Bob Horst

Timoney Knox, LLP

2018 PAMIC

Property Potpourri

April 10, 2018

FIND US ON

FIRST, THE YEAR* IN REVIEW

What cases & developments really meant something?

* When I say “year” I mean since the last PAMIC Annual…

2017 CASES THAT MADE A DIFFERENCE

Brown v. Everett Cash Mut. Ins. Co. - Pa. Superior

Morrow v. Allstate Indem. Co. - M.D. Ga.

2017 CASES THAT MADE A DIFFERENCE

Kurach v. Truck Ins. Exch. – Philadelphia CCP (Djerassi, J.)

Windows v. Erie Ins. Exch. – Pa. Superior

2017 CASES THAT MADE A DIFFERENCE

Bond v. Liberty Ins. Corp. – W.D. Missouri

2017 CASES THAT MADE A DIFFERENCE

In re State Farm (“Labrier”) - 8th Cir. – Missouri law

Rancosky v. Washington Nat’l Ins. Co. – Pa. Supreme

Hall v. South River Restoration, Inc. – D.C.

Oak Hill Inv. IV LLC v. State Farm Fire & Cas. Co. – N.D. Ohio

2017 CASES THAT MADE A DIFFERENCE

Smith v. United States Liab. Ins. Co. - Philadelphia

2018

Diminished Value (“DV”) - CALIFORNIA

In Doyle v. Fireman’s Fund Ins. Co., a wine collector realized his “multi-million dollar” wine collection was counterfeit and submitted a claim for the difference between what he paid for the wine (millions of dollars) and what it was actually worth (virtually nothing). His insurer denied the claim. The wine was in the exact same condition as when it was purchased; there was no loss. The critical take-away from this case is that diminished value is not a covered property loss. Instead, it’s simply a measure of damages and those aren’t damages covered in a first -party property claim.

Depreciation of Labor - MISSISSIPPI

Can labor be depreciated? A federal district court in Mississippi weighed-in on the subject this month and said “no.”

In Titans Exteriors, Inc. v. Certain Underwriters at Lloyd’s, London , because the relevant policy did not define depreciation or actual cash value, the court declared an ambiguity and held that Underwriters may not depreciate labor when calculating actual cash value in Mississippi. Had there been a definition in the policy, the result may have been different. This continues to be a hot topic.

Intentional Loss Exclusion and the “Abuse” Exception - PENNSYLVANIA

A federal district court in Pennsylvania recently addressed Pennsylvania’s abuse exception to the intentional loss exclusion. In Sterner v. Liberty Ins. Co., the plaintiff’s wife, an insured under the policy, intentionally set fire to the marital home. The arsonist wife left a note accusing the plaintiff/husband of adultery with references to “punishing” him. Using the Sterner court’s rationale, the act of setting the fire was the abuse itself.

ASSIGNMENT OF BENEFITS ISSUES

Are they legal in Pennsylvania?

ASSIGNMENT OF BENEFITS

INS. ADJUSTMENT BUREAU, INC. V.

ALLSTATE INS. CO., (PA. 2006)

• Public Adjuster files suit against Allstate

for breach of contract and assignment

• Public Adjuster argues 10% assignment of

insurance proceeds is not revocable

• Post-loss Assignee of right to the payment

of insurance proceeds may collect directly

from the insurance carrier

INS. ADJUSTMENT BUREAU, INC. V.

ALLSTATE INS. CO., (PA. 2006)

• Assignment may be for purposes of

security and irrevocable on partial

performance

• Assignee may also collect pre-judgment

interest

INS. ADJUSTMENT BUREAU, INC. V.

ALLSTATE INS. CO., (PA. 2006)

WHY NOW?

THE EXPANDING FLORIDA PROBLEM

• Examination(s) Under Oath

• Document and Financial Record

Requests

• Proofs of Loss

ARE POLICY CONDITIONS ENFORCEABLE

AGAINST ASSIGNEE CONTRACTORS?

One Call Prop. Servs. v. Sec. First Ins. Co.,

Fla. Dist. Ct. App. 2015: Maybe

Sable Cove Condo. Ass'n v. Owners Ins. Co.,

10th Cir. Sept. 2016: Yes

ARE POLICY CONDITIONS ENFORCEABLE

AGAINST ASSIGNEE CONTRACTORS?

• Use of Debt Collection

Agencies

• Effect of Fair Debt

Collection Practices Act

• Implications of

Pennsylvania Public

Adjuster License Law

• Potential Unauthorized

Practice of Law Issues

NEW TACTICS & POSSIBLE SOLUTIONS

DIMINUTION OF VALUE IN

PROPERTY CLAIMS

“DV”

WHAT IS IT?

• Policyholders argue they need to be “made whole”

• “Stigma damage”

IS IT RECOGNIZED?

• Thompson v. State Farm (M.D. Ga.)

• Class certification granted and SJ for Plaintiff

• Royal Capital Development v. Maryland Cas. (Ga.)

• Doyle – California (as we discussed)

WHY SHOULD I CARE?

• Consequential damages

• Do policies address this?

• Use of DV in support of other arguments/issues

DEPRECIATING LABOR:

YES OR NO?

WHY IS THIS A BIG DEAL?

IT’S A BIG DEAL BECAUSE…

• Several states have held that the depreciation of labor – when paying actual

cash value – is illegal;

• This topic is on the radar screen of plaintiff’s attorneys and public adjusters

across the nation;

• The class action exposure can be significant; and,

• Forcing labor to be excluded from a depreciation calculation may impact an

insurer’s current business practices, if the law were to be altered in your

jurisdiction.

WHAT IS THE DIFFERENCE?

THE DIFFERENCE IS…

• The type of labor (did it “add value” to finished product)

• The trade involved

• Paint, plumbing, electrical, roofing, fencing, carpentry…

• The scope & length of the job

• The total number of trades altogether (overhead & profit analysis)

• The size of the work crew

• is there really oversight/clerking necessary

• The “permanence” of the work

• The labor cost

• How does your estimating software work?

WHAT’S THE “LEGAL” DIFFERENCE?

• Which jurisdiction are we in?

• How does the policy language read?

• Personal lines or commercial lines?

• All of the factors from the previous slide . . .

• Are you using an independent? If so, how are you contractually-bound?

• Is it a class action . . . or not?

• How smart is your Judge?

HOW DO THE STATES DIFFER AT THIS POINT?

The question: “is it legal to depreciate labor?”

“YES” states: Florida, Indiana, Oklahoma, Pennsylvania

“NO” states: Arkansas, Montana, Vermont, CA (?), Mississippi

Does the case law provide

legitimate guidance?

DISCUSSING SOME OF THE CASES

• Redcorn & Branch (OK), then Adams (AK)

• The class actions that followed…

• Wilcox (Minnesota)

• Brown, Bailey (Kentucky)

• Labrier, Boss (Missouri)

• Graves (Kansas)

• Papurello (PA)

`

Are there related topics that may

give us guidance?

LOOKING TO RELATED TOPICS FOR GUIDANCE

• Overhead & profit cases

• Defining ACV

• Cases interpreting similar principles (automobile policies, tax

law)

• Diminished value cases (auto & property)

• Depreciation of sales tax

• OSHA standards; product guidelines/installation instructions

WHAT LABOR ADDED TO THE VALUE…

PUBLIC ADJUSTERS

THE “NEW” ADS & PRESS

“Like”

1. Inconsistency between

adjusters and claim

offices

2. Confrontation

3. Scant investigation

4. Advances

“Dislike”

1. The Active Adjuster

2. Qualified experts

3. ROR letters

4. Records requests

5. Statements

6. EUO’s!

PUBLIC ADJUSTERS

PROHIBITING USE OF A PUBLIC ADJUSTER?

In Pennsylvania You Can Be Liable For Interfering With Public Adjuster Contract

Johnson v. Pilgrim Mut. Ins. Co. (Pa.Super. 1981)

PROHIBITING USE OF A PUBLIC ADJUSTER?

SOCIAL DUTY ISSUES

THE ADVENT OF

“SOCIAL DUTY”

Negligent Performance

of Undertaking to

Render Services

RESTATEMENT (SECOND) § 323

BRUNO V. ERIE INS. CO. (PA. 2014)

Restatement (Second) § 323 adopted under

rationale that negligence allegations

“facially concern Erie’s alleged breach of a

general social duty, not a breach of any duty

created by the insurance policy itself.”

SCAMPONE V. GRANE HEALTHCARE CO.,

(PA.SUPER. 2017)

Nursing home death – corporate negligence, and

punitive damages…

“A defendant acts recklessly when ‘his conduct creates an unreasonable risk of physical harm to

another and such risk is substantially greater than that which is necessary to make his conduct

negligent.’ “ Phillips, supra at 445 (quoting in part Hutchison, supra at 771).

• Contractor referral procedures

• Health and safety recommendations

• Experts!

• ALE

• Warnings – even if you’re not an

expert

• In Writing

PREVENTATIVE MEASURES

“An ounce of prevention is worth a pound

of cure.”

The Potential Measures/Actions

RECOVERABLE DEPRECIATION –

IS FULL REPLACEMENT

NECESSARY?

LOSS PAYMENT

• “We will pay cost to repair or replace . . . But

not more than the least of the following:

• “The necessary amount actually spent to

repair or replace the damaged building”

• “We will pay no more than the actual cash

value of the damage until actual repair or

replacement is complete”

LOSS PAYMENT

• When is actual repair/replacement complete?

• E.g. – Wind damage to roof with interior water

damage

• Entire loss is covered

• RCV - $30,000 / ACV - $23,000

• ACV paid

AGREED ESTIMATE

• Roof RCV - $20,000 / ACV - $15,000

• Ceiling RCV - $5,000 / ACV - $4,000

• Walls RCV - $2,000 / ACV - $1,500

• Floors RCV - $3,000 / ACV - $2,500

PARTIAL CLAIM FOR HOLDBACK

• “I repaired the ceiling for $5,000 ($4,000 ACV pd). Here’s my receipt. Please pay me the $1,000 recoverable depreciation.”

• “I repaired the ceiling, walls and floors for $10,000 ($8,000 ACV pd). Here are the receipts. Please pay me the $2,000 recoverable depreciation.”

• “I repaired the roof for $20,000 ($15,000 ACV Pd). Here is the receipt. Please pay me the $5,000 recoverable depreciation.”

HALL V. CUMBERLAND (N.J. SUPER.)

• Policyholder – Standard within industry to release

depreciation attributable to component part of project

once it is repaired/replaced.

• Court

• All repair or replacement in building must be

completed before any depreciation can be released.

• Insurer not compelled to make periodic payments.

APPRAISAL

APPRAISAL – THE NEW ISSUES

APPRAISAL – THE NEW ISSUES

The “Coverage” Question

“When properly executed,

appraisal is binding on the

parties as to the amount of

loss only. Appraisal does not

determine coverage.”

• Challenging Appraisal Awards

• The Standard: Limited to fraud, misconduct,

corruption or other irregularity causing an unjust

result.

• Level of Proof: Clear & Convincing Evidence

APPRAISAL – THE NEW ISSUES

RESIDENCE PREMISES

SAMPLE POLICY DEFINITION

a. The one or two family dwelling where “you” reside; or

b. That part of any other building where “you” reside;

Including other structures and grounds at that location, and which is shown as the “residence premises” in the Declarations.

POTENTIAL AMBIGUITIES

Ionata v. Allstate Ins. Co. (E.D. Pa. 2016)

• Eastern District explains the term “reside”

may be ambiguous when a homeowners’

policy allows for varying periods of

vacancy in other policy portions

POTENTIAL AMBIGUITIES

Miller v. Poole (Pa.Super. 2012)

• Pennsylvania Superior Court explains that

the term “residence” can have more than

one meaning, but he term “household”

may be ambiguous

DEPRECIATING OVERHEAD AND PROFIT:

YES OR NO?

Office of Program Policy Analysis and Government

Accountability

“the research arm of the Florida Legislature. OPPAGA

supports the Florida Legislature by providing data,

evaluative research, and objective analyses that assist

legislative budget and policy deliberations….”

WHAT IS THE REAL ANALYSIS

FOR THE 10 & 10?

WHAT IS THE ANALYSIS

FOR THE 10 & 10?

• Public adjuster fees

WHAT IS THE ANALYSIS

FOR THE 10 & 10?

WHEN IS 10 & 10 PAYABLE?

It’s simple algebra! RC less depreciation = ACV

WHEN IS 10 & 10 PAYABLE?

• Do you just count the number of trades?

• What is “reasonably likely”?

• Defining ACV is the key

• Is it a “broad evidence” rule state?

• Pennsylvania is not a “broad evidence”

rule state

WHAT IS THE ANALYSIS

FOR THE 10 & 10?

LET’S TALK…

Any questions, comments, etc.?

Thank you!