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.

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.

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

Seventh Circuit Finds Coverage “Illusory” in Commercial E&O Policy

In an opinion handed down on September 23, 2019, the United States Court of Appeals for the Seventh Circuit has held that an exclusion for professional malpractice that applied to claims or suits “based upon or arising out of” a breach of contract was so extremely broad as to render the coverage illusory, requiring a remand to the district court to determine the reasonable expectations of the insured.

The carrier involved, Crum & Forster Specialty Insurance company, had agreed to pay “those sums that the insured becomes legally obligated to pay as damages or cleanup costs because of a wrongful act to which the insurance applies.”  In the policy, “Wrongful act” was defined to include a failure to render professional services, and “professional services” was defined as “those functions performed for others by you or by others on your behalf that are related to your practice as a consultant, engineer, [or] architect … .”

The Seventh Circuit observed that “such a provision is a common one, and essentially provides coverage for professional malpractice.”

Photo by PhotoMIX Ltd. on Pexels.com

But under the circumstances of the case, which was governed by Wisconsin law dealing with the interpretation of insurance contract language, the exclusion was deemed to be so broad as to completely eliminate the insured’s reasonable expectation of coverage.

The opinion may have far-reaching implications for other E&O policies that contain exclusions that include the “based upon or arising out of” language involved in this case.

A complete copy of the opinion is available here.

Questions about the coverage afforded in your E&O policy?  Contact the policyholder attorneys at Parr Richey

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Parr Richey Attorney Mike Schultz to present at upcoming seminar, “Insurance Coverage Litigation: Secrets Insurance Companies Don’t Want Attorneys to Know”

On July 13, 2018, Parr Richey attorney Mike Schultz will speak on “Strategies Used to Delay/Deny Claims” and “Bad Faith and Breach of Contract Litigation” at an NBI continuing legal education seminar in Indianapolis.  Mr. Schultz is part of a distinguished panel of attorneys who regularly engage in insurance coverage litigation.  The seminar, which is presented by the National Business Institute, will be held at the Capital Conference Center, 201 N. Illinois Street, Indianapolis, IN 46204.

Complete seminar details, including the full agenda and list of speakers, can be found at this link.

Do You Have Flood Coverage?

Hurricanes Harvey and Irma have brought catastrophic flooding to parts of Florida and Texas, and the storm surge has affected other areas such as Charleston, South Carolina where high tides hit almost 10 feet on September 11^th, about 3 feet above flood stage.  Flooding is everywhere in the news.

Some water losses are not excluded in typical homeowners policies

What happens when you have a flood – particularly in areas not typically prone to flooding?  Do you have coverage under your homeowner’s insurance policy?

Probably not.  The typical homeowner’s policy excludes damage caused by what we typically consider to be a “flood”.  This includes water pushed over the land by waves or tides.  But flood insurance is available through the National Flood Insurance Program (“NFIP”).  There is a wealth of information available here. Unfortunately, not many affected homeowners are enrolled in NFIP.

Does this mean that if you suffer a water-related loss that you are automatically out of luck?  Not necessarily.  There may be many situations where damage that is covered by your policy occurs at or around the same time as the flood damage occurs, and it is necessary to carefully analyze the language in your policy to determine whether and under what circumstances there may be coverage for your water-related loss.  And, if the policy is unclear, that can benefit you as the policyholder.  For example, in Indiana, the law clear that ambiguities in insurance contracts are resolved in favor of the insured. See Erie Ins. Exch. v. Sams, 20 N.E.3d 182, 187 (Ind. Ct. App. 2014) (citing Meridian Mut. Ins. Co. v. Auto-Owners Ins. Co., 698 N.E.2d 770, 773 (Ind. 1998)). This is particularly true with unclear provisions that limit or exclude coverage. Id. Where provisions limiting coverage are not clearly and plainly expressed, the policy will be construed most favorably to the insured. Id. This strict construal against the insurer is driven by the fact that the insurer drafts the policy and foists its terms upon the customer. Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 947 (Ind. 1996), reh’g denied. (quoting American Economy Ins. Co. v. Liggett, 426 N.E.2d 136, 142 (Ind. Ct. App. 1981)).

The bottom line is this:  If you have suffered a water-related loss, it may be important to seek a legal interpretation of your policy before communicating with the insurance company.

Tornado Damage Insurance Claims: The Twist May Be in the Policy Language

Indiana has just been clobbered – again – by fierce, widespread tornadoes. The website of the National Weather Service has excellent data you can review to track the history of the storms and the damage they caused in your area. For example, visit: http://www.weather.gov/ind/august242016severeWhen the time comes to finalize your claim with your commercial or homeowners insurance carrier for the damage caused to your property by these strong storms, there are some common pitfalls to be aware of about what is or may be covered.

For example, depending on the scope or extent of the damage to your property, there may be additional dollars over and above the limits of your property coverage available to pay for the cost of debris removal. Policies provide this coverage in different ways and it is important to read and understand how your policy works when you are negotiating with your insurer. Here is one example of how a property policy may provide debris removal coverage:

Language like this appears simple enough on first reading, but look again.  Let’s say you incurred expense removing debris following a storm, and assume the cost of removing the debris was actually more than the damage caused to your structure.  This policy appears to limit the available dollars for debris removal to 25% of the “amount we pay for the direct physical loss of or damage to Covered Property.”  The capital letters means “Covered Property” is defined somewhere else in the policy.  Defined as what?  The building?  The building and outbuildings?  It is important to know.  Also, when this policy provides 25% of the amount of direct loss or damage “plus” the “deductible in this policy applicable to that loss or damage” does that mean 25% of the deductible or 100% of the deductible?  Again — this is important to know when you are settling with your insurance company.

What if all you have is trees down, but (thankfully) they missed your house?  Homeowners policies often provide limited coverage for damage to trees and shrubs. The straight-line winds that accompanied recent storms brought down many, many trees – both living and dead – and the cleanup cost can be staggering. Yet, your homeowner’s policy from that “good neighbor” company that is “on your side” may only provide you with very limited policy proceeds for the cleanup of trees, and then only under very limited circumstances.

Here is some typical language from a standard homeowner’s policy:

We will also pay your reasonable expense, up to $1000, for the removal from the “residence premises” of:

1)  Your tree(s) felled by the peril of Windstorm or Hail or Weight of Ice, Snow or Sleet; or 


2)  A neighbor’s tree(s) felled by a Peril Insured Against under Coverage C; 
provided the tree(s):

3) Damage(s) a covered structure;

4) Does not damage a covered structure, but:  a) Block(s) a driveway on the “residence premises” which prevents a “motor vehicle”, that is registered for use on public roads or property, from entering or leaving the “residence premises”; or  b) Block(s) a ramp or other fixture designed to assist a handicapped person to enter or leave the dwelling building.

The $1000 limit is the most we will pay in any one loss regardless of the number of fallen trees. No more than $500 of this limit will be paid for the removal of any one tree.

Say that again?!

If you need assistance untangling the language of your policy and working to resolve your claim with your insurance company, the policyholder attorneys of Parr Richey are always ready to help. Call Mike Schultz or Jim Buddenbaum toll free at 888-337-7766.

The Business Activity Exclusion

What happens if you operate a business – say an auto repair shop – as a means of making a living, and then suffer a fire loss to personal property located in that business? Assume the fire occurs as a result of working on a car in your repair shop, but that at the time of the fire you were not actually engaged in business; rather, you were working on your own car, or perhaps helping a friend to work on her car as a favor. Would the business activities exclusion in your homeowner’s insurance policy preclude you from recovering for the loss of your personal property?

The rule in Indiana is that “an insured is engaged in a business pursuit only when he pursues a continued or regular activity for the purpose of earning a livelihood. American Family Mutual Ins. Co. v. Bentley, 352 N.E.2d 860, 865 (Ind. Ct. App. 1976) (emphasis added); see also Asbury v. Indiana Union Mut. Ins. Co., 441 N.E.2d 232, 239 (Ind. Ct. App. 1982) (same). Further, “[w]hether an activity is a ‘business’ or property is ‘business property’ under an insurance policy is almost always a factual question presented for determination by the trier of fact or jury.” Id., at 243. The question, then, should turn on what you were doing at the time, and not just on the fact that the loss occurred at your business.

In a 2012 decision the district court for the Northern District of Indiana rejected the argument that personal property that is the same as an insured’s business property automatically means a business exclusion applied to preclude coverage for the loss. In Bachman v. AMCO Insurance Company, 2012 WL 4322746 (N.D.Ind. Sept. 20, 2012), the insured sued AMCO for breach of contract after the insurance company applied a $10,000 limitation in its policy applicable to property located in the residence premises used mainly for “business” purposes. Following a theft, the insured, who sold sports cards out of his home, made a claim under his homeowner’s policy for some $150,000 worth of Fleer basketball cards. The cards had been purchased with money from his business, but the insured considered the particular cards stolen to be his “personal collection”. Id. at *1-2. The insured even admitted that he considered his personal collection to be “investments” that he planned to sell one day when he was “ready to retire.” Id., at *1.

The insurance company argued that the $10,000 business property limitation in its policy applied to the stolen basketball cards and, “[r]elying on excerpts from [the insured’s] examination under oath, . . . contend[ed] that the subject property was business property because it was stored in a manner indistinguishable from the business inventory and was acquired with resources from [the business] with the intention of eventually being sold through the company.” Id., at *5. The insurance company relied on Asbury v. Ind. Union Mut. Ins. Co. (and two other cases) to support its argument. Id.

The district court first noted that the cases relied on by the insurance company (including Asbury) “actually support the denial of summary judgment.” Id. The district court went on to reason as follows:

To the extent that AMCO argues that the Fleer basketball cards automatically fit within the business property limitation at issue simply because Mr. Bachman operated a sports memorabilia business out of his home on a consistent basis at the time of the burglary, the argument cannot result in the granting of summary judgment in AMCO’s favor. No one disputes that Spectator Sportscards, Inc. constituted a “business” and that Mr. Bachman regularly and continually sold sports memorabilia from his home office to third persons for the purpose of earning a livelihood. . . . However, the limitation in AMCO’s policy plainly depends on the use of the property at issue.

Id., at *7 (emphasis in original; internal citation omitted).

Issues like this can arise in many contexts.  The application of exclusions in policies is not necessarily simple or obvious, and sometimes the coverage is actually more broad than it seems.  If you have suffered a loss and are involved in a dispute with your insurance company about what is covered and what is excluded by your policy, whether it is a homeowners policy or a commercial policy, you should contact an attorney with experience reading and interpreting the coverages, conditions, limitations and exclusions. Sometimes the insurance company takes a position that looks correct at first glance, but they may not be looking at the whole picture.