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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In "Checking Your Home for "Hidden" Tornado Damage," experts and adjusters warned policyholders of various items to look for to detect subtle damage which could be quite significant:

Experts said you should turn on all of your faucets, then open your cabinets to check the plumbing and flush all of your toilets to check for leaks.

Insurance adjusters said not all tornado damage is easy to spot.

"Generally what you'll see is pock marks on the roof," said Gary Smith of Farmer's Insurance. "If you can look out a second story window for example and look out on the roof and see pock marks, it'll be obvious on the roof."

Smith also recommends checking other places for dents caused by hail or flying debris. "Other metal things around the house, might be the air conditioning housing, compressor housing," he said. "You look for dents in that or the gutters around the edges of your roof."

Checking your home's foundation and walls for cracks is also a good idea. Pay special attention to the areas around windows and doors, as they tend to be the weakest spots in construction.

You also want to make sure your floors are level, a change could indicate a lift in your foundation. Some other things to keep an eye out for over the next few days and weeks, are water stains or yellowing on your walls and ceilings, which could indicate some hidden roof damage.

Here is the video on this story:

Insurers and their engineers have been sued for not recognizing these types of damages and claims following tornadic losses. As reported by CNN in "State Farm Penalized in Suit Over Tornado Claims :"

State Farm acted "recklessly" and "with malice" in handling insurance claims from dozens of families whose homes were damaged when a wave of tornadoes, including the strongest in recorded history, swept through Oklahoma in 1999, a jury has decided.

The verdict...delivered millions to the lead plaintiffs...

The jury in the District Court of Grady County, Oklahoma, awarded Donald and Bridget Watkins almost $13 million in total damages for their part in the class action suit against the nation's largest insurer....

Tornadoes have very strong winds which place significant pressures on buildings that push and pull on structures. Damage often occurs to the fasteners and component parts, although most are happy the building is still standing and everybody is safe. Following a tornado, my advice is to have a qualified engineer inspect your building for these subtle but significant expected results from such severe winds.

Let me give you the Reader’s Digest version of this analysis. The relevant policy language is fairly standard in most homeowner policies. The language regarding “collapse” caused by a “windstorm” is significant to this claim. “Collapse” is usually excluded under many insurance policies. However, it is then granted back as an additional coverage because it is “excepted” out of exclusions. This exception to the exclusions only happens if the “collapse” is caused by certain causes. One of those causes is “windstorm.” If a “hurricane” is a “windstorm,” and hurricanes are a combination of wind and flood, the logical reading of the policy is that hurricanes that cause complete destruction will provide coverage because the collapse language excepts the damage out of the “flood” exclusion.

Here is the relevant language from a standard State Farm policy:

SECTION I – ADDITIONAL COVERAGES

* * *

11. Collapse. We insure only for direct physical loss to covered
property involving the sudden, entire collapse of a building or any
part of a building.

Collapse means actually fallen down or fallen into pieces. It does
not include settling, cracking, shrinking, bulging, expansion,
sagging or bowing.

The collapse must be directly and immediately caused only by one
or more of the following:

a. perils described in SECTION I – LOSSES INSURED,
COVERAGE B – PERSONAL PROPERTY. These
perils apply to covered building and personal property for
loss insured by this Additional Coverage;

* * *

SECTION I - LOSSES INSURED

COVERAGE A – DWELLING

We insure for accidental direct physical loss to the property described in
Coverage A, except as provided in SECTION I - LOSSES NOT
INSURED.

COVERAGE B – PERSONAL PROPERTY

We insure for accidental direct physical loss to property described in
Coverage B caused by the following perils, except as provided in
SECTION I – LOSSES NOT INSURED:

* * *

2. Windstorm or hail. This peril does not include loss to property
contained in a building caused by rain, snow, sleet, sand or dust.
This limitation does not apply when the direct force of wind or hail
damages the building causing an opening in a roof or wall and the
rain, snow, sleet, sand or dust enters through this opening.

** *

SECTION I - LOSSES NOT INSURED

 1. We do not insure for any loss to the property described in
Coverage A which consists of, or is directly and immediately

caused by, one or more of the perils listed in items a. through n.
below, regardless of whether the loss occurs suddenly or gradually,
involves isolated or widespread damage, arises from natural or
external forces, or occurs as a result of any combination of these:

a. Collapse, except as specifically provided in SECTION I
ADDITIONAL COVERAGES, Collapse.(emphasis added)

* * *

2. We do not insure under any coverage for any loss which would not
have occurred in the absence of one or more of the following
events. We do not insure for such loss regardless of: (a) the cause
of the excluded event; or (b) other causes of the excluded event; or
(c) whether other causes acted concurrently or in any sequence
with the excluded event to produce the loss; or (d) whether the
event occurs suddenly or gradually, involves isolated or
widespread damage, arises from natural or external forces, or
occurs as a result of any combination of these:

* * *

c.Water Damage, meaning:

Flood, surface water, waves, tidal water, tsunami, seiche, overflow of a body of water, or spray from any of these, all whether driven by wind or not;

* * *

3. We do not insured under any coverage for any loss consisting of one or more of the items listed below. Further, we do not insure for loss described in paragraphs 1. and 2. immediately above regardless of whether one or more of the following: (a) directly or indirectly cause, contribute to or aggravate the loss; or (b) occur before, at the same time, or after the loss or any other cause of the loss:

* * *

c. Weather Conditions

However, we do insure for any resulting loss from items a., b., and c. unless the resulting loss is itself a Loss Not Insured by this Section.

* * *

Although a loss caused by “collapse” is listed under subsection (1) of “Losses not
Insured,” that portion of the policy tells the insured that coverage will be afforded if the
contingencies of the policy’s additional coverage for “collapse” are triggered. That
additional coverage is triggered if the “collapse” involves the sudden entire collapse of a
building or a part of a building. The policy’s “collapse” coverage must also be caused by
certain enumerated actions. In the case of a policyholder that has been “slabbed,” it is undisputed that their property was reduced to a slab, or that the insured dwelling sustained a “collapse,” as that term is defined in the policy. It is also undisputed that the “collapse” of such an insured home was caused by one of the required events listed in the policy, a peril described in Section 1 – “Losses Insured, Coverage B – Personal Property.” According to the policy, State Farm’s “collapse” coverage is triggered by a “windstorm.” In this case, the loss was caused by a “windstorm” event, Hurricane Katrina. State Farm’s insured is, therefore, entitled to rely upon the policy’s additional coverage for “collapse” as an alternative theory to obtain benefits.

It is important to note that the “water damage” exclusionary language is found under Subsection (2) of the policy’s “Losses not Insured.” The introductory language of Subsection (2) contains State Farm’s notorious, “anticoncurrent causation” clause. The policy’s “collapse” provision is grounded under Subsection (1)’s “Losses not Insured” language, and the authority to add the coverage back in is found there.

As Subsection (1) contains different lead-in language, with a much different level of exclusionary authority, it does not make sense for the policy’s Subsection (2) lead-in language to apply to a “collapse.” Essentially, the provisions conflict, creating an ambiguity with respect to the additional “collapse” coverage. Courts routinely hold that conflicting language must be interpreted in the policyholder’s favor. Accordingly, the lead-in language of Subsection (2) and its resulting “water exclusion” cannot be used to defeat coverage in any way.

Importantly, the policy must be read as a whole, and all policy provisions must be harmonized. The additional coverage for “collapse” allows coverage for a “windstorm,” not just for “wind.” Yet, if State Farm (or any other insurer) is allowed to apply the anti-concurrent causation language and/or its “water damage” exclusion to the additional “collapse” coverage, the coverage for “windstorm” would be illusory and meaningless. See York Ins. Co. v. Williams Seafood of Albany, Inc., 544 S.E.2d 156 (Ga. 2001) (explaining, under Georgia law, that an insurer cannot rely upon an exclusion contained in a separate section of the policy as a way to defeat coverage for an additional coverage provision, when the applicability of the exclusion would render the additional coverage meaningless).

Further, if the “water damage” exclusion and the “anti-concurrent causation” clause were to apply under the circumstances of a “slabbed” structure, there would be no need to have the additional coverage for “collapse” caused by “windstorm.” The provision would be meaningless and illusory.

A “windstorm” typically implicates and involves some type of water damage when the windstorm is a hurricane. Similarly, in this instance, the coverage obligation for “windstorm” creates, at best from State Farm’s view, an ambiguity when looking at the exclusionary language at hand. State Farm chose its words carefully, recognizing that a “windstorm” is different than loss caused from “abnormally fast wind.”

If State Farm and other insurers wanted to exclude “collapse” from the flood waters of a hurricane and keep the “collapse” language from “excepting” out the “anti-concurrent” loss language, it should have written the policy in that manner. I think nobody thought about how the “collapse” peril as an exception to the exclusions would apply to a hurricane with storm surge. I predict the ISO and other carriers writing their own standard forms will change the language in the future just to prevent policyholder attorneys from noting this claim to coverage.

I am certain our draft brief can be improved upon. For others who make this argument, please send us whatever you write.

So, how does Zurich say the insurance industry defines a “windstorm?”

Defining a storm

Zurich HelpPoint is here to help you protect your business from the damaging effects of storms, including not only your property, but the impact to your bottom line from business interruption too. Our goal is for Zurich customers to be the most prepared and the first ones back in business after a storm.

What is a "storm"? The insurance industry defines a "storm" as any high wind event that accompanies extreme weather, including severe tropical cyclones, European winter storms and thunderstorms.  Storms can occur anywhere around the globe. Severe tropical cyclones include hurricanes and typhoons that have wind speeds in excess of 117 kph (73 mph). European winter storms can be as powerful as tropical storms with wind recorded as high as 216 kph (134 mph). Severe thunderstorms can develop straight-line winds in excess of 93 kph (58 mph). Both tropical storms and severe thunderstorms can spawn tornados. When tornados develop, they can generate the most severe winds with the highest wind speed recorded of 512 kph (318 mph).

Severe tropical cyclones terminology Around the world, there are certain regions where tropical cyclones develop. According to the U.S. National Hurricane Center, the regional names for severe tropical cyclones include:                        Hurricane – North Atlantic Ocean, Northeast Pacific Ocean and South Pacific Ocean                        Typhoon – Northwest Pacific Ocean                        Severe tropical cyclone – Southwest Pacific Ocean and Southeast Indian Ocean                        Severe cyclonic storm – North Indian Ocean                        Tropical cyclone – Southwest Indian Ocean

 In one of tomorrow’s posts, I will write about how, under real and personal property coverage, this is an important issue. If you consider my post, Broussard Oral Argument: Warming The Bench Is No Easy Task, you can understand the insurers’ motivation and why they will be calling on Zurich to remove that definition or change its website.

The bottom line is that hurricanes are “windstorms,” and honest insurers are not trying to rewrite history and trade practice. The insurers that have better take cover.