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. 

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

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

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

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

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

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

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

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

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

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

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.

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.

1. Read the Policy.

The insurance policy is a contract between the carrier and the insured, and claim is governed by that contract. You must read every single word of the contract to know exactly what is in there. Is it an all-risk policy or named-perils policy? Is any part of the claim excluded or limited and, if so, is there an exception to the exclusion? Does the insured have to submit a proof of loss within sixty days of the loss or is it by request? Is the language of pertinent provisions clear or ambiguous? In a recent Georgia case where a frozen pipe burst and flooded a building, I discovered that the standard vacancy provision which excluded the claim was a little garbled. Whoever typed up the policy had inadvertently transposed a few words, changing the meaning of the provision entirely. Because the provision was rendered ambiguous, it was interpreted to provide coverage for the otherwise-excluded claim. It is important to read each provision carefully, keeping in mind the specific facts of your case.

2. Know the Law in Your Jurisdiction.

Even basic principles can vary from state to state. For example, a policyholder making a claim under an all-risk policy in some states only has to show that he has incurred a loss. The burden then shifts to the carrier to show that the claim is not covered or excluded. However in some states, the burden of proving the claim is always on the insured. Know the law in your state and, if you have a multi-jurisdictional practice, take the time to learn the law of states where you practice. Don’t assume the law is the same everywhere.

It is also important to thoroughly research the law regarding the particular provisions that apply to your case. For example, in one of my Texas cases, the claim was clearly excluded by a provision that related to the cause of the loss. However, the exclusion contained the phrase, “An ensuing loss will be covered.” After researching the definition of “ensuing loss”, I found that, although the phrase has not been legally defined in many states, Texas case law had given that term a specific meaning which excepted my client’s claim from the exclusion. It pays to research the issues in your case.

3. Get and Put Everything in Writing.

Every event in the case should be documented in writing. For example, although most policies require notice of the claim to be in writing, most policyholders give the carrier notice of the claim simply by telephoning their insurance agent. That may or may not constitute proper notice under the laws of your state. (See Basic Rule No. 2). Unless proper written notice has been given, follow up with a written notice of the claim.

All oral discussions, offers, demands, and agreements should be confirmed in writing. For instance, you may write: “This confirms that you will inspect the loss at 2 p.m. on Friday the 19th”, or “This confirms our conversation where you told me that you will provide your estimate to me within two weeks.” Every conversation should be documented. The insurance company is documenting every event in the claim --- the adjuster makes an entry in a computerized log describing every conversation and event in the claim, in a way that ultimately looks favorable to the carrier. Contemporaneous logs or diaries are powerful evidence in court. Your documentation may be used later to counter the insurance company’s version of the events. The insured should have his/her own documentation showing that, for example, the adjuster didn’t show up at the agreed time or failed to provide the estimate as promised. Such documentation serves to refresh the memory of those who later disagree as to what was promised or done.

4. Cooperate with the Insurance Company.

The insurance policy places certain duties on the insured when there is a loss. If the insurance company requests it, the insured must provide documentation, submit a proof of loss, and submit to an examination under oath. In most states, cooperation is a condition precedent to recovery on the claim. The insured should comply with all reasonable requests promptly. If the insured fails to fully cooperate, it can seriously impact his recovery on the insurance claim.

The scope of the insured’s duties can be determined by reading the policy (Basic Rule No. 1) and knowing the law (Basic Rule No. 2). For example, the policy may state that the insurance company can examine only the insured, or it can also state the insurance company can examine the insured as well as all of its employees. The policy will specifically spell out the policyholder’s duties when there is a claim. (See Basic Rule No. 1). You should research the law in your jurisdiction to determine the full extent of the insured’s obligation regarding documentation, examinations under oath, and the proof of loss. (Basic Rule No. 2).

5. Be Proactive.

The insured, and/or her representatives, should act affirmatively to push the claim forward. It is not enough to simply wait for the insurance company to finish its investigation. One of the most important steps is to document the claim thoroughly. If, for instance, the damaged property is being repaired, it should be extensively photographed before, during and after repairs. The insured should prepare an estimate of the damages independently of the insurance company’s estimate. All documentation regarding the claim --- like financial statements for a lost profits claim --- should be gathered and assembled before the insurance company requests them.

The insured should send a pre-suit notice letter if such is required in the jurisdiction (See Basic Rule No. 2). The insured should set time frames and deadlines for the insurance company to follow. For instance, it is fair to demand (in writing --- Basic Rule No. 3) that the insurance company keep the insured updated on the investigation. For example, if the insurance company had an engineer inspect the property, why doesn’t the insured have a copy of the report six weeks later? Be persistent in following up with the adjuster --- the squeaky wheel gets the grease. This will ensure that the claim moves along without delay.

The great teacher John Wooden said, "It's the little details that are vital. Little things make big things happen." So, let's start this discussion of Texas insurance claims practices law at the beginning, with some fundamental insurance concepts.

The special nature of insurance and the role it has played in society has been recognized by courts and legislatures for many years. An insurance policy is not obtained for commercial advantage. It is obtained by people and entities to protect against unknown calamities which may, or may not, ever occur. Often, the policyholder, after paying the premium and expecting protection against calamity, is in an especially vulnerable economic and personal position when a calamity loss occurs. The entire purpose of insurance is defeated if insurance companies and adjusters can refuse or delay the prompt and full payment of monies contractually due.

Hurricane, tornado, and other windstorm losses often involve widespread catastrophic damage. Management of insurance companies anticipate these catastrophes and are often prepared to send armies of adjusters referred to as “CAT” teams to areas devastated by these widespread loss occurrences. Without proper training, incentives, attitude, authority, and support of adjusters in the field, proper adjustments will not occur.

Modern insurance companies are in a much more favorable legal and financial position than the purchasers of their products. An insurance policy contains mutual obligations. Unlike other general commercial contracts, the insurance company promises that it will provide financial security in the event of a catastrophe. It further promises that the policyholder has “peace of mind,” that in the event of a catastrophe, such as a Hurricane Ike, the policyholder will be fully and promptly indemnified. Unlike a typical commercial contract, a non-breaching party (the policyholder) cannot replace the performance of the breaching party (the insurance company) by paying the then prevailing market price for counter-performance. Instead, the policyholder is completely dependent on performance by the insurance company when he or she is most vulnerable. If the insurance company fails to fulfill its obligations completely, the policyholder will likely suffer contractual and extra-contractual damages. Unfortunately, many insurance companies and adjusters delay, refuse, or fail to uphold their part of the bargain.

Newspapers, television and individuals on the internet have picked up this bad faith conduct during the claims handling process following the 2008 Texas hurricanes. These reports indicate that insurance companies are refusing to provide insurance coverage or engaging in sloppy, slow, or deliberate bad claims handling. It does not take a financial genius to figure out than an insurance company can make more money by collecting premiums and not paying claims, than it can make by collecting premiums and paying claims. I recently noted this inherent incentive in Playing the Float and the Wisdom of Warren Buffett. 

“[T]he bargaining power of an insurance carrier vis-à-vis the bargaining power of the policyholder is disparate in the extreme. Unless an insurance company is confronted with the prospect of paying all damages caused by its wrongful conduct, it will have no economic incentive to honor its obligations under its existing insurance policies:

Unlike most other commercial actors fighting for supremacy in a world where possession is nine-tenths of the law, insurers always have the nine-tenths advantage: They hold the money. Consequently, insurers always get to play “play the float” in any dispute. Even where the judicial system acts rapidly and efficiently to provide compensation to wronged policyholders, the carrier may find that it made money by delaying payment of the claim. If its investments have been good, it may even have made money to cover any prejudgment interest, costs, or consequential damages award, or counsel fees collected by the policyholder."

 Jeffrey W. Stempel, Interpretation of Insurance Contracts: Law and Strategy For Insurers and Policyholders § 19.3, at 466-67 (1994).

The insurance industry recognizes its duty of good faith and the scope of the remedies available for breach of that duty. For example, a mandatory text studied by prospective Chartered Property and Casualty Underwriters (CPCUs) discusses the current state of the law of wrongful insurance company conduct: 

1.All insurance contracts contain a covenant of good faith and fair dealing.

 2. If bad faith is a tort in a third-party claim, it should be a tort in a first-party claim as well.

 3. Insurance is a matter of public interest and deserves special consideration by the courts to protect the public.

 4. Insurance contracts are not like other contracts because insurers have an advantage in bargaining power. Insurers should therefore be held to a higher standard of care.

 5. Recovery for breach of an insurance contract should not be limited to payment of the original claim.

 6. The public’s expectations are elevated by the insurer’s advertising, slogans, and promises, which give policyholders the impression that they will be taken care of no matter what happens.

 7. Policyholders buy peace of mind and are not seeking commercial advantage when they buy a policy. In addition, they are vulnerable at the time of the loss.

 8. Policy language is sometimes difficult to understand. The benefit of the interpretation should be given to the policyholder.

 A.E. Anderson, et al., Insurance Coverage Litigation, 11-7 (2nd ed. 1999), citing James J. Markham, et al., The Claims Environment 277-78 (1st ed.1993).

By passing laws which penalize insurers for delay and shoddy claims practices, the Texas Legislature has attempted to level the playing field by making it less profitable and far riskier for insurance companies to breach their insurance policies. These laws make an insurer financially responsible for breach of duty to a customer. Businesses and people that break rules should be held accountable. Accordingly, insurance claims management must emphasize fair, prompt and honest conduct, or pay the price for not doing so.

Policyholders should take action and exercise their valuable legal rights. Insurance companies that act wrongfully should be held accountable for breaking their contractual obligations and the law. Anything else would unfair to insurance customers and the many honest adjusters and insurers that play by the rules.