Would you expect Americans to get a fair trial in Iran? Probably not, because most would believe that the judge and jury would rule against Americans no matter what the evidence showed. Many policyholders first call our office while waiting for a conclusion from the insurance company’s expert. Usually, the expert becomes involved after the policyholder complains about the insurance adjuster’s first conclusion. The policyholder, now worried about cementing an already bad situation with a bad finding from an alleged expert, calls to see how we can help.
From large corporate policyholders to young newlyweds in modest residential structures, here is the truth about how most insurance company experts are hired:
Most insurance experts, regarding cause and amount of loss, are in the business of providing repeat opinions for insurance companies. If they give opinions which lead to a larger recovery than acceptable or appear to find ways to maximize the recovery for the policyholder, they are not hired again. Because insurance companies offer significant repeat and continuous business, many experts in the insurance business depend on insurance companies for their livelihood. The opinions of most insurance industry experts reflect the language of the policy to help the insurance company reduce the amount owed on claims. This is a major problem in the insurance adjustment culture, and most claims departments avoid the obvious implication.
Every now and then, an expert will jump sides and provide an honest and accurate opinion. I have retained a few with the understanding they could only do it quietly or on a very limited basis. This takes significant courage because the financial consequences are great–if found out by the wrong person, most would find they have been removed from the "approved" lists found in the claims offices.
A fairly recent Texas appellate decision, State Farm Lloyds v. Hamilton, 265 S.W.3d 725 (Tex. App. Dallas 2008), demonstrates how the Courts should treat this all too common situation. The policyholder’s masterful appellate brief started off with the most damning evidence in the case:
"In October of 2003, Mark Ogle, a twelve-year veteran with State Farm, stood in the middle of the Hamiltons’ living room and personally viewed a two foot hole in their living room floor full of water from a corroded, deteriorating cast-iron metal pipe at the bottom. He personally observed the defects with the house and immediately hired George Perdue & Associates, the engineering firm that State Farm had hired 1,440 times in the last four years and paid over $ 3.3 Million in that time period."
It does not take a rocket scientist to correctly guess who won the appeal. The policyholder, if he knew of the relationship the engineering firm had with State Farm, would probably feel a lot like an American on trial in Iran. The point is that insurance adjusters and their managers know their customers deserve honest and good faith treatment. Just like in Iran, the system breaks down when outcome oriented conclusions are inevitably reached.
The Texas appellate Court made the following observation of law:
"an insurer breaches its duty of good faith and fair dealing when the insurer fails to settle a claim if the insurer knew or should have known that it was reasonably clear that the claim was covered…[A]n insurer’s reliance on an expert report, standing alone, will not necessarily shield the carrier if there is evidence that the report was not objectively prepared or the insurer’s reliance on the report was unreasonable… Whether an insurer acted in bad faith because it denied or delayed payment of a claim after its liability became reasonably clear is a question for the fact-finder."
The Court then noted the facts presented to the jury to uphold the bad faith verdict:
"Evidence of an investigator’s biased views, standing alone, will not always be evidence of bad faith…But the Hamiltons deny that their bad-faith claims are limited to the biased-investigator point. In their briefing, the Hamiltons make eight more specific charges that allegedly support their claim of bad faith:
Perdue and State Farm did not rule out other possibilities.
Perdue and State Farm stated the east side of the home was wet, but their soil sample showed it was dry.
Perdue and State Farm had no soil samples on the west side of the house to support their contention that the west side of the house was dry.
Perdue and State Farm say flow tests support their contention that the plumbing leak did not cause the problem, but there was no flow test on the living room leak.
Perdue and State Farm’s conclusion of no liability is not supported by facts.
Perdue and State Farm’s conclusion that the house being four inches out of level is acceptable.
Perdue and State Farm fail to identify stress signs.
The face of the report had problems with the honesty of the report."
These issues were prevalent in Hurricane Katrina litigation. There, many expert reports originally favoring coverage were changed to findings limiting or denying the claim. This issue will undoubtedly be raised during Hurricane Ike litigation; this problem is rampant throughout the property adjustment community. So long as the insurance adjustment community is looking for “conservative” (which is different from the social or political context) experts to provide “favorable” (which means paying less or not at all) conclusions, policyholders should know to get their own experts and consultants.