Attacking Those That Help Policyholders Rebuild, Make Claims, and Battle Insurance Companies

Chip Merlin | Property Insurance Coverage Law Blog | November 4, 2019

The Tampa Bay Times published an article yesterday which should be of concern to all policyholders. Florida’s elected official who then overseas the Department of Financial Services is calling for a 30-day time period for policyholders to cancel public adjusting contracts.

One can imagine what is going to happen. Insurance companies delay and deny claims. Their policyholders get upset and hire a public adjuster. Those that hire public adjusters then get calls directly from the insurance company promising better service and more payments if they will just fire their public adjuster saving 10 percent. The public adjuster gets terminated. The insurer does a little better, but not enough. The pattern repeats itself over and over. Delays and under payments are even more rampant.

The elected official making this suggestion owns a seafood restaurant. I wonder if he would be willing to allow his customers to pay only a portion of their bill if they did not like their meal or a portion of it?

I can understand an insurance company officer blaming anybody but his claims department for taking too long to pay a claim or wrongfully denying it. I can understand why those that run insurance companies do not like those in academia writing books—like Professor Feinman, who wrote Delay, Deny, Defend—which expose the systemic wrongful claims practices which many insurance companies engage. It does not take a rocket scientist to figure out that taking premiums and not fully and promptly paying claims is a lot more profitable than playing by the rules and doing so. What wrongful acting insurance company wants all that pointed out?

So, maybe those insurance executives can work with government officials overseeing insurance to blame those helping the policyholders rebuild, make their claims and enforce the insurance contract so they cannot do so? I can imagine those insurance executives and their lobbyists can make up a strategy to find some bad apples in the ranks of those helping policyholders as examples and make laws that shut up those troublemakers and keep them from helping the policyholders.

The elected Florida official had this to say about public adjusters:

I’ve seen PAs that sign people, and then they sit back there on Facebook all day long, because they know that they have got an airtight contract, and they will leave you twisting in the wind.

It is hard to deal with this logic. Who are all these public adjusters? I am aware of one panhandle public adjusting firm with hundreds of clients that has a huge backlog of pending cases and has an immense presence on Facebook in Panama City—everybody in Panama City knows the firm I am talking about. But virtually all public adjusters I know want the claims they are working on paid quickly so they can make money and move to other work.

Which leads to the big question—why aren’t Florida government officials suggesting laws and regulations to the entities not fully and promptly paying the claims? Policyholders do not want to hire people like me to sue their insurance companies or help get the claims payments fairly made for the full amount owed. They are forced to do so because their own insurers have let them down.

Just as academia has noted, policyholders and society need strong unfair claims practice laws which are enforceable and which the insurers are afraid enough of that they will stop underpaying and delaying the payment of their customers’ claims.

Georgia Supreme Court Addresses Anti-Indemnity Statute

David R. Cook, Jr. | Autry, Hall & Cook | September 14, 2019

In prior blog posts, we addressed Georgia’s anti-indemnity statute. One of the posts addressed the statute in the context of an electric utility easement near an airport. That case made its way to the Supreme Court Georgia, which provided some additional clarity to the statute. Milliken & Co. v. Georgia Power Co., — Ga. –, 829 S.E.2d 111 (2019).

When a plane crashed and several passengers and crew died or were injured, their representatives sued several defendants, including a nearby plant owner, Milliken & Company (“Milliken”), based on claims that transmission lines on Milliken’s property were too close to the runways, were too high, and encroached on the airport easements. Milliken cross claimed against Georgia Power Company (“GPC”). Milliken’s claim was based on an easement it granted to GPC, which required GPC to indemnify it for any claims arising out of GPC’s construction or maintenance of the transmission lines.

On appeal, the Supreme Court considered whether the clause was unenforceable under O.C.G.A. § 13-8-2(b). In general, “a party may contract away liability to the other party for the consequences of his own negligence without contravening public policy, except when such agreement it prohibited by statute.” Id. at 113 citing Lanier at McEver v. Planners & Eng’rs Collaborative, 284 Ga. 204, 205 (2008). As one such statute, O.C.G.A. § 13-8-2(b) applies when an indemnification provision (i) “relates in some way to a contract for construction, alteration, repair, or maintenance of certain property” and (ii) “promises to indemnify a party for damages arising from that own party’s sole negligence.” Id. at 114 (internal punctuation omitted).

Since the easement required GPC to “construct, erect, install, operate, maintain, inspect, reconstruct, repair, rebuild, renew and replace” a substation on Milliken’s property, the Supreme Court ruled that it was within the scope of provisions governed by the anti-indemnity provision. As to whether it violated the “sole negligence” prong, the Supreme Court ruled that it did not. In contrast to the statutory prohibition, the easement did not require GPC (the indemnitor) to indemnify Milliken (the indemnitee) for damages resulting from Milliken’s sole negligence. Instead, it required GPC to indemnify Milliken for GPC’s negligence – which is not prohibited by the statute.

GPC cited cases that invalidated indemnity provisions that required indemnification without regard to fault and were thus broad enough to include the indemnitee’s negligence. Relying on these cases, GPC cited Milliken’s pleadings which sought indemnification from GPC ostensibly without regard to fault. The Supreme Court rejected this argument because, even though Milliken’s pleadings sought such broad indemnification, the underlying indemnity provision did not.

Using Unfair Claim Settlement Statutes To Prove Bad Faith

Mikaela Whitman | Law.com | October 11, 2019

The covenant of good faith and fair dealing is implied in all insurance contracts. While most states recognize that an action for breach of this covenant (also known as “bad faith”) sounds in breach of contract, some states also recognize an independent tort that can be separate from or in addition to the breach of contract claim. All states also have an insurance code that imposes liability on an insurer which fails to meet the statutory standards. These claims settlement practices statutes are modeled after the National Association of Insurance Commissions’ Model Unfair Claims Settlement Practices Act and often contain a long list of proscribed insurer practices, including whether in an insurer’s defense or settlement of its insured’s claim (third-party bad faith) or its unreasonable refusal or delay in adjusting or resolving an insured’s first-party claim (first-party bad faith).

For example, New York Insurance Law §2601 defines certain acts that constitute “unfair claim settlement practices,” including, among others, “failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies” and failing to “advise the claimant of acceptance or denial of the claim within thirty working days.” NY Ins. §2601(a)(3), (a)(4) (2018). However, most jurisdictions, including New York, may not recognize a private cause of action in favor of an insured and only the state’s insurance commissioner can bring a cause of action alleging a violation of these statutes. See, e.g., Rocanova v. Equitable Life Assurance Soc’y, 83 N.Y.2d 603, 614 (1994) (New York law does not “recognize a private cause of action under Insurance Law §2601”); Moradi-Shalal v. Fireman’s Fund Ins. Cos., 46 Cal. 3d 287, 304 (1988) (violations of Insurance Code §790.03 and the Fair Claims Settlement Practices Regulations do not by themselves give rise to a separate right of action and are not bad faith per se); Davidson v. Travelers Home and Marine Ins. Co., 2011 WL 7063521, at *2 (Del. Super. Dec. 30, 2011) (holding that the purpose of the Delaware Unfair Trade Practices Act is to regulate trade practices in the insurance business and only the Insurance Commissioner has the authority to investigate or file claims of alleged bad faith acts).

Yet even though these statutes may not provide insureds a private cause of action, insureds should not disregard their benefit as violations of and failures to comply with these statutes can still be used as evidence of an insurers’ bad faith. See, e.g., Reid v. Mercury Ins. Co., 220 Cal. App. 4th 262 (2013) (discussing that while there is no private civil cause of action against an insurer that commits one of the various acts listed in statutes governing unfair claims settlement practices, violations of the section may evidence the insurer’s breach of duty to its insured under the implied covenant of good faith and fair dealing); Davidson, 2011 WL 7063521, at *2 (stating that “[t]he court assumes without deciding here, however, that an insurer’s violation of the [Unfair Trade Practices] Act may be used as evidence of bad faith”); State of N.Y. v. Merchants Ins. Co. of New Hampshire, 109 A.D.2d 935, 926 (3d Dept. 1985) (in a private cause of action for bad faith, court relied on NY Insurance Law 2601 as evidence that the insurer acted in bad faith).

In Belco Petroleum v. AIG Oil Rig, the First Department held that not only can these statutes be used as evidence of bad faith, but they can also be used as evidence when seeking punitive damages for a bad faith claim, stating: “Now, an insured aggrieved by an unfair claim settlement practice can take his grievance to the Superintendent of Insurance; if the grievance has merit, the Superintendent will presumably take it up and investigate; the insured, be he of modest means or substantial, should then be able to use the results of that investigation in pressing a claim for punitive damages.” 164 A.D.2d 583, 591 (1st Dept. 1991).

The use of these statutes as evidence of insurer bad faith takes on greater significance when one considers the standard most jurisdictions apply to determine whether an insurer has acted in bad faith. This broad and general standard typically requires the insurer to act “fairly” and “reasonably.” See N.Y. Univ. v. Cont’l. Ins. Co., 87 N.Y.2d 308, 318 (1995) (bad faith claims can be predicated on an insurer’s failure to investigate, process, or pay an insurance claim, or a general business practice of denying insurance claims without a reasonable basis). As a result, insureds, insurers and courts alike are left to puzzle what it means to act “reasonably” and how to prove that an insurers’ acts were or were not “reasonable.” While traditional sources of proof such as legal precedent, expert testimony, an insurers’ past acts, industry customs, and legal consensuses (i.e., the Restatement), should certainly be considered, unfair claim settlement statutes likewise should not be overlooked.

California Supreme Court Strikes Blow to Insurers’ Choice-of-Law Provisions

Kevin Brantley and J. Kelby Van Patten | Payne & Fears | September 27, 2019

The California Supreme Court has struck a blow to insurers’ attempts to contract out of more policyholder friendly jurisdictions, holding that the notice-prejudice rule is a fundamental public policy. Pitzer College v. Indian Harbor Insurance Co., 2019 WL 4065521. 

In Pitzer College, the Court analyzed a choice-of-law provision requiring that New York law applies to any policy disputes. New York courts apply a notice rule where an insured forfeits coverage based on late notice regardless of prejudice to the insurer. On the other hand, California courts apply a notice-prejudice rule requiring that an insurer show that it has been prejudiced by the late notice. Given that the notice-prejudice rule is a fundamental public policy, and the notice rule provides an insured fewer protections, the Court determined that New York must have a materially greater interest in determining the coverage issue for the choice-of-law provision to be enforced. This was left to the lower court to decide.

This ruling has a direct impact on how California courts make choice-of-law determinations for insurance policies. Specifically, insurers often include choice-of-law provisions in their policies that ostensibly require resolution of disputes based on the laws of a jurisdiction with little, or no, relationship to their policies. These jurisdictions have no relationship to where the (1) policy is procured, (2) insureds are domiciled, or (3) covered operations occur. Insurers do so because these chosen jurisdictions provide substantially less protection for policyholders than the laws of the jurisdiction substantially related to the policy. Now choice-of-law provisions will not be enforced if a fundamental public policy is implicated and the chosen jurisdiction provides less protection to policyholders. 

This is consistent with what other jurisdictions are doing as well. For instance, the Nevada Supreme Court has held that a choice-of-law provision in an insurance policy is unenforceable unless the forum selected by contract has “a substantial relation with the transaction” and the agreement is “not … contrary to the public policy of the forum” or other interested state. See Daniels v. National Home Life, 103 Nev. 674, 677 ( 1987) (denying effect to choice of law provision in insurance contract as law chosen provides less protection than the insured would receive in Nevada).

Takeaway

Although Pitzer College answers the question about whether the notice-prejudice rule is a fundamental public policy, it remains to be seen what other policyholder protections are also fundamental public policies.  Policyholders should be prepared to continue to face disputes over choice-of-law provisions.

Misrepresentations Made After Loss But Before An Examination Under Oath

Chip Merlin | Property Insurance Coverage Law Blog | September 24, 2019

New Jersey Merlin Law Group attorney Jason Cieri was married last week. It was a fantastic wedding. It also provided me a chance to catch-up with some Jersey Shore public adjusters, discuss the upcoming PPAANJ seminar on November 14 and write this blog which includes a case discussion involving post loss misrepresentations made prior to an examination under oath.

Chip Merlin and Jesse Sipe

Jesse Sipe and I talked about various legislative matters facing New Jersey public adjusters and what the PPAANJ can do about them. This also includes a better dialogue with the new Insurance Commissioner in New Jersey. These matters and how New Jersey public adjusters can help in making these concerns a reality will be discussed in much greater detail at the November 14 meeting.

Andrew Knox Public Adjusters

A recent New Jersey case discussed two insurance coverage practice pointers.1 Incorrect answers to an insurer’s questions can be made following a loss. Insureds should try to correct these as soon as possible. The incorrect answers also must be “material” to the insurance company’s claim. The insurance company has the burden to prove the materiality.

Although our conclusion as to the absence of anything in Pokhan’s evidence to establish the materiality of her admittedly willful misstatements to State Farm is dispositive of the appeal, we agree with plaintiff that a fact-finder could also consider whether Pokhan corrected her misstatements promptly in her examination under oath in considering their materiality. See Mariani v. Bender, 85 N.J. Super. 490, 501 (App. Div. 1964) (holding ‘[e]ven though an insured may have given his insurance carrier an untrue statement of the accident, no breach of the cooperation clause results if the untrue statement is promptly and seasonably corrected’).2

Do not hesitate to contact a Merlin Law Group attorney if you have a claim denial because of an alleged incorrect answer to an insurer’s post-loss investigation.

So, a big congratulations and good luck to Jason Cieri on his marriage. A big Cheers! from me to all my New Jersey friends and I look forward to seeing you again soon, and certainly at the November 14 meeting in Red Bank.
____________________________
1 Pokhan v. State Farm Fire and Cas. Co., No. A-3336-17T3, 2019 WL 3425917 (N.J. App. July 30, 2019).
2 Id.