The Role of Engineers in Insurance Claims

Increasingly, insurance companies are denying claims for loss and damage to homes and commercial structures on the basis of reports obtained from engineers during the course of adjusting the claim. In a typical scenario, a homeowner discovers that their roof has been damaged by a storm and reports a claim to their insurance company. The insurance company may send one of its own adjusters to inspect the property, or, in cases of widespread damage from storms, they may use the services of outside adjusters, often called “independent” adjusters to conduct the inspection. We have seen many cases where this “independent” adjuster inspects a loss and determines there is little or no damage, or that the damage they claim to see is less than the policyholder’s deductible, such that no payment is made to the homeowner.

The homeowner may then ask a contractor of their choosing to inspect the roof and prepare a report or estimate of what the contractor believes is storm-related damage, which is then sent to the insurance company with a request to reconsider. In our experience, it is often at this point that the insurance company will choose to engage the services of an engineering company to conduct its own “independent” and supposedly unbiased inspection of the insured property.

To be fair, if this engineering inspection results in payment of the homeowner’s claim, we are unlikely to learn about it. Homeowners who are satisfied with how their claim was handled and paid do not tend to hire a policyholder lawyer to review their case. But based on the cases we do see and handle, we have observed a pattern over the years, and it is not favorable to the insureds. In our experience, the engineering firm inspects the property, takes many photographs (but sometimes does not take photographs that actually depict what the homeowner or their contractor believes to be evidence of storm damage), and then prepares a report in which the engineer employs a definition of “damage” that does not appear anywhere in the policy of insurance, and based on that definition concludes that there is no “damage” to the structure. The insurer, relying on this “independent” report, denies the claim.

Insurers who deny claims based on a report like the one described above to deny an insurance claim are opening themselves up to a lawsuit for breach of the duty of good faith and fair dealing (“bad faith”) because they have essentially farmed out the claim handling to someone else who changes the rules (by changing the definition of “damage”) and uses this new rule to reach a particular conclusion. But what about the engineers themselves? Might they be subject to a suit by the homeowner if they know that their report is going to be used to deny a claim? What is the duty that a licensed engineer owes to the homeowner? After all, it was not the homeowner who hired the engineer in this hypothetical claim example. Does that mean the engineer can just say anything in a written report, knowing that the report will be used to deny an insurance claim?

This is a topic of much discussion among insurance practitioners and policyholder attorneys. The starting point for determining what the law expects from a licensed engineer may be the regulations with which they must comply. In Indiana, these include (but are not limited to) the following:

1. 864 IAC 1.1-11-4 Public Safety, Health, and Welfare
   • The engineer shall at all times recognize the primary obligation to protect the safety, health, and welfare of the public in the performance of professional duties. If the engineer’s professional judgment is overruled under circumstances where the safety, health, and welfare of the public are endangered, the engineer shall inform the engineer’s employer of the possible consequences and notify such other proper authority of the situation, as may be appropriate.
2. 864 IAC 1.1-11-6 Restricted Services for Assignment Outside Field of Competence
   • The engineer may accept an assignment requiring education or experience outside of the engineer’s field of competence, but only to the extent that services are restricted to those phases of the project in which the engineer is qualified. All other phases of such project shall be performed by qualified associates, consultants, or employees.
3. 864 IAC 1.1-11-7 Use of Seal Restricted
   • The engineer shall not affix the engineer’s signature and/or seal to any engineering plan or document dealing with subject matter in which the engineer lacks competence by virtue of insufficient education or experience, or to any such plan or document not prepared as described in 864 IAC 1.1-7-4.
4. 864 IAC 1.1-11-9 Professional Reports, Statements, and Testimony
   • The engineer shall be completely objective and truthful in all professional reports, statements, or testimony. The engineer shall include all relevant and pertinent information in such reports, statements, or testimony.
5. 864 IAC 1.1-11-12 Conflicts of Interest
   • The engineer shall conscientiously avoid conflicts of interest with the engineer’s employer or client, but, when unavoidable, the engineer shall forthwith disclose the circumstances to the engineer’s employer or client.
6. 864 IAC 1.1-11-13 Disclosure of Conflict of Interest
   • The engineer shall avoid all known conflicts of interest with the engineer’s employer or client and shall promptly inform the engineer’s employer or client of any business association, interest, or circumstances which could influence judgment or quality of services.
7. 864 IAC 1.1-11-20 Employment on Basis of Qualification and Competence
   • The engineer shall seek professional employment on the basis of qualification and competence in the proper accomplishment of similar work.
8. 864 IAC 1.1-11-22 Use of Name in Fraudulent or Dishonest Venture
   • The engineer shall not knowingly associate with or permit the use of the engineer’s name or firm name in a business venture by any person or firm which the engineer knows, or has reason to believe, is engaging in business or professional practices of a fraudulent or dishonest venture.

If your insurance claim has been denied by your insurance company based on the report of an “independent” engineer’s evaluation or report, you should seek legal counsel to determine whether your insurer has handled your claim fairly, and to determine what role the engineer may have played in the process.

Richmond Indiana Plastics Recycling Warehouse Fire Claims

The property damage and injury attorneys at Parr Richey are continuing to monitor the aftermath of the devastating fire at the plastics recycling facility in Richmond, Indiana that started on April 11, 2023 and continued for an extended period of time to cause large volumes of toxic, hazardous materials to spew into the air. 

As has been widely reported, the EPA has collected samples and has found dangerous chemicals and even asbestos in debris widely distributed by the huge fire. As reported by the Associated Press (Flesher, April 14, 2023), “[m]onitors in the evacuation zone detected hydrogen cyanide, benzene, chlorine, carbon monoxide and volatile organic compounds” in the debris from this fire.

Property owners and citizens who have been or may later be affected by this preventable disaster should not delay in contacting legal counsel to help them protect their rights. In some cases, it will be critically important to document and preserve evidence, give timely notice of claims, and take other steps to make certain that victims of this fire have the best chance of securing fair and just compensation. 

For updated information, the U.S. EPA has set up a website for the My Way Trading Warehouse Fire – available at this link.

2023 East Palestine Ohio Rail Disaster

The February 3, 2023 catastrophic derailment of a Norfolk Southern freight train at East Palestine Ohio is a prime example of the need to properly characterize and declare hazardous materials for shipment. When accidents happen during transportation, first responders and affected citizens have an urgent need – and a statutory right – to know what chemicals were involved, what emergency response procedures should be followed, and what risks are posed by the hazardous materials in transport.

The lawyers at Parr Richey are experienced in handling cases involving personal injuries, damage to homes and business property, and other losses caused by the failure of offerors or transporters of hazardous materials to properly characterize and document shipments of HazMat, and/or caused by negligent operations of transportation equipment. They also routinely handle personal injury and property damage cases of all kinds on behalf of businesses and individuals in Indiana and other states.  

Vinyl chloride (CAS # 75-01-4, chemical formula C₂H₃Cl) is associated with an increased risk of certain cancers, including liver cancer, brain and lung cancers, leukemia and lymphoma. Exposure by inhalation is, therefore, very concerning. As has been widely reported, several of the derailed cars involved in the accident were transporting vinyl chloride, and the chemical was involved in the controlled release as shown in various news reports.

Already in the case of the East Palestine derailment we are learning that some of the initial information provided by authorities in the critical early hours following the catastrophe was incomplete or incorrect. Attorneys at Parr Richey continue to monitor the developments in the ongoing investigation.  

Insurance Companies Should Promptly Pay Undisputed Claims

In the numerous depositions of claims handlers our firm has conducted, adjusters frequently testify that they have been trained that the duty of good faith and fair dealing requires them to make prompt payment of the “undisputed portion” of covered insurance claims. Even if the insurer and the insured disagree on the total amount of a particular claim, the insurer is supposed to promptly pay what it believes it owes on covered claims to its insureds.

But when the insurer is making this undisputed claim payment, can they condition it on making the insured sign a release that would eliminate the insured’s right to claim more is due? We have always believed the answer to this is obviously “no”, because that would mean the insurance company could essentially force the insured to give up important legal rights in exchange for receiving at least some payment from their policy.

The Indiana Court of Appeals, in an opinion handed down on July 12, 2022, found that when Erie Insurance Exchange (“Erie”) refused to pay the undisputed portion of a claim for uninsured/underinsured motorist benefits under an automobile insurance policy, Erie may have acted in bad faith. Erie Insurance Exchange v. Olivia Craighead, 21A-CT-2871, July 12, 2022. This holding necessarily means that the Court of Appeals believed Erie’s actions in refusing to pay the undisputed portion of the claim without a release from the insured demonstrated the requisite “state of mind reflecting dishonest purpose, moral obliquity, furtive design, or ill will.”

Policyholders who have suffered losses should be mindful of the insurance company’s duty to treat them fairly, to handle claims promptly, and to pay what is owed under the policy without imposing conditions on the payments.

Understanding the Appraisal Clause in Your Insurance Policy

Nearly all insurance policies contain what is commonly called an “appraisal clause.” While the specific language differs from one policy to another, the idea is generally the same. This provision is designed to provide a mechanism to resolve disputes about insurance claims — but not all disputes are subject to being resolved by appraisal.

Typical language will say something like this:

“If you and we do not agree on the amount of the loss, including the amount of actual cash value or replacement cost, then, on the written demand of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of such demand . . . . The appraisers shall then appraise the loss, stating separately the actual cash value or replacement cost of each item, and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two of these three, when filed with the company shall determine the amount of loss.”

If you read this language carefully, it is clear that only disputes about the amount of the loss are subject to appraisal. But sometimes that is not the dispute. Sometimes the dispute involves whether the policy actually provides coverage for the claimed loss, or some part of the claimed loss. Disputes about coverage are not appropriately resolved by the appraisal clause.

If you have suffered a loss and have a dispute with your insurance company, it is very important to understand the difference between disputes over the amount of loss versus disputes about coverage. And, sometimes, it is difficult to tell the difference. If your insurance company demands appraisal, or if you are considering doing so, you should always consult with a knowledgeable insurance coverage attorney before making the demand or responding to one. If the appraisal clause is invoked when it shouldn’t be, it can cause unnecessary delay and can even jeopardize your right to recover under your policy.

Preservation of Evidence in Vehicle Collisions with Bikers or Pedestrians

Jim Buddenbaum and lawyers at Parr Richey are currently investigating and prosecuting claims against a speeding driver using his mobile phone who struck a Monon Trail user. It is critical to sequester and preserve evidence early in the aftermath of such incidents, including mobile phone and automobile “black box” data, in order to make a claim.

Indiana law requires the preservation of evidence when the need for that evidence can be reasonably anticipated. Failure to preserve such evidence is called “spoliation.” Spoliation of evidence is “`the intentional destruction, mutilation, alteration, or concealment of evidence.'” Cahoon v. Cummings, 734 N.E.2d 535, 545 (Ind.2000) (quoting Black’s Law Dictionary 1409 (7th ed.1999)). If spoliation by a party to a lawsuit is proved, rules of evidence permit the jury to infer that the missing evidence was unfavorable to that party. Id.

Seventh Circuit affirms dismissal of coverage suit based on clearly excluded statutory claims

In a recent decision, the United States Court of Appeals for the Seventh Circuit affirmed the dismissal of a coverage suit after the insurer filed a motion for judgment on the pleadings. In the case of Mesa Laboratories, Inc. v. Federal Insurance Co., (Appeal No. 20-1983), the insured argued that even though the applicable policy clearly excluded coverage for the defense of claims arising under the Telephone Consumer Protection Act (“TCPA”), 37 U.S.C. 227(b)(1)(C), the common law claims asserted in the underlying action should not be excluded and Federal should have been required to provide defense and indemnity.

The Seventh Circuit affirmed judgment on the pleadings in favor of Federal. The policy’s “Information Laws Exclusion” provided that the policy “does not apply to any damages, loss, cost or expense arising out of any actual or alleged or threatened violation of “ TCPA “or any similar regulatory or statutory law in any other jurisdiction.” The court held that this exclusion barred all of the claims because the common-law claims arose out of the same conduct underlying the statutory claims.

A full copy of the opinion is available here. For questions regarding the exclusions in your business policy, contact the policyholder attorneys at Parr Richey.

The Importance of “Insurable Interest”

The time to be certain that your insurance policy has been issued correctly so that it actually insures what you intend it to insure is before you have a loss and make a claim.  An insurance policy is a contract, and as with all contracts, it is important to make sure the key provisions are written in a way that reflects the actual intentions of the parties.

A recent decision by the Indiana Court of Appeals demonstrates, in stark detail, what can happen if an insurance customer is not careful about how the policy is issued.  In the case of Nuell, Inc v. Property-Owners Insurance, the Court of Appeals affirmed the decision of the trial court which had found that the insurance policy did not cover damage to the building caused by a car that had driven into it.  Cars colliding with buildings is precisely the sort of thing a business owner wants to have insurance coverage for, so the question is why didn’t the Property-Owners policy provide coverage to Nuell?  The ultimate answer to this question was based on simple contract interpretation, and the fact that the insurance policy was issued to a company that did not in fact have an “insurable interest” in the building.

The Court of Appeals described the basic facts this way:

In 2015, Nuell, Inc. (“Nuell”) purportedly entered into a lease agreement as a tenant on a commercial property. Nuell obtained an insurance policy from Property-Owners Insurance Company (“Property-Owners”), and coverage under the policy required that Nuell have a financial interest in the property. Shortly thereafter, Timothy Marsillett drove his car through a concrete barrier wall and partially into the building on the property. Nuell filed a claim with Property-Owners. Property-Owners ultimately denied the claim on the ground that Nuell did not have a financial interest in the property as required by the policy. Specifically, Property-Owners concluded that Nuell lacked a financial interest in the property because Nuell had neither a legal or equitable interest nor a valid lease with the trust that owned the property.

Nuell, Inc v. Property-Owners Insurance, Feb. 16, 2021

The trial court and the Court of Appeals both agreed with Property-Owners that the company that bought insurance for the property — Nuell — “had neither a legal or equitable interest nor a valid lease with the trust that owned the property.”  Why not?  Because although the property was owned by a trust, there was no lease agreement signed between the trust and Nuell.  Instead, the lease was signed by a husband and wife as (allegedly) “owners” of the property and by Nuell as the tenant.  The lease required the tenant to buy insurance, and the tenant complied with this provision, but that fact was not enough for the court to find that Nuell had an insurable interest.  And, since the policy was issued only to Nuell and (apparently) did not include the trust as an additional insured, there was no coverage.

The result seems harsh in this case, particularly because Nuell was a closely-held corporation.  The owner of Nuell was also the trustee of the trust that owned the property, and there can be no doubt the intention was to insure the property against damage just like what occurred.  But since Nuell did not technically own the property and because the lease was held to be invalid, Nuell had no legal or equitable interest in the property and, thus, no insurable interest.To avoid bad outcomes like this, it is very important to work closely with your insurance agent to make sure the policy is written properly and to make sure the named insured on the policy is the correct named insured.  For help in situations like this, reach out to the insurance coverage litigation attorneys at Parr Richey.

Coverage for Riot and Civil Commotion

The recent riots in Minneapolis, Atlanta, Detroit, Indianapolis and elsewhere have caused some business owners and homeowners to be concerned about insurance coverage for losses caused by violent acts of destruction of property.  The short answer is that many standard insurance forms do include coverage for such losses, but determining exactly what is covered is a matter of reviewing each individual policy in light of the circumstances of the actual loss and damage.

If your home or business (or auto) is damaged by a riot or “civil commotion”, there is usually coverage for such losses subject to important limitations contained in standard policy forms.  In one standard business coverage form, for example, “riot and civil commotion” are included within the definition of “Specified Causes of Loss”, and coverage for things like building damage and business interruption are available accordingly.

The same policy does not define what constitutes a “riot”.  Courts have reached differing conclusions on what constitutes a “riot” or “civil commotion.”  A riot is defined by Black’s Law Dictionary (9^th ed. 2009) as:

An assemblage of three or more persons in a public place taking concerted action in a turbulent and disorderly manner for a common purpose (regardless of the lawfulness of that purpose).

An unlawful disturbance of the peace by an assemblage of usually three or more persons acting with a common purpose in a violent or tumultuous manner that threatens or terrorizes the public or an institution. 

The main thing to remember is that most business policies will provide coverage for building damages, business losses and extra expenses incurred as a result of a riot.  In the event of such losses, it is important to have your policy reviewed carefully by an insurance coverage professional.

Yes. Parr Richey is open for business. We are here for you.

Yes. Parr Richey IS open for business; and yes, we are taking on COVID-19 related cases.

The attorneys at Parr Richey want you to know we are ready to help you and your business recover from government-ordered shutdowns and the resulting significant interruption to your revenues and productivity.

The sooner you ask, the sooner we can help you get back on track.

Founded in 1899 in Lebanon, Indiana, by W. H. Parr, Sr. the lawyers at Parr Richey have served individuals, businesses and institutions for over 100 years – our strengths are your advantage.

Here are some of the ways we can help:

1. Insurance policies and contracts review to determine whether and to what extent COVID-19 related business losses may be covered or mitigated through insurance or other contractual claims.  We represent policyholders each and every day in claims of all types and sizes and have the ability to answer your questions effectively and efficiently.
2. Legislative relief determination and eligibility. The United States Congress has made an historic stimulus package available to qualifying businesses and individuals.  We can help you determine your eligibility and navigate the legal aspects of the process for getting help.
3. Employment law. Parr Richey attorneys have been helping businesses and individuals resolve employment and labor related issues for decades and we stand ready to answer your questions about how to handle workforce issues large or small.

Contact Mike Schultz at mschultz@parrlaw.com or 317- 501-2233

Contact Jim Buddenbaum at jbuddenbaum@parrlaw.com or 317-439-1181