Safeco Insurance Company and its subsidiaries are certainly getting headlines regarding claims practice controversies and bad faith lawsuits. I discussed a Texas Safeco appraisal dispute in Litigation Discovery Continues During Appraisal of Damages in Texas Federal Court earlier this week. A recent case from the U.S. District Court for the Southern District of Florida, Magaldi v. Safeco Ins. Co. of Am., No. 10-80280, 2010 U.S. Dist. LEXIS 62085 (S.D. Fla. June 22, 2010), provides significant instruction for attorneys where there are allegations of slow and wrongful claims handling in the adjustment and appraisal.

The Court noted the basic facts:

This is the third case to come before this court involving plaintiff Victoria Migaldi (Migaldi)’s homeowner insurance claim for windstorm damage caused by Hurricanes Frances, Jeanne and Wilma. Defendant Safeco Insurance Company of America ("Safeco") did not dispute coverage of the claim, but instead declined to pay the full amount claimed and invoked the policy’s mandatory appraisal provision to determine the sum payable for losses that were disputed as to value.

On February 9, 2009, the court granted Safeco’s renewed motion for summary judgment, concluding that Florida’s VPL did not apply to Migaldi’s claim because there was no "total constructive loss" of her residence, and that without a VPL override both parties remained bound by the appraisal award. Accordingly, the court entered final declaratory judgment in favor of Safeco in Migaldi I declaring that Safeco’s full payment of the appraisers’ award satisfied its indemnity obligations toward its insured under the policy…

On February 24, 2009, Migaldi filed a second action, Migaldi v Safeco Insurance Company of America,…"Migaldi II," seeking to hold Safeco liable for breach of contract for failing to pay further sums allegedly due under the policy for the same loss. In her second filed suit, Migaldi acknowledged that these claims were previously submitted to appraisal, but contended that "[t]he appraisal process failed to address all of the damages caused by the hurricane [sic] as they inappropriately applied a $ 10,000 mold cap to the building and personal damages."… On August 11, 2009, this court dismissed Migaldi II, with prejudice, finding the suit barred by the doctrine of res judicata because it involved a scope of coverage issue which was actually litigated and necessary to the judgment entered in Migaldi I….

On January 12, 2010, Migaldi filed the present suit, "Migaldi III," alleging a Florida Statute § 624.155 bad faith claim against Safeco relating to the same insurance claim. Here, Migaldi alleges that Safeco engaged in bad faith in the appraisal process by misrepresenting pertinent facts relating to coverages and facts of the loss at issue, including misrepresentations regarding the applicability of the policy’s mold cap, and misrepresentations regarding damages from the first appraisal of the claims, leading to a "mishandling" of plaintiff’s second appraisal. Migaldi also charges Safeco with improper delay in the adjustment of her losses through use of multiple independent adjusters, and improper delay in the appraisal process itself. Thus, in part, the current complaint attacks the validity of the appraisers’ award on ground of "improper" procurement through bad faith claims handling techniques and tactics on the part of Safeco, and seeks to charge Safeco with liability for the alleged resulting diminution in the appraisers’ valuation of her claim under the Florida first party bad faith statute.

This matter is currently before the court on Safeco’s motion to dismiss on ground of res judicata. Safeco essentially contends that because Migaldi failed to challenge the appraisers’ award or to appeal the judgment which confirmed the award in Migaldi I, her subsequent bad faith suit relating to Safeco’s handling of her original windstorm claim is barred under principles of res judicata.

The Court granted Safeco’s motion in part, but allowed much of the wrongful claims practice action to continue:

…the court concludes, in the context of the instant appraisal proceedings, that Migaldi may pursue a statutory bad faith claim against Safeco based on alleged unreasonable delay: (1) from the time Migaldi initially submitted her claim to the time Safeco initiated the appraisal proceedings; (2) for the time during the appraisal; and (3) for the time between confirmation of the appraisers’ award (i.e. entry of final declaratory judgment in Migaldi I) and the time that Safeco tendered full payment the award to its insured…On the other hand, Migaldi may not challenge whether information submitted by Safeco to the appraisal panel regarding policy coverages and limitations, or facts relating to the losses at issue was relevant or accurate, or properly within the panel’s scope or authority…

…the prior appraisal proceedings and declaratory judgment entered in Migaldi I do not preclude her current bad faith claims to the extent premised on allegations of unreasonable delay in the adjustment of the loss, appraisal of claim, or payment of claim, as more specifically articulated above. See Dadeland Depot, Inc., supra; Bullard Building Condominium Association, Inc. v Travelers Property Casualty Co. of America, 2009 U.S. Dist. LEXIS 70663, 2009 WL 2423436 (M.D. Fla. 2009).

The Court noted and followed authority from another jurisdiction:

As observed by the court in Wailua Associates v Aetna Casualty & Surety Company, 27 F. Supp. 2d 1211 (D. Hawaii):

[The insurer’s] submission to the appraisal does not absolve it from liability for bad faith as ‘the trier of fact could reasonably conclude that .. [the insurer] intentionally delayed the appraisal process.’ Green v International Ins. Co., 238 Ill. App.3d 929, 179 Ill. Dec. 111, 605 N. E.2d 1125, 1129 (Ill. App. 1992). … ‘[I]f an insurer could utilize the apprisal process to shield itself from the consequences of failing to make a reasonable settlement offer … it would defeat the principles’ underlying a separate cause of action for liability outside the insurance policy. Smithson v United States Fidelity & Guaranty Co., 186 W. Va. 195, 411 S.E2d 850 (W. Va. 1991) 27 F. Supp. 2d at 1220. Thus, an insurer who ultimately pays a claim may be held liable for bad faith in the event of unreasonable delay in the processing and adjustment of the claim. Id., citing Best Place Inc. v Penn America Ins. Co., 82 Hawaii 120, 920 P.2d 334, 347 (Haw. 1996). (emphasis added)

Delay is the number one complaint about claims adjustment from policyholders. It is caused by a number of actions and failures to act by insurance companies. Insurance companies have a legal duty to provide a sufficient number of motivated, trained and experienced adjusters with authority to promptly investigate facts of coverage, evaluate damages, explain the benefits and options available to the , and quickly pay those benefits to the policyholder. Lately, some insurers have been hiding unfair claims behavior of failing to conform to this duty by conducting a second adjustment through appraisal. This holding by Judge Hurley is important because it recognizes that payment of a disputed claim resolved by appraisal and paid within the time permitted by the policy following an appraisal does not provide an insurer immunity from wrongful claims conduct.

As one may discern, Safeco is battling a policyholder attorney that does not easily give up. Kelly Kubiak of Merlin Law Group represents the policyholders in this case. I am very proud of her zealous advocacy.

Kelly will be sharing our Safeco and Liberty Mutual claims practice materials with other policyholder attorneys at the Bad Faith Litigation Group meeting at the Annual Convention of the American Association for Justice next week. Please call her or David Pettinato for information about joining this organization if you represent policyholders who have been subject to delayed or improperly handled insurance claims.

  • Dennis Johnson

    Chip,

    I have been reading your blogs as well as guest blogs since just after Hurricane Jeanne destroyed my home in 2004.

    I just wanted to thank you for your efforts in assisting policyholders and their attorneys who have not shared the litigations which you have been involved in. The blog titled “slow adjustments and wrongful delays in appraisal subject insurors to unfair claims practices” is incredible.

    I had several attorneys tell me that even though delays are technical violations of 624.155 they are not singular grounds for winning in litigation. I now see they are wrong.

    Thank You,

    Dennis Johnson

  • Dennis,

    Thanks for the kind words and good luck.

  • Jane Pittner

    I too have had bad faith experience with Safeco. They use loop holes and subjective Decisions towards losses. All they say is I feel for your issues with the losses but there is nothing I can do. They make a Decision that a total loss is just hard living and not vandalism. They do not even share their estimate until a check has been sent and you call to ask what was covered. As Americans we pay for insurance to protect us yet they decide how they will pay on claim. Never in your favor only theirs. We are the fools who pay for coverage but have a contract that is full of holes because of their subjective decisions. I will be getting rid of them because I have no faith in Safeco coverage or more like lack of coverage. They are getting a bad reputation that will destroy their name. A person goes through a loss and ends up feeling like they are the one who did something wrong. Their adjusters are not knowledgable except to deny. I have no faith in Safeco ins and how our claim was handled. Do not purchase insurance from Safeco because when you do need it you will be sorry. Bad adjusters who do not represent the insured but rather Safeco. They do not care!