First Notice of Loss an Opportunity to Build Customer Satisfaction: Viewpoint

David Pieffer | Claims Journal | July 8, 2019

What’s worse: An incident that caused an insurance claim or the claims process itself? Ask a policyholder who has recently lived through a homeowners’ insurance claim process and the results might not be as lopsided as one would assume.

Whether it was a run-of-the-mill roof leak or catastrophic disaster, the vivid memory of an insurance claim lives on with the customer long after the mess has been cleared and the damage repaired.

In fact, our recent Property Claims Satisfaction Study, which examines the drivers of customer satisfaction of over 6,000 homeowners’ insurance customers, found that managing the stress that surrounds a claim is one of the top factors determining how the customer perceives the entire process. It is also an insurance company’s optimal window to make their customers feel at ease when the customer has to submit the first notice of loss.

The Window of Opportunity

On the surface, these takeaways may seem intuitive. After all, a property claim usually goes hand-in-hand with a rush of emotions, from anger and disbelief that the incident happened to regret and sadness of property lost that could have carried sentimental value. Owners that have to file a claim have enough on their minds, and an insurance company that can make the process easier is sure to ingratiate itself to a frazzled customer. But what’s most resounding is how impactful an insurance company’s actions on the customer’s very first call can be.

Our study found that one of the two most important factors determining customer satisfaction with the entire claims process was how at ease the customer felt after submitting the first notice of loss, and how the insurance company addresses the customer at the first notice played a massive role in making the customer feel more at ease. Companies that provided a clear understanding of the claim process and claim length, showed empathy for what the customer was going through, answered all of the customer’s questions during the first notice of loss, and clearly stated the next steps in the process substantially improved the customer’s overall satisfaction with the claim because they made the customer feel more at ease.

Unfortunately, just 64% of customers reported feeling more at ease after finishing the first notice of loss interaction, which is the lowest compliance rate among the top five most impactful indicators of satisfaction. Compare that against the top indicator of satisfaction, meeting the customer settlement expectation, which posted an 88% compliance rate for the industry.

An Empathetic Model

Some carriers are getting this message. Many insurers have abandoned more traditional “intake models” for an “adjuster model,” which allows for more individualized attention to a claim. Carriers that have taken this level of empathy further and created a robust first notice of loss process that helps customers with tasks such as coordinating an estimate or setting up a remediation contractor, along with providing details on coverage and deductibles, have also made meaningful strides.

In fact, the more a customer could accomplish during the first notice call, the higher their satisfaction and the more at ease they felt, which in turn, drove higher levels of overall satisfaction. Additionally, respondents said that carriers that were able to outline the claim process, construct clear timelines, and relay next steps all during the initial call, had levels of satisfaction a stunning three times higher than when they did not provide this clarity at first notice.

Building Loyalty

The key for human beings to feel safe and secure is some degree of predictability. A property claim upends that whole equilibrium. No one can anticipate the day that they’ll walk into their home to find a toilet handle got stuck down and left their basement flooded with water, or a bolt of lightning unexpectedly set their “She Shed” ablaze. That’s why calmly and effectively managing the claims process is so vital to providing value to policy holders.

Claims professionals know the process, and they know what will happen next. Customers don’t, and those who feel like they’ve just had their lives turned upside down, even for a moment, want to be guided by a steady hand. Insurance customers view their premiums as a cost of doing business; a line item on their budget that they want to keep as low as possible, and as a result, will stay agnostic about which company they use to get the best price. Carriers have to recognize that when a moment of need does arise, that is the time where they can build their value. The ones that are prepared will not only reap the rewards of happier customers, but more loyal ones as well.

Claims for Negligence? Duty to Defend Triggered

Michael S. Levine | Hunton Andrews Kurth | June 19, 2019

On June 17, 2019, the First Circuit held that an insurer’s duty to defend was triggered because the underlying complaint set forth claims that required a showing of intent as well as claims that sought recovery for conduct that “fits comfortably within the definition of an ‘accident.’” In Zurich American Ins. Co v. Electricity Maine, LLC, Zurich sought declaratory judgment that, under a D&O policy, it had no duty to defend the insured, Electricity Maine, an electrical utility company being sued in the underlying class action. Zurich argued it had no duty to defend because the underlying complaint failed to allege that Electricity Maine engaged in conduct that qualified as an “occurrence” or that caused “bodily injury” under the terms of the policy. The First Circuit disagreed.

The D&O policy stated that Zurich “has a duty to defend Electricity Maine against any lawsuit that seeks damages for ‘bodily injury’ caused by an ‘occurrence.’” The policy defined an “occurrence” as “an accident . . .” and under Maine law an accident is “commonly understood to mean . . . an event that takes place without one’s forethought or expectation . . . .” The Court held that, because the underlying complaint asserted claims for negligence and negligent misrepresentation, in addition to intentional torts, the conduct upon which recovery was sought fell within the definition of an “accident” and therefore qualified as an “occurrence” triggering the duty to defend. Second, the Court held that, although the underlying complaint did not allege that Electricity Maine’s conduct caused “bodily injury,” the complaint did not need to do so to fall within the risk insured and trigger a duty to defend. Instead, because the alleged conduct could result in bodily injury due to emotional distress, the allegations fell within the risk insured and Zurich has a duty to defend.

How Specific does a Specific Litigation Exclusion have to be?

Larry P. Schiffer | Squire Patton Boggs | July 9, 2019

Insurance policies often have general exclusions for known losses or prior acts. The reason for this is that most insurance is for fortuitous risks–risks that will take place in the future; not risks that already have taken place. For large policyholders that have ongoing litigation, it is not uncommon for a new carrier to craft a specific exclusion to preclude coverage for an existing claim or set of circumstances that already exists. The First Circuit recently addressed a specific litigation exclusion to determine whether it was broad enough to cover new litigation and investigations arising out of the same investment product.

In USB Financial Services, Inc. of Puerto Rico v. XL Specialty Insurance Co., No. 18-1148, 2019 U.S. App. LEXIS 19946 (1st Cir. Jul. 3, 2019), the First Circuit addressed an appeal by policyholders of a summary judgment order granted to the insurance carriers based on the application of a specific litigation exclusion. The circuit court affirmed.

Basically, there were a series of investigations and lawsuits over a certain financial product sold by the policyholders. The policyholders sought new insurance going forward and the new carriers sought a specific litigation exclusion for the prior investigations and lawsuits. Using a major broker and a well-known policyholder law firm, the policyholders negotiated a new policy along with the specific litigation exclusion. The exclusions was broad and when the policyholder sought to negotiate a narrowing of the exclusion by replacing broad language with more narrow language, the carriers rejected the policyholders’ changes and the policyholders accepted the exclusion.

The exclusion precluded coverage of “any Claim in connection with any proceedings set forth below, or in connection with any Claim based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any such proceeding or any fact, circumstance or situation underlying or alleged therein.” New investigations and lawsuits arose concerning the same financial product and the policyholders sought coverage. The carriers disclaimed.

In affirming the grant of summary judgment to the carriers precluding coverage based on the exclusion, the court held that the common and usual meaning of the words of the exclusion were unambiguous and no coverage was available for any claim in any way involving the prior matters or any fact, circumstance or situation underlying or alleged in the prior matters. Moreover, the court found that it was equally clear what the intention of the parties was as demonstrated by the negotiations that preceded the issuance of the insurance policies when the policyholders tried to modify the exclusion and the carriers refused. Thus, held the court, although the language was undoubtedly broad, it was the language the policyholders bargained for during negotiations. The court found that the policyholders were aware that the breadth of the unchanged exclusion and nevertheless agreed to purchase the policies as they read.

The court also rejected the argument that the scope of the exclusion rendered the policies illusory. The court also rejected the argument that the exclusion should be construed in favor of the policyholders noting that those principles seek to protect a weaker party when there is a disparity at the bargaining table. Here, the court found those concerns not to be present because the terms of the exclusion were clear and the parties negotiated the polices at arms-length. The court noted that the policyholders were sophisticated financial players, which engaged a major insurance broker and a major policyholder law firm to negotiate the policy and the specific litigation exclusion. The court concluded that the policyholders could have reasonably expected that they bargained for the plain reading construction that the court gave the exclusion in this case.

Feeling the Heat: Do California’s Health and Safety Regulations Increase the Value of Your Insurance Claim?

Daniel Veroff | Property Insurance Coverage Law Blog | July 11, 2019

California summers can get hot. To protect workers, the state requires employers to take extensive precautions. California’s regulations on heat safety are promulgated by the Department of Industrial Relations’ Division of Occupational Safety, which is often referred to as Cal/OSHA.

Cal/OSHA summarizes these requirements as follows:

  • Plan – Develop and implement an effective written heat illness prevention plan that includes emergency response procedures.
  • Training – Train all employees and supervisors on heat illness prevention.
  • Water – Provide drinking water that is fresh, pure, suitably cool and free of charge so that each worker can drink at least 1 quart per hour and encourage workers to do so.
  • Shade – Provide shade when workers request it and when temperatures exceed 80 degrees. Encourage workers to take a cool-down rest in the shade for at least five minutes. They should not wait until they feel sick to cool down.1

These regulations raise the cost of work, and thus the value of a claim. But they are “easily missed in the fervor of expedited claims handing,” says public adjuster Corey Locke, who had decades of experience adjusting claims for insurance companies.

Another important pieces not to miss is that heat illness prevention regulations may apply to “indoor” workplaces as well as outdoor ones. According to Cal/OSHA’s July 2018 “Heat Illness Prevention Enforcement Q&A,” if an indoor workplace lacks insufficient ventilation, cooling, or does not protect workers from exposure to direct sunlight, it is treated as “outdoor” under the rules.2 According to Cal/OSHA’s Q&A:

[T]hese structures may actually be hotter than the environment outside of them because of heating by the sun and conditions inside like limited air circulation or lack of insulation. A structure in this category may be considered an outdoor workplace if it does not significantly reduce the net effect of the environmental risk factors that exist immediately outside of the structure.

Including these rules are sure to drive up claim costs, so expect carriers to push back. But including costs for these aspects is not optional. “Starting in June, our temperatures in California soar into the triple digits for weeks on end,” says Locke. Thus, he says these costs are simply “part of an accurate estimate.” So, do not settle your claim without considering whether these regulations will apply to your loss. At the Merlin Law Group, we have attorneys in California available to discuss your situation.
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1 http://www.oesnews.com/cal-osha-reminds-employers-to-protect-outdoor-workers-from-heat-illness-as-temperatures-rise-across-the-state/
2 https://www.dir.ca.gov/dosh/heatillnessqa.html

Florida’s AOB Reform Bill Became Effective July 1, 2019: How Does This Affect Me?

Beaujeaux de Lapouyade | Property Insurance Coverage Law Blog | July 8, 2019

My primary role as an attorney at Merlin Law Group is to represent the best interests of policyholders and get all benefits owed following a loss. But, I call it like I see it when approached with debatable inquiries from contractors and restoration companies.

Assignment of Benefits (“AOB”) is a controversial issue, which has been a recent topic of discussion in my conversations with policyholders and industry professionals. Chip Merlin summarizes both sides of the AOB debacle in his blog post, Assignment of Benefits Contracts are the Hot Topic of Discussion and Legislation in Florida, North Dakota and Elsewhere.

There are always two sides to every story. AOBs affect claim adjustments, take away important rights from policyholders, and can play a role in higher premiums. Nevertheless, AOBs can also provide stress relief to policyholders, affect the way contractors conduct business, and often guarantee payment to contractors for services rendered. The Florida Legislature finally decided to play ball on this hotly debated topic.

Florida’s new AOB Reform Bill went into effect on July 1, 2019. Florida Governor Ron DeSantis signed House Bill 7065 on May 23, 2019, which is now Laws of Florida Chapter 2019-57 (“Act”). The Act amended Florida Statutes Section 627.422 and created Sections 627.7152 and 627.7153, which contain definitions and required provisions for assignment agreements executed under residential and commercial property insurance policies.

The Florida Office of Insurance Regulation issued Informational Memorandum OIR-19-02M to notify insurers of the passage of the Act, discuss various provisions of the Act, and provide guidance to facilitate implementation.

Here are some noteworthy provisions of Florida’s newly effective AOB Reform Bill, which are important to know regardless of which team you are on.

Fee Shifting Switch

Insurers argue some contractors take advantage of the AOB system by performing excessive repairs or submitting inflated invoices to the insurer with the expectation that the insurer will inevitably pay the inflated invoice. An executed AOB allows a contractor (the assignee) to step into the shoes of the policyholder (the assignor) and receive payment directly from the insurer. An executed AOB also allows an assignee to pursue litigation against the insurer if an insurer refuses to pay an invoice.

Florida’s one-way fee provision is a vital protection for policyholders under Florida law. In an interview with Law360, Beth A. Vicchioli explained,

The current one-way attorney fee provision was always originally designed to help consumers who don’t have the same financial resources as their insurers to go through litigation.

She also noted,

Once these assignments started popping up then the insurer was no longer in litigation against a consumer, but against another sophisticated commercial company.

The new law imposes a formula, which allows an award for the assignee or the insurer or neither based on pre-suit settlement negotiations. This change does not apply to policyholders who file suit against their insurance company directly.

The gap between the carrier’s pre-suit settlement offer and the assignee’s pre-suit demand is the “disputed amount.” The new fee-shifting formula compares the differences between the disputed amount, the judgment obtained, and the settlement offer. If the judgment obtained is less than 25% of the disputed amount, then the insurer is entitled to an award of reasonable attorney’s fees. If the judgment obtained is 25% to 49% of the disputed amount, then neither party is entitled to an award of attorney’s fees. If the judgment obtained is 50% or more of the disputed amount, then the assignee is entitled to a reasonable attorney’s fee award.

Pre-Suit Requirements

Under the new Florida law, the assignee must notify the insurer of its intent to file a lawsuit and allow the insurer the opportunity to issue a coverage decision within the statutory timeframe required. The insurer must then respond with a settlement offer or demand for alternative dispute resolution within ten days.

Insurers Required to Offer More Options to Consumers

Insurers are now able offer policies restricting post-loss assignments to third parties with the caveat that the carrier notify the prospective policyholder of the restriction, and also offer policies allowing post-loss assignments with the same coverage. The policy restricting post-loss assignments to third parties must have lower premiums in exchange for the restriction.

Monitoring AOB Reform

Under the new AOB law, insurers must submit annual reports to the Florida Office of Insurance Regulation for each residential and commercial property insurance claim paid under an executed assignment. This requirement begins on January 30, 2022, which allows the OIR to monitor the effectiveness of the AOB reform.

It will be interesting to assess and monitor the impact of the new AOB legislation on insurance regulation. Merlin Law Group attorneys licensed in the Sunshine State are here to answer questions regarding Florida’s new AOB Reform Bill and its potential impact on businesses, policyholders, and other insurance professionals. It’s time to play ball.