PROTECTING YOUR
INTERESTS
G R E E N T R I A L L AW & B A RTO N L AW F I R M
DISCLAIMER:
Mr. Green is licensed in Texas and Colorado.
All of the information contained in the slides is
intended to outline general knowledge about
the law and is not intended to serve as legal
advice to anyone. Every situation is unique
and the law may be applicable uniquely
thereto. If you want to know how the law
applies to your particular situation you could
consult a lawyer licensed in your jurisdiction.
S.O.L.
STATUTE OF LIMITATIONS
B E S A F E . K N O W T H E P O L I C Y. F I L E T H E C A S E W I T H I N
THE LIMIT IN THE CONTRACT!
S.O.L. That May Apply To Insurance Claims
(Texas)
Breach of Contract – 4 years
Unfair settlement practices – 2 years
Prompt Payment of Claims – 2 years, but could arguably
be 4 years – see RX.com Inc. v. Hartford Fire Insurance
Co., 426 F. Supp. 2d 546, 563-64 (S.D. Texas, 2006)
Breach of common law duty of good faith and fair
dealing – 2 years
Violations of Texas Deceptive Trade Practices Act – 2
years
Statutes That May Apply To Insurance
Claims (Oklahoma)
Breach of Contract – 5 years
Bad faith – 2 years
Unfair settlement Practices – 2 years
Deceptive Trade Practices Act – 2 years
Minnesota
Deceptive Trade Practices – 4 years
Breach of Contract – 6 years
Bad Faith – 6 years
LEGAL ACTION AGAINST US
You may not bring legal action against us concerning this
policy unless you have fully complied with all of its terms.
Suit must be brought within one (1) year after the loss.
11. Suit Against Us. No suit or action can be brought
unless the policy provisions have been complied with.
Action brought against us must be started within two
years and one day after the cause of action accrues.
When Does The Time Start?
Breach of the common law duty of good faith and fair
dealing – the date the insurer denies or delays payment
Violations of the Texas Deceptive Trade Practices Act –
typically will be when the claim is denied or payment is
made for a sum less than its value
When does the cause of action accrue?
THE EXCEPTION – The Discovery Rule
The cause of action would accrue from the date that the
Plaintiff discovered, or in the exercise of reasonable
diligence, should have discovered the injury
“The insurance contract between America First and
Spicewood contains the following provision:
No one may bring a legal action against [America First]
under this policy unless:
a. There has been full compliance with all terms of this
insurance, and
b. The action is brought within 2 years and one day after
the date on which the direct physical loss occurred.”
The Spicewood Summit Office Condominiums Assoc., Inc.
v. America First Lloyds Ins. Co.,
287 S.W.3d 461, 465 (Tex. App. – Austin 2009)
Spicewood Summit Office Condominiums
Assoc., Inc. v. America First Lloyd’s Ins. Co.
“Therefore, Spicewood was not entitled to file suit against
America First under the policy on the date on which the
direct physical loss or damage occurred because, without
more, no breach of the insurance agreement by America
First had yet occurred, and Spicewood did not yet have a
cause of action for breach of contract.”
Spicewood Summit Office Condominiums
Assoc., Inc. v. America First Lloyd’s Ins. Co.
“…the provision at issue in this case has the practical
effect of providing a period in which to file suit that is less
than two years. Therefore, the contractual limitations
provision is void. As a result, the four-year statute of
limitations governs Spicewood’s breach of contract claim.”
Texas CPRC § 16.070 Contractual
Limitations Period
“(a) except as provided by Subsection (b), a person may
not enter into a stipulation, contract, or agreement that
purports to limit the time in which to bring suit on the
stipulation, contract, or agreement to a period shorter
than two years. A stipulation, contract, or agreement that
establishes a limitations period that is shorter than two
years is void in this state.”
Uptegraft v. Home Ins. Co.,
1983 OK 41 (Okla. 1983)
“a provision in the insurance policy which limits the time
for bringing a suit thereunder to less than the statutory
period is void”
R.S. Mo. § 431.030
Missouri: “All parts of any contract hereinafter entered
into which either directly or indirectly limit or tend to limit
the time in which any suit may be instituted, shall be null
and void.”
Brisbane Lodging L.P. v. Webcor Builders
2013 WL 2404154 (June 1, 2013) (CA – Ct. App.)
California: “parties should be given the ability to enjoy
the freedom of contract and to structure risk-shifting as
they see fit without judicial intervention,” even where
defects and damage are not discovered until after the
limitations period expired.” The contractual limitations
period was not void.
J.S. Reimer Inc. v. Village of Orlando Hills
2013 IL App (1st) 120106
Illinois: “the plain language of [the] section provides that
the period of limitations will expire in a fixed time frame
… regardless of whether the complained-of injury was
discovered or even discoverable within that time period.
The practical effect ... is to transform the statute of
limitations into a statute of repose.”
A contractual limitation is valid
36 O.S. 1991 § 3617
Oklahoma: Applies a 2 year statute of limitations to
casualty insurance policies; any provision limiting a
cause of action beyond that statutory period is void
Colorado
Limitations less than 2 years are invalid
Breach of Contract: 3 year Statute of limitations (unless modified
by contract – cannot be less than 2 years)
Bad Faith: 2 years
When Does The Time Start?
Breach of Contract – the date the breach occurs which
can vary depending on the breach alleged
On denial of coverage (some courts have held that
reconsideration after denial will not restart accrual period)
On the date final payments under the policy were made
When Does The Time Start?
Prompt Payment of Claims (Texas) – the date the insurer
violates the Prompt Payment of Claims provision of the
Texas Ins. Code. If the insurer has not agreed to pay the
proper amount within 30 days of your providing all the
items they have requested, then they have violated the
prompt payment statute. We take the position that a
prompt payment still violates the statute if it is
inadequate.
When Does The Time Start?
Unfair Settlement Practices – the date the unfair practice
occurs which can vary depending on the practice
alleged.
When the insurer’s liability becomes reasonably clear but the
insurer fails to pay
When the misrepresentation is made to Plaintiff relating to
coverage
When insurer refuses to pay Plaintiff’s claim without conducting a
reasonable investigation
BE SAFE. KNOW THE POLICY. FILE
THE CASE AS SOON AS POSSIBLE
AND BEFORE THE EARLIEST
CONCEIVABLE LIMITATION
BAD FAITH
AV E N U E S F O R E X T R A - C O N T R A C T U A L D A M A G E S
Bad Faith
How do we collect more than it takes to fix the property?
Avenues for Extra Damages
- Texas Prompt Pay Statute – Attorney’s fees + 18% per annum
penalty – No Bad Faith Required
- Texas Unfair Claims Settlement Practices Statute
- Attorney’s fees + possible 3 times damages
- Common Law Bad Faith – Mental Anguish plus punitive
damages
- Misrepresentations
- Colorado Bad Faith Statute: Automatic 3 times damages +
Attorney’s fees
Attorney’s Fees (Texas)
Bad Faith Remedies
Two ways Attorney’s Fees are covered:
1) Violation of Prompt Pay Statute
2) Unfair Settlement Practices
Texas Prompt Pay Statute
Deadlines
No later than 15 days after notice of the claim
The Carrier Must
Acknowledge the claim in writing (this should also include a
general reservation of rights where appropriate)
Commence its investigation and request pertinent information
Provide a proof of loss form to the insured along with instructions
for completing the forms
Texas Prompt Pay Statute
No later than 15 days after receipt of all requested
documents
The Carrier Must
Accept the Claim, reject the claim, or submit written
request for additional time to complete its
investigation. The request should explain the reason
for the need for additional time.
Texas Prompt Pay Statute
No later than 45 days after its request for additional time to
investigate
The Carrier Must
Accept or Reject the Claim
Texas Prompt Pay Statute
No later than 5 business days after the claim has been
accepted, or within 60 days of receipt of all requested
items:
The Carrier Must
Pay the Claim
Texas Prompt Pay Statute
Remedies
Attorney’s Fees
18% per annum penalty in addition to other penalties
All Penalties are Mandatory
Prompt Pay Statute – Colorado
(§ 10-3-1115)
Improper denial of claims - prohibited – definitions –
severability
“(1)(a) A person engaged in the business of insurance shall not
unreasonably delay or deny payment of a claim for benefits
owed to or on behalf of any first-party claimant.”
This is a different standard than at common law. Colorado does
not require a finding of “knowing,” you are required to show
ONLY unreasonable conduct by insurer.
Kisselman v. American Family Mut. Ins. Co., 292 P.3d 964, 972 (Co. Ct. App. 2011)
Prompt Pay Statute – Colorado
(§ 10-3-1116)
Remedies for unreasonable delay or denial of benefits –
required contract provision – frivolous actions –
severability
“(1) A first-party claimant … whose claim for payment of
benefits has been unreasonably delayed or denied may
bring an action in a district court to recover reasonable
attorney fees and court costs and two times the covered
benefit”
If the jury finds unreasonable, the damages are
automatically trebled.
Proving the Case
Best Proof for Breach of Contract and Bad Faith:
The Insurance Company Claim File
The Insurance Company Underwriting File
WHAT WE GET TO SEE THAT THE
INSURANCE COMPANY HIDES FROM
YOU
Claim File Example
Reports – Bad Faith
Claim File Example
Email Communication
Claim File Example
Reports – Original
Claim File Example
Reports - Edited
Underwriting File
Images
Underwriting File
Images
Underwriting File Example
Unfair Claims Settlement Practices
Statutory Liability
Actions that are unfair settlement practices:
(1) Misrepresenting to a claimant a material fact or policy provision
relating to coverage at issue
(2) Failing to attempt in good faith to effectuate a prompt, fair, and
equitable settlement of:
a)
b)
A claim with respect to which the insurer’s liability has become
reasonably clear; or
A claim under one portion of a policy with respect to which the
insurer’s liability has become reasonably clear to influence the
claimant to settle another claim under another portion of the
coverage unless payment under one portion of the coverage
constitutes evidence of liability under another portion
Unfair Claims Settlement Practices
Bad Faith
(3) Failing to promptly provide to a policyholder a
reasonable explanation of the basis in the policy, in
relation to the facts or applicable law, for the insurer’s
denial of a claim or offer of a compromise settlement of a
claim;
“You are not covered” is not good enough
Unfair Claims Settlement Practices
Bad Faith
(4) Failing within a reasonable time to:
(A) affirm or deny coverage of a claim to a
policyholder; or
(B) submit a reservation of rights to a policyholder
Unfair Claims Settlement Practices
Bad Faith
(5) Refusing, failing, or unreasonably delaying a
settlement offer under applicable first-party coverage on
the basis that other coverage may be available or that
third parties are responsible for the damages suffered,
except as may be specifically provided in the policy
Unfair Claims Settlement Practices
Bad Faith
(6) Undertaking to enforce a full and final release of a
claim from a policyholder when only a partial payment has
been made, unless the payment is a compromise
settlement of a doubtful or disputed claim
(7) Refusing to pay a claim without conducting a
reasonable investigation with respect to the claim
Unfair Claims Settlement Practices
Bad Faith
(9) Requiring a claimant as a condition of settling a claim
to produce the claimant’s federal income tax returns for
examination or investigation by the person unless:
(A) a court orders the claimant to produce those tax
returns
(B) the claim involves a fire loss; or
(C) the claim involves lost profits or income
Unfair Claims Settlement Practices
Remedies for Bad Faith
Section 541.152 of the Tex. Insurance Code::
(a) A plaintiff who prevails in an action under this
subchapter may obtain:
1. The amount of Actual Damages, plus court costs and
reasonable and necessary attorney’s fees;
2. An order enjoining the act or failure to act complained of; or
Texas Unfair Claims Settlement Practices
Remedies (continued)
3. Any other relief the court determines is proper
(b) On a finding by the trier of fact that the defendant
knowingly committed the act complained of, the trier of fact
may award an amount not to exceed three times the
amount of actual damages.
Breach of Contract
Test: Insurer does not pay, or do what they were supposed
to pay or do under the policy.
Remedy:
1. The amount they should have paid;
2. Attorney’s fees
Texas Common Law Bad Faith
Test: “failing to attempt in good faith to effectuate a
prompt, fair, and equitable settlement of:
A) A claim with respect to which the insurer’s liability
has become reasonably clear…”
Texas Common Law Bad Faith
Remedies:
1. Damages independent of the original breach of
contract.
• Mental Anguish
• Loss of Franchise
2. Punitive Damages
Remedies for Ins. Code Violation
DTPA Damages
§ 542 “ties in” to the DTPA, and
“Each consumer who prevails shall be awarded court
costs, and reasonable attorney’s fees…
In applying this section, the trier of fact is authorized to
award a total of not more than three times actual
damages.”
Bad Faith - Colorado
How do we collect more than it takes to fix the property?
Avenues for Extra Damages
- Colorado Prompt Pay § 10-3-1115
- CRS § 10-3-1116
Bad Faith - Oklahoma
How do we collect more than it takes to fix the property?
Avenues for Extra Damages
- Common Law Bad Faith – Attorney’s fees
- Prompt pay – Attorney’s fees and 15% interest
- Misrepresentations
Bad Faith - Oklahoma
Bad faith found “where there is a clear showing that the
insurer unreasonably, and in bad faith, withholds
payment of the claim of its insured. Christian v. American
Home Assurance Co., 577 P.2d 899 (Okla. 1977)
Bad Faith - Oklahoma
Essential elements
(1) Insured was covered under the policy
(2) Actions of insurers were unreasonable under the circumstances
(3) Insurers failed to deal fairly and in good faith
(4) Breach or violation of good faith was the direct cause of damages
sustained by insured
Badillo v. Mid. Century Ins. Co., 121 P.3d 1080, 1093 (Okla. 2005)
Bad Faith – Oklahoma
Attorney’s Fees
There is no statutory provision for attorney’s fees, and
“ordinarily, attorney’s fees may not be recovered in the
absence of an agreement or statutory authority…”
One exception to this rule is where the litigant has acted in
BAD FAITH … the trial court, in its exercise of equitable
power, may award attorney’s fees.
Christian v. American Home Assur. Co., 577 P.2d 899, 906 (Okla. 1977)
36 Okl.St.Ann. § 3629
Within 90 days of receiving the proof of loss, the carrier
must:
Submit a written offer of settlement or a rejection of the
claim to the insured. Upon a judgment rendered to either
party, costs and attorney’s fees shall be allowable to the
prevailing party.
The prevailing party is the insurer in cases where the judgment does
not exceed written offer of settlement. In ALL other judgments, the
insured shall be the prevailing party.
36 Okl.St.Ann. § 3629
(continued)
“If the insured is the prevailing party, the court in rendering
judgment shall add interest on the verdict at the rate of
15% per year from the date the loss was payable pursuant
to the provisions of the contract to the date of the verdict.”
Unfair Claims Settlement - Oklahoma
The central question for bad faith failure to settle or
investigate concerns what the insurer knew or should have
known at the time the insured requested payment – i.e.
whether there was a justifiable, reasonable basis to
withhold payment
Bad Faith - Oklahoma
OK Supreme Court has found bad faith where insurer:
Made settlement offers for less than insurer’s
established minimum value of a valid claim
Conducted a biased investigation or determined the
results of the investigation based on clearly unreliable
expert evidence
Determined that a claim is legally or factually insufficient
without proper investigation, or failed to seek available
information that might aid an insured in proving a claim
Refused to pay based on unreasonable interpretations of
law or policy provisions, or relied on unreasonable legal
advice
Bad Faith - Oklahoma
Bad faith for delay of payment found where:
Claimant was entitled to coverage under the insurance
policy at issue;
The insurer had no reasonable basis for delaying
payment;
Insurer did not deal fairly and in good faith with the
claimant; and
Insurer’s violation of its duty of good faith and fair
dealing was the direct cause of claimant’s injury
Okla. § 36-1250.6-7
Bad faith may be shown where:
Within 30 days after receiving a claim the carrier must
Acknowledge receipt of the claim
Provide all necessary claim forms, instruction, and reasonable
assistance to the insured
Okla. § 36-1250.6-7
Within 45 days after receipt of a properly executed proof of
loss the carrier must
Advise insured of the acceptance or denial of the claim,
or if further investigation is necessary.
Unfair Claims Settlement – Oklahoma
The following acts may be evidence of bad faith:
Failing to fully disclose to first-party claimants, benefits,
coverages, or other provisions of any insurance policy or
insurance contract when such benefits, coverages, or other
provisions are pertinent to the claim;
Knowingly misrepresenting to claimants pertinent facts or
policy provisions relating to coverages at issue
Failing to adopt and implement reasonable standards for
prompt investigations of claims arising under its insurance
policies or insurance contracts;
Unfair Claims Settlement – Oklahoma
(Continued)
Not attempting in good faith to effectuate prompt, fair, and
equitable settlement of claims in which liability has become
reasonably clear;
Denying a claim for failure to exhibit the property without proof
of demand an unfounded refusal by a claimant to do so;
Except where there is a time limit specified in the policy,
making statements, written or otherwise, which require a
claimant to give written notice of loss or proof of loss within a
specified time limit and which seek to relieve the company of
its obligations if such a time limit is not complied with unless
the failure to comply with such time limit prejudices an
insurer’s rights
Unfair Claims Settlement – Oklahoma
(Continued)
Requesting a claimant to sign a release that extends beyond
the subject matter that gave rise to the claim payment
Issuing checks or drafts in partial settlement of a loss or claim
under specified coverage which contain language which
releases an insurer or its insured from its total liability
Compelling, without just cause, policyholders to institute suits
to recover amounts due under its insurance policies or
insurance contracts by offering substantially less than the
amounts ultimately recovered in suits brought by them, when
such policyholders have made claims for amounts reasonably
similar to the amounts ultimately recovered.
Bad Faith - Illinois
How do we collect more than it takes to fix the property?
Avenues for Extra Damages
- Damages under § 155
- Attorney’s Fees
- Common Law Bad Faith
- Misrepresentations
Bad Faith – Illinois
(Attorney’s Fees)
§ 5/155.001 : (1) in any action by or against a company
wherein there is in issue the liability of a company on a
policy or policies of insurance or the amount of the loss
payable thereunder, or for an unreasonable delay in
settling a claim, and it appears to the court that such
action or delay is vexatious and unreasonable, the court
may allow as part of the taxable costs in the action
reasonable attorney’s fees, other costs, plus an amount
not to exceed any one of the following:
Bad Faith – Illinois
(continued)
A. 60% of the amount which the court or jury finds such
party is entitled to recover against the company,
exclusive of all costs
B. $60,000
C. The excess of the amount which the court or jury finds
such party is entitled to recover, exclusive of costs,
over the amount, if any, which the company offered to
pay in settlement of the claim prior to the action.
Unfair Claims Settlement Practices
Ill. § 5/154.6
Some of the statutory provisions that may constitute bad
faith:
Knowingly misrepresenting to claimants and insureds
relevant facts or policy provisions relating to coverages
at issue;
Failing to acknowledge with reasonable promptness
pertinent communications with respect to claims arising
under its policies
Unfair Claims Settlement Practices Continued
Ill. § 5/154.6
Failing to adopt and implement reasonable standards for
the prompt investigations and settlement of claims
arising under its policies
Not attempting in good faith to effectuate prompt, fair,
and equitable settlement of claims submitted in which
liability has become reasonably clear
Compelling policyholders to initiate suits to recover
amounts due under its policies by offering substantially
less than the amounts ultimately recovered in suits
brought by them;
Unfair Claims Settlement Practices Continued
Ill. § 5/154.6
Engaging in activity which results in a disproportionate
number of meritorious complaints against the insurer
received by the Insurance Department
Engaging in activity which results in a disproportionate
number of lawsuits to be filed against the insurer or its
insureds by claimants
Refusing to pay claims without conducting a reasonable
investigation based on all available information
Unfair Claims Settlement Practices Continued
Ill. § 5/154.6
Failing to affirm or deny coverage of claims within a
reasonable time after proof of loss statements have been
completed
Attempting to settle claims on the basis of an application
which was altered without notice to, or knowledge or
consent of, the insured
Making a claims payment to a policyholder or beneficiary
omitting the coverage under which each payment is
being made
Unfair Claims Settlement Practices Continued
Ill. § 5/154.6
Delaying investigation or payment of claims by requiring an
insured or claimant to either submit a preliminary claim report
and then requiring subsequent submission of a formal proof of
loss, resulting in duplication of verification
Failing in the case of the denial of a claim or the offer of a
compromise settlement to promptly provide a reasonable and
accurate explanation of the basis in the insurance policy or
applicable law
Failing to provide forms necessary to present claims within 15
working days of a request with such explanations as are
necessary to use them effectively
Bad Faith - Minnesota
How do we collect more than it takes to fix the property?
Avenues for Extra Damages
- Statutory Penalties
- Common law Bad Faith
- Attorney’s Fees
Bad Faith – Minnesota
Elements of a bad faith claim
Insured must prove:
1. There was no reasonable basis for the insurance
company’s denying plaintiff’s claim for benefits under
the policy; and
2. The insurer in denying the claim, either knew or
recklessly failed to ascertain that the claim should have
been paid.
Bad Faith – Minnesota
If court finds bad faith
Statutory Penalties permit:
Amount equal to one-half of the proceeds awarded that
are in excess of an amount offered by the insurer at least
10 days prior to trial, or $250,000, whichever is less
Reasonable attorney’s fess actually incurred (capped at
$100,000)
Unfair Claims Settlement Practices
M.S. § 72A.20 – Minnesota
Some statutory provisions that may constitute bad faith:
Misrepresenting pertinent facts or coverage provisions;
Failing to acknowledge and act reasonably promptly
upon communications with respect to claims
Failing to implement reasonable standards for prompt
claims investigation
Failing to affirm or deny coverage within a reasonable
time
Unfair Claims Settlement Practices
M.S. § 72A.20 - Minnesota
Some statutory provisions that may constitute bad faith:
Forcing insured to commence suit by offering
substantially less than the amounts ultimately recovered
in actions brought by insureds
Failing to provide a reasonable explanation for a denial
of a claim or for a compromise settlement offer
RULES FOR CONTRACTORS AND
PUBLIC ADJUSTERS
C E R TA I N P R O H I B I T E D A C T S
The General Rule
In most states a contractor CANNOT negotiate terms,
pricing, payment, etc. with the insurance company.
“A license is required to negotiate claims with the
insurance company, and an adjuster cannot have a
financial interest in any construction projects, so a
contractor who negotiates must be licensed, and if he is
licensed, cannot have a financial interest in the work
done.” – Oklahoma Dept. of Ins. Bulletin
Some State Specific Examples
Arizona: Contractors CANNOT negotiate with insurer.
Florida: Contractors cannot negotiate HOWEVER, a
contractor may discuss or explain a bid for construction
or repair of the covered property with the owner of the
property or the insurer, so long as the contractor is
performing the work for customary fees, as stated in the
contract between contractor and insured. Also, a PA
cannot charge more than 20% of the claims, or more
than 10% on emergency claims.
State Specific Laws Continued…
Minnesota: Contractor cannot negotiate claims. Cannot
advertise itself as negotiating on insured’s behalf, or as
representing insured in any way, these require licenses.
Contractor CAN identify damage to insurer, and can point out
damages that were not in initial scope or settlement offer.
There is no cap on what a PA can charge.
Texas: Contractor CANNOT negotiate with insurer. Public
adjuster fee may not exceed 10% of the settlement on the
claim.
Roofing contractors especially: ANY negotiation, or attempt to work
on behalf of insured explicitly forbidden. Lon Smith Roofing v.
Reyelts.
State Specific Laws Continued
Colorado: Contractor MAY negotiate on behalf of
insured, may advertise as such. No cap on what a PA
may charge EXCEPT in the event of a catastrophe,
which is capped at 10%. CONTRACTORS HAVE
STANDING TO SUE INSURER UNDER § 1115
Illinois: Contractor CANNOT negotiate with insurer. No
cap on PA fees.
Missouri: Contractor CANNOT negotiate with insurance
company.
Watch Out For Rules Regarding Payment
and Funds
Tex. Disciplinary Rule 1.14 Safekeeping of Property:
When a third party has an interest in monies recovered by
a lawsuit, the lawyer MUST keep those funds in a
completely separate trust account, and CANNOT disburse
those funds until the joint interest is severed – i.e.
completion of the representation.
Overview of General Contractor Overhead
and Profit?
The Majority view:
Payment of GCO&P by the insurer is required if the use of a
general contractor is “reasonably likely”
• Arizona, Colorado, Louisiana, Mississippi, New York, Pennsylvania,
and Texas support this view
The Minority view
Payment of GCO&P by the insurer is required only where the
expenses are “actually incurred”
• Kentucky, Washington, Kansas support this view
GCO&P In Texas
Commissioner Bulletin
The Department’s position has not changed. While individual company policy forms have been
approved for use in Texas, the method set forth in Bulletin No. B-0045-98 continues to be a
standard method of determining actual cash value under replacement cost policies. Thus, the
insured continues to be entitled to reasonable and necessary expenses to repair or replace the
damaged property, less proper deduction for depreciation. These expenses would include the
services of a contractor. The deduction of prospective contractors’ overhead and profit and
sales tax, in addition to depreciation in calculating actual cash value, is an improper claim
settlement practice on policies that provide coverage on an actual cash value or replacement
cost basis.
GCO&P In Texas
Commissioner Bulletin
The purpose of this bulletin is to state the Department’s position that actual cash value of a
structure under a replacement cost policy, when the insurer does not repair or replace the
structure, is the replacement cost with proper deduction for depreciation. The deduction of
prospective contractors’ overhead and profit and sales tax in determining the actual cash value
under a replacement cost policy is improper, is not a reasonable interpretation of the policy
language, and is unfair to insureds.
GCO&P In Texas
Commissioner Bulletin
--Premiums charged must not be excessive for the risks to which they apply. Under a
replacement cost policy, the liability limits of the policy and the premium paid by the insured are
determined on the basis of the replacement cost of the structure. The value of contractor’s
overhead and profit, as well as sales tax on the building materials, has been included in the
limit of liability for which the insured has paid premium. If the insurer in determining actual cash
value excludes costs that are included in the determination of liability limits, on which the
insured’s premium is based, the insurer reaps an illegal windfall because the insurer receives
premium on insurable values for which loss may never be paid.
GCO&P In Texas
Commissioner Bulletin
--The insurers’ argument that the cost of contractor’s overhead and profit and sales tax on
building materials should be excluded from an actual cash value loss settlement because the
insured has not incurred these expenses is not persuasive. Using this logic, an insured who
opts not to repair or replace the damaged property, including the costs of building materials,
and would collect nothing under an actual cash value loss settlement. This result would be
contrary to the purposes of the subject insurance policy.
Some Argue ACV:TDI - Consent Order
GCOH&P
29. “GCOH&P for the purposes of this order means General Contractor’s Overhead and
Profit.
30. TDI alleges that in handling some claims, TWIA and TFPA made a determination that
GCOH&P would be reasonably likely to be incurred by the claimant but then the
companies would limit payment of GCOH&P to only certain repairs or construction
activities.
31. TWIA and TFPA agree to implement adjuster and examiner training and issue
clarifications in the claims manual and policyholder communications concerning
GCOH&P consent with the following stipulation: “GCOH&P should be included in all
estimates when the insured is reasonably likely to require the services of a general
contractor to repair the damage. On claims that warrant GCOH&P, adjusters should
apply GCOH&P to all building items and repairs for which supervision or coordination of
the item or trade is reasonably required by a general contractor.” Nothing in this
agreement shall prevent TWIA or TFPA from adjusting its claim processing policy to
conform to any statutory changes or any opinions issued by any Texas court or agency
of competent jurisdiction in regard to GCOH&P. Nothing in this agreement shall prevent
TWIA or TFPA from challenging the application of GCOH&P in any civil lawsuit.
When is a code upgrade applicable?
The threshold issue: was it triggered by the work proposed
on the damage caused by an insured peril?
Coverage Implications
Reconfiguration
Hurricane Repair
Change of
Occupancy
Renovation
Upgrade
Covered by Policy
NOT Covered
Bottom Line
Code upgrades that are not caused by
the loss are not covered.
APPRAISAL
W H AT, W H O ,
A N D M O S T I M P O RTA N T LY :
WHEN
Appraisal
WHAT: A determination of the value of the loss
Calculation of the damages to the property; does not deal with
liability or cause
WHO: Each party chooses ONE objective “appraiser”
Typically a contractor or independent adjuster
Someone with experience in calculating and determining
damages to property, does NOT have to be knowledgeable on
insurance policies, coverages, or claims practices
Appraisal Continued
WHO: In the event the two appraisers cannot reach
agreement, they select an impartial Umpire. Umpire
makes own damage valuation
An agreement by any two is binding on all parties
Appraisal does not make a determination regarding
cause of loss or coverage.
Appraisal can be invoked at any time by either party
Likely that an appraisal award defeats BOC claims and
damages
Appraisal continued
WHEN: Appraisal is beneficial when the ONLY dispute is
the scope of the damages.
That is: no violation of prompt pay or other unfair
settlement practices
Waiver of Appraisal
An unconditional denial of liability before a suit is filed
constitutes a waiver of insured’s duties under the
contract, i.e. Insurer Waives Appraisal
Can be waived if demand is not made within a
reasonable and seasonable time (reasonableness is
measured from the point of impasse).
Ongoing negotiations and disagreement do not constitute
impasse
Delay is not enough to show waiver, must show prejudice
An insurer can invoke appraisal after litigation begins
THE FINAL KEYS TO SUCCESSFULLY
NAVIGATING INSURANCE DISPUTES
T H I S P R E S E N TAT I O N AVA I L A B L E AT
W W W. G R E E N T R I A L L A W. C O M