MARCH 16, 2015
Officials from the
Federal Emergency Management Agency (FEMA) have now made insurance news as they
have agreed to provide the victims of Superstorm Sandy who feel that their
claims have not been properly paid, with another opportunity to receive a
review.
This could provide
as many as 144,000 claims with the chance to undergo a fresh review.
Moreover, the review
opportunity is also making FEMA flood insurance
news as it will not be limiting the corrective action within 2,200 different
cases that are presently in litigation. A spokesperson for the agency has
stated that FEMA is establishing a new process for the victims of the
superstorm to progress in a new way. That said, just because one of the storm
victim submits a claim to receive another review, it doesn’t mean that it
necessarily will be.
This insurance news
has come on the heels of other recent headlines with allegations of fraud.
In those cases,
certain flood insurance companies have
been accused of inappropriate processes and behaviors in their assessment of
the damage caused by the storm. Earlier in March, the deputy associate
administrator for insurance at FEMA, Brad Kieserman was interviewed on “60
Minutes” on CBS and explained that homeowners could potentially have been
cheated out of millions of dollars that were due to them in flood insurance
payments.
He explained that
“I’m not going to sit here and conceal the fact that it happened because in the
last three weeks I’ve seen evidence of it.” The show’s report went on to follow
one homeowners in particular, who had found evidence that the engineer reports
from the insurance company had been altered from the original that had been
made, so that it no longer indicated that the home had any structural damage. The man managed to get in
touch with the original engineer who had made the report, and he was able to
photograph that original report, which revealed entirely different details from
those that were presented by the insurer.
Now, the insurance
news has broadened as insurers deny any wrongdoing.
//------------------------------//
TOP FEMA INSURANCE
OFFICIAL RESIGNS; FEMA SETS UP REVIEW PROCESS FOR SANDY CLAIMS
MARCH 12, 2015
TRENTON, N.J. (CBSNewYork/AP)
Federal
Emergency Management Agency
officials have agreed to let Superstorm Sandy
victims who think their insurance claims were not fairly paid out to undergo a
review.
The review could
include up to 144,000 claims and not limit corrective action to 2,200 that are
currently in litigation.
A spokesman for FEMA
says the agency is setting up a process for survivors to have claims reviewed.
Every claim will not be automatically reviewed, as reported earlier.
The announcement
comes following allegations of fraud
involving the way some insurance companies assessed
damage.
Earlier this month, Brad Kieserman, FEMA’s deputy associate
administrator for insurance, admitted on CBS’ “60
Minutes” that homeowners may have been cheated out of millions in
insurance money.
“I’m not going to
sit here and conceal the fact that it happened because in the last three weeks
I’ve seen evidence of it,” Kieserman said.
Bob Kaible, of Long
Beach, Long Island, believes he may be a victim.
The city condemned
his home after the storm. Kaible thought he’d be OK because he had flood
insurance, but he told “60 Minutes,” “I get the engineering report that there’s
no structural damage to the house. I’m like, ‘What do you mean no structural
damage?’”
Kaible claims the
original engineer’s report was altered by his insurance company.
Sens. Robert Menendez and Cory Booker of New Jersey and
Charles Schumer and Kirsten Gillibrand of New York met with FEMA administrator
Craig Fugate on Wednesday.
FEMA also asked
engineering and insurance firms to give survivors access to their engineering reports.
A Sandy task force
is being formed to evaluate the nation’s flood insurance program.
FEMA To Review Every
Sandy Flood Insurance Claim Following Fraud Allegations
Doug Quinn and his
teenage daughter have been out of their Toms River home since the October 2012
storm. Quinn said the insurance company rejected his damage claim based on an
adjuster saying foundation cracks came before the storm.
The same thing was
seen in other cases and Quinn doesn’t think that’s a coincidence.
“They [FEMA]
probably orchestrated the whole thing,” Quinn said.
He believes the
agency put pressure on companies to deny claims like his, saying it’s unlikely
the adjusters and engineers in the cases “all followed similar tactics to get
the same results of low balling claims on people,” WCBS 880’s Levon Putney
reported.
Quinn said he’s glad
the reviews are happening, and he is “cautiously optimistic.”
He hopes the
national flood insurance program will be revamped for the sake of any future
victims.
“So that no other
Americans have to live through what Sandy survivors had to go through,” Quinn
said.
Insurers have denied
any wrongdoing.
//-----------------------------------------------------//
HOMEOWNERS ACCUSE Hartford OF
Racketeering FOR ALTERING ENGINEERING REPORTS TO UNDERPAY FLOOD DAMAGE CLAIMS
DURING SS SANDY
We
have reported in this blog several times about the allegations of altering
engineering reports by insurers and/or insurers’ engineering contractors to
underpay or deny flood damage claims. We
do concur with these allegations, as the WYO insurers always tend to underpay
the claims, unless the homeowner or policyholder can substantiate every single
item and provide every single receipt.
When the homeowners cannot provide receipts, then all the expenses are
denied. The inspection company US
Forensic has been caught red-handed in altering reports to suit their clients,
i.e., the insurers. Federal judges have
recently issued stern warnings regarding such practices and ordered the
disclosure of all draft of reports. Here
is the recent blog:
NEW
YORK JUDGE ORDERS THE DISCLOSURE OF ALL DRAFTS, REDLINES, ETC REPORTS IN RE
SUPER STORM SANDY LITIGATION
Now,
a class action lawsuit has been filed against one insurer, its engineering
contractor and the lawfirm that have been handling the defense of the flood
damage lawsuit.
A
couple claiming damage from Hurricane Sandy sued a Hartford Financial
Services Group Inc. (HIG) unit, an engineering firm and a law firm, accusing the
group of engaging in racketeering by scheming to use fraudulent accident
reports to deny claims.
Homeowners
Stephen and Sarise Dweck, who had claimed the Hartford Insurance Co. of the
Midwest had breached its flood insurance contract with them, said in a fresh
complaint yesterday in Brooklyn federal court that
the unit's conduct also constituted racketeering because denial of coverage was
based on a version of an engineering report that had been altered to remove a
description of widespread flood damage.
HiRise Engineering PC altered the report,
and Nielsen Carter & Treas LLC, a law firm that represents
flood insurance providers, either directed or participated in the scheme, while
Hartford “knew or should have known” about the fraud and “used the falsified
report as an excuse” to deny benefits, the Dwecks alleged in the new complaint
in their November lawsuit. Others who participated in the claims process are
also named as defendants.
The
Hartford unit is the second insurer that provides coverage on behalf of the
government’s National Flood Insurance Program to be accused of relying on
fraudulently altered engineering reports to reject or underpay claims after the
storm.
Long
Beach
Earlier,
owners of a storm-battered home in Long Beach, New York, filed a
racketeering suit against Wright National Flood Insurance Co. alleging that it,
too, denied claims based on doctored reports.
U.S.
Magistrate Judge Gary R. Brown, who discussed the discrepancy between reports
for the home in a Nov. 7 ruling, said he feared the practice was “widespread”
and ordered that all reports be disclosed to policyholders.
Sandy,
the largest Atlantic hurricane
on record, caused about $60 billion in damage in New Jersey, New York and Connecticut when it struck in
October 2012. It killed more than 100 people in the U.S. and triggered the
worst flooding in the more than 100-year history of the New York City subway
system.
The
Dwecks are among about 1,000 policyholders whose disputes with insurers over
Sandy claims are pending in federal court in Brooklyn and Central Islip, New York.
Coney
Island
In
a letter this week to the judge, lawyer J. Steve Mostyn described the
experience of the Dwecks after their home in the Manhattan Beach area of
Brooklyn near Coney Island was devastated by the storm. He filed letters by
another attorney for the Dwecks, Mitchell
Shpelfogel,
and exhibits to support the argument that a damage report was changed to
eliminate flooding as the cause.
After
the Dwecks notified Hartford about the changed report, a third was submitted by
another company that also reported lack of flood damage from the storm,
according to the complaint.
Thomas
Hambrick, a spokesman for Connecticut-based Hartford, said the company denies
the allegations in the suit and expects to seek its dismissal. He said Hartford
asked for a new report by an independent engineer when it was notified of the
problem.
Sandy
“was a devastating storm for many individuals and small businesses, and our
focus as a company is on helping customers recover following a loss,” he said
in a statement.
Other
Defendant
A
HiRise representative in Uniondale, New York, didn’t respond to a message left
at the company’s office. William T. Treas, of Metairie, Louisiana-based Nielsen
Carter,
who is also named as a defendant, didn’t immediately return a call seeking
comment on the case.
The
Hartford unit and Wright participate in a program run by the Federal Emergency
Management Agency
through which private insurers are allowed to provide flood coverage underwritten
by the government. The government, which is ultimately responsible for paying
for damage, also shoulders expenses for litigating against policyholders,
according to the complaint.
Because
of the way incentives are structured under the program, insurers can profit by
incurring additional expenses through claims-handling, the Dwecks alleged. The
law firm and engineering firm benefited from additional business, the couple
said.
‘Took
Advantage’
The
firms “took advantage of the incentives of the reimbursement program to prolong
litigation in order to charge and collect unnecessary claims handling expenses
and attorney’s fees,” the Dwecks said in the complaint.
The
Hartford unit also participated in the scheme in order to curb generous payouts
that might trigger an audit by FEMA, according to the complaint. If audited and
found to have overpaid, the insurer may have face financial penalties,
according to the complaint.
Lawmakers
including U.S. Senators Kirsten Gillibrand and Charles Schumer of New York and U.S.
Senators Robert Menendez and Cory Booker of New Jersey have
been pushing FEMA to address potential manipulation in flood insurance claims
handling. Gillibrand and Schumer have also asked the U.S. Government
Accountability Office to audit FEMA’s litigation expenses.
A
spokesman for FEMA, Rafael Lemaitre, said in an e-mail that the agency “will be
taking steps to address the Senate delegation’s concerns” and “will do whatever
it can within its authorities to have peer reviews made available to
policyholders,” referring to versions of engineering reports.
Earlier,
the agency asked the New York federal magistrate judge to reconsider his demand
that reports be disclosed, saying it was burdensome and “unjustly applies to
the conduct of one engineering firm to suggest systemic misconduct by all
engineering firms.”
The
case is Dweck v. Hartford Insurance Co. of the Midwest, 1:14-cv-06920, U.S.
District Court, Eastern District of New York (Brooklyn)
//----------------------------------//
A
related story was reported by METROPOLITAN CONSULTING & FORENSICS A MONTH
AGO. See here
https://sites.google.com/site/metropolitanforensics/fraudulent-superstorm-sandy-flood-expert-reports
What
the insureds must realize is that they should hire their own experts.
They should never rely on the inspectors hired by the insurers. This is
how the "game is played."
https://sites.google.com/site/metropolitanforensics/fraudulent-superstorm-sandy-flood-expert-reports
SUPERSTORM SANDY
LITIGATION: Fraudulent Superstorm Sandy Flood
Expert Reports?
We received the
following announcement from Plaintiff’s counsel regarding allegedly fraudulent
expert reports being prepared by an expert of one of the insurers.
“An engineering firm has produced an alleged fraudulent
report of an engineer’s opinion in a Superstorm Sandy flood lawsuit. Outcome oriented vendor firms providing
outcome oriented reports is a big problem for consumers of insurance after a
loss occurs. Reports can be altered and language changed which can be
disastrous for insurance customers and save millions for insurers. This recent filing
demonstrates that this may be ongoing with Superstorm Sandy flood lawsuits:
[T]he Nielsen firm has failed to provide us with an original
report of its New York Licensed Professional Engineer George Hernemar. This engineer told our client that he issued
a report that determined that the damage to the foundation was caused by the hydrostatic
pressures from Sandy flood water. This finding compels coverage. We
asked that the Nielsen firm contact Mr. Hernemar to obtain his original report
because we believed we were not provided a correct copy of the original report.
The Nielsen firm refused, indicating that they sent us all reports, are
currently "not in possession" of any other report, and have "no
knowledge" of any other reports and they are under no further obligation
to comply. Instead, the Nielsen stood by the firm position that they sent us a
true copy of the original report... This copy of U.S. Forensic Report . . .
.sent to us indicates that the home foundation was NOT damaged by hydrostatic
forces from Sandy. . . .
But the engineer indicated he authored a different report:
Mr. Hernemar personally told our client that he did not
author a report that disclaimed causation from Sandy. He told our clients he
had in fact authored U.S. Forensic Report No. 12.22.1304, but the conclusion of
U.S. Forensic Report No. 12.22.1304 confirmed the foundation was broken by
hydrostatic forces from Sandy. He indicated he was not authorized to provide a
copy of the report, but he allowed our client to read the report on his
computer screen. While reading the report, our client took a cell phone image of
the computer screen showing the cover page of U.S. Forensic Report No.
12.22.1304 and the causation paragraph of the report. While the copy of the
actual report has been denied, and we have been unable to get a copy, we have
attached the image from our client's cell phone. The image shows the cover page
of U.S. Forensic Report No. 12.22.1304 and the causation paragraph which is the
exact opposite of the Metairie office copy:
(1) The physical evidence observed at the property indicated
that the subject building was structural [sic] damaged by hydrodynamic forces
associated with the flood event of October 29, 2012. The hydrodynamic forces
appear to have caused the foundation walls around the south-west corner of the
building to collapse.
Obviously, the original report and opinion was altered. It
impacts how much is owed. The question is “who did it and why?””
Metropolitan’s Perspective on these
Allegations
These
accusations during insurance claim disputes are nothing new. If one side (either the insurer or the
insured) does not like the other parties’ expert’s opinion, then they always accuse
each other of fraud, bad faith, and so on.
It has been going on for as long as the insurance industry has been in
business. Certainly the insurers are really
akin at finding individuals or firms who would say exactly what the insurers
want to hear. Basically they shop around
for favorable opinions, the same way the insureds do. If you pay somebody money, they are willing
to say whatever you want them to say. Oftentimes
they issue opinions favorable to you not and ignore facts favorable to the
other party not because you asked them to, but because they felt it was
necessary to hide unfavorable facts to continue doing business with you. That is unfortunately the name of the game
and both sides act similarly, with one side underestimating the losses, with
the other party over-inflating the losses..
The expert who tells the best story before the court is the one who wins.
Perhaps
you have heard about the stories with Haag Engineering or Donan Engineering regarding
their insurer-favorable opinions on damage to hail-impacted shingles. They are considered the darling of the
insurers, just because of these opinions.
They basically require asphalt shingle
damage so that the matt is actually exposed. It ignores the fact that bruising will
accelerate this damage they are looking for. Asphalt
granular shingle loss is generally calculated at 3% a year. Big bruises to shingles from hail may not
crack the shingle or produce exposure all the way to the matt- at least not
now. However, there is no doubt such damage can accelerate this process by
15-40%. Many insurers are masters at
using the opinions of Haag Engineering and subsequently denying that hail damage
was caused to an insured’s roof. See for
example all the litigation going on in Indiana, where State Farm, in their
attempt not to pay hail damage to roofs, accused a roofing contractor for fraud
and run him out of business; the contractor filed counterclaims, he was
exonerated of all fraud charges and he won a $14.5 million verdict against Sate
Farm. The Court of Appeals of Indiana
affirmed the jury verdict against State Farm.
See State Farm Fire & Cas. Co. v.
Radcliff, 29A04-1111-CT-571
(Ind. Ct App. April 11, 2013).
Here
is what an Indiana lawyer wrote regarding the court of appeals decision to
uphold the verdict:
The court’s decision is a monumental
one because it upheld the findings of a jury who was in the proper place to
determine the harm and malice of the defamation perpetrated upon Mr. Radcliff.
The entirety of the case paints an unbelievably disturbing image of an
insurance investigation team and a business run amok with no concern for the
harm perpetrated in the name of profit. The verdict is one of the largest in
American history due to the heinousness of the actions at issue. Thankfully,
the Indiana Court of Appeals saw fit to properly apply the law and to protect
this great victory for justice.
There
are many individual and class action lawsuits against State Farm for their
efforts not to pay the insureds. But
they have won most battles, including battles where the insureds wanted full
roof replacement, instead of repair of a portion of the roof. See Pellegrino
v State Farm, 13-3571, Third Circuit Court of Appeals, June 2, 2014. These
battles continue to rage as we write this blog:
insurers accusing claimants of fraud and claimants accusing the insurers
of bad faith or fraud. Really nasty
business and the inspectors are in the middle of these epic battles.
The “Truth” Lies somewhere in between
Based on so many
litigated cases, we believe the truth is somewhere in between. See for example the recent $19.1 million bad faith verdict against
Allstate in the case Hennessy v. Allstate Insurance. After the judge refused to set aside the
verdict, a settlement was reached
Monday, for $22 million dollars. It is
the largest reported bad-faith settlement in Pennsylvania history. The verdict stemmed from Allstate's failing
to pay the $250,000 in automobile accident coverage.
In another recent
case, the Missouri Court of Appeals recently affirmed an award of $3 million
compensatory damages against an insurer based upon bad faith in Advantage Bldgs. & Exteriors, Inc. v.
Mid-Continent Cas. Co., 2014 Mo. App. LEXIS 975 (Missouri Court of
Appeals 2014). The declaratory judgment
coverage action arose out of an underlying construction defect action in which
claims were asserted against Advantage Buildings & Exteriors,
Inc.(“Advantage”) in connection with allegedly defective exterior wall panels
supplied by Advantage which sought coverage from its insurer, Mid-Continent
Casualty Company. The exposure of
Mid-Continent was limited to only $53,000, yet they did not follow the correct
procedures. They will also pay several
million in punitive damages to be determined by the jury.
Based on these significant
bad-faith cases, the insurers are fully aware of the consequences of using
fraudulent reports to justify non-coverage.
The insurance business is a good business and a very conservative
business. That is why we believe the
issues with U.S. Forensic reporting lie somewhere else.
The U.S. Forensic Report Issue
We are quite
familiar with these reports issued by U.S. Forensic and other firms. They use local engineers to do the
inspections who would prepare draft reports; then a New Orleans-based officer
of the firm would write that no damage was caused by floodwaters and send the
report to the insurer. This is pretty
common. We have seen these reports and
have heard the complaints of the insureds countless times. Quite a few insureds have been denied
coverage based on these reports.
Considering the number of the insureds that were denied coverage, we
certainly see the potential here for state and federal involvement into the
truthfulness of these inspections and reports.
But we doubt that U.S. Forensic prepared fraudulent reports and we
certainly do not believe that the insurers colluded with these inspectors to
fabricate the reports.
Pretty Ingenious Business
Insurers simply
shop around for either judicial opinions or experts who would issue legal or
technical opinions, respectfully, that are favoring the insurers. Most of the time, the insurers are asking the
courts to narrowly construe a policy language so that the insurers can then
provide additional coverage to the insured by means of endorsements. In other words, they are collecting
additional premiums from the insureds to provide coverage for excluded items,
such mold, flood, anti-concurrent causes, and so on. This is some pretty ingenious business strategy
and it has been going on for as long as we can remember. And it is a very lawful way of doing
business. The insureds do not understand
the contract law governing the insurance business, the way the insurers operate
and this is why the battles start.
In case judicial
opinions are against the insurers, then they would re-write the insurance
policies so that they do not have to pay claims the next time there is a
loss. This is how the insurers started
inserting the so called anti-concurrent causation (ACC) clause in the insurance
policies: The courts used to rely on the
concurrent causation or the efficient proximate cause doctrines as the rules in
insurance coverage litigation; the insurers then inserted these ACC clauses in
the policies in the 1980s and 1990s to prevent the courts to require coverage
where the damage to the property was caused by both a covered (e.g., wind
damage) and an excluded peril (e.g. flood).
This has created some pretty severe public reaction in New York, New
Jersey, Maryland, and elsewhere where people lost their homes to Superstorm
Sandy, only to find out that because of the ACC, they are not covered. In addition, the home and business owners are
upset where they failed (or were not told) to get an endorsement for: mold (and
there was some pretty serous mold damage in the Sandi-impacted homes), flood,
etc. It was quite disbelief for
homeowners who had no idea such a provision existed in their policy. Maryland passed a post-Sandy law requiring
insurers to notify and describe their ACC clause to policyholders annually.
We believe that the
insurers and the state regulators must make every effort possible to educate
the home and business owners on how to insure for every possible peril. This would be good business for the insurers
and it will eliminate much of the battles that are currently going on regarding
coverage issues and whether the insured was aware that he was not covered.
All Evidence must be Gathered during the
Forensic Investigation to Enable Cost Allocation
Property insurance
policies insure against direct physical damage to property. “All-risk” property policies provide coverage
to all risk of physical loss but contain exclusions that limit loss coverage. An “all-risk” policy creates a “special type
of insurance”, extending to risks not usually contemplated, and recovery under
the policy will generally be allowed, at least for all losses of a fortuitous
nature, in the absence of fraud or other intentional misconduct of the insured,
unless the policy contains a specific provision expressly excluding the loss
from coverage.” 43 Am Jur. 2d
Insurance Section 505 (1982). If a loss follows multiple causes, such as
hurricane and wind, rain and flood, a determination must be made whether the
perils worked independently of or in sequence with one another and precisely
where possible what damage each peril caused.
A “named peril” policy of insurance insures against a specifically
identified cause. 1-1 Appleman, Insurance Law and Practice, §1-06 (2012).
In addition to the ACC, there are several rules that apply in
New York, New Jersey and other states to property damage claims. If only one peril caused a specific loss,
then if the loss is a covered loss, then coverage should be provided. This is even if there were other, multiple
perils working at the same time to cause property damage in the same vicinity.
Application of the multiple cause theory is necessary only when multiple perils
work to cause the same loss (concurrent cause).
·
“Efficient proximate cause”
rule- the proximate cause of the loss must be a covered cause. Proximate cause
means the risk that set the others in motion- it looks to the quality of the
links in the chain of causation. The
efficient proximate cause is the predominating cause of the loss. When the
perils act in a sequence to cause the same loss, then the “efficient proximate
cause” test is used. For example, if a
flood breaks a gas main that starts a fire, and the flood is an excluded cause
of loss, then the loss would not be covered.
·
“Concurrent cause” rule-
concurrent cause means that the perils acted independently of one another to
simultaneously cause the same loss. The
concurrent cause doctrine permits coverage when a loss results from multiple
causes, as long as one of the causes is an insured risk. If any one of multiple non-remote causes of
the same loss is a non-excluded peril (or a specific peril under a named peril
policy) then the loss is covered. In this instance, prove that the loss would
not have occurred but for the operation of a covered cause.
It is crucial to collect all required
evidence to allocate the total loss based on the direct physical damage caused
by covered and non-covered causes. If
the insurers’ experts do not perform a thorough investigation, then this could
cause problems.
Our Suggestions
We
believe that the best course of action for the insureds is to hire their own
experts and prepare their own damage reports.
The burden of proving causation differs
in first-party property insurance cases depending on whether the policy is a
specified peril policy or an "all risk" policy. Under a specified
peril policy, the insured has the burden of proving that the loss was caused by
a specifically enumerated peril.
Alternatively, under an "all risk" policy, by contrast,
"the insurer has the burden of proving that the cause of the loss is an
excepted cause.
Filing
bad faith lawsuits and accusing the other parties for fraud, etc. is not the
way to do it. See for example the recent
case Trout Brook South Condominium
Association v. Harleysville Worcester Insurance Company, Civ. 12-2888,
where Harleysville hired Haag Engineering to inspect the hail-damaged
roofs. As expected, Haag Engineering found
some, but not “significant” damage to the roof shingles, and as result, the
insurer paid $270K to the insured, of which $21K was allocated for roof
repairs. Trout Brook did not agree with
Haag’s assessment and hired its own expert, First Rate Construction. This contractor noted “large hail impacts”
that had substantially damaged the roof’s vents, flashings, and shingles and
proposed to replace the entire roof for $800K.
Eventually they went to an appraiser to solve their differences.
Unfortunately,
very-very few insureds understand the insurance claim procedure, because most
of them file a claim once every ten years or so, if ever. They do not understand that the expert or
engineer hired by the insurance company work for the insurer and they prepare a
report that is favorable to the insurer.
In the 30+ years of our insurance claim work, we have yet to see an
insurance expert’s report that presents facts that are against the
insurer. If any facts were favorable to
the insured, they would omit them from the “expert” report. Dah!
The most common
course of action of the insurers’ experts is to do a very brief and cursory
inspection, without performing any testing or other detailed
investigation. They would then conclude
that the damage is caused by wear & tear, lack of maintenance, natural settlement,
that there is no foundation shifting caused by the floodwater, etc. Remember that the job of the insurance expert
is not to find damage; the same way the job of the insured’s expert is to find
damage, and lots of it. We all have
heard the stories of the allegedly inflated property damage assessments of the
roofing contractors. This is another
battle ground between the insurers and the roofing companies.
My four different contractors have told me that I have damage. But because of the report from Donan my insurance is not paying for replacement of my roof. I later find out that Donan works with the insurance company to not pay out claims. How is this legal?
I have contacted my attorney to see if I can take any action.
Oh and ya my insurance company has since then dropped me because of the claim.Thanks Donan
What
is Neutral Evaluation?
On
October 1, 2006, Florida Statute 627.7074 took effect. It was meant to be an
alternative dispute resolution, but it has become much more. Once invoked by
either side, and in virtually every case it is the insurer, it is mandatory.
First, it stays all court proceedings for at least 60 (sixty) days.
Second,
sinkholes are currently being confirmed all over the state of Florida. And
whether they are confirmed or being denied as the cause of damage, insurers are
using the neutral evaluation process to greatly affect the outcome of the
claim. Neutral evaluators, many of whom derive a great deal of their income
from insurance companies, are issuing opinions in these informal meetings. The
rules of evidence do not apply to neutral evaluations. And finally, these opinions
being issued by the neutral evaluators are admissible in a jury trial! Their
opinions can drastically affect the value of an insured’s claim.
Q.
How is this affecting the policyholders?
The
insurers are being emboldened by these neutral evaluation opinions. They feel
that if these opinions come down in their favor, they now can go into court and
argue that a “neutral,” impartial party ruled in their favor. Imagine the
effect that has on a jury.
Q.
Is there anything you can do when neutral evaluation is demanded?
It
is important that the policyholder has the right experts and prepares a
coherent, well prepared presentation for use at the neutral evaluation.
When Insurers Hide Behind their Experts in Texas
One strategy insurance companies use to avoid bad faith liability is claiming that they reasonably relied on their experts’ reports to deny a claim. Texas law on bad faith states that an insurer breaches its duty of good faith when: (1) denies or delays payment of a claim for which liability is reasonably clear, and (2) the insurer knew or should have known that liability was reasonably clear. Therefore, insurance companies often argue that because their retained experts concluded that there was no valid insurance claim, liability was not reasonably clear and they should not be found liable for bad faith. Courts typically side with insurance companies on this issue, but sometimes the facts of a case require courts to doubt this argument, just as the Texas Supreme Court did in State Farm Lloyds v. Nicolau, 951 S.W.2d 444 (Tex. 1997).
In Nicolau, a homeowner filed a lawsuit against its insurer for foundation and other structural damage that resulted from a plumbing leak that introduced water into the clay subsoil. The insurer retained an expert, HAAG Engineering¸ to conduct a study on the homeowner’s claim. It was established in Nicolau that the insurer hired HAAG Engineering with the belief that HAAG Engineering generally believed that leaks beneath a house would not cause foundation movement. As expected, the HAAG engineer concluded that there was no damage near the leak, but evidence showed that his investigation was not thorough because: (1) he did not isolate the leak; (2) he failed to determine the leak’s severity; and (3) he did not take any soil samples. The HAAG report concluded that the plumbing leak had not caused the damage, and the insurer denied the claim based on the HAAG report.
The Texas Supreme Court stated that an insurer’s reliance upon an expert’s report alone will not necessarily shield the insurer from liability if there is evidence that the report was not objectively prepared or the insurer’s reliance was unreasonable. Overturning an intermediate appellate court decision, the Texas Supreme Court found that there was evidence to support the jury’s finding that the insurer denied the claim in bad faith because there was evidence from which the jury could infer that HAAG’s reports were not objectively prepared, that the insurer was aware of HAAG’s lack of objectivity, and that the insurer’s reliance on the reports was merely pretextual.
Nicolau reaffirmed the long-established idea that insurance companies cannot expect their experts’ reports alone to shield them from bad faith liability.
There was also evidence that the defendants exhibited bias in selecting and retaining Dr. Swartz as the IME.
Paul
Revere used Dr. Swartz nineteen times from 1995-2000. Caliri testified that
when an insurer ‘use[s] the same [IME] on a continual basis,’ the medical
examiner becomes ‘biased’ because they ‘lose their independence’. Similarly,
evidence showed that in thirteen out of thirteen cases involving claims for
total disability, Dr. Swartz rejected the insured’s claim that he or she was
totally disabled.
It is important to note
that Paul Revere’s letter retaining Dr. Swartz was written by an in-house
medical consultant who had never examined Hangarter. In the letter, the
in-house medical consultant claimed that there were no objective findings for a
disabling injury. Caliri testified that this letter biased and predisposed Dr.
Swartz against finding disabling injuries by telling him the insurer’s opinion.The Court determined that the evidence presented against the defendants was certainly enough to support a finding that the defendants engaged in a biased and, therefore, “bad faith” investigation. As such, that part of the lower court’s ruling was upheld.
Hangarter v.
Provident Life and Accident Ins. Co. and Paul Revere Life Ins. Co., 373 F.3d 998 (9th
Ct. App. 2004) is a first party bad faith case.
I recently represented a client at a court hearing on a motion to compel appraisal to determine the amount of roof damage from Hurricane Wilma. The insurance company’s attorney opposed appraisal, so the judge asked him who other than appraisers should determine the amount of damage from Wilma. “I’m not getting on that roof!” exclaimed the judge. “Are you getting on the roof?” he asked the insurance company’s attorney before looking at me and asking me the same question. As much as I wished I were qualified to differentiate between hurricane damage and wear and tear, I admitted that such a decision should be left to the experts. That experience led me to ponder on the subject of experts.
Generally, under Rule 702 of the Federal Rules of Evidence, specific and relevant knowledge, skill, experience, training, or education is required to qualify an expert witness. There are no degree or certification requirements, and no years of service or publication requirements. Courts have allowed experts with no formal education but years of experience (See Eagle Pet Serv. Co. v. Pacific Employers Ins. Co., 175 A.D. 2d 471, 572 N.Y.S. 2d 625 (N.Y.A.D. 3 Dept., 1991)) and “academics with no practical experience” (See Lavespere v. Niagara Mach. & Tool Works, 910 F.2d 167 (5th Cir. 1990)). Sometimes the qualifications of an expert will be called into question, and other times the dispute will be over the reliability of the expert’s principles and methods.
The same issue of hurricane damage versus wear and tear that I was litigating in South Florida also came up recently in North Carolina federal court over distinguishing between a covered cause of loss (Tropical Storm Ernesto in 2006) and an excluded cause of loss (wear and tear). In Sheffield v. West American Ins. Co., No. 08-191, 2010 WL 2990012 (E.D. N.C. July 27, 2010), the insurance company argued that the insured’s experts’ opinions should be excluded because they were “unreliable and wholly speculative, because, among other things: (1) their opinions are based on speculative and unsupported assumptions, not facts, data or scientific knowledge; and (2) their opinions are not based on reliable principles or scientific methods.”
The Sheffield Court turned to the United States Supreme Court decisions in Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993) and Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) to determine if the experts’ testimony would be reliable:
The Supreme Court has noted four non-exhaustive factors a court may use to determine the reliability of scientific expert testimony: (1) whether a theory has been tested; (2) whether it has been subject to peer review; (3) whether a technique has a potential rate of error or standard operating procedures; and (4) whether a theory is generally accepted within the scientific community. Id. These four factors do not need to be applied in all cases; the trial judge has “considerable leeway” in an individual case to determine “whether particular expert testimony is reliable.” Kumho Tire Co., 526 U.S. at 152 (1999).
The Sheffield opinion did not discuss the principles and methods the experts were using, but rather found that the insurance company did not meet its burden of proving that the experts’ testimony would be totally speculative or wholly irrelevant.
Courts are not limited to the factors above to determine admissibility of expert testimony. The advisory committee note to Rule 702 of the Federal Rules of Evidence includes additional factors, and other courts have modified or changed the list above
I've
learned in the past couple of years to give each carrier what they want.
Some follow HAAG to the letter while others go the "if it looks like hail
hit it, call it" route. There just isn't a "right" or
"wrong" way to do this these days.
I had a claim a
couple of weeks ago that has me (and the inside reviewer) bewildered.
Hail in the area sized up to golf balls (I know this because it hit my house
too). Confirmed damage to the gutters, downspouts, gutter guards (holes in
plastic where hail hit), vent caps. Back slope looks like a speckled egg.
I marked my test square, circled the hits, shook hands with the contractor, and
left. I got this one back the other day from my reviewer stating the
carrier inside adjuster did not see any evidence of hail damage on the shingles
in my photos. I was asked to write a roof minimum charge for the vent
caps and 3 wind damaged shingles. I can't wait to see what happens when
the contractor and insured pursue this one further...*sarcasm*
Pritzl, the lead engineer, used two internet sources to determine that wind did not cause our barn to collapse. No kidding. It was the extra 48,000 pounds of shingles the crooked contractor put on the roof instead of taking the old ones off. The extra weight caused our barn to collapse.
We have filed a suit. We need witnesses. The case in: Taylor County case no. 13CV90.
Wayne and Jerri Cook v. Donan Engineering, Matthew Pritzl, and Mutual of Wausau.
If you can be a witness for us.Please contact Jerri Cook at (715) 257-4363 or via email jerri.l.cook@gmail.com
On
Dec. 1, 2009 Kathy Riser, an adjuster for Erie Insurance came out to inspect my
roof for hail damage. She asked for date of loss, I indicated that it was
some time in April 2009, but didnt know the exact date. She spent approximately
15-20 minutes on the roof. She was not equipped with a ladder, I had to supply
one. She took pictures but she did not put any markers in the photos to
indicate what she was taking pictures of. After inspecting the roof, she came
inside and spoke with me and told me that she did not see any hail damage. Let
me add it took her over 2 weeks to come inspect my roof once the claim was
filed.
On 12/11/09 I had another roofer come out and look at my roof. He took pictures and indicated that I did indeed have hail damage. He also provided me with photos with markers showing where the hail damage was.
Ultimately, Erie denied my claim and told me that they would not pay to have my roof replaced.
I have had another insurance company, to inspect my roof and they also indicated that I had damage to my roof.
On 12/11/09 I had another roofer come out and look at my roof. He took pictures and indicated that I did indeed have hail damage. He also provided me with photos with markers showing where the hail damage was.
Ultimately, Erie denied my claim and told me that they would not pay to have my roof replaced.
I have had another insurance company, to inspect my roof and they also indicated that I had damage to my roof.
Since the first visit with Kathy Riser I have had a total of 3 different companies inspect my roof and say I have hail damage. Not to mention I have also been on my roof and can also say that there is indeed damage.
On 12/17/2009, Michelle Stewart hung up the phone on me. She is a property Supervisor with Erie insurance. I was given her cell phone number and called her back and left a voicemail she never called me back. On 1/11/10 I called her on her landline again and she told me I was harassing her, on the phone. I have a witness that was right beside me and heard the whole conversation. This is not harassment at all; all she is trying to do is get leverage over on me.
Michelle Stewart thinks she can get away with the way she talked to me, she cannot. She is supposed to be the property supervisor for Erie Insurance. Ive had Erie Insurance now and they are a wonderful company as long as you pay your premiums. But when it comes time to paying a claim they dont want anything to do with it. Also, Erie Insurance is telling me that these roofing companies are going door to door telling people they can get new roofs. This has nothing to do with it, this is irrelevant. Nobody came door to door and told me I could get a new roof.
I have also talked with Phyllis Taylor at the corporate headquarters who is at 1-800-458-0811. She told me she was going to get a letter out to me as far as what was going on. As of 2/24/10 I still have not received any documentation from her. This was stated in Dec. 2009. Also, Erie Insurance in Charlotte gave me 3 engineering companies to use to come to my home and look at my roof. My question is why cant I use who I want to use? They are mandating to me who I have to use. I didnt think it was legal for an insurance company to do that. One of the companies I spoke with told me it was a conflict of interest; they didnt feel like it was ethical because they do a lot of work for Erie Insurance. They are one of the companies that Erie Insurance referred me to use.
On January 22, 2010, Michael D. Spensieri of Donan Engineering, another company Erie referred, came to inspect my roof. When asked how long he had been a Professional Engineer, he told me 6 months. He asked several questions, the main one being when was the approx. date of loss. Again, I told him I was not sure of exact date but know that it was in April. He said he would get that information from Erie. It took about 2 weeks to receive and review his report.
Upon review of the report that Donan submitted the first discrepancy I noticed was that he stated date of loss was May 11, 2009. The report also stated that according to the Storm Prediction Center (SPC) of the National Weather Service (www.spc.noaa.gov/climo/) did not report hail within 25 miles of the subject site for this date. That is not the date I gave Erie or Donan Engineering. I am not sure why they have decided to pull May 11, 2009 out of thin air.
However, upon my own research using the same website, I did find that hail was reported in the area on April 10, 2009. This is in the same month in which I stated the loss occurred. I have attached those findings as well.
Also, I reviewed the photos that Donan shot and compared them to the photos from the other roofing company and there is no detail at all in them. They did not zoom on any particular part of the roof. The only close up shot was taken of the nail pops. The Engineer also stated that there was No collateral indicators of hail impact on the light gauge metal flashing photo 0006. On photo 0008 in which the engineer stated the Collateral indicators of hail impact on roof vent cap. Difficult to see impacted areas with white paint on vent caps. Which is completely not the case in the photos that were taken by the other companies all of which are attached and areas are circled.
I
spoke with Bob Waylon at Donan Engineering on Feb. 18, 2010. We discussed the
discrepancies in the report and that we have numerous pictures from other
companies that were blown up to 8x10 size to see damage was not in May but in
April. I indicated that I felt like their company was bias and
represented Erie. I asked Mr. Waylon his title he indicated it was Territory
Manager. I asked him if I could speak with the owner of the company and he
would not let me do so. I then told him I was going to file a written complaint
with the North Carolina Insurance Commissioner office. He hung up the phone on
me at 3:19 pm during this conversation. I called the office back and
talked to his secretary, Keisha at 3:30 pm and she also hung up the phone on
me. The number I called Mr. Waylon on was 205-420-8060 (cell). It is
disrespectful and unprofessional to have 3 different people hang up the phone
on me.
In
conclusion, my feeling is that this Engineer is trying to discredit this claim
by stating that all damage is due to blistering, nail pops and man made causes.
Clearly, that is not the case.
One
strategy insurance companies use to avoid bad faith liability is claiming that
they reasonably relied on their experts’ reports to deny a claim. Texas law on
bad faith states that an insurer breaches its duty of good faith when: (1)
denies or delays payment of a claim for which liability is reasonably clear,
and (2) the insurer knew or should have known that liability was reasonably
clear. Therefore, insurance companies often argue that because their retained
experts concluded that there was no valid insurance claim, liability was not
reasonably clear and they should not be found liable for bad faith. Courts
typically side with insurance companies on this issue, but sometimes the facts
of a case require courts to doubt this argument, just as the Texas Supreme
Court did in State Farm Lloyds v.
Nicolau,
951 S.W.2d 444 (Tex. 1997).
In
Nicolau, a homeowner filed a lawsuit against its insurer for foundation
and other structural damage that resulted from a plumbing leak that introduced
water into the clay subsoil. The insurer retained an expert, HAAG Engineering¸ to conduct a study
on the homeowner’s claim. It was established in Nicolau that the insurer
hired HAAG Engineering with the belief that HAAG Engineering generally believed
that leaks beneath a house would not cause foundation movement. As expected,
the HAAG engineer concluded that there was no damage near the leak, but
evidence showed that his investigation was not thorough because: (1) he did not
isolate the leak; (2) he failed to determine the leak’s severity; and (3) he
did not take any soil samples. The HAAG report concluded that the plumbing leak
had not caused the damage, and the insurer denied the claim based on the HAAG
report.
The
Texas Supreme Court stated that an insurer’s reliance upon an expert’s report
alone will not necessarily shield the insurer from liability if there is
evidence that the report was not objectively prepared or the insurer’s reliance
was unreasonable. Overturning an intermediate appellate court decision,
the Texas Supreme Court found that there was evidence to support the
jury’s finding that the insurer denied the claim in bad faith because there was
evidence from which the jury could infer that HAAG’s reports were not
objectively prepared, that the insurer was aware of HAAG’s lack of objectivity,
and that the insurer’s reliance on the reports was merely pretextual.
Nicolau reaffirmed the
long-established idea that insurance companies cannot expect their experts’
reports alone to shield them from bad faith liability.
Yesterday’s post, Physical
Damage is Needed to Collect for Loss of Warranty,
may lead some to think that property insurance policies require “structural” or
a “functional” destruction before coverage is not afforded. This simply is not
true. Alterations to the physical appearance of a structure or personal
property are covered so long as the cause is a covered peril.
Indeed, this issue
does not get raised just by insurance adjusters. My experience is that when
insurance defense counsel hire engineers, the engineering report repeatedly
notes the lack of “structural” damage to a building. A noted example of this is
with roof claims. HAAG
engineers often repeat in their reports and at seminars that there is no
structural or functional damage to shingles or parts of the roof. The result is
insurance company attorneys saying that they are not paying for anything unless
there is proof of “structural damage.”
I am going to provide
just one example to show how absurd this position is. The FC&S
Bulletins discuss the issue and use the same
example of vandalism that I usually provide. Interestingly, the question posed
involved a roof with cosmetic damage, and I bet the insurance company had a
roofing expert say there was no functional or structural damage to the roof:
Direct Physical Loss
and Cosmetic Loss
Hail stones have
created dents to a copper roof. The section of roofing is located over a second
story bay window. It does not appear that the hail has compromised the life
span of the roof's surface or otherwise affected or decreased its useful
lifespan.
Our HO policy
provides coverage for direct physical loss. If the roof's integrity was not
compromised by the hail stone impact, has a physical loss occurred?
We believe that some
carriers view this type of damage as cosmetic and do not provide coverage for
replacement of the copper roof. Does FC & S have an opinion?
ANSWER
Whether or not the
dents are cosmetic or affect the roof structure, they are still direct physical
loss. The policy doesn’t define damage so standard practice is to go to a desk
reference. Merriam Webster Online defines damage as loss or harm resulting from
injury to property, person, or reputation. The roof now has dents where it
didn't before; that's direct damage. The policy doesn't exclude cosmetic
damage, so direct damage, even if it is cosmetic, is covered. It's the same as
if vandals had painted the side of the house purple. While cosmetic, it's
damage, and is covered. The principle of indemnity is to restore the insured to
what they had before the loss, and this insured had a roof with no dents.
I am raising this
issue in part because there are so many Hurricane Ike disputes where the
insurers are not paying for roof damage. One of the arguments is that they do
not pay for “cosmetic damage” which is wrong. The vandalism example made by the
editors of the FC&S Bulletin clearly shows that the property policy
covers for damages to the appearance of structure or property so long as it is
by a covered peril.
====================================
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When Insurers Hide
Behind their Experts in TexasOne strategy insurance companies use to avoid bad faith liability is claiming that they reasonably relied on their experts’ reports to deny a claim. Texas law on bad faith states that an insurer breaches its duty of good faith when: (1) denies or delays payment of a claim for which liability is reasonably clear, and (2) the insurer knew or should have known that liability was reasonably clear. Therefore, insurance companies often argue that because their retained experts concluded that there was no valid insurance claim, liability was not reasonably clear and they should not be found liable for bad faith. Courts typically side with insurance companies on this issue, but sometimes the facts of a case require courts to doubt this argument, just as the Texas Supreme Court did in State Farm Lloyds v. Nicolau, 951 S.W.2d 444 (Tex. 1997).
In Nicolau, a homeowner filed a lawsuit against its insurer for foundation and other structural damage that resulted from a plumbing leak that introduced water into the clay subsoil. The insurer retained an expert, HAAG Engineering¸ to conduct a study on the homeowner’s claim. It was established in Nicolau that the insurer hired HAAG Engineering with the belief that HAAG Engineering generally believed that leaks beneath a house would not cause foundation movement. As expected, the HAAG engineer concluded that there was no damage near the leak, but evidence showed that his investigation was not thorough because: (1) he did not isolate the leak; (2) he failed to determine the leak’s severity; and (3) he did not take any soil samples. The HAAG report concluded that the plumbing leak had not caused the damage, and the insurer denied the claim based on the HAAG report.
The Texas Supreme Court stated that an insurer’s reliance upon an expert’s report alone will not necessarily shield the insurer from liability if there is evidence that the report was not objectively prepared or the insurer’s reliance was unreasonable. Overturning an intermediate appellate court decision, the Texas Supreme Court found that there was evidence to support the jury’s finding that the insurer denied the claim in bad faith because there was evidence from which the jury could infer that HAAG’s reports were not objectively prepared, that the insurer was aware of HAAG’s lack of objectivity, and that the insurer’s reliance on the reports was merely pretextual.
Nicolau reaffirmed the long-established idea that insurance companies cannot expect their experts’ reports alone to shield them from bad faith liability.
The Science of Roof Damage Claims Caused by Wind
The inaugural First Party Claims Conference in Providence, Rhode Island, has been a success. Over 200 hundred registrants discussing various aspects of first party property insurance claims have made for a very educational adjusting and legal seminar. Since I have been involved in so many disputes involving damage to roofs following hurricanes and tornados, I thought it would be a good learning experience for me to teach a course on the topic, along with an engineer.
I often feel as if one gets a lot more from teaching a subject than simply being taught by another because you have to research, prepare, write about, present and answer questions on the issues. Teaching aspects of insurance coverage makes me a much better insurance attorney.
Roof damage disputes have been significant areas of contention lately because many of the insurance company expert vendors have been providing opinions, seemingly minimizing the impact that wind has on roofs. Accordingly, I need to know this area to do my job. I felt that others in the field needed more knowledge on the topic as well.
Our law firm has a competitive edge over many other policyholder firms because we have invested in a full time “Knowledge Manager.” Ruck DeMinico is an attorney with a library science background. He can help us find rather obscure, but significant, information regarding our cases that can literally mean the difference between winning and losing. Often, the amounts of recovery for our clients are enhanced because information is power and provides our attorneys with better arguments than the insurance counsel we oppose.
Regarding my presentation on the effects of wind on roofs, I asked Ruck to make a bibliography on the topic so others could have a list of scientific references for use in their cases. Some of the more important papers include:
- Baskaran, A., Murty, B. and Wu, J. “Calculating roof membrane deformation under simulated moderate wind uplift pressures”
- Xu, Y. L. “Fatigue damage estimation of metal roof cladding subject to wind loading”
- Lee, K., Rosowsky, D. V. “Fragility assessment for roof sheathing failure in high wind regions”
- Ali, H. M., Senseny, P. E. “Models for standing seam roofs”
- Baskaran, B. A., Koa, S., & Molleti, S. “A novel approach to estimate the wind uplift resistance of roofing systems”
- Cochran, L. “Wind engineering as related to tropical cyclones”
I cannot emphasize enough how important it is to understand the physics of wind loads and flow if you are going to be able to fully find and explain the extent of damage caused by wind. Many of these scientific papers develop concepts of how subtle fatigue damage during a high wind event can lessen a structure’s life expectancy because the fastening and structural systems were altered as a result of having been pushed and pulled by the wind. I have been amazed at the numerous engineering committee comments regarding building integrity issues.
Tim Marshall has been my partner in this presentation. He is the other Tim Marshall, and not the infamous one from HAAG Engineering that is the insurance industry’s darling forensic engineer. I suggest that policyholders may want to hire Tim so that they can freak out the insurance industry by claiming that they have a report from Tim Marshall that found significant roof damage.
To be fair to HAAG and its Tim Marshall, they sponsor an in-depth roofing class that provides significant information regarding roof damage claims. While I have heard grumblings that the class is more concerned about how to not find roof damage and thereby lower claims payments, virtually everybody I have talked with urges others to go and learn from HAAG’s experiences on this topic and from what that Tim Marshall has to teach.
I am sorry that everybody could not attend the seminar here in Providence. I promised that the PowerPoint presentation would be placed up for review by all, and it will be available here following the Conference. I will make this topic part of firm’s regular seminar presentations to public adjusters in the future because it is important to understand these issues.
Yesterday’s post, Physical Damage is Needed to Collect for Loss of Warranty, may lead some to think that property insurance policies require “structural” or a “functional” destruction before coverage is not afforded. This simply is not true. Alterations to the physical appearance of a structure or personal property are covered so long as the cause is a covered peril.
Indeed, this issue does not get raised just by insurance adjusters. My experience is that when insurance defense counsel hire engineers, the engineering report repeatedly notes the lack of “structural” damage to a building. A noted example of this is with roof claims. HAAG engineers often repeat in their reports and at seminars that there is no structural or functional damage to shingles or parts of the roof. The result is insurance company attorneys saying that they are not paying for anything unless there is proof of “structural damage.”
I am going to provide just one example to show how absurd this position is. The FC&S Bulletins discuss the issue and use the same example of vandalism that I usually provide. Interestingly, the question posed involved a roof with cosmetic damage, and I bet the insurance company had a roofing expert say there was no functional or structural damage to the roof:
Direct Physical Loss and Cosmetic Loss
Hail stones have created dents to a copper roof. The section of roofing is located over a second story bay window. It does not appear that the hail has compromised the life span of the roof's surface or otherwise affected or decreased its useful lifespan.
Our HO policy provides coverage for direct physical loss. If the roof's integrity was not compromised by the hail stone impact, has a physical loss occurred?
We believe that some carriers view this type of damage as cosmetic and do not provide coverage for replacement of the copper roof. Does FC & S have an opinion?
ANSWER
Whether or not the dents are cosmetic or affect the roof structure, they are still direct physical loss. The policy doesn’t define damage so standard practice is to go to a desk reference. Merriam Webster Online defines damage as loss or harm resulting from injury to property, person, or reputation. The roof now has dents where it didn't before; that's direct damage. The policy doesn't exclude cosmetic damage, so direct damage, even if it is cosmetic, is covered. It's the same as if vandals had painted the side of the house purple. While cosmetic, it's damage, and is covered. The principle of indemnity is to restore the insured to what they had before the loss, and this insured had a roof with no dents.
I am raising this issue in part because there are so many Hurricane Ike disputes where the insurers are not paying for roof damage. One of the arguments is that they do not pay for “cosmetic damage” which is wrong. The vandalism example made by the editors of the FC&S Bulletin clearly shows that the property policy covers for damages to the appearance of structure or property so long as it is by a covered peril.
Tags: Claims
Handling, Expert
Reports, FC&S
Bulletin, HAAG
Engineering, Haag
Engineering Company, Hurricane
Ike,
Insurance, National
Underwriter, Physical
Damage, Texas
Insurers
An important evidentiary hearing concerning alleged wrongful claims practices is taking place in Mississippi. Since the allegations partially involve an insurance company obtaining altered or biased reports from experts, it should be studied by those with similar concerns in other areas of the country. The primary issue in this case is whether State Farm adjusted flood losses so that the Federal Government paid too much on those flood claims through the National Flood Program. The lawsuit contends that State Farm had a motive for doing so because it could minimize the amount owed under its own all risk insurance policies which exclude flood damage.
The parties bringing the action, Kerrie and Cori Rigsby, are two former independent adjusters that worked catastrophe claims for Sate Farm,. The hearing is being covered extensively by Slabbed and Anita Lee of the Sun Herald. I wrote a comment a couple days ago in response to SLABBED Daily – May 20 (qui tam Hearing), which sets out how I feel about the Rigsby sisters:
“The Rigsby sisters deserve a big “thank you” from many along the Mississippi Coast. It is a very courageous action to go against one of the largest and most powerful corporations in the world.
As with any that leave a culture complaining of unethical conduct, the first attack is from the company they leave. It is an awful position to be in as a whistleblower.
The information that the Rigsby sisters suggested existed is what lead us to follow up with clients and then engineers that claimed that second reports were far different and limiting than the first reports which indicated different opinions supporting more coverage. In an early lawsuit, we attached both the first and then second report to quiet insurance industry spokesman, Bill Bailey, who challenged and disclaimed the existence of two reports.
Whatever the outcome of this action, the Rigsby sisters decision to leave State Farm and bring this action have significantly helped many of their friends and neighbors. My hat is off to them and to their new counsel.”
I met and spent considerable time with Kerrie Rigsby. She is a very nice and polite person. She is not the rumble and tumble stereotypical catastrophe adjuster that I so often deal with. She looks and acts like a soft spoken third grade teacher. I am certain that the State Farm attorneys will try to show her in a different light. However, if you are a nice person, Kerrie is the type you want to call your friend.
As indicated in Judge Senter’s Order the current hearing concerns the following issues:
“My reading of the Amended Complaint and the documents submitted in
connection with the pending motions leads me to the following conclusions:
1. The merits of this action depend on evidence that the defendants, acting
in concert, systematically submitted false flood insurance claims to the
United States, claims that were not valid under the terms of the Standard
Flood Insurance Policy (SFIP) used in the National Flood Insurance
Program (NFIP).
2. It is the amount of the flood insurance claims that the Relators allege to
be false, i.e. the allegation is that the defendants acted in concert to
submit flood insurance claims in an amount greater than the flood
damage that actually occurred.
3. The Relators allege that the motive for the submission of these false
claims was the defendants’ desire to reduce the exposure under State
Farm homeowners policies, which covered wind damage, by exaggerating
the extent of the flood damage where both types of policies were in force
on the same property.
4. The Relators allege that the defendants had the opportunity to submit
these false claims because the insurers are authorized to evaluate and
settle claims for both wind damage and flood damage, and the adjustors
and engineers the insurers hired were in a position to inflate the amount
of flood damage they observed.
5. There is no allegation that the defendants ever submitted claims to the
United States that were fabricated, only that the defendants acted in
concert to inflate or exaggerate the amount of the legitimate flood insurance claims that they submitted.”
I would strongly suggest that those with an interest of how State Farm operates its catastrophe operations read the Lecky King deposition.
Slabbed has a number of articles on this case including a recent one suggesting that State Farm has invited me to sue it for “settlement fraud.”
To the extent I can, I will comment more on this topic of flood adjustment later.
"Physical Direct Loss" Caselaw and TWIA's Roofing Memo
For those of you that read something and you think it is dead wrong, do your eyes squint and head start shaking? Mine did when I first read the internal TWIA roofing memo. As I read it, I was thinking:
"Does the TWIA claims executive who wrote this not understand the basic insurance principle of what constitutes a direct physical loss?"
In the post, The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions, I showed that the TWIA claims memo is wrong based upon the most basic insurance training available to rookie adjusters. Then, in the post preceding this, Roof Repair Methods Prove TWIA is Wrongly Denying Roof Claims, it was shown how roofers and the manufacturer's of shingle roofs appreciate the need to repair shingles that have seals which are broken from a hurricane's high winds and how to fix them. Maybe the TWIA claims executives sitting behind desks in Austin do not know that adhesive seals are a tangible substance or their purpose on roofing shingles. Or, maybe they have been going to HAAG Roofing Seminars and learned a new trick on how to avoid paying for roof shingle damage. HAAG Engineering is good for my business, but not good for policyholders with an insurance claim.
What about the insurance coverage caselaw regarding "direct physical loss?" The case discussions I like best to help those understand "direct physical loss" are Ward Gen. Ins. Services, Inc. v. The Employers Fire Ins. Co., 114 Cal. App. 4th 548, 7 Cal. Rptr. 3d 844 (2003) and Meridian Textiles, Inc. v. Indemnity Insurance Co. of North America, 2008 U.S. Dist. LEXIS 91371, 2008 AMC 1411 (C.D. Cal. 2008).
The facts of Ward involved loss of the insured's computer data which was mistakenly deleted. The insured filed a claim to recover the cost of recovering the data and the business loss incurred from temporary loss of data. The insurers denied the claim on the ground that the policy required a direct physical loss before there would be coverage. The court held computer data was not a tangible or physical item and a physical loss, which did not happen, was required in order to trigger coverage.
The Court first provided a definition for direct physical loss:
"Neither party submitted any evidence suggesting that the phrase "direct physical loss" has some technical meaning or special meaning given by usage. Accordingly, we interpret these words in their ordinary and popular sense to determine whether they impart a clear and explicit meaning in the context of the losses claimed against the insurance policy. We conclude they do.
The word "physical" is defined, inter alia, as "having material existence" and "perceptible esp. through the senses and subject to the laws of nature." (Merriam-Webster's Collegiate Dict. (10th ed. 1993) p. 875.) "MATERIAL implies formation out of tangible matter." (Id. at p. 715.) "Tangible" means, inter alia, "capable of being perceived esp. by the sense of touch." (Id. at p. 1200.) Thus, relying on the ordinary and popular sense of the words, we say with confidence that the loss of plaintiff's database does not qualify as a "direct physical loss," unless the database has a material existence, formed out of tangible matter, and is perceptible to the sense of touch."
The Court then ruled against the policyholder under reasoning that other courts, including one in Texas, disagree:
"...the loss of a database is the loss of organized information, in this case, the loss of client names, addresses, policy renewal dates, etc.
We fail to see how information, qua information, can be said to have a material existence, be formed out of tangible matter, or be perceptible to the sense of touch. To be sure, information is stored in a physical medium, such as a magnetic disc or tape, or even as papers in three-ring binders or a file cabinet, but the information itself remains intangible. Here, the loss suffered by plaintiff was a loss of information, i.e., the sequence of ones and zeroes stored by aligning small domains of magnetic material on the computer's hard drive in a machine readable manner. Plaintiff did not lose the tangible material of the storage medium. Rather, plaintiff lost the stored information. The sequence of ones and zeros can be altered, rearranged, or erased, without losing or damaging the tangible material of the storage medium."
However, the Court also noted a number of examples of "direct physical loss" that provide coverage:
"...in Hughes v. Potomac Ins. Co. (1962) 199 Cal. App. 2d 239 [18 Cal. Rptr. 650], heavy rains caused the backyard of plaintiff's insured dwelling to slide into a creek, but the structure of the building itself was not damaged. The court held the first party insurance policy covering physical loss and damage to the "dwelling" covered plaintiff's loss. This decision does not stand for the proposition that loss of or damage to intangible property can constitute a physical loss. Quite clearly, the loss of the backyard was a physical loss of tangible property. The essential question decided by the Hughes court was whether the insured "dwelling" included the ground under the building.
...in Western Fire Ins. Co. v. First Presbyterian Church (1968) 165 Colo. 34 [437 P.2d 52], gasoline had accumulated in the soil around the insured building, infiltrating and saturating the foundation and making the structure uninhabitable. The court found the loss of use was covered by an insurance policy insuring against the consequential results of a direct physical loss. ( Id. at pp. 38-39.) Again, this case does not stand for the proposition that loss of intangible property can constitute a physical loss. A physical loss occurred when the foundations became saturated with gasoline. The essential question decided by the First Presbyterian court was whether the resultant loss of use could be recovered under the policy.
...in Azalea, Ltd. v. American States Ins. Co. (Fla.Dist.Ct.App. 1995) 656 So. 2d 600, a sewage treatment plant was vandalized by the dumping of an unknown chemical into the system. Inter alia, the chemical destroyed a bacteria colony, which was an integral part of the sewage treatment facility. ( Id. at p. 602.) The court found the loss was covered by a policy insuring against direct physical loss....
...in Retail Systems v. CNA Ins. Companies (Minn.Ct.App. 1991) 469 N.W.2d 735, a third party liability policy covering "physical injury or destruction of tangible property" was held to cover damages for the loss of a computer tape containing the results of a voter survey conducted by a political party. The computer tape, together with the data it contained, was found to be "tangible property," and the measure of recoverable damages was enhanced by the value of the lost data stored on the tape. But the condition of coverage, the loss of tangible property, was plainly satisfied by the loss of the tape.... "
In Meridian Textiles, the Court's discussion is even more helpful to our roofing situation:
"[t]he
requirement that the loss be "physical," given the ordinary
definition of that term is widely held to exclude alleged losses that are
intangible or incorporeal, and, thereby, to preclude any claim against the
property insurer when the insured merely suffers a detrimental impact
unaccompanied by a distinct, demonstrable, physical alteration of the property.
10A Couch on Ins. § 148.46
(3d ed. 2005) (citing Commercial
Union Ins. Co. v. Sponholz, 866 F.2d 1162 (9th Cir. 1989) (finding
that marine insurance policy did not cover defect in title, which did not
constitute physical injury)....see e.g., Farmers
Ins. Co. v. Trutanich, 123 Ore. App. 6, 8, 858 P.2d 1332 (Or. Ct.
App. 1993) (concluding that under Oregon law odor from methamphetamine
"cooking" "was 'physical' because it damaged the house"); Yale Univ. v. CIGNA Ins. Co.,
224 F. Supp. 2d 402, 412-13 (D. Conn. 2002) (concluding that while plaintiff
could not seek coverage under an all-risk policy for "mere presence of
asbestos-and lead-containing materials in its buildings," it could seek
coverage for the "contamination of its buildings by the presence of
friable asbestos and non-intact lead-based paint").For example, in Glens Falls Ins. Co. v. Covert, 526 S.W.2d 222 (1975), the insurance policy provided coverage against "ALL RISKS OF PHYSICAL LOSS OR DAMAGE" to certain vehicle safety stabilizers owned and sold by the insured. Id. The stabilizers fell from a storage area to the floor. Id. However, because the stabilizers were sealed units, they could not be inspected for damage. Id. Thus, it was not known if the stabilizers suffered any physical or internal damage. Id. The manufacturer of the stabilizers withdrew its warranty, and the insured decided not to sell the units, concluding that the units lost their merchantability. Id. In affirming the trial court, the Court of Appeals held that although the insured decided that the units could not be sold without their warranties, "under the clear language of the policy of insurance . . . , that was a type of loss not covered." Id. The court concluded that because "there was no physical loss or damage," the insured could not recover...
Similarly, in Columbiaknit, Inc. v. Affiliated FM Insurance Co., 1999 U.S. Dist. LEXIS 11873 (D. Or. 1999), relied upon by defendant, the court held that under an all-risk insurance policy providing coverage for physical loss or damage, the plaintiff must "show that a physical loss occurred to covered property."....
The court noted that "if an article of retail clothing has an odor strong enough that it must be washed to remove it, (and the garment therefore cannot be sold as new) it has sustained physical damage and would be covered under an 'all-risk' property insurance policy."... The court reasoned that on the other hand, a retailer's "decision not to sell the garment as new, in the absence of distinct and demonstrable physical change to the garment necessitating some remedial action that would preclude honestly marketing as first quality goods, is not a covered loss."... The mere "alteration of property at the microscopic level does not obviate the requirement that physical damage need be distinct and demonstrable." Id. The court thus held that to recover, the plaintiff had to demonstrate that its garments and fabric had been water-soaked, that they had developed an odor, mold, or mildew, or that the goods had been physically changed in such a way that the goods would develop an odor, mold, or mildew."
From this legal perspective, the substance which makes up the adhesive material on or applied to roofing shingles is tangible. It can be felt, measured, and seen. Roofers tell me that the adhesive property of the "seal" can even be measured. Policyholders will need to prove that the winds and debris carried in the winds from Hurricane Ike caused an alteration to the adhesives which formed seals to the roofing shingles. I suspect that many newer and better maintained roofs suffered less of this damage than older and less maintained roofs and shingles.
Adjusters and policyholders need to understand that finding shingle damage is not done from the ground--unless you do not want to find any damage. You have to closely inspect the shingles. Roofers tell me that one does pull up the shingles with your hand to see if the seal is broken, unlike the directions in the TWIA memo. But, be careful. Inspections can damage the roof; and, possibly damage you, if you fall.
One last warning to all who are not attorneys: do not take this post, or copy it, and start practicing law by arguing what cases mean to the insurance company or TWIA. This warning is especially applicable to public adjusters.
I am off to Rome celebrating my fiftieth birthday. Guest Bloggers will take over for the next two weeks
Ciao.
The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions
The post from this morning, Internal Texas Windstorm Roofing Claims Memo Explains Damage is Not Covered, raised a number of interesting methods to research this coverage issue. Many risk managers and public adjusters will simply call me to get a quick opinion regarding many day to day coverage issues. I thought it might be interesting to see what adjusters may have in their basic training materials to answer the questions raised in the memo. I have no idea if the TWIA claims executives looked at any reference materials. I hope they authored the claims memo in ignorance, because the opposite poses a different set of problems.
Property Loss Adjusting is the most elementary treatise in my law firm’s library regarding property insurance adjusting. The American Institute of Insurance uses it, and it is mandatory reading for those obtaining a designation as an Associate of Insurance Claims. I will cite this treatise to demonstrate that the orders TWIA executives are providing to those in the field do not comply with standards in the industry.
The TWIA memo stated in part:
“It is important to note that we only cover direct, physical, loss from windstorm. Direct means it happened during Ike or Dolly, physical means the damage to the property is clearly visible and there must be a loss (destruction or damage to property) involved. Shingles that show no signs of damage other than they are not sealed and can be raised with your hand are not considered windstorm damaged. Some call these “lifted” shingles. Some call them “blown up” shingles. Some call them “unadhered”. Regardless of the terminology, these are not considered windstorm damaged. The shingles are mostly laying flat and are continuing to do as they were intended…….to repel water.”
Property Loss Adjusting has the following discussion on this topic:
1.18 Determine Whether the Loss Is a Direct Physical Loss
The first step for determining coverage for a particular loss is to review the insuring agreement and determine whether the loss is a direct physical loss. This section of the chapter explains the meaning of this threshold requirement of policy coverage…
Property insurance policies (other than those for time element losses) protect against direct physical loss only. Any loss that is not a direct physical loss is not covered. This is true under both special-form and specified-perils policies. To be covered, a loss must be both a direct loss and a physical loss, as well as to clarify the meanings of other insurance policy terms, see the following box.
Identifying a Direct Physical Loss
Policy forms do not define the phrase “direct physical loss”. However, policies do define the meanings of many terms in an insurance policy. To determine or clarify a term’s meaning, the following four sources should be consulted in order of priority
- 1. Definitions listed in the policy
- 2. Definitions given to the term by previous court decisions
- 3. Definitions found in dictionaries or other references
- 4. Meanings from common usage
Direct Loss
All losses must be “direct” (as defined above). Indirect losses, if covered by insurance, are separate from direct losses. The most important type of indirect loss is the loss of use of property. Whenever property is damaged or destroyed, it cannot be used. Property insurance covers only the value of the damaged or destroyed property, not the loss of use of it while it is repaired or replaced. Coverage for loss of use is separate…
Physical Loss
A loss is “physical” if it involves tangible property’s damage, destruction, or disappearance. Nonphysical losses, if covered by insurance, are separate from physical losses. Nonphysical losses include all kinds of financial loss, such as value to an inventory caused by changes in fashion or obsolescence, loss of value to a financial investment such as stocks or bonds, loss of income from an interruption on a business’s operation, or loss of customer’s goodwill. Likewise, embezzlement, swindling, and other forms of financial fraud are not physical losses and would be covered, if at all, only by special fidelity policies.
Nowhere in Property Loss Adjusting have I found TWIA’s requirement that damage is “clearly visible.” Indeed, the physical nature of the loss seems to indicate that “damage, destruction, or disappearance” is all that is required. Property Loss Adjusting does not discuss TWIA’s requirement that a “utilitarian function” of the property not work as well after alteration to classify it as a “loss.” An independent adjuster sent me a note that made fun of the TWIA claims memo by indicating that paint blown onto the roof would not be “direct physical damage” because the shingles work just as well as before the windstorm.
Property Loss Adjusting also has sections on roofing damage and repair:
9.33 Roofing Damage and Repair
Strong winds (generally in excess of 40 miles per hour); hail; and falling objects such as tree limbs are the usual causes to loss to roofs. Steep pitched roofs are less likely to sustain wind damage from significant wind. Slate and tile roofs are unaffected by wind unless it is hurricane or tornado force.
Exposure to heat from the sun and normal wear and tear exact a heavy toll on common roof coverings. The average life of an asphalt composition shingle roof is fifteen to thirty years, depending on the roofing material’s quality. Worn granular surfaces, curling of the shingle ends, and leaks into the interior are signs of age and damage that accumulate over time. Insurance does not cover wear and tear, but it might cover a new roofing job as part of an insurable loss to a home with replacement cost coverage. Because of their composition, asphalt roof shingles might sustain several slight incidents of damage that go unnoticed. The first indications of leakage usually signal the need for a new covering.
A roof can sustain a great deal of damage from a hailstorm, depending on the roofing material and the size of the hail. Large hailstones can shatter Spanish tile and slate. Light gauge metal can be severely dented. Wood shingles can be dented or split. Even asphalt shingles can be dented by large hailstones.
Inspection of Roofs
When inspecting damage to an asphalt roof, adjusters should, if possible, climb onto the roof. Wind might have broken the shingles, but unless the shingles are visibly torn, damage can be observed only by close inspection. Even if broken, the shingles will lie flat once the wind has subsided and will not appear to be damaged. Roofs of slate, tile, fiber panels, or wood can be damaged if walked on. Adjusters can go up on a ladder to get a good vantage point for inspection and should take photos from the edge of the roof.
Most building codes allow only two layers of asphalt shingles on a roof. This amount is based on the roof structure’s capacity to bear the cumulative weight of the material. Some adjusters believe that if the roof already has two layers, an allowance should be made to remove only the top damaged layer. The underlying layer, though, will almost certainly be damaged while the top layer is being removed, resulting in a need to replace parts of the underlying layer. The care needed to minimize underlying-layer damage can make the job take longer, increasing the labor cost. Whether both layers should be removed therefore becomes a matter of judgment.”
It was interesting that Property Loss Adjusting noted that “strong winds” only needed to be in excess of 40 miles per hour. I guess insurance industry engineers like HAAG and Rimkus had not influenced the author at the time this edition was written in 2004. Those companies typically call for much higher wind speeds for expected damage to roofs.
Pursuant to the memo, “damage” can be excluded. I saw no exclusionary language in the Property Loss Adjusting which followed the logic of the TWIA memo. However, I thought the discussion of excluded types of damage could be instructive:
“9.62 Damage to Exterior Paint
Because exterior paint is exposed to weather, it can be damaged in ways that interior surfaces cannot be. Wind-driven rain, dust, and debris can chip or pit surface paint and can wear off its protective coating. Intense direct sunlight and heat and very cold temperatures and accumulations of ice and snow can peel and crack exterior paint and shorten its lifespan. Improper methods of construction, which prevent proper ventilation, can create a moisture buildup causing wood siding to remain wet and paint to peel away from the surface. Problems such as these, caused by normal wear and tear, are not covered by insurance and are handled through regular maintenance.
The two basic adjusting considerations in handling damage to exterior paint are (1) distinguishing normal wear and tear and deterioration from insurable damages and (2) determining an allowance for appearance. Physical damage caused by fire or exposure to heat from fire at an adjoining property, hailstone damage, strong winds that propel objects into the exterior finish,
The complete exterior may be treated as one unit. Because paint can change color as it ages, new paint can rarely be perfectly matched to the old. Adjusters must carefully judge the situation after inspecting the property. Building interiors are segmented and are generally a variety of colors, but exteriors are usually one color and should present a consistent appearance. The adjuster must decide among painting only the damaged area, painting the entire side where the damage is present, or painting the entire building. Many states have claim practices regulations that dictate how the situation should be handled.”
I will write more on the TWIA memo tomorrow. For policyholders, risk managers, and attorneys, a partial point of this discussion is that the field of adjustment is studied. There is significant information outside the case law regarding how an adjustment is done. One of the most basic questions in every case is what is and is not covered. We use the adjustment reference material to help courts and insurers get the coverage decision right.
Tags: Bad
Faith, Claims
Handling, Claims
Management, HAAG
Engineering, Hurricane
Ike,
Insurance, Insurance
Claim, Rimkus
Consulting Group
Our firm has friends in the insurance industry and other sources of information who have privately provided evidence of wrongdoing by insurance companies. On more than one occasion, documents evidencing wrongful insurance claims conduct have appeared on my front door or in unmarked mail with anonymous notes asking that the information be disseminated. Sometimes, the proof of the current secret claims warfare against policyholders is provided to us by the insurance industry itself. We received such proof last week in an email.
The email was an advertisement from Compuweather. Here is the advertisement:
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As I read the
advertisement, I remembered my old post, Policyholders File RICO Suit Against
State Farm In Handling Of Katrina Claims, where the pressure by State Farm upon engineers was
brought to light. I recently posted in Why Causes Of Loss Are Important To
You, that:“Unfortunately, it is sometimes my experience that insurance company adjusters are experts in telling policyholders how little damage occurred following a loss, and they fail to describe how such perils often affect parts of structures which are not readily available for inspection. Indeed, HAAG, an engineering consultant company retained by insurance adjusters, even has courses for adjusters which demonstrate to the adjusters how HAAG can prove that the damage is less than what meets the eye or common sense may expect. The reason other engineering firms generally do not get insurance company business is because they typically lack an orientation to find ways to minimize claims or refuse to accept the low rates insurance engineering firms charge. Guess whether the low rates correspond to low quality work?”
My observations are supported in numerous cases and complaints by policyholders. For example, Slabbed reported in Aiken V USAA Casualty Insurance Company Day 3: The Experts, that Rimkus changed its engineering report with no notice to its policyholder and without even asking permission from the engineer that authored the first report.
The point is that judges and regulators need to understand that the insurance experts hired by insurance companies are often not there to provide truthful opinions but to help underpay claims. Policyholders need to be forewarned about the reality of the experts hired by many insurance claims adjusters.
Chip
Merlin
Hurricane Ike And Dolly
Windstorm Symposium
The Windstorm Insurance Network is sponsoring a special Texas Windstorm Insurance Symposium. It will be a one day event on April 2, 2009, at the Hilton Hobby.
The final seminar schedule should be out shortly, but it promises to be a very lively presentation. Wind versus water fact and legal issues will be analyzed. Tim Marshall, of HAAG Engineering, is going to make a presentation. Bad faith, appraisal procedures and law, and many other topics with a Texas twist will be part of this one day insurance event.
Chip
Merlin
Why Causes Of Loss Are
Important To YouThe probability of a ruinous event happening may change behavior or cause you to insure to reduce the misery. The greater the financial misery, the more likely you are to insure yourself when it strikes. The greater the chance of the event happening, the more likely you will take measures to avoid the misery.
The American Association of Insurance Services recently published its Homeowners Cause of Loss Report. It details the cause of reported losses from 2005 through 2007 for property and liability payments on Homeowners policies. While the expanded version which lists the cause of loss by state is not available to the public, the property loss statistics are informative:
Cause of loss
|
Percentage of incurred loss including
catastrophes
|
Percentage of incurred loss excluding catastrophes |
Property peril
|
Fire
|
33.1%
|
42.2%
|
Lightning
|
2.0%
|
2.6%
|
Wind
|
18.3%
|
6.3%
|
Hail
|
11.6%
|
5.0%
|
Water damage
|
14.3%
|
18.3%
|
Freezing
|
1.0%
|
2.3%
|
Theft
|
3.6%
|
4.6%
|
Other property losses
|
9.6%
|
11.7%
|
Property total
|
94.5%
|
93.0%
|
As a member of the Citizens Mission Review Task Force, I heard testimony that water losses in older homes were a major cause of loss. The report supports this as a national cause of loss as well. Older homes in particular suffer more individual loss, as parts of the structure wear and tear. Old roofs, plumbing, and wiring need maintenance and replacement to avoid damage from fire, water, and wind.
These statistics are important to policyholders, insurers, adjusters, restoration vendors, building code officials, policymakers and even me. Policyholders need to insure for these calamities. For fire, wind, water damage and hail, policyholders should be encouraged, and possibly mandated, to mitigate against the frequency and severity of such perils. The best loss is the one that never happens. In the long term, we have to make our structures more resistant to the most common and costly perils to maintain affordable insurance.
Adjusters need to be experts regarding how these perils affect buildings. Unseen damage to structures, which commonly follow these perils, must be investigated and paid. Proper methods of repair must fully restore buildings to a new condition that often make the buildings better than before. This is the service and product paid for by the policyholder before the loss occurred.
Unfortunately, it is sometimes my experience that insurance company adjusters are experts in telling policyholders how little damage occurred following a loss, and they fail to describe how such perils often affect parts of structures which are not readily available for inspection. Indeed, HAAG, an engineering consultant company retained by insurance adjusters, even has courses for adjusters which demonstrate to the adjusters how HAAG can prove that the damage is less than what meets the eye or common sense may expect. The reason other engineering firms generally do not get insurance company business is because they typically lack an orientation to find ways to minimize claims or refuse to accept the low rates insurance engineering firms charge. Guess whether the low rates correspond to low quality work?
In our law firm, I often preach that we have to understand how insurance companies are supposed to do their job. For the same reason a doctor would not learn about how to practice medicine from reading medical malpractice cases, lawyers will never learn how an adjuster is supposed to work in good faith from reading insurance cases. Our library is full of insurance industry books, manuals, videotapes and instructional materials. We go to conferences regarding insurance adjustment and learn from contractors and engineers about the effects of nature on buildings and how they are supposed to be fixed, as well as the ramifications of improper repair. There is a true science to the field of insurance adjustment. Most professional adjusters know how difficult it is to fully become an expert in this very demanding and important vocation.
Everybody has an interest, albeit different, in the major property loss causes of fire, water, wind and hail.
Hail damage and Insurance Claims
September
28, 2010 107
Comments
Q
& A on Hail damage:Q: A hail storm went through my neighborhood. Most of my neighbors have gotten new roofs. I received a denial letter along with a check for $300 to repair damaged fascia. What’s the deal? Should I call a roofer? A lawyer? The state insurance commissioner? What gives?
A: First, just because your neighbors are getting new roofs doesn’t mean it’s an entirely due to hail. It can be the age and condition of the roof. For example, your neighbor may have a 25 year old roof with one hail strike. The shingle may not be made any more. That can be grounds for replacement of a whole roof.
If you have a new roof, with only one hail strike, it also can be grounds for not having the roof replaced. Furthermore, there could be wind damage, which is an entirely different animal.
It can be very difficult to see hail damage. Generally, you are looking for missing granules and gouges in the shingle. If you see a little round spot with granules missing, it may be hail, but you need to look at what the granules surrounding the hole are doing. If the granules are coming up above the surface of the surface of the shingle, it’s called a blister, and is not hail related.
There can also be building code requirements, such as what’s called a 25% rule*. Finally, insurance companies have different standards. Some companies want 16+ hail strikes per 10X10 area, others want less. Next, the quality of the shingle can make a big difference. A 3-tab vs. a laminate shingle can make a huge difference in hail damage. Finally, shingles are rated for some quantity of hail damage. The thing many insurance companies are concerned about is when the hail actually pierces the matte of the shingle. Many insurance companies do not care that some of the granules were rubbed off (although some do). These standards have been developed by a company called Haag engineering.
If you’re really motivated, look at the metal items on your roof, the furnace caps, turret vents, and even the AC fins. These items ALWAYS dent before the shingles. By looking at these items, you can get an idea as to the size of the hail. If the dents are only pea sized up to marble sized, and your roof is in good condition, it’s quite possible you do not have a lot of hail damage; although you may, depending on your shingle type, age and quantity of hail. If looking at your own property, and not your neighbors, you actually have hail damage; nicely ask for the adjuster to come back out. If that doesn’t work, offer to send in photographs of the damage to your vents, and examples of where hail strikes have actually pierced your shingles.Finally, if they still won’t send someone, grab your policy and look for a section called Appraisal. It explains what to do if you and the insurance company disagree. Sending letters to the state insurance commissioner generally doesn’t help unless you’ve exhausted all options in your insurance policy.
*25% Rule deals with older lower-valued structures; generally, if work would not exceed 25 percent of the structure’s value, then a contractor and building officials could negotiate what work was required to comply with the local code. For work that would cost between 25 and 50 percent of the value of the structure, the contractor had to meet building codes for all planned work. If the planned work exceeded 50 percent, then the contractor had to bring the entire building into compliance with the current building code.
General
Property Adjuster
============================================
NEW
YORK JUDGE ORDERS THE DISCLOSURE OF ALL DRAFTS, REDLINES, ETC REPORTS IN RE
SUPER STORM SANDY LITIGATIONIn a blog we posted few weeks ago, we indicated our position regarding the allegedly "fraudulent" preparation of flood damage assessment reports. Here is the link to that blog:
https://sites.google.com/site/metropolitanforensics/fraudulent-superstorm-sandy-flood-expert-reports
The most common course of action of the insurers’ experts is to do a very brief and cursory inspection, without performing any testing or other detailed investigation. They would then conclude that the damage is caused by wear & tear, lack of maintenance, natural settlement, that there is no foundation shifting caused by the floodwater, etc. They would also hire inexperienced contractors to do the inspections, while the actual report is authored by a partner of the U.S. Forensic firm. During the court hearing, one of the partners of U.S. Forensic even stated that the person who views the photos and prepares the report is better able to do so than the engineer who did the actual physical inspection. OMG! The judge of course humiliated him for this statement. Just read the opinion.
In the attached opinion, the judge wrote:
"evidence suggests that these unprincipled practices may be widespread."
We would certainly concur with that assessment.
Apparently, this kind of practice may have caught up with them in a lawsuit filed against one of the insurers for damages caused by Super Storm Sandy.
We do not believe that the insurer instructs the expert to prepare an indefensible report.
This attached opinion and order pertains to the alleged falsification of the engineering inspection reports by U.S. Forensic partner(s). Read very carefully. US Forensic could be found liable for bad faith and forced to pay $$$ in damages.
CONCLUSION
Based
on the foregoing, it is hereby ORDERED that:
1.
In the Raimey case, pursuant to Rule 37, defendant Wright is prohibited
from supporting its defenses or opposing plaintiffs’ claims with any expert
testimony other than that of George Hernemar, and they may not produce, rely
upon or create any expert reports other than those already produced.
2.
Within thirty days of the date of this Order, plaintiffs’ counsel in Raimey may
make application to the Court for reimbursement from defendant’s counsel for
all reasonable costs associated with this motion, the hearing and all related
briefing, including attorneys’ fees, travel costs and transcription costs,
consistent with the rulings set forth herein; and
3.
Within thirty days
of this Order, defendants in all Hurricane Sandy cases shall provide
plaintiffs with copies of all reports described in CMO 1 not previously
produced – plus any drafts, redlines, markups, reports, notes, measurements,
photographs and written communications related thereto – prepared,
collected or taken by any engineer, adjustor or other agent or contractor
affiliated with any defendant, relating to the properties and damage at issue
in each and every case, whether such documents are in the possession of
defendant or any third party.
SO
ORDERED.
Dated:
Central Islip, New York
November
7, 2014
/s/
GARY R. BROWN
Gary
R. Brown
United
States Magistrate Judge
Here
is the entire opinion
UNITED
STATES DISTRICT COURT
EASTERN
DISTRICT OF NEW YORK
-------------------------------------------------------------X
MEMORANDUM &
ORDER
IN
RE HURRICANE SANDY CASES
14 MC 41
-------------------------------------------------------------X
DEBORAH
RAIMEY and LARRY RAISFELD, 14 CV 461
(JFB)(SIL)(GRB)
Plaintiffs,
-against-
WRIGHT
NATIONAL FLOOD INSURANCE
CO.
Defendant.
-------------------------------------------------------------X
APPEARANCES: For the
Plaintiff: Mostyn Law 3810 West Alabama Street Houston, Texas 77027 By: Steve Mostyn, Esq. Rene M. Sigman, Esq. |
For the Defendant: Nielsen, Carter & Treas, LLC 3838 N. Causeway Blvd., Suite 2850 Metairie, LA 70002 By: Gerald J. Nielsen, Esq. Kristina J. Fonte, Esq. |
Denis G. Kelly &
Associates, P.C. 74 West Park Avenue Long Beach, New York 11561 By: Denis G. Kelly, Esq. |
McMahon Martine &
Gallagher LLP 90 Broad Street New York, New York 10004 By: Anthony Martine, Esq. Patrick W. Brophy, Esq. Timothy D. Gallagher, Esq. |
Gauthier, Houghtaling
& Williams, LLP 3500 N Hullen St Metairie, LA 70002 By: Frederick W. Bradley, Esq. James M. Williams, Esq. |
For Non-Party U.S.
Forensic: The Demmons Law Firm 3300 West Esplanade Avenue Suite 601 Metairie, Louisiana 70002 By: Larry Demmons, Esq. |
GARY
R. BROWN, United States Magistrate Judge:
Two
years ago, the crushing force of Hurricane Sandy devastated large areas of this
judicial district. While much has been done to facilitate recovery, assistance
has not been consistent or timely, leaving some homeowners behind – even those
who properly paid for flood insurance. That some homeowners have faced
insufferable delays has not been lost on the public[1]
or our political system.[2]
This Court has invested significant resources in an effort to facilitate
efficient resolution of the more than 1,000 cases arising from Hurricane Sandy.[3]
See
Case Management
Order (“CMO”) 1 at 1-2 (discussing efforts of Committee); Order dated October
15, 2014, 14-CV-41, DE [563] (describing EDNY Hurricane Sandy mediator training
program).
Against
this backdrop arises the instant dispute, which has exposed reprehensible
gamesmanship by a professional engineering company that unjustly frustrated
efforts by two homeowners to get fair consideration of their claims. Worse yet,
evidence suggests that these unprincipled practices may be widespread.
Specifically,
the evidence adduced in this matter demonstrates that U.S. Forensic, an
engineering firm retained by defendant Wright National Flood Insurance Company
(“Wright”) to examine a storm-battered house in Long Beach, New York, unfairly
thwarted reasoned consideration of plaintiffs’ claim through the issuance of a
baseless report. The engineer sent by U.S. Forensic opined in a written report
that the home at issue had been damaged beyond repair by Hurricane Sandy. A
second engineer, who did little more than review the photographs taken by the
inspecting engineer, secretly rewrote the report, reversing its conclusion to
indicate that the house had not been damaged by the storm, and attributing – without
sufficient evidence – defects
in
the home to long-term deterioration. This process, euphemistically dubbed a
“peer review” by U.S. Forensic, was concealed by design from the homeowners,
remained uncovered during the Court-assisted discovery process and came to
light through near happenstance. In a misguided attempt to defend these flawed
practices, defendant has elicited evidence that this “peer review” process may
have affected hundreds of Hurricane Sandy flood insurance claims – and possibly
more.
In
this decision, the undersigned addresses the evidence presented, makes relevant
findings and directs certain relief to ameliorate the highly-improper practices
brought to light in this case.
Procedural
History
Following
the failure of mediation to resolve this matter, plaintiffs’ counsel filed a
“Motion to Set Discovery Schedule and Set for Trial,” informing the Court, for
the first time, that it had evidence of a U.S. Forensic engineering report that
provided a conclusion contrary to the report upon which Wright based its denial
of much of plaintiffs’ flood insurance claim. DE [57]. In response, Wright,
among other things, denied all knowledge of the seemingly altered report,
blamed plaintiffs for failing to provide evidence of the earlier report prior
to mediation, sought to select a different expert as “this engineer and U.S.
Forensics [sic] are now allegedly tainted,” and demanded that plaintiffs
provide all information concerning the discrepancies in the engineering reports
to the new engineer.[4]
DE [59] at 13. Upon review of the parties’ submissions, on October 1,
2014, the undersigned issued the following Order:
In
light of the nature of the allegations set forth in plaintiffs' submission and
defendant's response thereto, a hearing shall be conducted before the
undersigned . . . At that hearing, plaintiffs shall be prepared to present
testimony and documentary
evidence
concerning the allegations relating to U.S. Forensic Report No. 12.22.1304 and
the various incarnations of that report referenced in the parties' submissions.
Counsel for the parties will ensure that Mr. George Hernemar will be present in
person to testify about the preparation and submission of the report and
related matters. Counsel for defendants will also produce any other necessary
witnesses to explain, as appropriate, any differences between the purported
original report and the report ultimately produced in discovery.
Electronic
Order dated October 1, 2014. On October 16, 2014, an evidentiary hearing was
held, at which the parties produced three witnesses. At the conclusion of the
hearing, plaintiffs’ counsel indicated that, in addition to the relief
previously sought, the Court should consider addressing discovery violations
that resulted from the failure to provide the draft engineering reports in this
case. Tr. 168. Following the hearing, both sides were permitted to submit
post-hearing briefs and supporting materials.
The
Evidence Adduced at the Hearing
Plaintiffs
were the owners of a property located at 24 Michigan Street, Long Beach, NY,
which is located about one block from the beach. The owners, who own and reside
in an adjacent home, bought the house at 24 Michigan Street with plans to
ultimately expand their own home, but rented the house to help pay the
mortgage. Tr. 22. After Hurricane Sandy struck, one of the homeowners observed
significant damage to the house that did not exist prior to the storm,
including extensive damage to the floors, which had shifted in the storm. Tr.
14-15. Following the storm, the back door would no longer open, such that the
homeowner had to break it down to gain access to the house. Tr. 16.
On
or about November 17, 2012, David Maxime, an independent adjustor, examined the
home. Based largely on the report of the adjustor, defendant paid the
plaintiffs slightly more than $60,000 (in several installments) for cosmetic,
non-structural damage. Tr. 21. Maxime also prepared a document entitled
“Engineer Request for Fidelity,”[5]
in which he makes the following observations:
During
a recent flood inspection, I noticed the flooring in the dwelling was uneven
from the front to the rear. The floor seemed to have a "rolling
action" as you walked over it. A visual inspection of the flooring at
several of the walls, appeared to have dropped about a [sic] inch or two in
some cases. There was a 5 inch difference between the ceiling height at the
corner of the bedroom and the center line of the bedroom. The exterior of the
building had about 3ft of sand adjacent to the building. An inspection of the
building crawl space showed several framing members out of line. A visual
inspection of the front of the roof showed unevenness along the roof line. At
the current time, the building appears to be unsafe to live in.
Pl.’s
Ex. 2 (emphasis added). Presumably in response to this request, U.S. Forensic
sent George Hernemar, a licensed engineer to conduct an inspection of the
premises on December 4, 2012. Pl’s. Ex. 3 & 5.
Trained
in Sweden, Hernemar obtained employment as a contractor with U.S. Forensic, a
nationwide engineering firm, after answering an ad on Craigslist for a New York
licensed engineer. Tr. 44-45, 88. He testified that he conducted approximately
fifty home inspections for U.S. Forensic to assess damage inflicted by
Hurricane Sandy. Tr. 44-45. U.S. Forensic had been engaged by Fidelity to
report on the damage to the 24 Michigan Street property.
Following
his inspection, Hernemar wrote and transmitted a report[6]
dated December 9, 2012 (“December 9 report”) containing his findings to U.S.
Forensic. The report, which contains numerous pages of text and photographs,
offers the following “Results and Conclusions”:
1)
The physical evidence observed at the property indicated that the subject
building was structural [sic] damaged by hydrodynamic forces associated with
the flood event of October 29, 2012. The hydrodynamic forces appear to have
caused the foundation walls around the south-west corner of the building to
collapse.
2)
The extent of the overall damages of the building, its needed scope of repair
combined with the age of the building and its simple structure, leads us to
conclude that a repair of the building is not economically viable.
Pl’s
Ex. 5 (emphasis added). However, plaintiffs never received this report from
their insurance carrier. Rather, they received a report dated January 7, 2013
(“January 7 report”) which contains completely divergent “Results and
Conclusions”:
1)
The physical evidence observed at the property indicated that the subject
building was not structurally damaged by hydrodynamic forces, hydrostatic
forces, scour or erosion of the supporting soils, or buoyancy forces of the
floodwaters associated with the subject flood event.
2)
The physical evidence observed at the subject property indicated that the
uneven roof slopes, leaning exterior walls and the uneven floor surfaces within
the interior of the building, were the result of long term differential
movement of the building and foundation that was caused by long-term
differential movement of the supporting soils at the site and long-term
deflection of the building framing.
Pl’s
Ex. 3 (emphasis added). Based upon this report, defendant refused to pay for
any structural damage to the home.
At
the hearing, Hernemar and a second witness explained that the radical changes
in his report resulted from a “peer review process,” though the description of
that process varied greatly. Hernemar testified that he “wrote both of these
reports” and insisted that no one made any alterations or changes to the
reports. Tr. 57; cf. Tr. 58 (“All those reports you have presented to
me, I’m the author of them.”) Rather, he testified, he had “an open discussion”
on the telephone with U.S. Forensic engineer, who pointed out that “the draft
was based on assumptions.” Tr. 59, 71.
As
a result, Hernemar “issue[d] a report changing [his] opinions.” Tr. 78. And
though his testimony was, at times, confused, he testified unequivocally that
“I rewrote my report.” Tr. 90; cf. Tr. 106 (Hernemar “made changes to
the draft report”); 119 (“I did the changes”).
After
Hernemar testified, counsel for defendant attempted to end the hearing,
foreclosing further inquiry on this subject:
MR.
MARTINE: Judge, I think the purpose of this hearing was to determine whether we
should have some discovery; in essence, whether or not something untoward was
going on between US Forensic and perhaps Mr. Hernemar.
THE
COURT: Are you under the impression that the result of the hearing so far gives
us a clear answer to that?
MR.
MARTINE: Yes, Judge . . .
THE
COURT: You brought a witness who is going to talk about the peer review process.
Right?
MR.
MARTINE: I don't think I need to call him, Judge.
Tr.
119-120. Both counsel for plaintiff and the Court disagreed. Id. After a
lunch recess, counsel for defendant tried again:
MR.
MARTINE: Judge, my feeling is that, based on the testimony this morning and
based on the reason for this hearing, the hearing is resolved. The witness
clearly testified that those were his opinions adopted by him following a peer
review process; that he wasn't required, he wasn't compelled, he wasn't really
told to do anything. He adopted the opinions.
Tr.
121. Importantly, counsel for defendant acknowledged that he was aware of the
information to which Michael Garove, the “peer review” engineer, would
testify:
And
I can tell you what Mr. Garove will testify, and this is a representation to
the court, is that, yes, he was the peer reviewer for the original report, the
rough report of December, that his peer review, basically his peer review, he
made suggestions and that the two engineers consult about the suggestions and
that Mr. Hernemar could adopt or deny every single suggestion made and then the
report is finalized.
And
that is the extent of the testimony concerning the peer review, Judge.
Tr.
123-4. Notwithstanding counsel’s representation, counsel for plaintiff
requested that Garove be permitted to testify, which application was granted.
Tr. 124-26.
Michael
Garove testified that he is an engineer licensed in Louisiana and New York,
having obtained the latter license in 2011, who has worked for U.S. Forensic
for approximately four and a half years. Tr. 128. He did not, at any time,
inspect the 24 Michigan Street home or any portion of the property, and was
unsure whether he had inspected any of the surrounding homes. Tr. 129.
He
was, however, assigned to review the December 9 report authored by Mr.
Hernemar. Tr. 137. He received an email assigning him review of that report,
“most likely from Gary Bell,” Managing Partner of U.S. Forensic. Tr. 137-8.
Garove provided the following description of U.S. Forensic’s “peer review”
process:
The
peer review process, when we receive the initial document it is a draft form .
. . Meaning, it is not a final version.
And
within Microsoft Word, which is a software program that we all should be
familiar with, there is a tab in there, a process by which you can initiate a
tracking of any type of markups, changes, comments, whatever you would like to
do in that report . . .
So
. . . the peer review process involves reviewing the contents of the report,
both technically, grammatically, you know, the entire content of the report, as
well as reviewing any other drawings, photographs, or any other information
that the inspecting engineer would produce or provide to us. From that
information . . . we basically evaluate as a peer, as an engineer, the validity
of what is being stated . . . and then make a final determination about whether
or not the conclusions that are included within the report are accurate or in
line with, you know, engineering knowledge.
[O]nce
that's done, this copy of this report, which has everything that you do as a
peer reviewer, is then tracked and documented, so it is not hidden, is
submitted back to the office and/or the engineer, inspecting engineer, for
their review to determine whether or not they feel as though any changes,
comments, markups or anything are correct or in line with their opinion.
And
then at that point there is an opportunity, even again within that same
software program, to either individually accept or deny any changes that you make
or alterations . . . .
Tr.
138-40.
Thus,
rather than the “open discussion” described by Hernemar, Garove described a
process by which the report authored by the inspecting engineer was rewritten
by an engineer who had not inspected the property and whose identity
remained concealed from the homeowner, the insurer and, ultimately, the Court.
Garove acknowledged that he revised the December 9 report, sent what became the
final report to Hernemar and, remarkably, stated that the two had no further
discussion or contact in the matter. Tr. 145-47. Instead, it appears that
Hernemar “adopt[ed Garove’s] conclusions completely.” Tr. 147, 152.
Garove
endeavored to minimize the changes he made in this report, testifying that “in
this case a lot of stuff just got moved around, it got restructured, because
the grammar was not correct or it wasn't in the proper place in the document.”
Tr. 139-40. In truth, Garove reversed the conclusion of the inspecting engineer,
and removed many pertinent observations which were inconsistent with Garove’s
conclusions. And, despite repeatedly asserting that he had never read the
January 7 report, in response to a question by the Court, Garove conceded that
he, in fact, wrote the January 7 report. Tr. 156.[7]
In
his declaration, Garove has the temerity to assert the following:
Visual
observations from an inspecting engineer during a site visit are not
necessarily as informative as a review of photographs of the property after the
site visit because review of quality photographs by an experienced
peer-reviewer can yield more accurate analysis and results than direct visual
observation of conditions by an inspecting engineer with less experience and
understanding of the subject.
DE
[71]-1 at ¶ 26. The thought is, then, that Garove, sitting in a remote location
and never seeing the subject property, can do a better job than a licensed engineer
sent to the scene. This assertion begs the question of why U.S. Forensic would
not simply send a photographer to homes to be inspected, and produce
purportedly superior reports at lower cost by having a remote engineer review
the resulting photographs. It also raises the issue of why Garove did not sign
the subject report, since he is the one who actually performed the
analysis.
Garove’s
assertions are undermined by the substance of the report, which provides the
reader, in uncertain terms, with assurances that this report is based upon a
physical inspection of the property by, and relying upon the expertise of,
Hernemar, the inspecting engineer. The January 7 report lists Hernemar as the
“Engineer of Record,” while making no mention of Garove, any other contributor,
or any peer review process. Pl.’s Ex. 3. The report’s conclusions are expressly
premised upon “[t]he physical evidence observed at the property,” and states
that “our work to complete this assignment was performed by George Hernemar, P.E.”
Id. at 1-2. A substantial portion of the report is devoted to “Site
Observations,” and makes repeated references to such observations. See, e.g.,
id. at 3 (“No . . . evidence of recent shifting . . .was observed
beneath the building”); 4 (“We observed no evidence or indication . . .”); 5
(“but no evidence or any recent shifting . . . was observed.”). Taken together,
these statements concerning the methodology employed and the information relied
upon render the report misleading.
Moreover,
the changes wrought by Garove on Hernemar’s work journeyed beyond misleading
into the realm of misrepresentation. In the December 9 report, Hernemar noted
that a deposit of sand prevented him from examining the foundation to determine
whether it had collapsed, and would have to be removed before a “definite
determination” could be reached. Pl.’s Ex. 5 at 4; Tr. 61 (“the foundation was
covered with sand, so there was no way to tell definitively what happened to
[the] foundation”). As counsel for Wright elicited in cross-examination of
Hernemar, limited access to the crawlspace similarly circumscribed the
inspection. Tr. 107 (The foundation “was covered in sand. The whole foundation.
Plus, there was no access to the crawlspace.”). Hernemar’s conclusion that the
foundation of the house had collapsed was, in part, an extrapolation from his
examination of a neighboring house – the foundation of which was visible – and
which, he believed, had been subject to similar hydrostatic forces during the
storm. Tr. 82-83.
Garove
tacitly acknowledges this limitation in his Declaration: “As I initially believed,
it was later confirmed that the foundation walls beneath the building
had not collapsed.” DE [71]-1 at ¶ 63. Yet, notwithstanding the fact that the
foundation walls could not be seen or photographed, Garove modified the report
not only to remove this limitation, but to repeatedly and conclusively state
that “no evidence” was observed of damage to the foundation components.[8]
In other words, the limitations of Hernemar’s observations and his subsequent
extrapolation may have justified amending the report to make it
inconclusive.
Instead,
under the guise of “peer review,” Garove transformed the report to indicate a
conclusive absence of storm damage. A similar issue arises with respect
to Garove’s “observations” relating to the crawlspace. Hernemar testified that
he had extremely limited access to the crawlspace and the three supplied
photographs of the crawlspace area depict a very narrow view. Nevertheless,
Garove introduced specific observations about the crawlspace into the report
that appear entirely unsupported by Hernemar’s report and the accompanying
photographs. See DE [77]-1 at 7.
In
addition to changes, Garove included the following “comment” addressed to
Hernemar in the redline draft:
George:
Please
note the changes/comments within the report. Please noted [sic] that we don't
theorize about damages. We observe, inspect and report damages to the building.
In this case, we did not observed [sic.] any damage from hydrostatic,
hydrodynamic, buoyancy forces or scour or erosion of support soils that caused
damage to the subject building or foundation.
Please
finalize this report and send to Donna for issue.
Michael
P. Garove, P.E.
Partner[9]
DE
[77]-1 at 1 (emphasis added).
Unsurprisingly,
Hernemar accepted all of Garove’s changes and had the document issued as
instructed. Notwithstanding the vehement assertions of Wright’s counsel,
Hernemar’s acquiesce to this baseless reversal of the report’s conclusion and
alteration of the observations does little to validate this unprincipled
process.[10]
Troublingly,
the “peer review” process extended beyond this one example. In this very case,
as noted elsewhere, Hernemar described a peer review of his supplemental report
that resulted, again, in a change to his ultimate conclusion concerning
foundation damage upon reinspection. Tr. 109; 111-112.
Furthermore,
Hernemar stated that – in his rough estimation – he completed fifty Hurricane
Sandy inspections for U.S. Forensic, and that in four or five instances,
extensive changes were wrought as a result of so-called peer review. Tr. 89.
This process was limited neither to this one engineer, nor specifically to U.S.
Forensic. See Tr. 58 (describing process as “normal”); 110 (process was
“standard”); 129 (“peer review process is actually a very standardized process across
the field of engineering”); DE [71]-1 at ¶¶ 13-16 (describing hundreds of
peer reviews of reports by different engineers).
On
December 31, 2012 – after Hernemar’s initial inspection but prior to the
release of the January 7 report – an inspector from the City of Long Beach
examined the structure. As a result of that inspection, the City provided
plaintiffs with a “substantial damage letter” dated January 3, 2013, which
indicates that the house “received damages of [63.4%] of the value of the
pre-damaged structure as a result of the flooding that occurred on October 29,
2012.” Pl.’s Ex. 1; Tr. 6-7. Based on that finding, the City advised plaintiffs
that the house “must either be removed . . . or have the lowest floor . . .
elevated to at or above the 100-year flood elevation.” Pl’s Ex. 1. In
supporting documents, the inspector calculated a replacement cost of $269,850
and an “actual cash value”[11]
of $204,546.30 for the house.
Upon
receipt of the January 7 report – which ran counter to all of the other
information received by the plaintiffs – the homeowners began contacting
Wright, seeking a second inspection by a different engineer. Tr. 16. After
plaintiff made several dozen telephone calls to the Company, Wright relented,
apparently asking U.S. Forensic to again inspect the property. Tr. 16.
On
January 25, 2013, U.S. Forensic sent Hernemar to conduct a reinspection. Tr.
17-18. It was during this visit that plaintiffs viewed and photographed the
cover and conclusion pages of Hernemar’s December 9 report, thereby bringing to
light the issues discussed in this opinion. Tr. 17.[12]
Removal of the sand and better access to the crawlspace permitted Hernemar to
more thoroughly inspect the foundation. Tr. 109. As a result of that
examination, Hernemar uncovered a small amount of foundation damage to the
house,[13]
for which Wright compensated the homeowners a total sum of approximately
$11,000. Id.; Tr. 21.
Thus,
the total paid by Wright on the file amounted to less than $80,000.
Given
this relatively small insurance recovery and the damage to the home which rendered
it uninhabitable, plaintiffs could no longer rent the house. Without the rental
income, plaintiffs could not afford to continue paying the mortgage and
property taxes, so they sold the 24 Michigan Street house for the value of the
property. The house has since been razed. Tr. 22.
Discussion
A.
Defendant’s Discovery Obligations
In
an effort to streamline resolution of these claims, and reduce the costs and
burdens on the parties, after thorough consultation with counsel for all
parties, the Committee of magistrate judges appointed to manage Hurricane Sandy
cases effected an expedited discovery process. In the course of nearly a dozen
Case Management Orders (“CMOs”) and through hundreds of conferences, the
Committee has implemented this process, modifying and adding provisions based
upon experience gained over the past months.
In
CMO#1, issued on February 21, 2014, the Committee directed defendants to
produce:
any
documentation relating to an assessment of the claimed loss, including all loss
reports and damage assessments, adjuster's reports, engineering reports,
contractor's reports, photographs taken of the damage or claimed losses, and
any other evaluations of the claim [and] all expert reports and/or written
communications that contain any description or analysis of the scope of loss or
any defenses under the policy.
CMO
1 at 9. On April 7, 2014, in CMO 3, the Committee reiterated this direction:
Liaison
Counsel forwarded a question from defense counsel to the Committee as to
whether expert reports are subject to production pursuant to the automatic
discovery process. It is hereby ordered that, to the extent that any such
report was prepared prior to the issuance of this Order, such report must be
produced immediately to opposing counsel. CMO#1 expressly provides that
defendants are to provide “all expert reports and/or written communications
that contain any description or analysis of the scope of loss or any defenses
under the policy.” CMO#1 at 21.
To
be clear, any expert reports that have been prepared are required to be
produced under this provision, regardless of whether a party anticipates, at
this time, presenting the testimony of such expert. At the same time, CMO#1
should not be read as imposing an affirmative duty to create such a report, but
if it exists, it should be produced.
CMO
3 at 9-10. The Committee addressed any potential claims of privilege,
noting:
Rule
26(b)(4)(D) provides that “[o]rdinarily, a party may not . . . discover facts
known or opinions held by an expert who has been retained or specially employed
by another party in anticipation of litigation or to prepare for trial and who
is not expected to be called as a witness at trial.” However, this privilege
“may only be invoked when an expert has been retained or specially employed
because of the prospect of litigation, and not in the normal course of
business.” QBE Ins. Corp. v. Interstate Fire & Safety Equip. Co., Inc.,
2011 WL 692982 (D. Conn. 2011)(rejecting application of rule to notes by claims
adjustor of conversations with experts); Fine v. Bellefonte Underwriters
Ins. Co., 91 F.R.D. 420, 423 (S.D.N.Y. 1981)(reports producible unless
“generation of the reports were in furtherance of a sufficiently identifiable
resolve to litigate, rather than a more or less routine investigation of a
possibly resistable claim on a first party insurer”); Tayler v. Travelers
Ins. Co., 183 F.R.D. 67, 70 (N.D.N.Y. 1998) (“where there is a disagreement
between the property owner and the insurance carrier as to the amount of the
fire loss, the property owner/insured/plaintiff is entitled to discovery of the
carrier/defendant's file and depose adjusters”) (collecting cases).
CMO
3 at n.5. Thus, since February 2014, defendant has been under unequivocal and
repeated Court direction to produce all expert reports, photographs and
“written communications that contain any description or analysis of the scope
of loss or any defenses under the policy.” Yet, Hernemar’s December 9 report,
the redline document that transformed that report into the January 7 report, as
well as a bevy of email communications[14]
surrounding the creation, transmission and modification of these documents –
all of which clearly fall within the ambit of CMO 1 and 3 – have never been
produced.
Counsel
for Wright raise two defenses for the defendant’s failure to comply with these Court
orders. The first is a belated contention that the so-called “draft” reports
are protectable work product under Federal Rule of Civil Procedure (“Rule”)
26(b)(4)(B). See DE [71] at 13-14. Because counsel failed to raise this
issue earlier, either through an application for a protective order or the
provision of a privilege log, it is clearly an afterthought. Of course, the
Committee essentially addressed this argument in CMO 3 by holding the privilege
relating to non-testifying experts inapplicable to reports and written
communications relating to these cases. See CMO 3 at n.5; cf. Weber
v. Paduano, No. 02 Civ. 3392 (GEL), 2003 WL 161340, at *7 (S.D.N.Y. Jan.
22, 2003) (“investigations into the causes and effects of an accident,
undertaken soon after the event itself, are generally considered part of an
insurance company's ordinary course of business”).
The
privilege argument flatly fails on the merits, as the protections relied upon
by defendant under Rule 26(b) apply only to drafts “that are prepared in
anticipation of litigation or for trial.” Fed. R. Civ. P. 26 (b)(3)(A). The
authorities cited by defendant uniformly echo this limitation. See, e.g.,
In re Application of Republic of Ecuador, 280 F.R.D. 506, 511 (N.D. Cal.
2012), aff'd sub nom., Republic of Ecuador v. Mackay, 742
F.3d 860 (9th Cir. 2014) (“expert reports were prepared for trial and in
anticipation of litigation”). Counsel’s efforts to label these documents as
draft expert reports – particularly on the facts here – cannot protect them from
disclosure. As one district judge has held:
To
be sure, courts must be careful in cases involving insurance and surety
disputes not to hold that documents are protected from discovery simply because
of a party's ritualistic incantation that all documents created by insurers are
made in preparation for litigation. Because all insurance investigations are
likely performed with an eye towards the prospect of future litigation, it is
particularly important that the party opposing production demonstrate by
specific and competent evidence that the documents were created in anticipation
of litigation.
Safeco
Ins. Co. of Am. v. M.E.S., Inc., No.
09-CV-3312 ARR VMS, 2013 WL 1680684, at *5 (E.D.N.Y. Apr. 17, 2013). Based upon
the evidentiary hearing, I find that not only did Wright fail to demonstrate
any legitimate need to protect the documents at issue, but that plaintiffs have
overwhelmingly demonstrated a need for disclosure. In light of the unorthodox
methodology employed to generate reports that resulted in a denial of
plaintiffs’ insurance claim, permitting defendant to withhold these documents
would constitute a serious injustice.
Where
a Court orders production of draft reports – and, to be clear, CMO 3
unequivocally so directs – the Rule provides that it must “protect against
disclosure of the mental impressions, conclusions, opinions, or legal theories
of a party's attorney or other representative concerning the litigation.” Fed.
R. Civ. P. 26(b)(3)(B). Counsel for Wright describe the preparation of these
drafts as follows:
All
revisions to draft reports were made a year before a lawsuit was filed,
exclusively by and among the US Forensic field engineer George Hernemar, P.E.
and the US Forensic peer review engineer Michael Garove, P.E. Only after the
lawsuit was filed a year later was Nielsen, Carter & Treas, LLC retained.
DE
[71] at 1. In light of this description of the preparation of these documents,
it difficult to understand how counsel can assert work product in good faith.
Because counsel did not even appear in the matter until a year after their
creation, the documents at issue simply cannot contain any mental impression of
counsel, and were clearly not prepared for the purposes of litigation. Thus,
the Court need not conduct further review of draft reports or associated emails
or other written communications before their production.
The
second defense raised by counsel arises from the undisputed fact that U.S.
Forensic only provided the two so-called final reports to Wright, which, in
turn, disclosed those reports to plaintiffs.[15]
However, counsel has a duty to conduct a “reasonable inquiry” to ensure that
discovery responses are “complete and correct”. See Fed. R. Civ. P.
26(g)(1). Rule 34 provides that parties “produce . . . items in the responding
party’s possession, custody, or control.” Importantly, “‘[c]ontrol’ is broadly
construed, and thus a party may be obligated to produce documents requested
under Rule 34 where the producing party does not actually possess the documents
but has the legal right or practical ability to obtain them from another source
on demand.” Arkwright Mut. Ins. Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh,
Pa., 90 Civ. 7811 (AGS), 1994 WL 510043 at *3 (S.D.N.Y. Sept. 16, 1994); see
also Bank of New York v. Meridien BIAO Bank Tanzania Ltd., 171 F.R.D. 135,
146 (S.D.N.Y. 1997)(same).
As
a result, “[p]roduction may be ordered when a party has the legal right to
obtain papers, even though he has no copy.” Zervos v. S. S. Sam Houston, 79
F.R.D. 593, 595-96 (S.D.N.Y. 1978). Many cases have held that to properly
comply with document demands, a party may be required to produce documents held
by a third party where the relationship amounts to control. See, e.g., Cooper
Indus., Inc. v. British Aerospace, Inc., 102 F.R.D. 918, 919-20 (S.D.N.Y.
1984) (defendant, a wholly owned subsidiary of its parent British affiliate,
controls documents owned by the parent company where “it is inconceivable that
defendant would not have access to these documents and the ability to obtain
them for its usual business”); Herbst v. Able, 63 F.R.D. 135, 138
(S.D.N.Y. 1972) (corporation’s former and current employees were “persons within
its control”); M.L.C., Inc. v. N. Am. Philips Corp., 109 F.R.D. 134, 138
(S.D.N.Y. 1986) (“control” over agreements held by corporate subsidiary).
There
has been no claim here, nor does one seem likely, that defendant lacked the
legal right and/or practical ability to obtain these documents from U.S.
Forensic. Indeed, the evidence produced at the hearing suggests precisely the
opposite – the nature of the business relationship between Wright and U.S.
Forensic included the repeated provision of documents and personnel by the
engineering firm at the request of the insurer. Common sense dictates a similar
conclusion.
In
fact, the argument by defendant’s counsel seems to be limited to the fact that
“[i]n the Defendant’s claims file, which was fully and timely produced, was an
original report, and then a supplemental report.” DE [59] at 2. Thus, counsel’s
contention is that by producing its own file, Wright satisfied its discovery
obligations and counsel discharged its duty to perform a “reasonable inquiry”
merely by asking Wright for that file. Under the circumstances, this level of
investigation did not satisfy counsel’s obligations. As this Court repeatedly
directed the parties to produce all reports and written communications, an
investigation that failed to include an inquiry with the engineering firm is
clearly insufficient under the circumstances.
This
is particularly true where, as here, as defendant’s counsel well knew,
plaintiffs were not permitted to seek discovery directly from U.S. Forensic, as
such disclosure was not authorized under the CMOs, and there was a reasonable
chance that U.S. Forensic would prove to be defendant’s expert at trial.
In
fact, one particular aspect of discovery in this matter undermines defense
counsel’s claim that provision of the two reports in Wright’s claims file
effectively discharged its obligations under this Court’s discovery orders.
Among the items ordered produced in CMO 1 were “all . . . photographs taken of
the damage or claimed losses.” CMO 1 at 9.
Hernemar
testified that while he attached approximately twenty photographs of the
property which were included as part of his December 9 (and ultimately January
7) reports, he took more than fifty photographs which were supplied to U.S.
Forensic. The January 7 report, which became part of Wright’s claims file and
was produced, notes that:
Representative
photographs are in the attachments. The photographs taken but not included in
the report are available upon request.
Pl.’s
Ex. 3 at 5. Thus, in order to comply with this Court’s directive that all
photographs be provided, defendant would necessarily have had to contact U.S.
Forensic to obtain the additional but unsupplied photographs expressly
identified in the report. Thus, counsel’s limitation of its discovery inquiry
to Wright’s claims file was a clear violation of its discovery
obligations.
Counsel
for Wright repeatedly and vociferously argue that plaintiffs’ counsel failed in
its obligations under the CMOs by failing to provide Wright – prior to
the mediation – with a copy of the fragment of the December 9 report that their
clients had obtained by photographing the title and conclusion pages with a
cell phone in January 2013. To an extent, defendant is correct, and plaintiffs’
failure somewhat mitigates the harm caused by defendant. Plaintiffs’
counsel is hereby admonished that future violations of this kind could result
in sanctions.
At
the same time, after receiving evidence that the engineers report apparently
had been altered, counsel for Wright initially did little to investigate the
matter. See Deft.’s Mem. in Opp., DE [59] at 2 (observing that the
fragment “seems to be a draft report” and suggesting “it might be
that this was a document that had not yet gone through the normal internal peer
review process”). Next, as noted above, counsel for Wright endeavored to
prematurely circumscribe the hearing, which would have left the Court and
plaintiffs with a distinct misimpression of the practices employed by U.S.
Forensic. Tr. 119-124. And lastly, even after the hearing, Wright attempted to
defend the indefensible practices exposed here. See, e.g., Deft.’s
Post-Hearing Mem., DE [71] at 5 (comparing U.S. Forensics practices to documented
NASA peer review processes); 7 (“[t]here was nothing nefarious on US
Forensic’s part in the revision of the report”); 8 (comparing Garove’s
alteration of the report to a jury trial).
Based
on the above, I find that counsel for Wright violated its obligations to comply
with this Court’s discovery orders,[16]
thereby unreasonably prolonging this litigation, imposing unnecessary costs
upon plaintiffs and further contributing to the unwarranted delays in resolving
this claim.
B.
Appropriate Remedies in this Case
Section
636(b)(1)(A) of Title 28, United States Code empowers magistrate judges to hear
and determine any pretrial matter pending before the Court (with the exception
of eight specifically enumerated types of motion which are not relevant here).
Because sanctions pursuant to Rule 37 fall within the scope of pretrial
matters, magistrate judges are well within their authority to impose such
sanctions. Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 525 (2d
Cir. 1990)(holding that “[m]onetary sanctions pursuant to Rule 37 for
noncompliance with discovery orders usually are committed to the discretion of
the magistrate, reviewable by the district court under the clearly erroneous or
contrary to law standard”).
“It
is well settled that district courts enjoy wide discretion in sanctioning
litigants appearing before them.” Novak v. Wolpoff & Abramson, LLP,
536 F.3d 175, 177 (2d Cir. 2008); see also S. New England Tel. Co. v. Global
NAPS Inc., 624 F.3d 123, 143 (2d Cir. 2010) (reviewing district court’s
imposition of sanctions for failure to comply with court ordered discovery for
abuse of discretion). The Second Circuit has noted:
Even
in the absence of a discovery order, a court may impose sanctions on a party for
misconduct in discovery under its inherent power to manage its own affairs. DLC
Management Corp. v. Town of Hyde Park, 163 F.3d 124, 135–36 (2d Cir.1998). See
generally Chambers v. NASCO, Inc., 501 U.S. 32, 43, 111 S. Ct. 2123, 115 L.
Ed. 2d 27 (1991) (“It has long been understood that ‘[c]ertain implied powers
must necessarily result to our Courts of justice from the nature of their
institution,’ powers ‘which cannot be dispensed within a Court, because they
are necessary to the exercise of all others.’”) (quoting United States v.
Hudson, 7 Cranch 32, 34, 3 L.Ed. 259 (1812)).
Residential
Funding Corp. v. DeGeorge Fin. Corp., 306
F.3d 99, 107 (2d Cir. 2002).
Rule
37(b) sets forth a non-exclusive list of sanctions that the court, in its
discretion, may levy on a party who “fails to obey an order or permit discovery
. . . .” Fed. R. Civ. P. 37(b)(2). As relevant to the instant action, the
listed sanctions include “prohibiting the disobedient party from supporting or
opposing designated claims or defenses, or from introducing designated matters
in evidence;” “striking the pleadings in whole or in part;” as well as
“treating as contempt of court the failure to obey any order.” Fed. R. Civ. P.
37(b)(2)(A)(ii)-(iii), (b)(2)(A)(v), (b)(2)(A)(vii). Again, the Second
Circuit’s holding in Residential Funding proves instructive:
Rule
37(b)(2) of the Federal Rules of Civil Procedure provides, in relevant part,
that if a party fails to obey a discovery order, the court “may make such
orders in regard to the failure as are just,” including, but not limited to,
“[a]n order that ... designated facts shall be taken as established for the
purposes of the action in accordance with the claim of the party obtaining the
order.”
306
F.3d at 106.
The
evidentiary limitations provided in Rule 37(b)(2)(A)(i)-(ii) offer a means to
craft an appropriate remedy in this case.
The
major effect of the reprehensible practices uncovered here – as well as
counsel’s failure to disclose these practices at an earlier juncture – was to
unnecessarily complicate and delay this action. The context remains important:
according to the City of Long Beach, the losses here totaled approximately
$205,000, while the testimony at trial suggested that the insurer has already
paid out about $80,000. Pl’s Ex. 1.
Thus,
based on these rough figures, the most that could be at issue here amounted to
approximately $125,000 and, based on the coverage limits of $250,000, no more
than about $170,000 could be at stake. To a government-backed insurer, these are
trifling figures, and in the world of federal cases, such figures are
unimpressive, particularly when compared to the exorbitant costs of litigation.
On the other hand, to individual homeowners, these are staggeringly large
sums.
The
violations in this case resulted in many months of delay for plaintiffs, and,
unnecessarily, a full day evidentiary hearing and numerous briefs to fully
explore these issues.
That
ends now. Under Rule 37(b), in the Raimey case, I hereby prohibit
defendant Wright from supporting its defenses or opposing plaintiffs’ claims
with any expert testimony other than that of Hernemar, and they may not
produce, rely upon or create any expert reports other than those already
produced. Defendant’s application to obtain yet another expert to examine
plaintiffs’ claim (and its directive to plaintiff to help prepare that expert)
is hereby denied. While a more significant sanction – such as striking the
answer or even contempt – might be warranted on these facts, I find that this
sanction constitutes a just order, which is intended to expedite this matter
and avoid further unneeded complications in this case.
Having
imposed that sanction, one additional matter needs to be determined. As the
Second Circuit has observed:
Rule
37(b) also provides that, in lieu of or in addition to any other appropriate
order,
the
court shall require the party failing to obey the order or the attorney
advising that party or both to pay the reasonable expenses, including
attorney's fees, caused by the failure, unless the court finds that the failure
was substantially justified or that other circumstances make an award of
expenses unjust. Fed.R.Civ.P. 37(b)
Residential
Funding Corp., 306
F.3d at 106-7.
Further,
the Second Circuit has held “[w]hen an attorney’s misconduct or failing does
not involve an attempt to place the other side at an unfair disadvantage, any
sanction should ordinarily be directed against the attorney rather than the
party, absent strong justification.” World Wide Polymers, Inc.,
694 F.3d at 160. Because counsel for plaintiff withheld information relating to
the apparent discrepancy in reports until the mediation, no monetary sanction
is appropriate for the period leading up to the mediation.
However,
given discovery failures by defendant’s counsel, the unreasonable response by
defendant to the allegations, and counsel’s shocking attempt to curtail inquiry
during the hearing, it is reasonable to charge the costs associated with the
hearing to defendant’s counsel. Plaintiffs’ counsel, therefore, may make
application for reimbursement from defendant’s counsel for all reasonable costs
associated with the motion, the hearing and all related briefing, including
attorneys’ fees, travel costs and transcription costs, within thirty days of
the date of this Order.[17]
C.
Plaintiffs’ Discovery Motion and the Measures Needed to Ensure Fairness in
Other Hurricane Sandy Cases
As
a result of the startling findings contained herein, plaintiffs in this case,
as well as all other Hurricane Sandy cases, must be provided with additional
discovery to determine whether there are other expert reports, drafts,
photographs and email communications that have not been disclosed to date. In
their post-hearing brief, plaintiffs set forth a broad discovery plan, seeking
eight depositions and twelve broad categories of documents. For the reasons set
forth above, the costs of implementing such a plan may well outweigh the
amounts at issue in these cases. The Committee assigned to manage these cases
has endeavored “to speed resolution of these matters while also reducing costs
for the parties and the burdens on the Court,” CMO 1 at 2, and ultimately “to
facilitate the efficient resolution of the cases.” CMO 3 at 1. The Committee’s
approach has been consistent with the Court’s mandate under Rule 1 to construe
the rules “to secure the just, speedy, and inexpensive determination of every
action and proceeding.”
Thus,
to implement a plan by which the litigation costs would likely consume
potential recovery would not serve the interests of any party. Moreover, this
massive undertaking would result in delays and complications, which will
further frustrate prompt resolution of these claims.
At
the same time, the issues that have surfaced require some accommodation.
Therefore, as an initial response, I am directing that – within thirty days of
the date of this Order – all defendants in any Hurricane Sandy case provide
plaintiffs with copies of all reports described in CMO#1 – plus any
drafts, redlines, markups, reports, notes, measurements, photographs and
written communications related thereto – prepared, collected or taken by
any engineer, adjustor or other agent or contractor affiliated with any
defendant, relating to the properties and damage at issue in each and every
case, whether such documents are in the possession of defendant or any third
party. Such production should provide counsel with sufficient information
to proceed to mediation and/or settlement and, where necessary, trials in these
cases. Furthermore, upon receipt of such information, counsel for plaintiffs
may make application for further discovery as appropriate and consistent with
the principles set forth in this decision. Obviously, it would behoove
defendants in all cases to be as forthcoming as possible at this juncture.
CONCLUSION
Based
on the foregoing, it is hereby ORDERED that:
1.
In the Raimey case, pursuant to Rule 37, defendant Wright is prohibited
from supporting its defenses or opposing plaintiffs’ claims with any expert
testimony other than that of George Hernemar, and they may not produce, rely
upon or create any expert reports other than those already produced.
2.
Within thirty days of the date of this Order, plaintiffs’ counsel in Raimey may
make application to the Court for reimbursement from defendant’s counsel for
all reasonable costs associated with this motion, the hearing and all related
briefing, including attorneys’ fees, travel costs and transcription costs,
consistent with the rulings set forth herein; and
3.
Within thirty days
of this Order, defendants in all Hurricane Sandy cases shall provide
plaintiffs with copies of all reports described in CMO 1 not previously
produced – plus any drafts, redlines, markups, reports, notes, measurements,
photographs and written communications related thereto – prepared,
collected or taken by any engineer, adjustor or other agent or contractor
affiliated with any defendant, relating to the properties and damage at issue
in each and every case, whether such documents are in the possession of
defendant or any third party.
SO
ORDERED.
Dated:
Central Islip, New York
November
7, 2014
/s/
GARY R. BROWN
Gary
R. Brown
United
States Magistrate Judge
[1] “It’s been nearly two years since
the region got walloped by superstorm Sandy. Yet, incredibly, even now, Sandy
still packs a nasty punch every day for many of those who have homes near the
shore. Because of a series of grinding, glacial bureaucracies, they still
cannot afford the simple act of just going home.” Matt Davies, Sandy Lingers
Two Years Later, NEWSDAY, Oct. 17, 2014,
http://www.newsday.com/opinion/cartoon-sandy-lingers-two-years-later-1.9519217.
[2] “[W]e should not be just litigating
as a delaying tactic to not pay claims.” Testimony of FEMA Administrator Craig
Fugate at Senate Banking Committee hearing on Flood Insurance Claims Process,
Jul. 30, 2014, No. 14-MC-00041, Docket Entry (“DE”) [497]-3.
[3] See Case Management Order
(“CMO”) 1 at 1-2 (discussing efforts of Committee); Order dated October 15,
2014, 14-CV-41, DE [563] (describing EDNY Hurricane Sandy mediator training
program).
[4] In its response, counsel for Wright
correctly characterize the allegations raised by plaintiffs as “indeed
serious,” properly noting that such charges “go to the very core of any court’s
ability to perform its function.” DE [59] at 1. But rather than approaching
these charges with the measured or conciliatory response one might anticipate,
counsel, in the text of its memorandum filed with the Court, actually
threaten the plaintiffs with a substantive denial of their claim should they
fail to cooperate with Wright’s demand to provide information about this matter
to its yet-to-be-designated engineer. Id. at 13.
[5] No explanation was provided as to
Fidelity’s role in this matter. However, according to public records, Wright,
the defendant, acquired Fidelity’s flood insurance business, and as a result
“Fidelity National Indemnity Insurance Company . . . operate[s] as a
wholly-owned subsidiary of WRM America.” WRM America to Acquire Fidelity
National Financial’s Flood Insurance Business, WRIGHT SPECIALTY INSURANCE,
Jul. 13, 2011, http://www.wrightspecialty.com/newsletters-press-releases/44-wrm-america-to-acquire-fidelity-national-financial-s-flood-insurance-business.html.
[6] Counsel for defendant argues that
the December 9 report, which was not stamped and sealed by Hernemar, was not a
“report.” See, e.g., Tr. 45, 85. However, this argument is undermined
by, among other things, Mr. Hernemar’s sworn testimony. Tr. 101(“Every report I
see as final. Everything I submit to US Forensic is a final report”). He did,
at the same time, vacillate on this point. Tr. 72 (“the first report is not
final in that sense. It is a draft you send. And if US Forensic has no issue
with that report, then I get the confirmation that my report was good. And if I
get the call from US Forensic, their engineer, and want to discuss the report
with me, then I know if they have some other points they want me to consider
maybe. We have a discussion. And that happened in this case”).
[7] During the hearing, counsel for
defendant, repeatedly attempted to block inquiry by plaintiff into the bases
for Garove’s opinions. Tr. 144-45 (“I'm going to object only because it appears
that the examination is now getting into what this gentleman's opinion might
be, which is subject to a different type of hearing”); Tr. 149 (“If counsel
wants to obtain the opinion of this witness as to why he reached those
conclusions, this is not what this hearing is all about”). Then, notably,
defendant’s counsel proceeded to elicit some of Garove’s engineering opinions
on cross-examination, and, in its post-hearing submission, defendant submitted
an 11-page, single-spaced declaration from Garove, in which he further attempts
to support his expert conclusions that were injected, without attribution, into
Hernemar’s report. See Tr. 158-161; DE [71]-1.
[8] Garove’s assertions that “no
evidence” was observed also would be true – and equally unavailing – had the
inspector been blindfolded during the inspection.
[9] Curiously, at the hearing, Garove
did not testify that he was a partner at the firm, merely that he was
“employed” by U.S. Forensic. Tr. 128.
[10] Counsel has made a number of
arguments about Hernemar’s credibility. As even a reading of the cold record
will reveal, Hernemar’s testimony may be charitably characterized as confused.
[11] The letter advised that this figure
could be used in lieu of a market value under applicable FEMA rules. See Pl.’s
Ex. 1; FEMA Publication 213 (“. . .the structure's Actual Cash Value” may be
“used as a substitute for market value based on the preference of the
community”).
[12] Hernemar and plaintiff Kaible presented
divergent accounts of how this came to pass. Kaible testified that Hernemar –
after denying that he had authored the January 7 report – permitted Kaible to
review the December 9 draft. Tr. 17. Hernemar denied this, suggesting that
Kaible must have improperly gained access to the draft report. Tr. 114.
Notwithstanding defendant’s arguments to the contrary, I find the issue largely
immaterial. However, based upon the testimony and my evaluation of the
witnesses, I fully credit the plaintiff’s account.
[13] In yet another twist, Hernemar
reports that he did not at first believe that he had uncovered foundation
damage, but a “peer review” of his supplemental report by U.S. Forensic
convinced him otherwise. Tr. 109; 111-112. However, since Garove testified that
he did not review the supplemental report, the details of this remain hazy. Tr.
111-112.
[14] The record is replete with
references to email communications between and among the participants that
clearly relate to these matters, including Hernemar, Garove, Gary Bell and
others.
[15] Another “defense” repeatedly
asserted by counsel for Wright is that the insurer would have no incentive to
lowball or improperly refuse to pay claims because Write Your Own policy
(“WYO”) carriers are compensated as a percentage of payout, and thus have an
incentive to pay. Some – including one plaintiffs’ attorney in this case –
believe otherwise. See Merlin, Chip, National Flood Claims Do Not Get
Paid Properly Because the Only Incentive is to Underpay, PROPERTY INSURANCE
COVERAGE LAW BLOG,
http://www.propertyinsurancecoveragelaw.com/2014/07/articles/consumer-protection/national-flood-claims-do-not-get-paid-properly-because-the-only-incentive-is-to-underpay/.
In any event, at least on this this record, defendant’s motives regarding the
payment of claims are entirely irrelevant to the actions of the engineering
company discussed herein.
[16] Plaintiffs’ counsel expended
extraordinary effort making a number of personal allegations against Mr.
Nielsen, one of defendant’s attorneys herein, and counsel for defendant
responded in kind. Having examined these matters with some care, I find them
wholly irrelevant and largely, if not entirely, without basis.
[17] For the reasons set forth herein,
the Court will not authorize the imposition of fees and costs relating to the ad
hominem attacks against Mr. Nielsen. Should plaintiffs’ counsel pursue an
application for fees, such amounts should be identified and excluded.
I am HAAG certified, but don't agree with some of their ideas of hail damage. They teach or preach if you will that a hail stone has to be at least one to one and half inches or bigger to cause hail damage. Also that if the mat is not fractured there is no bruising and therefore no damage. I personally believe that it's not the size of the hail stone but the velocity upon impact. A Volkswagen can create just as much damage as a full size car at a high rate of speed. Also I have been on enough roof where I have seen hail hits to shingles without the back fracture that has cobwebbed or showing fiber glass after a period of time has passed.
As far as complaints regarding the lifting of the shingles. I have gotten a few, not many. My response has and still is they are self sealing. That what they are designed to do whether it's the wind or you who are lifting them.
One more item of note regarding Mr. Rockey comment about two different types of shingles on a roof. I have done work with a couple of different insurance carrier that will go un-named have a saying "If the roof has a patch, they get a patch".