May 2022 Property Insurance Law Updates | Lord Locke LLP

issues to watch

  1. Causation: What is the insured’s burden when the claimed loss involves a combination of covered and non-covered causes? Overstreet v. Allstate Vehicle & Prop. Ins. Co., No. 21-10462, 2022 WL 1579278 (5th Cir. May 19, 2022). This case involves a claim to replace a leaky roof. The insured claimed the roof leaks were caused by a hail storm, but the insurer determined the leaks were due to non-covered causes, including wear and tear from previous hailstorms. “Under the Texas ‘co-occurring doctrine’, when insured property is damaged by a combination of covered and non-covered causes, the insured must prove how much of the damage is attributable solely to the covered cause.” ID. at 1. Because there are questions about when and how this doctrine applies, the Fifth Circuit recertified[1] three questions to the Texas Supreme Court: (1) Does the doctrine of contributory cause apply when non-covered damage (such as wear and tear) does not directly cause the claimed loss? (2) If so, do the claimants have to allocate their losses between the covered risk and the uncovered risks that the claimants contend did not cause the particular loss? and (3) if so, whether the claimants can meet that burden with evidence indicating that 100% of the loss is attributable to the covered risk. The Texas Supreme Court has accepted certified questions and your answers are likely to have a major impact on property claim litigation in Texas.
  2. Valuation—What evidence is sufficient to recover damages for household personal property destroyed in a fire? Dobbs v. Settlement Allstate. What., #21-13813, 2022 WL 1686910 (11th Cir. May 26, 2022). After a fire, the insured homeowner submitted an extensive list of damaged personal property with the cost of each item. The district court concluded that the evidence was “not sufficient to establish the fair market value of the property at the time of loss” because there was no evidence as to the condition or age of some items. ID. at 3. Rejecting that standard as “too strict,” the Eleventh Circuit held that the “purchase price or replacement cost and date of purchase are sufficient to prove the actual value of household items destroyed by fire.” ID. at 4. Although the case was decided under Georgia law, the opinion raises broader questions about the sufficiency of the evidence required to establish the amount of a covered loss.
  3. Appraisal—When is an appraisal claim “ripe”? Certain underwriters in Lloyd’s v. Big Lake 5-D Condo. Ass’n, Inc., No. 3D21-636, 2022 WL 1397382 (Fla. Ct. App. May 4, 2022). This case arose from a hurricane claim. After an investigation, the insurer determined that exterior damage was covered but interior water damage was not. The insurer sent a letter explaining their coverage decision along with a check for covered damages in June 2019. The insured did not respond to the letter. Instead, ten months later, he filed suit and then demanded an appraisal under a provision that read: “If we and you disagree about the value of the property or the amount of the loss, either of us can request in writing an appraisal of the loss. ID. at 3. Under Florida law, “evaluation is premature when a party has not provided a meaningful exchange of information sufficient to substantiate the existence of a genuine disagreement.” ID. In this case, the insured’s only response to the insurer’s coverage determination letter was to file a lawsuit, “without having provided his own estimate of loss, expressing disagreement with the insurer’s determinations, or demanding additional payment.” ID. “[B]Because the parties never engaged in an exchange of information sufficient to establish a genuine disagreement on the amount of the loss, the matter was not ripe for evaluation…”. ID. at 4. Thus, the case illustrates the importance of invoking the evaluation at the right time, not too early (potential maturity issue), not too late (potential waiver issue).
  4. Contract limitations: when is a period of contractual limitations the price of the “craft” of a public adjuster? Legend’s Creek Homeowners Ass’n, Inc. v. Travelers Indem. Company of Am., Nos. 20-3163, 21-1288, 21-2196, 2022 WL 1467456 (7th Cir. May 10, 2022). This case arose from a hail and wind damage claim. The insured retained a public adjuster (the “PA”), and the parties agreed to certain repairs to one side of the building. After Travelers issued an initial payment, the Palestinian Authority said the reparations were unacceptable. The travelers investigated and issued supplemental payments for further reparations, but again, the Palestinian Authority said the reparations were unacceptable. Less than three weeks before the contractual deadline to file a lawsuit, the Palestinian Authority insisted that Travelers replace all sides of the building. Travelers denied the request, the insured sued, and Travelers requested summary judgment on the grounds that the two-year contractual term to file the claim had expired. The insured argued that the long period of investigation of the claim made it impossible for him to fulfill his contractual obligations to cooperate and still file a claim within two years. Rejecting that argument, the Seventh Circuit held that although the insured “may not have had a reason to litigate in that time period, that does not make the policy’s requirements incomprehensible or its obligations impossible.” ID. at 2. The Court also rejected the insured’s argument that Traveler’s waived the contractual statute of limitations by failing to inform its insured of the express contractual provision. ID. (“none [of the cited cases] establish an unconditional duty to speak”). The real problem was that the Palestinian Authority liked “the claims process [to] a ‘game of chess,’” and told the insured that, “[t]or ‘win this game’… they had to stay ‘several turns ahead of the Travelers’”. ID. at 3. However, in trying to establish the winning move (complete replacement of all sides of the building), the PA “failed to foresee that Travelers could checkmate by increasing the contractual demand limitation.” That defense, which prevented any further recovery, turned out to be the high “price of cunning”.
  5. Pre-Judgment Interest: When Does It Start Accumulating? Great New York Mut. in s. Co.v. Galena at Wildspring Condo. ass, No. 2-21-0394, 2022 IL App 2d 210394 (May 23, 2022). Under Section 2 of the Illinois Interest Law, prejudgment interest is paid once an amount becomes “due” on an insurance policy. ID. at 3. This case concerns the point at which amounts due on a policy “became ‘past due’ for purposes of the Interest Law.” ID. at 4. The insurer initially determined the amount owed to be $730k, while the insured submitted proof of loss in excess of $5M. Subsequently, an evaluation panel determined that the amount due was $1.6 million (ACV) (or $2.2 million-$2.6 million RCV). Given the disparity, the trial court concluded that the amount “owed” was not easy to determine until the appraisal award, and because the insurer paid the award on time, the insured was not entitled to any interest. The decision was confirmed. Although the case revolves around a specific Illinois statute, it underscores the importance of evaluating the accrual date of interest, if any, that may be due on a claim.
  6. COVID coverage cases—has the death knell sounded? There were numerous reviews in May 2022 rejecting COVID coverage claims for lack of a “direct physical loss,” as required to activate coverage, and/or the presence of virus exclusions. The 11th Circuit issued multiple rulings on the issue. There were also decisions from the 6th, 7th, and 8th Circuits, numerous federal district courts (including AZ, CA, CT, and IL), and various state courts (including the IA and MA Supreme Courts). Although there are still a number of cases pending, as of May 2022, most decisions have rejected arguments for COVID-related business loss coverage.
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[1] The same issues had been certified in another case, which was resolved shortly after certification.