The San Francisco Chronicle reports the filing of the first lawsuit arising out of the tragic Ghost Ship fire earlier this month. Details here: Families of 2 Oakland warehouse fire victims file 1st lawsuits.
The San Francisco Chronicle reports the filing of the first lawsuit arising out of the tragic Ghost Ship fire earlier this month. Details here: Families of 2 Oakland warehouse fire victims file 1st lawsuits.
In the aftermath of a catastrophic explosion or fire, it is not surprising when victims or their family members do not think about the need to preserve evidence. But in those cases where there is litigation to determine who or what may bear fault for causing the incident the efforts, or lack of efforts, to preserve and protect the evidence taken in the immediate aftermath of the fire or explosion will prove to be critical to the parties.
Preserving the evidence is in everyone’s interest because the ultimate goal of any litigation is to determine the truth of what happened. If it can be shown that the evidence was in the control of one party or another and the party in control failed to take appropriate steps to preserve the evidence so that other interested parties could examine it, the party in control may be accused of “spoliation” of evidence. In that case, the court may ultimately instruct the jury that had the evidence been preserved and made available it would have been adverse to the party who could have preserved it — the so-called “adverse inference instruction”.
An enormous amount of information can be gleaned from what may appear to be unlikely sources. Care must be taken to preserve even some materials that may seem to be inconsequential. For example, lithium ion batteries such as those used in phones, tablets and laptops have a very high energy density. Although the electronic circuitry in chargers are supposed to prevent overcharging, those circuits can fail allowing the batteries to overheat and catch fire. Yet, some fire investigators, focused on more obvious causes, can miss this evidence, which gets scooped up with all the other fire debris after the initial scene investigations have been concluded.
It is important for the victims of fires and explosions to have their own experts and investigators review the scene and not rely solely on those sent to the scene by their insurance company. It is also important to act quickly, before the critical evidence is gone.
If you have questions regarding the need to preserve or protect evidence after a fire or explosion, contact an experienced attorney for help.
When the SIU Goes Too Far:
The Role of the Arson Investigation in Civil Fire Cases
Residential and commercial property insurance policies always exclude coverage for fire losses in the event the fire was deliberately set by the insured or at the insured’s direction. The language of the exclusion appears in various familiar forms: Regardless of the form, the importance of the exclusion cannot be overstated. If the insurance company has a reasonable, good faith basis to believe that the fire was intentionally set, it can deny the claim.
2. The Role of the Duty of Good Faith and Fair Dealing
Arson investigations do not occur in a vacuum, and it is not (or at least it should not be) the goal of an arson investigation to simply build a case against the insured. Rather, the goal should be to discover what really happened – fairly and objectively. An arson investigation is nothing more than a coverage investigation, and it is well-established that the duty of good faith and fair dealing governs an insurer’s behavior during a coverage investigation.
An insurer has a duty to deal with its insureds in good faith, and a cause of action exists for the breach of that duty. Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 519 (Ind. 1993); County Line Towing, Inc. v. Cincinnati Ins. Co., 714 N.E.2d 285, 291 (Ind. Ct. App. 1999), trans. denied. This duty to deal in good faith with insureds “. . . includes an obligation to refrain from causing an unfounded delay in making payment; making an unfounded refusal to pay policy proceeds; exercising an unfair advantage to pressure an insured into settlement of his claim; and deceiving the insured.” Id. “. . . [A]n insurer which denies liability knowing that there is no rational, principled basis for doing so has breached its duty.” Becker v. American Family Ins. Group, 697 N.E.2d 106, 108 (Ind. Ct. App. 1998). In order to find that an insurance company committed bad faith in a particular case, a jury ultimately must find from the evidence that the company had “a state of mind reflecting dishonest purpose, moral obliquity, furtive design, or ill will.” Colley v. Indiana Farmers Mut. Ins. Group, 691 N.E.2d 1259, 1261 (Ind. Ct. App. 1998).
“Indiana has long recognized that there is a legal duty implied in an insurance contract that the insurer must deal in good faith with its insured. This duty is breached when an insurer fails to settle a claim that could not in good faith be disputed.” Liberty Mutual Insurance Co. v. Parkinson, 487 N.E.2d 162, 164 (Ind. Ct. App. 1985). The duty to act in good faith includes, but is not limited to, four types of obligations: “to refrain from (1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a settlement of his claim.” Erie, 622 N.E.2d at 519.
The ultimate claim decision is only one of the four (4) types of obligations described in Erie, and as the Indiana Supreme Court has made clear, a claim for bad faith may lie even if there is a good faith coverage dispute. In Monroe Guaranty Insurance Company v. Magwerks Corporation, 829 N.E.2d 968 (Ind. 2005), the Indiana Supreme Court held that an insurance company’s “conduct leading up to and including the issuance of the denial letter” may rise to the level of bad faith. Id. at 977. The Magwerks case stands for the proposition that even if there is a “good faith dispute over whether coverage did or not exist”, a claim for breach of the duty of good faith and fair dealing must still be submitted to the jury if there is evidence that the conduct of the insurance company leading up to the denial breached the duty. Id.
The public policy interest served by allowing bad faith claims against insurance companies to be heard is to discourage insurers from denying legitimate claims on the theory that they would only be liable for contract damages. Patel v. United Fire & Cas. Co., 80 F.Supp.2d 948, 959 (N.D. Ind. 2000). “. . . [T]he goal of Erie is to permit plaintiffs in bad faith actions to recover damages beyond those traceable to the contract, including punitive damages.” Id.
Given these authorities, it is clear that even if an insurance company has a legitimate basis for conducting an arson investigation as part of its coverage determination, it must always consider its duty to the insured while handling the investigation in the context of the pending claim. The investigation should not result in undue delay in making the claim decision; it should not involve any deception of the insured or unfair or oppressive conduct. And, importantly, an insurance company cannot insulate itself from bad faith liability by conducting an investigation in a manner that is calculated to construct a “pretextual basis” for denial of the claim. See, e.g., State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44; 1998 Tex. LEXIS 30, **6 (Tex. 1998). The goal must always be the truth and to find coverage for the insured if possible, not to manufacture a pretextual basis to deny – or delay payment of – the claim.
3. Arson Immunity Statute
The operative provisions of the Arson Immunity Statute provide:
(c) A person who acts without malice, fraudulent intent, or bad faith is not subject to civil liability for filing a report or furnishing, orally or in writing, other information concerning a suspected, anticipated, or completed fraudulent insurance act if the report or other information is provided to or received from any of the following:
(1) The department or an agent, an employee, or a designee of the department.
(2) Law enforcement officials or an agent or employee of a law enforcement official.
(3) The National Association of Insurance Commissioners.
(4) Any agency or bureau of federal or state government established to detect and prevent fraudulent insurance acts.
(5) Any other organization established to detect and prevent fraudulent insurance acts.
(6) An agent, an employee, or a designee of an entity referred to in subdivisions (3) through (5).
(d) This section does not abrogate or modify in any way any common law or statutory privilege or immunity.
I.C. § 27-1-3-22 (c) and (d) (Emphasis added). A corollary of this provision is that if the information is provided in bad faith or while the person is acting maliciously or with fraudulent intent then the immunity does not apply. It is here where the pitfalls are found.
4. Pitfalls and Pretext
Unfortunately, many fire investigations still result in a finding that the fire was “incendiary” based on what one renowned fire investigator, Gerald Hurst, Ph.D., has called “garbage fire forensics.” These findings include, but are certainly not limited to:
Any decision to deny a claim based on a report containing such bogus claims is likely to be challenged in court, and the reliance may be used to claim the insurance company acted in bad faith. The “science” behind these bogus findings has long-since been debunked, and the insured will argue that it is not reasonable for the insurance company to rely on any report containing such nonsense as an allegedly good faith basis to deny a claim.
Another common error occurs when the insurance company SIU investigator seizes the opportunity to have the state or local authorities investigate the insured with the hope that the authorities will make a determination that the fire was incendiary, thus giving his or her employer a basis to deny the claim.
It is common and expected for SIU investigators to work closely in tandem with the State Fire Marshal when investigating “suspicious” fires. But this situation is fraught with peril for the insurance company. The duty of good faith and fair dealing requires that the insurance company keep the insured’s interests in mind at all times, including during the arson investigation. Yet the overwhelming temptation during an arson investigation seems to be to provide enforcement officials with only those materials that tend to prove the insured’s guilt. If the insurance company’s investigator influences the authorities to change their conclusion or adopt the investigator’s conclusion as to the origin and cause of the fire, and if the insurance company’s investigator routinely works primarily for insurance companies, and if the investigator turns out to have missed important evidence or used inappropriate methodology, it is an easy argument for the insured to make that the investigation was merely an attempt to manufacture a claim defense. In a phrase, the SIU went too far.
For further information about the proper role of the arson investigation in the context of an insurance claim, contact Mike Schultz or Jim Buddenbaum at Parr Richey Obremskey Frandsen & Patterson LLP. www.parrlaw.com (317) 269-2500.
Varda v. Auto-Owners Insurance Company
Sullivan Superior Court
Facts: Mike Varda owned a modular home with a large attached garage in Terre Haute, Indiana, which was insured by Auto-Owners Insurance Company pursuant to a standard replacement cost homeowners policy providing dwelling limits of $150,000 and contents limits of $105,000. On May 30, 2009, while Mr. Varda was vacationing in Las Vegas, the house and all contents were destroyed by fire. After concluding there was insufficient evidence to pin the fire on the insured, Auto-Owners decided to accept the loss and “pay the claim” and so advised Mr. Varda, his public adjuster, and his attorney, in mid December 2009. However, rather than pay the full replacement cost value of the house Auto-Owners paid Mr. Varda an “advance” of $75,000. Auto-Owners also paid approximately half of the value of the destroyed personal property, even though the adjusters involved admitted they knew at the time that Mr. Varda was owed policy limits for this portion of the claim.
After receiving only partial payment, Mr. Varda’s public adjuster repeatedly requested a meeting with Auto-Owners’ adjusters for the purpose of attempting to reach a fair settlement of Mr. Varda’s claim. The adjusters admitted at trial that they refused to meet with Mr. Varda’s public adjuster. Further, although Auto-Owners had obtained its own estimate of the replacement cost value of the damage (which was substantially higher than the amount Auto-Owners paid its insured), it refused to provide that estimate to Mr. Varda’s public adjuster. Ultimately, an agreement was reached whereby Auto-Owners promised to pay Mr. Varda “at replacement cost” if he would provide a signed contract to rebuild his home. He did so. Auto-Owners still did not pay the claim and demanded appraisal pursuant to the policy’s appraisal clause.
Each party proceeded to appoint an appraiser and an umpire was agreed upon. The appraisal award, entered about a month after Mr. Varda filed suit for breach of contract and bad faith, was not favorable to Mr. Varda in that the panel set the ACV of his property at a figure lower than what Auto-Owners had already paid, and set the RCV of his structure at a figure even lower than the secret estimate Auto-Owners had obtained. Auto-Owners counterclaimed against Mr. Varda alleging that he had been overpaid.
Mr. Varda argued that Auto-Owners breached its contract and its duty of good faith and fair dealing by knowingly failing to pay what it owed on the personal property claim, by refusing to share its estimate with him, and by refusing to meet with his public adjuster to attempt to resolve the claim. He further argued that Auto-Owners waived its right to demand appraisal by refusing to meet.
Contract Damages: Mr. Varda claimed that he was owed $75,000 for breach of the contract due to Auto-Owners’ failure to pay the limits of the structure claim.
Bad Faith Damages: Mr. Varda asked the jury to award an appropriate figure to compensate him for the damages he suffered due to Auto-Owners’ refusal to deal with him in good faith.
Punitive Damages: Mr. Varda introduced evidence that Auto-Owners was a $12.8 billion dollar company at the time it was refusing meet with him or pay his claim, and that the state of mind of the adjusters involved (which was shown through some very damning emails obtained in discovery) justified an award of punitive damages.
The jury awarded $75,000 on the breach of contract claim, $200,000 for Auto-Owners’ bad faith, and $25,001 in punitive damages. (Varda’s counsel suggested a punitive damage figure of $1).
Plaintiff’s Attorneys: Michael Schultz & Peter Obremskey, Parr Richey Obremskey Frandsen & Patterson LLP, Indianapolis and Lebanon
The recent catastrophic warehouse fires in Indianapolis and Fort Wayne are a good occasion to consider what type of coverage is best on large, older industrial or commercial buildings that have useful purposes but may, in fact, be impossible or impractical to replace. It is also a good time to think about what amount your insurance company may owe you for business interruption or business income loss where it is not possible to return to business in the location where the original facility was located.
Many small to medium business owners have Business Owners Policies (“BOPs”) that are sold on a standard form. These policies typically include coverages for things like loss of electronic data processing equipment, business interruption and extra expense, and coverage for all major property and liability risks. They are often sold with additional optional coverages or endorsements which modify the standard terms of the policy. In the case of an older building that is more difficult to rebuild or replace, such policies may include extended business income coverage that could provide additional recovery for your business. A BOP with replacement cost coverage covering a building that is incapable of being replaced may present difficulty in calculating the amount owed under the policy.
Some owners of older properties choose to insure them pursuant to “actual cash value” policies. In that case, Indiana’s Broad Evidence Rule should be applied, and the fact-finder should consider “all available evidence logically tending to establish” actual cash value. See, e.g., Ohio Cas. ins. Co. v. Ramsey, 439 N.E.2d 1162, 1168 (Ind.Ct.App. 1982).
If your business has suffered a catastrophic loss, or even a minor one, or if you simply want to review your coverage, it is advisable to speak with an attorney knowledgeable about these types of policies and the issues that often arise following a loss or claim.
For answers to these and related questions, call Michael Schultz at (317) 501-2233, or Jim Buddenbaum at (317) 439-1181.
If you’ve had a devastating fire at your home or business, you are probably primarily concerned with cleaning up, rebuilding, and getting things back to normal as quickly as possible. If you had the good sense to purchase an appropriate policy of insurance for your home or business, you have bought and paid for peace of mind.
But sometimes after large losses your insurance company may not be so quick to come to your aid. Some insurance companies in our experience will refer your claim to what is often referred to as a “Special Investigation Unit” for no other reason than because you suffered a “large loss” – a big fire that destroyed most or even all of your property.
Traditionally, the “Special Investigation Unit” (often called the “SIU” for short) was a tool used by insurance companies to investigate suspected fraud or malfeasance on the part of an insured or someone connected with an insured. Insurance fraud does occur, and insurance companies are not required to pay fraudulent claims. However, the unfortunate practice of some companies of referring large losses to the SIU for no reason other than that they are large losses has caused a great deal of grief for many victims of devastating fires who are innocent of any wrongdoing. SIU investigators in our experience often fail to recognize that their investigations can cause substantial harm to insureds already suffering from a devastating loss by subjecting them invasive and demeaning investigative procedures and heightened scrutiny they do not deserve, and/or by causing needless delay in the payment of valid claims. Many SIU investigators are retired police officers or others with law enforcement backgrounds who are not adequately trained in the duty of good faith and fair dealing that insurance companies owe their policyholders. This lack of training tends to compound the problems faced by innocent victims of large fire losses because the SIU investigator does not take the needs and interests of the insureds into account.
When an insured learns that the SIU has been assigned his or her claim, it is important to obtain competent representation as soon as possible. The insured has the right to be treated fairly during the claims process, and an attorney experienced in handling policy disputes is, in our opinion, in the best position to prevent the involvement of the Special Investigation Unit from causing the insured greater harm.
Fires. Floods. Tornadoes.
Have you ever carefully read the insurance policy you paid for to protect your business or your home? Do you know the limits of coverage, the conditions of payment, or the exclusions that may apply?
National news coverage of the devastation in Oklahoma and Texas and local coverage of recent catastrophic fires and flooding reminds us that many times homeowners and business owners believe they have coverage when, in fact, their insurance company may have a different view. Now is the time to re-read your policy with your insurance agent or your attorney to make sure you have the coverage you need. In Indiana, the general rule is that an insured has a duty to learn the contents of his or her insurance policy himself, even though it may become necessary to have some third person read the contents to him. Penwell v. Western and Southern Life Insurance Co. (1985), Ind. App., 474 N.E.2d 1042, 1044 (quoting Ohio Casualty Insurance Co. v. Rynearson (7th Cir.1974), 507 F.2d 573, 581).
Now is a very good time to review your policy. For more information on this critically important subject, contact us.
According to local news reports, two victims are confirmed dead and several others have been transported to local hospitals following a devastating explosion near Stop 11 and Sherman in Indianapolis. WISH-TV reports that Citizens Gas is on the scene investigating whether this explosion in the Richmond Hill subdivision was caused by a natural gas leak. At the time of this posting, authorities are not allowing homeowners back into their homes, and the cause of the explosion is not yet known.
UPDATE, 11/11/12, 7:33 p.m.: Fox News is reporting that Rep. Andre Carson says that investigators have ruled out a meth lab or a bomb as possible causes of the blast. See the Fox News report here. The report further states that Deputy Code Enforcement Director Adam Collins has estimated the damage at $3.6 million.
The photos and video broadcast from the scene make it clear that the explosion was extremely powerful. Witnesses interviewed by WTHR described the blast as having been extremely loud and destructive.
For more information, see this story published by the Chicago Tribune online.
Details about this devastating explosion and the resulting fire are continuing to come out, and we will continue to monitor reports and post updates.
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If you or someone you know has suffered a personal injury or loss related to a suspected natural gas explosion or fire, please contact us to discuss your case. Call (317) 501-2233 or (317) 439-1181 24 hours a day, or send an email to email@example.com or firstname.lastname@example.org.
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