Insurance Agent Versus Experienced Policyholder Attorney Viewpoints About Insurance Coverage Denials

Chip Merlin | Property Insurance Coverage Law Blog | January 13, 2019

Ed Eshoo works out of Merlin Law Group’s Chicago office and is one of the best property insurance policyholder coverage attorneys you could find. I do not think there is anybody with a national reputation as being “the expert” on the 165-line Standard Fire Insurance Policy on a national, rather than state, basis. Ed is an extreme competitor, and it shows in his daughter Emily Eshoo who is a varsity basketball player at the University of Tampa.

Ed Eshoo wrote a post last week, Ask An Allstate Insurance Agent, that had two of the foremost insurance agent educators in the country, Bill Wilson and David Thompson, write responses. It would be a real treat for an audience if we could ever get Ed, Bill, and David together on a panel discussing insurance coverage and insurance viewpoints because they are experienced, knowledgeable, passionate, and fun people. All of us are better for knowing and having a chance to read and learn from their thoughts.

Everybody in the insurance agent or insurance coverage business should buy Bill Wilson’s recent book, When Words Collide: Resolving Insurance Coverage and Claims Disputes. Bill Wilson made this statement in his work:

Unfortunately, in far too many cases, the denial of a claim is seemingly inexplicable. I’ve spent much of my career assisting independent agents in convincing claims adjusters that a loss is covered. Over the past few years, I began keeping an electronic copy of many of these inquiries where the adjuster’s (or agent’s) logic makes no sense. At last count, the number totaled 519.

I could fill another book with these bizarre rationales for and against coverage. All too often, they arise from ignorance stemming from substandard (or no) education or the failure (or inability) to read, with comprehension, what the policy forms actually say.

Bill Wilson correctly notes that most claims presented get paid by the insurance companies. I am not so certain whether all the claim value that should get paid is actually paid from my view and experience. However, the point is that most claims do get paid. Attorneys are not hired and everybody is happy, even if unaware they may not have been fully compensated.

If this is the case, I would suggest that Ed Eshoo’s experience and viewpoint (as well is mine) is based largely upon denied claims and claims where a coverage gap exists that could have been prevented with a different insurance product sold. Nobody is calling Merlin Law Group attorneys explaining and celebrating how routine or tough insurance coverage calls are made in the policyholder’s favor. Merlin Law Group attorneys are usually called to help resolve the coverage or valuation problem existing in a property insurance claim.

Merlin Law Group attorneys routinely get referrals from upset insurance agents who cannot convince ill-informed insurance claims adjusters. I would love for Ed Eshoo to spend a few weeks on the road with David Thompson since David invited him to do so—almost as a challenge. I think David Thompson and Ed Eshoo would quickly become friends. David Thompson would learn how good of a person and attorney Ed Eshoo is. From my viewpoint, putting those two smart people together would show David’s independent agents there exists another breed of policyholder lawyer they have never met. Ed Eshoo may find his reputation, legend, and his professional learning growing as well.

Differing viewpoints when professionally analyzed in a positive manner create growth. I feel gratitude to know Ed Eshoo, Bill Wilson and David Thompson. When they speak, people should listen.

Another Federal Judge Dismisses Lawsuit For Crumbling Foundation, But Some Relief May Be Forthcoming

Jason Cleri | Property Insurance Coverage Law Blog | January 9, 2019

I’ve previously written about the issues insureds are facing in Connecticut regarding crumbling foundations.

In a blow to insureds in Connecticut affected by crumbling foundations due to the infusion of pyrrhotite, a mineral which gradually deteriorates concrete when exposed to water and oxygen, the Federal District Court for Connecticut ruled that the insureds, Richard and Denise Hyde, did not prove their case to sufficiently to overcome Allstate’s motion to dismiss.1 The Hydes, who had been living at their property in Tolland for 18 years, decided it was time to sell. When they had an engineer inspect their property in anticipation of the sale, the pyrrhotite defect was discovered. The Hydes sued Allstate after the denial, claiming the policy language was ambiguous as to coverage.

The trial court dismissed the action on two grounds:

  1. The court noted that it did not believe an ambiguity existed in the policy language regarding what was considered “sudden and accidental.”
  2. Allstate argued, and the court agreed, that the gradual concrete decay was not sudden and accidental, nor did it qualify for coverage as an entire collapse. In addition, there were other policy exclusions, such as an exclusion for cracking walls, rust, and defective construction materials that precluded coverage.

As a silver lining to insureds, Gov. Dannel Malloy and State Attorney General George Jepsenannounced in a joint release that state had entered into a memorandum of understanding with Travelers Companies to assist current and former Travelers policyholders seeking financial assistance to remediate crumbling foundations.

Under the agreement, Travelers will establish and administer the voluntary Travelers Benefit Program and commit $5 million to the program in conjunction with an assistance program launching through the Connecticut Foundations Solutions Indemnity Company.

I leave you with a quote from author and life coach, Craig D. Lounsbrough, “[t]he thing that I’m most likely to collapse under is not the weight of the stresses that stand around me, but the ego that sits within me.”
1 Hyde v. Allstate Ins. Co., No. 3:18-cv-00031 (D.Conn. Dec. 4, 2018).

Florida Federal Court Finds Insurer Must Defend Contractor in Defective Condo Construction Suit

Michael S. Levine | Hunton Andrews Kurth LLP | December 27, 2018

The United States District Court for the Middle District of Florida recently granted summary judgment in favor of developer, KB Homes, ruling that Southern Owners Insurance Co. must defend KB Homes under various Commercial General Liability policies.

The action arises from the construction of the Willowbrook Condominium project, a 51-building, 270-unit condominium project located in Manatee County Florida. Gallo Building Services, Inc., a subcontractor, entered into a master subcontract with KB Home, the developer and contractor for the project. Following the completion of the project, the association retained an engineering firm who discovered several defects at the project. The association sued KB, which then sued multiple subcontractors, including Gallo, forming the underlying litigation.

Southern, Gallo’s insurer, then filed the coverage action seeking a declaration that it had no duty to defend or indemnify Gallo under its policies of insurance. After Gallo became insolvent, KB Home stepped in and moved for summary judgment on the duty to defend.

Southern opposed the motion, arguing that the “your work” exclusion and the Exterior Finishing and Stucco Exclusion barred coverage, and that the association’s underlying complaint failed to allege property damage. The Court rejected Southern’s arguments and held that the Southern’s duty to defend was triggered by the broad allegations of “damage to other building components,” “damage to other property,” “water intrusion,” and relocation of resident,” which encompassed damage besides the work completed by Gallo. Moreover, the Court rejected the application of the Exterior Finishing and Stucco Exclusion stating that “Southern does not describe how each defect relates to stucco or an exterior finishing system,” therefore, determining the exclusions did not do away with Sothern’s duty to defend.

Not only is the decision a substantive win for policyholders, the decision provides a firm example of the value that can be obtained from other people’s insurance. By obtaining insurance from Gallo’s insurers instead of its own, not only did KB Home secure a complete defense in the litigation, it did so without implicating coverage under its own insurance and potentially impairing its own policy limits and without impacting its own loss ratios. Policyholders should therefore consider all potentially applicable insurance and indemnity agreements when faced with a claim or potential liability.

Connecticutt Class Action on Collapse Claims Faces Motion to Dismiss

Tred Eyerly | Insurance Law Hawaii | November 28, 2018

    The federal district court dismissed some insurers from a class action suit alleging failure to provide coverage for collapse claims. Halloran v. Harleysville Preferred Ins. Co., 2018 U.S. Dist. LEXIS 179807 (D. Conn. Oct. 19, 2018).

    A class of homeowners brought suit in 2016 against their homeowners insurance companies (“defendants”) for failure to cover collapse claims. Plaintiffs alleged they bought their homes between 1984 and 2015. Each of the homes had basement walls that were “crumbling and cracking due to the oxidation of certain minerals contained in the concrete.” As a result of the deteriorating concrete, plaintiffs claimed that their basement walls were in a state of collapse. 

    Plaintiffs alleged that the Insurance Services Office, Inc. (“ISO”) and the insurance companies were aware of the concrete issues in Connecticut at least as early as 1996, when claims began to be filed. Defendants and the ISO deliberately changed their policies’ definitions of “collapse” to try to avoid or minimize liability for potential claims brought by plaintiffs. The new language excluded losses to a foundation or retaining wall and “settling, cracking, shrinkage, bulging or expansion” from coverage of collapse. 

    The standard policy language produced by the ISO and adopted by the insurers went through several iterations between 1990 and the present. Originally, the coverage provided for the “direct physical loss to covered property involving collapse of a building  . . .”  The term “collapse” was undefined.

    In 1999, ISO language allegedly changed and defined collapse as “an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its current intended purpose.” Further, a building “in danger of falling down or caving in” or that “is standing” is “not considered to be in a state of collapse.” Plaintiffs alleged that each defendant changed the language of their policies over time and that these changes attempted to delete coverage.

    The defendants moved to dismiss the fourth amended complaint. The court looked at specific policy language to determine whether the term “collapse” was ambiguous. The first set of claims submitted by plaintiffs arose under language adopted by the ISO in 1997. The policies provided for coverage of “direct physical loss to covered property involving collapse of a building or any party of a building” when the result of several different causes, such as “hidden decay,” “use of defective materials,” etc. Prior Connecticut cases had found the term “collapse” in these policies to be ambiguous. Plaintiffs with claims arising under the older policy language therefore properly alleged a “collapsed” that could be covered under the policies. 

    Plaintiffs who alleged that their policy included collapse provisions without temporal modifiers such as “abrupt” also survived a motion to dismiss because the policy language was sufficiently ambiguous.

    A second category of policies also included temporal modifiers, requiring the collapse to be “abrupt’ and the building to be unusable for its normally intended purposes. Still other policies required the collapse to be “sudden and accidental.” Under these policies, the “collapse” provision was not ambiguous, requiring a “sudden” collapse. The defendants’ motion to dismiss was granted as to these policies. 

    The third category of policies, over time, adopted more restrictive language. The motion to dismiss as to these policies was denied. There remained issues of fact and law as to whether the insurers were obligated to notify the insureds of changes in the policy definition of collapse and whether the insurers did so. 

    Defendants also moved to dismiss plaintiffs’ claims for breach of he implied covenant of good faith and fair dealing. Because several plaintiffs had not pled a plausible claim for breach of contract, their claims for breach of the implied covenant of good faith and fair dealing also failed. For plaintiffs who survived dismissal of their breach of contract claims, however, the motion to dismiss the breach of the implied covenant of good faith and fair dealing was denied. Plaintiffs alleged that defendants knew that plaintiffs’ claims were covered. Further, defendants misled plaintiffs in order to receive their premiums without providing the requisite coverage. 

    Finally, the arguments of certain defendants to strike the class allegations was denied. The issues would be better addressed when the motion for class certification was considered, after more development of the record in the case.

Colorado Division of Insurance Reissues Bulletin on Colorado Homeowners’ Right to Obtain Additional or Enhanced Coverages

Timothy Burchard | Property Insurance Coverage Law Blog | January 5, 2019

Balancing the cost of insurance premiums and the potential costs related to being displaced from your home, repair costs required by local building code, or higher replacement costs can be challenging for a homeowner. For Colorado homeowners, it is important to understand that they have rights to additional and/or enhanced insurance coverage options if they so choose.

On January 1, 2019, the Colorado Division of Insurance reissued Bulletin No. B-5.35 providing guidance on Colorado Statutes §§ 10-4-110.8(6)(a) and 10-4-110.8(6)(b) pertaining to the requirement that insurance carriers offer the option of certain additional coverage or coverage enhancements to Colorado homeowners, including:

  • Extended Replacement-Cost coverage equal to at least twenty percent of the dwelling limit;
  • Colorado Law and Ordinance coverage equal to ten percent of the dwelling limit; and
  • Additional Living Expense coverage for a total of twenty-four (24) months in their homeowners’ insurance policy.

These coverage options are extremely important considerations for any homeowner. First, while the replacement-cost coverage selected when a homeowner may have been appropriate at the time they purchased the insurance policy, costs of repair, building materials, and other related issues can, and usually do, increase over time. Second, city, county, and state building codes also change to meet updated fire and safety standards, and if your policy does not include law and ordinance coverage, you could be stuck with the cost of updating insulation, electrical wiring, and/or plumbing to current code requirements, which may otherwise be excluded without law and ordinance coverage. Finally, if a disaster occurs displacing you from your home, Colorado state law requires insurance carriers to offer the option of Additional Living Expense coverage up to 24 months. This coverage provides the cost of obtaining housing during a period of displacement. While it is likely unfathomable for most to think of being displaced for two years, according to the Colorado state law insurance carriers must provide the option of this added protection.

By reissuing Bulletin No. B-5.35, the Colorado Division of Insurance has made it clear that it continues to believe these additional and/or enhanced coverage options provide significant protections for Colorado homeowners. While not every homeowner may feel the need to include these coverages, it is important to know that your insurance carrier must offer these additional or enhanced options in Colorado.