Category: Insurance Coverage

Disagreement Over ACV Estimate Insufficient To Support Bad Faith Claim, Judge Rules

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PITTSBURGH, March 2  —  An ACV basis estimate upon which a homeowners’ claims offer was made by State Farm Insurance  did not lack a reasonable basis, a federal judge ruled in dismissing the homeowners bad faith claim.  In Randy Gowton v. State Farm Fire and Casualty Co., U.S. District Judge Cathy Bissoon dismissed Gowton’s bad faith claim against State Farm, finding that the  insured  failed to show that his insurer’s offer to settle “was not supported by a thorough and even-handed investigation.”

Gowton sustained damage to his home in a fire, and submitted an estimate from his contractor to State Farm for a replacement cost benefit of $293,911.80.  After performing its own inspection, State Farm offered just $112,694.50, based on a replacement cost estimate of $187,874.50, less  depreciation of $75,180.15.  Gowton’s policy was payable on an “actual cash value benefits” basis.

Gowton sued State Farm in the Fayette County Court of Common Pleas, and after removing the case to federal court, State Farm moved to dismiss the bad faith count.  A breach of contract count had previously been dismissed by Judge Bissoon on statute of limitations grounds.

Judge Bissoon held that mere disagreement on the value of a claim following a reasonable investigation could not support a claim for bad faith:

“Gowton has failed to allege any facts to suggest that State Farm’s settlement offer lacked a reasonable basis or was not supported by a thorough and even-handed investigation… Significantly, Gowton’s response brief reiterates that he is not alleging that State Farm was dilatory, failed to communicate, performed an unsatisfactory or biased investigation or unreasonably delayed in considering his claim.  Rather, Gowton simply alleges that State Farm’s estimate was per se unreasonable for no other reason than that it differed from his own.. In the absence of any supporting facts from which it might be inferred that the company’s investigation was biased or unreasonable, this type of disagreement in an insurance case is ‘not unusual,’ and ‘cannot, without more, amount to bad faith.”

“This conclusion is bolstered by an examination of the exhibits referenced throughout Gowton’s Amended Complaint.  State Farm performed an initial inspection of the property only two days after the damage occurred and provided a detailed, 38-page estimate within a month thereafter.  State Farm’s estimate contains a room-by-room assessment of the damage; detailed measurements; design drawings; materials analysis; and line by line estimates of the cost and depreciation of the construction materials necessary to rebuild the home.  This is precisely the type of thorough and adequate investigation that vitiates a claim of bad faith.”

Randy Gowton v. State Farm Fire and Casualty Co., et al., No. 15-1164, W.D. Pa., 2017 U.S. Dist. LEXIS 29390 (Bissoon, J.)

UM/UIM Rejection Form Need Not Comply Verbatim With Statute, State High Court Rules

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HARRISBURG, Feb.22 – In a 5-2 decision, the Pennsylvania Supreme Court ruled that a UM/UIM rejection form which did not comply verbatim with the statutory requirements for rejection was valid, finding the differences between the form and the statutorily required language “inconsequential.”

In Ford v. Am. States,  the Plaintiff rejected UM/UIM coverage in her auto policy by signing a form which, according to the opinion, was identical to the statutorily required waiver in 75 Pa.C.S.A. sec. 1731 except for the following:  1.) the form referenced “motorists” instead of “motorist” in its title line and first sentence, and 2.) it injected the word “motorists” between  Underinsured” and “coverage” in the second sentence.

The American States form read, therefore, as follows:

REJECTION OF UNDERINSURED MOTORISTS PROTECTION

By signing this waiver I am rejecting underinsured motorists coverage under this policy, for myself and all relatives residing in my household. Underinsured motorists coverage protects me and relatives living in my household for losses and damages suffered if injury is caused by the negligence of a driver who does not have enough insurance to pay for all losses and damages. I knowingly and voluntarily reject this coverage.

In affirming summary judgment in favor of American States, Justice Max Baer rejected Ford’s argument that the form she signed violated Section 1731, and cited to Robinson V. Travelers Indemnity Co., 520 Fed. Appx. 85 (3d Cir. 2013).  In Robinson, the identical language used by American States was found to be in compliance with the Pa.M.V.F.R.L.:

“the Third Circuit observed that the MVFRL does not define the phrase “specifically comply” and that courts have not been uniform in their treatment of UIM coverage rejection forms that add language to the statutory form. Robinson, 520 Fed.Appx. at 88. As to the specific circumstances in the case, the court reasoned that the addition of the word “motorists” into the rejection form did not introduce any ambiguity and, in fact, made the form consistent with the rest of the MVFRL. Id. While the court opined that it is a better practice for  insurance companies not to supplement the statutory language of the MVFRL’s rejection form, the court nonetheless concluded that the insurer’s rejection form was valid because: it included the entirety of the statutory text; the addition of the word “motorists” did not introduce ambiguity into the form and did not alter the scope of the coverage.”. .  when a UIM rejection form differs from the statutory form in an inconsequential manner, the form will be construed to specifically comply with Section 1731 of the MVFRL.”

Justice Baer did caution, however, that the safer practice for insurers was to replicate the statutory language to avoid any question of non-compliance of UM/UIM rejection forms.

Ford. v. American States Ins. Co. (Pa., Feb. 22, 2017) (Baer, J.)

Pennsylvania Federal Judge Finds Condo Policy Vacancy Exclusion Ambiguous; Rules Cincinnati Insurance Owes Water Loss

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SCRANTON, Pa., Feb. 10 — A Pennsylvania federal judge ruled Feb. 10 that a vacancy exclusion in a policy was ambiguous, and obligated Cincinnati insurance to reimburse its insured for water related losses.

In Village Heights Condominium Association v. The Cincinnati Insurance Co., No. 16-554, M.D. Pa., 2017,  U.S. Middle District John Jones granted the Condominium Association’s motion for summary judgment, holding that the sum total of the Condominium’s buildings were more than 31% occupied, and therefore not vacant within the meaning of the vacancy exclusion in the Cincinnati policy, and exclusion which the Court found ambiguous.

The Village Heights is  a community comprising 50 units consisting of stand-alone homes, and apartment units. Mr. and Mrs. Herb Graves, owners of  stand-alone Unit 205 were not living in their unit and had it up for sale.  In March 2015, while on vacation, a pipe burst occurred inside the Graves unit causing significant water damage to common areas owned by the Condominium Association.

Cincinnati declined coverage, claiming that the “Vacancy Provision,” precluded indemnity because the Graves’ unit was vacant for more than 60 days.  The Association filed suit against Cincinnati, and the case was removed to the U.S. District Court for the Middle District of Pennsylvania.

The parties in their cross-motions for summary judgment disputed whether “the policy was intended to insure the separate buildings, apart and distinct from each other, or whether the Policy meant to cover the nineteen buildings as one, making up a single ‘blanket building.’”  The policy defined a building as vacant “unless at least 31% of its square footage” is rented or used.

In finding for the Association, Judge Jones held that the exclusion was ambiguous on the issue of whether the policy provided blanket building coverage to the condominium association as a unified building or as separate buildings:

 “‘Simply put, the Policy’s Declarations do not define any terms, they merely identify the coverages available under the Policy.  Thus, the Declarations do not define a “Blanket Building,” but rather indicate that the Policy provides Blanket Building Coverage.  . . .’  Finally, the Vacancy Provision, which appears in Section Six (6) of the Policy, appears to contain its own separate definitions of the term ‘building,’ which differ according to whether the Covered Property is owned by an owner or general lessee, or is leased to a tenant and is with respect to that tenant’s interest in the property.  Where, as here, the Policy is issued to an owner, the Vacancy Provision defines ‘building’ as ‘entire building.’  In a subsequent paragraph, the Vacancy Provision then refers to “the building where ‘loss’ occurs” to further specify its terms, including a requirement that the building be vacant for sixty (60) days.”

Editor’s Note:  The Court’s ruling points to a potentially unintended exposure for property and casualty insurers.  Caution should be exercised by insurers regarding both  the wording of vacancy exclusions, and how units and buildings are defined when the policy in question insures Homeowners and Condominium Associations, as opposed to individual home or unit owners.

For a copy of  the opinion in Village Heights Condominium Association v. The Cincinnati Insurance Co., No. 16-554, M.D. Pa., 2017 (Jones, J.), email me at chaddick@dmclaw.com.

 

 

 

National Union Tail Coverage On Liability Policy Insufficient, New York Judge Finds

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New York, Feb. 28 – A New York state judge has ruled that a 60-day Extended Reporting Period (ERP) Endorsement requiring that both the claim be made against the insured, and the insured’s report to the insurer take place only within the 60-day extended reporting period violates New York Insurance Regulations covering minimum ERP requirements.

The insured, New York Institute of Technology (NYIT)  sought defense and indemnity for an underlying defamation suit which was filed against it during the end of the  policy period. NYIT did not notify National Union of the claim, however, until after the polkcy expired but within the liability policy’s 60 day “tail” ERP.

National Union denied coverage on the ground that  the policy’s ERP provision only extended coverage for claims both made against the insured and reported within the 60-day tail period.   NYIT sued National Union in New York state court to compel defense and indemnity.   National Union then filed a motion to dismiss based on the language of the ERP.

New York State Trial Judge Barbara Jaffe denied the insurer’s dismissal motion, finding that National Union’s ERP provision was unenforceable, because it fell short of minimum requirements for extended reporting periods, also known as “tail coverage,” under applicable  New York insurance regulations.  She wrote:

“Pursuant to the applicable regulation, the policy should have afforded plaintiff an additional 60 days at the end of the policy term to provide defendant notice of the claim ‘for injury or damage that occurred,’ as it did here, ‘during the policy term,’ notwithstanding that plaintiff did not first receive notice of the claim against it during the ERP.”

Judge Jaffe found National Union policy’s ERP provision  was unambiguous.  She also found, however, that the ERP was invalid under New York Law.  Judge Jaffe found that as written, the National Union ERP imposed an “additional obstacle to coverage,”  and created a gap in coverage, excluding a class of claims for which the New York insurance regulations required coverage, i.e., claims made against the insured within the policy period, but not reported to the insurer until the tail period.

New York Institute of Technology vs. National Fire Union Ins. Co. of Pittsburgh, Inc. (New York County, New York, Feb. 23, 2017, Jaffe J.)

Cybercrime Insurance Outlook 2017: Man vs. Machine

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HARRISBURG, Feb. 17 – As 2017 unfolds, it remains to be seen whether an emerging trend of stricter readings of cybercrime insurance policies to limit or exclude the reach of computer fraud  crimes protection coverage will continue.  One case decided late last year illustrates the trend, and the view that whether or not computer fraud coverage applies will be based in large part on the degree of human involvement in bringing about the criminal losses.

In Apache Corp. v. Great American Ins. Co, No. 15-20499, 2016 WL 6090901 (5th Cir. Oct. 18, 2016),  the Fifth Circuit Court of Appeals ruled that a policy covering losses arising out of computer fraud did not apply to a fraudulent financial transfer “that was the result of other events and not directly by the computer use.”

Of interest to the appeals court in Apache was that the crime started with a telephone  call from the thief, posing as a vendor to the insured, requesting a change of bank wiring instructions through which the insured paid the vendor.  Pursuant to Apache’s request  for the change of wiring instructions in writing, the thief provided the instructions via email, although the email address did not match the vendor’s email domain on file.  After a telephone call made by Apache following up the email , however, Apache instructed its bank to change the wiring instructions.

Apache discovered that the wiring change was ultimately fraudulent,  resulting in net losses of $2.4 million. Apache filed a claim with Great American under its crime protection insurance policy which included computer fraud coverage. The insuring agreement in the Great American policy provided for payment of losses “resulting directly from the use of any computer to fraudulently cause a transfer of [such money] from inside the premises or banking premises … to a place outside those premises.”

Great American denied the claim on the grounds that the losses did not result directly from the use of a computer, but rather human error.  Apache sued Great American for coverage in Texas state court,  and the case was removed to the U.S. District Court for the Southern District of Texas, after which both parties cross – moved for summary judgment. The federal district court granted the insured’s motion for summary judgment in favor of coverage,  and denied the insurer’s motion for summary judgment, but refused to impose statutory penalties on the insurer.

Following appeal by both parties to the U.S. Court of Appeals for the Fifth Circuit, the appeals court reversed judgment for Apache, relieving Great American of its indemnity obligations.  A three-judge panel held that that numerous intervening non-computer actions were taken between the digital actions of the posing vendor’s email and the computer bank transfer of funds.  Such non-computer acts, the court noted, included telephone calls, approval of the change in wiring instructions by Apache’s management, the receipt and processing of invoices by Apache, and Apache’s approval of invoices for payment.  The court finally found that Apache’s instructions to the bank to effectuate the wiring change were verbal as well.

The Court held:

“The email was part of the scheme; but, the email was merely incidental to the occurrence of the authorized transfer of money. To interpret the computer-fraud provision as reaching any fraudulent scheme in which an email communication was part of the process would. . . convert the computer-fraud provision to one for general fraud.. . . We take judicial notice that, when the policy was issued in 2012, electronic communications were, as they are now, ubiquitous, and even the line between “computer” and “telephone” was already blurred. In short, few—if any—fraudulent schemes would not involve some form of computer-facilitated communication. This is reflected in the evidence at hand. Arguably, Apache invited the computer-use at issue, through which it now seeks shelter under its policy, even though the computer-use was but one step in Apache’s multi-step, but flawed, process that ended in its making required and authorized, very large invoice-payments, but to a fraudulent bank account.”

For the Apache court, then, a critical area of focus in the analysis of coverage of cyber-crime insurance is the nexus between the crime, and the degree of computer, versus human, involvement. Apache, and decisions like it, impose rather strict limits on the scope of cyber-insurance coverage, setting a bright line between fraud which is primarily the result of flawed human systems, and fraud which is primarily digital, and computer-driven.

Cyber-crime and related technology insurance coverage is still very much an emerging insurance market.  Policy language, therefore, remains varied, and such variance imposes obligations on both insurers and insureds to be precise in their understanding of what kinds of protections  the policy terms, conditions, and endorsements provide.

Apache Corp. v. Great American Insurance Company, No. 15-20499, 2016 WL 6090901 (5th Cir. Oct. 18, 2016) 

Insurer’s Correct Position On Coverage Bars Homeowners’ and Bad Faith Claims

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PITTSBURGH,  Jan. 10 – A federal judge from the Western District of Pa. has dismissed both bad faith and coverage claims in which a homeowner sought coverage for defective workmanship on the home as part of a demolition and rebuild.

In Wehrenberg v. Metro. Prop. & Cas. Ins. Co., No. 14-1477, 2017 U.S. Dist. LEXIS 3242 (W.D. Pa. Jan. 10, 2017), U.S. District Judge Mark R. Hornack granted summary judgment to Metropolitan P&C Insurance Company on both breach of contract and bad faith claims brought by insured homeowner, Wehrenberg.  leased the house to a tenant, Hyatt, and authorized Hyatt to demolish and reconstruct the house.

Hyatt abandoned the house after gutting it, and the house, which had structural problems, was left unfinished.  Wehrenberg  submitted a claim the Metropolitan regarding the condition of the house, calling it “vandalism.”  Metropolitan denied the claim and Wehrenberg filed suit, claiming both breach of contract and bad faith.

Relying on policy language, Metropolitan moved for summary judgment on all claims on the following grounds:  (1) the loss was not “sudden and accidental direct physical loss or damage” under the terms of the Policy, (2) even if the loss is covered, the insured did not timely notify Metropolitan of the loss, and  (3) the damages claimed were explicitly excluded from coverage under the Policy, which did not cover construction related damage, and stated that the insurer was not responsible to pay for vandalism if the property was vacant for more than thirty days.

In granting the motion for Metropolitan, Judge Hornak held:

“First, the Court concludes that Plaintiff cannot, on the record before the Court, meet his burden of proving that his loss is covered by his Policy in the first instance. The Policy specifically provides that Defendant will only cover “sudden and accidental direct physical loss or damage to [Plaintiff’s] property.”. . . Under Pennsylvania law, “sudden and accidental” “mean[], respectively, ‘abrupt’ and ‘unexpected or unintended.'” U.S. Fire Ins. Co. v. Kelman Bottles, 538 F. App’x 175, 181 (3d Cir. 2013).”

The judge also dismissed the bad faith claims made by the insured, holding:

“In this case, as explained, there is no viable breach of contract claim, so the first part of Plaintiff’s bad faith claim cannot succeed. Second, Plaintiff argues that Defendant acted in bad faith by failing to adequately investigate his claim. In his papers, Plaintiff lists a variety of ways in which he asserts Defendant’s investigation was inadequate, including that Defendant did not conduct enough interviews to uncover the facts of the case and that Defendant did not look into allegedly stolen tiles brought into the house. ECF No. 88 at 12. Defendant however, asserts that an adequate investigation was conducted  and that it included an inspection of the house, interviews of Plaintiff and Hyman, consultation with its legal counsel, and the taking of Plaintiff’s Examination Under Oath. ECF No. 82 at 20. Plaintiff’s claim ultimately fails because he has not cited to anything in the record to support his argument—he merely alleges problems existed without providing any record evidence to prove them.”

Wehrenberg v. Metro. Prop. & Cas. Ins. Co., No. 14-1477, 2017 U.S. Dist. LEXIS 3242 (W.D. Pa. Jan. 10, 2017)

 

 

 

 

 

 

Pa. Federal Bad Faith Suit Against State Farm Dismissed: Revised Repair Estimates Not In Bad Faith

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SCRANTON, Pa.,  Dec. 7 — A federal judge  granted State Farm’s motion for summary judgment on a bad faith claim  in a homeowners insurance dispute, finding that the insured failed to show that State Farm’s issuance of an estimate and revised estimates constituted bad faith as a matter of Pennsylvania law.

Joan Yatsonsky filed a homeowners’ insurance claim with State Farm arising out of water damage from broken pipes at the Yatsonsky’s home.   Within three days of the claim,  State Farm sent a disaster mitigation contractor to examine the property.  A State Farm claims representative also discovered mold in the home and told Yatsonsky that mold was not a covered loss in the policy.

State farm sent Yatsonsky an estimate of the covered damages to her home in the amount of $18,426.34.    She disputed the valuation, and submitted an estimate of damages from her contractor, Grimm Construction, for $43,403.00.  State Farm then revised its original estimate and agreed to pay an additional $15,979.50 based on Grimm Construction’s estimate.  State Farm also agreed to pay for additional mitigation services, but Yatsonsky continued to dispute the amount.

State Farm then met with Yatsonsky and Grimm Construction at the property for an inspection, and the insurer revised its estimate for a second time, mailing Yatsonsky a check for an additional $3,874.36.  The insurer then advised Yatsonsky that she could claim an additional $11,719.32 upon completion of repairs.

The parties failed to resolve their discrepancies in estimates, and Yatsonsky decided to demolish the home and rebuild.  She also sued State Farm  Wayne County, Pa., for breach of contract and bad faith.  State Farm removed the case to  U.S. District Court for the Middle District of Pennsylvania.

State Farm obtained early summary judgment on the breach of contract claim because suit filed beyond the one year limitations period in the policy.  Following discovery State farm sought summary judgment on the bad faith claim as well.

U.S. District Judge James M. Munley granted the motion, ruling:.

“plaintiff fails to present evidence that State Farm’s claims management was anything other than what it claimed:  an attempt to further investigate the water damage at plaintiff’s home to determine the value of her claim…Plaintiff has offered no expert evidence pertaining to State Farm’s investigation.  Plaintiff cites no internal State Farm communication or testimony establishing that State Farm acted out of spite during its investigation.  In sum, plaintiff has presented no competent evidence from which a reasonable jury could find that the number of State Farm employees assigned to her claim establishes bad faith.”

Judge Munley disagreed with Yatsonsky’s claim that multiple estimates issued by State Farm did not constitute bad faith:

 “Contrary to plaintiff’s arguments, the undisputed facts establish that State Farm conducted a detailed investigation over the course of one year.  State Farm inspected plaintiff’s home on five different occasions from January 2014 through June 2014.  During each inspection, State Farm met with plaintiff, or plaintiff’s contractor, and reviewed the damage to plaintiff’s home.  The parties also attempted to reconcile the estimates at these meetings.  Additionally, based on its inspections, State Farm mailed payments to plaintiff totaling $38,280.20 from January 2014 – June 2014.  These $38,280.20 payments are only $5,122.80 less than plaintiff’s initial $43,403 estimate from Grimm construction.. . . In short, plaintiff has failed to produce evidence ‘so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not the defendants acted in bad faith.. . . At most, the available evidence may demonstrate that State Farm’s investigation and estimates were arguably negligent.  The bad faith doctrine, however, is not implicated by mere negligence.  Accordingly, the court will grant State Farm’s motion for summary judgment on plaintiff’s bad faith claim.”

Joan Yatsonsky v. State Farm Fire & Casualty Co., No. 15-1777, M.D. Pa.; 2016 U.S. Dist. LEXIS 167224

Faulty Construction Not Covered Loss Under Nationwide Builders’ Policy, Pa. Federal Judge Rules

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PHILADELPHIA, Nov. 16  — Two homebuilders insured by Nationwide Mutual Insurance Company accused in an underlying lawsuit of poor workmanship are entitled to no coverage, U.S. District Judge Michael M. Baylson ruled earlier  this week, because such workmanship did not constitute a fortuitous  “occurrence” which would trigger coverage under the policy.

William Tierney III sued  Robert and Hannelore Bealer, owners of Affordable Homes for foundation cracks and water leakage problems they built for Tierney in Pennsylvania State Court.   The complaint alleged that a May 2014 flooding of the home’s basement was due to faulty construction.   In response to Bealers’ requests for defense and indemnity in that case, Nationwide declined, citing no triggering  occurrence under policy, despite the Bealers’ claims that the problems were actually caused by superseding events including heavy storms and shifting ground.

The Bealers sued Nationwide for coverage in 2015, and the suit was removed to Federal Court.

Judge  Baylson, citing Pennsylvania law requiring analysis of the underlying complaint only, found that Nationwide was within its rights to deny coverage under the language of the policy:

“The Bealers’ alternative explanation for the cause of Tierney’s property damage is outside the scope of this analysis because it is not pled in the underlying complaint. . . Tierney’s factual allegations are that a failure to properly design and construct the property caused the damage at issue. These are faulty workmanship claims, and the Bealers’ attempts to reframe them as based on an ‘occurrence’ due to the ‘degree of fortuity’ involved in the intervening factors that allegedly led to the damage, are unavailing.”

Bealer v. Nationwide (E.D. Pa., No. 16-3181, Nov. 16, 2016)(Baylson, J.)

Fraudulent Joinder of Lawyer Results In Denial of Remand Motion In Texas Bad Faith Case

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SAN ANTONIO, October 21  — A federal judge denied a motion to remand a breach of contract and bad faith lawsuit to state court, finding that the joinder of the attorney who represented the insureds in the underlying tort action  was not proper.

In Amanda Montoya, et al. v. State Farm Mutual Automobile Insurance Co., et al., No. 16-00005, W.D. Texas; 2016 U.S. Dist. LEXIS 141322), U.S. District Judge Royce C. Lamberth held that the joinder of  a lawyer retained by State Farm Insurance Company to represent their insured, Andrew Acosta,  did not defeat federal diversity jurisdiction.

Amanda and Deandra Montoya were injured in an automobile accident when their car was hit by Acosta.  Acosta and a passenger in his vehicle were killed.  State Farm Mutual Automobile Insurance Co. insured Acosta under a policy with limits of of $25,000 per person and $50,000 per accident.  State Farm retained a lawyer, Jeff B. Frey, to represent Acosta’s estate.

Acosta’s lawyer settled for the policy limits with injured passengers, leaving the Montoyas with no access to the policy limits.  The Montoyas sued the Acosta estate in Bexar County, Texas, and obtained a verdict and judgment of $542,933.67.  The Montoyas took an assignment from the Acosta estate, and then sued State Farm, and the lawyer they retained, Frey, in state court for breach of contract and bad faith, as well as alleged breaches of the Texas Insurance Code and the Texas Deceptive Trade Practices Act (DTPA). The Montoyas claimed Frey improperly settled the case with the passengers, and that he acted as a claims adjuster in doing so, naming him as a defendant in the bad faith and breach of contract case.

State Farm removed the case to the U.S. District Court for the Western District of Texas on the basis of diversity jurisdiction, and argued that Frey’s Texas’ citizenship did not defeat diversity because Frey was improperly joined.

The Montoyas filed a remand motion which was denied by Judge Lamberth, who held that Frey could not be a proper defendant as an “insurance adjuster”:

“the Montoyas articulated no facts in their original petition that Mr. Frey himself had the authority to finalize a settlement himself… Instead, they merely state that Mr. Frey was hired to ‘evaluate, negotiate, and/or finalize the multiple settlements arising out of the collision,’ and that ‘State Farm and their agent Jeff B. Frey proceeded with finalizing settlements without the knowledge of, and to the detriment of, Plaintiffs.’  Thus, the Montoyas failed to allege that Mr. Frey had the authority to settle these claims himself, and this Court need not decide whether an attorney appointed to represent an insured is analogous to an adjuster under the Texas Insurance Code.  Even if he is, there is no liability under Section 541.060(a)(2) absent the authority to settle.  Since Mr. Frey did not have authority to settle, there is no reasonable basis to predict the Montoyas might be able to recover against Mr. Frey for violations of Section 541.060(a)(2).”

The judge also ruled that there were no allegations made against Frey regarding misrepresentation of the policy:

“[t]here are no factual allegations against Mr. Frey for misrepresentations of the policy; the only allegations made against him concern his role in evaluating and settling claims. . . The Montoyas now suggest that the single reference to State Farm in the petition is sufficient to maintain a cause of action against Mr. Frey as State Farm’s agent.  But ‘threadbare recitals of the elements of a cause of action, supported by mere conclusory statements’ do not satisfy Rule 12(b)(6).  The conclusory statement that State Farm was liable under § 541.061 was unsupported by any factual allegations against Mr. Frey specifically.  Thus, the Montoyas have not even stated a claim against Mr. Frey under § 541.061.”

 Amanda Montoya, et al. v. State Farm Mutual Automobile Insurance Co., et al., No. 16-00005, W.D. Texas; 2016 U.S. Dist. LEXIS 141322

Hurricane Matthew Bad Faith Survival Kit

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In the wake of Hurricane Matthew last week, another storm looms for insurers — the flood of hurricane and weather-related claims which will follow.  Here is a  quick bad faith survival kit which insurers can use to efficiently process claims and minimize the risk of complaints of poor claims handling or worse, claims-related bad faith.

1.  Sympathize

Claims staff should be trained and prepared to be met with anxious and often angry insureds.  It is a time of extreme high stress for policyholders, and a large early heap of TLC and empathy will start the claims adjuster/insured relationship off on the right foot.  As with any other endeavor in life, people form first impressions rather quickly, which oftentimes overshadow the duration of the relationship.  It is better to have the claims relationship colored with a positive first encounter than a negative one.

It can be as simple as a kind, sympathetic word, or some free or useful information on disaster relief or other basic necessities.

2. Get Boots On The Ground

Most major insurers have pre-planned claims teams to move in quickly to storm-afflicted areas, and there is good business purpose behind it.  Insurers want to be visible, and to be seen as helpful, in the wake of a crisis, and the more staff sent in to help, the more reachable the insurer is going to be, and the less waiting customers will have to do.  So too, it is important to have specialists in the claims process, such as appraisers, inspectors, water remediation vendors, and special investigators,  available in the afflicted areas  as well.

Insurers can be certain that as soon as the storm passes, the plaintiffs’ bar and public adjusters are going to be combing the same territory hunting for dissatisfied insureds.  Insurers will reduce such bad faith exposure and provide plaintiffs’ lawyers and public adjusters less happy hunting by promptly getting boots on the ground to begin the healing and helping and starting the claims process.

3.  “Be Quick, But Don’t Hurry”

This saying was originally made famous by legendary UCLA basketball coach John Wooden, but it is also excellent advice when it comes to hurricane and disaster relief claims processing.  There is no greater time in the life of a claim at which promptness will be more welcomed by policy holders –  their lives have been disrupted in major, and sometimes catastrophic ways, and helping to begin to return a sense of normalcy and reparation to their daily life is good customer service which tends to reduce later criticism of claims handling.

At the same time, claims staff should not be so quick that customers feel overlooked or short-timed, or that the claims work is poorly done.  It is important to be thorough so as not to miss or overlook payable aspects of weather-related claims.  Not only is this good customer service, but thorough claims attention will also cut down on policyholder complaints, breach of contract, and bad faith claims.

4.  Know The Coverages And Educate The Insured, Accurately

Many bad faith suits arising out of natural disaster claims  have in them an unfortunate and annoying commonality:  early promises allegedly made by claims representatives about coverage which later turn out to be over-generous or inaccurate.  Claims staff should already have been long since trained on the homeowners or other property/casualty  policy coverage sold by their companies, and how the gears and internal mechanisms of that policy operate to put claims dollars in the hands of insureds victimized by hurricanes and storms.

Claims representatives should always remind insureds that the written policy language controls when expressing their understanding of the applicable coverage, and offer to supply copies of declarations pages, or the policy terms and conditions themselves.  Claims personnel should never represent that a coverage element will be paid, or how much will be paid, if he or she is uncertain about the accuracy of that representation.  It is far better for a claims professional  to tell a customer that she is unsure about a coverage and will consult and get back to the insured than to bluff or guess at an answer, only later to be proved wrong.

As part of this element, it is also important to be frank and honest, tactfully, as to the particular limits of coverage, or if exclusions may potentially apply.  The early phases of the claims process in the wake of a hurricane are NOT the time to be making outright denials of  coverage, but neither is it a time not to be up front with customers about what limitations in the policy may apply.

As is so often the case, good business and courtesy go a long way  toward minimizing an insurer’s bad faith exposure arising out of the handling of hurricane and disaster – related claims.