Imagine a situation where a butcher sliced some meat you ordered, weighed your cut, and then told you that you owed $43.79—but refused to tell you how he calculated the price. Would you simply agree and pay the butcher? Of course not. But this is what happens all the time when insurers refuse to turn over engineering reports or honestly explain how evaluations of damage were arrived.
A public insurance adjuster asked that the following question be addressed at our September 11 Seminar, Hurricane Ike-What a Difference A Year Makes?:
When the insurer calls in the Engineer for an opinion and the insurer uses that opinion as an excuse to drag out a claim for several more months, is the insured and the insured’s public adjuster entitled to the engineer’s report? What is a reasonable time to wait for a report to be completed? We were told that we have no right to the report.
Instances such as this demonstrate why there is a strong need for laws that protect insurance consumers. Without fair claims laws, some insurers give into the temptation to cheat their own customers at the most opportunistic time—following a loss. Most insurance companies that are truly consumer oriented and honest have no trouble turning over these reports and even the drafts. For them, good faith is part of their company claims culture. Honesty requires transparency rather than one party to a contract advantageously keeping secrets. Does anybody disagree?
The Restatement (Second) of Contracts § 205, Duty Of Good Faith And Fair Dealing provides:
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
At comment d., the Restatement provides:
Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further: bad faith may be overt or may consist of inaction, and fair dealing may require more than honesty.
These are legal principals many would anticipate the law requires. The problem is that many of my colleagues and I fail to discuss them, and the insurance company attorneys are not about to do so, since they are trying to defend their client’s bad faith actions. It is their job to protect those types as much as it is my job to call them out.
Courts in states throughout the nation have concluded that all contracts– including insurance policies–impose on each party an implied obligation to act fairly and in good faith. For example, in 1930, the Wisconsin Supreme Court stated that the rights of the insured “go deeper than the mere surface of the contract written for him by the defendant” and implied obligations are imposed “based upon those principles of fair dealing which enter into every contract.” The New Jersey Supreme Court’s decision in Bowler v. Fidelity & Casualty Co. of New York, which involved a time limitation on the right to sue under a disability insurance contract, provides an excellent summary of how some courts view this duty:
Insurance policies are contracts of the utmost good faith and must be administered and performed as such by the insurer. Good faith “demands that the insurer deal with laymen as laymen and not as experts in the subtleties of law and underwriting.” In all insurance contracts, particularly where the language expressing the extent of the coverage may be deceptive to the ordinary layman, there is an implied covenant of good faith and fair dealing that the insurer will not do anything to injure the right of its policyholder to receive the benefits of his contract.
So, the answer is that insurers should turn over those reports. They should make certain those engineers are working as fast as possible knowing that claims require promptness. They should not hire consultants that are overtaxed, given the nature of the promptness required of claims investigation and evaluation. My experience is that many consultants never get asked this question regarding the promptness of work, but instead have other criteria which seem to be more important to many claims departments.
To be fair, in situations where the insurer legitimately has reason to be concerned about fraud, the timing of turning over reports and information can be somewhat changed. A bad actor may be given additional opportunity to change or escape the scheme if the reports or information are promptly turned over. Many courts have recognized various “work product” protections in similar situations and especially when insurers have retained counsel to help protect them. I am certain that expert insurance fraud attorneys such as Barry Zalma and Sandy Burnette could provide much greater information on that topic.
State Farm gets bashed too often at times. In March 2007, I took the deposition of one of its Home Office Bloomington based claims consultants, Stephan Hinkle. He indicated that he expected all reports, including drafts before modifications, to be turned over to policyholders. As I recall his deposition, I felt he understood that honesty was important to State Farm’s customer although the final decision might not be favorable. The transparency of the logical basis for denial of a claim or part of it is extraordinarily significant and will usually be found in the information Hinkle expected would be turned over.
In my experience, many adjusters refuse to operate this way. Therefore, the question posed above is repeatedly asked.