I wonder if the Liberty Mutual Fire Insurance Company would want to advertise how proud they are of their case investigations that result in lawsuits. Yet, wrongful claims practice cases sometimes result in decisions by trial judges that seem wrong to those who practice in this area. The case of Luse v. Liberty Mutual Fire Insurance Company, No. 09-1221, 2010 WL 2698342 (M.D. Pa. July 7, 2010), is a recent example.
The significant facts in Luse are as follows:
This case arises out of a fire that occurred in Plaintiffs Robert and Kay Luses’ (the “Luses”) home on August 4, 2007, in York County, Pennsylvania…At the time of the fire, the Luses were insured under a LibertyGuard Condominium Policy which had been issued by Liberty… The Luses promptly reported the fire to Liberty, and on August 6, 2007, a home inspection was scheduled…On August 7, 2007, an inspection was done by William Kishbaugh, an employee of Liberty…During this visit, only Mrs. Luse was present. Mr. Kishbaugh observed fire and smoke damage in the kitchen, and significant sooting in the kitchen, as well as into the living room/dining room area…Despite the damage, Mr. Kishbaugh determined that the house was nonetheless liveable, and no request was made by Mrs. Luse to have the family moved out of the condominium…During this visit, Mr. Kishbaugh informed Mrs. Luse that Liberty would only provide secondary coverage for the damage because the Luses had a condominium policy, in addition to the Liberty policy, which provided primary coverage…Mr. Kishbaugh also requested a copy of the master condominium insurance policy, which Mrs. Luse indicated she did not have at that time…At the time of the inspection, Mr. Kishbaugh had not seen a copy of the Luses’ separate condominium policy, and had only briefly reviewed the Liberty policy with regard to its scope of coverage, the effective date, and any limits or special endorsements…Thus, Mr. Kishbaugh’s determination that the Liberty policy would nonetheless be secondary to the condominium policy was made based on his previous experience because “[t]hey always are.”… Later, Mr. Kishbaugh confirmed that the master condominium policy was in fact the primary policy with regard to building and structure coverage, but that it had policy limits when it came to additional living expenses, such as relocation coverage, and that any additional living expenses were to be covered under the Liberty policy…This was not explained to Mrs. Luse at the time of the inspection. In any event, Mr. Kishbaugh did not believe it was necessary to explain relocation costs for “such a small incident” and because the house did not seem to him to be unliveable….
On August 10, 2007, Mrs. Luse called Anthony Waslesyn, Mr. Kishbaugh’s supervisor, to discuss the case…Mr. Waslesyn made a note of this phone call, which indicated that Mrs. Luse asked for authorization to have the house cleaned because there were two people living there with respiratory issues-Mr. Luse and the couple’s grandson….Authorization was given to have the house cleaned. Nothing in Mr. Waslesyn’s notes indicated that Mrs. Luse asked to have the family relocated….Four days later, Mr. Waslesyn received a call from Mr. Luse…Mr. Waslesyn’s deposition indicates that Mr. Luse again requested authorization to have the house cleaned, and that Mr. Waslesyn informed Mr. Luse that he had already authorized cleaning during his conversation with Mrs. Luse on August 10, 2007….Plaintiffs contest this fact to the extent that they claim it does not fully reflect the conversation. Plaintiffs state that Mr. Luse called to express his frustration over the information that the master condominium policy would be the primary provider of insurance coverage, and his confusion over what coverage Liberty was willing to provide….
On August 24, 2007, Paul Schrembeck, Mr. Waslesyn’s supervisor, received a call from Barbara Shultz, Mr. Luse’s respiratory therapist…Mr. Schrembeck was told by Ms. Shultz that the conditions in the home might be adversely affecting Mr. Luse’s respiratory issues…Mr. Schrembeck then took immediate action to have the family relocated…
Prior to this phone call, but over two weeks after the fire had occurred, on August 21, 2007, Ms. Shultz tested Mr. Luse and found that there had been a drop in his oxygen saturation levels…Ms. Shultz indicated in her report that the fire could “perhaps” have been a cause of the decreased oxygen levels…Ms. Shultz also testified that, if someone from Liberty had contacted her right after the fire she would have informed them that the conditions were inadequate for Mr. Luse’s respiratory condition…There is no indication in the record that anyone from Liberty knew that Mr. Luse was seeing a respiratory therapist. (emphasis added)
The pleadings indicated that the Luces retained a claims practice expert. The expert filed an affidavit indicating, in part, the following:
To comply with good faith claims-handling standards, an insurer must thoroughly and proactively investigate and evaluate each claim. Such duties must also be undertaken with open-mindedness by the insurer as well as a willingness to give the insured’s best interest at least the same weight as the insurer’s self interest. This consideration would certainly include the insurer’s careful attention to any potential health hazards faced by an insured as a result of a covered loss during the course of claims-handling.
In the case of the Luse’s claim, it is undisputed from Liberty Mutual Insurance Company’s (hereinafter LMIC) own claims log notes that Liberty was aware within days of the fire that two people in the Luse’s household (Mr. Luse and his grandson) both had respiratory issues. While an insurer generally has a good faith duty to proactively investigate each claim timely and act upon facts discovered thereby, good faith practices compel the insurer to act swiftly and affirmatively when facts suggests potential health risks to the insured as they relate to the covered loss. In this case, LMIC failed to conduct any investigation into the severity of their insured’s medical condition or the health risks posed thereby from the insured continuing to remain in the smoked-damaged, soot-filled home. It was not until Mr. Luse’s respiratory therapist made multiple calls to multiple LMIC claims personnel that it finally approved payment of insurance benefits needed for the Luse’s to move into a hotel. Such approval took place approximately two weeks after LMIC was placed on notice of the Luse’s respiratory issues. This claims-handling conduct/failure to investigate and respond accordingly was without any reasonable basis…The fact remains that the Luse’s paid for coverage that would allow them to reside elsewhere and be removed from the hazardous conditions, yet LMIC failed to reasonably investigate this issue and afford benefits in a timely and reasonable manner.
Regarding Mr. Kishbaugh’s sworn testimony at the magistrate’s hearing regarding his alleged lack of knowledge of the insured’s respiratory issues, such testimony is contrary to the claim’s log confirmation that Liberty had such information within days of the fire. The author notes that good faith practices (as well as the Unfair Insurance Practices Act/Unfair Claims Settlement Practices regulations) specifically prohibit an insurer from misrepresenting facts pertinent to an insurance claim. The claim was still pending at the time of such hearing; this misrepresentation made to a court of law would certainly breach the good faith standard and be done with direct knowledge that there is no reasonable basis for such misrepresentation.
Finally, this author notes that Mr. Kishbaugh testified in his deposition that in the time-frame leading up to the Luse’s claim, Mr. Kishbaugh and several other LMIC adjusters had repeatedly complained to LMIC claims management that the adjusters were overworked and unable to keep up with their claims handling due to the volume of cases assigned to them. This testimony certainly raises the specter of systemic bad faith. However, this author must stress that I reserve any opinions on this issue at this time and can comment further only after review of complete discovery, including the upcoming depositions of LMIC’s supervising claims personnel. (emphasis added)
All adjusters have access to their own insurance company’s policies. All adjusters know that to determine whether one policy is primary or not, they have to read both policies. All adjusters know that fires contain smoke and particulates that are extremely toxic. Indeed, even the cleaning process and deodorizing can be toxic. People should be removed from the vast majority of all fire scenes unless an expert can show it is safe. All adjusters know that they should ask if anybody may have allergies or other physical concerns that might be exacerbated by smoke or noxious particulates. This is fairly standard training for most fire insurance companies—like Liberty Mutual Fire Insurance Company, whose adjusters are in the business of adjusting fire scenes.
Nevertheless, the Court ruled in favor of the insurance company. It first noted the Pennsylvania standard for bad faith:
To establish a claim, a plaintiff must show: “(1) that the insurer did not have a reasonable basis for denying benefits under the policy, and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis in denying the claim.”…While the cases usually speak in terms of the denial of benefits, “[f]ailure to conduct a reasonable investigation based on available information may” also support a claim of bad faith on the part of an insurance company…
[t]o defeat a bad faith claim, the insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusions. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action.
In addition, there is a heightened burden of proof in bad faith claims, and a plaintiff must demonstrate by clear and convincing evidence that an insurer acted in bad fath. “The clear and convincing standard requires evidence of bad faith so clear, direct, weighty and convincing so as to enable the factfinder to make its decision with clear conviction.” …Thus, a plaintiff’s burden is quite high when opposing summary judgment… (emphasis added)
The Court seemed to indicate that an unreasonable adjustment is nearly impossible to prove. And with the following legally flawed logic placing the blame on the policyholder and overlooking the wrong coverage determination, maybe it is impossible to prove in Pennsylvania:
While there, the representative noticed some soot and smoke damage, but determined that the house was liveable. Only Mrs. Luse was present, and she did not mention that anyone had respiratory problems and did not ask that the family be relocated.
Three days later, on August 10, 2007, Mrs. Luse placed a call to Liberty and spoke with Mr. Waslesyn, the supervisor of the individual who conducted the initial evaluation of the home. During this call Mrs. Luse asked for permission to have the house cleaned, and at this time informed Liberty that there were two individuals living in the home with respiratory problems. Mr. Waslesyn authorized the cleaning of the home. Nothing in the record indicates that Mrs. Luse asked that the family be relocated.
On August 14, 2007, Mr. Waslesyn received a call from Mr. Luse. Mr. Luse again requested authorization to have the house cleaned. Mr. Waslesyn informed him that such authorization had already been provided. There is some dispute about whether this conversation also involved discussion of the extent of Liberty’s policy coverage. However, there is nothing in the record to suggest that Mr. Luse told Liberty about his respiratory problems or he asked to be relocated.
On August 24, 2007, Liberty first learned of the extent of the respiratory problems suffered by Mr. Luse. This information was received through a phone call from Mr. Luse’s respiratory therapist, Barbara Shultz, to Mr. Shrembeck, Mr. Weslesyn’s supervisor. Ms. Shultz informed Mr. Shrembeck that the conditions in the house might be affecting Mr. Luse’s respiratory issues. After this phone call, Mr. Shrembeck took action to have the family relocated from the residence.
Plaintiffs argue that the investigation was unreasonable because Liberty did not do enough to ascertain the extent of the respiratory issues in the household and immediately have the family relocated, and that they acted in bad faith when they informed the Luses that they would be the secondary provider to the Luses condominium policy. Given the facts before the court, these allegations do not constitute bad faith.
As soon as Liberty learned of the extent of Mr. Luse’s respiratory problems they took action to relocate the family. Before this they had received one comment regarding the health of the individuals living in the house, and this was a comment by Mrs. Luse mentioning the health problems and requesting permission to have the residence cleaned. The cleaning was immediately authorized. It is well understood that insurance companies must conduct a reasonable investigation; however, Plaintiffs cite to no case law suggesting they must conduct some heightened investigation. This is particularly true in light of the fact that Plaintiffs did not initially apprise Liberty of the extent of Mr. Luse and his grandson’s respiratory complications. Plaintiffs never requested to be moved before August 24, 2007, when Mr. Luse’s respiratory therapist called to make this request. As soon as Liberty learned of this, it authorized the Luses to relocate from the residence. Given these facts, Liberty’s conduct was arguably negligent, and “mere negligence or bad judgment is not bad faith.”…
Plaintiffs’ second allegation of bad faith is equally as flawed. Liberty’s failure to apprise the Luses on the first inspection of the home that any additional living expenses would be covered by Liberty does not establish bad faith. Mr. Kishbaugh informed Mrs. Luse that Liberty’s coverage was secondary to that of the condominium association, a representation which was true, except for the fact that the Luses had additional living expense coverage through Liberty. At the intitial inspection, Mr. Kishbaugh did not believe additional living expense coverage would be necessary because in his judgment it was a small incident, he was not aware of any health concerns, and no one requested that the family be relocated. Thus, the fact that Mr. Kishbaugh did not know that Liberty provided this coverage at the time of the inspection cannot be said to be bad faith. This is particularly true given that Liberty never denied Plaintiffs the right to relocate, and paid all of Plaintiffs’ relocation expenses once relocation was requested. As such, Plaintiffs have failed to show bad faith on the part of Liberty.
Since the adjuster wrongly told the policyholders that the Liberty Mutual policy would not cover the relocation expenses, why would the policyholder ask for Liberty Mutual to pay? For an adjuster, not reading the other policy and not knowing the policy he or she is adjusting before making a coverage determination is bad faith because it is based on an unreasonable investigation of coverage. All coverage investigations mandate that the adjuster first read the policies at issue, investigate and ask questions for facts. Everybody in the adjustment business would know this.
The point is that policyholders and their advocates cannot assume judges will understand an insurance adjuster’s duties, even if an expert explains them. Most judges have no clue what training goes into being an adjuster. Many judges rely on case law or gut instinct in deciding these issues, without appreciating the professional training, ethical duties and oversight that adjusters are put through before insurers allow them to go into the field. Adjusting is a profession that is learned with books, classes and experience, and it is an honorable profession when it is done “reasonably.”
Since this case involved “fire,” and I am hoping my Friday night is going to as hot as this Florida afternoon, how about starting off the weekend with a song from the Boss: