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

Clay Morrison is a public insurance adjuster who, in a former life, owned a restoration company. His largest customer was State Farm. Clay is now the president of Morrison & Morrison, Inc. His public adjusting office is based out of League City, Texas and similar, to many public adjusters, the business includes family—the “other” Morrison is Clay’s wife, Ruth, a Texas attorney and corporate counsel for the firm.

Morrison decided to become a public insurance adjuster when he was “urged” by one large insurance company to go against his ethical standards and change the way business was done. Morrison’s article, published in the NAPIA Summer Bulletin, details the closed door meeting he was invited into with an upper level claims manager who made a request for Morrison to help State Farm.

The request:

“We refer a lot of restoration business to you, and we need your help in rectifying the consumer’s entitlement mentality.”

Morrison declined State Farm’s request, but his very successful restoration business was quickly out of business.

Now, Morrison is a public insurance adjuster, member of the NAPIA board, Secretary of the Texas Association of Public Insurance Adjusters (TAPIA), FAPIA member, and a Windstorm Network certified umpire.

Morrison explains that even as a small operator of his own public adjusting firm, he found it very important and beneficial to be a member of professional educational programs. Morrison acknowledges the expense of being active in multiple associations, but explains his two reasons for going the extra mile and spending the extra dollar.

Number 1: “If you want to be successful in a field, you must associate yourself with people who are most successful in that field.”

Number 2: “If you endeavor to do something, you should strive to be the best.”

Two valuable points for all of us to consider as we enjoy this holiday weekend and our work.

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 March, I posted Texas Windstorm Insurance Network Symposium Set May 11 in Dallas. This is merely a reminder to attend a very exciting seminar regarding windstorm adjusting. Steve Pate and I promise to provide valuable practice tips to insurance and policyholder representatives.

Click here to Register.

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.

If you are involved in hurricane claims in any manner, you need to register and go to the 2010 Windstorm Insurance Conference. It will be held from January 25 through 28, at the Hyatt Regency Riverfront in Jacksonville, Florida. It is the only Conference devoted solely to windstorm insurance issues.

The Conference has special training sessions for those seeking Umpire Certification in appraisal disputes. There is also a special Flood Adjusters program leading to certification as well.

The bottom line is that the Conference offers valuable instruction on how to handle windstorm insurance claims from a number of different perspectives. If you want to know what the top people working in the insurance industry are doing, go to this conference.

A January 6, 2010 article in Claims Magazine, "Conference Preview: Go With the Wind," had an interesting question and answer section with the Executive Director of the Windstorm Network, Michelle Griffin:

What sessions/speakers are you most excited about this year?

We offer a fresh group of workshop topics each year, which is a source of excitement and pride for us. This year is no exception. The presenters and educators leading the workshops are among the top in our industry. Each of our 30 workshop classes will be fair and balanced, with at least one representative from the insured/plaintiff side and another from the carrier/defense side. Our general session speakers will offer a range of topics to appeal to varied professional backgrounds. Aside from the new classes, we always strive to offer additional continuing education credits for as many states and professional organizations as possible.

Last year, you noted that the Umpire Directory and Certification Program was an area you desired to expand. Have you made headway?

Our WIND Umpire Program is constantly evolving to reflect industry needs. In fact, we’ve made some updates and additions to the WIND Umpire Directory, which we will be announcing at the conference. Long term, we are analyzing ways to move the program forward to reflect industry changes and concerns. I expect these areas to be announced in the near future.

What’s the typical profile of a Windstorm Conference attendee?

Our attendees come from all facets of the insurance industry, from senior management to the independent adjuster. Attorneys, engineers, underwriters, contractors, as well as other related professions attend the WIND Conference to obtain information about industry trends and accumulate continuing education credits. This year marks our 11th annual conference, and it’s important to note that in such a short time, it has become a national event, attracting professionals from more than 35 states and Canada, and England. About 1,400 professionals from all areas of the windstorm insurance industry attended last year’s event.

In what areas of training are you seeing the most demand?

We are always listening to our members and attendee suggestions for classes, and of course we keep abreast of industry hot topics in order to offer relevant and timely educational sessions. One topic in particular is estimating software training. Each year, new claim professionals join our organization and seek out training about how to use the most widely employed estimating software programs. We also receive feedback to provide better training about general claim issues, for a range of experience levels, from the beginner to the well-seasoned professional. These areas include scoping property damage, large loss adjusting, sink holes, and appraisal/umpire training.

I was a little disappointed that she did not feel that my seminar topic, "Gulf Coast Case Law Update: Texas, Mississippi, and Louisiana," was one of the more exciting workshops. Compared to the "Advanced Building Code Update," my seminar presentation with co-presenter, Steve Pate, will be thrilling. Just show up, and you'll see why. 
 

This is the legislation I will recommend to the Florida Insurance Consumer Advocate Sean Shaw and the Office of Insurance Regulation tomorrow:

(1)  In the event parties to an insurance contract enter into an appraisal, either party may demand that the procedures set forth in the Florida Arbitration Code (Section 682.02 et seq.) shall control in the appraisal process except as to the selection of the appraisers and appointment of the umpire.

(2)  If mutually agreed to in writing, the parties may modify the procedures set forth in the Florida Arbitration Code.

The practicality of this law is that it recognizes claims are not all the same. There is a huge difference between a $500 automobile claim dispute (automobile policies have appraisal clauses as well) and a $150 million commercial property damage claim with business interruption issues. When the stakes are high and the parties really want to make certain that the process is fair and each has its opportunity to be fully heard on the merits, the Florida Arbitration Code has long been recognized as providing such procedures.

But what about a far more common dispute involving $25,000? In that case, the parties may want to conduct the appraisal in much the same manner as is commonly done today--with little or no rules to save money and time for all. This suggested law allows the parties to modify the arbitration procedures regarding discovery, to afford savings in costs through mutual agreement.

My suggested method for resolving the current trend of insurers eliminating appraisal has come about through a number of observations.

1.  Florida law does not mandate the appraisal clause to be in property insurance policies because the Standard 165 line policy is no longer mandated in Florida. As a result of laws requiring policies to be easy to read, Florida, unlike many other states, dropped laws requiring property insurance policies to have minimum protections found in the 165 Line Standard Fire policy.

2.  Insurers are increasingly changing property insurance policies to vary from standard forms. Whether our Office of Insurance Regulation is doing a proper job is of concern to all because such changes can harm consumers through reductions of coverage and give competitive advantages to insurers that play "word games" with the products they sell. Deleting the appraisal clause is another example of this increasing trend by Florida insurers when they do not like the results the more standard forms in use throughout the country would otherwise require.

3.  Policyholders and insurers benefit by having alternative dispute methods which are quick and inexpensive. However, both desire fairness. The smaller the dispute, the greater the need for less costly methods. The greater the dispute, the greater the need for a method of fairness that ensures transparency and a result that is not based on gamesmanship.

4.  The Florida Supreme Court has mandated that appraisal is an informal process. In doing so, it overruled a lower appellate court ruling indicating that arbitration was the procedure that had to be followed in appraisals. In the past, many parties asked whether the appraisal would be conducted "formally," meaning following the arbitration code, or "informally" with the panel to make their own rules. Today, the panel makes their own rules based on the Florida Supreme Court decision.

5.  A cottage industry of appraisers and umpires has emerged over the past decade. The use of appraisal has become more common as an alternative to voluntary agreement through adjustment. Recognizing that informal appraisal may lead to gamesmanship and unfairness, at least one organization of considerable influence in Florida, the Windstorm Network, has educational classes on appraisal and the role of the Umpire. The Windstorm Network has a Certification course for Umpires and promulgated a set of ethical requirements for "Certified" umpires to follow. In doing so, the Windstorm Network recognized that umpires wield considerable influence in process and ultimate determination of the result.

6.  Appraisal, unlike mediation, is binding. Like arbitration, it is a true alternative to litigation. To suggest that mediation is an alternative to appraisal is incorrect and disingenuous. Without a binding method to litigation, insurers with the money can threaten a policyholder with expensive and time consuming litigation to gain negotiation leverage over the policyholder. Mediation is simply a more formal means to reach a voluntary adjustment of damage with a professional facilitating a compromise.

As an experienced attorney limiting my practice to policyholders with disputes, I cannot say that policyholders are better off resolving their disputes through appraisal, even with arbitration procedures available, versus litigating the matters. Litigation can raise a number of consumer protection statutes that benefit policyholders when insurers unreasonably underpay or delay payment. These rights cannot be raised by public adjusters or contractors because it involves the practice of law. Unless a policyholdere is very well educated in insurance law, an attorney is almost always necessary to successfully litigate these rights.

Indeed, the policyholder successful in appraisal has to pay for his costs of the appraisal and half the umpire's costs. In litigation, the successful policyholder can often recover all those costs along with interest for the unpaid sums.

While I have long been a critic of appraisal because it is a binding process with no rules, I can appreciate that the cost to reach a binding amount owed can be much less, and costs may be an overriding concern to all in claims where the amount in dispute is not great.

My suggested change to the law is merely a practical recognition that insurers do not, and should not, have to remove the appraisal clause from property insurance policies.

I appreciate all the comments and viewpoints which many of you have shared with me on this blog over the past month. I will provide my thoughts of the Roundtable discussion on Thursday.

The Conference has special training sessions for those seeking Umpire Certification in appraisal disputes. There is also a special Flood Adjusters program leading to certification as well.

The bottom line is that the Conference offers valuable instruction on how to handle windstorm insurance claims from a number of different perspectives. If you want to know what the top people working in the insurance industry are doing, go to this conference.
 

Following my post, Umpires Following Unfavorable Appraisal Awards May be Subject to Suit, I wrote one of the most active umpires in property insurance appraisals and a teacher in the Umpire Program, John Voelpel. Voelpel is one of the busiest property insurance umpires in Florida. He was part of a roundtable discussion on “Umpires and Umpiring” at the Florida Association of Public Insurance Adjusters 2009 Annual Convention. I asked John if there were any written procedures regarding the appraisal process. He indicated no, but directed me to the Wind Umpire Directory.

The Wind Umpire Directory has been widely distributed to judges in the coastal areas of the United States and to the members of the Windstorm Network. It lists certified umpires and is a far better source for a policyholder find an umpire than a list provided by an insurance company. The appraisal procedures explained in the Wind Umpire Directory are rather basic and barely more than what is written in standard insurance policies:

What is the appraisal process?

The appraisal process is a contractual process for resolving valuation issues. Appraisal provisions have been included in insurance contracts for over 100 years. Most appraisal clauses in insurance contracts provide that if the insurer and the insured cannot agree on the value of the property or the amount of the loss, either party may make a written demand for an appraisal. Each party then selects their own appraiser and the appraisers perform their own independent evaluation. Prior to the evaluation, the umpire is selected by the appraisers or the Court is petitioned to appoint an umpire. If the two appraisers can agree on the value of the property or the amount of the loss, that amount is established and the process is concluded. If they cannot agree on the value of the property or the amount of the loss, then the matter is submitted to the Umpire for resolution. The Umpire’s decision becomes binding only by a majority agreement (2 of 3).

The most admirable work other than the teaching Voepel and others have done with the Windstorm Network has been to develop an Umpire Code of Ethics. More than anything else, this Code of Ethics provides some semblance of fairness to the individual required to be the “judge” of this very informal and important process. While not truly a judge, an umpire’s powers in the appraisal process cannot be overstated. The individuals that painstakingly worked on the Code should be proud--as should the Windstorm Network. I should point out that this Code is copyrighted.

The Code of Ethics for Umpires in Insurance Appraisals^© was prepared in 2004 by the Umpire Directory Committee of Windstorm Insurance Network, Inc. The Officers and Board of Directors approved the Code on August 3, 2004. Pursuant to the Bylaws of the organization, the Code was adopted by the members at the Annual Business Meeting in February 2005, at the annual Windstorm Insurance Conference. The Code was revised in September 2007.

I encourage all to read the Code in its entirety. I think the most important provisions of the Code are:

PREAMBLE:

The use of appraisal to resolve insurance disputes has grown extensively. Persons who act as Umpires therefore undertake serious responsibilities to the public, as well as to the parties. Those responsibilities include important ethical obligations.

…

Although most proceedings are Appraised pursuant to an insurance contract and voluntary agreement of the parties, certain disputes are submitted to Appraisal by the Court. In all such cases, the persons who have the power to decide should observe fundamental standards of ethical conduct… Umpires, like judges, have the power to decide cases. However, unlike full-time judges, Umpires are usually engaged in other occupations before, during, and after the time that they serve as Umpires. Often, Umpires are purposely chosen from the same trade or industry as the parties in order to bring special knowledge to the task of deciding the pending issues. This Code recognizes these fundamental differences between Umpires and judges.

…

CANON I. AN UMPIRE SHOULD UPHOLD THE INTEGRITY AND FAIRNESS OF THE APPRAISAL PROCESS.

A. An Umpire has a responsibility not only to the parties but also to the process of appraisal itself, and must observe high standards of conduct so that the integrity and fairness of the process will be preserved. Accordingly, an Umpire should recognize a responsibility to the public, to the parties whose rights will be
decided, and to all other participants in the proceeding.

B. One should accept appointment as an umpire only if fully satisfied:

(1) that he or she can serve impartially;

(2) that he or she can serve independently from the parties, potential witnesses, and the appraisers;

(3) that he or she is competent to serve; and

(4) that he or she can be available to commence the appraisal in accordance with the requirements of the proceeding and thereafter to devote the time and attention to its completion that the parties are reasonably entitled to expect.

C. After accepting an appointment and while serving as an Umpire, a person should avoid entering into any business, professional, or personal relationship, or acquiring any financial or personal interest, which is likely to affect impartiality or which might reasonably create the appearance of partiality. For a reasonable
period of time after the decision of a case, persons who have served as Umpires should avoid entering into any such relationship, or acquiring any such interest, in circumstances which might reasonably create the appearance that they had been influenced in the appraisal by the anticipation or expectation of
the relationship or interest. Existence of any of the matters or circumstances described in this paragraph C does not render it unethical for one to serve as an Umpire where the parties have consented to the Umpire's appointment or continued services following full disclosure of the relevant facts in accordance
with Canon II.

D. Umpires should conduct themselves in a way that is fair to all parties and should not be swayed by outside pressure, public clamor, and fear of criticism or self-interest. They should avoid conduct and statements that give the appearance of partiality toward or against any party.

…

F. An Umpire should conduct the appraisal process so as to advance the fair and efficient resolution of the matters submitted for decision. An Umpire should make all reasonable efforts to prevent delaying tactics, harassment of parties or other participants, or other abuse or disruption of the appraisal process.

…

H. Once an Umpire has accepted an appointment, the umpire should not withdraw or abandon the appointment unless compelled to do so by unanticipated circumstances that would render it impossible or
impracticable to continue. When an Umpire is to be compensated for his or her services, the Umpire may withdraw if the parties fail or refuse to provide for payment of the compensation as agreed.

...

Umpires do not contravene this Canon if, by virtue of such experience or expertise, they have views on certain general issues likely to arise in the Appraisal, but an Umpire may not have prejudged any of the specific factual determinations to be addressed during the Appraisal.

During an appraisal, the Umpire may engage in discourse with the parties or their counsel, draw out arguments or contentions, comment on the law or evidence, make interim rulings, and otherwise control or direct the appraisal. These activities are integral parts of an Appraisal…

CANON II. AN UMPIRE SHOULD DISCLOSE ANY INTEREST OR RELATIONSHIP LIKELY TO AFFECT IMPARTIALITY
OR WHICH MIGHT CREATE AN APPEARANCE OF PARTIALITY.

A. Persons who are requested to serve as Umpires should, before accepting, disclose:

(1) any known direct or indirect financial or personal interest in the outcome of the appraisal;

…

(4) any other matters, relationships, or interests which they are obligated to disclose by the agreement of the parties, the rules or practices of an institution, or applicable law regulating umpire disclosures.

B. Persons who are requested to accept appointment as Umpire should make a reasonable effort to inform themselves of any interests or relationships described in paragraph A.

C. The obligation to disclose interests or relationships described in paragraph A is a continuing duty which requires a person who accepts appointment as an arbitrator to disclose, as soon as practicable, at any stage of the appraisal, any such interests or relationships which may arise, or which are recalled or discovered.

...

E. Disclosure should be made to all parties unless other procedures for disclosure are provided in the agreement of the parties, applicable rules or practices of an institution or by law.
…

CANON III. AN UMPIRE SHOULD AVOID IMPROPRIETY OR THE APPEARANCE OF IMPROPRIETY IN COMMUNICATING WITH PARTIES.

…

B. An Umpire or prospective Umpire should not discuss a proceeding with any party in the absence of any other party, except in any of the following circumstances:

(1) When the appointment of a prospective Umpire is being considered, the prospective Umpire:

(a) may ask about the identities of the parties, counsel, or witnesses and the general nature of the case;

and

(b) may respond to inquiries from a party or its counsel designed to determine his or her suitability and availability for the appointment. In any such dialogue, the prospective Umpire may receive information from a party or its counsel disclosing the general nature of the dispute, but should not permit them to discuss the merits of the case.

C. Unless otherwise provided in this Canon, in applicable arbitration rules or in an agreement of the parties, whenever an Umpire communicates in writing with one Appraiser, the Umpire should at the same time send a copy of the communication to other Appraisers.

CANON IV. AN UMPIRE SHOULD CONDUCT THE PROCEEDINGS FAIRLY AND DILIGENTLY.

A. An Umpire should conduct the proceedings in an even-handed manner. The Umpire should be patient and courteous to the parties, their representatives, and the witnesses; and, he or she should always encourage similar conduct by all participants.

B. The Umpire should allow each Appraiser a fair opportunity to present its evidence and arguments.

C. When the Umpire determines that more information than has been presented by the parties is required to decide the case, it is not improper for the Umpire to ask questions, call witnesses, and request documents or other evidence, including expert testimony.

D. Upon the request of either or both Appraisers the Umpire should personally inspect any available damaged property.

…

CANON V. AN UMPIRE SHOULD MAKE DECISIONS IN A JUST, INDEPENDENT AND DELIBERATE MANNER.

A. The Umpire should, after careful deliberation, decide all issues submitted…

B. An Umpire should decide all matters justly, exercising independent judgment, and should not permit outside pressure to affect the decision.

C. An Umpire should not delegate the duty to decide to any other person.

D. In the event that both appraisers agree upon a settlement of issues in dispute and request the umpire to embody that agreement in an award, the umpire may do so.

CANON VI. AN UMPIRE SHOULD BE FAITHFUL TO THE RELATIONSHIP OF TRUST AND CONFIDENTIALITY INHERENT IN THAT OFFICE.

A. An Umpire is in a relationship of trust to the parties and should not, at any time, use confidential information acquired during the Appraisal process to gain personal advantage or advantage for others, or to affect adversely the interest of another.

B. The Umpire should keep confidential all matters relating to the Appraisal process and decision. An Umpire may obtain help from an associate, a research assistant or other persons in connection with reaching his or her decision.

C. It is not proper at any time for an Umpire to inform anyone of any decision in advance of the time it is given to all parties. It is not proper for the Umpire to inform anyone about the substance of the deliberations of the Appraisers. After an appraisal award has been made, it is not proper for an umpire to assist
in proceedings to enforce or challenge the award.

CANON VII. AN UMPIRE SHOULD ADHERE TO STANDARDS OF INTEGRITY AND FAIRNESS WHEN MAKING ARRANGEMENTS FOR COMPENSATION AND REIMBURSEMENT OF EXPENSES.

…

B. Certain practices relating to payments are generally recognized as tending to preserve the integrity and fairness of the arbitration process. These practices include:

(1) Before the Umpire finally accepts appointment, the basis of payment, including any cancellation fee, compensation in the event of withdrawal and compensation for study and preparation time, and all other
charges, should be established.

(2) Umpires should not, absent extraordinary circumstances, request increases in the basis of their compensation during the course of a proceeding.

(3) Umpires should not withhold any decision or award pending payment by any or either party for the services of the umpire.
....

I urge any person interested in becoming an Umpire to take the certification course and then get listed in the Wind Umpire Directory. The classes will be offered at the Windstorm Insurance Conference January 25-28, 2010, in Jacksonville, Florida.

Brian Kingman, managing director for Gallagher Entertainment, a division of Arthur J. Gallagher & Co., said coverage for Mr. Jackson’s shows may not have been too difficult to secure, as the market is fairly soft for nonappearance contingency risks.

Mr. Kingman has previously served as a broker for Mr. Jackson as well as for Madonna on one of her tours.

In the case of Mr. Jackson’s tour, Mr. Kingman said he believes the risk was placed in London, and depending on how the policy was written will ultimately decide whether loss is covered. Every concert or series of concerts can be structured differently, he noted, and factors such as how much money is at risk, who could be out of money, and who is willing to insure the risk and under what circumstances are just a few considerations for events like Mr. Jackson’s tour.

The health of the performer also comes into play, Mr. Kingman said. It is typical, he explained, for a sickness to be covered only if the performer undergoes a medical examination before a tour. In the May Reuters story, Mr. Phillips said Mr. Jackson passed a physical “with flying colors.”

Mr. Kingman said he is uncertain of the terms of coverage placed for Mr. Jackson’s tour, or how much was, in fact, covered, although he said he has heard placement was somewhere around $20 million.

Outside the jet setting world of celebrity entertainment, many more mundane events are covered by this type of insurance. One such event that ended up in litigation was the annual “Defeat the Beat Battle of the Bands.” See Defeat The Beat, Inc. v. Underwriters At Lloyd's London, 669 S.E. 2d 48, (N.C. App. 2008). The facts are cited at length from the policyholder’s brief. They show a typical situation where many policyholders are given inaccurate information about the policy by their agents, they do not review the policy before the loss, and claims are delayed far beyond any reasonable time frame:

Defeat the Beat was established by Karen Blackmon…Its purpose was to host an annual “Battle of the Bands” competition that would bring together marching bands from historically black colleges and universities throughout the southeast. In 2003, Defeat the Beat hosted its first competition at Memorial Stadium in Charlotte, North Carolina. The event was a success, with approximately 22,000 people in attendance.

Following this successful debut, Ms. Blackmon …began planning a second competition …Ms. Blackmon contacted Stacy Fields, an insurance agent …about the possibility of obtaining insurance coverage for the 2004 Event. Ms. Blackmon communicated to Mr. Fields that she desired to obtain a policy that would protect her investment and eliminate the possibility of Defeat the Beat losing money on the Event.
…
…Ms. Blackmon…she inquired about the additional premium for the adverse weather coverage. After seeking clarification from Defendant Petersen, Mr. Fields informed her that the only difference between the adverse weather policy and the policy that she was purchasing was one of control. With the adverse weather coverage, Mr. Fields told Ms. Blackmon, she would be the person in charge of deciding if and when to stop the Event due to poor weather; without paying for that extra coverage, that choice would be made by the manager of the stadium where the Event was held. Based upon these representations, Ms. Blackmon elected to pay the Basic Premium of $8,805….

On August 21, 2004, the second “Defeat the Beat: Battle of the Bands” competition took place at Memorial Stadium in Charlotte. The local weather stations were predicting rain for the day, as the Hurricane Ivan storm system was traveling through the area. At 5:30 p.m., half an hour before the start of the Event, the officers of Defeat the Beat (CEO Karen Blackmon, Chief Operations Officer Duncan Gray, and Stadium Operations Director Robbie Nixon) met with Greg Clemmor, the manager of Charlotte Memorial Stadium, to discuss the weather. It was determined that the Event would continue as scheduled despite the forecasted rain.
…
At 6:30 p.m., thunder and lightning began. …At 6:40 p.m., the thunder and lightning became more pronounced, and those in charge became concerned for the safety of the spectators and participants. It was at that time, upon the recommendation of stadium manager Clemmor, that the decision was made to place the Event on hold until the lightning subsided. …At this announcement, many of the spectators returned to their cars, while others took shelter in various corridors and tunnels beneath the concrete steps of the stadium.

After making this announcement, Defeat the Beat's officers noticed that a number of fans who had departed the stadium were leaving permanently; they also became aware that many of the patrons who were waiting in line to purchase tickets were leaving as a result of those people coming out of the stadium who were saying that the event had been cancelled. Accordingly, at 6:45 p.m., Ms. Blackmon made an announcement over the public address system in which she stated: “The event will resume in a few moments per weather conditions. The event is not cancelled.”

At approximately 7:15 to 7:30 p.m., the lightning subsided and the Event resumed. The competition continued through to completion, ending around 11:00 p.m.

As a result of the bad weather and the interruption of the Event, the 2004 Battle of the Bands competition was considerably less successful than its predecessor in 2003…

Several days after the Event, Ms. Blackmon contacted Stacy Fields to discuss submitting a claim under the Policy. At that point, it was discovered that neither Blackmon nor Fields had a copy of the insurance policy. Accordingly, Stacy Fields contacted Defendant Petersen and received a copy of the Policy, executed September 2, 2004, sometime in early September 2004...

After receiving Plaintiff's claim, Defendant Underwriters assigned it to Michael Tocicki of Crawford Technical Services to be adjusted. …

On November 21, 2004, Mr. Tocicki came to Charlotte to inspect the stadium...During this meeting, multiple witnesses report that Mr. Tocicki said that the Plaintiff's claim was a valid one and that he was recommending to Defendant Underwriters that they pay Plaintiff's claim. In response to a question from Ms. Blackmon regarding how long it would take to receive payment of the claim, Mr. Tocicki stated that he would be submitting a request for payment to Defendant Underwriters following the Thanksgiving holiday, and that Ms. Blackmon would receive payment within two to three weeks following that submission.

On December 8, 2004, Mr. Tocicki submitted a Preliminary Report …Tocicki concluded that although the Plaintiff had elected not to purchase adverse weather coverage, Plaintiff nonetheless had a valid claim for a least a portion of its losses due to an “interruption” pursuant to Clauses 1.1 and 2.8 of the Policy.…Tocicki suggested setting aside a precautionary reserve of up to $124,000 to cover Plaintiff's loss.

…E-mail records show that Defendant Underwriters decided to deny Plaintiff's claim as early as December 16, 2004; however, there is no evidence that this decision was ever communicated to the Plaintiff at that time. Instead, still believing that it would receive the full amount of its claim, Plaintiff continued to work with adjuster Tocicki in his efforts to determine the amount of loss caused by the interruption of the event, providing Tocicki with the supporting documentation that he requested as it became available to the Plaintiff.

On February 2, 2005, by letter to Plaintiff's counsel, Defendants' counsel advised that Defendant Underwriters had decided to honor the Policy as written and to provide coverage for losses due to the interruption of the Event

On May 3, 2006, Plaintiff's counsel received a letter from Defendants' counsel stating that Underwriters had completed its adjustment of Plaintiff's claim and was prepared to settle the undisputed portion. The letter stated: “Underwriters have determined that the event interruption resulted in a covered loss of $37,135.20.” The letter further stated that “acceptance of this payment will in no way prejudice [Plaintiff's] right to pursue a claim for the disputed amount of coverage.”

Plaintiff received a check for $37,135.20 on May 30, 2006…Plaintiff instituted this suit for breach of contract, bad faith, and unfair or deceptive trade practices. 

There should be a good basis for a bad faith claim based upon claim delay, if nothing else. However, one never knows for certain how others view a fact pattern. The Appellate Court noted the policy language:

1.1 This insurance is to indemnify the Assured for their Ascertained Net Loss (as defined herein), should the insured Event(s) described in the Schedule, be necessarily Cancelled, Abandoned, Postponed, Interrupted or Relocated, in whole or in part, which necessary Cancellation, Abandonment, Postponement, Interruption or Relocation is the sole and direct result of any cause beyond the control of the Assured and the participants therein (except as hereinafter excluded), subject always to the terms, conditions and exclusions contained herein or endorsed hereon.

* * * *

2.1 Ascertained Net Loss means such sums as represent:-(a) Expenses which have been irrevocably expended in connection with the insured Event(s), less any savings the Assured is able to effect to mitigate such loss, and (b) Profit (where insured and stated in the Schedule) which the Assured can satisfactorily prove would have been earned had the insured Event(s) taken place.

* * * *

2.4 Profit (where insured) means Gross Revenue less Expenses.

(Emphasis added.)

The schedule of benefits attached to the policy provides in part:

Limit of Indemnity Excluding Profit:     US$540,000
Limit of Indemnity Including Profit:
(Profit insured only if this section completed) N/A

* * * *

Exclusion: TERRORISM COVERAGE

The Court found the issue of whether the weather was covered or excluded was moot because the insurer paid for the event being postponed in part by weather:

It is clear from the record that plaintiff purchased the basic coverage, rather than the adverse weather coverage; however, because only terrorism and not adverse weather is listed as an exclusion on the schedule of benefits, it is not clear whether adverse weather was an exclusion under the policy. We resolve this ambiguity in favor of the non-moving party and assume that any ascertained net loss which resulted from the adverse weather is insured under Section 1.1 of the Policy. Nonetheless, plaintiffs have produced no evidence demonstrating that the adverse weather resulted in an ascertained net loss, as defined and insured under the terms of the policy.

This is a key point I raise in many cases involving business interruption and lost revenue. Policyholders must provide evidence of the lost revenues. The best method is through accountants and economists along with testimony from the policyholder about expectations of business operations. In this case, the policyholder was in an impossible situation because the right type and full amount of coverage was not purchased. I do not think accountants could have helped because expenses did not change much with a 35 minute postponement---but the revenues certainly did. Who would pay to watch bands in the rain with a Tropical Storm approaching? As many agents would say, “penny wise and pound foolish” is the policyholder who does not opt for full coverage of likely perils:

[D]efendant produced evidence demonstrating that an essential element of plaintiff's claims is nonexistent. Specifically, our examination of the record before us reveals that plaintiff has failed to show that the loss complained of is embraced within the insuring language of the policy. First, defendants produced the document entitled “A Proposal for Event Cancellation Insurance” that expressly provides that the coverage is “for Non Refundable costs and expenses only (i.e. no cover for profits).” Likewise, defendants produced a copy of the policy, and under the terms of Section 2.1 of such policy, it is clear that the insured loss or “ascertained net loss” only includes profit “where insured and stated in the Schedule.” Defendants introduced a copy of the schedule of benefits, showing that profit is not stated on such schedule, and therefore, is not insured under the policy. Thus, defendants met their burden in establishing that the lost profit from low ticket sales, low DVD sales, low T-shirt and souvenir sales caused by the 35-minute interruption, which plaintiff asserts as damages under its breach of contract and bad faith claims, are not insured under the terms of the policy.

Given that defendants established that essential elements of the non-moving party's claims are nonexistent, the burden then shifted to plaintiff, the non-moving party, to forecast evidence or specific facts that demonstrate the existence of some sort of loss, insured under the terms of the policy, which defendants refused to pay. Under Section 2.1 of the policy, this would include “[e]xpenses which have been irrevocably expended in connection with the insured Event(s), less any savings the Assured is able to effect to mitigate such loss[.]” While plaintiff alleged in an interrogatory response that “Plaintiff has received $37,135.20, an amount that is woefully less than Plaintiff should have been paid under the insurance policy in question [,]” plaintiff has failed to set forth specific facts or forecast evidence that it incurred any non-refundable expenses and costs as a result of the 35-minute interruption in excess of the $37,135.20 that defendants have already paid. The only facts set forth by plaintiff demonstrate an uninsured loss consisting of lost revenue. Because plaintiff failed to meet this burden of establishing a net loss that defendant was obligated to pay under the terms of the contract, yet refused to pay, there is no issue of disputed fact with respect to the damages element of the breach of contract claim. Accordingly, the trial court's grant of summary judgment in defendant's favor with respect to this claim was proper.

This case did not turn out well for the policyholder. I hope Michael Jackson’s promoters and others who invested in his performance have better luck and much better coverage. This type of coverage is very valuable when you have a lot riding on an event. Death, weather, and all types of risks can happen at the worst possible time. “Safe is better than sorry,” and that is why this coverage exists.
 

I will suggest that the Windstorm Network look into this coverage at our Board Meeting this Wednesday. The Windstorm Conference is being held in Jacksonville, Florida, next January 25 through 28, 2010. Register and book your room early so you do not miss it. It is typically sold out several months in advance.

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

Download Statutes Summary

Download Claims Deadlines Summary

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

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

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

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

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

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

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

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

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

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