Steven Plitt, Expert Insurance Consultant & WitnessSteven Plitt, Expert Insurance Consultant & Witness2023-09-18T20:05:24Zhttps://www.insuranceexpertplitt.com/feed/atom/WordPress/wp-content/uploads/sites/1603851/2022/07/cropped-Plitt-site-icon-c-32x32.pngOn Behalf of Steven Plitt, Expert Insurance Consultant & Witnesshttps://www.insuranceexpertplitt.com/?p=2557232022-11-14T10:38:07Z2022-12-29T07:00:27ZBonBeck Parker, LLC v. Travelers Indemnity Co. of America, 14 F.4th 1169 (10th Circ. 2021) the Court held that the Travelers’ policy permitted either party to request an appraisal on “the amount of loss,” which was a phrase with an ordinary meaning in the insurance context that unambiguously encompassed causation disputes. The Circuit Court predicted that the Colorado Supreme Court would recognize that in the insurance context, the phrase “amount of loss” would encompass causation. In doing so, the 10th Circuit rejected Travelers’ argument that the appraisal clause was limited to monetary determinations, thereby precluding causation determinations. Rather, the 10th Circuit concluded that nothing in the dictionary definition of an appraiser did not indicate that appraisers were limited from considering causation as part of the estimation of value.
BonBeck Parker, LLC and BonBeck HL, LC, (collectively “BonBeck”) submitted a hail damage claim to their insurer, Travelers Indemnity Co. Travelers acknowledged, upon inspection, that some of the claimed damage to the property was caused by a covered hail storm. However, Travelers also concluded that the inspection uncovered damage that was caused by uncovered events, such as wear and tear of the property. BonBeck requested appraisal. Travelers advised BonBeck that it would agree to appraisal, provided that BonBeck would further agree that the appraisers were not to decide whether the subject hail storm, in fact, caused the disputed damage being assessed by the appraisal panel. BonBeck rejected that condition. The scope of appraisal issue ultimately was submitted to the Court.
Travelers’ policy appraisal clause provided that if the parties disagreed on the value of the property, “the amount of loss” could be resolved through appraisal. The policy did not define, however, the phrase, “the amount of loss.” Because the policy did not define the phrase, the Court looked to Blacks Law Dictionary to assist with the Court’s interpretation of the phrase. Specifically, the Court looked to the dictionary definitions of “loss.” According to Blacks Law Dictionary, the term, “loss,” meant “the amount of financial detriment caused by . . . an insured’s property damage, for which an insured becomes liable.” Webster’s Third New International Dictionary defined the term “loss” as “the amount of an insured’s financial detriment due to the occurrence of a stipulated contingent event . . . in such a manner as to charge the insurer with a liability under the terms of the policy.” Merriam Webster’s Collegiate Dictionary defined “loss” as “the amount of an insured’s financial detriment by . . . damage that an insurer is liable for.” The Court found that in each dictionary iteration of the term “loss,” there was a causation component where the dictionaries made clear that the term “loss” referred to damage resulting from a covered event. The Tenth Circuit Court of Appeals then cited to various state courts outside of Colorado which had concluded that causation was an integral part of the definition of loss and that appraisers were empowered to decide the factual cause of damage to property when determining the amount of loss from a hail storm.
The Court noted that the purpose of the appraisal provision in the Travelers policy (and others like it) was to avoid litigation and encourage settlement of the parties’ dispute. If causation was removed from the appraisal evaluation, that purpose would be frustrated because a plethora of detailed damage assessments for judicial review would be reserved. The Court believed this to be unwise when the causation question involved separating losses that were due to covered events from the property’s pre-existing condition that might be subject to exclusions. That type of causation issue arose frequently in property claims and the Court noted that if appraisers were not allowed to allocate damages between covered and excluded peril, then the appraisers could never assess hail damage unless a roof was brand new. This would render the appraisal clause largely inoperative.
Many courts have not decided this issue. The dearth of case authorities is likely because insurers will reserve, against appraisal determination, coverage issues. Coverage issues oftentimes tangentially include issues of causation. With coverage issues reserved, appraisers can reach an award involving the scope of damages which the appraisal panel prices, leaving it to the Courts, and perhaps a jury, to decide more complicated issues involving causation. In the author’s experience, causation determinations can be complex and time consuming and are often beyond the expertise of the appraisal panel members. As an example, in hail cases there are typically significant causation issues involving the differentiation between old hail damage versus new hail damage. This is oftentimes the subject of extensive engineering analysis. Such issues should be decided through a DJA where the parties can present their evidence. That type of advocacy by party representatives does not typically occur in the appraisal process. Rarely does an appraisal panel allow for the submission of evidence and argument of the parties. Thus, the purpose of the appraisal dispute mechanism within the policy would be frustrated by elongating the appraisal process and making the appraisal process, beyond what is intended, much more costly.]]>On Behalf of Steven Plitt, Expert Insurance Consultant & Witnesshttps://www.insuranceexpertplitt.com/?p=2557212022-11-14T10:29:08Z2022-12-22T07:00:57ZSproull v. State Farm Fire and Casualty Co., 184 NE 3d 203 (Ill. 9/23/21), affirming the appellate court decision 172 NE 3d 1186 (Ill. App. 5th Dist. 7/24/20), is an excellent reference and starting point for any adjuster who wants to understand the jurisprudence regarding labor depreciation.
The Illinois Supreme Court ruled in Sproull on first impression, that homeowner insurance companies cannot depreciate labor costs in calculating ACV when the policy did not define ACV. The Illinois Administrative Code indicated that ACV of a damaged structure was to be determined as “replacement cost of property at time of loss less depreciation, if any.” See 50 Ill. Admin. Code §919.80(d)(8)(A). However, neither the Code nor the insurance policy in question set forth a definition of “depreciation” or established a method for calculating it. Because of this, the Illinois Supreme Court found that the policy was ambiguous on the question of labor depreciation because it could be subject to more than one reasonable interpretation.
This issue is going to be decided on a case-by-case basis. In reaching its conclusion, the Illinois Supreme Court conducted a review of the law from jurisdictions that had adopted the view that labor can be depreciated from those that found that it could not.
The Court in Sproull provides an excellent review of the case law throughout the country, both supporting and rejecting labor depreciation.
In one line of cases, courts view the damaged property as the product of materials and labor. Take a damaged roof, for example. Some courts would require a damage analysis for purposes of establishing ACV to consider what the expected life of the destroyed roof, both as to materials and labor, would have been. This view is predicated on the idea that the insured bought an insurance policy covering a roof surface, and did not separately insure materials and labor. Under this view, a roof is a combination of product (i.e., shingles) and a service (i.e., labor to install the shingles). To preclude labor depreciation would unjustly enrich the policyholder by not having to pay an essential cost associated with the replacement of the roof that had already been paid at some time in the past when the roof was originally installed.
On the other hand, some courts require the analysis of ACV to consider only those items that logically tend to establish the value of the property at the time of loss. Under this view, the roof shingles are logically depreciable, given that they experience physical age, and thereby lose value because of natural and expected wear and tear. Labor, however, does not lose value because of natural and expected wear and tear. Labor does not lose value over time. It would be illogical to analyze whether the roofer was young and stout versus a 70-year old roofer with arthritis who had trouble climbing a ladder or hammering a nail.
One way for an insurance company to clarify whether labor is depreciable under an insurer’s policy is to specifically define ACV in a policy in a manner to exclude labor from the ACV calculation. Otherwise, whether labor is depreciable becomes a question of judicial geography. Excluding labor from an ACV calculation in the policy would avoid the uncertainty of judicial geography or reliance upon vague, common law rules for determining ACV. The three principal rules include the broad evidence rule, market value rule, or replacement cost minus depreciation rule. Under the broad evidence rule, all relevant factors are considered in determining ACV, including purchase price, replacement cost, appreciation or depreciation, the age of the building, the condition in which it has been maintained and market value. The market value rule similarly looks at factors effecting the value of the property, including a decline in value based on use, wear, obsolescence, or age.]]>On Behalf of Steven Plitt, Expert Insurance Consultant & Witnesshttps://www.insuranceexpertplitt.com/?p=2557192022-11-14T10:18:02Z2022-12-15T07:00:07ZNede Mgmt., Inc. v. Aspen American Insurance Co., 284 Cal.Rptr.3d 122, 38 Cal. App. 5th 1121 (Sept. 20, 2021), as modified (October 5, 2021), the California Court of Appeals considered the merits of various arguments asserted by an insured for why the insured believed §2860 required the appointment of independent counsel. First, the insured argued that the insurer reserved its rights generally. Upon review, the Court noted that the insurer’s reservation of rights focused on there being no coverage under the policy for punitive damages and that the damages being alleged by the claimants went beyond the limits of the policy. In rejecting this argument, the Court noted that the insurer did not reserve any rights related to coverage beyond an excess-limits damage award and punitive damages, which did not create an ethical conflict for defense counsel. The Court stated that the cumis rule in §2860 concerned with an attorney’s dual representation of the insurance company and insured when their interests were in conflict. That a conflict of interest between jointly represented clients occurred when their common lawyer’s representation of the one is rendered less effective by reason of the lawyer’s representation of the other. The type of coverage dispute regarding excess exposure and punitive damages did not create a situation where the insurance company and insured’s interests diverged, forcing defense counsel to represent one to the detriment of the other. Rather, both the insurance company and the insured under those circumstances were aligned in defending the lawsuit to minimize or avoid liability.
Another ground for requiring the appointment of independent counsel was the insured’s allegation that defense counsel demonstrated “unremitting hostility” to the insured, which was exemplified by the belief that the insureds would be bad witnesses who could not be believed at trial. The Nede court did not find defense counsel’s honest assessment as creating a conflict of interest. The court noted that if defense counsel had entertained such a viewpoint, that viewpoint was part of the attorney’s honest assessment about the merits of the case. That honest assessment would serve both the insurer and the insured. From the insurer perspective, defense counsel’s honest evaluation would help inform any decision made by the insurance company to litigate or settle the case. From the insured’s perspective, the honest assessment might avoid a much higher damages award if a jury disliked the insured’s testimony or found them not to be credible. In assessing how the jury might react to testimony from the insureds, the insurer appointed defense counsel was serving his clients’ aligned interests in avoiding liability.
Another ground asserted by the insureds to support the appointment of independent counsel focused on a rejection of a policy limits settlement demand at the start of the lawsuit without the insureds being consulted. The insureds argued that the rejection might have resulted in the insureds being exposed to damages exceeding policy limits or punitive damages. The Nede court rejected this basis for the appointment of independent counsel. The court noted that the insurance company was simply exercising its right to control the defense. The policy gave the insurer discretion to investigate and settle claims as it deemed appropriate. To further their argument, the insureds asserted that defense counsel told them that he believed the policy limits demand was “clearly premature.” In responding to the demand, defense counsel had chronicled and detailed all of the outstanding issues. A review of each of the chronicled items, according to the Nede court, found that they were all aimed at defending the insureds and the insurance company’s interests equally.
Finally, the insureds argued that insurer-appointed defense counsel advised the Nedes’ cumis counsel during later settlement discussions that the insureds needed independent counsel because the latest settlement demand exceeded policy limits. The court found that insurer-appointed defense counsel’s guidance was sound.
Overall, the Nede court found no divergence between the insured’s and the insurance company’s interests. Although the insureds did not like or agree with the insurer-appointed defense counsel’s litigation decisions, the insureds did not allege any circumstance upon review that prevented insurer-appointed defense counsel from serving both the insured’s interests as well as the insurance company’s interests. Absent a coverage dispute or reservation of rights that created a risk that insurer-appointed defense counsel would serve the insurance company’s interests to the detriment of the insureds, independent counsel was not warranted.]]>On Behalf of Steven Plitt, Expert Insurance Consultant & Witnesshttps://www.insuranceexpertplitt.com/?p=2557152022-11-14T07:47:43Z2022-12-08T07:00:10ZAKC, Inc. v. United Specialty Insurance Co., 2021-Ohio-3540, 187 N.E.3d 501 (Ohio 10/6/21), the Ohio Supreme Court reversed the ruling of the Ohio Ninth District Court of Appeals and found that a water-backup exclusion necessarily included sewerage within the scope of the exclusion. The Court of Appeals had found that the exclusion was ambiguous because it did not specifically use the word “sewerage.”
The Ohio Supreme Court found that when water backed up or overflowed from a sewer, the water was necessarily going to contain some sewerage. Referring to the Webster’s dictionary definition of “sewer” and “sewage”, there was no doubt to the Supreme Court that the average person purchasing insurance would understand this to be so because sewers naturally carry a watery mixture that most people typically call “sewage.”
The Ohio Supreme Court rejected the ambiguity methodology of the Court of Appeals. According to the Ohio Supreme Court, the Court of Appeals had improperly created ambiguity in the insurance policy by asking whether the insurer could have included different or more express language in the contract. The Supreme Court found that the question was not whether the water backup exclusion could have been worded differently or should have specifically stated that it applied to sewerage, even though “it could have necessarily and succinctly done so with the mere addition of the very word. The correct question was whether the water backup exclusion, as written, applied to sewerage carried into the insured property during a backup or overflow event. The Supreme Court found that it plainly did.
The Supreme Court also noted that there were standard endorsements available for purchase to the insured that effectively removed the water backup exclusion from the policy and thereby would have provided property owners with coverage for that type of event.
The obvious intent of the water-backup exclusion was to bar damages caused directly or indirectly by water that backed up or overflowed from a sewer. As such, the exclusion applied to damage caused by sewerage, even though the word “sewerage” was not used in the exclusion.]]>On Behalf of Steven Plitt, Expert Insurance Consultant & Witnesshttps://www.insuranceexpertplitt.com/?p=2557132022-11-14T07:41:12Z2022-12-01T07:00:51ZThompson v. Dennis Widmer Construction, Inc., 2021 WL 5235974 (D. Or., November 10, 2021) limited the insurance company’s ability to access defense counsel’s complete defense file through the tri-partite relationship. The case involved the insurance company failing to settle a lawsuit brought against its insurer because of a lowball settlement offer. The claimants offered to settle the suit against the insured for $250,000, which was then reduced to $198,000. Defense counsel advised the insurance company that the insured faced liability in a range between $190,000 and $280,000 if the case went to trial. The highest settlement offer made by the insurance company was $60,000. Thereafter, the insured and the claimant entered into a stipulated settlement agreement resulting in a $225,000 judgment. The claimants then became judgment creditors and issued a writ of garnishment against the insurance company.
In the garnishment action, the insurance company sought to discover privileged documents from defense counsel’s file, including a complete unredacted version of defense counsel’s file. The focus of the discovery was upon correspondence between the insured and assigned defense counsel, as well as documents to and from defense counsel related to the litigation. When this document request was objected to, the insurer argued that it had a right to defense counsel’s file under the tri-partite relationship.
The District Court, applying Oregon law, denied the insurer’s discovery request, finding that the insured did not have a right to all correspondence between the insured and its appointed defense counsel. According to the Court, once the interests of the insurance company and the insured became adverse, the attorney-client privilege then protected from discovery any information that could be used against the insured drawn from the defense counsel file.
The Court rejected the insurer’s argument that the insurer had a common interest in the underlying tort litigation. The Court rejected this argument, noting that the insurer from the beginning of the litigation took the position that there was little coverage for claims. Additionally, the insured and the insurance company had different interest regarding the settlement and, therefore, the “common interest” exception to the attorney-client privilege under Oregon law did not apply.]]>On Behalf of Steven Plitthttps://www.insuranceexpertplitt.com/?p=2557102022-10-11T14:39:42Z2022-11-24T17:33:38ZSee Foreman v. Auto Club Property-Casualty Insurance Co., 617 S.W.3d 345 (Ky. 2021).
The Kentucky Supreme Court noted that courts generally hold that intentional-act exclusions do not apply in situations where the insured was suffering from a lack of mental capacity at the time of the act in question. The insurance policy required the insured’s conduct to be objectively judged. Nevertheless, the Court held that an objective analysis required the Court to ask what loss, when judging the circumstances objectively could the insured reasonably expect to result from his intentional acts. Therefore, the insured was entitled to litigate the question of lack of capacity in support of the insurance claim. Logic of the Court was somewhat confusing. On the one hand, the insurer’s policy embraced an objective standard for determining intent, provided that the reasonable likelihood of damage needed to be judged from the perspective of the insured, who may have been mentally incapable of appreciating the consequences of his actions. However, the whole purpose of an objective standard was to eliminate the insured’s objective statement of mind from consideration when determining coverage. Thus, it was unclear in what sense the insured’s mental capacity was relevant to what an objective person would think.]]>On Behalf of Steven Plitthttps://www.insuranceexpertplitt.com/?p=2557082022-10-11T14:41:26Z2022-11-17T14:32:28ZSavoie v. Enco Insulations, Inc., 322 S.3d 1264 (La. App. 1st Cir. 4/9/21), the Court found that a CGL policy issued to an engineering corporation excluded coverage for executive officers for claims arising from a former employee’s lung cancer that developed after his alleged exposure to asbestos. The Court found that the CGL policy plainly excluded coverage for the executive officers pursuant to the co-employee exclusions in the policy. In finding no coverage, the appellate court rejected plaintiff’s assertion that because employees and executive officers were listed separately in a section that defined “insured,” the reference to “employee” in the co-employee exclusion applied only to employees, and not executive officers. Nevertheless, the court found that because executive officers were among those defined as insured, they were also considered employees of the corporation, the co-employee exclusion applied.]]>On Behalf of Steven Plitthttps://www.insuranceexpertplitt.com/?p=2557062022-10-11T14:42:34Z2022-11-10T16:30:48ZButler v. Travelers Home & Marine Insurance Co., 858 S.E.2d 407 (S.C. 2021) that insurance companies were entitled to include depreciation of embedded labor costs in their calculations regarding actual cash value because, according to the Court, it made no sense to do otherwise. In the abstract, the Court noted that RCV and ACV were simple concepts. According to the Court, RCV was “simply the amount of money it would take to pay a contractor to repair or replace damaged structure, including costs for materials and labor.” Describing ACV, the Court described ACV as “the amount of money a willing buyer would pay, and a willing seller would accept, in a transaction with no unnatural constraints,” or “what the structure was worth at the time it was damaged.” The South Carolina Supreme Court also noted that RCV, as applied, was a straightforward calculation. The Court stated that “[t]o calculate RCV, one determines the extent of damage and solicits bids to have the damage repaired or replaced. The amount of RCV is thus determined by the market and is readily ascertainable.” However, determining ACV was not quite that simple because there was no relevant marketplace for the buying and selling of “aged to partially deteriorated portions of homes,” the Court pointed to the example of a 15-year-old roof. A 15-year-old roof was not available for purchase in the market, nor was there any market on which to sell it. In that regard, an ACV value regarding the part of a home was “a fiction and [was] not possible to precise ascertation.”
Turning to the issue at hand, the depreciation of embedded labor costs, the Court noted that it took both material and labor to manufacture shingles and roofing nails. By the time the shingles and roofing nails were sold to the roofer, the two had been combined and the roofer then paid one price for the finished product. The process of bidding on the replacement of a roof the cost and the materials is initially separate from the cost of the labor. But in the finished, completed roof, the two have become inseparable and the labor was embedded in the completed roof. In that regard, when a homeowner paid for a new roof, the homeowner paid for the roof as a single unit. As the Court noted, “[n]obody bargains for the purchase of nails by separating out how much the nail manufacturer spent on labor, as opposed to materials.”
The South Carolina Supreme Court concluded that the mere fact labor costs are embedded in the materials themselves made it impractical, if not impossible, to include depreciation for materials and not for labor to determine ACV of the property damage. The value of the damaged property was reasonably calculated as a unit. Therefore, it made no sense for an insurance company to include depreciation for materials, and not for embedded labor.]]>On Behalf of Steven Plitthttps://www.insuranceexpertplitt.com/?p=2557042022-10-11T14:43:42Z2022-11-03T14:29:16ZHusel v. Trinity Health Corp., 2020 WL 95797 (E.D. Mich. 1/8/20), unpublished Case No. 19-CV-12478 *Affirmed by Sixth Circuit, 832 Fed. Appx. 996 (Jan. 6, 2021) held that a medical malpractice policy did not require the insurer to provide a paid for defense. The Court held that the medical practice policy covered liability for civil damages arising from a medical incident. A criminal prosecution was not a “claim” under the policy that would result in a “sum” that the doctor would be obligated to pay as damages. Therefore, the policy did not provide coverage for criminal prosecutions arising out of a medical incident. The Court’s decision was bolstered by the fact that the policy did not cover defense costs in a criminal proceeding because the policy excluded coverage for (1) any claim seeking non-pecuniary relief; (2) the knowing and willful violation of a penal statute; and (3) for physical abuse. The criminal indictment against the doctor sought imprisonment, which was not damages.]]>On Behalf of Steven Plitthttps://www.insuranceexpertplitt.com/?p=2557022022-10-11T14:44:18Z2022-10-27T15:04:32Z33 Carpenters Construction, Inc. v. State Farm Life and Casualty, 939 N.W.2d 95 (Iowa 2020), an employee of 33 Carpenters Construction Company approached the insureds several months after a hail storm to advise them of potential hail storm damage. The insureds agreed to allow the contractor’s employee to inspect the roof. After the inspection, which found hail damage, a contract was presented to the insureds labeled “Agreement” and “Insurance Contingency,” which was signed by the homeowners. Under the contract, 33 Carpenters agreed to repair the storm damage in exchange for the insured’s insurance proceeds. The contract authorized 33 Carpenters to act on behalf of the insureds in submitting and obtaining payment of insurance for the hail damage. Initial documents did not, however, formally assign the insured’s rights against the insurance company to 33 Carpenters. Eight months after the insureds did sign an “Assignment of Claims and Benefits,” well after the work had commenced on the roof. The insureds submitted a property damage claim to their homeowners insurer on the same day that 33 Carpenters started work on the roof. The insureds inspected the roof and estimated the RCV at $30,607 and the ACV at $22,198. The insurance company then paid the ACV value. The insureds transferred the payment to 33 Carpenters, which continued with the repair of the roof.
After the initial ACV payment, 33 Carpenters prepared a “supplement,” representing an 81.3% increase in the total repair cost of the roof. Shortly after submitting the supplement is when 33 Carpenters obtained the assignment and then sued the insurance company.
Litigation ensued and the insurance company filed a motion for summary judgment. The MSJ was granted by the Court, ruling that the insured’s assignment of their claim to 33 Carpenters was invalid under Iowa law because 33 Carpenters was acting as an unlicensed public adjuster, as defined by Iowa Code Chapter 522C. The Iowa Supreme Court affirmed. In doing so, the Supreme Court rejected 33 Carpenters’ argument that only the Iowa Insurance Commissioner had exclusive enforcement authority under the insurance code, and that courts lacked authority to invalidate the contract. Next, the Court found that under Iowa’s statutes governing residential contractors, residential contractors are prohibited from performing the same conduct that public adjusters are licensed to perform.
The case facts established that 33 Carpenters had approached the insureds, uninvited, and offered to inspect their property, thereby directly soliciting business from the insureds. A 33 Carpenters employee directed the insureds to file an insurance claim with their insurance company. The same employee attended the inspection of the insureds’ property with the insurer’s representative, instead of the insureds attending the inspection. The Court found that 33 Carpenters’ representations which indicated that its employees would “meet personally with your insurance adjuster, as an ADVOCATE on YOUR behalf,” aligned with the actual conduct of 33 Carpenters. The Court found that 33 Carpenters’ conduct showed that 33 Carpenters had acted for and aided the insureds in effecting the settlement of the claims, in violation of the public adjuster statute.]]>