BUSINESS INTERRUPTION AND PROPERTY INSURANCE CLAIMS

The Krause Law Firm represents businesses in business disputes.  Originally, attorney Roger Krause was trained to defend insurance companies, but now, the Krause Law Firm sues the insurance companies for failure to pay on its insurance claims.

Operating a business takes guts.  We who runs businesses buy commercial insurance to protect us from harms out of our control. Most business insurance or commercial insurance policies cover three basic issues: (1) liability protection against claims from third parties for injuries, (2) damage to business property, including fire and water protection, and (3) business interruption.

Please continue reading for information about insurance claims and disputes.

The Marketing – Claims Adjudication Paradox: They Want to Sell Policies, Just Not Pay Claims

Insurance companies are in the business of making money.   Insurance companies are wildly successful at making money for they are some of the most profitable business in the world.

To sell product – insurance contracts or “policies”, insurance companies spend billions of dollars to promote insurance as a method of protecting against all losses.  Insurance companies are marketing masters, because insurance is a difficult “product” to sell.  Insurance is not a  consumer good, such as computer, or orange juice.  Nor is it a service, like teeth cleaning, window washing, or car repair.

Rather, insurance is an intangible product – a promise that in the event bad things occur – the insurance company will pay.  The insurance company fails to explain in its cute adds is that the promise is very specific one.  The insurance company will pay only for specific types of losses – not all losses.  Only specific persons can recover.  The claim must be made in a specific fashion. Finally, they will pay a limited amount – and not the actual loss.

This is the reason that insurance companies employ huge marketing departments, advertise continually, and create fun and interesting commercials.  They are selling very sophisticated and complex products, and packaging those products in a fun way, to reduce your normal level of skepticism.  For example, the insurance company does not sell contracts, they sell “policies”.

This is the great deception.  The companies advertise broad coverage – akin to a warm security blanket – yet in truth – the blanket has many holes. You only learn of these holes at the time that you make a claim, during the so called “claims adjudication process”.  (Read: how to exclude your claim.)

As one Court of Appeals described the marketing-adjudication paradox: “It seems that insurers generally are attempting to convince the customer when selling the policy that everything is covered and convince the court when a claim is made that nothing is covered.” Universal Underwriters Insurance Co. v. Travelers Insurance Co., 451 S.W.2d 616, 622-623.

Three Strategies Insurance Companies Use to Avoid Paying Claims

Insurance companies rely on three general strategies to avoid paying claims entirely or to pay less than what is truly lost.  This is the “claims adjudication” process, in which the insurance company uses its contract to exclude or eliminate coverage.

  • Insurance Companies Write the Contracts To Exclude Coverage
    Insurance contracts are drafted to cover only specific events and exclude all others.For example, one purchases property insurance policy, expecting to receive coverage for any losses to their property, regardless if the property is an individual home or a warehouse.   After a sever rainstorm, you learn that the policy may or may not cover the loss the property, the insurance company arguing that the damage was due to grown water.

    Coverage disputes arise when the insurance companies inappropriately interpret the terms of the policy for the purpose of excluding coverage. When refuting the insurance company’s arguments, a claimant must show why those exceptions and exclusions should be read for the benefit of the policyholder, not for the benefit of the insurance company. (This is, technically, not the policy-holder’s legal obligation; rather, it is for the insurer to deny coverage.  Yet, the practicalities require that the policyholder is forced to carry this burden).

    As one Court of Appeals observed: “Ambiguity and incomprehensibility seem to be the favorite tools of the insurance trade in drafting policies. Most are a virtually impenetrable thicket of incomprehensible verbosity…. The miracle of it all is that the English language can be subjected to such abuse and still remain an instrument of communication.”  Universal Underwriters Insurance Co. v. Travelers Insurance Co., 451 S.W.2d 616, 622-623, (1970).

  • Insurance Companies Pay Less than Your True Loss.
    The second way that insurance companies limit their risk is to pay less than the actual loss.  This is accomplished in many different approaches.One way the insurance company achieves this goal is by having specified limits within the contract. For example, if a business loses $3 million worth of inventory due to fire, but the limit is specified at $2 million, coverage will only be issued for the $2 million. In fact, sometimes the insurance company applies a co-insurance penalty, stating that you should have had more insurance, and since you did not have sufficient insurance, they will penalize you by an additional 25%, and now, the $2 million dollar loss is reduced to just $1.5 million.

    Another way for an insurance company to pay for a loss than the actual loss. In a business setting, lost or stolen inventory is often replaced at cost, and as such, no compensation is given for lost profit or even the associated carrying or financing costs.  Even when the insurance allows for actual replacement cost, rarely does one truly recover all their costs.

  • Recovery and Claims Must Comply with All the Contract Provision.
    The third way that insurance companies limit their risk is by requiring that the claim be made in a very specific fashion.  For example, the claim must be made in a timely manner. The general rule in Georgia is that written contracts have a four-year statute of limitation, meaning, if there is a breach of the terms of a written agreement, one must file suit within four years. However, these insurance contracts have a significantly shorter time period, and require suit as soon as one to two years, from when the period the loss was known or should have been known.  The insurance companies further engage in gamesmanship, because the adjustor may be “adjudicating” the claim, while the time period to file suit expires.Likewise, the person making the claim for the insurance must be the named beneficiary, regardless of whether or not he or she paid for the policy. If the beneficiary is not properly identified, folks may not be properly protected.

    Finally, you are obligated, under the terms of the insurance contract, to assist the  insurance company in its investigation.  In other words, you must continually provide the insurance company with information and documents. Many times, the adjustors request documentation that you do not have, and will hold up the claims process waiting for unavailable document to appear.  The failure to continue to engage with the insurance company maybe grounds for the insurance company to deny your claim.

Those are the most common strategies insurance companies use to avoid paying policyholders. However, insurance companies will formulate many other deceptive strategies and tactics if it means maximizing company profits.

Is there favorable law business, or does the law only support insurance companies?

There is some favorable law.

One of the most important is the Supreme Court of Georgia ruling that insurance contracts are to be construed from the perspective of a lay person, not an insurance adjustor. York Ins. Co.  v. Williams Seafood of Albany, Inc., 273 Ga. 710, 712 (2001).  More recently, the Georgia Court of Appeals has stated that insurance contracts are to be read to favor, rather than exclude coverage.  “[W]here a provision in a policy is susceptible to two or more constructions, the courts will adopt that construction which is most favorable to the insured”.  Ace American Ins. v. Truitt Bros, 288 Ga. App. 806, 808 (2007). Combined, these cases, along with other favorable case law give plaintiffs an opportunity to win in a properly prepared litigation battle.

At the same time, there have been some interpretations that ignore the general rules. In 2010, the Georgia Supreme Court addressed the question what the term “accident” means in an automobile case.  In State Farm v. Matty, a car hit two people, severely injuring each. The first person was hit, and two seconds later, the second person was hit. The driver had insurance of $100,000 of coverage per accident.  The term accident was undefined in the policy.  The question, therefore, was there two accidents or one.  In other words, could each injured person recover $100,000, or the plaintiffs would have to share the $100K.  The Georgia Supreme Court determined that even through the term was undefined, that the term accident had to mean both collisions, and thus payment was capped at $100K. However, note that the dissent, lead by Justice Benham, Chief Justice Hunstein, and Presiding Justice Carley, argued that since the term was arguably ambiguous, that the term should have been construed against the Defendant insurance company.  See our Blog on the Matty Case.

Can you sue for punitive damages or mental distress? What is Bad Faith?

As a general rule, claims for punitive damages, or mental stress are generally prohibited.  Of course, to every rule, there is an exception, but we will address that very narrow exception later.

For almost all claims, a Georgia plaintiff suing their insurance company can only recover bad faith damages

What are the bad faith damages?  For most types of Georgia policies, the damages for bad faith are limited to the following: (i) the amount of the loss, (ii) additional damages of $5,000.00 or 50% of the liability, whichever is greater, and (iii) all reasonable attorney’s fees for the prosecution of the action against the insurer. O.C.G.A. §33-4-6 (a).

What is bad faith?  The answer is not clear, for the term is not defined in the statutory law, and is only loosely defined in case law. However, bad faith can include the unreasonable denial of a claim; a failure to promptly and thoroughly investigate a claim; unreasonable delays in paying a claim; and an improper or overly narrow interpretation of the policy underlying a claim.

Moreover, just as with all insurance, you must properly put the insurance company on notice of the potential bad faith claims.  Under most statutory schemes this is limited to providing notice of the claim 60 days prior to the filing of the suit and providing such notice to the proper address by way of certified mail. Failure to do so could result in the loss of the bad faith claim.

Unfortunately, winning bad faith claims – in this context – is difficult and Georgia law is stacked against the business. This is because merely demonstrating the insurance company was wrong does not mean that there was bad faith.  Progressive Amer. Ins. v. Horde, 577 S.E.2d 835 (2003).  Many Georgia courts have held that so long as the insurer has a reasonable and probable cause for refusing to pay a claim, there is no bad faith.  Needless to say, the insurance companies thus “create” such issues, for example, by paying some money on a loss, but not paying all the monies due, because the total amount due is in dispute. This burden shifting is different in Georgia than in many other states, such as Florida, whereby if an insured win on the underlying matter, they most often recover at least their attorney fees. See generally, State Farm Florida Insurance Company v. Seville Place Condominium Association, Inc., ____ So.3d ____ (Fla. 3rd DCA October 14, 2009).  Given these limitations, Georgia bad faith damages are considered weak for plaintiffs, and favorable for insurance companies.

How Can Roger Krause, Esq. Help?

Fundamentally, this is a contract dispute, and the question as to the intent and meaning of the exchange of promises. The start of all good analysis is a careful review of all the terms and contract language.  Roger Krause, Esq., as originally trained by the insurance companies, knows how to analyze the insurance policies and apply the facts of the loss (fire, business interruption, etc.) as a covered loss. If the insurance company will not resolve the matter, the attorney Roger Krause is prepared to take the case to trial.

KGW works with clients in a variety of different fee payment arrangements, including hourly, contingency, and blended fees.  Call attorney Roger Krause to discuss your case.