One of the most offensive examples of insurance company claims managers losing their ethical way is when they demand that their insureds risk life and limb to immediately investigate their roofs after a hail storm. Most insurance policies require “prompt notice” of loss. But, does the insurance company ever warn its customers they must risk their lives to climb on their roofs or pay money for somebody else after every hail storm?

One recent hail storm case discussed these issues in Grand Reserve Columbus vs Property-Owners Insurance Company. There the Property-Owners Insurance Company lawyers argued that the hail damage should not be covered for several reasons, including failing to provide “prompt notice.” Here are the facts:

[A] strong wind and hail storm hit Columbus on March 18, 2013, and there was uncontroverted evidence of the extensive damage it caused to metal roof parts, patio screens, and heating and air conditioning units at every building in the complex. In the months after the storm, Grand Reserve began receiving some reports of leaking ceilings. Two work orders, one in May and one in June, involved roof repairs, and the technician’s notes report repairs to wind- and hail-damaged shingles. However, the two work orders showed hail damage only to a few shingles each. There was testimony that such damage to a few shingles would not give alert to broader damage. Moreover, given that Grand Reserve receives approximately 2500 work orders per year, the isolated reports did not raise any flags. Instead, in December 2013, the complex’s roofer replaced six to eight bundles of shingles—a lot more than other repairs. He then notified the complex’s manager of the scope of the damage. The manager alerted owner Steven Corbett that hail damage could be widespread. Shortly thereafter, Corbett notified Property-Owners. And the jury heard evidence that Property-Owners did not object to the delay after received it Grand Reserve’s notice of the claim and that Property-Owners made a partial payment on the claim.

(Emphasis added)

The title to this post notes insurance company claims managers unleash their attorneys to argue anything to get out of paying a loss. The facts indicate that the field adjusters had no problem paying the claim. It was the insurance company lawyers wanting to win at all costs and the claims managers allowing them to do so that raised this ethical issue. Should the insurance company treat its customer as the enemy after a loss and unleash its attorneys in an all-out effort to prevail when disputes arise? I would suggest this is not the way to treat an insurance customer.

I imagine that the parties simply disagreed about how much of the roof had to be replaced and what the reasonable cost of repair or replacement should be. That controversy is a very common insurance dispute and one which my law firm spends thousands of hours studying and litigating. These hail damage cases can be extraordinarily complex as we have learned from trials and experience. While being common, it does not mean that the hail damage science nor the insurance issues are easy to resolve.

I have even noted in this blog and in recent speeches that adjusters cannot legally climb on roofs because of OSHA regulations. In OSHA Standards Apply to Insurance Adjusters, I noted that:

My learning also led to the realization that many activities done routinely by insurance adjusters investigating claims certainly are not being done OSHA compliant. Adjusters routinely investigate roofs for hours without safety equipment to prevent falls. This is illegal. Adjusters will walk through burned homes and buildings without safety equipment to protect their lungs. This is illegal. Even dumb attorneys like me are required to follow these safety standards when investigating losses.

Adjusters may be prevented from climbing on roofs without a lot of safety equipment and training because roofs are an inherently dangerous and an unsafe work environment. Of course, it is more dangerous for the Insurance customer to climb up on a roof an investigate a hail loss, and the insurance claims managers know this.

Still, does Property-Owners Insurance Company warn their customers, potential customers and agents selling this coverage that the insurance customer has to climb up and inspect the roof following every hail event? Of course not. If they did, they would have few customers and go broke. So, instead of honestly accepting what they have to do at the point of sale, claims managers at this insurer allowed their lawyers to argue this as a common practice, hoping a judge may be persuaded that the literal contract language calls for “prompt notice.”

I may be unfairly pointing to Property-Owners as the bad actor for something becoming more prevalent with the entire Insurance industry. And, I do not suggest that restoration contractors that get an Assignment of Benefits, repair the damage without notice to the insurer of the damage, destroy evidence of the roof, and then make a claim should escape the “prompt notice” defense. What I am suggesting is that claims managers control their attorneys, and those managers are responsible for ensuring that the customer is treated as a respected customer after the loss as much as before the loss, regardless of dispute that may arise.

The finding by the appellate court was for the policyholder/contractor and is very understandable:

[T]he questions of whether the insured gave timely notice and whether the delay was justified are for the fact finder….In Bishop, the court held that there is no bright line rule about the number of months….Looking at the facts, the court held that the eleventh-month delay was not unreasonable as a matter of law, where the insured delayed telling his insurance company about the accident because he did not realize the severity of his injuries….

Under these facts, the question of whether the ten-month delay was reasonable was one for the jury to decide. The jury could reasonably have credited the testimony that the two work orders which revealed hail damage to a few shingles would not have alerted Grand Reserve to broader hail damage, especially in light of the great number and frequency of routine work orders. And that Property- Owners failed to mention the delay long after it received notice of Grand Reserve’s claim undermines its argument that “a reasonable jury would not have a legally sufficient evidentiary basis to find” that the notice was not timely as a matter of law.

Claims managers should not get so caught up in the claim severity numbers and data so often looked at to determine who gets raises and promotions. High ethical standards, claims professionalism and proper claims handling from the customer viewpoint is extraordinarily important and the mark of an insurance claims professional.

Thought For The Day

The time to repair a roof is when the sun is shining.
—John Kennedy

  • shirley heflin

    Dear Chip:

    What do you get when you put an Insurance Adjuster and Defense Attorney together? DELAY! There’s just no way around it; once an insurance company starts paying its attorney their hourly rate, all bets toward resolution for the insured are – usually – over. Sure, the claim may be resolved a year or two later at mediation or even later at trial.

    As far as an Insured climbing on their roof to ascertain damage, I would fall off and die or become crippled. Either way, that is a ludicrous request by an insurance company.

    The Insured just wants what they paid for: fair, prompt, equitable and professional claims handling following a loss and submitted claim. They pay for peace of mind and they should get peace of mind. When they don’t receive said treatment is when the breach of contract lawsuit is filed and after that the ultimate punishment for the insurer: the bad faith lawsuit (in Florida anyway). The sad part is that these lawsuits take time and often the Insured loses everything while they’re pending. Fortunately, prevailing in litigation will provide monetary awards – even if it is a little bit too late.

    Respectfully,
    SHIRLEY HEFLIN
    Tampa, FL

  • rogerpoe

    IF indemnity is to be based on “prompt notice”, isn’t an Insured’s initial dutiful phone call to the Agent/Insurer about a [hail/wind] storm event’s suspect affect..”Prompt Notice”?

    • Chip Merlin

      Roger—thanks for the comment. It was good to see you recently.

      I do not think “Notice of Loss” has anything to do with the amount or indemnity to be paid, other than such notice is a condition to the payment of the indemnity.

      I just think about my own situation and others that have worked so hard and we finally get to take off for a week, two weeks or even a grand trip of several months and something happens to our Insured property that we do not know about. It could also be because the loss is hidden behind walls or where we have not been looking. And then, the insurer we have been paying, who except for the notice provided at a time delayed from the loss date, would refuse to pay the claim.

      Frankly, I think these insurers should look for a market other than anywhere in the United States to act this way or be forced to advertising and warn their customers of what they are waiting to argue. But, the trend of denial is what has been going on in the claims arena for the last 20 years as some insurers look for any reason to not pay claims.