Eleventh Circuit Holds Attorneys’ Fees Are Not Warranted Where Policyholder Filed Suit Instead of Undergoing Appraisal

Posted on April 23, 2019 by Chad A. Pasternack

The Eleventh Circuit, in J.P.F.D. Investment Corp. v. United Specialty Insurance Co., recently affirmed a district court’s denial of statutory attorneys’ fees to a policyholder that, to resolve a disagreement over the amount of loss, filed suit against its insurer instead of participating in appraisal.[1]

In Florida, policyholder attorneys are often quick to file lawsuits against insurers in order to trigger statutory fee shifting. Florida Statutes § 627.428 provides:

(1) Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court . . . shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.

In J.P.F.D., the policyholder’s building suffered water damage.[2] After receiving notice, the insurer promptly sent an independent adjuster to inspect the property. On the same day, the insurer sent a water extraction company to the premises. The insurer paid the water extraction company in full, less deductible.

Florida Supreme Court Invited to Resolve Assignment-Of-Benefits Controversy

Posted on December 5, 2018 by Michael Morehead

Introduction

At least two Florida appellate courts have directly contradicted each other on an increasingly-important question facing Floridians and the insurance industry. The question is as follows: “Are insurance provisions valid which condition the validity of third-party benefits assignments upon the written consent of all insureds and named property mortgagees?” The answer to this question is important because Floridian policyholders often assign their insurance rights to construction companies post-loss to receive services without up-front payment. The Florida Supreme Court was recently asked to answer this important question, and it is likely to weigh in, although it has not yet formally decided to do so.

Public Policy

Public policy concerns animate assignment-of-benefits (“AOB”) legal disputes in Florida. Florida construction companies and policy-holder attorneys argue that AOB is good for policy-holders because it allows them to immediately repair damaged property. However, insurance advocates contend that certain AOB limitations are necessary to mitigate abuse, fraud, needless litigation, and ultimately to minimize insurance premiums to policyholders.

A 2016 Insurance Journal article explained that unscrupulous contractors often obtain AOBs, submit inflated repair-cost claims to insurers, and then work closely with “highly litigious” trial groups to sue the insurers for denying these claims, whether in whole or in part. Amy O’Connor, Florida Fights Back Against Assignment of Benefits Abuse, Insurance Journal (Feb. 8, 2016). A 2018 article indicates that as a result, the number of AOB lawsuits in Florida has been “spiraling out of control,” from 405 lawsuits in 2007 to 28,000 lawsuits in 2016—a “68-fold increase.” Liam Sigaud, Florida Insurance Abuse Spiraling Out of Control, Pensacola News Journal (March 14, 2018).

Thus, the legal AOB controversy currently taking place in Florida is the tip of a much larger public policy iceberg. Because of the breadth and depth of the public policy considerations at play, even those Florida courts which have taken a side have done so on purely legal grounds, recognizing that the complex policy considerations are best addressed by the Florida Legislature. Unfortunately, the Florida Legislature has repeatedly tried yet been unable to resolve the present dispute. Read more ›

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Posted in Additional Insureds, Co-Insureds, Conditions, Coverage, Flood, Homeowners Coverage, Mortgagees

Texas Court Holds That Unpaid Appraisal Award Does Not Conclusively Establish Causation or Damages in Hurricane Ike Insurance Dispute

Posted on June 6, 2018 by Donnie Mike Apodaca, II

While Hurricane Ike made landfall in Texas almost ten years ago, the resulting litigation is alive and well as evidenced by the recent decision in Texas Windstorm Insurance Association v. Dickinson Independent School District, 14-16-00474-CV, 2018 WL 2436924 (Tex. App.—Houston [14th Dist.] May 31, 2018, no pet. h.). In that case, Houston’s Fourteenth District Court of Appeals addressed whether an unpaid appraisal award established an insurance company’s liability under a named-peril insurance policy as a matter of law. In analyzing and applying the Supreme Court of Texas’s decision in State Farm Lloyds v. Johnson, 290 S.W.3d 886 (Tex. 2009), the court held that the appraisal award, by itself, did not conclusively establish liability for purposes of the policyholder’s motion for summary judgment as to causation and damages.

Background

At the time Hurricane Ike hit Galveston County, Texas in 2008, the Dickinson Independent School District’s (“DISD”) property was insured under a named-peril commercial policy issued by the Texas Windstorm Insurance Association (“TWIA”). Id. at *2–3. DISD made a claim with TWIA for hurricane-related property damage, and eventually filed suit against TWIA for underpayment of the claim. Id. at *3. In response, TWIA invoked the appraisal process. Id. Thereafter, the court-appointed umpire and the policyholder’s appraiser signed an appraisal award for over $10 million (about $8 million more than TWIA’s prior claim payments). Id.

After the appraisal award was issued but not paid, DISD filed a motion for partial summary judgment on its breach-of-contract claim. Id. at *3–4. Specifically, DISD argued that the appraisal award “conclusively established certain elements of DISD’s breach of contract claim, namely the amount of damages caused by wind from Hurricane Ike.” Id. at *3. The trial court granted the motion for summary judgment, and entered subsequent orders which barred TWIA from contesting damages or causation at trial. Id. at *4. A five-day jury trial was held on the single issue of whether TWIA breached the insurance policy by failing to pay the appraisal award. Id. at *1, 4. Unsurprisingly, the jury found that TWIA breached the policy, and a final judgment was entered against TWIA which exceeded $9 million. Id. Read more ›

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Posted in Arbitration and Appraisal, Hurricane, Hurricane Ike

Can Insurance Appraisers Favor and Advocate For The Party That Selected Them?

Posted on March 22, 2018 by Patrick Aul

Insurance Adjuster This is a question the Colorado Supreme Court is set to resolve after recently granting Owners Insurance Company’s petition for writ of certiorari in Owners Insurance Company v. Dakota Station II Condominium Association, Inc., 2018 WL 948601 (Col. Feb. 20, 2018).

The Colorado Court of Appeals answered this question “yes” in the opinion being appealed from, at least as long as the appraiser does not also act in a demonstrably unfair manner or with a provable bias, such as with a direct financial interest in the outcome of the appraisal process. 2017 WL 3184568 (Col. App. Jul. 27, 2017).

The facts of the underlying loss are straightforward. Read more ›

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Posted in Arbitration and Appraisal, Valuation

Contractors’ All Risks Insurance: Where are the limits? A lesson from the Bahamas

Posted on March 5, 2018 by Andrew Tobin

Bahamas Privy Counsel In a rare foray into insurance law, London’s Privy Council considered the interpretation of a Contractors’ All Risk (CAR) policy in Sun Alliance (Bahamas) Ltd v Scandi Enterprises Ltd (Bahamas),[1] and overturned the decision of the Court of Appeal of the Bahamas.

The Judicial Committee of the Privy Council in London is the final court of appeal for several former British colonies. Its decisions are binding on those jurisdictions and are also considered to be of very persuasive authority in the UK and in former British jurisdictions now possessing their own final courts of appeal, such as Canada, Australia, Singapore, Hong Kong and many others. Its members are drawn mostly from the UK Supreme Court.

In this case Scandi (the insured) had purchased a dilapidated two-story building with 12 apartments on Grand Bahama, intending to improve and lease the apartments. The insured discussed its coverage requirements directly with the insurer’s agent. The insurer declined to provide the usual physical risks property policy because the building was unoccupied. The agent instead suggested that CAR cover be purchased. That advice was accepted by the insured who purchased a CAR policy with an insured limit of B$700,000. The building was then extensively damaged by fire and an insurance claim made. There were two issues before the court. Read more ›

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Still Crazy After All These Years: Recent Developments on the Standard Mortgage Clause

Posted on January 10, 2018 by Laurence Tooth

insured A not uncommon scenario: after examining the charred debris of a property fire, investigators note that the building’s alarm failed to sound and automatic sprinkler system similarly failed to activate because neither had been inspected or maintained for over a year. The policy that insured the property conditioned coverage on the protective safeguards’ maintenance and functionality. The insured’s failure to satisfy these conditions bars coverage for the loss.

But the insured’s failure to satisfy the conditions does not necessarily foreclose coverage for others. Individuals or entities named under the policy’s “standard” mortgage clause or “Mortgageholders” clause in ISO forms are not subject to coverage defenses applicable to the insured, leaving insurers still potentially liable for the loss.

The standard mortgage clause was originally known as the New York mortgage clause and was recognized by New York courts in 1878 as making “the policy operate as an insurance of the mortgagors and the mortgagees separately, and to give the mortgagees the same benefit as if they had taken out a separate policy, free from the conditions imposed upon the owners, making the mortgagees responsible only for their own acts.”[1] This theory of the “standard” mortgage has persisted and stands in contrast to the loss payee clause or “simple” mortgage clause:

Under a [loss payee] clause, a mortgagee is merely an appointee who receives insurance proceeds subject to its interest in the policy and to the extent of the insured’s right of recovery. The rights of a mortgagee under a [loss payee] clause are wholly dependent on the rights of the insured and are subject to all of the same defenses to coverage as the insured. A standard mortgage clause, on the other hand, creates a separate and independent contract between the insurer and the mortgagee. Under such circumstances, the mortgagee is liable only for its own breaches and is protected from being denied coverage based on the acts or omissions of the named insured or the insured’s noncompliance with the terms of the policy.[2]

Flood Exclusion Unambiguously Excludes Coverage For $49.5M In Hurricane Sandy Losses Caused By Storm Surge

Posted on October 9, 2017 by Patrick Aul

flood Cozen O’Connor attorneys Thomas McKay III, Richard Mackowsky, Charles Jesuit, and Melissa Brill recently secured summary judgment from the United States District Court for the Eastern District of New York in favor of Great Northern Insurance Company on claims asserted by Madelaine Chocolate Novelties seeking $49.5 million in coverage for Hurricane Sandy-related losses under an “all risk” property and business interruption policy.

Madelaine manufactures seasonal foiled chocolates. It conducts its business in three buildings located in Rockaway Beach, New York, about three blocks north of the Atlantic Ocean and one block south of the Long Island Sound. On October 29, 2012, Hurricane Sandy caused substantial damage to Madelaine’s facilities mainly from the inundation of seawater that rose approximately four feet above the facilities’ slab. In addition to the property damage, Madelaine suffered a significant business income loss because it was forced to cease operations for an extended period of time extending through the 2012 holiday season. Madelaine Chocolate Novelties, Inc. v. Great Northern Insurance Company, 15 cv 5830, June 30, 2017 Report & Recommendation of U.S. Magistrate Judge Gary R. Brown, pp. 4-5.

Texas Reforms Insurance Litigation – Section 542A of the Texas Insurance Code 60 Days to Get Your House in Order

Posted on August 14, 2017 by Anthony DiPietra

stop watch Texas has finally enacted statutory reforms specifically designed to combat abusive insurance litigation. Enacted primarily in response to hailstorm lawsuits, the scope of the reforms are much broader. Effective September 1, 2017, Section 542A of the Texas Insurance Code governs all lawsuits arising out of insurance claims where the damage was caused, either directly or indirectly, by the weather or other “forces of nature.”

Importantly, Section 542A finally affords insurers the opportunity to amicably resolve disputed claims without protracted litigation. However, insurers need to be prepared to make quick strategic decisions to take advantage of the law’s protections. The practical effect of Section 542A is to give insurers 60 days to “get their house in order” and make decisions that can provide generous protections from both contractual and extra-contractual liabilities.

Changes to the 60-Day Notice Requirement

The key tenet of Section 542A is the change that it made to the pre-suit notice requirements in insurance-related litigation. For years, the Texas Insurance Code required a potential litigant to notify an insurer of the basis of the insured’s dispute at least 60 days before filing suit. The original purpose of this requirement was always to give the insurer and insured an opportunity to resolve the dispute amicably and without litigation.

The pre-suit notice requirement, however, was often ignored in practice. The only real recourse an insurer had when it did not receive the requisite notice was to have the case automatically abated until 60 days after the insured provided the notice. Automatic abatement did little to discourage plaintiffs’ lawyers from filing suit first. The case law developed in such a way that an insured could file suit, and then give the required notice while the lawsuit was pending with little consequences. Read more ›

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Posted in Arbitration and Appraisal, Bad Faith, Hailstorm, Investigation, Loss Adjustment

Positive Signs in the Enforcement of Late Notice Provisions

Posted on July 18, 2017 by Stephen Kempa

Alice in Wonderland Rabbit

This year was off to a positive start in the realm of property insurance with a decision out of the Second Circuit upholding an at times embattled policy provision that is found in nearly every property insurance policy: the late notice provision. Courts’ varying enforcement of such provisions has hindered insurers from enforcing rights vital to protecting their ability to start investigating a loss as quickly as possible. The opinion in Minasian v. IDS Prop. Cas. Ins. Co., 676 F. App’x 29 (2d Cir. 2017) was thus welcome news for the insurance industry, with the appeals court enforcing the late notice provision in a series of property policies which required that the insured provide its carrier prompt notice of a loss.

The Minasian case concerned insureds who made a claim on three insurers arising out of the burglary of nearly $200,000 worth of stolen goods, including jewelry. The insureds waited 86 days, which is nearly 3 months, to report the loss to their insurers, even though they had filed a police report on the day of the burglary. The three policies required that the insured to provide notice of loss to the insurer “as soon as reasonably possible,” “immediate[ly],” and “as soon as practicable.” Considering these provisions, the insurers denied coverage based on, among other reasons, the failure to give proper notice.

On appeal from the district court’s decision to uphold the denial of coverage, the Second Circuit found that the 86-day reporting delay was sufficient to bar coverage under the late notice provisions. The court explained that timely notice was a condition precedent to coverage and that without a reasonable basis for delay of notice, coverage could be denied. The Second Circuit rejected as a matter of law the insureds’ argument that extenuating circumstances – specifically, the possibility of the police recovering the property – excused compliance with the policies’ post-loss notice requirements. As the court explained, “[e]ven assuming plaintiffs held the professed belief in a possible recovery, which would not have prevented a ‘reasonable person’ from suspecting ‘the possibility of a claim.’” The opinion is consistent with other Circuit Courts which have held that unresolved issues after a loss do not excuse the insured from providing notice. See, e.g., Yacht Club on the Intracoastal Condo. Ass’n, Inc. v. Lexington Ins. Co., 599 F. App’x 875, 880 (11th Cir. 2015) (“Prompt notice is not excused because an insured might not be aware of the full extent of damage or that damage would exceed the deductible.”). Read more ›

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Posted in Conditions, Coverage, Notice, Prejudice, Uncategorized

Depreciation of Labor Costs When Determining Actual Cash Value: Henn v. American Family

Posted on June 20, 2017 by Alycen A. Moss

tools In February, the Nebraska Supreme Court held that it is acceptable for insurance companies to depreciate labor costs when determining the actual cash value (ACV) of damaged property, even when the insurance policy does not define “actual cash value” or “depreciation.” See Henn v. American Family Mutual Insurance Co., 295 Neb. 859 (Neb. 2017). Writing for the Nebraska Supreme Court, Chief Justice Michael Heavican concluded that all relevant facts and evidence should be used to calculate ACV, and both materials and labor constitute relevant facts to consider when establishing the value of property prior to the loss.

The case dates back to a September 2011 dispute when Rosemary Henn filed a homeowner’s claim with American Family due to damage to her home’s roof vent caps, gutters, siding, fascia, screens, deck, and air-conditioning unit during a hailstorm on August 18, 2011. American Family determined that Henn’s insurance policy covered the damaged property.

American Family’s policy provided that, following a covered loss, an insured may recover “the cost to repair the damaged portion or replace the damaged building, provided repairs to the damaged portion or replacement of the damaged building are completed,” or “[i]f at the time of loss, … the building is not repaired or replaced, [American Family] will pay the actual cash value at the time of loss of the damaged portion of the building up to the limit applying to the building.” Under both options, the insured would first receive an actual cash value payment. The policy, however, did not define “actual cash value” or “depreciation.” The policy also did not describe the methods employed to calculate “actual cash value” or explain how American Family determined the difference between replacement cost value and ACV. Read more ›

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Tagged with: American Family, Labor, Nebraska
Posted in Actual Cash Value, Depreciation