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I. The
Catastrophic
Claim
Recently, we
watched in
horror as more
than 2500 homes
belonging to our
friends and
neighbors
vaporized in
firestorms.
Ah,
but at least
there’s
insurance
covering the
homes you
probably
thought, as CNN
droned on about
fire lines and
our brave
firefighting
crews.
Well, that can
be true, and it
can false.
The
fact is,
whenever there
is catastrophe,
insurance
problems rear
their ugly head.
As
practitioners,
our clients look
to us as being
experts on how
to find their
way through the
insurance maze
during what
might well be
the worst period
of their own
natural lives.
In a catastrophe
such as the
recent
firestorms, your
client might not
even know who
their insurance
company is.
The policies and
all other
important
documents may
well be cold ash
by the time your
client knocks on
your door asking
for help.
There isn’t any
boilerplate
formula for
advising
insureds about
how they might
find their way
through the
insurance maze
following a
catastrophe.
There are,
however, some
situations that
seem to come up
time and time
again.
This
article covers
many of the
common problems
you and your
client might
face, as well as
a brief primer
on some of the
most common
defenses to
coverage and bad
faith claims you
might encounter.
At the end, I’ve
included a list
of ten insurance
claims Do’s and
Don’ts you might
find helpful.
II. The
Policy as
Beginning and
Endto back.
It’s amazing how
often we make
the simple
mistake of
forgetting that
insurance really
begins with a
written
contract.
The first thing
that needs to be
done in advising
on a
catastrophic
insurance claim
is to get a copy
of every policy
that might
possibly provide
coverage for the
damaged property
and read them
all from front
to back.
Every property
policy will have
a declarations
page that is
specific to the
insured
property,
followed by
various policy
forms,
endorsements,
riders and
attachments.
The declarations
page should
identify each
and every form,
endorsement,
rider and
attachment that
makes up the
complete policy,
usually using a
policy form
number and
sometimes, a
date.
Compare
the policy forms
the carrier
delivered to
your insured
against the
declarations
page to make
sure everything
matches.
Without going
into great
detail, a basic
principle is
that the insurer
is bound by
whatever
contract it
delivers to the
insured and
sometimes you
will find that
the insurer’s
policy services
people delivered
better coverage
than the
insurer’s own
records reflect.
First
thing, make sure
you have every
policy that
applies to the
property and
then read them.
It doesn’t have
to be a thorough
review at the
very beginning.
But know what
you have.
If
your client
doesn’t have the
policy forms
because they
were lost,
destroyed or are
otherwise
unavailable,
you’ll have to
get policy
reconstructions
from the
carrier.
Requests can be
made to your
client’s agent
or broker or
directly to the
carrier’s policy
services
department.
If your client
doesn’t remember
who their
carrier was,
you’ll need to
do a little
detective work.
Start with the
insured’s
checking
account, most
people pay for
their insurance
by check and a
review of
banking records
might well lead
you to every
carrier that
might provide
coverage for the
damaged
property.
III. Agent
Negligence
One
issue that
frequently
arises following
a catastrophic
loss is that the
damaged property
was not
adequately
insured in the
first place.
Where an agent
or broker
provided your
insured with
professional
advice on the
appropriate
coverage or
bound coverage
based upon their
own professional
expertise, there
may be a claim
for professional
negligence.
See, e.g., Free
v. Republic Ins.
Co. (1992) 8
Cal.App.4th
1726, 11
Cal.Rptr.2d 296.
Not
every
underinsurance
problem is
attributable to
a broker or
agent. In
the past, some
carriers have
systematically
reduced coverage
for various
risks for their
own underwriting
reasons, and not
adequately
disclosed what
they were doing.
Under such
circumstances,
liability for
the
underinsurance
may lie with the
carrier.
Of
course, brokers
and agents are
different
flavors of
insurance
salespeople and
each has a
different role
in the insurance
system and
different duties
and obligations
towards
insureds.
Still, the point
remains.
If the damaged
property was not
adequately
insured in the
first place and
your client
relied on a
professional for
insurance
advice,
investigate.
IV. Prudential
LMI, Spray Gould
– Ask Not for
Whom the Statute
Tolls
Property
insurance
contracts
generally have
their own
statute of
limitations
built in and the
period in which
to file suit to
enforce the
contract is
almost always
less than the
period that
applies to a
plain vanilla
written
contract.
When
you perform your
initial policy
review, look for
the contractual
statute of
limitations.
If one does not
appear, check an
insurance
practice guide
for clues about
any special
period that
might apply to
any given
coverage.
The
general rule is
that the
limitations
period begins
running once the
loss occurs, is
tolled during
the claims
investigation
and then runs
again when the
investigation is
complete.
See, Prudential
LMI Commercial
Ins. v. Superior
Court (1990) 51
Cal.3d 674, 274
Cal.Rptr. 387.
California
insurance
regulations
require a
carrier to
advise its
insureds about
applicable time
periods
affecting the
claim, including
the time in
which suit may
be brought.
If the carrier
does not make
such a
disclosure, then
it may be
equitably
estopped from
raising the
statute of
limitations as a
defense.
See, Spray,
Gould & Bowers
v. Associated
International
Ins. Co. (1999)
71 Cal.App.4th
1260, 84
Cal.Rptr.2d 552.
Other
misbehavior by a
carrier may also
create an
estoppel where
suit is filed
after what would
normally be the
limitations
period.
See, e.g., Vu v.
Prudential Prop.
& Cas. Ins. Co.
(2001) 26
Cal.4th 1142,
113 Cal.Rptr.2d
70.
Beware
of varying
limitations
periods.
When in doubt,
calendar the
earliest
possible date
and file before
it as a
protective
measure, or try
to arrange a
tolling
agreement
with the
carrier.
V. Efficient
Proximate Cause
When
wildfire causes
loss of ground
cover followed
by pouring rains
resulting in
mudslides that
destroy a home,
how do we
determine the
cause of the
loss for
insurance
purposes?
In California,
the analysis is
to look for the
efficient
proximate cause
of the loss.
The
general rule is
that where there
are two or more
causes of loss,
what we call
“concurrent
causation,” the
peril that set
the chain of
causation in
motion is the
cause of loss
for insurance
purposes.
So, following
the hypothetical
above, where
wildfire is a
covered peril
there is
coverage under
the policy, even
if earth
movement
(mudslides) are
excluded.
Howell v. State
Farm Fire & Cas.
(1990) 218
Cal.App.3d 1446,
267 Cal.Rptr.
708.
This
is always an
important area
where there are
catastrophic
losses as
carriers will
typically seize
on an excluded
peril in denying
coverage while
ignoring a
covered peril.
It is important
to perform this
analysis early
on and advise
the carrier of
your coverage
reasoning so
that there is no
question that
the insurance
company is on
notice.
Ignoring
California law
in making a
claims decision
is bad faith
conduct
justifying
punitive
damages.
See, e.g.,
Hughes v. Blue
Cross of N. Cal.
(1989) 215
Cal.App.3d 832,
263 Cal.Rptr.
850.
The key cases
are Sabella v.
Wisler (1963) 59
Cal. 2d 21, 27
Cal. Rptr. 689;
Garvey v. State
Farm Fire & Cas.
Ins. Co. (1989)
48 Cal. 3d 395,
257 Cal. Rptr.
292; Palub v.
Hartford
Underwriters
Ins. Co.
(2001) 92 Cal.
App. 4th 645,
112 Cal. Rptr.
2d 270.
VI. Genuine
Dispute Doctrine
versus the
Manufactured
Dispute Argument
The genuine
dispute doctrine
springs from a
series of
decisions that
originated in
the Ninth
Circuit and then
spread to the
California Court
of Appeal.
Put simply, the
doctrine says
that where a
carrier relies
in good faith on
expert opinion
in reaching a
claims decision
it cannot be
held liable for
bad faith.
The best
discussion of
what is not
covered by
genuine dispute
is found in
Amadeo v.
Principal Mut.
Life Ins. Co.
(9th Cir. 2002)
290 F.3d 1152.
Also see, Hubka
v. The Paul
Revere Life Ins.
Co. (S.D.Cal.
2002) 215
F.Supp.2d 1089.
However, when
analyzing a
potential bad
faith claim,
genuine dispute
must be
considered at
the outset and
measures taken
so that when the
inevitable
summary
adjudication
motion on bad
faith and
punitive damages
arise, claims
handling
misconduct
(including
expert
misconduct) is
readily apparent
from the
evidence.
Read Chateau
Chamberay
Homeowners Ass’n
v. Associated
International
Ins. Co. (2001)
90 Cal.App.4th
335, 108
Cal.Rptr.2d 776.
VII. Advice of
Counsel as a
Defense is Only
as Good as the
Advice of
Counsel
Carriers will
also attempt to
insulate
themselves from
bad faith and
punitive damages
by utilizing
attorneys during
the claims
process and then
raising advice
of counsel as a
defense to bad
faith.
See, State Farm
Mut. Auto. Ins.
Co. v. Superior
Court (1991) 228
Cal.App.3d 721,
279 Cal.Rptr.
116.
To rely on the
advice of
counsel as a
defense, a
carrier must (1)
act in good
faith reliance
upon the advice
of counsel, (2)
not be so
knowledgeable at
to the legal
standard as to
know the advice
was erroneous,
(3) have made a
full disclosure
of all relevant
facts to
counsel, and (4)
be willing to
reconsider and
act accordingly
when shown its
counsel’s advice
was erroneous.
There are
various
responses to the
advice of
counsel defense,
such as that the
insurer did not
rely on the
advice or the
advice was
patently
unsound.
However, this is
a tricky area.
If it pops up in
a case of yours,
do the research
and consult with
experienced
counsel.
VIII.
Punitive Damages
after Campbell
Last year, the
U.S. Supreme
Court announced
that due process
acts as a limit
on punitive
damages in State
Farm Mutual
Automobile
Insurance Co. v.
Campbell, 538
U.S. ___ (2003).
The California
Court of Appeal
quickly followed
up by finding
that, in a duty
to defend
scenario, the
upward limit
seems to be a
multiple of four
times special
damages.
Diamond
Woodworks, Inc.
v. Argonaut Ins.
Co. (2003) 109
Cal.App.4th
1020, 135
Cal.Rptr.2d 736.
The reality is
that some bad
faith actions
that were
economically
viable prior to
Campbell are no
longer worth
pursuing on a
contingent fee
basis.
Analyze your
case
accordingly.
What you once
handled as a
contingent
matter may now
only make sense
on an hourly
retainer.
IX.
Ten Do’s and
Don’ts For
Making A Claim.
All the law of
bad faith is
well and fine,
but if the
underlying claim
is mishandled by
the insured, no
amount of
skillful
lawyering can
cure the damage.
As with anything
else, there is
no fixed formula
for handling an
insurance claim.
Even so, over
the years I’ve
developed a
short list of
do’s and don’ts
that are basis
for every claim.
Download a copy
and feel free to
share it with
your clients:
Some Simple
Rules in Making
an Insurance
Claim
People who have
a claim should
keep ten simple
rules in mind as
they pursue
benefits due
them under their
insurance
contract:
DO:
1.
Report your loss
as soon as
possible.
Don’t
procrastinate
with an
insurance claim.
On the other
hand, you should
not be making
needless claims,
because the
carriers keep
track of what
you claim and
too many claims
can affect your
ability to
obtain insurance
in the future.
Use your best
judgment, but
make your
decision as
quickly as
possible.
2.
Document your
loss as
thoroughly as
possible in
writing.
The insurance
company keeps an
extensive claim
file. You
should have one
too. Get a
manila folder or
a binder and
collect
receipts, notes,
photographs –
everything
having to do
with the claim –
in one place.
Try to keep it
organized, but
it’s more
important to
keep it than
anything else.
3.
Keep a written
diary of all
communications
and contacts
during your
claim. The
insurance
company adjuster
is supposed to
keep a diary of
every
communication he
or she has with
you but very
often will only
record the
communications
that are helpful
to them.
You need to keep
your own diary
of every contact
you have with
the company.
A diary looks
like this:
<<diary
graphic>>
You should also
confirm all
important oral
communications
in writing.
It is amazing
how this one
simple practice
can solve so
many problems
during the
course of a
claim.
4.
Take photographs
of your loss
where possible.
Don’t be cheap
with the film,
either.
This is
especially
important with
property losses
such as fire,
earthquake or
automobile
accident.
Make sure you
document visible
evidence of your
loss. Your
adjuster may not
get around to
taking
photographs
until a
significant
amount of time
has passed, and
if the visible
evidence of your
damage has
disappeared
(such as when a
flood scene is
cleaned) the
carrier will use
that lack of
evidence against
you.
5.
Be truthful and
accurate about
your loss.
Don’t overstate
your claim, but
don’t understate
it either.
Insurance
adjusters are
much like
investigators
and they are
trained to be
suspicious.
You need to be
candid with your
carrier.
At the same
time, you need
to take care
that you can
support your
claim with
accurate
information.
Don’t assume
that a carrier
will accept your
estimates of
value, quantity
or whatever
without
question.
That seldom
happens in all
but the smallest
claims. Be
ready to defend
your estimate.
6.
Be polite but
firm with claims
personnel.
Claims adjusters
are people too.
They have a job
to do and you
should attempt
to treat them
with all due
courtesy.
Now, it is true,
there may come a
time when the
adjuster will be
difficult if not
rude, especially
when pressed for
additional
payment.
Avoid being
drawn into a
battle with the
adjuster.
Keep your head,
commit important
communications
to writing and
be polite but
firm. If
the dispute
erupts into
litigation,
everything you
say or do is
subject to
scrutiny and
criticism and
you want a clear
record that the
insurance
company is the
wrongdoer, not
you.
DON’T:
7.
Do not misstate
facts.
Once again,
adjusters are
trained to be
suspicious.
You should
report your loss
like a news
reporter reports
a story.
Just the facts,
ma’am.
8.
Do not
intentionally
overstate the
value of your
loss. We
call this
“overreaching”
in the legal
profession and
it is an
excellent way to
get into trouble
on your claim.
Remember, claims
professions
adjust claims
day in and day
out. They
have probably
seen claims
similar to yours
dozens if not
hundreds of
times and have a
notion about the
value of your
loss is likely
to be.
9.
Do not engage in
any act that
might be
considered
fraudulent.
Fraud is a
intentional act
calculated to
mislead.
Don’t do that
during your
claim. A
carrier’s
favorite defense
is to yell
“fraud!” even
where there is
none. So
don’t give the
insurance
company any
ammunition.
Also, insurance
fraud is not
only grounds to
deny a claim,
but it is a
criminal offense
as well.
During your
claim, honesty
is always the
best policy.
10.
Do not be
intimidated into
settling your
claim for less
than its
reasonable
value.
Insurance
adjusters are
trained
negotiators.
They are trained
to attempt to
settle a claim
within a range
of value.
The first offer
you hear is most
often the number
at the low end
of the
adjuster’s range
and you will
only find out
what the top
offer is by
negotiating.
Don’t be
intimidated.
Present your
evidence.
Insist on a
thorough, fair,
objective
investigation
and evaluation
of your claim,
which is the
standard the law
requires.
If you believe
that you don’t
have the skill
to negotiate
successfully,
consider getting
some help in
settling.
LEARNING
CENTER
for more information:
Bill Daniels
regularly
publishes a
variety of articles and videos to
keep you abreast of legal developments and case law that
affect our society.
ARTICLES:
VIDEOS:
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Documents/Request
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