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

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

WIND Umpire Certification®

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

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

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

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

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

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

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

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

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

The agenda is listed here.

What should you do after a disaster strikes your house or business? An important concern is how to recover under your insurance coverage for damage to your insured property. There are a few essential steps for a proper recovery on your insurance claim.

1. First, call your insurance company to report the claim. Ask where you can send written notice of the claim, and then send notice of the claim in writing. A simple written description of the incident and the possible damage will suffice. Under Texas law, written notice triggers certain responsibilities for the insurance company. If the insurance company tells you that written notice is not necessary, do it anyway.

2. Read your insurance policy. Find out what it covers and what it doesn’t. Don’t skimp by just reading the declarations page. You have to read the whole thing to find out what is covered under your insurance policy. Mark portions of the policy that you don’t understand and ask the insurance adjuster to explain them.

3. Your initial impulse after a disaster damages your insured property is to clean up. Resist that impulse for just a bit, and take the time to record the scene. Take your camera or video camera and record that tree on the roof, the mud that the floodwaters deposited in your living room, the rain-soaked computers and file cabinets in your business. Record as much as possible; too many pictures are better than too few. Once the area is cleaned up, it will be easier to explain to the insurance company exactly what happened if you have pictures illustrating the scene. Do this even if the insurance adjuster comes out immediately to view the damage. Insurance companies often switch adjusters during the life of the claim, and you cannot rely on the first adjuster to adequately document your damage.

4. Inventory the damage to the building and contents. Write down everything you think is wrong with your building and give that list to the insurance adjuster. Make a list of all contents or business property that was damaged --- furniture, computers, picture frames, and so on. Take a picture of everything before you throw it away. Do not discard anything before the insurance adjuster has a chance to look at it. Ask the adjuster before throwing anything away.

5. Communicate with the insurance company in writing. If you have a telephone or in-person conversation with the insurance adjuster, confirm it in writing afterwards. Write or email the insurance company to get a status on your claim. This prevents misunderstandings.

6. Make notes regarding what happens with your claim. Write down the date of each time you call your insurance company, the name of the person who took your call, and what was said on that call. Note the date each time an adjuster comes to your property or contacts you, and write down what was said or agreed.

6. Take immediate action to remedy any condition on your property which could lead to further damage. For instance, if you have a hole in your roof, put a tarp over it until you can make permanent repairs. Insurance policies generally require the insured to mitigate his damages. Discuss with your insurance adjuster whether the policy will pay for temporary repairs.

7. Demand frequent updates on your claim from the insurance company. The squeaky wheel gets the grease.

8. If the insurance company denies or underpays your claim, immediately contact a public insurance adjuster or insurance attorney for assistance. Texas law requires the insurance company to pay the policyholder’s attorney fees if the insurance company fails to properly pay the claim. 

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

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

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

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

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

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

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

The federal court cited an eighty-year-old Texas case, American Century Ins. Co. v. Terry, 26 S.W.2d 162 (Tex. 1930), regarding the factors to be considered. According to Sanchez and Terry, waiver of the right to appraise a loss can be established by the conduct of an insurer, including the following acts:

(a) parol waiver;
(b) refusal to appraise;
(c) denial of liability;
(d) failure to demand appraisal;
(e) actions inconsistent with intention to appraise;
(f) appointment of a prejudiced appraiser; and
(g) improper conduct during appraisement.  

In Sanchez, the court analyzed whether the insurer had denied liability or had failed to demand appraisal in a timely manner. The court determined that the insurer had not unconditionally denied liability because it had accepted coverage for a very small amount of damage. Although the amount of the accepted damage was less than the deductible and did not result in any payment, the court ruled that the acceptance of any amount of damage constituted acceptance of liability. Consequently, the court decided that the insurer had not denied liability of the claim so as to constitute waiver of appraisal.

The court then examined whether the insurer had failed to timely demand appraisal. The court noted the rule that where the policy does not set a deadline by which appraisal must be invoked, the demand for appraisal must be made within a reasonable amount of time. Of course, the amount of time that would be “reasonable” would vary with the facts of each claim.

The homeowner, Sanchez, reported his Hurricane Ike claim in October 2008. On October 31, 2008, the insurer sent Sanchez a letter stating that, in the insurer’s opinion, the damage did not exceed the deductible. On November 1, 2008, Sanchez telephoned the adjuster and informed him that he, Sanchez, disputed the insurer’s evaluation of the loss. Approximately one year later, after Sanchez had filed a lawsuit against it, the insurer demanded appraisal. The court determined that the insurer had waived its right to appraisal by failing to timely demand it.

The insurer had protested that the delay was caused by its attempts to adjust and settle Sanchez’s claim. An insurer does not waive its right to demand appraisal while it is actively attempting to adjust the claim. The court noted in this case, however, that the insurer presented no evidence that it was actively attempting to adjust Sanchez’s claim during the six-month period between the November 1, 2008 telephone conversation and the filing of Sanchez’s lawsuit. Moreover, the insurer did not request appraisal until more than four months after Sanchez filed his lawsuit. The court ruled that the insurer had waived its right to appraisal by its failure to demand it in a timely manner.

Due to the strong public policy favoring insurance appraisals in Texas, as established in State Farm Lloyds v. Johnson, we are sure to see a continuing evolution of the case law concerning insurance appraisal. The insurance professional should read Sanchez carefully for guidance on any possible waiver of the right to demand appraisal.

In my presentations at the Windstorm Conference with Steve Pate yesterday afternoon, I tried to do just that. Adjusters, whether company, independent or public, are travelling to disaster sites in many states. The subtle differences in each state's insurance laws have to be considered by all adjusters in their day to day activities. And, there are some general themes and trends common to all.

Here is the list of cases we discussed in our presentation that we believe will affect those adjusting claims in Gulf Coast areas outside of Florida:

• Fonte v. Audubon Ins. Co., 8 So. 3d 161 (Miss. 2009)
• Certain Underwriters at Lloyds London v. Law, 570 F.3d 574 (5th Cir. 2009)
• Guideone Mut. Ins. Co. v. Rock, No. 06-218, 2009 WL 1854452 (N.D. Miss., June 29, 2009)
• Corban v. United Services Automobile Association, 20 So. 3d 601 (Miss. 2009)
• Watson v. Allstate Ins. Co., Slip Copy, No. 07-3462, 2009 WL 1704730 (E.D. La., June 17, 2009)
• Dickerson v. Lexington Ins. Co., 556 F.3d 290 (5th Cir. 2009)
• Campbell v. Shelter Mutual Ins. Co., No. 07-1983, 2009 WL 56003 (E.D. La., Jan. 7, 2009) (Following Dickerson)
• Korbel v. Lexington Ins. Co., 308 Fed. Appx. 800 (5th Cir. 2009)
• Copelin v. State Farm Ins. Co., No. 06-4115, 2009 WL 36188 (E.D. La., February 12, 2009)
• Marketfare Canal, LLC v. United Fire & Cas. Co., 594 F.Supp 2d 724 (E.D. La. 2009)
• Grilletta v. Lexington Ins. Co., 558 F.3d 359 (5th Cir. 2009)
• State Farm Lloyds v. Johnson, 290 S.W. 3d 886, 52 Tex. Sup. Ct. J. 1042 (Tex. 2009)
• Spicewood Summit Office Condominiums Ass'n, Inc. v. America First Lloyd's Ins. Co., 287 S.W. 3d 461, (Tex. App.-Austin, 2009)
• Temcharoen v. United Fire Lloyds, 293 S.W. 3d 332 (Tex .App.-Eastland  2009)
• Moffett v. Computer Sciences Corp., et al., 647 F.Supp. 2d 517 (D. Md. 2009)

Here are some practical points of adjustment that should be implemented and considered:

1. Flood exclusions are being upheld in cases throughout the Gulf Coast. Policyholders may have coverage for hurricanes as a "windstorm," but the law is recognizing that the flood/storm surge damage from the hurricane is excluded.

2. Mental distress claims brought about by wrongful claims conduct will be recognized in Mississippi and Louisiana. The Louisiana standard to support such a claim is very low. Adjusters must be trained to use the "golden rule" with adjustment activities and appreciate the emotional distress caused by a catastrophe followed by a serious discussion of adjustment.

3. Arbitrary guidelines suggesting an outcome for an investigation will give rise to claims practice violations or bad faith lawsuits.

4. Adjusters must make a full investigation of a loss. In slab situations, engineers will almost always have to be consulted on a case by case basis to support a claims decision.

5. In Mississippi, the insurer bears the burden to prove the amount of excluded flood damage under an all risk policy. The policyholder must prove the amount of wind damage caused to contents under a named peril policy.

6. Louisiana has very liberal proof of loss requirements for policyholders to satisfy. Insurers must be very prompt paying undisputed amounts of claim damage to avoid penalties.

7. Second homes that are not primary residences raise a number of potential coverage defenses which may apply to underwriting and application misrepresentations. These are often not raised by adjusters in the field. Agents need to make certain second home coverages are properly written to avoid errors and omission claims.

8. Safe is better than sorry. While one Texas case suggests a method to avoid the two year and a day statute of limitation in Texas, the safer practice is to file litigation on claims disputes within two years from the date of loss.

9. Insurers have a "reasonable basis" defense to claims of bad faith. Adjusters should promptly and fully investigate losses detailing findings and obtaining bona fide consultant opinions when needed to show a good faith basis for a claims decision. And, they must fairly consider all evidence and not be selective as to evidence indicating less or no coverage.

10. Appraisals in Texas are going to be much more common. While the law is very unclear, courts are tending to enforce appraisal first and review causation and coverage issues later in most situations.

11. National Flood Proofs of Loss have to be filed on time and completely. If not, there is an appeal procedure that is now subject to judicial review if National Flood arbitrarily denies a request for a late filing or claims determination change.

12. Texas practically places a much higher burden of proof on the policyholder to prove the amount of covered versus non-covered loss. Recent Louisiana decisions also follow this reasoning by making the policyholder segregate the amount of covered versus non-covered loss. Engineers, contractors and consultants often give a percentage of covered versus non-covered loss with support to meet this burden.

I hope these points are helpful. It sure beats reading all those cases.

How many times has a public adjuster met with a an insurance claims adjuster at the loss site and the insurance adjuster refused to communicate, failed to acknowledge the public adjuster, and left without asking any pertinent questions about causation, age of damaged items, prior repairs or claims, etc? The job of the insurance adjuster is not to be an adversary, but to facilitate the claims process so the property owner can be made whole as quickly as possible. In order to accomplish this task, the claims adjuster must adjust this loss with the property owner or his public adjuster. It is extremely important that letters sent to the insurance adjuster remind him of this obligation, and it is just as important that the public adjuster help facilitate the process for the claims adjuster.

When writing a letter to an insurance claims adjuster, explain to the carrier that you want to adjust the loss together. Insurance adjusters are taught that they must share information and cooperate with the insured to adjust a property loss. The letter of representation from the public adjuster should ask for a copy of estimates prepared, photographs, and all correspondence, verbal or written, between the insured and the carrier. The purpose of the request is to allow for complete transparency, in order to avoid any misconceptions and improper assumptions regarding the scope, value and cause of damages. An estimate prepared by the claims adjuster that does not properly represent the scope and value of the damages is an improper estimate.

A letter of representation by the public adjuster should be careful to address whether the claim presented is the original claim (re-open) or is a supplemental claim. A supplemental claim is one where the damages were not obvious or were not present at the time the insurance adjuster inspected the loss. Therefore, if the letter of representation by the public adjuster refers to the loss as a supplemental claim rather than a re-opened claim, the public adjuster could be acquiescing to the original insurance adjuster’s estimate as the proper and valid estimate of damages. A re-open claim, on the other hand, is one where damage could be observed and was present at the time the field adjuster wrote his estimate, but the adjuster’s estimate is low on value, or is missing items on the scope.

Why don’t you want to call it a supplemental claim if it isn’t one?

If the adjuster got the estimate wrong and the public adjuster sends a letter telling the carrier it is a supplemental claim, he gives the adjuster and the insurance company a free pass; the insurer can argue that they did the estimate correctly the first time and this new claim is for damage that was not present or could not be seen during the first inspection.

When interviewing the policyholder, the public adjuster should be careful and through in documenting whether the damages that are visible today were also visible at the time the insurance adjuster inspected the property. This will help the public adjuster determine whether it is a re-open or supplemental claim.

Zalma noted that when considering the qualifications of an appraiser, California courts have adopted the arbitration code for guidance:

California courts have concluded this adjudication must be conducted pursuant to the provisions of the California Arbitration Act, Code of Civil Procedure section 1280 et seq. (Arbitration Act).

Section 1281.9 of the Arbitration Act requires proposed neutral arbitrators to disclose to opposing parties the existence of any potential grounds for disqualification. If a party objects to the proposed neutral arbitrator, section 1281.91 requires the objecting party to serve a notice of disqualification within 15 days of receipt of the disclosure statement.

...

The key to disqualifying a party appointed appraiser is whether there is a "substantial" business relationship between the party appointed appraiser and a party to the appraisal, their counsel, or the umpire. Impartial arbitrators/appraisers must disclose to the parties any dealings that might "create an impression of possible bias." The test is whether a reasonable member of the public at large, aware of all of the facts, would fairly entertain doubts concerning the arbitrators/appraisers impartiality, the arbitrator/appraiser is not subject to disqualification.

This discussion is quite relevant to the ongoing debate about appraisal in Florida. One of the insurers’ contentions is that many policyholder appraisers are biased and interested. Insurers argue that appraisers who are compensated on a contingency fee system inherently try to raise the amount of awards because they have an incentive to do so.

A Florida case, Rios v. Tri-State Ins. Co., 714 So. 2d 547 (Fla. 3d DCA 1998), allows appraisers to work on a contingency basis, so long as it is disclosed to the panel. This is prohibited in Texas appraisals.

It will be interesting to see how all this resolves.

It should be noted that the statute was previously codified as Article 21.55. In 2005, it was recodified as Texas Insurance Code §§ 542.051 to 542.061. Many authorities still cite to Article 21.55.

The statute requires the policyholder to give the insurer written notice of the claim. A telephone call does not trigger the statute. Many insurers have toll-free numbers for claims reporting and accept claims by telephone. However, only written notice of the claim will generate the deadlines under the Prompt Payment Statute. No particular form of written notice is required, as long as the written notice “reasonably apprises the insurer of the facts relating to the claim.” Tex. Ins. Code Ann. § 542.051(4).

Written notice to the insurance company triggers four initial duties:

1. The insurer must acknowledge receipt of the claim. Tex. Ins. Code §542.055(a)(1).
2. If the acknowledgement is not in writing, the insurer must make a record of the date, means and content of the acknowledgement. Tex. Ins. Code §542.055(c).
3. The insurer must begin investigation of the claim. Tex. Ins. Code §542.055(a)(2).
4. The insurer must request all items, statements and forms that the insurer reasonably believes, at that time, will be required from the claimant. Tex. Ins. Code §542.055(a).

The statute gives most insurers fifteen days after notice of the claim to perform those duties. Certain surplus lines carriers have thirty business days. Tex. Ins. Code §542.055(a).

Once the insurer receives all items, statements and forms requested by the insurer, seven new duties arise:

1. By the fifteenth business day, the insurer must notify the policyholder that it accepts or rejects the claim. Tex. Ins. Code §542.056(a). The insurer can get a forty-five day extension of time. Tex. Ins. Code §542.056(d).
2. If the insurer rejects the claim, the notice must state the reasons. Tex. Ins. Code §542.056(c).
3. If the insurer is unable to accept or reject the claim by the deadline, the insurer may notify the policyholder and state the reasons the insurer needs more time. Tex. Ins. Code §542.056(d).
4. If the insurer obtains the forty-five day deadline, the insurer must accept or reject the claim within that time. Tex. Ins. Code §542.056(d).
5. If the insurer accepts the claim, the insurer must pay the claim within five business days. Surplus lines insurers have twenty business days. Tex. Ins. Code §542.057(a), (c).
6. If the insurer conditions payment on some act by the claimant, the insurer must pay within five business days after the act is performed. Again, surplus lines insurers have twenty business days. Tex. Ins. Code §542.057(b), (c).
7. The insurer must pay the claim within sixty days after receiving the items it requested from the policyholder. Tex. Ins. Code §542.058(a).

The seventh requirement is important because an insurer can automatically violate the statute by failing to pay a claim within sixty days of receiving the items requested from the policyholder. An insurer that obtains a forty-five day extension of time could exceed the sixty-day requirement for payment, but the wording of Section 542.058(a) seems to excuse insurers from the sixty-day deadline of §542.058 if they meet the deadlines set out in §§ 542.056 and 542.057.

The 18% interest applies to the entire claim, minus any partial payments. However, if the insurer’s partial payments were not unconditional, the interest applies to the entire claim. See Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423, 426 (Tex. 2004). The interest runs from the payment deadline until the payment is made, or the date of judgment. Id.

It is important to note that that the Prompt Payment Statute does not apply to payments made where there is an appraisal award. Breshears v. State Farm Lloyds, 155 S.W.3d 340 (Tex.App. Corpus. Christi 2004). In that case, the court determined that the extra-judicial remedy of insurance claim appraisal precluded a finding that the insurer had breached the insurance contract, so that penalties and damages were not proper.

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.

The Texas decision follows the Davis case cited yesterday, but adds an important limitation to how the replacement can be made. The rule everybody should follow in Texas when replacing at a different location is as follows:

Under the policy, [the policyholder] was permitted to replace the apartments with different buildings at a different site as long as the new buildings were devoted to the same use. For example, it could have purchased or built a larger apartment complex at a different location. See Davis v. Allstate Ins. Co., 781 So.2d 1143, 1144-45 (Fla.Dist.Ct.App.2001). The amount of Fitzhugh's recovery under the policy was limited to the cost of rebuilding similar or comparable buildings on the same site or the amount it actually spent to replace the property, whichever was less. See id.; see also Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423, 425 (Tex.2004). For the replacement cost coverage to apply, however, [the policyholder] must have purchased or built a property that was functionally similar to the property that was destroyed. See S & S Tobacco & Candy Co., Inc. v. Greater New York Mut. Ins. Co., 224 Conn. 313, 617 A.2d 1388, 1390-91 (1992). If the new property is not functionally similar to the destroyed property, it is an unrelated expenditure and the destroyed property has not been "replaced."

How the Court got to this bottom line replacement cost rule only came about because the Texas policyholder did not replace the structure with a similar structure, but invested in property of a different use. The policyholder had damage to apartments, and invested in a partial ownership of industrial property.

The reasoning of the Court is important to understand how these cases are judicially viewed:

Unlike the act of giving an insurer notice of a claim or settling a claim without the insurer's knowledge, the replacement of damaged property is an event that triggers coverage. It is the act of replacing the property that causes the insured to suffer an additional loss for which he purchased additional coverage. To allow an insured to recover replacement costs in the absence of actual replacement would permit the insured to recover for a loss he has not suffered. See Harrington, 645 N.Y.S.2d at 224 (reasonable to deny recovery of replacement costs where insured is not going to replace property as he would profit from his loss). Accordingly, we conclude that Fitzhugh was required to replace the damaged property as a condition precedent to its recovery under the policy and that its failure to do so negates its entitlement to recover replacement costs.

For those readers who remember my post, Do Not Take Depreciation to Determine Actual Cash Value of Partial Loss to Real Real Property in Texas, you may wonder why Texas Courts are so concerned about policyholders obtaining “profits” in total loss situations and not mentioning that concern in partial loss situations where the repairs are not made. I am smiling while writing this because I wonder what those judges would say if they thought about that situation and were forced to academically explain how total loss situations differ from partial loss situations. For me, policyholders are generally required to pay the premium based on values at current replacement cost construction prices and should generally get replacement cost benefits unless the policy clearly prevents the same.

Nevertheless, the Fitzhugh 25 Partners court significantly noted what the term “replacement” of a structure contemplated when it was a requirement to obtain replacement cost benefits:

The word "replacement" is not defined in the policy. We must, therefore, give the term its ordinary and generally accepted meaning…. Webster’s New International Dictionary defines "replacement" as a "substitution" or "a new fixed asset or portion of an asset that takes the place of a discarded one."… For something to be a "substitution" or "take the place of" the original, it must serve the same function as the original. The vast majority of cases that have examined this issue have concluded that the term "replacement" inherently contains the element of functional similarity. See, e.g., SR Int'l Bus. Ins. Co. Ltd. v. World Trade Ctr. Props., LLC, 445 F.Supp.2d 320, 334 (S.D.N.Y.2006) (for rebuilt property to be replacement there must be "functional similarity"); Harrington, 645 N.Y.S.2d at 226 (new structure did not "replace" insured's home where insured did not live there); Conway v. Farmers Home Mut. Ins. Co., 26 Cal.App.4th 1185, 31 Cal.Rptr.2d 883 (1994) (term "replace" includes substituting an item that serves same function); Huggins, 423 So.2d at 150 (house was a "replacement" where it served same function as original). but see Ruter v. N.W. Fire & Marine Ins. Co., 72 N.J.Super. 467, 178 A.2d 640, 643 (1962) (replacement need not be identical to original or intended for same occupancy and use).

…

We note that Webster's also defines the term "replacement cost" as "the current cost of replacing a fixed asset with a new one of equal effectiveness."

…

We agree with Fitzhugh's contention that the policy's limitation on recovery of replacement costs to "the cost of repair or replacement with similar materials on the same site and used for the same purpose" is merely a method of calculating damages and not a requirement that Fitzhugh replace the apartment complex with substantially identical buildings at the same physical location. We disagree, however, with Fitzhugh's contention that it may spend the money it recovers under this measure of damages on anything it chooses. Such an interpretation reads the condition that the property be "replaced" out of the policy.

I am also smiling because while I write this post, I am reminded about what I wrote last week in Corban Part Three: A Win for Policyholders and a Decision Following Rossmiller's Causation Analysis of the Anti-Concurrent Causation Clause:

I live in a world where words, and the subtle understanding of them, mean much financially to everybody involved, including myself. I personally had millions of dollars on the line advancing the costs of lawsuits in Mississippi. I was very much a partner with my clients advocating for coverage.

For all future clients of mine, I would ask that you keep the investment in the replacement property as close as you can to the use of the property that was damaged. I can only predict, not guarantee, what these judges will think is “justice” when I present your best case to them.

You are invited to attend the inaugural meeting of the Texas Association of Public Insurance Adjusters (TAPIA). The meeting is being held at the Hotel Derek in Houston, Texas on October 15, 2009 from 10:00am until 3:00pm. There is no charge to attend this meeting, which will also include lunch.

 Please register for the meeting on the TAPIA website, mytapia.org, where you will also find an application for membership that includes information about the membership fee. You are encouraged to join TAPIA before the annual meeting, although the opportunity to join will also be available at that time. Future TAPIA meetings will be for members only.

 On the agenda for the October 15th meeting, in addition to business items regarding the organization, is a discussion of the current issue with the Texas Department of Insurance regarding the public adjuster’s fee cap and other contract-related items. Attorneys David Weber and Kim Yelkin from Gardere Wynne Sewell LLP will be there to lead the discussion. Also on the agenda is attorney William “Chip” Merlin from Merlin Law Group who will present valuable information for public adjusters on the topic of The Unauthorized Practice of Law.

 On behalf of the TAPIA board, I strongly encourage you to become a TAPIA member and attend the annual meeting. We are at a critical time in the development of our industry in Texas and need the participation of all pubic adjusters to make certain that consumers receive the best service possible. (emphasis added)

The importance of TAPIA as an organization serving consumers cannot be overemphasized. The insurance industry is supposed to serve its customers, but rarely do I see any insurance industry executives leading the charge to self-regulate or promote laws that protect their own customers from improper treatment. The only licensed individuals, other than attorneys, that stand up for the interests of policyholders are public adjusters. It is no wonder that many in the insurance claims industry are antagonistic to them.

I feel fortunate to speak at this inaugural meeting and look forward to providing an informative and worthwhile presentation to all in attendance.

If you are a licensed public adjuster in Texas, you have to be at this important meeting.

I have been diligently studying law about the Texas appraisal process and procedure after being recently retained by a commercial client that was sued by the insurer for not cooperating in a number of ways, including the appraisal. Among other issues, the insurer claims that the process is taking too long, which is rather novel from the standpoint of what most insurers think about playing the float.

While thinking about the issues in that case, I came across a blog post Appraisal Process As A Substitute For Trial by Oklahoma attorney Steven Buchman. Appraisal is nothing like a trial if conducted informally. There is a significant chance of unfairness to both parties because there is no procedural due process. Indeed, in most states that allow the appraisal to be “informal,” there are no rules about the procedure of appraisal at all. I found Buchman’s following remarks interesting because they reflect the higher aspirations of fairness and accuracy in the result:

Does the appraisal process always work? No. Just like the jury system and any other dispute resolution device created by man, it is imperfect. On the other hand, when a dispute needs to be resolved without years of litigation, expert witnesses, depositions, appeals, and legal maneuvering, the appraisal process offers an alternative to people.

While care should be given to the choice of both the appraisers and the umpire, I have witnessed situations in which there was so much maneuvering by the participants the parties ended up in litigation. Both sides clearly want their own appraiser to be competent and knowledgeable, but it is also important to have one that is reasonable and fair-minded. If both sides merely hire their own advocate to serve solely as their "fighter in the ring" it creates more disputes for resolution by the umpire. Locating an umpire who has some experience can be extremely beneficial. Since the umpire's job is strictly intended to resolve disagreements between the appraisers, prior experience in how appraisals function is helpful. More important is a willingness to listen, fairly look at the circumstances, and make a rational decision.

Having personally served as an umpire at the request of attorneys representing insureds as well as insurance companies, there is a keen responsibility that you feel as an umpire to try to do the right thing. In particular, I recall one situation in which the appraisers with me acting as the umpire essentially reached a conclusion unanimously as to the amount. The determination was exactly the midpoint between the polarized positions of the parties. I recall thinking before the award was entered that we would probably hear grumbling that we simply "split the baby" and divided everything down the middle. I personally disdain the practice of some umpires submitting a decision in the middle to avoid the appearance of showing favoritism. The practice of "splitting the baby" is not the purpose of appraisal. The job of the umpire is to make the right decision. He should not be concerned with future work from the parties or making either side unhappy.

At the end of the day, lawyers, adjusters, and insureds owe a duty to try to reach results that are fair and appropriate for the situation.

The problem is that the view of “fair” is dependent on what you have analyzed to be an accurate estimate of the damage and claim. I have yet to see an insurance company appraiser come to one of my clients seeking information regarding the damage, history of the property, and observations of why my client believes the damage is more than the insurance company estimate. The reason is obvious-- the insurance company does not want its appraiser to learn information that may increase the value of the estimates of damage being prepared by its appraiser. The insurance company appraisers usually have some prior relationship with the insurance company adjuster or independent adjuster and are looking for future business. I truly believe that most want to keep the dollar value as low as fairly possible—a number have admitted as much over drinks at the various conferences I attend.

And, in many jurisdictions, the policyholder’s appraiser is acting as an advocate as well. Indeed, I request that clients I represent in appraisal have an appraiser that works as hard as possible to find out all information about the loss from both my client and from the insurer’s viewpoint. It is my impression that the harder and longer one works on analyzing damage following a loss, the more damage is found that would simply go unclaimed as a result of ignorance. Getting an accurate and fair independent estimate of damage by either appraiser requires diligence, information, expertise and then an understanding of why other views are not accurate or subject to criticism.

This type of critical analysis is normal for those of us in insurance coverage litigation. However, it is often the exception rather than the rule in appraisals where, as noted by Buchman, the panel often simply splits amounts.

Texas insurance law follows a view that the appraisers and umpire are an independent and unbiased group similar to a jury. I know this is not going on in many Texas cases. So it may come as a surprise for insurers and policyholders to read the following from Delaware Underwriters v. Brock, 109 Tex. 425, 430 (Tex. 1919):

The Alabama Supreme Court clearly gave the right construction to the appraisal clause in these policies, when it said: "The purpose of the clause is to secure a fair and impartial tribunal to settle the difference submitted to them. In their selection it is not contemplated that they shall represent either party to the controversy or be a partisan in the cause of either, nor is an appraiser expected to sustain the views or to further the interest of the party who may have named him. And this is true, not only with respect to estimating the amount of the loss, but also with reference to the selection of an umpire. They are to act in a quasi judicial capacity and as a court selected by the parties free from all partiality and bias in favor of either party; so as to do equal justice between them. This tribunal having been selected to act instead of the court and in place of the court, must, like a court, be impartial and non-partisan. For the term 'disinterested' 'does not mean simply lack of pecuniary interest, but requires the appraiser to be not biased or prejudiced.' And, if this provision of the policy was not carried out in this spirit and for this purpose, neither party is precluded from going to the courts, notwithstanding the agreement to submit their difference to the board of appraisers.

I know there are many adjusters and public adjusters in Texas that are reading this and agreeing with me that this Pollyanna process is not going on in their appraisals. And they are thinking, “OK Chip, but if I appoint such an expert angel of an appraiser and the other side appoints the same outcome oriented person, I am going to lose and get an unfair award. So, what do I do to follow the law and still make certain I get a fair award?”

Honestly, as an attorney that is required to follow the law, I have to tell people to follow it. But, could you imagine a system of justice where the parties picked the “independent and fair” jury members fifty-fifty and then those independent jurors voluntarily agreed to pick an independent and unbiased judge? Of course not. No legal jurisdiction selects jurors or judges in that manner because nobody would believe the other party would select an unbiased and independent juror. Yet our Texas appellate judges somehow have this notion that it can happen when it comes to insurance companies and policyholders picking appraisal panels.

My prediction is that sometime in the future, our Texas jurists will start to understand the reality of the situation and the standard of the panels will change to reflect reality. Until then, parties to Texas appraisals are advised to consider whether the appraisal panel is acceptable under Texas legal standards.

Ginger Loeffler, the Texas Department of Insurance attorney who attended the seminar, and Steve Augustine, of the Texas Department of Insurance, need the help of TWIA customers, independent adjusters, public adjusters, experts, contractors, and anybody with information regarding TWIA claims handling and conduct to contact them as soon as possible.

Their contact info is:

Texas Department of Insurance
333 Guadalupe, P.O. Box 149104
Mail Code 110-1A
Austin, TX 78701-9104
Phone: (512) 322-3428
Fax: (512) 4751772
Steven.Augustine@tdi.state.tx.us

I urge consumers and others with complaints and information about adjusters and experts in the field saying one thing and TWIA claims managers saying another to contact the TDI attorneys as soon as possible.

I also urge those who are contacted or who anticipate being contacted to tell the truth and not do anything to destroy evidence. Advising others not to provide information, to destroy internal information, or to lie can be a criminal act. I suspect that some claims managers are subtly suggesting that those involved with claims provide a "sanitized" version of reality. This is not an insignificant investigation or a civil lawsuit where all kinds of "gamesmanship" seems to be allowed and encouraged to protect the company. Doing anything in a conspiracy to avoid the truth when authorities are investigating matters could result in criminal prosecution.

If you are a licensed public adjuster, I encourage you to attend. I think it will provide you a unique opportunity to explain improper conduct to a regulator actively investigating important claims matters.

Many claims issues will be explored during the seminar, and I will also explain why I think some appraisals are being lost in Texas and what can be done about it.

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.

My first thought is that readers to my blog with questions should do a “keyword” search. If you were to put “matching” into the keyword search form, a number of posts would come up on the topic. One post, Provide the Right Proof so Your Insurer Will Pay Costs to Repair or Replace to Match Texture, Color and Likeness, had particular application to the question with cases—public adjusters should not be arguing case law because it is practicing law. Another post, Texas Hold 'Em": Merlin Law Group's Seminar for Texas Public Insurance Adjusters, indicated that we covered this topic at a previous seminar. Nobody falls asleep at my seminar, so the person writing the comment must not have been there.

Since this is a frequent question and Texas insurance adjusters seem to have a “we just aren’t gonna pay for matching” attitude, I will address in detail what you can do about it at the Hurricane Ike-What a Difference A Year Makes? Seminar on September 11 for public insurance adjusters.

For what it is worth, the FC&S Bulletins also noted that the topic of “matching” is a frequent coverage dispute. A question was posed to their editorial board:

I have an insured with a homeowners (3) policy who had a wind loss that took a few strips of aluminum siding off the front of his house and few from the back side of the chimney. The siding can not be matched color or grain and the carriers solution is to take a few strips off one of the lower sides of the house put those in where the damage is, where it will not be so noticeable and put the new ones back on the lower sides. What thoughts do you have on this claim?

The answer may be helpful to many with these issues:

The solution offered by the insurer is not in keeping with the HO 00 03 (such as the standard ISO form), which promises to pay "replacement cost of that part of the building damaged with material of like kind and quality and for like use; or the necessary amount actually spent to repair or replace the damaged building." By putting on old siding to replace old siding, the insurer is effectively providing an "actual cash value" settlement, which allows depreciation.

But that is not what the insured has been paying for. The replacement cost policies have traditionally been sold to give "new for old." Yes, this violates the principle of indemnification, but that is how the policies are marketed and that is what the insured pays additional premium for.

So, in this case, the insured had matching siding prior to the loss, and is entitled to new matching siding following the loss.

I am going to have a lot more about this at the seminar, and do not ask for the materials if you cannot go. Just be there.

For policyholders that read this, I hope it is useful. You should also get the feeling that only attorneys and public adjusters that subscribe to the on-line edition of the FC&S should represent you. Those people will go the extra mile for you because they know the value of investment in knowledge regarding a very specialized area of insurance.

For insurance company claims managers and their attorneys reading this, pay my clients while you have the chance!

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.

My client is a Hotel and Hospitality Management Company that had eleven hotels damaged from Hurricane Gustav and Ike. I was retained seven months after Hurricane Ike because my client had received no settlement checks despite promises of undisputed damage payments. Those checks arrived just at the time of my retention for a small fraction of the claimed amounts. Many companies would have been out of business if they had to wait seven months for payment.

The management company executives and I will be conducting a critical re-evaluation of the matter from the beginning of the losses through the end settlement discussions—which are also confidential. While I was able to help get this matter resolved in four months, which is faster than most of my engagements, I feel there are a number of important steps that many commercial owners and managers of significant property interests can take which claims executives of insurance companies will appreciate and help avoid the necessity of hiring somebody like me in the first place. If taken, these actions may stop the insane requests for documentation and second guessing by insurance company claims executives who often have never been to the loss site. Needless claims delays are killing many commercial policyholders who need cash money to run their businesses.

Once we conduct this critical path review of the activities and steps of my client, their public adjuster, and the insurance company, we are determined to make it a case study for the Hospitality and Hotel Management Industry. We already have a title in mind:

"What Hotel Managers and Owners Need to Appreciate and Do to Fully and Quickly Recover From Their Property Insurer Following a Loss"

We hope to have this completed over the next several months and have it ready for others to learn from.

I have to credit the insurer for critically reviewing its positions after my retention. Home office claims adjusters with experience and authority can make a huge difference when significant amounts are in dispute. Sometimes, changes of heart can take place once those individuals see the matter from the perspective of their customer.

For me, I wonder how I can get this matter with significant amounts in dispute resolved in just four months and yet cannot move our firm's other smaller Texas cases with TWIA along much quicker. I even had a client call wondering the same thing. The truth is that I have no answer yet, and most of my legal colleagues don't either, unless you are willing to take a small percentage of what is being claimed.

As I am flying away from Houston over the mouth of Galveston Bay, I can see to my left the Bolivar Peninsula. It is simply wiped out, as if God scraped most of the structures from existence and the coastal communities that made up Bolivar. It is devastation, and I know many of our Bolivar clients are hurting emotionally as well as financially.

On my right is Galveston. It faired much better, but still has significant damage. There are entire business areas still shuttered and plenty of destruction, although not as severe as Bolivar.

Greater Houston is like a checkerboard of damage. Some areas look like nothing happened, and others still have roofs with blue tarps and boarded structures. Hurricane Ike had many severe bands of weather. My impression is that fate played the major role if one of those bands hit a neighborhood or not, although areas on the "right" side of Hurricane Ike had stronger bands and more damage.

The Hurricane Ike and Gustav litigation is in that typical stage where many insurance counsel are trying to "hide" documents and seek protection of internal file materials which reflect what and why certain claims activities occurred. Every imaginable trick and tactic is being used to prevent disclosure. For example, here is a letter Hartford's attorneys are trying to get policyholder attorneys to sign:

Dear Counselors:

This letter will confirm our attorneys' agreement regarding the initial handling of documents produced by Hartford in this case. Under our agreement, Hartford will produce the Policy for the Smiths and the claim file designated "confidential." Plaintiffs and your firm agree to not disclose the documents to anyone outside the above referenced lawsuit or use the documents in any other matters while the parties attempt alternative dispute resoultion. If alternative dispute resolution does not resolve the case, Hartford will then have thirty days to seek a protective order from the Court regarding the produced documents. Plaintiffs and your firm agree to continue to not disclose the documents to anyone outside the above referenced lawsuit or use the documents in any other matters until such time as the Court has ruled on the proposed protective order.

Policyholder attorneys in Texas are a pretty able lot. Maybe the Texas judges will read my blog post from Monday. If they rule on discovery motions in a similar fashion, these cases will move along a lot quicker and without all the problems policyholders have encountered in Mississippi, as Slabbed continues to report.

In the interim, we will keep pushing these cases along as fast and smart as possible. I am certain most policyholders wonder why these insurers are not turning over information and what the companies are afraid it will reveal. The suspicion of most is that their secrets may amount to unfair conduct. I believe insurance company customers are entitled to know the honest reasons why their claim was handled in a certain manner. That honesty does not come without full transparency from the insurer.

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

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

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

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

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

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

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

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

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

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

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

I found an editorial, "State Farm's Rate Case Mocks Insurance Regulation," in the Dallas Morning News on June 19, 2009, that shows State Farm is treating Texas similar to the way it is treating Florida. The editorial stated in part:

“State Farm is masterful at working the legal system. For six years, it has danced in and out of court to thwart the Texas insurance department's order to refund millions to policyholders in alleged overcharges.

State Farm says it has done nothing wrong and owes nothing. However, the Office of Public Insurance Counsel, a state-funded advocate for consumers, pegs the refund at about $1 billion. The state insurance department's staff, whose commissioner, Mike Geeslin, eventually will decide who's right, puts the cost at $350 million.
…
One wonders whether there is any real accountability for a big insurance company when its rates are called into question. Before insurance reform a few years ago, insurers complained of lengthy regulator reviews that prevented them from charging new rates in a timely fashion. So lawmakers loosened the reins and set up an appeals system that they thought insurers would accept in good faith. Instead, the result is marathon stonewalling.

State Farm's action is a blatant challenge to the state's authority to regulate rates. If the company prevails, no other major insurer whose rates are called into question will ever again settle outside a courtroom. For instance, Farmers Insurance recently filed for a rate hike. Anyone believe that if its rate request is rejected, Farmers will roll over quietly?”

Sounds like Florida. Fortunately, the administrative and judicial reviews of State Farm’s rate increases have been relatively swift in Florida. The judge ruled that the economic justification for the rate was essentially based on a “sham’ transaction of State Farm Florida paying an “expense” of $549 million to State Farm Mutual, its parent company. I bet we all wish we could use such a technique to claim an “expense” for tax purposes. We would end up with the same amount of money, but no income to show.

State Farm is not embarrassed by their dishonesty and claims to be losing money in Florida. There has not been a major hurricane in Florida since 2005. All the little insurance companies are making money. State Farm has dropped its most risky accounts and is insuring the less risky properties. How can it be losing money-- unless it is totally incompetent at its business or it is simply not telling the truth?

Remember in my recent post The Obligation of Good Faith Claims Handling and Policyholders' Perceptions of Why it Does Not Happen, where I gave an example of honesty and transparency with this hypothetical:

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

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

State Farm is lying when it says State Farm Florida is nearly insolvent and must take drastic steps. It is failing to tell the truth about where the money goes to and how only it counts paying money to itself is an expense. Here is State Farm’s explanation in yesterday’s St. Petersburg Times article, “State Farm Wants More:”

“State Farm Florida, the largest private property insurer in the state, has said its net worth is dwindling quickly as it spends $2 on claims and expenses for every dollar in premiums brought in.

In the wake of Hurricane Andrew in 1992, State Farm's Illinois-based parent shielded itself from losses in hurricane-prone Florida by setting up a separate Florida-based entity. State Farm Florida says its net worth is about $500 million, a decline of about $300 million in the past 18 months.

The company plans to continue offering auto insurance and some other lines in Florida. But if it continued offering property insurance here for the long haul, the company maintains, it's on a path to running out of money.

Cutting discounts "would hopefully allow the company to remain solvent through the withdrawal plan," Neal said."

Did you see anywhere in the statement that State Farm Florida sent $549 million to State Farm Mutual? State Farm Florida could become insolvent today if it transferred all of its money to State Farm Mutual. While they may be different corporations for legal purposes, they really are not for practical and substantive purposes. They are one and the same from an ultimate ownership and management purpose, and we all know who runs the show in Bloomington.

Its statement that it is paying out $2 for every dollar it takes in is very misleading. Some may think that the $2 is going to policyholders and claimants. It is not. Over a half billion dollars went to State Farm Mutual’s bank account. Any dishonest insurer could do this—set up a parent corporation, and have the operating company pay “re-insurance expense” to it. It could then claim that rates have to go up more because they are not making any money. This is a sham.

Interestingly, Florida Senator Mike Fasano did not take State Farm’s recent tactic lightly.

“State Sen. Mike Fasano, R-New Port Richey, called the filing an "outrageous" way of "going around the law" to raise premiums without a formal rate increase. "The insurance companies always seem to find a way to help themselves and neglect the homeowner," he said.”

Texas and Florida are two of the largest states in the Union. Their insurance departments are not small in comparison to other states. The problems in the Lone Star State and the Sunshine State are not very dissimilar when it comes to dealing with this very large and powerful insurer from the north. I have no idea what they teach for economics and accounting in Illinois, but this Florida Gator knows what it means when you shift money from one pocket into another. I do not think the Longhorns and Cowboys are fooled either.

First, the Court discussed the history of appraisal and its legal ramifications of it. It found that appraisal clauses existed since the late 1800s, and courts have uniformly enforced them. Appraisal does not divest the court of jurisdiction, it merely binds the parties to have the extent or amount of the loss determined in a particular way. Liability for such loss is determined, if necessary, by the courts. While appraisal clauses are rarely drafted with specificity, it is generally understood that the scope of appraisal is damages or valuation of a loss, not liability.

Curiously, the Court interchanged two very different proceedings as if they were one: appraisal and arbitration. The two are very different, yet it seemed to suggest that appraisal is legally sound (although calling it arbitration) because it only involves matters of value, with the courts reserving review of the liability:

“In 1897, we repeated this distinction between damage questions for appraisers and liability questions for the courts: It seems to be generally held that a stipulation that the question of liability shall be determined by arbitration is contrary to public policy and void, but it is otherwise, as we have seen, as to the ascertainment of the amount of the loss. There is neither repugnancy nor inconsistency in leaving the former question to the courts when the liability is disputed, and at the same time in providing that the amount of the recovery shall be settled by arbitration. …

…

While policies hostile to arbitration have largely been preempted,… limiting appraisal to damages and not liability is surely still correct. … Most appraisal clauses do not define the scope of appraisal in detail (as is the case here), but the ordinary meaning of the words serves that purpose…. The word "appraisal" itself generally means "[t]he determination of what constitutes a fair price; valuation; estimation of worth." … The policy directs the appraisers to decide the "amount of loss," not to construe the policy or decide whether the insurer should pay. … And the policy requires each party to select a "competent, disinterested appraiser," not a lawyer or insurance expert. …”

State Farm Lloyds v. Johnson, 2009 Tex. LEXIS 470, 7-8 (Tex. July 3, 2009).

Given this language, one can expect insurers in future cases to argue that appraisal cannot determine whether a peril caused damage, but only the value of damage. Don’t shoot me if you are a public adjuster or policyholder, I am telling you what you can probably expect in the event an insurer thinks it can prove that an appraisal panel included otherwise uncovered damage because the policy excluded damages caused by a certain peril.

Returning to the facts, State Farm argued that no appraisal was needed because appraisers cannot decide causation issues and State Farm disputed Johnson’s assertion that her shingles were damaged by hail. However, the Court noted that nothing in the record indicated the roof was damaged by anything other than hail. So, based on the record, the Supreme Court found that the trial court could not conclude as a matter of law that the parties' dispute was about causation rather than something else.

Nevertheless, in discussing the issue the court noted that State Farm’s argument, if accepted, would eliminate the benefits of appraisal process in nearly every case:

"[A] dispute about how many shingles were damaged and needed replacing is surely a question for the appraisers. If the parties must agree on precisely which shingles have been damaged before there can be an appraisal, appraisals would hardly be necessary. What's more, either party could avoid appraisal by simply picking a few extras. The cost of replacing shingles (or anything else) is a function of both price and number; appraisers must factor in both shingle prices and shingle numbers to decide the "amount of loss." To the extent the parties disagree which shingles needed replacing, that dispute would fall within the scope of appraisal."

Johnson, 2009 Tex. LEXIS 470 at * 12.

So here is the big question:

Did the Court mean the appraisal panel could determine which panels were damaged from hail and needed replacing, or whether they could determine which hail damaged panels needed replacing?

Your answer, very likely, depends on whether you are an insurer or insured. Yet, the Court rejected State Farm’s assertion that causation can never be an issue addressed by appraisal. It cited several circumstances when different types of damage occur to different items of property, and appraisers may have to decide the damage caused by each before the courts can decide liability.

For example, in Lundstrom v. United Servs. Auto. Ass'n-CIC, 192 S.W.3d 78, 89 (Tex. App.--Houston [14th Dist.] 2006, pet. denied), appraisers assessed $ 4,226.19 for damages due to water (a covered peril) but made no finding for damages due to mold (coverage was disputed). The Texas Court of Appeals rejected the argument that appraisal is barred "whenever causation factors into the award." The court affirmed the water damage award and rendered mold damage moot by finding no coverage. In this context, if courts could decide the amount of damage caused by each peril, there would be no damage questions left for the appraisers. The same would be true in Johnson’s case, where when the causation question involved separating loss due to a covered event from a property's pre-existing condition.

Indeed, the Court noted that appraisers consider causation in every case, at least as an initial matter. An appraisal is for damages caused by a specific occurrence, not every repair a home might need.

The Court concluded for several reasons that judicial review of appraisals should not occur until after the appraisal has occurred. It noted that appraisal is intended to take place before suit is filed and noted that several courts have held it is a condition precedent to suit. Appraisals require no attorneys, no lawsuits, no pleadings, no subpoenas, and no hearings. The Court assumed that appraisals are likely completed in less time and expense than it would take to file motions contesting it.

The Court reasoned that if it were to permit litigation about the scope of appraisal, it would dramatically impact and delay Texas insurance practice. Yet, it assumed that appraisal can most often be structured in a way that decides the amount of loss without deciding any liability questions. How that is going to be accomplished was not fully explained, but here is the quote regarding that procedure:

“When divisible losses are involved, appraisers can decide the cost to repair each without deciding who must pay for it. When an insurer denies coverage, appraisers can still set the amount of loss in case the insurer turns out to be wrong.”

I can imagine the disagreements and questions coming into our office about what this means. But as I read it, the Court has suggested that appraisers can segregate covered and disputably covered items with awards of values for each. This sounds great, but is largely unworkable. It may harm policyholders as appraisers for insurers argue causation and ask for segregation, to which an umpire may agree.

I had this situation once in Mississippi. It did not work. The panel argued about each little item on numerous structures as to value and causation. All the insurer’s appraiser did was say that virtually all the items were not damaged by a covered peril of wind, but made the panel value all items claiming they were not covered. Then, we were left with amounts that could not be explained as to what exactly was agreed to as part of a covered amount and what was disagreed to because awards do not get that precise unless you draw it as a picture with dollars for each.

On large losses, the cost and time of doing this procedure is not fast or inexpensive. It is a colossal waste of time and money that will result in a very ambiguous result for a judge and jury to decipher. You can get down to the smallest of details of covered and uncovered parts of a large structure and then force the policyholder to sort them all out later through litigation. This is difficult. Since Texas law places coverage as a burden of the policyholder, it makes the job twice as difficult because the awards will be ambiguous in large cases.

The Court has created something of a procedure nobody has ever done. Except for my one attempt between my client and one poor insurer, the Court made up something entirely new and unique despite other states having appraisal work fairly well. While we did resolve the case, it was obvious such a procedure simply cannot work in large cases with multiple disagreements of various causes. Here, the decision does not help the policyholders. The Court, albeit well meaning, is making up something found nowhere in appraisal law, arbitration law, or the policy.

The Court then assumed that the scant precedent involving disputes about the scope of appraisal suggested that appraisals generally resolve such disputes. If that is true, such reasoning suggests that litigating the scope of appraisal is wasteful and unnecessary. I am not so certain that insurers who feel they are paying damages caused by excluded perils are going to agree.

The logic is also subject to criticism because those cases simply did not go to appraisal—the insurer refused. Coverage cases exist because of a denial. Now, there will be the possibility that coverage cases will exist in the form of appraisal objections and reviews where evidence of what the panel considered plus the evidence of the causation of loss are in dispute. Trials of these coverage issues will be more time consuming, complex, and costly.

Finally, and in opposite to the prior suggestions of finality through resolution, the Court concluded that if an appraisal award is flawed, it can be remedied through legal process. The Court concluded:

“unless the "amount of loss" will never be needed (a difficult prediction when litigation has yet to begin), appraisals should generally go forward without preemptive intervention by the courts.”

Johnson, at *24.

The practical implications of this decision are subject to debate. For instance, is it good for policyholders to provide an insurer two chances to avoid or delay payment? The insurer could refuse to pay following an appraisal, claiming the scope of the appraisal exceeded the panel's authority. I suspect that umpires and appraisers are then going to be subject to depositions and discovery to discover what motivated the award and determine exactly what was considered as caused by a covered peril leading to a wrong award.

I suggest that umpires and appraisers in Texas take care to keep everything involving an award. I suspect there could be a brand new era of "appraisal litigation" in Texas, as insurers or insureds fight about whether the panel delved into improper areas of coverage or refused to consider values because of coverage issues. One attorney in our firm was appalled at the idea, exclaiming, "I never let insurers depose appraisers and umpires!" To say the least, there are some strong feelings about what this decision means.

From the policyholder's perspective, I am still not certain what to do in Texas regarding appraisal. Some public adjusters will provide legal advice to simply go into appraisal. In some instances, I would agree. In other situations, it may just drag out a long appraisal process that may be subject to a long court battle. Texas has a prompt payment statute that provides significant interest and penalties. Some underwriters, knowing that their case is weak, may try to avoid those penalties by suggesting that the policyholder go to appraisal, then go to appraisal--while still objecting because of alleged coverage issues.

So if appraisers and umpires want to be on a panel and decide matters, they better get ready to explain to my insurance defense buddies, like Steve Pate and his very capable crew from Fulbright and Jaworski, what and why they did things in an appraisal. One thing is certain, State Farm’s very bright and creative attorneys will have a long and detailed record next time this issue goes to an appellate court in Texas. This case may have read very differently if there had been a full record indicating that causation was considered:

“A. Is this a causation dispute?

First, the record does not prove that the dispute here is about causation.

…

On appeal, State Farm emphasizes it is disputing not just which shingles were damaged, but which were damaged by hail. But nothing in the summary judgment record establishes Johnson's roof was damaged by anything else. In State Farm's denial letter, its summary judgment motion, and even its briefs in this Court, there is neither evidence nor even a hint about what else caused the damage. The trial court could not conclude this was a causation dispute just because State Farm claimed it was.

Nor does the record conclusively establish that the parties' dispute is solely about how much of the roof was damaged rather than how much needs to be replaced. Sometimes it may be unreasonable or even impossible to repair one part of a roof without replacing the whole…. The policy provides that State Farm will pay reasonable and necessary costs to "repair or replace" damaged property, and repair or replacement is an "amount of loss" question for the appraisers…. On this record, the trial court … could not conclude as a matter of law that the parties' dispute was about causation rather than something else.”

State Farm Lloyds v. Johnson, 2009 Tex. LEXIS 470, 12-14 (Tex. July 3, 2009)

State Farm and other insurers will not make this mistake next time. They will certainly try to depose the appraisers to prove that coverage issues were determined. You can anticipate that the insurer’s appraiser will provide an affidavit to that effect detailing exactly how many non-covered cause dollars were included in an appraisal award.

So, every non-lawyer telling a policyholder that going to appraisal is going to be easy, quick, inexpensive, a way around causation and without attorneys better be getting ready for a dose of questioning about providing legal advice if the insurer disagrees with the appraisal outcome and files an action for review. It could end up as a legal slugfest over what and why decisions were made in and by a panel that considered evidentiary and discretionary matters coming to what they thought was a just award.

The most troubling language seeming to allow this discovery, usually unheard of in other jurisdictions, is this:

“This of course does not mean appraisers can rewrite the policy. No matter what the appraisers say, State Farm does not have to pay for repairs due to wear and tear or any other excluded peril because those perils are excluded. But whether the appraisers have gone beyond the damage questions entrusted to them will depend on the nature of the damage, the possible causes, the parties' dispute, and the structure of the appraisal award (as discussed more fully below).”

As I have said before, I love Texas because Texans have a different perspective on things. Maybe this case is going to be the perfect fix for resolving insurance disputes, but it is hard to figure out how right now. I am going to go back and analyze each situation, and determine the best course for each client given their fact pattern and remedy available. If any other professional is doing something else, I would like to know the logic behind it.

Good luck and remember my rule about appraisal—win! Because, when the smoke clears in the Wild West, the dead don’t get a second chance.

Underwriters sought declaratory judgment in the U.S. District Court for the Southern District of Texas, arguing it had no duty to indemnify the Laws' claim based on the theft exclusion in the policy. The Laws counter-sued, seeking declaratory judgment that their claim was covered under the vandalism exception to the theft exclusion. The District Court granted the Laws' motion, finding coverage under the ingress/egress exception to the theft exclusion, and awarded the Laws $177,150.00. The Fifth Circuit Court of Appeals reversed.

On appeal, the Laws' argued that the damage was covered by the vandalism provision of the policy as well as the ingress/egress exception. The Court of Appeals looked to Texas law to decide the issue. Under Texas law, the Court was required to interpret the contract in a manner that gives effect to every provision and to the "intention of the parties as expressed in the instrument." Words not defined are to be understood "according to their plain and ordinary meaning. Any ambiguity is construed in favor of the insured.

The policy defined vandalism as "willful and malicious damage to, or destruction of, the described property," but specifically excluded damage caused by or resulting from theft. The policy did, however, provide an exception for the theft exclusion if the loss was caused by "the breaking in or exiting of burglars."

Focusing on the policy's language defining vandalism, "willful and malicious" (emphasis added), the Court concluded that the interpretation of the provisions turned on the purpose for which the damage was done. The Court then reasoned that vandalism was damage done for no purpose other than to destroy property. Thus, incidental damage done in furtherance of a thievery was not vandalism. Because the damage to the air-conditioning units was done to steal the copper coils, it was not done solely to damage the property, and was not covered under the vandalism provision.

The Court then turned to the policy's "breaking in or exiting" exception to the theft exclusion. Again, the Court found no ambiguity and interpreted the policy's language according to its plain meaning. In Texas, “breaking in” is commonly understood by Texas courts as burglary. Texas Penal Code Ann. § 30.02 (2008) provides, in pertinent part, that a "burglar" is one who, without the owner's consent,

"(1) enters a habitation, or a building (or any portion of a building) not then open to the public with intent to commit a felony, theft, or an assault; . . . (3) enters a building or habitation and commits or attempts to commit a felony, theft, or an assault."

The Court rejected the Law’s argument that the air conditioning units’ casings were fixtures, and since fixtures were covered under the policy, the damage to the casings was covered. The Court concluded that the plain meaning of the policy's "breaking in or exiting" language was intended to cover damage by burglars gaining entry into the interior of the building. Because the damage did not occur while the thieves entered or exited the building itself, the thieves were not burglars. Thus, unfortunately for the Laws, the Court concluded that the parties did not intend to extend the policy's "breaking in or exiting" exception "to include damage caused by rooftop thieves to freestanding air-conditioning units." Accordingly, the Court reversed the district court's judgment and held that the air-conditioning unit damage was not covered under the policy.

You can read the full opinion by clicking here.

The state trial court granted summary judgment in favor of America First, holding that the two year and one day contractual limitations period provided for in the policy had run before Spicewood filed suit. The Texas Court of Appeal reversed the summary judgment.

In Texas, the general rule is the statute of limitations for a breach of contract action is four years from the day the cause of action accrues. Section 16.070(a) of the Texas Civil Practice and Remedies Code allows parties to shorten the limitations period by contract, but it cannot be less than two years. A contract, or agreement that establishes a limitations period shorter than two years is void. Simply stated, a contractual limitations period cannot end until two years after the day the cause of action accrues.

The accrual of a cause of action means the right to institute and maintain a suit. Thus, if a contractual limitations period is two years, the contract cannot establish a trigger for that period that occurs prior to the accrual of the cause of action because it would, in effect, shorten the contractual limitation to less than two years.

Unfortunately for America First, that was the effect of its policy provisions. The insurance contract contained the following provision:

No one may bring a legal action against [America First] under this policy unless:

a. There has been full compliance with all the terms of this insurance, and

b. The action is brought within 2 years and one day after the date on which the direct physical loss or damage occurred.

According to subsection (b), the two-year contractual limitations period started on the date of loss. Subsection (a) required “full compliance with all the terms” of the insurance policy before Spicewood could bring a “legal action.” The terms of the contract required several conditions precedent which would consume weeks, if not months. Therefore, Spicewood could not have filed suit on the day after the loss, so the effect of subsection (a) was to shorten the contractual limitation to less than two years.

Accordingly, the Court of Appeals held the two year contractual limitation was void, and the four year statute of limitations governed Spicewood’s claims for breach of contract, violation of the prompt-payment statute, and related attorneys’ fees.

You can read the full opinion here.

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.

What would happen if you purchased a stolen car? You do not have title, but can you have an insurable interest? The Florida Supreme Court has said, yes.

"This Court recently decided the case of Smith v. State Farm Mut. Automobile Insurance Co., 231 So.2d 193 (Fla.1970). In that case we approved the holdings of the First and Third District Courts of Appeal that bona fide purchaser for value of stolen automobiles have an "insurable interest" therein. See, Smith v. State Farm Mutual Automobile Insurance Co., 220 So.2d 389 (3rd D.C.A.Fla.1969); and Skaff v. United States Fidelity & Guaranty Co., 215 So.2d 35 (1st D.C.A.Fla.1968). The district court in the present case distinguishes these cases saying that in each case the insured had an equitable interest in the car because of the money he had paid. This reasoning is not only inaccurate but is also inapplicable to the present case.

Fla.Stat. § 672.403 (1969) states that a purchaser of goods acquires all title which his transferor had or had power to transfer. In the case of the stolen cars the insured parties could not have any equitable interest therein since the transferors had no power to transfer. Their insurable interest, then, was their right to mere possession against all but the rightful owner. Barnett v. London Assurance Corporation, 138 Wash. 673, 245 P. 3, 46 A.L.R. 526; Norris v. Alliance Insurance Company of Philadelphia, 1 N.J.Misc. 315, 123 A. 762, and Skaff v. United States Fidelity & Guaranty Co., supra, hold that the purchaser of a stolen automobile's right to possession against all but the rightful owner is the right that gives the purchaser an insurable interest. This rule of law was approved by us in Smith v. State Farm Mutual Automobile Insurance Co., supra."

Grimm v. Prudence Mut. Casualty Co., 243 So. 2d 140, 142-143 (Fla. 1971)(emphasis added).

A Texas Supreme Court case, Republic Ins. Co. v. Silverton Elevators, Inc., 493 S.W.2d 748 (Tex. 1973) seems to have found an insurable interest where none actually existed:

"Carl L. Tidwell was at all times material to this controversy, an officer, director and the general manager of Silverton Elevators, Inc. Silverton owned and furnished to Tidwell a house near its elevators, together with the insurance on the house and on Tidwell's household goods, as part of his compensation as general manager. Since 1964, Republic's local agent had issued and renewed insurance policies in the name of Silverton covering the dwelling and its household goods. It is undisputed that the local agent, who had authority to issue the policies and receive the premiums, knew that the household goods belonged to Tidwell and that Silverton was carrying the insurance for the benefit of Tidwell. On April 17, 1970, a tornado destroyed the house and the household goods.

On the date of the tornado there was in effect a Texas Standard Fire Policy with Extended Coverage on DWELLING & HOUSEHOLD GOODS in the sum of $10,000 issued by Republic to Silverton for the period of April 20, 1969 to April 20, 1972, insuring against loss from windstorm the specifically described "occupied dwelling" for $7,000 and "household goods . . . while in the described building" for $3,000.00. It is undisputed that Silverton paid the $227.00 premium, and the local agent admitted that at the time he issued the policy he knew the facts heretofore mentioned with respect to actual ownership of the insured property. He testified that he wrote the policy to cover Tidwell's household goods located in the dwelling which Tidwell and his family occupied; that he knew Silverton was carrying the policy on the household goods for the benefit of Tidwell; that when he issued the policy he did not think it made any difference that it was in the name of Silverton because "they were paying the premium"; and that he told Tidwell that the policy covered his household goods both before and after the tornado.

Republic acknowledged coverage on the house and paid Silverton $7,000 for its damage, but it denied any liability to Silverton or Tidwell on the household goods. Thereupon, Silverton and Tidwell brought this suit against Republic claiming coverage to the limit of the policy ($3,000) on the household goods owned by Tidwell. Republic defended on the grounds that Silverton had no ownership and therefore no insurable interest in the household goods and that the policy as written was limited by its terms to household goods owned by Silverton Elevators, Inc., the named insured."

In many states, Republic Insurance Company would win. Texas is just one of those states where you never can be sure, and a very clever attorney for the policyholder came up with a unique argument regarding waiver and estoppel as it applies to agents of the insurer and the Texas state mandated forms of insurance. Here is the legal discussion:

"Since the policy refers to and clearly purports to cover the household goods located in the specifically described dwelling, we agree with the Court of Civil Appeals that the knowledge of Tidwell's ownership of the household goods by Republic's local agent and his actions with respect thereto were imputed to and binding upon Republic. Issuance of the policy and collection of the premiums with such knowledge operates as a waiver of any requirement that the named insured own or possess a beneficial interest in the insured property. National Fire Ins. Co. of Hartford v. Carter, 257 S.W. 531 (Tex.Comm'n App. 1924, jdgmt adopted); Continental Ins. Co. v. Cummings, 98 Tex. 115, 81 S.W. 705 (1904); Wagner v. Westchester Fire Ins. Co., 92 Tex. 549, 50 S.W. 569 (1899); The Liverpool and London and Globe Insurance Company v. Ende, 65 Tex. 118 (1885); Old Colony Insurance Company v. S. D. Messer, 328 S.W.2d 335 (Tex.Civ.App. 1959, writ ref., n.r.e.); Germania Mutual Aid Association v. Trotti, 318 S.W.2d 918 (Tex.Civ.App. 1958, no writ).

In the above cases, the named insureds were not the owners or sole owners of the insured properties. In each case, the true owner was known to the insurance agent and was allowed direct recovery, or recovery for his benefit, on the grounds that the insurance company had waived warranties of sole ownership or lack of insurable interest. There is no conflict between the above cases and those which hold that waiver and estoppel cannot operate to bring within the terms of a policy liabilities or benefits which were expressly excepted therefrom, such as liability from injuries due to gunshot wounds in Washington Nat. Ins. Co. v. Craddock, 130 Tex. 251, 109 S.W.2d 165 (1937); loss for injuries while in military service in time of war, as in Ruddock v. Detroit Life Ins. Co., 209 Mich. 638, 177 N.W. 242 (1920); or payment of benefits beyond a specified termination date at age 65, as in Great American Reserve Ins. Co. v. Mitchell, 335 S.W.2d 707 (Tex.Civ.App. 1960, writ ref.). The latter cases recognize that waiver and estoppel may operate to avoid forfeiture of coverage and benefits stated in the policy, but not to add specifically excluded risks or to enlarge the benefits or risks therein set forth. In the present case, plaintiffs seek to recover only on the risk assumed by Republic under the terms of the written policy. Republic's policy insured against the destruction of precisely the same household goods identified in its policy and for which it collected its premiums. There is no evidence that its risk was enlarged because the household goods were owned by Tidwell rather than Silverton.

Although it is undisputed that Tidwell rather than Silverton owned the household goods in the dwelling when the policy was issued and when the property was destroyed and that they were the household goods intended to be insured, Republic contends that the description, and thus the coverage, was limited by the written policy to household goods owned by Silverton. The effect is to say that the policy covered only non-existent household goods; that even though Republic wrote a $3,000.00 policy on household goods located in the described dwelling, there was never in fact any coverage on anybody's household goods. This is inconsistent not only with the undisputed intention of its own agent but with the provisions of the policy as written. The household goods were referred to on the face of the policy as being located in the dwelling specifically described in the policy."

Republic Ins. Co. v. Silverton Elevators, Inc., 493 S.W.2d 748, 751 (Tex. 1973)

This case is about as close as it comes to a Court saying, "The premiums were paid on property you insured. Don't haggle about the technicalities, pay because they got destroyed." I bet that Texas insurance agents, knowing of this case law, have pretty good memories about customers buying insurance for the benefit of others with actual ownership.

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.

Most policyholders do not know where to find experts familiar with issues of windstorm damage. Many cannot afford to do so. Today, I am making available a client’s meteorologist report to help demonstrate that many areas in Galveston, Bolivar and Houston sustained tornado type wind events.

The report notes that there were sufficient wind speeds to cause extensive damage by tornadic events along the Bolivar peninsula and other areas:

"Using the collected NEXRAD data and knowing the limitations of NEXRAD to detect these phenomena, I estimate that there were over 60 mesocyclones that moved over the Bolivar peninsula. Based on this estimate and using the percentages from previous studies, this would place between 18 to 30 tornadoes on Bolivar peninsula as early as 10:43PM, September 2008.

There are several pictures I took during the site visit that show distinct rotation based upon how remaining structures and poles were oriented. This indicates tornadic activity.

At 7:00PM, September 12, 2008 there were measured winds of 115 knots (126 miles per hour) only 2000 feet above the surface along the edge of the Bolivar peninsula. This measurement was recorded by a rawinsonde observation. With the numerous convective cells over the Bolivar peninsula, it is very plausible that winds from 2000 feet above the surface were transported down to the surface causing gusts as high as 100 miles per hour. These winds would not be detected by NEXRAD because the radar beam would be located above the 2000 foot level over Bolivar peninsula." 

Anybody can use this report for any purpose they wish. The bottom line is that the insurance company experts typically do not conduct this kind of in depth investigation to find evidence supporting higher payments. Get your own analysis if you suspect your insurer is underpaying your claim. 

"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.

When causes of loss are all covered, the causation rule in Texas is seemingly just like every other state. In Evergreen Nat'l Indem. Co. v. Tan It All, Inc., 111 S.W.3d 669, 675 (Tex. App. Austin 2003), the Court noted this general rule:

"Generally, the insured had the burden to prove its claim comes within the scope of coverage provided by the policy, and the insurer has the burden to prove a claim comes within a policy exclusion or limitation of coverage. Venture Encoding Serv. v. Atlantic Mut. Ins. Co. 107 S.W.3d 729, 733 (Tex. App. --Fort Worth 2003, pet. filed); see also Tex. Ins. Code Ann. art. 21.58 (West Supp. 2003). Employers Cas. Co. v. Block, 744 S.W.2d 940, 944, 31 Tex. Sup. Ct. J. 245 (Tex. 1988)."

Proving the loss happened during the policy period is the policyholder’s burden:

"An insured cannot recover under an insurance policy unless facts are pleaded and proved showing that damages are covered by his policy. See Royal Indemnity Co. v. Marshall, 388 S.W.2d 176, 181 (Tex. 1965); Bethea v. National Casualty Co., 307 S.W.2d 323, 324 (Tex. Civ. App. -- Beaumont 1957, writ ref'd); Reserve Life Ins. Co. v. Crager, 421 S.W.2d 697, 698 (Tex. Civ. App. -- Beaumont 1967, no writ). As pointed out in the dissenting opinion of the court of appeals, the time of the insured's damages is a precondition to any coverage rather than an exception to general coverage. Thus, we hold that Employers Casualty's general denial placed the burden on the Blocks to prove that their house was damaged during the policy period."

Employers Casualty Co. v. Block, 744 S.W.2d 940, 944 (Tex. 1988).

In cases where the cause of the loss is in dispute, any similarity ends. If there is a covered cause of loss and at least one uncovered cause of loss, Texas’ unconsumer friendly rule of "concurrent causation" comes into play. This rule differs from what most adjusters are taught regarding policy interpretation. A recent case, Laird v. CMI Lloyds, 261 S.W. 3d 322 (Tex. App. Texarkana 2008), states the Texas rule: 

"Under the doctrine of concurrent causation, when covered and noncovered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril. Travelers Indem. Co. v. McKillip, 469 S.W.2d 160, 162 (Tex. 1971); Wallis v. United Servs. Auto. Ass'n, 2 S.W.3d 300, 302-03 (Tex. App.--San Antonio 1999, pet. denied). The Texas Supreme Court has continued to uphold this requirement. See Mem'l Hosp., Inc. v. Murdock, 946 S.W.2d 836, 840 (Tex. 1997) (reaffirming holding in McKillip). Under the concurrent causation doctrine, it is entirely possible that some of the damage could be due solely to a covered peril, and therefore covered, and some of the damage could be due in part to an excluded peril, and therefore excluded."

Texas has a unique "concurrent causation" analysis. The minority of states that use a "concurrent causation" theory of recovery generally refer to a theory of recovery started in California, which lead to insurance companies making "anti-concurrent causation" clauses. A Florida case, Wallach v. Rosenberg, 527 So. 2d 1386, 1389 (Fla. Dist. Ct. App. 3d Dist. 1988), has a very good discussion of what most insurance coverage experts consider a traditional "concurrent causation" analysis and liberal theory of recovery:

"...the jury may find coverage where an insured risk constitutes a concurrent cause of the loss even where "the insured risk [is] not . . . the prime or efficient cause of the accident." 11 G. Couch, Couch on Insurance 2d § 44:268 (rev. ed. 1982). This view was adopted by the Supreme Court of California sitting en banc in State Farm Mutual Automobile Insurance Co. v. Partridge, 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d 123 (1973).

In Partridge a passenger in a car was injured when the driver negligently drove off a road, hit a bump, and caused a gun to discharge a bullet into the passenger's spine. The driver had negligently filed the gun's trigger mechanism to give it a "hair trigger action." An issue at trial was whether coverage was available under the tortfeasor's homeowner's policy which specifically excluded coverage for injuries arising out of the use of a motor vehicle but provided coverage for the negligent filing of the trigger mechanism. The California supreme court held that where an insured risk and an excluded risk jointly caused the accident, coverage was available under the policy, stating: "Although there may be some question whether either of the two causes in the instant case can be properly characterized as the 'prime,' 'moving' or 'efficient' cause of the accident, we believe that coverage under a liability insurance policy is equally available to an insured whenever an insured risk constitutes simply a concurrent proximate cause of the injuries. That multiple causes may have effectuated the loss does not negate any single cause; that multiple acts concurred in the infliction of injury does not nullify any single contributory act."

Partridge, 10 Cal.3d 94, 109 Cal.Rptr. 811, 514 P.2d at 130 (original emphasis). The court distinguished the facts in Partridge from the facts in Sabella v. Wisler, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889 (1963), on which Old Republic relies. Sabella held that where there is a concurrence of different causes, it is the efficient cause that is the cause to which the loss is attributed. The California court found the efficient cause language in Sabella to be of little assistance in cases where both causes of the harm are independent of each other (the filing of the trigger did not "cause" the negligent driving or vice versa, but the two acts combined to cause the accident). Partridge, 10 Cal.3d 94 n.10, 109 Cal.Rptr. 811 n.10, 514 P.2d at 130 n.10.

We agree with the California court that the efficient cause language set forth in Sabella and cited by Hartford Accident & Indem. Co. v. Phelps, 294 So.2d 362 (Fla. 1st DCA 1974), offers little analytical support where it can be said that but for the joinder of two independent causes the loss would not have occurred. Where weather perils combine with human negligence to cause a loss, it seems logical and reasonable to find the loss covered by an all-risk policy even if one of the causes is excluded from coverage. See Safeco Ins. Co. v. Guyton, 692 F.2d 551 (9th Cir. 1982)(coverage was available where a covered risk, negligent maintenance of flood control structures, combined with an excluded risk, a flood, to cause a loss). See also Mattis v. State Farm Fire & Casualty Co., 118 Ill.App.3d 612, 454 N.E.2d 1156, 1160, 73 Ill. Dec. 907 (Ill.App.Ct. 1983)("Where a policy expressly insures against loss caused by one risk but excludes loss covered by another risk, coverage is extended to a loss caused by the insured risk even though the excluded risk is a contributory cause."). n1 There is no contention here that the policy contains a provision which specifically excludes coverage where a covered and an excluded cause combine to produce a loss.

Another factor weighing in the insured's favor is the liberal construction generally given all-risk insurance contracts. The term all-risk is given a broad and comprehensive meaning. Phoenix Ins. Co. v. Branch, 234 So.2d 396, 398 (Fla. 4th DCA 1970). An all-risk policy provides "a special type of coverage extending to risks not usually covered under other insurance" and coverage is available for all loss not resulting from the insured's willful misconduct or fraud unless the policy contains "a specific provision expressly excluding the loss from coverage." Id. Once the insured establishes a loss that appears to be within the terms of the all-risk policy, the burden is on the insurer to prove that the loss was caused by an excluded risk. Hudson v. Prudential Property & Casualty Ins. Co., 450 So.2d 565, 568 (Fla. 2d DCA 1984).

Starting with the well-settled law in Florida that exclusionary clauses are construed more strictly than coverage clauses, Demshar v. AAACon Auto Transport, Inc., 337 So.2d 963, 965 (Fla. 1976), the insurer's burden is even heavier under an all-risk policy. Further, exclusionary clauses that are uncertain in meaning are construed in favor of the insured. State Farm Mut. Auto. Ins. Co. v. Pridgen, 498 So.2d 1245, 1248 (Fla. 1986), for a collection of cases construing the term earth movement to be ambiguous see Annotation, 44 A.L.R.3d 1316 (1972)).

Next Old Republic contends that the jury instruction imposing upon the insurer "the burden of proof to show by the greater weight of the evidence that the exclusion in the insurance policy was the sole, proximate cause of damage or loss to the property . . ." was incorrect. A similar instruction was given in Vormelker v. Oleksinski, 40 Mich.App. 618, 199 N.W.2d 287 (Mich. Ct. App. 1972). A key issue was whether the collapse of the plaintiffs' house was due to improper construction (a covered event under the policy) or earth movement (an excluded event). The jury was instructed that it could find more than one proximate cause of the loss; however, the judge also directed the jury to return a verdict for the insurer if they found that earth movement was the sole proximate cause of the collapse. The defendant argued that because earth movement could never be the sole cause of a collapse, the effect of the jury charge was to direct a verdict for the plaintiff. Approving the instruction the appellate court wrote: It is our opinion that the exclusions contained in the policy apply only when it can be shown that earth movement et cetera was the sole cause of the damage. If it can be shown that the building was improperly constructed . . . and "but for" the inadequate construction the building would not have collapsed even with the earth movement, then the damage should come under the protection of the policy.

Vormelker, 199 N.W.2d at 294.

We agree with Vormelker and approve the charge. See also Fireman's Fund Ins. Co. v. Hanley, 252 F.2d 780, 786 (6th Cir. 1958)(approving charge that if damage to property resulted from combination of causes under and outside coverage, insureds are entitled to recover under all-risk policy)."
 

When there are both covered and not covered causes of loss, the Texas approach is more akin to a comparative negligence state, where the jury determines and apportions how much is covered under the policy and how much is excluded. It may not be an all or nothing proposition, so, I probably should not say it is as unfair. But, when the rule is fully stated along with the burden of proof, most find Texas different because the burden placed on the policyholder is very different than in the majority of states:

"Under the doctrine of concurrent causation, where covered and non-covered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril. Travelers Indemnity Co. v. McKillip, 469 S.W.2d 160, 163 (Tex. 1971); Wallis v. United Servs. Auto. Ass'n, 2 S.W.3d 300, 302-03 (Tex. App.-San Antonio 1999, pet. denied). The doctrine of concurrent causation is not an affirmative defense or an avoidance issue; rather, it is a rule embodying the basic principle that insureds are not entitled to recover under their insurance policies unless they prove their damage is covered by the policy. Wallis, 2 S.W.3d at 303. The burden is on the insured to prove coverage. Id."

All Saints Catholic Church v. United Nat'l Ins. Co., 257 S.W.3d 800, 803-804 (Tex. App. Dallas 2008).

Most states place the burden on the insurance company to prove how much of the loss is excluded. The discussion in the All Saints case explains how the burden on the policyholder, instead of the insurer, can make a big difference in the outcome of a case if the policyholder does not fully prepare the causation issue:

"The policy covers damage caused by hail, but not damage caused by wear and tear or by latent defects in the roofing materials. All Saints contends that the doctrine of concurrent causation does not apply and that United National is bound by the policy to replace the entire roof. All Saints argues that even though the Hardi-Slate tiles were prematurely-aged, the roof functioned properly before the hailstorm. After the hailstorm, the roof no longer functioned; it no longer kept the rain out. Thus, the damage was not caused by the aged, defective Hardi-Slate tiles, but by the hailstorm alone. Because the only way to repair the roof is to replace it, All Saints argues that under the policy United National must pay the cost to replace the roof in a condition equal to when it was new.

All Saints further argues that United National is seeking a deduction from the cost of repair for betterment because the undamaged tiles must be replaced, which Texas law does not allow. In support of this contention, All Saints relies on Great Texas County Mutual Insurance Co. v. Lewis, 979 S.W.2d 72 (Tex. App.-Austin 1998, no writ). There, the insured sustained covered damage to his car engine from an accident. The engine had 110,000 miles on it, 75% of its useful life. Id. at 73-74. The insurance company paid the cost of replacement minus a charge for betterment, because the insured would get a windfall receiving a new engine to replace the old one. Id. The policy required repairs or replacement to be of like kind and quality. Id. at 73. The court held this language permitted, but did require, the engine to be the exact same age or in the exact same condition; rather, the words "repair" or "replace" mean restoration to a condition substantially the same as that existing before the damage was sustained. Id. at 74. All Saints argues that the language of its policy, to repair or replace the roof in a condition equal to when it was new, is stronger than the language in Lewis; therefore, the roof should be restored to at least a condition substantially the same as that existing before the damage was sustained, and that condition is one of a functioning roof that keeps the rain out.

We reject All Saints' arguments. The policy obligates United National to indemnify All Saints-not for the costs of a roof-but for the cost to repair, rebuild or replace damaged property, including property damaged by hail and excluding property damaged by wear and tear and latent defects. The hailstorm damaged some of the tiles in All Saints' roof, but not all of them. As All Saints argued below and here, the remaining tiles were "functioning properly" after the hailstorm. Under the policy, United National is obligated to indemnify All Saints for the cost of repairing, rebuilding, or replacing the tiles damaged by the hailstorm-and those tiles only. Any other tiles constituting "damaged property" under the policy were not reduced to that condition by the hailstorm, but by wear and tear and the nature of the Hardi-Slate tiles. Although the hailstorm brought their condition to the forefront, it does not change the fact that these tiles were not damaged by a covered peril. See Wallis, 2 S.W.3d at 303 (insurer not liable for damage caused by non-covered perils).

To the extent All Saints insists on treating the roof as a single, integrated unit, we conclude the doctrine of concurrent causation does apply. Part of the loss of the roof resulted from a covered peril-the hailstorm, while part of the loss resulted from non-covered perils-wear and tear and latent defects. Thus, covered and non-covered perils combined to cause the loss of the roof, and the insured is entitled to recover only that portion of the damage caused solely by the covered peril. See Wallis, 2 S.W.3d at 302-03; McKillip, 469 S.W.2d at 163 (holding insured only entitled to proven damage from covered peril, wind; not non-covered peril, snow); U.S. Fire Ins. Co. v. Matchoolian, 583 S.W.2d 692, 693-94 (Tex. Civ. App.-Houston [14th Dist.] 1979, writ ref'd n.r.e.) (holding insured only entitled to proven damage from covered peril, wind; not non-covered peril, rain). Thus All Saints is not entitled to recover the cost of replacement of the non-hail damaged tiles.

...Here, United National did not deny All Saints new tiles of the same quality to replace those damaged by the covered peril, hail; it only denied the cost of new tiles to replace those damaged by the non-covered perils of wear and tear or latent defects. Thus, United National did not seek or obtain an improper deduction for betterment....
All Saints is entitled only to the amount necessary to repair the hail-damaged tiles. See Wallis, 2 S.W.3d at 303; McKillip, 469 S.W.2d at 163. It has already received this from United National..."

In Wallis v. United Servs. Auto. Ass'n, 2 S.W.3d 300, 303-304 (Tex. App. San Antonio 1999), the expert's inability to state a basis for allocating the covered versus uncovered damage was catastrophic for the policyholder:

"Texas recognizes the doctrine of concurrent causes. This doctrine provides that when, as in the instant case, covered and non-covered perils combine to create a loss, the insured is entitled to recover only that portion of the damage caused solely by the covered peril(s)...To this end, the insured must present some evidence upon which the jury can allocate the damage attributable to the covered peril...

The Wallises contend that the insured's burden to segregate damages has been legislatively overruled by article 21.58 of the Texas Insurance Code. Pursuant to article 21.58, USAA had the burden to establish what part of the Wallises' damage was caused by an excluded peril. The Wallises contend that USAA failed to satisfy its statutorily-mandated burden of proof, and that the trial court thus erred in disregarding the jury's answer to question two. Alternatively, the Wallises argue that the issue of allocation is immaterial because the evidence introduced at trial was that the entire house needed to be repaired. We reject these contentions.

Article 21.58 (b) of the Insurance Code provides that:

In any suit to recover under an insurance contract, the insurer has the burden of proof as to any avoidance or affirmative defense that must be affirmatively pleaded under the Texas Rules of Civil Procedure. Any language of exclusion in the policy and any exception to coverage claimed by the insurer constitutes an avoidance or an affirmative defense.

...The Wallises' argument regarding article 21.58 fails because the doctrine of concurrent causation is not an affirmative defense or an avoidance issue. Rather, it is a rule which embodies the basic principle that insureds are entitled to recover only that which is covered under their policy; that for which they paid premiums. It is well established that insureds are not entitled to recover under an insurance policy unless they prove their damage is covered by the policy. Employers Casualty Co. v. Block, 744 S.W.2d 940, 945 (Tex. 1988) overruled in part on other ground, 925 S.W.2d 696 (Tex. 1996) . The doctrine of concurrent causes limits an insured's recovery to the amount of damage caused solely by the covered peril. Because an insured can recover only for covered events, the burden of segregating the damage attributable solely to the covered event is a coverage issue for which the insured carries the burden of proof. Cf. Telepak v. United Services Auto. Assoc., 887 S.W.2d 506, 507-08 (Tex. App.--San Antonio 1994, writ denied) (determining that insured carries burden to establish exception to exclusion because exception to exclusion creates coverage). Moreover, it follows that an insured's failure to carry the burden of proof on allocation could not be immaterial because it is central to the claim for coverage.

...USAA lodged a legal sufficiency challenge to the jury's finding that plumbing leaks, a covered peril, caused thirty-five percent of the Wallises' damage...The record contains evidence from which the jury could conclude that plumbing leaks had contributed to the Wallises' loss. Indeed, three engineers so testified. The testimony varied, but the jury heard that the plumbing leaks did contribute to the damage, or that the plumbing leaks could have contributed to the damage, or that the plumbing leaks could not be excluded as a contributing factor to the damage. From this testimony, the jury could believe that plumbing leaks caused part of the complained-of damage. However, the engineers could not indicate the extent to which this peril damaged the Wallises' home. This is fatal to their claim. Although a plaintiff is not required to establish the amount of his damages with mathematical precision, there must be some reasonable basis upon which the jury's finding rests... Here, we have neither mathematical precision, nor a basis from which the jury could reasonably infer that thirty-five percent of the Wallises' damage was caused by the plumbing leaks. The jury heard no testimony regarding how much of the Wallises' damage was caused by the plumbing leaks. It learned only that plumbing leaks were found. Because there is no evidence upon which the jury could determine that thirty-five percent of the damage was caused by plumbing leaks, the trial court properly granted a take-nothing judgment in favor of USAA..."

Ouch! I was amazed that the appellate judges dismissed the statutory change which made exclusions the insurance company’s burden to prove. This statutory rule is how the vast majority of states place the burden on all-risk insurers to prove how much of a loss is excluded under the policy. If Texas courts continue to follow this analysis, policyholders may effectively have to disprove exclusions.

I suggest policyholders have their experts specifically determine how much of the damage is caused by an alleged excluded peril. This is a bit trickier than it may first appear. For example, if the expert thinks that the excluded peril played no role in the loss, but is wrong, the policyholder could effectively have no recovery. Imagine how unfair that would be if the covered peril caused virtually all the loss except for a very small amount, but the policyholder expert or estimator thought that it was 100%. Following the Wallis reasoning, the policyholder gets nothing? Under most jurisdictions and under the Texas statute, which was obviously made to correct this unfair rule of common law, the insurer must bear the burden to prove the amount excluded. Under this view-- not shared by the Texas courts-- the policyholder merely shows a physical loss within the all-risk policy or a loss caused by a peril insured with an alleged amount of damage.

Texans rightly take a lot of pride in being different than other states. Different is neither wrong nor right, it just is different. However, I bet most Texas policyholders would not like Texas to be so different on this issue of law.

Florida follows the nearly unanimous view that all-risk insurance policies provide very broad coverage and all that needs to be shown is a physical loss during the policy period. Indeed, some may suggest that the Florida cases only require a "physical loss" and, to deny coverage, the insurer must also prove the loss occurred outside the policy period. Florida sinkhole cases and broken pipe under structure cases highlight these causation issues.

Sinkholes can appear overnight or move slower than we would appreciate during our lifetime. Was a small "settlement" crack in the driveway noticed ten years ago the result of a sinkhole or was it just an isolated crack caused by concrete settlement or even a heavy car? Some insurance adjusters in Florida will do everything they can to try to link those minor cracks to the possibility that the sinkhole or pipe loss occurred at some time when the insurance company was not on the hook. And, since the pipe that broke under the structure cannot be seen, how does the policyholder really know that the pipe was not installed that way by the contractor? Without creative insurance company adjusters looking to raise these factual questions to deny coverage, policyholders would not need legal counsel, like me, writing how their cases end up getting denied and warning them to be careful and accurate about facts said to an adjuster.

The language found in Hudson v. Prudential Property & Casualty Ins. Co., 450 So. 2d 565, 568 (Fla. Dist. Ct. App. 2d Dist. 1984), is pretty standard of these type of cases: 

"To determine the burden of proof on the parties, we must examine the policy...the policy is not a specific peril policy, such as a policy of fire and lightning insurance, where the policy insures only against certain named risks. Rather, the policy insured against "all risks" except as otherwise excluded. Recovery under such an "all risks" policy generally extends to all losses not resulting from misconduct or fraud unless the policy contains a specific provision expressly excluding the loss from coverage. Phoenix Insurance Co. v. Branch, 234 So.2d 396 (Fla. 4th DCA 1970); 13A G. Couch, Cyclopedia of Insurance Law 2d § 48:141 (rev. ed. 1982).

As already noted, sinkhole coverage was provided for the Hudsons by virtue of the mandatory endorsement to the policy. That endorsement did not change the "all risks" nature of the underlying policy; it merely narrowed the earth sinking exclusion. See Strubble v. United Services Automobile Ass'n, 35 Cal.App.3d 498, 505 n. 6, 110 Cal.Rptr. 828, 832 n. 6 (1973). This harmonizes with the law in Florida that insurance coverage must be construed broadly and its exclusions narrowly. Demshar v. AAACon Auto Transport, Inc., 337 So.2d 963, 965 (Fla. 1976); National Merchandise Co. v. United Service Automobile Ass'n, 400 So.2d 526, 532 (Fla. 1st DCA 1981).

Applying these principles...the general rule of evidence is that a plaintiff seeking to recover under an "all risks" policy has the burden of proving that, while the policy was in force, a loss occurred to the insured's property. Egan v. Washington General Insurance Corp., 240 So.2d 875 (Fla. 4th DCA 1970); Phoenix Insurance. Once the insured establishes a loss apparently within the terms of an "all risks" policy, the burden shifts to the insurer to prove that the loss arose from a cause which is excepted. Phoenix Insurance; Jewelers Mutual Insurance Co. v. Balogh, 272 F.2d 889 (5th Cir. 1959). The plaintiff is not required to disprove any excepted causes. Stonewall Insurance Co. v. Emerald Fisheries, Inc., 388 So.2d 1089 (Fla. 3d DCA 1980).

As the parties point out, there was a direct conflict in the evidence as to the cause of the damage to the Hudsons' home. Thus, the trial court's allocation of the burden of proof on the issue of Prudential's liability became of critical importance. Since Prudential's defense was based on an exclusion to the policy, the court's instructions had the effect of improperly placing the burden on the Hudsons to prove that their home was damaged by a sinkhole. Consequently, the jury was apparently under the mistaken impression that the Hudsons, as plaintiffs, had to "tip the scales" to prove that sinkhole activity caused the damage." (emphasis added to highlight the general principals of causation proof in Florida) 

The following damaged pipe case, Widdows v. State Farm Fla. Ins. Co., 920 So. 2d 149, 150-151 (Fla. Dist. Ct. App. 5th Dist. 2006), is an amusing example of how little proof of damage is needed under an all risk insurance policy by the policyholder and how the insurer has the burden to prove that the loss is entirely excluded. I know the attorneys on either side of the case and a little about the facts of the case not recited in the court's opinion. The facts in dispute and language of the court should be read closely:

"The issue in this case is whether Appellee has an obligation to repair a plumbing abnormality under a provision in the insurance policy that covers "accidental direct physical loss" to the property. The evidence established that Appellant called a plumber to repair a backed-up toilet. During his investigation of the cause of the problem, the plumber discovered that the drain pipe connecting the toilet to the sewer pipe had become "backpitched," thereby impeding the flow of water. Because the pipe was beneath the slab and had not been excavated at the time of trial, the plumber could not determine the exact cause of the abnormality. Among the possible causes advanced by the plumber, however, were settlement under the pipe, erosion or a sinkhole. The plumber concluded that the condition was neither a construction defect nor the result of erosion caused by a leak in the plumbing system.

At the conclusion of Plaintiff's case, the trial judge granted an involuntary dismissal for two reasons: First, because there was no evidence of damage from the obstructed toilet, the court concluded that there was not a "physical loss" to the property. Second, the court concluded that, even if a "physical loss" were sufficiently proven, the policy exclusion for earth movement applied. We disagree with both conclusions.

As to the issue of whether evidence was adduced of a "physical loss," we conclude that the abnormality in the pipe itself was such a "loss." Under the language of the policy, it was not necessary for Appellant to establish any resulting damage from this condition. n1

The second basis for the involuntary dismissal, the earth movement exclusion, was likewise erroneous at this juncture of the trial because the burden of proof was on Appellee to establish that the exclusion applied. State Farm Mut. Auto Ins. Co. v. Pridgen, 498 So. 2d 1245 (Fla. 1986). The evidence adduced by Appellant offered several possible causes for the backpitched pipe, not all of which would have been excluded under the earth movement provision. Because the burden was on Appellee to establish that the exclusion applied, the dismissal was premature.

FOOTNOTES

n1 On appeal, Appellee argues that insufficient proof was adduced to show that the loss was "accidental," in that no testimony was offered to show that the condition was sudden and unexpected. See Braley v. American Home Assurance Co., 354 So. 2d 904, 905 (Fla. 2d DCA 1978) ("accident" is "[a]n event which takes place without one's foresight or expectation; an undesigned, sudden and unexpected event"). Although not the basis on which the trial court ruled, Appellee did briefly advance this argument below. Nevertheless, we decline to affirm the trial court on this basis. We think that the reasonable inferences from the evidence on this point are sufficient to overcome involuntary dismissal." (emphasis added)

Importantly, the policyholders only had to prove a "backpitched" pipe with some explanation of a "possible cause" which was not excluded. The pipe had not even been examined by the policyholder's causation expert--a plumber--at the time of trial.

This minimal proof burden on the policyholder in Florida is not the same as found in Texas caselaw. These two Florida cases emphasize what adjusters are taught in their training manuals and in basic adjusting courses. It is the majority rule followed in the United States. Indeed, the vast majority of insurance companies have a requirement that the policyholder get the benefit of the doubt in these causation cases. In cases where we are retained before the coverage decision, we see instances where supervisors apply that standard, pay the policyholder, close the file and move on.

Unfortunately, that has not been happening too often in the Lone Star state since last September. Tomorrow, I'll explore reasons why some case decisions may be causing this and offer suggestions as to what Texas policyholders need to do about it.

The Texas Supreme Court has considered the arbitrary cancellation of coverage without a reasonable basis to afford the insured an opportunity to pursue a cause of action for breach of the duty of good faith and fair dealing.  The language used by the Court is very telling:

In Arnold, we identified several factors giving rise to the special relationship requiring the duty of good faith and fair dealing. The overriding factor is the parties' unequal bargaining power and the nature of insurance contracts.  Arnold, 725 S.W.2d at 167. The insurer has exclusive control over the evaluation, processing, and denial of claims. Id. Without a cause of action for breach of the duty of good faith and fair dealing, unscrupulous insurers would be able to take advantage of their insureds' misfortunes in bargaining for settlement or in resolving claims by "arbitrarily denying coverage and delaying payment of a claim with no more penalty than interest on the amount owed." Id.

These factors equally apply, and perhaps are even more compelling, when the insurer unilaterally cancels the insured's policy without a reasonable basis. The insured is not merely at the mercy of the insurer to treat him fairly in the processing of a single claim, but must rely on the insurer's good faith for the continued existence of any coverage. The insurer's ability to unilaterally cancel an insurance policy and the insured's inability to prevent cancellation demonstrates a great disparity in bargaining power between the two parties. Furthermore, a failure to extend the duty of good faith and fair dealing to the cancellation of an insurance policy would allow insurers to avoid bad faith liability by canceling the entire policy rather than denying a single claim.

We hold that a cause of action for breach of the duty of good faith and fair dealing exists when the insurer wrongfully cancels an insurance policy without a reasonable basis. A cause of action is stated by alleging that the insurer had no reasonable basis for the cancellation of the policy and that the insurer knew or should have known of that fact.

Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 283 (Tex. 1994).
 
Insurance is difficult to obtain after a catastrophe. Some underwriters place pressure and leverage on policyholders by threatening to cancel or non-renew policies if the underwriter does not like the amount of the claim or the progress of the repair. Texas policyholders being threatened with, or actually receiving, cancellation where there is not a reasonable basis have rights under the law.

The general rule for determining loss payment where a deductible applies is:

Total amount of covered loss less deductible, subject to the policy limit. If the amount of the damage-- minus the deductible-- is greater than the policy limit, the insurance company's liability is only the policy limit. The policy limit is the amount of coverage purchased.

I am writing this because of a recent Texas Appellate insurance case, Bruton v. Underwriters at Lloyd's, London, 2009-TX-0407.431, 2009 Tex. App. LEXIS 2189 (Tex. App. April 2, 2009).

Our firm's computerized legal research supplier, LexisNexis, summarized the case as follows:

“The insured's trailer damaged, and a claim was reported to the insurer. It was determined that the trailer was totaled due to the amount of damage, and it was placed up for salvage bids and sold. However, the insured wanted the trailer back. He filed a lawsuit against the insurer and others. Judgment was entered for the insured in an amount less than what he sought, and this appeal followed. In reversing, the appellate court determined that the trial court erred by holding that the insurer obtained equitable title to the trailer upon tendering payment of the policy limits. Although the insurance policy unambiguously provided the insurer with the right to take possession of the property, the policy failed to mention when that right attached. There was nothing in the policy that would have put the insured on notice that once the insurer tendered him a check, he would have lost all rights to his property. Because the appellate court was to resolve any ambiguity in favor of the insured, the insurer did not have the right to sell the trailer until the insured had negotiated a check and executed a power of attorney.”

This scenario interested me because we commonly encounter situations where insurers try to take salvage when they are not entitled. Commercial insurance policies typically allow the insurer to take salvage on personal property when they pay the full agreed value of the article. The situation is different if the insurer does not pay full value, where the policy does not allow for salvage, or where the policy limits for property is less than the value.

I almost fell out of my chair when I read how the parties in Bruton calculated a policy limit case. It is simply wrong, although that was never an issue in the case; when issues are not raised, judges have no reason to question them. These facts relate to the deductible issue:

“Bruton…bought a…trailer in August 1999 for $12,500 [This amount reflects a subtraction from the total price of $ 19,300 for the trade-in value of a 1969 Hobbs trailer]. Soon thereafter, he purchased a $10,000 insurance policy for the trailer from Underwriters. Around October 17, 2001, the trailer tipped over. Bruton reported a claim to Underwriters and advised them that certain repairs were necessary for the trailer to dump again.

The adjuster, employed by Marshall Contractors, Inc, determined that the cost to repair the trailer would be approximately $14,600. Based upon this estimate, Marshall Contractors, Inc. declared the vehicle totaled and through its agent, Rocky Engblad, placed the trailer up for salvage bids.

On October 31, 2001, Bruton received payment in full under the policy in the amount of $9,000 [$10,000 (policy amount) - $1,000 (deductible)].”

The policyholder should have insured the trailer for $19,300, assuming this was the fair purchase price and the trade-in was fair. At a minimum, assuming the trade-in had no value, the insurable value should have been $12,500.

The repair value of $14,600 is the basis to then determine whether the repair costs exceed the value of the trailer. The facts are not clear regarding the value of the trailer at the time of the loss. Generally, the insurer pays the lower of the cost to repair or the value of the damaged article less the deductible—subject to the policy limit.

In this case, the Court is wrong to indicate that Bruton received “payment in full under the policy.” He received $1,000 less than the amount available under the policy. He should have been paid $10,000, the policy limits, so long as the repair costs and the value at the time of the accident were greater than $11,000.

This is often referred to as “absorbing a deductible.” For all adjusters studying this, and those that want to point out that they have been wronged, there is an excellent discussion in Property Loss Adjusting (Insurance Institute of America 3rd Ed 2004), section 2.17.

I wonder if Bruton’s attorney knows that his client may have been shorted $1,000? What if it were a large commercial loss with a million dollar deductible? If you are a policyholder with a complex loss, consult somebody who knows what they are doing.

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.

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.

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.

Representing policyholders in the presentation and adjustment of a claim is very demanding. Public adjusters have to be experts at coverage interpretation, construction methodologies, construction pricing, contents pricing, understand how statutes and case law effect recovery, negotiation, and hundreds of other technical fields. A person could spend a lifetime on just one aspect. It takes dedication and experience to do the job right.

A number of the public adjusters in the audience were former insurance company adjusters. The experience of working for, and being trained by, an insurance company is invaluable to a public adjuster. I paid former State Farm adjusters who switched to the "side of angels" a compliment by remarking that I believe State Farm has more thorough training available for its first party property adjusters than any other personal lines insurer. States need to make certain Public Adjusters have rigorous requirements for continuing education. As in any trade dealing with the public where serious issues are at stake, the consumer can be harmed by those who ineffectively perform their job. Public adjusters need more education--especially those with minimal experience in the insurance industry.

Ethics was the first topic of the seminar. Public adjusters have a tendency to practice law without realizing they do it. It is hard to prevent because insurance contract interpretation requires an understanding of statutes and cases interpreting insurance regulations and policies. Public Adjusters must understand insurance contracts. Knowing how they effect an adjustment can be used to provide greater benefits to the policyholder, and is the public adjuster’s job. However, the interpretation and providing legal advice to consumers is not adjustment, but the practice of law.

Many insurance adjustment issues involve overlapping practical and legal coverage issues. Here are some of the other topics we covered in Friday’s seminar:
 

• Flood Insurance Claims and Regulations
• Proofs of Loss
• Replacement Cost
• Replacement at Another Location
• Overhead and Profit Calculations
• Increased Cost of Construction Calculations
• Roof Losses
• Getting Coverage for Matching of Damaged Structural Parts
• Depreciation
• Actual Cash Value Determinations
• Sales Tax of Labor
• Building Codes
• The Use of Engineers and Architects in Claim Submittal
• Appraisal
• Selection of the Best Appraiser for a Claim
• Appraisal Process, Procedures and Forms
• Question and Answer on Adjustment

Based on past experience and seeing the misinformation regarding wind speeds from Hurricane Ike, we thought a presentation by a meteorologist would be interesting and relevant. We are finding that some insurance companies are providing engineers with low estimates of wind and gusts in the Houston area. The insurance company engineers seem to rely upon these outcome-biased reports of wind speed to come up with improper findings that damages were not caused by Hurricane Ike . We wanted to show the public adjusters the value of having an experienced meteorologist who can dispel those reports.

Texas has some unique issues regarding construction, building codes, and building regulations. An engineer with experience in certified wind inspections gave a presentation on these issues. Retaining engineers, meteorologists, architects, estimators, and other experts should be common place in claim presentation of serious loss cases. Frankly, the insurance companies should be doing this as well, if they truly want to fulfill their obligation to conduct a full investigation.

Most policyholders hope their company insurance adjusters have the motivation of public adjusters to fully investigate a loss to find every penny that should be paid under the policy. Our seminar was intended to help public adjusters with the tools to use that motivation. While the listed topics may seem strange and boring to most, they must be fully understood if policyholders are to receive full coverage benefits. I believe that most policyholders have no business trying to learn these issues by themselves when so much is at stake.

The next wind insurance event for insurance adjusters and vendors of all types will be hosted on April 2nd in Houston by the Windstorm Network. I strongly urge those in the industry handling Hurricane Ike claims to register for this symposium of experts analyzing many of the day to day issues adjusters face in the field.

Tuesday morning, I was at the Galveston County Courthouse with approximately twenty-five attorneys, trying to resolve differences of opinion regarding a proposed Omnibus Case Management Order. Judge Susan Criss will be presiding over the Hurricane Ike insurance claims. Most attorneys that I have spoken to see her as a jurist who will move her docket quickly so that the parties to these lawsuits will not wait years for justice. Being proactive and getting this Case Management Order is a good first step. Having a Judge like Criss, who is engaged from the beginning and takes the time to set a plan for handling the cases, is good for all parties—although some carriers probably have some incentive for delay. 

Before the hearing, all the attorneys met in a private room to discuss differences and altering the terms of a draft Order. It was amusing to have so many policyholder and insurance company defense lawyers in the same room. It was fairly civil, and we discussed additional inspections and timing of mediations.

I said little at that meeting. I find it best to keep quiet for awhile when I am the “new kid” in town. Maybe that perception came from being brought up in a Coast Guard family where we moved every year or two.

The meeting then split up. The defense attorneys were in one room, and the policyholder attorneys another. I know the insurance company attorneys reading this blog can hardly wait to read what was said in private, but I was not born yesterday.

I said quite a bit more in this private meeting about the lessons the Policyholders’ Bar learned from Katrina litigation in Mississippi. One thing is certain-- the Texas attorneys representing policyholders in Hurricane Ike litigation seem very cooperative and enthusiastic regarding the sharing of information. It has been my experience that when discovery is transparent and broadly shared at the beginning, cases get resolved much quicker. Part of the ongoing problem in Mississippi has been the inability of policyholder counsel to share information learned in discovery because State Farm attorneys were successful in arguing for protective orders which prevented this transparency. It has made the Mississippi Katrina litigation more costly and time consuming.

Early mediation is part of the proposed procedure in Galveston. Based on experience, this will resolve many cases. It allow policyholders to get benefits far sooner than settlement on the courtroom doorsteps. In the Mississippi Katrina litigation, Judge Senter ordered mediation, and it was surprisingly successful after some discovery.

I expect a final Case Management Order will be proposed no later than March 13th. Judge Criss seems to be the type of Judge who is going to move these cases along pretty quickly, which will help restore the damaged and devastated communities. I expect some trials will be set relatively soon for those who do not settle.

There are some important issues that may get public adjusters into trouble with their policyholder clients concerning legal issues of appraisal under Texas law. We are posting a memo outlining cases involving appraisal in Texas. I want to warn anybody not licensed to practice law against giving legal advise based on these cases. I strongly urge those with questions about their rights in appraisal and what they may give up by invoking appraisal to contact an attorney.

Each case going into appraisal is unique. The manner of presentation and whether a dispute is better resolved for a policyholder by appraisal is sometimes complex. The bottom line is that there needs to be analysis of what is in the policyholder’s best interest. Other methods of resolving a claim, including litigation, offer valuable legal rights which may be foreclosed by electing appraisal.

For example, we are cautioning that public adjusters may be jeopardizing their clients’ rights to interest under the Texas Prompt Payment statute, which provides 18% simple interest. One appellate case suggests that by invoking appraisal, the policyholder waives the interest penalty. It is our opinion that public adjusters should obtain permission from their clients before invoking appraisal. Additionally, they should be careful not to provide legal advice to their clients.

Texas has a number of policyholder protection statutes involving claims conduct. Four very relevant statutes provide:

§ 542.055. Receipt of Notice of Claim

(a) Not later than the 15th day or, if the insurer is an eligible surplus lines insurer, the 30th business day after the date an insurer receives notice of a claim, the insurer shall:

(1) acknowledge receipt of the claim;

(2) commence any investigation of the claim; and

(3) request from the claimant all items, statements, and forms that the insurer reasonably believes, at that time, will be required from the claimant.

(b) An insurer may make additional requests for information if during the investigation of the claim the additional requests are necessary.

(c) If the acknowledgment of receipt of a claim is not made in writing, the insurer shall make a record of the date, manner, and content of the acknowledgment.

§ 542.056. Notice of Acceptance or Rejection of Claim

(a) Except as provided by Subsection (b) or (d), an insurer shall notify a claimant in writing of the acceptance or rejection of a claim not later than the 15th business day after the date the insurer receives all items, statements, and forms required by the insurer to secure final proof of loss.

(b) If an insurer has a reasonable basis to believe that a loss resulted from arson, the insurer shall notify the claimant in writing of the acceptance or rejection of the claim not later than the 30th day after the date the insurer receives all items, statements, and forms required by the insurer.

(c) If the insurer rejects the claim, the notice required by Subsection (a) or (b) must state the reasons for the rejection.

(d) If the insurer is unable to accept or reject the claim within the period specified by Subsection (a) or (b), the insurer, within that same period, shall notify the claimant of the reasons that the insurer needs additional time. The insurer shall accept or reject the claim not later than the 45th day after the date the insurer notifies a claimant under this subsection.

§ 542.058. Delay in Payment of Claim

(a) Except as otherwise provided, if an insurer, after receiving all items, statements, and forms reasonably requested and required under Section 542.055, delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items as provided by Section 542.060.

§ 542.060. Liability for Violation of Subchapter

(a) If an insurer that is liable for a claim under an insurance policy is not in compliance with this subchapter, the insurer is liable to pay the holder of the policy or the beneficiary making the claim under the policy, in addition to the amount of the claim, interest on the amount of the claim at the rate of 18 percent a year as damages, together with reasonable attorney's fees.

(b) If a suit is filed, the attorney's fees shall be taxed as part of the costs in the case.

An insurance company that delays payment can face significant penalties under Texas law. We strongly encourage every policyholder considering appraisal to determine what rights they will give up by invoking the appraisal process. Each case is different, and some claims may be best resolved through appraisal.