BEST PRACTICES IN THE ADJUSTMENT OF PROPERTY DAMAGE CLAIMS

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BEST PRACTICES IN THE

ADJUSTMENT OF PROPERTY DAMAGE

CLAIMS

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Presented by:

Wright & O’Donnell, P.C.

George T. McCool, Jr.

Marie Sambor Reilly

15 East Ridge Pike, Suite 570 Conshohocken, PA 19428

(610) 940-4092

33 Wood Avenue South, Suite 600 Iselin, NJ 08830

(732) 452-9150

www.wright-odonnell.com

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PRESENTERS

George T. McCool, Jr. is a Senior Associate with Wright & O’Donnell, P.C. He formerly served as an

Assistant District Attorney in Philadelphia, as Senior Trial Counsel with the Law Offices of Donald F. Borrell, and first joined Wright & O'Donnell in 1997. Mr. McCool's practice areas include insurance defense, insurance coverage, insurance bad faith, construction litigation, commercial litigation, trucking litigation, workers' compensation, subrogation, and insurance fraud. He is admitted to practice in the Pennsylvania and New Jersey State Courts, as well as the United States District Courts for the Eastern, Middle and Western Districts of Pennsylvania, the United States District Court for the District of New Jersey, and the Third Circuit Court of Appeals.

Mr. McCool was born, raised and educated in the Greater Philadelphia area, and now resides with his wife and children in the Philadelphia suburbs. He graduated from St. Joseph’s University in 1981, and the Delaware Law School in 1984. Outside of work, he is very active in his community, and serves or has served as a Religious Education Teacher, PTA Treasurer, Boy Scout and Girl Scout Leader, and a member of the Alumni Board of Governors of Saint Joseph’s Preparatory School.

Marie S. Reilly is a Senior Associate with Wright & O'Donnell, P.C. She has been with Wright &

O'Donnell, P.C., since 2005. Ms. Reilly was born and raised in Philadelphia, and now lives with her husband and son in Delaware County, Pennsylvania. Ms. Reilly's practice areas include insurance coverage, insurance bad faith, trucking litigation and professional liability. Ms. Reilly has written various publications for the National Business Institute pertaining to insurance coverage, including publications pertaining to Insurance Coverage Law in New Jersey, Discovery in New Jersey, Bad Faith Litigation, as well as Third-Party Coverage in New Jersey Automobile Insurance.

Ms. Reilly received her B.S. from St. Joseph's University, and her J.D. from Villanova University School of Law. Ms. Reilly is admitted to practice in Pennsylvania and New Jersey, including the United States District Court for the Eastern District of Pennsylvania, United States District Court for the District of New Jersey, and the United States Court of Appeals for the Third Circuit. Ms. Reilly is also a member of the Aviation Insurance Association, the Pennsylvania Bar Association, the American Bar Association and the International Association of Insurance Professionals (IAIP) f/k/a NAIW (International). Her local chapter is Insurance Professionals of the Main Line (IPML) f/k/a Insurance Women of the Main Line.

About Wright & O’Donnell, P.C.

Wright & O’Donnell is a law firm engaged in an aggressive insurance and civil defense

litigation practice. The firm was established in 1995 by Lawrence D. Wright and Sheila E. O’Donnell. We are well equipped to handle all levels of litigation and insurance issues. We represent a broad range of clients, including self-insured entities, as well as foreign and domestic insurers. A great deal of our work includes the excess and surplus lines market, of which we have a tremendous understanding. Although geographically most of our practice is in Pennsylvania and New Jersey, we are often involved in insurance and litigation matters in a number of other states.

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BEST PRACTICES IN THE ADJUSTMENT

OF PROPERTY DAMAGE CLAIMS

In the adjustment of any property damage claim, as the adjuster working for the insurance company, you must remember that you are dealing with a policyholder who has suffered a loss. With a first-party property claim, an Insured is seeking recovery for the Insured’s own loss from his or her own Insurer. It is likely a very difficult time for the Insured and he or she is looking to you, as the voice and the face of the insurance company, to make things right. It doesn’t always need to be an adversarial process, but too often, it becomes one. You must remember that the Policy, at issue, contains a promise to pay the Insured (the policyholder) a sum of money in the event of damage to insured property by a covered peril. The amount to be paid is based on the extent of loss or damage to the insured property, not the policyholder’s liability to a third party (like a Commercial General Liability Policy).

Claims Analysis

The basic analytical elements, that form the basis of the adjustment of any property damage claim, are:

1. Did the loss occur during the Policy period?

2. Was the property damaged insured property under the Policy? 3. Was the cause of the damage to the property an insured peril? 4. Does the policyholder have an insurable interest in the property?

5. Has the policyholder complied with all conditions of coverage under the Policy? 6. How does the Policy value the loss?

7. What is covered under the Policy?

8. Does the Policy require that payment be made to anyone other than the policyholder?

Best Practice Recommendation: Know the Policy. Know the Policy

Each time you get a claim, you must make sure to review the Policy. For those of you that have been doing this for a long time, you may be at the point where it is enough for you to

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get a Declarations Page. Please, however, do not only rely on that. You should get a copy of the entire Policy each and every time you adjust a claim. You should, furthermore, not rely on others to only give you the parts of the Policy that he or she thinks is important. The facts of each individual claim clarify and color the interpretation of the policy contract and bring different nuances to the Policy wording. You must know what coverage is available to the Insured, the limits of liability, and the exclusions, conditions and endorsements attached.

The Insured will undoubtedly ask you questions about the Policy and what is or is not covered. If you are not sure, do not answer the questions, but let the Insured know you will get back to him or her. If you do answer questions and later determine that you were not entirely correct in any answer provided, fix your mistake, quickly and accurately.

Some Policy Issues that Affect the Adjustment of Property Damage Claims 1. Trigger of Coverage

Trigger of coverage is a term popularized in the past two (2) decades to identify which insurance policy or policies provide coverage for an event, which occurred over a period of years. You, for the most part, may not be dealing with complex trigger of coverage issues. However, when a loss is hidden for some period of time, or when it occurs over several policy periods, there is a trigger issue. The manifestation standard provides that the Policy in force, when the policyholder discovers the loss, or with the exercise of reasonable diligence should have discovered the loss, is triggered and no other Policy is triggered. See Pittsburgh Corning Corporation v. The Travelers Indemnity Co., 1988 WL 5291 (E.D. of Pa., Jan. 21, 1988).

Best Practice Recommendation: Review the Policy to determine the language that controls.

2. Insurable Interest

The presence of an insurable interest is a prerequisite to coverage. An insurable interest is any interest in the insured property that would result in harm to the policyholder if the insured property is damaged or lost. Holding title to the property is not necessary. Thus, a bailee has an insurable interest in its customer’s goods. A tenant has an insurable interest in the leased

premises, which it occupies.

In general, the insurable interest must exist both when the Policy first covers the property

and when the loss occurs.

3. Policyholder’s obligations and Insurer’s required response thereto

These usually appear in the “Conditions” section of the Policy. The more important policyholder obligations are:

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a. Give notice to the Insurer of a loss as soon as possible.

b. Take reasonable steps to protect the property from further damage. c. Produce receipts, inventories, photographs, books and records, and

other documents upon request.

d. If requested, complete and execute a sworn proof of loss within time limits set forth in the Policy.

e. Submit to an Examination Under Oath, if demanded.

Each of the foregoing prompts/requires some sort of action on the part of the Insurer. Those are:

a. Starts the time ticking on the obligation of the Insurer to conduct a timely, thorough investigation of the loss.

Best Practice Recommendation: Visit the loss and speak to the Insured as promptly as possible. Take pictures.

b. The cost is often covered under the Policy and payment for those expenses should be provided promptly.

c. The Insurer has an obligation to review the documents/information provided and provide prompt, fair, payment of the claim. Often, even without such documents, it is incumbent upon the Insurer to provide an “advance.” Receipts, contracts, invoices and the like is often most important to receive from the Insured, in the context of determining the actual replacement cost of the property.

Best Practice Recommendation: Be reasonable and objective and fair in what is requested from the Insured, during this time. After

receiving what has been requested, promptly review the same.

d. The Proof of Loss is a sworn signed statement by the policyholder detailing the date and time of the loss, the cause of loss, the interest of the policyholder and anyone else claiming an interest, the actual cash value (ACV) of the property, the amount of loss and the amount claimed. Proofs of Loss serve an important function in that it obtains a sworn statement from the Insured. If a Proof of Loss is obtained, remember to follow all guidelines for accepting or rejecting the Proof in accordance with the Policy. Rejection, if necessary, is important because, under many Property Policies, the deadline for payment of

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a claim, by the Insurer, is a specified number of days after submission of a Proof of Loss.

Providing a blank Proof of Loss to the Insured is one of the only ways an Insurer can compel Insureds to reveal their opinion of the amount of loss. When fraud is suspected, you should demand a sworn Proof of Loss. By doing so, the adjuster gives the Insurer help in defeating a potentially fraudulent claim by compelling the Insured to put the claim under oath.

Best Practice Recommendation: Obtain Proof of Loss.

e. Using an Examination Under Oath (EUO) is the Insurer’s most important tool in investigating a property insurance loss. Per the terms of most Policies, an Insured is required to appear and sign the transcript of the EUO, thereafter. If you happen to take an EUO, remember to have the Insured sign the transcript for it to be complete, and usable (per the terms of most Policies). Don’t forget!

Outside Sources of Information about the Insured or Claim

While in a first-party claim, as the representative of the Insurer, you are required to promptly and fairly adjust the claim of the Insured, you are not required to accept on blind faith any of the information provided by the Insured to support the claim. If there is any reason to suspect any of the information provided by the Insured, for the purposes of the adjustment, or even in the application for insurance, there are a number of inexpensive ways to investigate those suspicions, many involving use of the internet.

Initially, almost as a matter of course, a Claims Index or other similar search should be requested and reviewed. Through the use of these materials, you may develop your initial impression of the Insured, which may help determine the extent of how much additional investigation into the claim should be pursued. For example, you would obviously be more likely to seek further investigation of the claim and/or the Insured if they have a significant claims history, as opposed to the claim of an Insured who was making only a first or second claim.

Best Practice Recommendation: Obtain a Claims Index or similar search and consider whether another person, a spouse, etc., should also be subject to a Claims Index request.

Additionally, and not surprisingly, the Internet or Internet based research can provide large amounts of information on the Insured, the property at issue, and other potentially relevant data that can help provide relevant background regarding the matter presented. Please be aware that the name of the Insured, principals of an Insured company or corporation, and/or the

company or corporation name should be searched, including common variations on the same. 4

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Sometimes less specific searches are better than more specific searches from a results perspective.

Note: Research into these areas may raise questions about information provided by the

Insured in the application for insurance. While such issues would normally not be involved in your adjustment of a claim, they may be very important to the carrier and should be brought to their attention as soon as possible for further action by the Insurer.

The most successful sources of information include the following:

- Lexis/Nexus and Westlaw: Both legal research companies provide products for

research regarding persons and companies.

- Philadelphia Court of Common Pleas Website: http://www.courts.phila.gov. Provides access to the Philadelphia Court of Common Pleas and Municipal Court dockets, along with selected Criminal Court records across the Commonwealth. Excellent source for records regarding Foreclosures, Liens, Judgments, and adverse business findings.

- Philadelphia Office of Property Assessment Website: http://opa.phila.gov.

Provides ownership data regarding addresses within the City of Philadelphia and includes dates of sale, purchase price and possibly lender interests. Information on this website is often not as current as you would expect, but it does provide useful information that may confirm the data provided in other searches. - Other Court and Government web sites, including the Recorder of Deeds and

Property Assessment Offices. While the availability of information in each

County varies widely, and may require registration, a brief inquiry using any of the major search engines should get you to the site.

- New Jersey Courts On-Line: http://www.judiciary.state.nj.us. Although somewhat unwieldy to use, this site can provide information regarding cases in the New Jersey Courts, if applicable to your claims.

- Search Engines: www.google.com,www.bing.com,www.yahoo.com, etc.

These sites often provide many search results that are inapplicable, but through use of the advanced search features, you can often narrow the results to those more relevant to your inquiry.

- Social Media Sites: www.facebook.com,www.myspace.com. Although often more useful in third-party injury cases, these sites could potentially provide relevant information, as well.

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Best Practice Recommendation: Research using these methods can be tedious and the information found is sometimes contradictory or difficult to specifically

attribute to the Insured. Therefore, any findings using these methods will require further confirmation prior to presentation to the Insured as a reason for any action adverse to the Insured’s interests. However, the information often found is worth the effort. Additionally, do not be afraid to navigate around the sites for any other accessible information.

Suit Limitations Clause

Most property insurance policies contain a 1 or 2 year suit limitations clause under which a claim is barred if suit is not filed within the time specified following the date of loss.

Regardless of what the jurisdiction’s Statute of Limitations on actions for breach of contract may be, shorter suit limitations clauses are generally enforceable.

Best Practice Recommendation: If you are still adjusting/negotiating a loss, and the suit limitations clause is about to expire, you must so advise the Insured.

Causation

Property insurance is concerned with covered perils, most of which are defined in terms of a cause of loss, such as fire, wear and tear, etc. Make sure to use an expert to help you determine causation, if you have any questions. Most of you are not, for example, roofers or structural engineers or general contractors. If an issue arises in the adjustment of a property claim, hire an expert to assist you in the adjustment of the claim. It is important for you to

acquire/develop a network of objective, credible experts to use to lend credence to your position.

Best Practice Recommendation: Use credible experts. Courts in Pennsylvania have consistently held that investigations by insurance companies must be conducted in an objective and unbiased manner. You are, however, still entitled to give more weight to the opinion of one (1) expert over another. Thoroughness is key as well as reasonableness.

Payment of Claims

There are two (2) general types of evaluation provisions in Policies. You need to know what is in the Policy and you need to structure your adjustment of the claim appropriately.

Actual cash value valuation pays the “actual cash value” (ACV) of the loss, subject to Policy limits, regardless of whether the policyholder actually replaces or repairs the Insured property. The determination of actual cash value of Insured property varies by jurisdiction. In Pennsylvania, actual cash value is the replacement cost of the damaged property less an

allowance for pre-loss depreciation.

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Most Policies, as we know, have or offer “replacement cost” coverage. In order to

recover on a replacement cost basis, most Policies require the Insured to have actually repaired or replaced the property within a specified time period (usually 180 days) and provide that, until replacement occurs, payment will be on an actual cash value basis. The difference between the ACV payment and the replacement cost payment is known as the “hold back” because it is held back to be paid after the policyholder provides evidence of replacement.

If you are still negotiating the scope of loss with the Insured, and there are no coverage issues, it is incumbent upon the insurance company to pay the “undisputed amount” as promptly as possible. Otherwise, it may look like you are trying to hold that amount, which is due and owing to the Insured, hostage.

Best Practice Recommendation: If the Policy provides for ACV coverage, it may seem obvious, but do not prepare a RCV estimate or clearly designate both on the estimate. Also, it may seem obvious, but make sure to pay what is owed, promptly.

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UNFAIR INSURANCE PRACTICES ACT REMINDERS

As you will no doubt recall, the Pennsylvania Unfair Insurance Practices Act (UIPA) is applicable to any claim you may handle. Please always remember that while the UIPA does not provide an Insured with a private cause of action against an Insurer, its provisions are regularly used by the Courts in the Commonwealth of Pennsylvania to evaluate the actions of an Insurer and its Adjusters in Bad Faith proceedings.

The following standards are specifically mentioned in the Statute:

A. Misrepresentation of Policy Provisions.

Cannot fail to fully disclose pertinent benefits, coverages or other provisions of an insurance contract.

Cannot deny claim for failure to allow inspection without proof of a demand for inspection and a refusal by claimant to allow same. Cannot make statements requiring claimant to provide written notices or

proofs of loss within a certain time period unless specifically provided for in the Policy.

Cannot demand the signing of a Release that extends beyond the subject matter of the claim.

Cannot include language on drafts which expressly or impliedly releases the Insurer.

B. Failure to acknowledge pertinent communications.

Acknowledge claim within 10 working days.

Acknowledge inquiry from the Insurance Department within 15 days.

C. Prompt Investigation of Claims.

Should complete investigation within 30 days after notification. If not completed within 30 days, must provide reasonable written

explanation of delay every 45 days, including information regarding when decision can be expected.

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D. Prompt, Fair and Equitable Settlement.

Shall advise claimant of acceptance or denial within 15 day of receipt of Proofs of Loss, and if denied, must be in writing and include reference to any Policy provision applicable to the denial. (If denied for any other reason, notations should be made in file). If more time is needed, must notify Insured in writing within 15 days of

receipt of Proofs of Loss, giving the reason(s), and if further time is needed, Insured must be notified in writing within 30 days of the initial notification and every 45 days thereafter, continuing to provide the reasons for the delay.

Cannot fail to settle first-party claim on the basis that payment should be assumed by others except as may be provided by Policy.

If Claimant is not an attorney or represented by attorney, the Insurer must inform first-party Claimant at least 30 days prior, and a third-party Claimant at least 60 days prior to the expiration of statutes of limitation or Policy or contract time limits.

E. Prompt, Fair and Equitable Claims Applicable to Auto Insurance.

Cannot recommend to third-party claimants that they make claims under their own Policy to avoid paying claims.

Cannot require unreasonable travel for repairs.

Must include Insured’s deductible in subrogation demands, if requested, and proportionately share subrogation recoveries.

Appraisal of damage must be for an amount which will reasonably repair.

F. Comparative Negligence.

Cannot use comparative negligence in an inequitable fashion, forcing claimants to litigate, without reasonable evidence of Insured’s comparative negligence and its relevance, and must fully disclose the basis to the applicability of the comparative negligence asserted by the Insurer.

G. Written Notice to Claimant of Payment of Claims in Third-Party Settlements.

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General Best Practice Recommendations: Stay in written contact with the insured;

remember the respective positions of the parties (and how they will present in litigation); recognize the legitimate value of a claim, particularly when it changes as a result of developments in the claim; do not force the claim into litigation as part of a negotiation strategy; watch timing of notes made in the claim file.

More Specific Best Practice Recommendations: Do not place improper conditions on the issuance of a settlement draft, and do not attempt to include protection from a Bad Faith claim in any Release.

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