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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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

Texas Federal Court Holds that Named Storm Deductible Applies Even in the Absence of Wind Damage

Judge Nancy Atlas of the Southern District of Texas cut through competing arguments to resolve a high-profile dispute involving a Hurricane Harvey claim through Contract Interpretation 101.

Lexington Insurance Company issued a policy to Pan Am Equities, Inc. (Pan Am) covering a property development in downtown Houston, Texas.  The development sustained more than $6.7 million in flood damage due to Hurricane Harvey, a disaster that flooded homes and buildings across the city, but often left the structures undamaged by wind.  This was the case with Pan Am’s downtown property development.

The policy contained several different deductibles.  As an exception to the general deductible, the policy had a $100,000.00 per occurrence Windstorm Deductible.  The Windstorm Deductible was itself subject to an exception, a Named Storm Deductible calculated at 5% of the total insurable value for property within a designated territory.  Houston is within the territory.  The Named Storm Deductible stated that it applied “regardless of the number of coverages, locations or perils involved (including but not limited to all Flood, wind gusts, storm surges, tornados, cyclones, hail or rain).”  This broad language turned out to be critical in the court’s analysis. Read more ›

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Posted in Catastrophes

Collapse Coverage: Second Circuit Holds That Cracking Walls Do Not Constitute “Collapse”

Most homeowners’ policies – and property insurance policies in general – contain a limited coverage extension for “collapse.”  The interpretation of that collapse coverage has been litigated around the country for decades, with different jurisdictions reaching considerably different results.  The latest of these decisions, Valls v. Allstate Insurance Company, No. 17-3495-cv (2d Cir. 2019), comes out of the Second Circuit, deciding the case under Connecticut law.  The case presented a single substantive question: does the “collapse” provision afford coverage for basement walls which had significant cracking but remain standing?  Both the district court (D. Conn.) and the Second Circuit Court of Appeal concluded that it does not.

In Valls, the plaintiffs owned a home in Connecticut which was insured by Allstate.  The Allstate policy excluded “collapse,” but then contained a collapse coverage extension, which provided:

We will cover:

a) the entire collapse of a covered building structure;

b) the entire collapse of part of a covered building structure; and

c) direct physical loss to covered property caused by (a) or (b) above.

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Florida’s “Assignment of Benefits” Bill: A Guide Through the New Statutory Framework

This week, after 7 years of failed efforts, the Florida Legislature passed a meaningful Assignment of Benefits (“AOB”) reform bill.  Florida Governor Ron DeSantis announced yesterday that he would sign the legislation designed to cut back on abusive AOBs, a practice that has plagued the hurricane-prone state. In recent years, many contractors have taken advantage of Florida’s unique one-way attorney’s fee shifting statute for insurance coverage litigation. This rule has incentivized contractors to, via the assignment of benefits mechanism, charge property owners outlandish amounts and to then pursue needless, sometimes frivolous, and always expensive litigation against insurance companies.

Florida H.B. 7065, expected to take effect July 1, 2019, makes several key statutory changes designed to curb AOB practices. We discuss a few of those highlights here.

The bill establishes several new sections of the Florida Statutes, including Fla. Stat. § 627.7152. § 627.7152(2)(a) sets requirements for a proper assignment of benefits:

627.7152 Assignment agreements.—

(2)(a) An assignment agreement must:

1) Be in writing and executed by and between the assignor and the assignee.

2) Contain a provision that allows the assignor to rescind the assignment agreement without a penalty or fee by submitting a written notice of rescission signed by the assignor to the assignee within 14 days after the execution of the agreement, at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property.

3) Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within 3 business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier. . . .

4) Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee. . . .

Under § 627.7152(2)(a), contractors will no longer be able to blindside their customers and insurers with exorbitant bills with the expectation that an insurance company will eventually pay it. Now, contractors will be required to provide detailed estimates in advance of performing the work in order to effectively obtain an assignment of insurance benefits. Further, the assignee must promptly notify the insurer of the assignment. Insurers will now be able to monitor costs as they are incurred and ensure contractors are not performing unnecessary repairs. Read more ›

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Posted in Assignment of Benefits
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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