lawsuits."

...lawyers for policyholders say the association is effectively a private company, and that immunity would let the insurer escape consumer protection laws. More than 900 lawsuits against TWIA could hinge on how courts rule on the immunity question.

Nearly all of the lawsuits seek punitive damages, attorney fees and other amounts beyond what policies provide, Mike Wilson, an attorney representing the insurer, said in a written statement.

“TWIA wants to pay all claims that are owed under the policy,” he wrote. “For claims that seek money damages beyond policy benefits, the association has a duty to conserve TWIA's assets so that affordable windstorm and hail insurance is available to all policyholders.”

See the clever "spin?" Those attorneys suggest it is better to break the obligation of good faith because they have an obligation to other customers to preserve money. They seek to avoid accountability for mistreating customers under a worthy, but false, pre-text--making certain there is money in the treasury for other losses. The effect is that while rules of good faith apply, there is no penalty for breaking any of the rules. I wonder if those other customers think they will be treated differently and in good faith when they eventually have a claim? Is it right to cheat people out of money or not pay fully on a debt to make certain there is money in the treasury?

Some political leaders in Texas have caught onto this claims mess and are also calling for regulatory action.

One lawmaker found the allegations and documents so alarming he called for an investigation of the insurer and its oversight by the Texas Department of Insurance. “The documents demonstrated a callous attitude toward insured families of the Texas coast,” Sen. Rodney Ellis, D-Houston, said in a written statement.

“These documents demonstrate a pattern of deception resulting in wrongful underpayment and denial of Hurricane Ike claims by TWIA.”

I made a comment yesterday to some insurance industry executives serving with me on the Windstorm Network's Board of Directors that 'TWIA claims executives make you guys look like pussycats when it comes to hardball claims practices.' They were amused by TWIA's practice of refusing to pay for adjusters time and work when a file was re-opened. I know of no other insurer with such a scheme from trying to get the full amount paid as reported by the Houston Chronicle:

By November, TWIA was getting hit with requests from policyholders asking for their homes to be reinspected. If an adjuster finds more damage upon additional visits, they submit what’s known as supplements to the claims.

...

In an e-mail to an adjusting firm in November, Warren noted that many of the adjusters it used were inexperienced and “not getting the job done.” If adjusters had done a better job the first time they visited a site, there would be fewer files to reopen, he noted.

Despite acknowledging TWIA could face many reopened claims because of adjuster mistakes, the insurer made it hard for homeowners to get their claims reexamined, according to the lawsuit. Warren told adjusters in a memo that homeowners had to have credible evidence to force the reopening of a claim. An estimate from a public adjuster — independent adjusters hired by homeowners — was not enough, according to the memo.

To make matters worse, in late 2008 TWIA restructured how it paid adjusters for re-inspections, effectively discouraging them from looking for more damage...After Dec. 1, adjusting firms earned $105 plus time and expenses if they denied a claim....If they found more damage, they risked not getting paid at all if TWIA determined an adjuster erred during the first inspection...

I recently read an interesting engineer's report attacking the opinion of a Safeco engineer's report. In it, the engineer was so upset with the Safeco's engineer that he wrote that Safeco was "peeing on my leg, but telling me it was raining." I suggest that many of TWIA's customers feel the same way when reading the responses from TWIA's claims management.
 

One even made a joke about how, according to TWIA, they each have exactly 11.2% of building value damage, reflected in The Parable of Hurricane Ike Insurance Claims:

The parable is a story of two men, Larry and Moe, who were on the peninsula when Ike hit. Larry was struck by a flying 2X4 launched by the wind, then, when the surge came, he grasped a floating timber and made it to safety. He was treated for his injuries, estimated at 11% of his being.

Moe was not so lucky. He was killed instantly by a flying TV set. The storm surge subsequently swept his body away.

The medical examiner compared Moe's corpse to Larry. After taking several months to consider the situation, the examiner declared that Moe was only 11% killed by wind, because that's what happened to Larry. He opined that 89% of Moe's death must have been due to flooding.

As a result of Javier Delagado following up on evidence produced in an administrative trial, Slabbers finally have the answer of how TWIA performed the calculations that everybody has exactly the same damage. The person making the calculation for TWIA was University of Texas Professor William Spelman. The TWIA attorneys introduced his testimony via a previous administrative hearing to avoid expense—so much for the ability to confront and cross examine a witness. The TWIA pleading was very telling: 

Dr. William Spelman provided sworn testimony in a previous contested case hearing involving a "slab" claim (see SOAH docket No. 454-09-3158.E). He has not been retained by T.W.I.A. to specifically evaluate any particular claim, but rather he was reetained to perform a statistical analysis from which all slab claims were evaluated by T.W.I.A. His sworn testimony offered in the previous contested case hearing explained the process by which he performed his statistical analysis, and another witness explained how that statistical analysis was applied to the particular slab claim.

Spelman’s transcript revealed that he has no insurance claim experience. Instead, his education is political science, economics, and public policy. He is not a contractor, estimator, meteorologist, or engineer. He teaches applied math and statistics at the University of Texas-Austin School of Public Affairs.

The “Reader’s Digest” version of what he did to calculate how each of the Bolivar Slabbers would be entitled to 11.2% was to perform a statistical regression analysis where three main variables were considered to provide a statistical expectancy that 95% of all residential Slabbers would fully be indemnified for wind only damage if TWIA paid 11.2% of the insured value of the structure. He was provided information and variables from 387 TWIA estimated claims of partial damage. After consultation with TWIA retained engineers, he considered 18 different variables from those claims, but found that only three of them had a significant impact upon the wind damage. Those three variables were:

1. Whether the building use was residential or commercial.
2. Whether the building was constructed before 2004.
3. Whether the roof was placed on the structure before 1989.

He determined a “loss ratio” which he defined as the Actual Cash Value payment by TWIA on the partial damage buildings divided by the Insured Value. The average residential payment loss ratio was 9.8%. But, if TWIA paid 11.2%, he calculated that 95% of all Slabbers would statistically have their full indemnity on an actual cash value basis.

There is much to criticize with this work. Indeed, from what we have reviewed regarding the accuracy and low-balling of the TWIA estimates of partial damage, the entire population will have to be revised. We will provide more on the extent TWIA underpays wind damage claims on partial losses.

Still, I felt that Slabbers are entitled to know the person and how the amount was arrived at. Here is the pleading and testimony for everybody’s review.

While researching and writing materials for my upcoming presentation, I came across a fascinating web site that may be useful to adjusters, policyholders, and other attorneys with building issues. The site, InspectAPedia, is developed by Daniel Friedman. Friedman’s resume indicates that his present occupation as follows:

• Journalist, since 1953 (cub reporter, Richmond News Leader), specializing in environmental & construction inspection, diagnosis, & repair, & forensic investigations. His technical and other writing have appeared in various publications since 1953, including the The ASHI Technical Journal (where he served as publisher and editor), and contributions to Progressive Builder and New Shelter, the Journal of Light Construction, New England Builder, Fine Homebuilding, Smart Homeowner, the Old House Journal, and in various newspapers including the New York Times, Richmond Times Dispatch, Richmond News Leader, the Poughkeepsie Journal, the Mensa Journal, as well as in various U.S. EPA, CPSC, and other Government publications. He is the editor and lead author of the building and environmental problem diagnosis and repair online encyclopedia InspectAPedia.com.

• Forensic Microscopy, since 1985, specializing in particle identification for diagnostic purposes, including buildings, indoor environment, and works of art. Works with art & building conservationists on contaminant identification & paint failure analysis, performing particle, mold, debris, & stain identification by microscopy and microchemistry for museums (Museo de Arte de Puerto Rico) and galleries and with U.S. National & State Park Services & historic societies to assist in art works & building conservation.

• Environmental, Indoor Air Quality & mold field investigations and laboratory services, since 1985, specializing in particle identification, IAQ and mold, pollen, allergen, and other indoor air particle investigations. Microscopy Lab Analysis for sick Buildings or in the course of art conservation, including on-site and mail-in sample lab services;

• Construction Evaluation & Diagnosis since 1978 as American Home Service Company: residential and commercial real estate Building inspections, home inspections Construction problem diagnosis, research, & solutions; also, construction arbitration, Building defect investigation, expert witness, photo, video, and written documentation of Building conditions and defects. Special consulting & research in electrical systems and hazards, water supply, onsite waste disposal (septic systems), materials failures, structural failures, paint, roofing, and siding failures, water and moisture-related damage, Building-related illness, bioaerosols, site & environmental hazards and concerns.

One of the primary aspects of property adjusting is the thorough investigation of a structure for damage. Adjusters are often under significant time pressure and do not adequately look at the important parts of a building structure following a loss. I thought Friedman’s description of the detail required to properly conduct a thorough inspection was a critical lesson.

Friedman’s article, “Asphalt Roof Shingle Wind Damage Causes & Evaluation,” has an excellent discussion on aspects of roof damage and its causes following a windstorm event. For instance, he indicated in part:

Roof Installation Workmanship: Fasteners/Nailing Problems, Wind Damage appeared to have led wind blow-off of these Atlas shingles, though an investigation of whether or not the shingles had self-sealed was also needed.

Weather: Wind damage can happen to any asphalt shingle roof in severe weather conditions. However if shingles are not properly nailed, shingles are far more likely to blow off of the roof in even a modest windstorm.

Proper roof shingle nailing: Roofing product manufacturers are careful to specify where shingle nails should be placed in each shingle and the number of nails required. These specifications may vary by shingle type and building location, with more nails specified for high-wind areas such as asphalt shingle roofs applied in coastal areas.

Components of roof shingle wind damage resistance: Asphalt shingle wind resistance combines several factors including the effectiveness of the glue strips on the shingle backs which adhere the shingle courses against wind-uplift, roof pitch, roof orientation with respect to prevailing winds, and importantly, proper shingle nailing patterns.

Not only must nails be properly placed and spaced, improper nailing itself, such as driving a nail through the shingle, leaving a nail sticking up to cut a shingle above, or using a roofing stapler improperly leaving cocked staples or shingle-cutting staples will all encourage shingles to fly away with the wind.

If a new roof has the bad luck to encounter a severe wind storm shortly after asphalt shingles have been installed, it is possible that the shingles will blow off of the roof because their self-sealing tabs have simply not had time (or warm enough weather or enough sun) to adhere.” (emphasis added)

While reading his article, I kept imagining how the insurance company may try to use a more thorough investigation to find causes leading to the loss other than just windstorm and then raise the anti-concurrent clause exclusion as a means to escape liability. But, that is another topic.

He also had an example of a TWIA (Texas Windstorm Insurance Association) inspection involving damage following windstorm in his article, “Mechanical Damage to Asphalt Shingles - cuts, punctures, tears, granule loss.” His case analysis did not appear favorable to finding windstorm related damage but instead indicated the following in part:

1. Primarily, questionable or perhaps even poor workmanship, use of staples, mis-located, staples askew, high raised-corner staples, mis-stapled on top of shingles, foot traffic, mechanical damage, possibly excessive bending in cold weather at the hip/ridge appear to be the problems on this roof. We also saw some minor mis-nailing or inadequate nailing leading to a single blow off at the roof hip.

2. Secondarily: a few of the cuts and damage could be defective product - see CRACKS in FIBERGLASS SHINGLES. At least one cut was made by a tool or implement.

3. Weather does not appear to be a root cause of this roof damage, though once a shingle has been worn by walking or mechanical damage the exposure of the shingle substrate accelerates wear and granule loss.

4. We would not characterize the prime problem of this roof as "granule loss" which was the original owner's concern. GRANULE LOSS from SHINGLES provides more details.

For readers with structural loss questions, I suggest that Friedman’s site can provide some valuable general information.

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

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

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

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

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

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

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

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

I hope that Jim Oliver or others from TWIA can attend the seminar and engage in a civil discussion of the concerns many have over the handling of Hurricane Ike claims. I truly believe an honest and open dialogue would be helpful for all involved.

Click on the image below to read the letter:

I discussed the lifted shingle issue earlier this year in my posts, Internal Texas Windstorm Roofing Claims Memo Explains Damage is Not Covered, The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions, and Roof Repair Methods Prove TWIA is Wrongly Denying Roof Claims.

The Merlin Law Group will host a seminar in Houston, Texas, for public insurance adjusters this Friday, September 11th, Hurricane Ike – What a Difference a Year Makes? The lifted roof shingle issue will be one topic of discussion as well as a special analysis regarding TWIA practices. I look forward to seeing you there.
 

I reported on this last January in my post, Citizens And TWIA Bad Faith Exposed. I further documented it last February in my post, Views From Hurricane Ike TWIA Insurance Adjusters. I made a sarcastic report of it in The Parable of Hurricane Ike Insurance Claims. Then, I suggested that my current client and Ike protest leader, Brenda Cannon Henley, had a valid reason to protest against TWIA in, Texas Windstorm "Slabbers" and Policyholders March on Austin. Indeed, we ran over three separate posts regarding how TWIA was wrongfully adjusting roofing claims. If you simply type “TWIA” in my keyword search to this Blog, TWIA shows up 37 times in 2009. Virtually all of my posts are negative regarding the reports of TWIA claims handling. TWIA makes State Farm and Allstate look like angels regarding claims ethics and satisfaction.

It finally seems as if the local media and Texas regulators are learning what all of us in the claims administration business believe--TWIA claims executives are out of control and its claims management needs to be replaced. Purva Patel of the Houston Chronicle recently reported in, HURRICANE IKE: State Looking into Roof Damage Policy, that Texas regulators started an investigation of TWIA roofing claims:

State regulators are investigating how the Texas Windstorm Insurance Association handles certain roof claims related to Hurricane Ike.

At issue is whether unsealed asphalt shingles are considered damaged, and if so, whether Ike was the cause.

The windstorm association doesn't always think so. But some homeowners say they have valid claims because Hurricane Ike lifted the shingles on their roofs, breaking the seal that binds shingles to each other.

The Texas Department of Insurance notes that although the association claims such shingles are not necessarily damaged, unsealed shingles would not pass a home inspection that's required to obtain coverage from the association and to keep coverage if a home is repaired after a storm.

“Because we see that discrepancy, and we think that when a homeowner's shingles have been adhered, that does constitute damage, we're pursing an investigation,” said Catherine Reyer, an associate commissioner of enforcement at the department.

The insurance department began investigating in late July and has received 23 complaints against TWIA on the issue.

Yesterday, reporter Mark Greenblatt, of station KHOU published an excellent article regarding an investigation by Texas authorities into TWIA’s unfair and deceptive claims handling:

The Texas Department of Insurance has filed a formal complaint against the Texas Windstorm Insurance Association , accusing it of “unfair or deceptive” handling of claims.

In a letter to the State Office of Administrative Hearings, the Department of Insurance says the insurance company could be subject to disciplinary action if the complaint is upheld.

Texas Windstorm is the only insurance option against windstorm damage or hail from hurricanes for consumers who live along coastal sections of the state.

 The complaint specifically criticizes how the company handles claims related to wind-lifted roof shingles.

The department’s action comes as KHOU continues its ongoing, two-month investigation of Texas Windstorm’s claims handling practices, and one week after we asked the State why no enforcement action had been taken against the company. At that time, KHOU cited the 724 consumer complaints we found that the Department of Insurance upheld against the company since Hurricane Ike.

You can watch the video broadcast of Mark Greenblatt’s news story by clicking here.

Next Friday, September 11, 2009, our firm will host a seminar for licensed public adjusters in Texas. This event is titled “Hurricane Ike-What a Difference A Year Makes?” and Texas Department of Insurance representative Jack Evans will be a featured speaker at lunch. I will introduce Brenda Henley who will discuss some of the events planned for the memorial of Hurricane Ike.

While I plan to finish teaching public adjusters how to help policyholders prove and present claims at 2 pm, I will finish early if any TWIA executives or claims managers wish to have a civil discussion with experienced and licensed claims adjusters about how they may better adjust TWIA customer claims. The planned informational meeting of the Texas Association of Public Insurance Adjusters (TAPIA) can certainly be delayed to allow for such an important exchange of information.

Everybody who knows me understands that this will not be a lynching, but a civil discussion of issues and concerns. The question is whether TWIA claims executives have the stomach to engage in civil debate with skilled and knowledgeable public adjusters as to how policyholder claims should be handled and paid and about their claims practices that are now under public scrutiny.

We are currently surveying past public adjuster attendees for specific questions before this seminar so that the question and answers will be thoroughly analyzed. The primary purpose is to provide my experience and that of my firm, which has primarily done this line of legal work for 25 years, to those who are similarly licensed and dedicated to helping policyholders.

The tactics and strategies of each case and each type of loss change as the circumstances dictate. There have been some legal changes to appraisal in Texas as well as other developments which impact the "best practice" a public adjuster uses in the field when dealing with insurance companies. We will share with you what is working and what is not working.

So, if you are licensed Texas public insurance adjuster, please plan on attending, learn how you can make more money by doing your policyholder a better job, and you will also get some free continuing education credits from the Texas Department of Insurance. Please go to www.adjusterlife.com to register.

I am looking forward to seeing you at our seminar on September 11, 2009.

A news article,Insurance Department in Limbo as Texas Legislature Adjourns, correctly notes that the Legislature did not get its entire job done. The Department of Insurance and Office of Insurance Council will no longer exist on September 1, 2009, unless a special session is held to prevent the laws that created these entities from expiring. Of course, with talk from Governor Perry about the status of Texas in the Union, anything is possible in Texas.

Florida Governor Charlie Crist was finally provided the proposed Surplus Lines Bill--a month after the legislation was passed. He now has until June 16th to sign or veto the bill. He can also allow it to become law by doing nothing.

In an earlier Post, I explained why this bill is flawed. It will hurt the carriers admitted in Florida. It is overbroad and will have unintended consequences for consumers, surplus lines carriers, and the admitted carriers. I predict that even if signed by Governor Crist, the Legislature will have to revisit the bill next year. I also predict the surplus lines carriers and the small admitted carriers will be the first to call on the Legislature to do so.

I suggest that those interested in the insurance market note how many large personal lines carriers currently do business through wholly owned surplus lines subsidiaries. The large carriers are escaping regulations, in part, by simply doing business in surplus entities. What a great strategic position for the large carriers. They can decide not to sell policies in certain areas of Florida where they think they can get higher premiums if they sell through a surplus line subsidiary and with unregulated forms which will probably offer much less coverage.

Our newly admitted carriers had assistance from the State. Now, one year later, the same legislature passed a surplus lines law which favors the large carriers and allows surplus lines carriers to unfairly compete with the newly admitted carriers. If public policy favors the smaller admitted carriers, why has the current legislation been passed?

Governor Crist has two remaining insurance bills before him. He should veto both.

On Saturday evening, the Conference Committee struck the objectionable language from HB 4409 (See pages 101 and 102 of the Committee Report, where the Conference Committee recommended as to Section 2210.552, that the House version be used: "[s]ame as House version").  Yesterday, the House voted unanimously to adopt the Conference Committee Report. 

The bill is now back before the Senate, which has until midnight tonight to pass it with the Conference Committee wording, or reject it entirely and face the threat of a special session. My understanding of Texas legislature workings is those are the only options left to the Senate. I would not, however, be surprised if an insurer-friendly Senator found a way to suspend the rules and re-insert the anti-consumer language into the bill.

For those so inclined, live video of the Senate can be viewed online at:

We will keep you posted. http://www.senate.state.tx.us/bin/live.php

I would like to thank Texas attorney Steve Mostyn and Ruck DeMinico, Knowledge Manager at Merlin Law Group, for help interpreting the Conference Committee Report.

A blog post last night’s Austin Statesman, Some Real Strangeness in the Texas Senate, highlights the problems that occur when elected officials wait until the last minute to make laws:

"... Lt. Gov. David Dewhurst took the microphone to clarify what he said was apparent confusion about the Senate’s evening schedule.

“What I’m concerned about is that some people really don’t understand English,” Dewhurst said, emphasizing that the Senate planned to keep a clerk on duty until midnight to process conference committee reports.

“What I said was, and no one was paying attention … ” he said, appearing irritated, as his call phone rang.

Still speaking into the podium microphone, he answered it.

“Why don’t you just listen to what I’m saying and then call me back,” Dewhurst said, as senators mouths dropped open.

He then resumed his chagrined statement about how the Senate was working late to keep passing bills. And how he hoped the House would stretch its midnight deadline for final versions of bills, as the Senate had done earlier in the afternoon.

“There seems to be some people who don’t understand English,” he reiterated. “Is that clear? Do I repeat it again?”

Senators stood in amazement — at the speak-English crack, at the whole presentation.
A few minutes later, Dewhurst returned to the mic, telling senators that the House had adjourned. He suggested that senators keep working.

Sen. John Carona, R-Dallas, asked if the Senate could restore its deadline at midnight tonight to file final versions of all bills — after the Senate earlier today rolled it to midnight Sunday.

Dewhurst told him to hold on a few, until he could confer with a few other senators.

Senators looked amazed again."

The public can try to keep up with the TWIA bill progress by looking on-line and in newspapers, however, I have found neither very helpful. The on-line history indicates that the House Conference Committee report was printed and distributed just before midnight Saturday, but the text is not available. I cannot determine whether they struck the existing consumer protection laws.

Most newspapers do not have reporters up late reading an eighty page bill for buried language that may harm consumers. Indeed, because of their financial plight, most newspapers no longer have reporters covering state legislatures.

We will try to keep you posted as we learn more about this significant TWIA legislation.

New York is losing a very fine insurance regulator. Eric Dinallo is resigning. Earlier this week, I posted a video clip which shows how eloquently he has stood up against the Federal Charter proposal in New York Insurance Superintendent Says Creating an Optional Federal Insurance Regulator Will Erode Consumer Protections. Sam Friedman, an editor of the National Underwriter, mentioned that Dinallo is a respected insurance commissioner and will be missed:

"In case you forgot all that Mr. Dinallo accomplished during his relatively brief time in office, check out his record:

–He was a key player at the table, along with then-Gov. Spitzer, in convincing seven carriers to end six years of acrimonious litigation and pay some $2 billion to settle all remaining claims from the World Trade Center’s developer.

–He helped formulate and push through a long overdue workers’ comp reform measure that was hailed by insurers and employers alike–no surprise, being that Mr. Dinallo was able to authorize a 20.5 percent rate cut, despite raising injured worker benefits for the first time in over a decade.

–He also was very influential in leading the way towards reform of the reinsurance collateral system, helping drive NAIC action by moving to unilaterally do away with the standard 100 percent of liabilities collateral requirement imposed on foreign reinsurers, and replacing it with a sliding scale based on a carrier’s capitalization and standing.

–Meanwhile, even though his old boss, Mr. Spitzer, made a name for himself in part by exposing shameless bid-rigging and contingency fee abuse by major brokers and carriers, Mr. Dinallo did not rush to judgment on the entire producer community. His efforts to encourage disclosure of agent and broker compensation has been rational and open-minded.

–Despite being a state regulator, he did not dismiss the notion of federal oversight out of hand. Instead of a knee-jerk reaction, he offered a thoughtful critique of the insurance regulatory system.
Yes, he reminded everyone repeatedly that state oversight was not to blame for the debacle at AIG (which was undermined by its unregulated Financial Products unit, while its state-supervised insurance subsidiaries remained sound and fire-walled off from the rest of the organization’s toxic holdings).

But while he conceded that a national systemic regulator might be needed, he warned strongly against any “optional” federal chartering, arguing that giving players the choice of referee would eventually ruin the game for all."

Sometimes, those in the insurance industry write and complain that I am unfairly criticizing the industry. Possibly true because my allegiance is to the policyholder and with that perspective. Yet, there is a need for thoughtful criticism of insurance, how it works and how it should work for society's benefit because unlike other forms of business, insurance is a social commercial product. It is not, and never has been, a business thought of as others in a "free market" sense. We need thoughtful regulators that will fairly balance competing financial interests of insurers with the needs of the consumers and society.

Florida Governor Charlie Crist is a wonderful public servant because he is very thoughtful. However, this trait makes it difficult to predict what he may do when faced with the possibility of a veto. While he has hinted he may, Crist still has not vetoed the insurance bill deregulating big insurance from rate making. As noted in the South Florida Business Journal, consumer organizations are worried:

"The Consumer Federation of the Southeast and Florida Public Interest Research Group claim HB 1171 would pit the largest insurers against the smallest, which would be hamstrung by regulation.

But, during a Wednesday news conference, Brad Ashwell, legislative advocate for Florida PIRG, said the answer is not deregulation of all companies. He said that rates need to more closely conform to real risk, and that keeping rates artificially low, as Citizens Property Insurance Corp. did for several years, is not the answer.

Walter Dartland, the consumer federation’s executive director, emphasized that partial or complete deregulation is not the answer, either. He maintains that the state’s rate review process has been a valuable consumer protection tool against arbitrary rate increases.

A practical solution would need to involve a deeper pool of insurers, specifically smaller ones, and higher rates that are regulated, Ashwell said.

“Florida is in the midst of an economic crisis, and our residents cannot afford to be caught in a volatile insurance market faced with erratic rate increases," he said.

But, the insured also have to be realistic about the impact a hurricane would have on them. Floridians will not be able to avoid assessments.

“It’s just a question of how big the assessment will be,” Ashwell said.

The bill awaiting Crist’s signature would allow major carriers, such as State Farm, which earlier this year said it would leave Florida, to raise rates unchecked without a guarantee that they would continue writing policies in the state.

Dartland said his organization would encourage State Farm and others to poach the customers with the least risk, leaving those with the most for companies that are least capable of paying out in the event of a storm.

“This doesn’t help anybody except the few companies that are involved,” he argued."

While waiting on Crist's decision in Florida, Texas TWIA politics is getting more frustrating to observe by the day. In my post yesterday, TWIA Bill Moves Along in Bizarre Manner, I noted how the Texas Senate literally pulled the plug on the Senate clock to get legislation passed within the time allowed. The Southeast Texas Record noted the following:

"The state Capitol has been a colorful place the past few weeks, with lawmakers resorting to stalling tactics one day and marathon approval sessions the next. The Senate managed to suspend time to avoid a deadline, and late into one night Senators could be heard crowing like roosters to cast their vote on a cockfighting bill."

These are the people Texans have to trust to make thoughtful decisions on laws to be followed. The article, "Hundreds of Bills in Limbo as End of Texas Legislative Session Looms," also mentioned that the TWIA legislation is mired in limbo as well. We'll keep you posted.

Last week, I had several posts warning of language buried in the omnibus TWIA senate bill which took away policyholder rights. The house version did not have this anti-consumer language. We will keep you posted, but I am asking all Texas policyholders to contact your representatives to express concern about any language that takes away policyholder rights at the time of making a claim.

Charlie Crist must make veto decisions this week. As indicated in an article, Charlie's Big Week Ahead, it is anybody's guess as to what the governor is going to do with the insurance bills.

On the federal front, a bill was introduced authorizing insurance agents to obtain a national insurance license to sell policies. Another bill by Florida Congressman Ron Klein would allow for a pool of catastrophe money. The National Underwriter has indicated there will be opposition to this:

"It drew an immediate reaction of measured support from the Independent Insurance Agents and Brokers of America. However, the bill is expected to generate the same opposition from carriers and reinsurers that doomed it in the last Congress. And, even the IIABA said it would seek changes in the reinsurance component of the legislation."

Finally, a national surplus lines insurance bill was introduced. I do not know how it will impact most consumers, but it would certainly change the landscape of insurance since many large insurance companies own surplus lines carriers. They will sell policies through this market if they can avoid state regulation. The National Underwriter reported:

"It would create a uniform system of surplus lines premium tax allocation and remittance, one-state compliance on multistate surplus lines risks, and direct access to the surplus lines market for sophisticated commercial purchasers.

“These are concepts long endorsed by NAPSLO and promoted with members of Congress during meetings over the past few years,” Mr. Wood said.

Richard Bouhan, NAPSLO executive director, added, “We believe that this legislation will bring efficiency and reduce the cost of regulatory compliance in surplus lines placements with multistate exposures.”

He added that consumers will also benefit because the costs related to the inefficiencies and redundancies, which they bear, will be eliminated.”

“This important legislation will provide much needed reform in the nonadmitted and reinsurance markets,” said Deborah Luthi, a member of the RIMS board of directors and director of enterprise risk management services at Matheson.

“RIMS believes the bill would reduce the regulatory costs for insurers that are passed on to consumers and would make insurance more available and affordable,” Ms. Luthi said. “RIMS urges the House of Representatives to once again pass this legislation and for the U.S. Senate to take it up as soon as possible,” she added."

It is important to keep up with pending legislation that will affect insurance and consumer protection rights and to realize that insurance companies are spending a significant amount of money proposing laws that will "game" the situation to their advantage.

"AUSTIN — Windstorm insurance reform legislation suddenly got voted out of a House committee Wednesday after Gov. Rick Perry threatened to call a special session on June 2 if the bill does not pass.

Both inland and coastal lawmakers expressed concerns about the bill they voted on, but said they needed to get something to a House/Senate conference committee if there is any hope of reaching a compromise to avoid a special session.

Rep. Trey Martinez Fischer, D-San Antonio, complained that he was being forced to vote on a 51-page bill that he had not read. He said the House has had the entire session to work on a compromise and now was being presented a “false choice” of voting on an unseen bill or having it die in the Legislature’s closing crunch.

“The House is on fire! Let’s vote it out,” Martinez Fischer said.

“I don’t care what you do. If you want to vote it down, vote it down,” replied House Insurance Committee Chairman John Smithee, R-Amarillo.

 Rep. Senfronia Thompson, D-Houston, joined Martinez Fischer in voting against the bill, saying she had not had a chance to read it.

“I’m not trying to slow the process down, but don’t I have a right to read this stuff?” Thompson asked.

Rep. Todd Hunter, R-Corpus Christi, urged his members to vote for the bill just to keep it moving and not let it die, noting there are many things in it that still bother him."

I have no idea why anybody would call this insurance "reform." How would they know if they did not read it?

Please read my last post from last night, What TWIA Policyholders Need to Do Now to Stop the Bad Legislation, and join me calling, writing, and visiting with Texas elected leaders to stop or modify a bad law as it is currently worded.

One of the basic values we learn as youngsters is that we have to be accountable for promises made and harm done to others. Texas has longstanding consumer protection laws that hold insurance companies accountable when they delay claims payments or wrongfully handle a customer’s insurance claim. It is wrong that TWIA and the insurance industry are trying to escape this responsibility by striking these consumer rights.

It figures that insurers and TWIA are trying to take away customers’ rights through an insurance bill in a devious manner that even the press overlooked. The significant legal changes are buried on page 41 of a 56 page bill that Texas Senators did not have enough time to study and read before its hastened passage. The Senate suspended Texas Constitutional rules, which require time for review of a bill and any amendments, to push this legislation through. For all we know, even they did not realize the bill gutted consumer protection rights and gives the insurance industry virtually unlimited power to ignore or wrongfully dismiss their responsibilities to their customers.

Our Country is in a mess, partially because some corporations failed to act responsibly. We need laws that make insurance companies accountable for unfair and dishonest treatment.

Texas, like so many Gulf Coast and Atlantic Coastal states, is faced with a practical insurance problem caused by some insurance companies getting out of the insurance risk business where there is any possibility that they may lose money. In an industry that supposed to be about risk, many modern insurance companies only want a sure thing. They also want to avoid laws that hold them accountable. Policyholders need assurance that insurance companies will honor their contractual promises promptly, fairly, and fully. This “end around” attempt to take away valuable rights is wrong and must be stopped.

I urge every TWIA policyholder to participate in our democratic process and voice their concern to their elected representatives to stop this bad insurance legislation. Every phone call, email, and letter will make Texas more secure the next time a catastrophe occurs.

The bill is currently before the Texas House Insurance Committee. If it does not come out of Committee before Saturday, it is dead. However, it is anybody’s guess as to what behind the scenes politics are occurring as I write this. So, make your voice heard and contact the House Representatives on the Insurance Committee:

Rep. John T. Smithee (Chair)
District: 86
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0702
District Address: 320 S. Polk, 1st Floor,, Lobby Box 28
Amarillo, TX 79101
District Phone: (806) 372-3327

Rep. Trey Martinez Fischer (vice chair)
District: 116
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0616
District Address: 1910 Fredericksburg Road
San Antonio, TX 78201
District Phone: (210) 737-7200

Rep. Joe Deshotel
District: 22
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0662
District Address: One Plaza Square, Suite 203
Port Arthur, TX 77642
District Phone: (409) 724-0788

Rep. Craig Eiland
District: 23
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0502
District Address: 9702 E.F. Lowery Expressway
Texas City, TX 77591
District Phone: (800) 345-2630

Rep. Kelly Hancock
District: 91
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0599
District Address: P.O. Box 185096
Fort Worth, TX 76181
District Phone: (817) 590-9280

Rep. Todd Hunter
District: 32
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0672
District Address: P.O. Box 2910
Austin, TX 78768

Rep. Carl Isett
District: 84
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0676
District Address: 1001 Main Street, #608
Lubbock, TX 79401
District Phone: (806) 763-2366

Rep. Larry Taylor
District: 24
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0729
District Address: 174 Calder Road, Suite 116
League City, TX 77573
District Phone: (281) 338-0924

Rep. Senfronia Thompson
District: 141
Capitol Address: P.O. Box 2910
Austin, TX 78768
Capitol Phone: (512) 463-0720
District Address: 10527 Homestead Road
Houston, TX 77016
District Phone: (713) 633-3390 

Finally, Senator Joan Huffman voted against the measure. She should be applauded for properly representing people in her Coastal District. However, Senator Troy Fraser should be criticized for supporting this legislation. He even tried to “spin” this law as a “reform” rather than the taking away of a policyholder’s rights and law allowing for significant increases of rates for those close to the Texas coast. Giving him the benefit of the doubt, possibly he never realized what the insurance lobbyists snuck into the bill on page 41. Nobody else seems to have noticed the significance of it, either.

Here is the wording buried on page 41 of the bill (SB 14) that has now been sent to the Texas House of Representatives:

     SECTION 41.  Section 2210.552, Insurance Code, is amended to read as follows:

     Sec. 2210.552.  CLAIM DISPUTES; VENUE.  (a)  Except as provided by Sections 2210.007 and 2210.106, a person insured under this chapter who is aggrieved by an act, ruling, or decision of the association relating to the payment of, the amount of, or the denial of a claim may:

(1)  bring an action for policy benefits against the association[, including an action under Chapter 541]; or

(2)  appeal [the act, ruling, or decision] under Section 2210.551.

     (b)  The remedies provided by Subsection (a) and Section 2210.551 are exclusive.  A person may not proceed under both Section 2210.551 and this section for the same act, ruling, or decision.

     (c)  Venue [Except as provided by Subsection (d), venue] in an action brought under this section[, including an action under Chapter 541,] against the association is in the county in which the insured property is located or in a district court in Travis County.

    [(d)  Venue in an action, including an action under Chapter 541, brought under this section in which the claimant joins the department as a party to the action is only in a district court in Travis County.]

The consumer protections in Chapter 541 of the Insurance Code would be eliminated. No interest for delays, no costs, no extracontractual damages (even if caused by TWIA), no attorneys fees, and no penalties for TWIA's wrongful conduct. In essence, the Texas Senate proposed that TWIA not be held responsible when it acts wrongfully. In a world hurting as a result of corporate mismanagement, Texas is giving a pass to the insurance industry and TWIA.

We are going to do what we can for the policyholders and our clients in Texas. Off to Austin we go.

Any public or private suggestions or comments are welcome.

We need your help.
 

The format of the seminar seemed to work very well, so once again we expect this event to be very interactive. The agenda will include the following topics:

• TWIA Issues – Status of Litigation, Whistleblowers, Overhead & Profit, Flood, Depreciation, Co-operation
• Causation and Sufficient Proof, Texas-style—It’s Different Here
• Valuation – Estimates That Have Impact and Hold Up in Appraisal or in Court
• Update on TAPIA
• Expert Panelist Analysis—Topics: Wind Speeds, Roof Damage, Wall Damage, Flood vs. Wind Damage, Sliding Glass Door or Window Damage, and Wind-driven Rain

The conference will begin with registration at 7:30 am and conclude at 2:00 pm. To register and receive additional details, you will need to go to www.adjusterlife.com. Please register by May 28, 2009.

This is an invitation-only event for Texas-licensed public adjusters. Be sure to register today, and please bring your Texas Public Insurance Adjuster license with you to the seminar.

It’s been nearly nine months since Hurricane Ike. Both Merlin Law Group and you, the public adjuster, have been working hard to hold insurance companies accountable so that policyholders see the results to which they are entitled.

Merlin Law Group is pleased to once again provide this free seminar as an opportunity to share knowledge we have gained by serving our clients and each other.

The young boy looked at his grandfather and asked: "What is it?" "What do you think," came the reply. "Well . . . it has a beak . . . and, it's feet are webbed . . . it also laid eggs . . . maybe a duck . . .?" "What else do you see,?" asked the old man. "Fur and a beaver tail . . . so maybe it isn't a duck." "You're right" said the granddad, "it's a platypus." "A platypus . . . ,?" queried the boy, "what's that?" Granddad hesitated a bit, rubbed his chin, and answered: "You got me . . . ."

Dealing with our own platypus, we have been asked what is it and what can it do. Though the object of inquiry is a creature, it is not an animal created by God. Rather, it is some type of entity manufactured from the hands and minds of our Texas legislators. Having some earmarks of a governmental agency, its membership nonetheless is composed of private insurance companies. Those companies pick the officers who run the thing, but those officers must do so under the supervision of the Texas Department of Insurance. What we determine it to be helps resolve the question of whether it may initiate lawsuits to protect its interests. The trial court along with Renetta and Walter Poole say it cannot. The Texas Windstorm Insurance Association (Association) says it can. With this, we dive into the waters with our platypus, inspect its characteristics, and ultimately side with the Association.

Tex. Windstorm Ins. Ass'n v. Poole, 255 S.W.3d 775, 776 (Tex. App. Amarillo 2008) (emphasis added).

The Court then started on the more serious discussion of how the Texas legislature mandated TWIA operate:

The legislature created the Association as a means of providing property insurance to people living within geographic areas at risk of being hit by hurricanes... Its membership consists of all property insurers authorized to do business in Texas... Moreover, the members participate in the "writings, expenses, profits, and losses of the association . . . ." ... it has a board of directors composed of individuals selected by its membership and nominated by the "office of public insurance counsel," ... that board answers to the commissioner of insurance... That commissioner is also obligated to develop a plan of operation for the entity (which plan encompasses provisions relating to the administration of the association and others deemed necessary to implement the association's purpose)... And, though members of the Association may participate in the profits and losses generated by the Association, the entity's assets revert to the state upon dissolution of the entity. Id. §2210.056(c)

As for the plan of operation, ... the board...is entrusted with "the management of the business and affairs of the [A]ssociation and may exercise" both specifically enumerated powers and "all other powers incidental or appropriate" to the management of the Association's business and affairs "subject only to the restrictions imposed by law." (Emphasis added). Included in the enumerated powers are, among other things, the authority to establish and change regulations for the management of the Association's business affairs, to purchase or acquire property, rights and privileges for the Association, to appoint and remove Association officers, representatives and legal counsel, to contract with a "servicing facility" to perform services "deem[ed] appropriate," and to "have all other powers and to perform all other duties reasonably necessary to accomplish the purpose of the Act.

Tex. Windstorm Ins. Ass'n, 255 S.W.3d at 777.

Private insurance companies have a great deal of authority through their board appointees to influence the operation of TWIA. The member companies have a significant interest in claims because of their participation in profits, and especially, assessments of losses. My impression is this entity allows private insurance companies to socialize loss and privatize their profits because it allows insurers to "pool" undesired wind risks into TWIA, where they exercise overwhelming control. It does not take a rocket scientist to figure out that denying and slow-paying policyholder claims is in the member companies’ financial interest.

The Court also noted the significant private insurer attributes of TWIA:

Upon stepping back and contemplating the foregoing indicia, we note that the Association has attributes of a private insurance business while operating under a governmental cloak. Its membership comes from the private sector, and those members are entitled to engage in activities, via the Association, that earn them a profit. Yet, when all is said and done, the Association's assets belong to the state. So, what it truly is escapes easy categorization.

Tex. Windstorm Ins. Ass'n, 255 S.W.3d at 777.

The important thing for all to remember is that TWIA is not a government entity. It has very strong ties to the insurance industry in it membership. Those member companies can yield a great deal of power through the TWIA board of directors. 

While researching concepts of "windstorm" coverage, I recently came across an older Texas case and fact pattern that made me smile-almost laugh. I am certain the attorney first hearing it must have felt the same way. I assume the insurance adjuster was not so amused by the facts.

Howsley, an avid outdoorsman, lost his personal property consisting of camping and fishing equipment, clothes and camera equipment when two rubber boats or rafts overturned while floating down the Rio Grande River in New Mexico. The only evidence concerning the accident is found in Howsley's deposition. Howsley and a friend were in the two rubber boats which were attached to each other as they floated down the river at the place he referred to as the "Rio Grande Gorge". They experienced difficulty in rowing the boats because of a current which was "split by a large rock". The currents apparently caused the two boats to float "sideways". The boats washed up against the large rock "one of them went on this side and the other on this side". The men were rowing against the wind which Howsley described as "a terrifically strong wind". He testified that when the boats came to rest on the rock the wind "flipped it over like flipping a match or something". His testimony was to the effect that the force of the impact of the boat upon the rock did not overturn the boat but that it was caused by the wind. The equipment was lost in the river when the boat capsized.

Employers' Fire Ins. Co. v. Howsley, 432 S.W.2d 578, 579 (Tex. Civ. App. Amarillo 1968) (emphasis added).

Howsley's insurance policy covered his personal property for "windstorm" loss. Howsley's insurance company took a position that I am going to hear hundreds of times from TWIA and other Texas insurers in the near future, just as in Hurricane Katrina litigation:

One of the exclusions of the policy provides: "This insurance does not cover a loss caused by or resulting from:

(1) flood, surface, water, waves, title water or title wave, overflow of streams or other bodies of water, or spray from any of the foregoing, all whether driven by wind or not."

Howsley, 432 S.W.2d at 579.

Howsley won. The Court upheld the trial court's finding that the lost was not excluded and that a "windstorm" caused the loss:

One of the perils insured against was "windstorm", which has been defined as "something more than an ordinary gust of wind, no matter how prolonged, and though the whirling features which usually accompany tornadoes and cyclones need not be present, it must assume the aspect of a storm." Fireman's Ins. Co. v. Weatherman, Tex.Civ.App., 193 S.W. 2d 247 (ref'd n.r.e.). The case cites other authorities approving similar or identical definitions. Howsley described the wind as "terrifically strong" and said the wind was "blowing up the canyon". We think the record is sufficient to bring the loss within this insured peril of the policy, and that the "terrifically strong wind" was the dominant and efficient cause of appellee's loss. The evidence does show the split or divided currents were instrumental in forcing the raft upon the rock. Although this condition did contribute to the circumstances leading to the loss it was not the efficient cause. It has been held that if a windstorm is the dominant or efficient cause of loss the insured may recover notwithstanding that another cause or causes contributed to the damage.

Howsley, 432 S.W.2d at 580.

Texas Slabbers and others should get the same result so long as they do not give up the fight. Maybe there is some good that arises out of a situation which may seem terrible at first. That is an idea which should be contemplated since many of us have just celebrated Passover and Easter.

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.

As part of her presentation last week, Shannon prepared a laminated handout with Texas Bad Faith Statutes and Claims Deadlines. Tina Nicholson thought Shannon's handout would be very useful for adjusters and policyholders to have as a relatively simple two page summary of laws insurance company adjusters must follow. I agree, and we are providing them to you for review:

Download Statutes Summary

Download Claims Deadlines Summary

The deadlines have relevance to the Proof of Loss post I made yesterday. Property insurance policies do not mandate a time period for claim payment following submission of a proof of loss. However, the Texas regulations have time periods for payment and extensions for payment following the submittal of a proof of loss. These deadlines are the reason Texas Windstorm Insurance Association (TWIA) is responding with a form letter to all proofs of loss and is trying to provide an excuse for its delay. We'll see in our lawsuits and as litigation progresses whether the excuses are factually accurate, honest and in good faith.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A person who appeals gives up his or her right to file a lawsuit against the insurance company for unfair settlement practices, such as misrepresenting a material fact or policy provision relating to covered loss, failing to attempt a prompt, fair, and equitable settlement of a claim after the insurer's liability has become reasonably clear, unreasonably delaying a settlement, requiring a release when only a partial payment has been made, or refusing to pay a claim without conducting a reasonable investigation. There is a very good chance that you have faced one of these situations or know of someone who has.

The TWIA letter gives the false impression that if a policyholder does not appeal within 30 days, the decision is final, and the policyholder has no other options or remedies. Texas has some very good consumer protection laws:

• Texas allows an insured to recover attorney fees and costs under Chapter 38 of the Civil Practices and Remedies Code.
• Tex. Ins. Code Section 542.060, Prompt Payment Statute, entitles the insured to collect 18% interest plus additional attorney fees and costs if the insurance company does not promptly pay the claim in violation of the statute.
• Tex. Ins. Code Section 541.152, punishes the insurance company by forcing them to pay the full amount of damages, attorney fees, expenses, and, if the violation is done knowingly, the damages owed by the insurance company are three (3) times the actual damages.

In addition, as some of you already know, an order has been entered in Galveston County directing that all homeowner Ike cases be stayed for 100 days to allow plaintiff and defense counsel to exchange discovery and set mediation. This order is very specific and holds the insurance company in contempt of court if its attorneys attend this mediation without full authority to settle the case or if they fail to settle in good faith. Mediation is not binding, and the insured decides whether to accept or reject the insurance company’s final offer. In my opinion, entering this order was a very wise decision by District Judge Susan Criss and will result in many more settlements. In this instance, mediation is not an alternative but a method within the litigation process, again another great example of consumer protection in Texas. Hopefully, a similar order will be entered in neighboring Harris County, helping to expedite settlements there.

Each policyholder has the right to contest TWIA’s decision through either an administrative hearing or by filing a lawsuit. Policyholders should carefully consider each option before making a decision.

It is important to note that policyholders who have already filed for an administrative hearing may, prior to the hearing date, ask to withdraw their administrative appeal, cancel the hearing and pursue remedies through the courts. A person wishing to do so would be well advised to contact an attorney to make sure that the proper procedure is followed in withdrawing the administrative appeal and preserving the policyholder’s right to file suit.

Texas provides some of the best consumer protection laws in the nation; I truly see no reason not to take full advantage of them.

To put this in proper context, my roots are in the entertainment industry which I thought was as far away from insurance as the East is from the West. Little did I know that the stories I would hear and the characters I would meet would rival even the most gripping Grisham novel or a Steven King thriller. My opinion may also have a little to do with my perception that the insurance industry was filled with unexciting, low-energy people and was a rather boring subject. This isn’t a far-fetched conclusion for people like me who tend to view life like a golden retriever in a world full of tennis balls.

On December sixth and seventh, 2008, everything changed! Merlin Law Group held a “Meet ‘N Greet” event that was targeted toward the Hispanic community. As a company we were growing more and more annoyed with the rumors we were hearing regarding abusive treatment dished out by the insurance companies to a particular demographic. We decided to see first hand what was really going on. I can tell you with absolute conviction that the stories I heard from this fantastic community made me appreciate and become interested in insurance… almost immediately!

The massive impact that insurance has on individuals, communities, economies and world governments should not be underestimated. With companies like AIG dominating headlines, we have learned how far and wide insurance companies’ tentacles reach. And this is where insurance becomes exciting. I am drawn to the human-interest stories that are plentiful in this dramatic theatre of property and casualty loss. Stories like the 92 years young woman that has paid her homeowner’s insurance for more than 60 years and lost almost everything. She is now living in a one room dwelling and cooking on a hot plate. The non-English speaking family with a total value policy of $30K that lost their roof and received a check for $46.00. These stories move me!

I find it mind boggling how legislators and states are controlling organizations like Texas Windstorm Insurance Association (TWIA) and Citizens Property Insurance Corporation. It’s intriguing how some of these individuals manage political careers while the people who elected them sift through their rubble, hoping to salvage a photograph. It’s dramatic to meet with people that are hurting and hear the lip service offered by the very insurance company that excitedly sold them a promise and now goes to great lengths to avoid honoring that commitment.

I suggest that insurance isn’t a boring subject at all. When you peel back the layers, it is based on all the elements of great theatre- deceit, destruction, conflict, good guys, bad guys, winners and losers. I’m confident that policyholders will ultimately prevail and even more hopeful that the opinion leaders and politicians will recognize their responsibility toward their constituents and get engaged in the fight for people’s rights. I admire the public insurance adjusters and attorneys who play a recurring role.

Insurance is about people, promises and profits and frankly, I think that’s very interesting!

- Frank Chimento

In the post, The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions, I showed that the TWIA claims memo is wrong based upon the most basic insurance training available to rookie adjusters. Then, in the post preceding this, Roof Repair Methods Prove TWIA is Wrongly Denying Roof Claims, it was shown how roofers and the manufacturer's of shingle roofs appreciate the need to repair shingles that have seals which are broken from a hurricane's high winds and how to fix them. Maybe the TWIA claims executives sitting behind desks in Austin do not know that adhesive seals are a tangible substance or their purpose on roofing shingles. Or, maybe they have been going to HAAG Roofing Seminars and learned a new trick on how to avoid paying for roof shingle damage. HAAG Engineering is good for my business, but not good for policyholders with an insurance claim.

What about the insurance coverage caselaw regarding "direct physical loss?" The case discussions I like best to help those understand "direct physical loss" are Ward Gen. Ins. Services, Inc. v. The Employers Fire Ins. Co., 114 Cal. App. 4th 548, 7 Cal. Rptr. 3d 844 (2003) and Meridian Textiles, Inc. v. Indemnity Insurance Co. of North America, 2008 U.S. Dist. LEXIS 91371, 2008 AMC 1411 (C.D. Cal. 2008).

The facts of Ward involved loss of the insured's computer data which was mistakenly deleted. The insured filed a claim to recover the cost of recovering the data and the business loss incurred from temporary loss of data. The insurers denied the claim on the ground that the policy required a direct physical loss before there would be coverage. The court held computer data was not a tangible or physical item and a physical loss, which did not happen, was required in order to trigger coverage.

The Court first provided a definition for direct physical loss:

"Neither party submitted any evidence suggesting that the phrase "direct physical loss" has some technical meaning or special meaning given by usage. Accordingly, we interpret these words in their ordinary and popular sense to determine whether they impart a clear and explicit meaning in the context of the losses claimed against the insurance policy. We conclude they do.

The word "physical" is defined, inter alia, as "having material existence" and "perceptible esp. through the senses and subject to the laws of nature." (Merriam-Webster's Collegiate Dict. (10th ed. 1993) p. 875.) "MATERIAL implies formation out of tangible matter." (Id. at p. 715.) "Tangible" means, inter alia, "capable of being perceived esp. by the sense of touch." (Id. at p. 1200.) Thus, relying on the ordinary and popular sense of the words, we say with confidence that the loss of plaintiff's database does not qualify as a "direct physical loss," unless the database has a material existence, formed out of tangible matter, and is perceptible to the sense of touch."

The Court then ruled against the policyholder under reasoning that other courts, including one in Texas, disagree:

"...the loss of a database is the loss of organized information, in this case, the loss of client names, addresses, policy renewal dates, etc.

We fail to see how information, qua information, can be said to have a material existence, be formed out of tangible matter, or be perceptible to the sense of touch. To be sure, information is stored in a physical medium, such as a magnetic disc or tape, or even as papers in three-ring binders or a file cabinet, but the information itself remains intangible. Here, the loss suffered by plaintiff was a loss of information, i.e., the sequence of ones and zeroes stored by aligning small domains of magnetic material on the computer's hard drive in a machine readable manner. Plaintiff did not lose the tangible material of the storage medium. Rather, plaintiff lost the stored information. The sequence of ones and zeros can be altered, rearranged, or erased, without losing or damaging the tangible material of the storage medium."

However, the Court also noted a number of examples of "direct physical loss" that provide coverage:

"...in Hughes v. Potomac Ins. Co. (1962) 199 Cal. App. 2d 239 [18 Cal. Rptr. 650], heavy rains caused the backyard of plaintiff's insured dwelling to slide into a creek, but the structure of the building itself was not damaged. The court held the first party insurance policy covering physical loss and damage to the "dwelling" covered plaintiff's loss. This decision does not stand for the proposition that loss of or damage to intangible property can constitute a physical loss. Quite clearly, the loss of the backyard was a physical loss of tangible property. The essential question decided by the Hughes court was whether the insured "dwelling" included the ground under the building.

...in Western Fire Ins. Co. v. First Presbyterian Church (1968) 165 Colo. 34 [437 P.2d 52], gasoline had accumulated in the soil around the insured building, infiltrating and saturating the foundation and making the structure uninhabitable. The court found the loss of use was covered by an insurance policy insuring against the consequential results of a direct physical loss. ( Id. at pp. 38-39.) Again, this case does not stand for the proposition that loss of intangible property can constitute a physical loss. A physical loss occurred when the foundations became saturated with gasoline. The essential question decided by the First Presbyterian court was whether the resultant loss of use could be recovered under the policy.

...in Azalea, Ltd. v. American States Ins. Co. (Fla.Dist.Ct.App. 1995) 656 So. 2d 600, a sewage treatment plant was vandalized by the dumping of an unknown chemical into the system. Inter alia, the chemical destroyed a bacteria colony, which was an integral part of the sewage treatment facility. ( Id. at p. 602.) The court found the loss was covered by a policy insuring against direct physical loss....

...in Retail Systems v. CNA Ins. Companies (Minn.Ct.App. 1991) 469 N.W.2d 735, a third party liability policy covering "physical injury or destruction of tangible property" was held to cover damages for the loss of a computer tape containing the results of a voter survey conducted by a political party. The computer tape, together with the data it contained, was found to be "tangible property," and the measure of recoverable damages was enhanced by the value of the lost data stored on the tape. But the condition of coverage, the loss of tangible property, was plainly satisfied by the loss of the tape.... "

In Meridian Textiles, the Court's discussion is even more helpful to our roofing situation:

"[t]he requirement that the loss be "physical," given the ordinary definition of that term is widely held to exclude alleged losses that are intangible or incorporeal, and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental impact unaccompanied by a distinct, demonstrable, physical alteration of the property.

10A Couch on Ins. § 148.46 (3d ed. 2005) (citing Commercial Union Ins. Co. v. Sponholz, 866 F.2d 1162 (9th Cir. 1989) (finding that marine insurance policy did not cover defect in title, which did not constitute physical injury)....see e.g., Farmers Ins. Co. v. Trutanich, 123 Ore. App. 6, 8, 858 P.2d 1332 (Or. Ct. App. 1993) (concluding that under Oregon law odor from methamphetamine "cooking" "was 'physical' because it damaged the house"); Yale Univ. v. CIGNA Ins. Co., 224 F. Supp. 2d 402, 412-13 (D. Conn. 2002) (concluding that while plaintiff could not seek coverage under an all-risk policy for "mere presence of asbestos-and lead-containing materials in its buildings," it could seek coverage for the "contamination of its buildings by the presence of friable asbestos and non-intact lead-based paint").

For example, in Glens Falls Ins. Co. v. Covert, 526 S.W.2d 222 (1975), the insurance policy provided coverage against "ALL RISKS OF PHYSICAL LOSS OR DAMAGE" to certain vehicle safety stabilizers owned and sold by the insured. Id. The stabilizers fell from a storage area to the floor. Id. However, because the stabilizers were sealed units, they could not be inspected for damage. Id. Thus, it was not known if the stabilizers suffered any physical or internal damage. Id. The manufacturer of the stabilizers withdrew its warranty, and the insured decided not to sell the units, concluding that the units lost their merchantability. Id. In affirming the trial court, the Court of Appeals held that although the insured decided that the units could not be sold without their warranties, "under the clear language of the policy of insurance . . . , that was a type of loss not covered." Id. The court concluded that because "there was no physical loss or damage," the insured could not recover...

Similarly, in Columbiaknit, Inc. v. Affiliated FM Insurance Co., 1999 U.S. Dist. LEXIS 11873 (D. Or. 1999), relied upon by defendant, the court held that under an all-risk insurance policy providing coverage for physical loss or damage, the plaintiff must "show that a physical loss occurred to covered property."....

The court noted that "if an article of retail clothing has an odor strong enough that it must be washed to remove it, (and the garment therefore cannot be sold as new) it has sustained physical damage and would be covered under an 'all-risk' property insurance policy."... The court reasoned that on the other hand, a retailer's "decision not to sell the garment as new, in the absence of distinct and demonstrable physical change to the garment necessitating some remedial action that would preclude honestly marketing as first quality goods, is not a covered loss."... The mere "alteration of property at the microscopic level does not obviate the requirement that physical damage need be distinct and demonstrable." Id. The court thus held that to recover, the plaintiff had to demonstrate that its garments and fabric had been water-soaked, that they had developed an odor, mold, or mildew, or that the goods had been physically changed in such a way that the goods would develop an odor, mold, or mildew." 

From this legal perspective, the substance which makes up the adhesive material on or applied to roofing shingles is tangible. It can be felt, measured, and seen. Roofers tell me that the adhesive property of the "seal" can even be measured. Policyholders will need to prove that the winds and debris carried in the winds from Hurricane Ike caused an alteration to the adhesives which formed seals to the roofing shingles. I suspect that many newer and better maintained roofs suffered less of this damage than older and less maintained roofs and shingles.

Adjusters and policyholders need to understand that finding shingle damage is not done from the ground--unless you do not want to find any damage. You have to closely inspect the shingles. Roofers tell me that one does pull up the shingles with your hand to see if the seal is broken, unlike the directions in the TWIA memo. But, be careful. Inspections can damage the roof; and, possibly damage you, if you fall.

One last warning to all who are not attorneys: do not take this post, or copy it, and start practicing law by arguing what cases mean to the insurance company or TWIA. This warning is especially applicable to public adjusters.

I am off to Rome celebrating my fiftieth birthday. Guest Bloggers will take over for the next two weeks

Ciao. 

Here is the two page technical memo regarding Re-Sealing Shingles:

The point of the technical memo is that hurricane strength winds will lift and blow shingles so that the seals are broken. Generally, the older and more worn the shingle, the more likely this breaking will occur. Good adjusters are aware of this and will carefully and closely inspect roofs to see if the shingle seals show signs of breakage or non-adherance.

Following a major hurricane such as Ike, insurance companies with a culture of good faith claims handling instruct the field adjusters to anticipate this type of damage and determine whether the shingles are "lifting." TWIA's instructions were just the opposite:

"Shingles that show no signs of damage other than they are not sealed and can be raised with your hand are not considered windstorm damaged. Some call these "lifted" shingles. Some call them "blown up" shingles. Some call them "unadhered". Regardless of the terminology, these are not considered windstorm damaged. The shingles are mostly laying flat and are continuing to do as they were intended…….to repel water."

Why would TWIA say the shingles are fine when everybody in the roofing industy would fix them? We will find out as the Hurricane Ike insurance litigation gets underway.

Policyholders should not give up. Justice will prevail for those who seek it.

An internal TWIA Claims Memo helps show this. In part, it says:

"Shingles that show no signs of damage other than they are not sealed and can be raised with your hand are not considered windstorm damaged. Some call these "lifted" shingles. Some call them "blown up" shingles. Some call them "unadhered". Regardless of the terminology, these are not considered windstorm damaged. The shingles are mostly laying flat and are continuing to do as they were intended…….to repel water." 

 The rationale sounds familiar to me because it has been raised before. TWIA wrongly finds that part of a structure that has been physically changed, altered, or what most adjusters are trained and consider "damaged," is not damaged because the item functions as it did before the event. I bet TWIA executives have hired outcome-oriented engineers to help provide an alleged basis for this fabricated argument and adjustment standard not found in the policy.

I will go into a more in-depth discussion of this Tuesday afternoon. However, the memo is instructional because it helps show the mindset of the claims executives reviewing the field adjustment. The "slabbers" were right to March on Austin because the delay and denial of claims are coming from there.

I strongly urge any policyholder to see an attorney before agreeing to the administrative remedy because you give up very valuable rights by doing so. There are many fine and experienced attorneys that are available for a free initial consultation. If denials are based on the type of logic shown above, you will have attorneys wanting to represent you.

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.

The parable is a story of two men, Larry and Moe, who were on the peninsula when Ike hit. Larry was struck by a flying 2X4 launched by the wind, then, when the surge came, he grasped a floating timber and made it to safety. He was treated for his injuries, estimated at 11% of his being.

Moe was not so lucky. He was killed instantly by a flying TV set. The storm surge subsequently swept his body away.

The medical examiner compared Moe's corpse to Larry. After taking several months to consider the situation, the examiner declared that Moe was only 11% killed by wind, because that's what happened to Larry. He opined that 89% of Moe's death must have been due to flooding.

The TWIA policyholders from Bolivar Peninsula are furious with their claims treatment. It is my understanding that many may protest in Austin on March 13. More power to them.

Good day Chip: Per our discussions, my personal receipt of memo below is the most "real time" authentication I secured from trusted and experienced adjuster friends who were thrown into the TWIA adjusting fray, fully validating your points and the tendency to cast exclusion style chaos into the face-to-face adjusting responsibilities. Hope this is helpful. Mark Phillips

Documentary Provided by:
(Redacted).

Dateline: October 31, 2008
Relayed To: Mark Phillips, Loss Consultant

The problem we have encountered as adjusters in relation to this storm is the wind/flood/surge problem; something we've encountered very little in the past. We had to get online and do a little research to make ourselves more aware of exactly how surge happens; as one of our claims was a total loss, possibly from surge as no one really knows what happened, and it requires a great deal of documentation to get the claim settled. We do not believe it was from surge. It's difficult to prove. We believe the wind blew it away and the surge then washed it away. Proving wind happened first would mean a huge difference in what the insured is paid in damages. There will be much controversy over this topic.

The people all must carry flood insurance, wind insurance (we've been working for Texas Windstorm) and then they have their home owner policies; three kinds of insurance to pay for.

We're finding that even though they knew they needed flood insurance and wind insurance the agents, in many cases, didn't do a very good job of explaining how they work in relation to surge, which plainly is not covered in the policies. We're finding many of the agents do not even understand the concept of surge. The agents believe their customers' properties are well insured no matter what the flooding issue. It's fairly simple for us to refer them to their flood insurer but we try to explain a little of the concept of flood as compared to surge.

We're hearing that the flood guys are not doing a good job of taking the time needed to do their part of explaining and they may not be doing a good job in some instances (we are told this from our insureds) in working the claims. It is fairly simple to tell the customer it is surge and walk away! Research takes time and sometimes is a wasted effort. No doubt the information and documentation required is very hard to come by. The insureds in many cases are left very upset.

We've been grateful we are working for wind and not for flood!

Agents realize the policies exclude surge (there is no surge insurance available); but they don't really understands the mechanics of surge and they haven't explained it well. We expect many to be using their E&O insurance because their lack of explanation has caused great grief to many.

The claimants find that after paying all that money flood doesn't cover it. Wind doesn't cover it and home owner policy doesn't cover it so who does? That nasty little word "surge" ruins everything! In cases where mortgages will allow, many plan to drop their insurance saying it's worthless. We're so grateful most of our claims affect the 2nd floor up! The flooding for Texas Wind has to come from the top down rather than from the bottom up. Seldom do we (as wind adjusters) have to worry about the bottom floor of the multi-floor break-away bottom floor homes because that is usually a flood problem. Most every home on Tiki Island Village is missing the bottom floor after the storm. We understand that the city fathers will be taking a new look at the regulations to build the break-away walls. That perhaps those walls breaking away with the force they did is what caused much of the damage.

We hear stories that if they were OUR PERSONAL story, it would be a heart breaker!
We hear from many of the insureds that the adjusters take one look, say sorry, its surge..and walk away. Hearts are broken, they feel they didn't even get a chance to show the damage or even talk to the adjuster. That has not been popular. We've inherited a few of those claims.

It's greatly appreciated when we listen intently to them, do our best to feel their pain and even though our ultimate findings may turn out the same, at least we didn't brush them off with the "surge" word before hardly even shaking their hand. We have emails to prove how much they appreciate the special attention and sympathy! It shows someone at least cares for their pain!

Speaking of Tiki, there are stories we heard during our investigation that are very interesting. When there is a claim where the insured loses everything, where the house is completely gone & there has to be much investigation and documentation to be done. You have to talk to the city officials to see what exactly was documented. You have to talk to neighbors and make lots of watermark pictures and compile all kinds of documentation. In checking on one of our "completely missing" claims, we heard some interesting stories. This particular property was in Galveston but it was on Tiki that we got some of our most interesting information; information that will probably be of prime importance in upcoming investigations.

Supposedly only a few people, possibly only one person, stayed on Tiki during the storm considering the mandatory evacuation. We heard that person tells that the water rose up gently -- pretty quickly but gently. But the water did not go down gently. It didn't recede as you would expect water to do. It went out immediately as if someone pulled the plug on a bathtub and that is when much of the damage was done. It will be a large point of evidence when the litigations start. Surge takes it all away instantly but this bathtub effect is different. That's when the walls on the 1st floors went out; when the boats and appliances that had floated up began to bang up against things and did the damage, etc. Supposedly the few people who saw this will be important witnesses to how things happened. That's supposedly why cars and other large objects were buried.

I feel the "Surge" phenomenon will be an always present cause of damage in upcoming storms. But we're told that this was a particularly unusual storm and that surge is not always present.

A few ideas struck me as I read this. First, the adjusters seemed sympathetic to the policyholders’ plight. They seem like they want to do a good job and help. My impression is that they are inexperienced regarding major hurricane adjustment because they had not encountered storm surge.

Second, they have no clue how flood insurance works. Storm surge is covered under a flood policy. It is water damage from a body of water and within the definition of a "flood" under the National Flood Program. If the National Flood adjusters are denying those storm surge claims, we have not been getting calls to that effect.

Third, the adjusters admit they cannot figure out exactly what happened. They admit there is going to be a lot of controversy over flooding and wind damage as the cause of the loss. I agree. We have been retained on many of these controversies. The same issues were litigated after Hurricanes Katrina and Ivan.

Next, they are hearing that National Flood adjusters are not doing a good job. I have been hearing the same. The typical National Flood adjuster gets paid a percentage of the flood payment. However, overpayments come out of the adjuster's own pocket. As a result, estimations of damage tend to be low to prevent the penalty of overpayment. For the first time in a decade, I have seen total loss flood claims where the estimate of damage is less than the policy limit.

Finally, I wonder what instructions these field adjusters have been getting from Texas Wind in Austin. The manner of calculation and reasons should be transparent. For example, the total loss policyholders coming to us from Bolivar were initially getting about ten percent of policy limits from TWIA. Later, they were paid another one to three percent with an estimate that did not include a full explanation. Even State Farm eventually agreed to pay more than that amount to policyholders after Katrina.

As the litigation starts for our clients against Texas Windstorm Insurance Association, we will find out more about the internal workings and directions from TWIA claims management to its field adjusters. At least these two field adjusters cared enough to read the blog and respond. Most of our clients got no calls or explanations from the claims managers in Austin.

Citizens was investigated in 2007 regarding its claims handling. The Citizens claims management explained how they went from an inept claims organization to one which maintained standards at least as good as any in Florida. While that was debatable, I agreed that Citizens responded better to the 2007 storms than it did in 2004.

Five months ago, there was a major change in the Citizens claims organization. Within the last month, we have received complaints regarding hardball, deceitful, and bad faith claims handling by Citizens with the full support of the new Citizens claims management. While Citizens publicizes that its intent is to provide "fast, fair, honest and accurate claims service," recent examples provided to me indicate that mission statement is false.

Insurance adjusters have to investigate coverage and evaluate damages. They are ethically bound to do this promptly, honestly, and in good faith. This is required of every adjuster as part of their license with the state of Florida. Today, Citizens adjusters are being told by its managers not to provide Citizens' estimate of damage to the policyholder or policyholders representatives. At the Florida Association of Public Insurance Adjusters Winter Conference last week, many public adjusters told me that Citizens refuses to provide its estimate of damage, claiming that it is "work product."

How a policyholder knows whether Citizens' payment is accurate without an estimate of how Citizens evaluates the damage is beyond me. It would be like getting an IRS refund and the IRS refusing to tell you how it figured the number. Or, imagine a scenario where a butcher takes the steak you select, tells you to give $20, weighs the steak, and then gives you back $2.02 in change, but refuses to tell you how much the steak cost per pound and its weight. Some may consider this a possible theft, yet this is what Citizens is doing to Floridians every day.

What is worse is that TWIA has been doing the same to its policyholders with a slight twist. It paid most slab claimants approximately 10% of the face value of the policy. It generally provided no estimate for this, but has indicated it was investigating. We have received dozens of calls from potential clients asking how long TWIA can take to investigate and not provide an estimate. Texas public adjusters are calling in furious because TWIA adjusters make up excuses for not providing any of its estimates.

The worst example is a Citizens policyholder now represented by Nancy Dominguez of Florida Adjusting Services Team, Inc. The policyholder was sent a check and complete release without an estimate. Citizens sent these, obviously hoping the client would take the check and sign the release. Nancy learned of this  and demanded an appraisal to resolve the amount of the loss because the check amount was far lower than the amount she estimated. In the appraisal proceeding, the Citizens estimate was finally turned over, and it was for an amount higher than the payment check it sent to the policyholder. The appraisal resulted in an award almost double Citizens' "hidden" estimate and about three times the amount of the fraudulent check.

Insurance adjusters should be prosecuted for this conduct. It is an attempt at insurance fraud.

Maybe our law firm should not complain. Our phones are ringing off the hook. Yet, while insurer bad faith is good for business, it is terrible when it is obvious these practices harm those who are already in desperate need of fair and honest treatment.

Senator Mike Fasano reportedly is drafting a bill that will prevent Citizens from raising rates. Given that his constituents are from an area along the coast and plagued with sinkholes so that Citizens insures many of them, I appreciate his desire to be seen as a "rate champion" for those policyholders--even if it is unfair to his other constituents not insured by Citizens.

Barney Bishop, of Associated Industries of Florida, has a special letter on his web site calling for no caps on rates. Since the insurance industry is heavily involved with the propaganda of that lobbying organization, I can understand his position as well. I am also curious as to what he tells  businessmen who are members of his group regarding the increased cost of rates if there were no cap on increases,contrary to the Task Force's reccomendation.

Is there ever a common middle ground? Or, is the middle just a place to get shot at by zealots from either side of a controversy?

The January edition of the Florida Underwriter has an editorial by Joan Collier entitled, "The SEC, Secrets, and Citizens." She notes that the SEC started an investigation of Citizens in June. Curiously, nobody reported this to its Board of Governors or the public until December 12. So much for Government in the Sunshine.

And nobody has explained where the claims money is going to come from if another Hurricane Andrew, Katrina, or Ike strike Dade, Broward, or Tampa Bay. While we can argue about rates, the role of Citizens, and whether or not the public should be informed of a federal government investigation of its operations, we surely cannot play a child's game of make believe when we face a possible catastrophic financial situation if such a hurricane struck.

Floridians have a right to know where they stand. Most of my clients want to know how I objectively see their case rather than a best case scenario. One of the hardest, but most important, actions a leader can take is to provide disappointing information in a calm and accurate manner.

Americans can accept bad news. We can understand why sacrifice is necessary. What we cannot afford is political grandstanding which implies action is not needed when the risk our State will be devestated is so dire.

Right now, the Texas Windstorm Insurance Association (TWIA) is nearly bankrupt. Many of our Hurricane Ike clients are speculating that payments are delayed or partial because TWIA is running out of cash. 

The TWIA financial problem will be nothing compared to Florida's if a major hurricane strikes later this year and our financial situation remains the same as today.

Krugman makes the case that health insurance is becoming so expensive that common folks simply cannot afford it or have to go to the "Wal-Mart" version of health insurance with very limited coverage. Thus, a National Health Plan is all but inevitable because only the wealthy are going to be insured in the future.

Similarly, affordability and availability of property insurance is becoming an ever more significant topic. The larger and mature insurance oligopoly is leaving any geographic area where catastrophes occur on a repeat basis. They want to avoid the peaks and valley of profitability--unless they can get a rate which is simply too good to refuse.

The response to this is no surprise because it is just like the health insurance crisis---let the government sponsor a program because the free market is not working. In Florida and Louisiana, the public insurance companies are named Citizens. In Mississippi, it is the Mississippi Windstorm Underwriting Association (usually referred to as Mississippi Windpool). In Texas, it is the Texas Windstorm Insurance Association (TWIA). Congress is now sponsoring bills which call for a national program for property insurance. What will happen is anybody's guess, but there is a definite trend towards government involvement in insurance where the basic needs (demand) cannot be met by private industry at an affordable price.

In the long term, I am not certain that it is in anybody's best interest to let the government run a business so important. As we are currently witnessing in the economy, government cannot even regulate the shenanigans that go on in private business, much less be expected to run it. I thought we learned those lessons through Russia's experiment with socialism. Yet, if there is no alternative....

Before the twentieth century, the major insured risk of widespread catastrophe was urban fire. The Great London Fire of 1666, the Great Savannah Fire of 1820, the Great St. Louis Fire of 1849, and the Chicago Fire of 1871, started by Mrs. O'Leary's cow, are classic examples of how fires devastated cities and the insurance companies that insured them. An 1872 New York Times article noted how New York lawyers used abusive powers of receivers to disperse pennies on the dollar to many Chicago policyholders who had a valid claim but no solvent insurer to pay. 

Insurance companies in the late nineteenth century became more affluent and concerned about insolvency caused by fire. The industrial revolution and development of electricity posed even greater fire risks. As sprinkler systems were developed, fire departments were better managed, and eventually standards prompted and developed by the National Fire Protection Association (founded in 1896) helped reduce the widespread risk of fire. Today, except for wildfires, massive urban fires are rare. Flood is a widespread risk of loss, which private insurance companies have always avoided insuring.

As a result, the National Flood Program was established in 1968. This government quasi-insurance program is the genesis of building codes that require homeowners to build higher and place the valuable portion of structures and contents above flood waters. Similar to stronger building codes preventing fire risk, the theory was that Building Codes were needed to prevent the frequency and severity of flood loss.

Coastal residents in the South always have an eye out for hurricanes in the summer and fall. Following Hurricane Andrew, building codes were strengthened and enforced to reduce damage caused by wind. In Texas, after private insurers left the state without coverage for wind, Texas established a Windstorm Association and mandated construction standards much higher in areas closest to the Gulf Coast. The spector of wind damage and inability to insure the risk have changed laws for the purpose of reducing widespread financial loss following natural catastrophe. So, the need for better laws to reduce the spread and destruction of wildfire in California is nothing new. It is something that is engrained as one of our core values from childhood.

Remember the Three Little Pigs?  Straw, stick and brick buildings all have different characteristics that reduce the chance of a disaster. In the case of the pigs, the disaster was being eaten by the Big Bad Wolf. The lesson we can learn from that tale is that intelligent planning and foresight, combined with hard labor, will make us victorious over dangers we face. In the long run, while it may be more expensive for us and change the landscape of how our homes and businesses look, codes that require construction more like the pig with the brick house will save us a lot more in the future.