New Hurricane Harvey Opinion Provides a Roadmap to Defeating Common Policyholder Attorney Tactics

Policyholders attorneys often try to skip the threshold steps of bringing their client’s claim within coverage and allocating between covered and non-covered causes of loss.  Instead, the policyholder attorney would have the insurer first disprove coverage, or at least first justify its coverage position.  These tactics unfold in a familiar way.

The policyholder attorney will engage a consultant to write up an Xactimate estimate.  Or, perhaps a public adjuster already wrote up the estimate and then brought the claim to the attorney.  Everything that is wrong with the structure will go into the estimate.  Every water-stained ceiling tile, bent AC condenser fin, and dent on the siding will go into the estimate regardless of causation.  The bigger estimate, the better to create more leverage.  Then the policyholder attorney will simply ride that estimate all the way through the case.  To save money, the policyholder attorney will often not retain an engineer to give causation opinions regarding the damage.  Or, the policyholder attorney may retain an engineer to provide a stock report that is heavy on magic words but short on competent causation opinions.  A common issue is trying to overcome a policy’s limitation requiring a storm-created opening.  The policyholder attorney will also try to poke holes in the insurer’s investigation of the claim to muddle the issue of causation. 

Judge Sim Lake recently examined a case with some of these characteristics in Papa Yolk’s Grill, Inc. v. AmGUARD Ins. Co., 2020 U.S. Dist. LEXIS 66672 (S.D. Tex. April 15, 2020).

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Posted in Catastrophes, Coverage, Hurricane

Correlation or Causation for Coronavirus-Related Business Income Losses

In the wake of the Coronavirus (COVID-19) pandemic, countless businesses have reduced or closed operations—some permanently. Flights have been canceled, hotels and restaurants have closed, and employees have been told to stay home. Naturally, businesses will seek to offset their financial losses during this period. Some businesses may file insurance claims under their Business Income coverage.

Common Business Income (and Extra Expense) Coverage Forms might state: “We will pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration’. The ‘suspension’ must be caused by direct physical loss of or damage to [covered] property ….” There has been much discussion of what constitutes “physical loss” and of policy exclusions relevant to viral pandemics. In this article, we will focus on the causation required for business income coverage. In other words, if a policyholder establishes direct physical loss to covered property because of COVID-19, and the insurance policy at issue contains no exclusions that preclude coverage, the policyholder must still demonstrate its business income losses were caused by the physical loss.

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Posted in Hurricane Ike, Uncategorized

Coronavirus: Is There Coverage Under Property Insurance Policies?

Coronavirus (“COVID-19”) has disrupted events, supply chains, sales, and entire industries.  As a result, businesses are going to look to their property insurers to recuperate lost business income, as well as expenses related to cleaning, sanitizing and decontamination.  The first lawsuit alleging a business interruption loss was filed yesterday in Louisiana, and there are most likely others that will be filed in the coming days and weeks.

Almost all property policies require direct, physical loss or damage to property to trigger coverage.  Whether claims related to COVID-19 can meet this threshold requirement largely depends on whether the case law in a given jurisdiction construes the phrase “direct physical loss or damage” narrowly or broadly.  In addition, an analysis of the specific language of a given policy will be critical. 

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Posted in Coverage

New York Ruling Could Significantly Impact Disclosure of Communications Between Insurer and Counsel

A recent decision from one of New York’s trial courts of general jurisdiction could have a chilling effect on written communications between an insurer and its retained counsel during a claim investigation.  In Otsuka America, Inc. v. Crum & Forster Specialty Insurance Co., 2019 WL 4131024, Judge Andrea Masley of the Supreme Court of the State of New York, New York County, ruled that several communications between Crum & Forster (CF) and its attorney (including the attorney’s coverage opinion letter), were not privileged and must be produced.  The Court found that CF retained counsel, in part, to provide an opinion on whether the insured’s claim was covered.  Determining whether a claim is covered is part of the regular business of an insurance company, according to the Court.  As such, the communications between CF were deemed discoverable.

Otsuka America’s wholly-owned subsidiary, Pharmavite LLC, is a manufacturer of dietary supplements.  In June of 2016, Pharmavite recalled certain of its products, and submitted a claim to its insurer, CF, as a result.  CF retained counsel to assist during the claim investigation and, ultimately, in February of 2017, CF denied coverage.  Otsuka and Pharmavite filed suit against CF for breach of contract and a declaratory judgment.  Read more ›

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Posted in Bad Faith, Discovery, Investigation, Loss Adjustment, Privilege, U.S. Legal System

New Texas Laws Take Aim at Common Practice in Storm-Related Repairs

Texas policyholders can no longer cut deals with storm repair contractors to pocket their deductibles for storm repairs.  The Texas Legislature has amended the Texas Insurance Code and Texas Business & Commerce Code, targeting construction companies that offer “free roofs” and “waived deductibles” as enticements to policyholders.  Previously, for example, contractors would reach an agreement to perform work for a policyholder, but waive or absorb the portion of the repair cost equal to the deductible.  This waiver or absorption could occur through numerous paperwork tricks.  Now, the policyholder must pay its deductible, otherwise the insurer can refuse to pay certain claims and the contractor can be charged with a crime.  Read more ›

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Posted in Deductible, Flood, Hurricane, Waiver

Failure of Insured to Provide Requested Documents Triggers Appraisal Under First Party Insurance Policy

Those familiar with first party insurance policies have undoubtedly encountered a recurring issue with the interpretation of appraisal provisions – what does it mean to disagree on the amount of loss?  In Valvano Realty Co. v. American Fire and Casualty Co., the United States District Court for the Middle District of Pennsylvania recently held that a disagreement on the amount of loss encompasses situations where an insurer claims it needs additional documentation before it can determine whether a disagreement exists.  Valvano involved a December 18, 2015 fire at the Plaintiff’s property in Dickson City, Pennsylvania, which was insured by American.  American’s adjuster, working with a retained construction consultant and structural engineer, determined the replacement cost value of the loss to be $140,920.61, and the actual cash value to be $110,608.34.  Plaintiff disagreed, claiming the building was a total loss, and demanded the policy limit for property damage of $850,113.  American paid its adjuster’s determination of the actual cash value of the loss ($110,608.34) and, in response, Plaintiff indicated its intent to invoke the policy’s appraisal provision to settle the dispute.  The relevant provision states as follows: Read more ›

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Posted in Actual Cash Value, Arbitration and Appraisal

Insured Made Whole After Subrogation Recovery

A property insurer, having paid for covered damage, can recover the loss by seeking reimbursement from its insured where the insured has recovered funds from a responsible third-party, or the insurer may pursue a claim directly against the third-party.  If the insurer makes a direct claim against the responsible party, to what extent must the insurer allocate the money it recovers to reimburse the insured for its deductible?  In an opinion issued on July 3, 2019, the Washington Supreme Court held that a fault-free insured must receive the full amount of its deductible before the insurer may allocate any of the recovered funds to itself.  Daniels v. State Farm Mutual Automobile Insurance Co., Wash., No. 96185-9, 2019 WL 2909308 (July 3, 2019). Read more ›

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Posted in Deductible

Pennsylvania Supremes to Decide Whether Actual Cash Value Includes General Contractor Overhead and Profit

Insurance companies may no longer be allowed to rely on clear policy language that expressly excludes general contractor overhead and profit (“GCOP”) from actual cash value payments.  The Pennsylvania Supreme Court recently agreed to hear argument on the issue in Kurach v. Truck Insurance Exchange, Case No. 532 EAL 2018.

The facts in Kurach are undisputed.  The insureds, who admittedly chose not to repair the damage to their homes, filed a class action lawsuit against Truck for its alleged breach of contract by not including GCOP in its actual cash value payments.  The policies at issue expressly provided that “actual cash value settlements will not include estimated general contractor fees or charges for general contractor’s services unless and until you actually incur and pay such fees and charges, unless the law of your state requires that such fees and charges be paid with the actual cash value settlement.”  Based on that language, Truck advised its insureds that they were not entitled to GCOP until such costs were incurred.  The insureds disagreed and argued the provision was ambiguous and otherwise contrary to Pennsylvania law.  Read more ›

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Posted in Actual Cash Value

Key Questions to Consider in Light of Operation Rubicon’s Investigation into Insurance Fraud in South Florida

Law enforcement in Miami-Dade County, Florida recently arrested nine individuals described by Florida Chief Financial Officer Jimmy Patronis as the “ringleaders of an elaborate fraud scheme” led by Barbara Maria Diaz de Villegas,[1] owner of the public adjusting company The Rubicon Group.[2]  The arrests were the result of a year-long investigation, known as “Operation Rubicon,” to investigate insurance fraud, and demonstrate that efforts are being made to curb insurance fraud in South Florida.  According to a February 2019 report from the Federal Trade Commission, Florida is ranked as the number one state for fraud and is home to 18 of the top 50 cities in the United States in terms of fraud reports.[3]

The alleged fraud scheme involved public adjusters, water mitigation and restoration companies, insurance agencies and agents, appraisers, and willing homeowners.  The Miami-Dade State Attorney’s Office is also considering arrests of homeowners who engaged in the alleged scheme.  The scheme allegedly involved the adjusters recruiting homeowners, and then having a plumber create damage at the property.[4] In conjunction with the plumber creating property damage, an insurance agent would allegedly increase the coverage on the property, or procure coverage if the homeowner was uninsured. Read more ›

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Posted in Water

Free Ride on RCV? Not So Fast!

Most property insurance policies condition the payment of replacement cost value (RCV) on the property first being replaced or repaired, and courts typically enforce that requirement.  Replacement cost is not owed until the insured completes repair or replacement.  Yet what property adjuster has never encountered an insured who attempts to claim reimbursement for items not damaged in the loss on the theory that such items are within the RCV estimate and are a part of the property’s “restoration”?

A recent Washington Court of Appeals decision illustrates.  In Mount Zion Lutheran Church v. Church Mutual Ins. Co., 2019 WL 2177893 Wash. App. (filed March 18, 2019; ordered published May 14, 2019), a fire damaged the interior of a church sanctuary.  Church Mutual obtained a replacement cost estimate of $729,106, and an ACV estimate of $593,361.  The insurance policy allowed the insured, Mount Zion Lutheran Church, to collect ACV regardless of whether it chose to repair or replace.  The insured had the option to rebuild, in which case it could then collect repair or replacement costs that exceeded ACV.  Church Mutual paid the ACV to Mount Zion.  It withheld the difference between RCV and ACV, approximately $135,744, pending the church’s completion of repairs.

The RCV estimate included over $196,000 to replace arched glulam beams in the church sanctuary and to replace the sanctuary roof.  The church’s pastor told Church Mutual’s adjuster that he preferred to repair, rather than replace, the glulam beams, because replacement would require removal of the roof.  Church Mutual hired an expert to assess the glulam beams.  The expert concluded that the beams did not need to be replaced.  Mount Zion obtained four contractor bids, all of which reflected the cost to repair, rather than replace, the glulam beams.  The bids all came in below the ACV amount already paid to Mount Zion. Read more ›

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Posted in Direct Physical Loss or Damage, Uncategorized
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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