Tag: Bad Faith

Menchaca Ruling

Menchaca: Clarification of the Law Regarding Recovery On Insurance Claims

Menchaca Clarified Decades of Conflicting Case Law

USAA Lloyds v. Menchaca, a case recently decided by the Texas Supreme Court, sought to eliminate confusion regarding conflicting decisions about insureds’ claims against their insurance companies. The decision announced five rules about the relationship between insurance contract claims, which are claims against the insurance company for damages under the policy, and statutory claims under the Texas Insurance Code, which can give insureds additional damages.

Background: Gail Menchaca, Hurricane Ike, And USAA

Gail Menchaca’s home was damaged during Hurricane Ike in 2008. However, when she contacted her insurer, USAA, to report the claim they sent an adjuster who found minimal damages that did not exceed the policy’s deductible. Doubting this, Gail requested a second inspection, which rendered similar results, and USAA refused to pay Gail anything on her claim. Gail sued USAA to recover her policy benefits, costs, and attorney’s fees. She sued for breach of the policy and for unfair settlement practices and violations of the Texas Insurance Code. The jury found that USAA had fulfilled its obligations under the policy but that it still owed Gail $11,350 in damages plus $130,000 in attorney’s fees. This presented an interesting conflict in case law, which held both that Gail could recover at least her policy benefits under the Insurance Code, and that Gail could not recover under the code without a finding of a breach of the policy. The Court declared five rules in an attempt to reconcile its previous decisions.

The General Rule

The Court confirmed the general rule that an insured cannot recover policy benefits for an insurer’s statutory violation if the insured doesn’t have a right to those benefits in the first place. The insured must have actual damages caused by the statutory violation, and without coverage under the policy for the claimed damages there are no actual damages. If the policy does not cover the loss, there are no benefits to recover. However, there does not have to be an actual finding of breach of the policy to show the policy covered the loss and the insurer didn’t pay.

The Entitled-To-Benefits Rule

One of the most important clarifications in Menchaca was that an insured who establishes a right to receive benefits under an insurance policy can recover those benefits as “actual damages” for a statutory violation. The benefit to recovery under the statute is that an insured may recover additional penalties such as interest on their claim and attorney’s fees. We are currently handling a case before the Texas Supreme Court, Barbara Technologies Corp. v. State Farm Lloyds, which will further clarify whether statutory penalties survive payment of an appraisal.

The Benefits-Lost Rule

The third rule recognizes an insured’s right to recover benefits under the policy for a statutory violation, even if there is no coverage for the claimed damage, if the insurer’s conduct caused the insured to not have that coverage. For example, if an insurer misrepresents that a policy covers wind damage, and the insured relies on that representation to buy the policy, but the policy does not actually cover wind damage—under the benefits-lost rule, the insurer’s misrepresentation caused the insured to not have benefits it reasonably thought it had. Therefore, the insured can still recover benefits for wind damage as actual damages for a statutory violation under the benefits-lost rule.

The Independent-Injury Rule

Menchaca clarified the two aspects of the independent injury rule. First, if an insurer’s statutory violation causes an injury independent of the insured’s right to recover policy benefits, the insured may recover damages for the injury even if the policy does not entitle the insured to receive benefits. However, when an insured seeks to recover damages that flow from denial of the policy benefits, the general rule applies and precludes recovery unless the insured is entitled to policy benefits. Second, an insurer’s statutory violations don’t permit the insured to recover actual damages beyond the policy benefits unless the violation causes an injury that is independent from the loss of benefits.

The No-Recovery Rule

Under this rule, a corollary to the other four, an insured cannot recover any damages based on an insurer’s statutory violation unless the insured establishes a right to receive benefits under the policy or an injury independent of the right to receive benefits.

Barbara Technologies And The Unanswered Question in Appraisal Cases

A question still to be answered—perhaps in our Barbara Technologies case, which is currently pending before the Court—is whether in a case where a valid claim is rejected and then appraisal is invoked and paid, can the insured still recover statutory prompt payment penalties under Section 542 of the Texas Insurance Code. The holding in Menchaca— particularly the entitled to benefits rule— seems to suggest an affirmative answer, but another line of appraisal cases hold that nothing further can be recovered when an appraisal provided for in the contract is conducted and the award is paid in full. However, without the statutory penalties in the Insurance Code an insurer has no incentive to promptly settle or pay claims; the insurer can just wait months or years to invoke the appraisal provision and then be exonerated from paying interest and attorney’s fees on the claim. Hopefully, the Court will continue to recognize the rights of insured Texans who are being wrongfully abused by their insurance companies, and provide the statutory benefits the Legislature enacted to help prevent wrongful treatment of insureds in all cases where the insurer violated the statute.

Insured’s Who Are Not Timely Paid In Full Can Recover Statutory Penalties

If you have been mistreated by your insurance company during the claims process, or your payment has been wrongfully delayed, contact the experienced lawyers at Raizner Slania LLP, who can help get you the benefits you deserve.

fire damage insurance attorneys

Industrial Building Owner Files Bad Faith Insurance Lawsuit After Fire

Raizner Slania LLP has filed a bad faith insurance lawsuit on behalf of an industrial building owner against Certain Underwriters at Lloyd’s London – Brit Syndicate 2987 and Hibbs-Hallmark & Company after its insurance claim was wrongfully denied.

Catastrophic Fire Devastates Commercial Property

The plaintiff owns a scrap metal dealing business that processes metal and then sells it to mills for profit. The property encompasses nearly four acres of land and includes multiple buildings, including a large scrap metal yard, a main office building, and several covered areas throughout the property. The business also utilizes numerous machines and large pieces of equipment, such as excavators, shredders, and separators, among others.

On May 5, 2017, a catastrophic fire broke out at the property. As a result, the business equipment on the property was severely damaged. In addition to damaged business equipment, the plaintiff lost extensive business income as a result of the fire damage to the property. Two pieces of industrial machinery were completely destroyed and two others sustained significant damage.

The damaged machinery prevented the plaintiff from processing and preparing its scrap metal. Because of this, the plaintiff lost business on significant materials that could have been purchased and sold to mills for a profit in the course of ordinary business operations. The damaged machines meant the plaintiff was unable to process the metal, so the plaintiff was forced to resell bulk material after the fire. Unfortunately, the post-fire material had to be processed manually, which caused the materials to incur higher labor costs.

Soon after the fire, the plaintiff filed an insurance claim for substantial property damages and lost business income. The plaintiff asked that the cost of the damages be covered pursuant to the policy, but Lloyd’s has refused to make a full payment on the plaintiff’s claim.

Lloyd’s conducted an unreasonable and inadequate investigation of the damages to the equipment and looked to find policy exclusions in order to deny the claim. Lloyd’s wrongfully denied, underpaid, and delayed plaintiff’s claim for actual damages to the property and lost business income. Specifically, Lloyd’s has chosen to continue to deny and delay timely payment of the damages.

Violations of the Texas Insurance Code

Our clients cites numerous violations of the Texas Insurance Code, including the failure to effectuate a prompt, fair, and equitable settlement of a claim and misrepresentation of the insurance policy under which it affords property coverage to the plaintiff. Our client also alleges numerous violations of the Texas Deceptive Trade Practices-Consumer Protection Act.

Get Help With Your Insurance Claim

If your commercial insurance claim includes damage to specialty equipment, you will need the help of an experienced insurance attorney. Insurance companies often try to use dishonest tactics and misrepresentation to deny coverage for specialty equipment. At Raizner Slania LLP, our fire damage insurance attorneys have helped scores of clients with insurance claims and we know how to evaluate specialty equipment insurance claims. Contact us today to schedule a free consultation to discuss your case.

Reinsurance Issues In Puerto Rico After Hurricane Maria

Practically every insurance company utilizes reinsurance to pass on the risk of claims to other insurance companies, or reinsurers. Reinsurance is basically insurance for insurance companies. In principle, the practice of reinsuring risk should help policyholders get their rightful payments without fear that the insurance company will become insolvent. However, in practice, reinsurers are typically foreign based companies that have no incentive to expediently investigate or pay claims. Most primary insurance companies in Puerto Rico cede the vast majority of the liability from their insurance policies to reinsurers. Since Hurricane Maria, insurers have been so slow to act that Puerto Rico’s Commissioner of Insurance has levied over $2 million in fines to insurers who are delaying the processing and closing of claims.

The Power of Maria

Hurricane Maria was the most powerful storm to hit Puerto Rico in almost 100 years, and it came right on the tail of Hurricane Irma, which had already knocked out power on parts of the island. The island faces billions of dollars of damage and is still, eight months later, not fully recovered. Sadly, with the trend over the last 35 years of increased natural disasters more storms like Maria are to be expected. The problem of reinsurer recalcitrance after natural disasters is not going away.

The Reinsurance Traffic Jam After Hurricane Maria

Many business and commercial buildings were damaged by Maria, and thousands of business policyholders filed claims with the insurer they received their policy from, only to find their insurer had ceded the vast majority of their coverage to a reinsurer. While there is nothing unique about that process, the way the insurance market is structured in Puerto Rico has created a traffic jam preventing insurance capital from flowing back into the economy. Here’s why: the insurance market in Puerto Rico is dominated by thinly capitalized domestic insurers who ceded almost all of their risk to European reinsurance companies. But the primary obligation to inspect properties and handle claims falls to these marginally capitalized primary insurers, some of which are nothing more than fronting entities. Given the vast numbers of claims filed after Maria, these domestic insurers lack the resources and expertise to handle the volume of claims they are being presented with, and many continue to do absolutely nothing with those claims.

Meanwhile, in the United Kingdom, German, Switzerland and elsewhere, the reinsurers who bear the vast majority of the risk on Maria claims are simply watching, waiting, and investing money they should be paying out to rebuild Puerto Rico. The reinsurer generally doesn’t have an obligation to pay until the primary insurer completes its investigation and requests payment; and the primary insurers don’t have the resources to accomplish these basic tasks.

The policy holder now has two companies either unmotivated or incapable of paying out on claims. Recalcitrant, slow paying insurance companies are causing policyholders additional economic hardship in a time when it matters the most. Without prompt payouts some businesses are unable to make the repairs necessary to rebuild and reopen.

Know Your Rights

Recalcitrant reinsurers have been a huge issue in Puerto Rico in the aftermath of Hurricane Maria. There are many ways recalcitrant insurers can slow down the claims process. They have every motivation to do so: most profits for an insurance or a reinsurance company come from the “float,” meaning the cash difference between premiums and claim payouts. Insurers invest the float, and make money on their investments. Even though the insurers are being fined for their wrongful conduct, it is still cheaper for them to pay the fines than to pay the claims. This is a gross violation of the legal rights of the insured. Under Puerto Rico’s insurance laws, policyholders have the right to have their claims handled in a timely manner. Policyholders in Puerto Rico can report abuses by their insurance company to the Commissioner of Insurance. Once reported, the Commissioner of Insurance will investigate these claims and levy fines if the insurance company is found to be acting in bad faith.

Commercial Insurance Attorneys

What Is Reinsurance?

Natural disasters have the potential to cause millions of dollars in claims payouts from insurance companies. Most insurance companies would be unable to make such large payouts if it weren’t for reinsurance. Reinsurance is like insurance for insurance companies. It allows insurance companies to pass on the risk of large payouts to other insurers in exchange for part of the premium they receive from policyholders. Commercial insurance attorneys frequently witness firsthand the effect reinsurance has on insurance claims.

Why Do Insurance Companies Need Reinsurance?

By law, insurance companies are required to have enough capital in their reserves to pay all potential claims. This protects policyholders from not receiving payouts if an insurance company becomes insolvent. For example, if an insurance company receives $50 million in premiums from policyholders in a year, but a natural disaster comes and causes $100 million in covered damages, the insurance company may not have enough money to pay out on all the claims. To prevent this, insurance companies will mitigate their risks through reinsurance. When insurance companies utilize reinsurance to mitigate their risks, they are also lowering the amount of capital they are required to have in their reserves.

What Is A Reinsurance Treaty?

A reinsurance treaty is like an insurance policy between insurance companies. The original insurance company contracts under a treaty with the reinsuring company for it to cover a particular type of risk in a group of policies. The original insurance company cedes the risk to a reinsurer and will share the premiums it receives from its own policyholders with them. In turn, the reinsurer will pay out on claims against the original insurer that involve that particular type of risk.

What Is A Reinsurance Bordereau?

An initial reinsurance bordereau is a detailed report to the reinsurer on the premiums ceded from each of the underlying policies. Typically, it includes basic details about each policy including the gross premium and ceded premium. This is how the reinsurer initially finds out the details of the policies they are reinsuring. Bordereaux are usually required periodically under a reinsurance treaty. In this case, they are frequently monthly or quarterly reports of premiums and losses. A loss bordereau will contain details of claims on reinsured policies and any paid-out losses or expenses.

Limitations Placed On Reinsurance

Insurance companies are regulated by the state (or commonwealth in the case of Puerto Rico) governments where they do business. Each state can put limits on how much risk an insurer can cede, but it often is a very high percentage. The Office of the Insurance Commissioner (OIC) of each state can require extra approval for insurance companies to reinsure more than a certain amount of risk. For example, in Puerto Rico an insurer can cede the total or partof their risk, but a domestic insurer needs written authorization from the OIC to cede more than 75%. Various states have similar rules on whether an insurer can cede all or part of its risk to other insurers. Similarly, states and territories may place restrictions on whether an insurer may reflect proceeds due from a reinsurer as an asset on the insurer’s balance sheet, and these limitations are important when insurers calculate their compliance with capitalization rules.

Commercial Insurance Attorneys

The use of reinsurance can complicate the insurance process. Regardless of whether an insurance company has a reinsurance policy, policyholders are entitled to complete protection under their policies. If your insurance company has delayed, underpaid, or denied your insurance claim, contact the commercial insurance attorneys at Raizner Slania LLP today for a free consultation to discuss your case. We have experience dealing with the largest insurance companies in the world and our commercial insurance attorneys can make sure you get what you are rightfully entitled to under your policy.

Wind Driven Rain and Storm Created Openings: How Insurance Companies Are Using Policy Exclusions and Limitations to Deny Harvey Claims

Much of Texas is struggling to rebuild in the aftermath of Hurricane Harvey. Progress has been slow for many property owners because insurance companies are dragging their feet in paying out on claims. Many Texans are discovering their insurance companies are using certain exclusions and limitations in their policies to wrongfully deny legitimate claims. This approach has become common throughout the Coastal Bend area of Texas, as real estate owners and businesses are beginning to receive denial letters from their insurance companies.

Is your insurance company refusing to pay your claim on the grounds that the damage resulted from wear and tear and not wind from Hurricane Harvey? Are they admitting that there is damage to the interior of the building that resulted from wind driven rain, but refusing to pay because there was “no storm created opening”? Let’s take a look at the applicable clauses, and what you can do about it.

All Risks Policies and Wind Driven Rain 

Most policies issued in Texas consider any direct physical loss to be covered unless the loss is either excluded or limited by a specific policy provision. Wind damage from a hurricane and wind driven rain are both considered a covered cause of loss under most insurance policies. Because of that basic rule, insurance companies will have to identify and prove that a specific “Exclusion” or “Limitation” contained in the policy applies before they can avoid coverage.

In Texas, a policyholder bears the responsibility to demonstrate a covered cause of loss, but if an insurance company wants to avoid payment based on an exclusion or limitation, they have to prove that it applies.

Ensuing Loss and Policy Exclusions For Wear and Tear, Faulty Maintenance, Manufacturing Defects and Other Pre-Existing Conditions

Most policies contain a series of exclusions that are crafted to avoid coverage. One of the most commonly used exclusions pertains to “wear and tear.” If an insurer can demonstrate that roof damage was the result of wear and tear and not hurricane winds, there is no coverage under the policy.

Often, however, these condition-based exclusions are written back in coverage for an “ensuing loss.” An ensuing loss is a new loss that follows an earlier loss. In the case of an ensuing loss, the earlier loss is often uncovered under the policy, while the new loss is, meaning policyholders will only receive compensation for damage caused by the new loss and are left paying out of pocket for damage caused by the original loss.

For Hurricane Harvey claims, this is most commonly playing out like this: insurance companies will claim the roof, siding or other component of the building envelope were not damaged by wind, but rather deteriorated due to wear and tear over time. Then wind driven rain, a covered cause of loss, enters the building through the existing defects and causes interior water damage. The alleged original loss – the deteriorated roof – is not covered under the policy, so insurance companies do not have to pay for the water and wind damage caused by the storm. The interior water damage is covered under the policy, so insurance companies will compensate policyholder only for this damage.

When an insurance company denies damage to a roof, but pays for interior damage due to water or wind driven rain, it is typically a result of an ensuing loss type of provision.

Even in a circumstance where an insurer pays for interior damage due to ensuing loss, they will try to minimize those payments. The interior of a building includes anything beneath the roof covering, such as insulation and decking. When an insurer has a responsibility to pay for interior damage under a policy, they are obligated to pay for all interior damage, and not just limited payments for sheetrock. This includes substantial repairs for the parts of the building just below the roof, such as wet insulation or corroded decking.

Storm Created Opening Limitations

In addition to outright exclusions, an all risks policy may also contain certain “Limitations.” One common limitation provides that the insurer will not pay for damage to the interior of a building unless “the building or structure first sustains damage from a Covered Cause of Loss to its roof or walls through which the rain . . . enters.” In other words, with this type of limitation, there is no coverage for interior damage unless it resulted from a storm created opening. Many policies do not contain this type of limitation, and in those cases, interior damage is covered even without evidence of wind damage to the roof, siding or windows.

How Insurance Companies Are Abusing Wind Driven Rain Clauses

In the aftermath of Hurricane Harvey, insurance companies are facing the financial liability for billions of dollars in claims. Insurance companies are run first and foremost as businesses. This means insurance companies may not always have a policyholder’s best interests at heart. In order to avoid paying out on claims, many insurance companies are wrongfully claiming damages were caused by wear and tear, and not a covered loss such as wind driven rain.

While this might seem like a small detail, the reality is that this can determine if a claim is paid or not. Many policyholders in places like Fort Bend County, Rockport, and all along the Texas coast are shocked to find out insurance companies wrongfully classify their wind damage.

Hurricane Harvey was a Category 4 hurricane with maximum sustained winds at 130 miles per hour. Wind damage from Hurricane Harvey was obvious. Roofs were destroyed, trees were downed, and properties were decimated. So why do insurance companies fraudulently deny these claims?

Very few policyholders understand the nuances and complexities of commercial insurance and are unaware of their rights. By giving policyholders the runaround, companies are saving themselves millions of dollars in payouts. This is wrong and insurance companies must be held responsible.

Raizner Slania LLP Helps Policyholders With Hurricane Harvey Wind Claims

If you regularly pay your premiums, you are entitled to full coverage under your insurance company. If your insurance company has wrongfully denied, delayed, or underpaid your claim, call the experienced Hurricane Harvey wind claim lawyers at Raizner Slania LLP today. We have a successful track record of taking on some of the largest insurers in the country. Don’t wait to get help on your Hurricane Harvey claim.

Wind and Hail Damage Lawsuit

Local Funeral Home Files Wind and Hail Damage Lawsuit

Raizner Slania has filed a wind and hail damage lawsuit on behalf of a local funeral home against Ohio Security Insurance Company after its commercial property hail damage claim was wrongfully denied under Texas law.

April 2014 Tarrant and Dallas County Wind and Hail Storm

On April 4, 2014, a wind and hail storm swept through Tarrant County and Dallas County and caused severe damage to the roof, HVAC, exterior, and interior of the property. Immediately upon discovering the damage, the plaintiff filed an insurance claim with Ohio Security Insurance and asked that the cost of repairs be covered pursuant to the policy.

In response to the claim, Ohio Security Insurance assigned adjusters, consultants, and agents to the plaintiff’s file that were inadequately trained to handle this type of claim. Specifically, the claim was assigned to an adjuster who failed to perform a thorough investigation of the claim. The adjuster performed a substandard inspection of the property and did not prepare any estimates or scopes of damages for the properties and/or failed to provide those items to the plaintiff.

The adjuster failed to hire qualified experts to assess the damage and continually delayed the claims process. Ohio Security Insurance relied solely on the adjuster’s inadequate, incomplete, and unreasonable investigation to determine what amounts, if any, to pay on the claim. As a result, the plaintiff’s claim was grossly underpaid and the plaintiff has been unable to make the necessary repairs to the property. This has caused additional damage to the exterior and interior of the property.

Ohio Security Insurance Acted In Bad Faith

Our client alleges numerous violations of the Texas Insurance Code, including the failure to effectuate a prompt, fair, and equitable settlement of a claim and the failure to provide a reasonable explanation for the denial of a claim. Additionally, Ohio Security Insurance misrepresented the insurance policies under which it affords property coverage to plaintiff.

Misrepresentations of Policies

Many insurance companies purposefully misrepresent policies during claims investigations to avoid costly payouts. For policyholders who regularly pay their premiums, this isn’t just dishonest – it’s illegal. If your insurance carrier delayed, denied, or undervalued your claim, the experienced bad faith insurance lawyer at Raizner Slania can help. Contact us today to schedule a free consultation to discuss your case.