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

The House bill reauthorizes and modifies the program. The reauthorization extends the program through 2016. The bill also authorizes the program to offer business interruption and ALE (additional living expense) coverage.

Regarding the wind vs. water coverage problem that came to the forefront during Hurricane Katrina litigation, the bill allows insureds to gain access to the engineering reports relied on by the NFIP in determining whether damage was caused by wind or water:

(d) Information Regarding Multiple Perils Claims-

(1) IN GENERAL- Subject to paragraph (2), if an insured having flood insurance coverage under a policy issued under the program under this title by the Administrator or a company, insurer, or entity offering flood insurance coverage under such program (in this subsection referred to as a `participating company') has wind or other homeowners coverage from any company, insurer, or other entity covering property covered by such flood insurance, in the case of damage to such property that may have been caused by flood or by wind, the Administrator and the participating company, upon the request of the insured, shall provide to the insured, within 30 days of such request—

(A) a copy of the estimate of structure damage;

(B) proofs of loss;

(C) any expert or engineering reports or documents commissioned by or relied upon by the Administrator or participating company in determining whether the damage was caused by flood or any other peril; and

(D) the Administrator's or the participating company's final determination on the claim.

The bill now moves on the U.S. Senate for a vote. We will keep you posted on the progress of the legislation as it works its way through Congress.

Most Americans are not so naive as to believe politicians and officials when they say, "trust us, we are from the government." One very experienced expert in this matter expressed similar skepticism over the legislation:

Robert Hunter of the Consumer Federation of America, who once headed NFIP and served as Texas insurance commissioner, said: “You do all these calculations, you still have a specific house. There’s no way you could produce an assessment of Hurricane Katrina for every house. I don’t understand how it works. I think there are ways to make it work, but it’s not in the bill.”

I agree. Surprisingly, many insurance executives also agree with Robert Hunter, as noted in Senate Flood-Program Extension Bill Takes On Wind-Vs.-Water Issue:

But officials of the National Association of Mutual Insurance Companies (NAMIC) voiced concerns. “We appreciate Sen. Wicker’s willingness to address this complicated issue and look forward to working with him to find a solution that works for everyone,” says Matt Gannon, assistant vice president of federal affairs for NAMIC. “However, we have some concerns that his plan could cause more confusion for insurers and consumers in the aftermath of a major flood.”

Slabbed also expressed a similar opinion:

After reading the entire bill and Senator Wicker’s FAQ sheet I’ll say I was underwhelmed. Don’t get me wrong I greatly appreciate the fact that Wicker is the only national politician in Mississippi that gives a shit about the coastal insurance crisis. I just don’t think using concepts based on MID Commish Mike Chaney throwaway lines advances the cause of true NFIP reforms much and I agree with former Texas Commish Robert Hunter who thinks Wicker’s proposal is unworkable in practice...

Interestingly, it has been reported that this wind versus water legislation was based upon proposals by a non-profit organization with strong ties to the tobacco industry and far right-wingers, The Heartland Institute. As stated in a press release by that organization:

The Heartland Institute today praised Sen. Roger Wicker’s (R-MS) introduction of the Consumer Option for an Alternative System To Allocate Losses Act of 2011, or COASTAL Act. The bill (S. 1091) is based on a proposal developed by Heartland Institute policy advisor Scott Richardson, a former South Carolina insurance commissioner.

In Are We Doomed To Repeat This Again?, I noted:

I met with Gene Taylor, a United States Representative from Bay St. Louis, Mississippi, in early 2007 regarding this problem. Hurricane Katrina destroyed his home and those of friends. He understood that coastal policyholders with complete destruction were only getting the flood damage paid for under the coverage purchased through the National Flood Program. Despite homes miles inland being paid significant benefits under their all risk coverage from wind damage, coastal insureds suffering from a combination of wind and flood were generally getting paid pennies on the dollar for wind related damage. He and other coastal Representatives believe that the only solution available is to make available a policy that covers both the water and wind perils which occur during a hurricane.

As I previously stated, the Senate voted against such coverage. The experience of Gene Taylor is accurate. I often indicated that it was easy to determine the State Farm adjusters working the policies issued under the National Flood Program versus State Farm's own policies. The State Farm flood adjusters were the ones dressed in red coats with very long white beards, freely giving money away. The State Farm company adjusters dressed like funeral directors with much sympathy, but little that would really help you out of your predicament. Some in the industry may think this is a "cheap shot" taken at State Farm. However, I had discussions with management at National Flood about this, and they indicated they were instructing adjusters to act in "good faith" and "give the benefit of the doubt" to the unfortunate flood policyholders regardless of whether the private carriers were just going to pay lip service to that very basic good faith claims handling philosophy when faced with the wind related claims.

Most people not in the insurance business wonder why they cannot simply get one policy to cover everything caused by a hurricane and have the carrier treat them in good faith. It is hard to explain why we can do so much in society and fail to make a working product available to so many that want and need it....

Maybe that insurance product will exist one day.

Anita Lee of the Sun-Herald first reported about the camera system in 2007. This week, Lee provided an update on the camera system that Jones calls the “Eye of the Storm.”

Why did Jones develop the camera system? After Hurricane Katrina's unprecedented tidal surge and the following wind versus water debate, Jones understood how valuable it would be to know what damages were caused by the wind.

After Katrina, policyholders filed hundreds of wind vs. water disputes against insurance companies that denied coverage, maintaining damage was from storm surge. Policyholders and insurers went to great expense to hire experts asked to determine the cause of losses. The cameras might not pinpoint damage at every location, but they would give insurance companies and homeowners more information about forces at work during a storm.

In windstorm cases where the carrier denies coverage based on the flood exclusion, meteorologists are often retained to try to explain what the weather data shows happened at a loss location during the hurricane. Having the video cameras rolling during a storm could be powerful evidence showing what actually happened at a specific location.

Many people seem to be interested in and fascinated by catastrophic weather. And, many times, people take risks during times of bad weather just to see what is going on. The storm chaser curiosity and property owners’ concern could be remedied by viewing the weather event from a safe location. The 24-hour surveillance camera has recording components that are waterproof, shatterproof and run on batteries for up to seven days.

Darrell Jones, of Ocean Springs, is selling the cameras and looking to set up cameras in coastal Mississippi. As a public adjuster, Jones saw had firsthand how difficult it can be to separate wind damage from tidal surge.

The biggest problem we've faced is the insurance company comes in, sees a slab and says, 'Water did it,' when we know that is not always the case," Jones said. "The camera takes real-time video footage of your property as a hurricane comes through.

The cameras are built to withstand winds of 300 miles per hour and are encased in 1/4-inch stainless steel with special mountings. Herbert Saffir, the engineer who helped develop the Saffir-Simpson Scale was intrigued by “Eye of the Storm” and thinks the camera’s data could be very helpful to understanding the dynamics of the storm. "That's one of the problems in most hurricanes," Saffir said. "Very little visual data is available.”

How "Eye of the Storm" will impact future hurricane insurance claims is yet to be determined, but any policyholder who has visual proof will likely make a strong claim presentation.

In Penthouse Owners, the plaintiff suffered damage to its commercial property from Hurricane Katrina, and made claims with both its flood and its all-risk insurers. The flood insurer paid $3,610,000, which was the policy limit for the flood policy. The all-risk insurer, Lloyd’s, denied the plaintiff’s claim, “citing a water exclusion in its Policy and taking the position that the complex was destroyed by flooding.” Lloyd’s went so far as to argue that the plaintiff’s flood claim and subsequent acceptance of flood policy limits amounted to an admission that the property damage was entirely flood related, and there was no wind damage from Hurricane Katrina on which to implicate its policy. The plaintiff responded with an affidavit that stated, “After Katrina destroyed Penthouse's property, I made a claim for benefits under Penthouse's flood and Lloyd's policies. When I made those claims, I did not admit that flood caused damage to the property. I merely made a claim for benefits under each of the policies.”

The court noted that under the Federal Rules of Evidence, admissions of a party opponent are not hearsay, and can be offered into evidence if otherwise admissible. The court could not find any direct evidence of an admission by the plaintiff that the property damage was entirely caused by water, and also found that an application for flood policy limits and subsequent acceptance of payment did not amount to an “admission” that the sole cause of damage to the property was water.

Both the plaintiff’s expert and Lloyd’s expert found that there was a possibility that wind had damaged the property. The court cited to Corban v. United Services Auto. Ass'n, 20 So. 3d 601, 613 (Miss. 2009) for the holding that, “’loss occurs at that point in time when the insured suffers deprivation of, physical damage to, or destruction of the property insured,’ and that, once a loss occurs, that particular loss is not changed by any subsequent cause or event.” In the end, there was a sufficient question of fact to deny Lloyd’s motion for summary judgment on the wind coverage. Lloyd’s also sought summary judgment on the plaintiff’s extra-contractual and bad faith claims, but was denied summary judgment on those counts as well.

A recent Louisiana case, which will surely be a topic of discussion at the upcoming Windstorm Conference in Houston is Bradley v. Allstate Insurance Company, No. 09-30035, 2010 WL 3619863 (5th Cir. La. Sept. 20, 2010). The case vacated a prior opinion and is worthy of study because it involves many issues. One topic is that insurers are allowing their counsel to argue contrary to their own internal claims manuals just to lower the amounts owed to customers.

For example, nowhere in Allstate's property claims manuals is actual cash value defined as market value of a structure because Allstate does not consider market value when selling its product that insures the cost to replace or repair. Yet, to win the case, Allstate, and many other insurers, will allow their attorneys to argue almost anything. Unfortunately, jurists who might not fully understand the insurance product and law sometimes agree with their arguments. In a "whatever it takes to win the case" mentality rather than honest debate, insurance attorneys treat insurance company customers as third parties rather than individuals who deserve good faith treatment. The Court noted the actual cash value issue as follows:

The district court found that the ACV of the Bradleys' home was $97,000 because the market value of the Bradleys' home at the time that it was destroyed did not exceed $97,000. Allstate contends that the district court correctly determined the ACV of the Bradleys' home based on its pre-storm value and appropriately held that they were not entitled to recover further payment under their homeowners policy. The Bradleys argue that ACV is properly calculated as the replacement value of the home less depreciation, but that-regardless-ACV is not the correct measure of their potential recovery.

Fortunately, the Fifth Circuit did not follow the District Court or Allstate's attorneys when construing Louisiana law defining actual cash value of a structure:

ACV is computed as the cost of replacing the building as it existed at the time of the accident, taking into account the replacement costs within a reasonable time after the accident, minus depreciation. The district court erred by calculating ACV based on the pre-storm market value of the house.

In most states and for most property insurance policies, this is the correct definition of actual cash value and basis for payment where the building is not being repaired. First, note that the time of determination is a reasonable time after the loss. Since one can only repair or replace after the loss, this is important. Some cases wrongly suggest that the time of the loss or just before the loss occurs is the correct measure. What would be the cost of replacing a structure during Hurricane Katrina? Pretty expensive. Making the value dependent on market conditions just before the loss will often shortchange the policyholder. No insurance companies get construction pricing before the loss, although their attorneys will often argue this point based on improperly worded cases.

The double recovery issue is correct on one point and very troubling on the second point because it encourages insurance companies to pay too little and too late.

In order to determine whether there has been a double recovery by an insured party, the court must ascertain actual loss relative to amounts already recovered under the homeowners policy and other insurance coverage. In the context of evaluating double recovery-or whether any of the insured's losses remain uncompensated-the insured's scope of recovery is measured by the actual loss, not by the total amount of insurance coverage.

A review of decisions under Louisiana law demonstrates that actual loss has alternately been measured by the cost of repair, replacement, or ACV-depending on the circumstances of each case....Recovery for up to the amount of replacement costs turns on whether those additional costs have been or will be incurred. Using replacement costs as the measure of actual loss only in such limited circumstances squares with the general principles of double recovery; replacement costs constitute recovery of a different element of damages than ACV....(“Louisiana law does not allow for double recovery of the same element of damages”). Where contested, the proper measure of actual loss, like the measure of recovery under the policy, is a question of fact....

Here, however, it is undisputed that the Bradleys have not repaired, rebuilt, or replaced the Tennessee Street property within the two-year period allowed under the policy and Louisiana law. See Versai Mgmt. Corp. v. Clarendon Am. Ins. Co., 597 F.3d 729, 737 (5th Cir. 2010) (“Versai's claim for replacement costs likewise was properly dismissed because Versai has not completed repairs on its property as required by the insurance policy.”); La. Dept. Ins., Directive 195... Thus, as a matter of law, the appropriate measure of the Bradleys' actual loss is the ACV of the property-not the cost to rebuild or replace the property. The fact-finder must determine, or the parties may stipulate, the ACV of the property. Subtracting insurance payments already received results in the losses still recoverable under the homeowners policy, subject to the policy limits.

Because the district court treated ACV as synonymous with the pre-storm market value of the Bradleys' home, it incorrectly held that there was no evidence suggesting the Bradleys had uncompensated losses. (citations omitted and emphasis added)

Insurers often argue that they should not pay the full amount of replacement or repair cost until they are incurred. Under the pseudo replacement cost policies where only actual cash value is paid until the repair or replacement is incurred, this view has merit. These policies are not true replacement cost policies because repair or replacement has to be made before the policy pays those sums. Unlike other true replacement cost policies that insurers sell and pay replacement right away, these insurers deceptively sell a replacement cost insurance product that is not a replacement cost product. These insurers should not be allowed to market their product as "replacement" because that is deceptive, as this ruling demonstrates. Those products are contingent replacement cost products. This is especially true since these insurers with contingent replacement cost policies may escape full liability by delaying payment or paying too little -- effectively preventing most insureds from receiving the replacement benefit.

Allstate, State Farm, Nationwide and other major insurers, as well as their agents, should start being honest about what they sell. They should honestly state that they market an insurance product that is inferior to a true replacement cost policy and that they sell a "contingent replacement cost policy." It is not fair that they market and suggest that their product is like others which provide full replacement costs right away. Most consumers are amazed when I tell them that they do not get replacement cost benefits right away and become furious when they learn they have been duped. Everybody in the claims business knows this, but nobody regulating the honest selling of insurance seems to be taking notice.

The Court's double recovery analysis was long, strained, and, except for the second sentence, fairly logical:

An insured “whose property sustains damage from flood and wind can clearly recover for his or her segregable wind and flood damages except to the extent that he seeks to recover twice for the same loss.” ... Insureds are entitled to recover any previously uncompensated losses that are covered by their homeowners policy and which, when combined with their flood proceeds, do not exceed the value of their property...The homeowners and flood insurance policies provide distinct coverages; each protects against a different form of damage...The interplay between the segregation of flood and wind losses and the double recovery rule ensures that proper adjustment by the insurance companies or segregation of covered and excluded damages will, in theory, prevent the insured from receiving a double recovery.

But payments under flood policies, like any insurance disbursement, may not always be entirely accurate. Fundamentally, Allstate and the Bradleys dispute who receives the potential windfall from an overpayment by the flood policy. As the Bradleys advocate, by first segregating losses into those covered by wind and flood, and allowing the insured to collect all the proceeds for losses caused by wind-regardless of prior payments from flood insurance-the insured would receive the benefit of an overpayment by the flood insurance. If the insured were to collect flood overpayments plus the correct wind payments, recovery under wind and flood insurance coverages combined would exceed actual losses; the insured would be receiving an unlawful double recovery.

Therefore, the district court first evaluates whether the insured has already been fully compensated by payments under wind and flood insurance. If the court concludes that the homeowners' insurer is not liable for further payments to the insured because additional payments would result in a double recovery, then the homeowners' insurer effectively receives the benefit of the overpayment by the flood insurance. Whether “the flood insurance overpayments ... would have to later be returned to the federal government is not at issue here....”
...

Because Louisiana's double recovery bar prevents the insured from recovering in excess of actual loss, a district court does not necessarily err by evaluating double recovery prior to the resolution of disputed issues of causation. Where the value of the property in question has been conclusively established, a district court may find as a matter of law that the insured is limited to a specific recovery....But where the insurer has not conclusively established the value of the property-as here-the court cannot find as a matter of law that the insured is limited to a specific recovery based on the insurer's asserted valuation of the property.

...For the reasons discussed above, depending on the factual determinations of the district court on remand as to the predominant cause of the damage to the Bradleys' property, either: (1) the total loss provision in section 5(e) will dictate that the Bradleys are entitled to recover the full policy limits for covered losses; or (2) the ACV provision in section 5(b) will dictate that the Bradleys are entitled to recover the ACV of their home, replacement cost minus depreciation. Under either section 5(e) or (b), the Bradleys' recovery will be subject to the prohibition against double recovery. In some instances, whether additional recovery leads to a double recovery depends on whether actual loss is calculated based on rebuilding or replacement costs, or ACV. The appropriate measure of actual loss does not present a question of fact here, however, because the allowable period for the Bradleys to recover rebuilding or replacement costs has expired and they have failed to rebuild or replace-therefore ACV is the proper measure of actual loss as a matter of law. Upon remand, the fact-finder must arrive at the proper figure for ACV to establish the amount of actual loss. As long as the Bradleys' combined recovery under their homeowners and flood policies is less than their actual loss, then the double recovery rule does not preclude the Bradleys from receiving additional compensation under their homeowners policy.

Assuming the double recovery rule does not bar further payments to the Bradleys, then they are entitled to recover up to the policy limits of the homeowners policy. But while the Bradleys would preliminarily be entitled to recovery, deductions may be made by Allstate for excluded losses. The losses attributable to excluded events, specifically flood-related damages, raise factual questions inappropriate for summary judgment. Under the Dickerson framework, Allstate bears the burden of establishing how much of the total loss is attributable to flood damage. The Bradleys' policy, of course, contains one additional, crucial limitation: by the explicit terms of the contract, Allstate is liable for no more than the stated policy limits regardless of the extent of the Bradleys' loss. (citation omitted and emphasis added)

I have often said that my clients are entitled to the cost to rebuild their property, less payments from flood, if any, in similar situations. The Court's loose language regarding the "value of the property" versus "value of the loss" at actual cash value or replacement is illogical considering the first part of its opinion which disposes of market value determinations. The Court got the important burden of proof right by noting that Allstate has the initial burden to prove the exclusion--Texas courts should take notice that nobody else in the country, including the insurance companies, place these burdens of proofs on policyholders under open peril coverage.

There are other important issues in this lengthy opinion. Slabbed continues to call for a true all perils policy which includes flood in its recent post, My brother Darryl and my brother Darryl – and we’re all in this together Part Trois: The multiperil drumbeat continues. An occasional series. Until that becomes a reality, the study of these cases is important whenever hurricanes cause loss with combined perils of wind and flood.

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

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

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

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

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

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

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

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

In Industry, Taylor React To 'Compromise' Senate Wind vs. Water Bill, Taylor's position was noted:

Brian Martin, policy director for Rep. Taylor, contradicted reports that Rep. Taylor believes the Wicker bill is a good compromise between his bill and the five-year NFIP extension recently passed by the House that does not add windstorm coverage to the program.

“Wicker’s bill is not a substitute for Rep. Taylor’s legislation, H.R. 1264, the Multiple Peril Insurance Act,” Mr. Martin said. He said the Wicker bill is just an administrative procedure for resolving "wind vs. water" conflicts between the NFIP and insurance companies.

He noted that Rep. Taylor’s amendment to the five-year extension bill is “slightly similar” to the Wicker bill in that when there is a "wind vs. water" dispute, the homeowner would be paid and then the wind and flood policies would figure out how to allocate the loss.

Mr. Martin said that in Rep. Taylor’s amendment, The NFIP pays the homeowner and gets reimbursed later by the insurer for the wind share.
He explained, “I thought we would have some state and NAIC issues if we tried to make the private insurer pay the homeowner, so that is why we propose in our amendment that the NFIP pay the homeowner and then make the insurer reimburse NFIP after the allocation was decided.”

Currently, Mr. Martin and Rep. Taylor are continuing to seek floor action on the bill to add windstorm coverage to the NFIP.

Brian Martin is a very hardworking staffer working for Taylor's constituency in Mississippi. These flood insurance issues are political, social and financial. I first met Martin when we took a Rimkus engineer to meet Gene Taylor in Washington. The engineer’s original written opinion indicating that wind caused the damage had been changed without his approval to reflect that flood caused the damage. Martin and Taylor were obviously interested in meeting this engineer.

I applaud and wish good luck to Taylor and Martin in their efforts. They have a long, long way to go trying to prevent the heartbreak caused by the insurance industry selling a defective product. And that reminds of a song as our weekend is upon us:
 

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

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

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

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

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

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

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

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

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

Santa Rosa County determined that the damages to the home exceeded fifty percent of its value, so that the Mathises were required to apply for permits to repair and rebuild their home and new construction or repairs were required to be completed in accordance with current building code requirements. Because of the expense to rebuild to code and the existing structure was deemed unsafe, the Mathises were left with no choice but to demolish the home.

Mathis recovered the full $250,000, less the deductible, under their flood policy, and Florida Farm paid $102,000 for wind damages under the homeowners policy. The Mathises filed suit, arguing they were entitled to recover the full policy limits under Florida's Valued Policy Law (VPL), section 627.702(1), Florida Statutes (2004). Florida Farm argued: the Mathis home was not a total loss; even if it was, the loss was caused by flood; and allowing the Mathises to recover the limits of the wind insurance would constitute unjust enrichment. Notably, Florida Farm did not assert set-off as a defense.

On appeal, Florida Farm argued that the Mathises were impermissibly allowed a double recovery for their loss because they had been paid policy limits under their separate flood insurance policy. In response, the Mathises argued that the jury accepted their evidence that the wind damage caused a total loss or constructive total loss of their home, so that under Florida's VPL, they were entitled to recover their policy limits.

At trial, the court granted the Mathises’ motion in limine to prohibit Florida Farm from introducing any evidence of flood payments, though the court did allow evidence of flood damage. Mr. Mathis’ expert contractor testified that the cost to repair the wind damage above ten feet of the first floor was $325,548.10. Florida Farm argued that the house was not a total loss and that the second floor could have been repaired.

The jury returned a verdict answering “yes” to the question “[d]id the wind damages in this case amount to a constructive total loss of the property or to a total loss because the cost to repair exceeds the pre-loss market value of the building so that it is not economically feasible to repair the building.”

On appeal, Florida Farm argued that the trial court committed fundamental error in failing to set off the amount paid under the flood insurance policy against the damages awarded under the homeowners policy, because an award of damages which are not authorized by law is fundamental error. The Mathises argued set off is an affirmative defense that must be specifically pled, or it is waived.

The First District Court of Appeal rejected First Florida’s argument, noting that even if Florida Farm had properly raised the defense of set-off to the trial court below, there was no evidence in the record of an actual duplication of benefits. The Court distinguished Florida Farm Bureau Casualty Insurance Company v. Cox, 967 So. 2d 815 (Fla. 2007). Cox was limited in its holding “to only those cases in which a covered peril did not cause a total loss or constructive total loss.” Thus, Cox did not apply in this case. At trial below, the jury accepted the Mathises’ evidence that wind caused a total or a constructive total loss of their home.

The Court further explained that even if it accepted Florida Farm's argument that Cox required apportionment of cause when there is damage caused by both wind and flood, the record was not sufficient to decide this issue. There was no evidence in the record as to the amount of flood damage and the jury was not asked to allocate what portion of the damage was caused by flood. Moreover, there was no evidence in the record that supported Florida Farm's argument that it should be allowed to set off the full $250,000 payment made pursuant to the flood policy against payment of policy limits under the homeowners policy, as the evidence of the value of the property varied from $295,000 to $500,000.

Click here to read the entire slip opinion.

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.

Corban is a big decision in my world. As I read the decision, most of my thoughts were upon others that have been through this huge legal mess. Unless you have lost everything and have had your insurance denied, it is hard to comprehend how frustrating being embroiled in a sea of insurance lawyers can be—it is a curse at best.

When I first started reading the case, I was silently cursing our firm’s knowledge manager for not indicating which side won the decision. Since some of the award was for the insurance company regarding the flood issue, maybe he could not figure it out. I am certain that some insurance company claims executives and their counsel will feign that this is “a win” because the storm surge and flood exclusions were found to be valid and applicable. I have never shared much hope for that legal position. I think my view regarding that issue prevented me and others with me from joining Dickie Scruggs’ group and his attempts for a class action lawsuit on that issue.

Yet, I knew that Judy Guice always advocated that view of flood being covered. When I read Anita Lee’s article this afternoon quoting from Judy Guice’s class action attorney, Richard “Flip” Phillips, I kept thinking about Judy advocating that flood was not excluded for a number of reasons. Judy Guice is a noble person and a worthy advocate. I am happy she uses her talents for policyholders and people rather than corporate and insurance company interests. She should be proud of the result. She has worked very hard for the people along the Mississippi Coast.

I also thought about my argument against Flip and Judy Guice about making the cases a class action. The federal courtroom was filled with journalists and I was pretty punishing about my views of how a class would hurt most policyholders. Honestly, class action status would have been a windfall for the attorneys, but a lopsided loss for the policyholders. I know Dickie Scruggs and I disagreed about that, but all you need to do is watch our clients, the Lees, to understand why I say that.

Slabbed was also on my mind while reading the decision. Their post, Insurance is a big think – Have you ever tried to think?, is something I can appreciate and strongly urge others to read and gain a better intellectual knowledge of the legal discussion in Corban.

There was an entire causation discussion in this decision where I was thinking about an attorney, David Rossmiller, who had nothing personally involved with the outcome of any of these cases. Rossmiller is a former journalist turned lawyer. I thought of Rossmiller teaching that many concurrent cases were truly not concurrent situations when the Corban court wrote:

No reasonable person can seriously dispute that if a loss occurs, caused by either a covered peril (wind) or an excluded peril (water), that particular loss is not changed by any subsequent cause or event. Nor can the loss be excluded after it has been suffered, as the right to be indemnified for a loss caused by a covered peril attaches at that point in time when the insured suffers deprivation of, physical damage to, or destruction of the property insured. An insurer cannot avoid its obligation to indemnify the insured based upon an event which occurs subsequent to the covered loss. The insured’s right to be indemnified for a covered loss vests at time of loss. Once the duty to indemnify arises, it cannot be extinguished by a successive cause or event…. The same principle applies in reverse. In the case of a loss caused by an excluded peril, that particular loss is not changed by any subsequent covered peril or event. Nor can that excluded loss become a covered loss, after it has been suffered.

…

Loss to property can consist of many losses because property can consist of many
elements, and ‘loss’ need not refer only to the totality of the damage and in fact should not when different forces have caused different damage.” Appleman on Insurance § 192.03[H] (2009) (emphasis added). The subject homeowner’s policy insures “for direct, physical loss” to property.

Rossmiller wrote this about the Corban case long before this decision in his post, Mississippi Supreme Court Asked to Interpret Anti-concurrent Cause in Interlocutory Appeal:

When I see something like this, I call it a "yeah but" moment. Yeah, but where's the analysis showing exactly how you think wind and water acted either concurrently or sequentially to cause the same damage? Those words, concurrently or sequentially, can have meaning only within the context of the clause's overarching purpose – to address multiple causes of the same loss. And if there ain't no same loss, they ain't no good.

So "concurrent" and "in sequence" have to have some specialized meaning within this context, or they make no sense -- they can't be used in a colloquial sense. Merely because one thing follows another does not give it the meaning of sequentially within this context, nor are two things concurrent in this context merely because the forces act at roughly the same time or act on the same physical element of property. You have to understand the purpose of those words, and once you do, it is relatively easy to see that Katrina wind and water were neither concurrent nor sequential. They can't be, because they didn't cause the same loss at the same time, they caused different losses to property at different times. It is not important that the same element of property was damaged by different forces twice -- they are still distinct and so any form of causation analysis used to sort out what is responsible for the same loss is irrelevant. I am still waiting for anyone to show me even one instance of Katrina wind and water acting concurrently or sequentially as I explain those terms. No one has yet, and I doubt anyone ever will.

The Corban Court obviously followed Rossmiller’s causation analysis. While he is not blogging any longer, his analysis is still respected among those of us that do this law day to day.

Thank God the Mississippi Supreme Court did not follow Nationwide’s analysis or nobody would have coverage for just about any cause of loss. Nationwide is not on Your Side unless you have an ownership interest in its profits. Beware if this is your insurance company. Their public claims of limited coverage in courts and lawsuits are very different than what that company advertises and leads customers to think is covered. The executives of Nationwide should be ashamed to have allowed their attorneys to argue what they did. The Mississippi justices singularly pointed out how harsh Nationwide’s interpretation was against the policyholder. This company obviously has an anti-customer attitude when it comes to claims. Buyer beware.

I wish this case came out two years ago. The Fifth Circuit should have allowed the Mississippi Supreme Court to decide these issues in the Leonard case, but it refused to place a certified question before the Mississippi Supreme Court at that time.

The bottom line is that this case is so long in the tooth that most Mississippi policyholders cannot benefit from it because most cases are finished. It is a rule of law that benefits a few and hurts a few because the vast majority of Katrina cases are settled, for better or worse.

Still, I keep wondering what I, and my clients, would have done had this case come out three years ago and followed Nationwide’s argument. We would have been in a world of hurt and true despair.

With respect to the “all-risk” coverage of “Coverage A - Dwelling” and “Coverage B - Other Structures,” the Corbans are required to prove a “direct, physical loss to property described.” Thereafter, USAA assumes the burden to prove, by a preponderance of the evidence, that the causes of the losses are excluded by the policy, in this case, “[flood] damage.” USAA is obliged to indemnify the Corbans for all losses under “Coverage A - Dwelling” and “Coverage B - Other Structures” which USAA cannot establish, by a preponderance of the evidence, to have been caused or concurrently contributed to by “[flood] damage.” “Contributed to” comes into play only when “[flood] damage” is a cause or event contributing concurrently to the loss. Pursuant to the policy language, only if proof of a “concurrent” cause is presented to a jury for consideration would the jury receive an instruction including the policy phrase “contributing concurrently.

This ruling confirms State Farm’s Wind/Water Protocol is the wrong test under Mississippi law because it improperly shifted the burden upon the policyholder to prove that the wind caused the damage rather than the insurer having to prove that the damage was excluded. Corban undermines the Fifth Circuit reversal of Judge Senter in Broussard vs. State Farm and as I suggested in Broussard's Bad Faith Decision Impaired by the Mississippi Supreme Court.

There is one important mistake the Court did make in its decision when it held:

With respect to the “named perils” coverage of “Coverage C - Personal Property,” the Corbans are required to prove, by a preponderance of the evidence, that the “direct physical loss” to the property described in Coverage C was caused by wind.

There is no named peril of “wind.” Policies have always required the policyholder to prove damage by the named peril of “windstorm.” In insurance lore and law, there is a big distinction. The most significant for Katrina victims is that a hurricane is a “windstorm.” The policyholder can easily prove that.

The St. Petersburg Times reported that the Department of Insurance is supportive of the plan and that the new insurance companies taking over the policies are sufficiently strong despite recent downgrades:

Tom Zutell of the Florida Office of Insurance Regulation said the state appreciated that Nationwide arranged for a "soft landing" with Tower Hill. Customers always have the option of seeking other insurers, he said.

A.M. Best Co. recently downgraded the financial strength ratings of three property insurers associated with Tower Hill Insurance Group from B (fair) to D (poor). The ratings agency said it was concerned about the companies' hurricane exposure and whether they had sufficient reinsurance to handle claims from a severe hurricane.

State regulators, however, said they had no concern about Tower Hill's financial viability. Zutell said the company is constantly monitored, as are all insurers. He noted the company received an A (exceptional) from another ratings agency, Demotech Inc.

Yesterday, I read a proposed Nationwide policy that would cover both Windstorm and Flood. This was presented to the National Association of Insurance Commissioners at it September meeting. Nationwide's plan calls for the federal government to act as a re-insurer of the policy.

The large national multi-line insurers are lobbying for such a policy while placing market pressure on such a plan by removing themselves, or threatening to so, from coastal areas in the Gulf Coast and Atlantic Coast.

The times they are a changing.

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

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

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

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

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

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

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

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

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

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

Here are some of the Briefs:

• Corban Initial brief
• Amicus brief filed on behalf of United Policyholders by the Merlin Law Group (You do not want to miss my prose)
• USAA Answer brief
• Corban Reply brief
• Amicus brief of Allstate Insurance Company in support of USAA
• Amicus brief of Jim Hood, Attorney General of the State of Mississippi
• Amicus brief of Nationwide Insurance in support of USAA
• Amicus brief of NAMIC and State Farm in support of USAA

Corban raises the most important issues regarding causation and burdens of proof which have been at issue in the Mississippi Katrina cases. Finally, the highest Court in this fair state will hear the issues so important to its citizens. It will be a landmark decision no matter how it is decided.

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.

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.

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.

I have a client who is a judge. He, his wife and two little girls literally lost everything in Hurricane Ivan in September, 2004. Their windstorm insurance carrier, Vanguard Fire & Casualty Insurance Company, denied coverage entirely, contending that not a single shingle was blown from the roof, not a window broken by wind in this Category 5 storm, dubbed “Ivan the Terrible.” The coverage denial was apparently based on “word of mouth” that a 15-foot wave had allegedly swept the home away prior to any wind damage occurring. The insurance company failed to hire an engineer or meteorologist to confirm this rumor. While my clients were lucky enough to have their flood insurer tender policy limits, like many, they were woefully underinsured and needed help from their wind carrier.

When FIGA took over the claim in 2007, it was the perfect opportunity to make things right. Instead, FIGA has compounded the misery. Initially, FIGA continued the denial of coverage. Then, last year, FIGA revealed for the first time a January 2007 engineering report acknowledging the home had in fact sustained wind damage before the storm surge came. After that, FIGA changed its tune, admitted coverage, and tendered a small sum based on its expert’s opinion. In keeping with the quality of “service” on this claim, FIGA’s expert has never been to the site and based his opinions on photos of nearby homes. On the other hand, the insureds received an opinion from an engineer who walked the site, inspected an adjacent building, and concluded that the home was severely damaged before the storm surge hit.

Nevertheless, I figured—this is our opportunity to work toward a fair resolution of this claim. The insurance policy provides for an alternative dispute resolution process to quickly and economically dispense with disagreements over the amount of loss—appraisal. I thought, surely an entity funded by assessments on the insurance consumers of this State will want to wrap this up as soon as possible. How wrong I was. Indeed, FIGA’s lawyer has advised me that we can expect this case to be going on for a very long time. FIGA contested appraisal and lost. Then sought to stay appraisal while it appealed—and lost. Now FIGA is seeking a second bite at the apple asking the appellate court to instruct the trial judge to stay the appraisal. Even if the appraisal is allowed to proceed, FIGA tells me the award will not be paid and I can expect more litigation.

What is going on here? I spoke with a lawyer in the Panhandle last week about possibly serving on our appraisal panel. He had a conflict because he has two claims pending with FIGA and can’t even get them to call him back. In another case of mine, FIGA has agreed to go to appraisal, but only if the insured signs a release of all claims upon payment of the appraisal award!

With more and more small companies taking over Citizens policies, there is a real danger these insureds could end up with FIGA in the event of another busy hurricane season. Anyone have ideas on how to fix this? After all, you and I are footing the bill . . .

- Kristi Demers-Crowell

(Kristi Demers-Crowell is an attorney in the Tampa office of Merlin Law Group and is licensed to practice in Florida and Texas)

“Further, Jay had no training in meteorology, structural engineering, civil engineering, or other expertise for differentiating between wind and water damage. Audubon also failed to provide Jay with standard meteorological data, a consulting meteorologist, or any other consulting expert in adjusting the Fontes’ claim.

In State Farm Mutual Automobile Insurance Company v. Grimes, 722 So. 2d 637 (Miss. 1998), this Court addressed the issue of punitive damages for denial of an insurance claim, determining that: [t]he issue of punitive damages should not be submitted to the jury unless the trial court determines that there are jury issues with regard to whether:

1. The insurer lacked an arguable or legitimate basis for denying the claim, and
2. The insurer committed a willful or malicious wrong, or acted with gross and reckless disregard for the insured’s rights.

The Fontes’ adjuster, John Jay, made an arbitrary determination that he was “going to adjust this claim based on the top half of the home being damaged by wind,” and he thinks it would be correct to say “that this estimate did not take into account possible damage to the lower portions of the home that would have been caused by the loss of the roof or breaking of the windows on the upper portion of the home from the ingress of rainwater or wind driven water.” Jay’s determination was made with limited expertise, without meteorological data, without a consulting expert, and based on the instruction not to pay one hundred percent of the Fontes’ policy limits. Whether an arguable or legitimate basis for denying the Fontes’ claim existed for Audubon’s decision not to pay the policy limits must be examined by a jury to determine if there existed a gross and reckless disregard for the Fontes’ rights.”

 I was in Judge Senter's Courtroom when he directed a verdict against State Farm regarding its claims handling. He seemed emotionally upset regarding the handling of the claim. State Farm established a Wind Water Protocol for handling cases where the structure was damaged and nothing remained. I wrote about the arbitrary nature of State Farm's decision in a prior post, Broussard Oral Argument: Warming The Bench Is No Easy Task: 

"Judge Senter noted that State Farm admitted that a "windstorm" damaged the property. While the claims management in Bloomington may disagree, the wind/water protocol and the creative, after the fact effort, to prove the amount of "possible" damage by wind through statistical experts is where State Farm damned its customers.

Before Katrina, the issue about paying or not paying for physically damaged homes which were destroyed through a covered cause of loss, wind, or by an excluded flood had not arisen frequently enough for State Farm to make an operational guide. I assume, following the aforementioned principals, that State Farm previously paid those claims. Faced with the dilemma of paying for hundreds, if not thousands, of "slab" homes, upper management of State Farm made a new claims standard known as the "wind/water protocol." In short, it stated that in absence of physical evidence demonstrating wind damage, the claim should be denied. Since slab cases had no physical evidence remaining, the entirety of those claims were denied.

Unfortunately for many along the Mississippi Gulf Coast, other insurers, but not all, followed the example of the industry leader. State Farm and many other carriers started denying claims en masse approximately six weeks after the storm. Many of these denials were based on simple and quick field observations by the claims representatives following "marching orders" from home office executives. Indeed, since many engineering reports undermined the analytical basis for complete denial, many companies ordered engineering investigations stopped.

A former CEO of Allstate, Jerry Choate, once said that Allstate would be judged when it came to "moments of truth." Those are the instances where hard decisions would be made to do the "right" thing regardless of the economic consequences. I have remembered those words every time these issues arise because ethical claims behavior calls for a different standard. It is hard for me to believe that somebody in Bloomington did not have the backbone to raise it. It is why have I have frequently asked claims management to reconsider what they have done and possibly have a change of heart.

Nevertheless, Judge Edith Jones commented that nobody paid much attention to the "wind/water protocol" in the briefs and nobody mentioned it in argument until she raised the topic during Clark Holland's rebuttal on behalf of State Farm. Judge Senter, who appears to be of a similar mind to my firm, found this written standard as evidence of bad faith because it violated long standing good faith requirements requiring full investigation and it wrongly changed the burden of exclusionary proof the insurer had under traditional all risk coverage analysis. Holland claimed that the protocol correctly guessed the proper standard which Judge Edith Jones wrote about in Leonard vs Nationwide. While I have publicly criticized portions of Jones' opinion previously, there is nothing in it which comes close to what State Farm made up as a reason to deny slab claims.

From a practical standpoint, it is a ridiculous standard. The strongest winds with the most damage were within the first several miles of the Coast. Many of these structures also sustained flood and storm damage. However, State Farm was paying tens of thousands and sometimes, hundreds of thousands per claim on losses which occurred twenty, fifty and a hundred miles further inland with far less wind strength. Many of these losses were caused by homes that lost shingles, roofing and windows allowing rainwater to soak the inside of the structures and contents. Thus, State Farm created an arbitrary standard resulting in no payment to those who had the highest amount of wind force and knowing that it was paying millions for structures losses which in all probability had sustained much less wind damage than those along the Coast. At the Broussard trial, this was an apparent reason for the grant of punitive damages. However, it was never discussed at oral argument." (emphasis added)

Fonte's factual case seems very similar to what State Farm did to its customers--assumed the cause of damage with an arbitrary standard. In many cases, Mississippi policyholders had adjusters with a similar background and experience as the adjuster assigned in Fonte. I suggest that the federal judges are going to have to revisit their claims practice cases and not simply rely on Broussard when interpreting Mississippi law. 

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

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

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

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