Everyone knows what to do when disaster looms. When the disaster is a hurricane, you gas up the car and buy batteries. When it’s a tornado, you get in the closet with a flashlight and a radio. When a winter storm approaches, you buy food and firewood.

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

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

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

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

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

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

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

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

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

Since the Texas Supreme Court rendered its opinion in last summer’s landmark decision regarding insurance appraisals --- State Farm Lloyds v. Johnson --- the appraisal process has been in the legal spotlight. Last week, the United States District Court for the Southern District of Texas (Houston Division), interpreting Texas law, issued an opinion which outlined the factors that should be considered when deciding whether an insurer has waived its right to demand appraisal. In the case of Sanchez v. Property and Casualty Insurance Company of Hartford, 2010 U.S.Dist. LEXIS 6295 (Jan.27, 2010), the homeowner opposed the insurer’s invocation of the appraisal clause, asserting that the insurer had waived its right to appraisal.

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

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

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

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

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

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

Most Texas policyholders do not know what the law requires of insurance companies in regard to responding to a claim. The “Prompt Payment of Insurance Claims” statute in Chapter 542 of the Texas Insurance Code imposes certain deadlines on insurers for responding to, investigating, and accepting or rejecting claims. An insurer that violates the statute must pay, in addition to the amount owed on the claim, the insured’s attorney fees as well as “damages” of 18% per annum. In order to recover attorney fees and the 18% interest, the policyholder must show that (1) the policyholder had a claim under the policy; (2) the insurer is liable for the claim; and (3) the insurer failed to comply with a requirement of the statute. The purpose of the statute is to “promote the prompt payment of insurance claims pursuant to policies of insurance.” Tex. Ins. Code Ann. §542.054.

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

Written notice to the insurance company triggers four initial duties:

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

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

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

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

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

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

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

“You have to learn the rules of the game. Then you have to play better than anyone else.”
--- Albert Einstein

There are, obviously, many more than five rules for achieving success when representing a policyholder on an insurance claim. Dedicated insurance professionals, such as the lawyers in our firm, can spend their entire careers learning this area of the law.

Sometimes, however, people become consumed in the details and neglect essential principles. It is a good idea, from time to time, to check that we have touched all the bases. Accordingly, here is a quick review of five important principles.

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

2. Know the Law in Your Jurisdiction.

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

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

3. Get and Put Everything in Writing.

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

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

4. Cooperate with the Insurance Company.

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

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

5. Be Proactive.

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

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