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: track dataWhen 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:

Debris Removal Language

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.

2014 Indiana Homeowners Insurance Complaint Index

NAIC # Company Name Premium Number Index
1 33898 Aegis Security Insurance Company 728,542 1 DNC
2 19240 Allstate Indemnity Company 2,498,961 2 19.71
3 19232 Allstate Insurance Company 45,755,099 4 2.15
4 17230 Allstate Property And Casualty Insurance Company 58,431,436 5 2.11
5 19275 American Family Mutual Insurance Company 81,690,022 4 1.21
6 38652 American Modern Select Insurance Company 5,188,327 1 4.75
7 19992 American Select Insurance Company 6,245,114 1 3.94
8 10052 Chubb National Insurance Company 7,680,181 1 3.21
9 29734 Conifer Insurance Company 4,560,272 1 5.40
10 40649 Economy Premier Assurance Company 1,393,820 1 17.67
11 22292 Hanover Insurance Company 1,171 1 DNC
12 13927 Homesite Insurance Company of the Midwest 18,528,214 2 2.66
13 22624 Indiana Farmers Mutual Insurance Company 45,541,821 1 0.54
14 42404 Liberty Insurance Corporation 11,949,914 1 2.06
15 33600 LM Insurance Corporation 11,019,915 1 2.23
16 23043 Liberty Mutual Insurance Company None 1 DNC
17 21229 MemberSelect Insurance Company 10,050,059 1 2.45
18 23353 Meridian Security Insurance Company 13,528,349 1 1.82
19 14621 Motorists Mutual Insurance Company 6,307,467 1 3.90
20 23779 Nationwide Mutual Fire Insurance Company 18,676,418 1 1.32
21 32700 Owners Insurance Company 26,433,189 3 2.80
22 32905 Property-Owners Insurance Company 23,933,789 1 1.03
23 11000 Sentinel Insurance Company, Ltd. 1,625,531 1 15.15
24 25143 State Farm Fire and Casualty Company 484,909,595 27 1.37
25 25178 State Farm Mutual Automobile Insurance Company None 1 DNC
26 40118 Trustgard Insurance Company 11,905,377 2 4.14
27 15288 United Farm Family Mutual Insurance Company 137,742,927 4 0.72
28 44393 West American Insurance Company (35,270) 1 DNC
Subtotal Premium and Complaints 1,036,290,240 72
162 Companies with Zero Complaints 737,032,294  
Total Premium and Complaints 1,773,322,534 72
Report does not include 162 companies with zero complaints
DNC- did not calculate (premiums under $1 million)
None – No premium was reported during 2014.
Premium information from Property & Casualty Annual Statement Page 19, Line 4, Column 1

The information contained in this table is based on figures published by the Indiana Department of Insurance on its website.  “Number” in the table above refers to the number of complaints as published by the IDOI.

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.

The Importance of Preserving Evidence after an Explosion or Fire

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.  Test Data

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.

Got Water?

Got water?

Is your basement now an indoor wading pool, your driveway flooded, your cars soaked and stalled? Are you watching your property – and you – fall complacent victim to the ravages of this record-setting rainy summer season? More than in many years before, you are not alone in these tragic circumstances – neither property damage, nor in the subsequent uphill fight to regain what is rightfully yours as insured property owner and tax-paying citizen….

The heavy and constant rains we in the Midwest are experiencing have wreaked havoc on city streets, public spaces and properties throughout Indiana – and with more in the forecast, there appears to be no end in sight.  It is confirmed: July 2015 set rainfall records, supported by statistics that have been maintained since the mid-1800’s.

As you may have already and unfortunately learned, with all that rain and water comes damage.  Trees down.  Basements flooded.  Driveways and landscapes – your investments – washed away.  Power outages that destroy refrigerator and freezer contents.  The toll taken might be a cumulative destruction over weeks; it might have happened by flash flooding, in the space of a few hours.

To repair some of this damage — particularly the structural damage done to homes — many property owners will turn to their insurers for help.  Those insurers, in turn, will often make arrangements to involve contractors.  The contractors will likely ask you to sign a contract for the work to be performed.

If the work you are contracting for involves repairs to residential property, the contract you sign is governed by the Home Improvement Contracts Act (“HICA” or “the Act”).  Unfortunately, there are still many contractors, let alone homeowners, who are unaware of the existence and requirements of the Act.

It is important to keep in mind the remedial purpose of HICA and the fact that it provides homeowners with remedies not otherwise available at common law. The Act exists for the purpose of protecting consumers “by placing specific minimum requirements on the contents of home improvement contracts.” Homer v. J.M. Burman, 743 N.E. 2d 1144, 1148 (Ind. Ct. App. 2001). Contractors are held to a “strict standard” in order to effectuate the purpose of the Act. Mullis v. Brennan, 716 N.E.2d 58, 65 (Ind. Ct. App. 1999). As the Indiana Court of Appeals has said:

[F]ew consumers are knowledgeable about the home improvement industry or of the techniques that must be employed to produce a sound structure. The consumer’s reliance on the contractor coupled with the well-known abuses found in the home improvement injury served as an impetus for the passage of the Act, and contractors are therefore held to a strict standard.

Benge v. Miller, 855 N.E.2d 716, 720 (Ind. Ct. App. 2006) (emphasis added), citing Mullis, 716 N.E.2d at 65.

The Act applies to residential property. I.C. § 24-5-11-1. A “home improvement” under the Act is defined as “any alteration, repair, or other modification of residential property.” I.C. § 24-5-11-3. Significantly, the Act defines a “home improvement supplier” as a person, including a corporation, “who engages in or solicits home improvement contracts whether or not the person deals directly with the consumer.” I.C. § 24-5-11-6 (emphasis added). Anyone who chooses to engage in this conduct (soliciting) is by definition a “home improvement supplier” and is required to comply with the various provisions and protections of the Act. It is important to remember that the definition of “home improvement supplier” in I.C. § 24-5-11-6 does not require that the home improvement supplier deal directly with the consumer; a person who solicits the home improvement contract is covered by the Act “whether or not the person deals directly with the consumer.” Id.

The Act sets forth certain minimum requirements for home improvement contracts.  A contract lacking these requirements violates the Act and gives rise to certain remedies.  These remedies are critically important when the contractor fails to perform as promised.  The basic requirements are that each contract must contain:

(1) The name of the consumer and the address of the residential property that is the subject of the home improvement.

(2) The name and address of the home improvement supplier and each of the telephone numbers and names of any agent to whom consumer problems and inquiries can be directed.

(3) The date the home improvement contract was submitted to the consumer and any time limitation on the consumer’s acceptance of the home improvement contract.

(4) A reasonably detailed description of the proposed home improvements.

(5) If the description required by subdivision (4) does not include the specifications for the home improvement, a statement that the specifications will be provided to the consumer before commencing any work and that the home improvement contract is subject to the consumer’s separate written and dated approval of the specifications.

(6) The approximate starting and completion dates of the home improvements.

(7) A statement of any contingencies that would materially change the approximate completion date.

(8) The home improvement contract price.

(9) Signature lines for the home improvement supplier or the supplier’s agent and for each consumer who is to be a party to the home improvement contract with a legible printed or a typed version of that person’s name placed directly after or below the signature.

It is also important that the contract be written in a way that can be reasonably read and understood by the person or persons who sign it.

If you have questions about any home improvement contract with which you are presented you should seek legal advice.

Have You Been The Victim of a Flood Insurance Scam?

Flood insurance has been in the news again lately.  Just this past weekend CBS News’ “60 Minutes” aired a disturbing story, entitled The Storm After The Storm about homeowners having their flood damage claims denied on the basis of altered engineering reports.  The report raised serious questions about the conduct of Wright Flood (, U.S. Forensic ( and GEB HiRise Engineering, whose offices were actually raided shortly before the report by the New York Attorney General’s office.  If you believe you have been the victim of inappropriate claim handling practices or fraudulent conduct by any of these companies or any other insurance companies or their vendors, you should contact an attorney to discuss your case.

Notwithstanding the bad faith practices of some insurance companies, flood insurance is critically important for many homeowners.  The Indiana Department of Insurance published this consumer alert back in February 2009, but the information is still valuable today.  Perhaps one of the most important tips for consumers about flood insurance is the waiting period.  Most policies will not take effect until 30 days after you purchase the insurance.  Planning ahead is key.

2013 Homeowners Complaint Index

Here is the 2013 Homeowners Complaint Index published by the Indiana Department of Insurance.

NAIC # Company Premium No. of Complaints
1 19232 Allstate Insurance Company 49,211,663 6 1.76 (Complaint Index)
2 17230 Allstate Property And Casualty Insurance Company 63,755,595 2 0.45
3 10111 American Bankers Insurance Company of Florida 3,506,013 3 12.34
4 19941 American Commerce Insurance Company 3,110,081 1 4.64
5 23450 American Family Home Insurance Company 2,269,193 1 6.35
6 19275 American Family Mutual Insurance Company 75,501,268 8 1.53
7 43494 American Hallmark Insurance Company of Texas 460,836 1 DNC
8 38652 American Modern Select Insurance Company 4,539,677 1 3.18
9 18988 Auto-Owners Insurance Company 19,206,416 1 0.75
10 16713 Buckeye State Mutual Insurance Company 2,678,583 1 5.38
11 20230 Central Mutual Insurance Company 7,390,404 1 1.95
12 10921 CSAA Fire & Casualty Insurance Company 19,757,111 2 1.46
13 26271 Erie Insurance Exchange 59,073,698 4 0.98
14 21652 Farmers Insurance Exchange 21,983,950 4 2.62
15 11185 Foremost Insurance Company 10,394,742 1 1.39
16 14044 Goodville Mutual Casualty Company 1,037,642 1 13.90
17 13927 Homesite Insurance Company of the Midwest 16,391,117 3 2.64
18 29068 IDS Property Casualty Insurance Company 5,619,059 1 2.57
19 21679 Illinois Farmers Insurance Company 15,751,815 1 0.92
20 22624 Indiana Farmers Mutual Insurance Company 42,139,265 2 0.68
21 22659 Indiana Insurance Company 3,718,841 4 15.51
22 42404 Liberty Insurance Corporation 18,668,543 3 2.32
23 23035 Liberty Mutual Fire Insurance Company 19,117,960 2 1.51
24 34339 Metropolitan Group Property And Casualty Insurance Company 5,960,626 1 2.42
25 26298 Metropolitan Property And Casualty Insurance Company 16,107,103 1 0.90
26 21687 Mid-Century Insurance Company None 1 DNC
27 14621 Motorists Mutual Insurance Company 6,543,729 1 2.20
28 23779 Nationwide Mutual Fire Insurance Company 18,376,547 2 1.57
29 23787 Nationwide Mutual Insurance Company None 1 DNC
30 27740 North Pointe Insurance Company -564 1 DNC
31 32700 Owners Insurance Company 25,760,073 2 1.12
32 34690 Property And Casualty Insurance Company Of Hartford 9,344,419 2 3.09
33 32905 Property-Owners Insurance Company 23,979,960 1 0.60
34 92334 Rochester Farmers Mutual Insurance Company None 1 DNC
35 24740 Safeco Insurance Company Of America 11,741,202 2 2.46
36 41297 Scottsdale Insurance Company None 1 DNC
37 19259 Selective Insurance Company Of South Carolina 12,577,813 2 2.29
38 24988 Sentry Insurance A Mutual Company 2,912,786 1 4.95
39 23388 Shelter Mutual Insurance Company 12,214,763 3 3.54
40 19070 Standard Fire Insurance Company 9,475,629 1 1.52
41 25143 State Farm Fire and Casualty Company 465,414,630 23 0.71
42 28188 Travco Insurance Company 28,653,143 3 1.51
43 27998 Travelers Home And Marine Insurance Company 1,109,317 1 13.00
44 15288 United Farm Family Mutual Insurance Company 139,970,753 9 0.93
45 18600 USAA General Indemnity Company 5,190,564 1 2.78
46 44393 West American Insurance Company 3,560,948 1 4.05
47 92279 Widner Mutual Fire Insurance Association None 1 DNC
Subtotal Premium and Complaints 1,264,176,913 117
115 Companies with Zero Complaints 422,946,767
Total Premium and Complaints 1,687,123,680 117

For further explanation of this information, visit the Indiana Department of Insurance Website.

When the SIU Goes Too Far: The Role of the Arson Investigation in Civil Fire Cases

When the SIU Goes Too Far:

The Role of the Arson Investigation in Civil Fire Cases

 1.  Overview

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:

  • The investigator claims to be able to tell from the burn pattern on the floor that an accelerant was poured;
  • The investigator claims the fire burned too hot, or too smoky, or too quickly not to have been accelerated;
  • The investigator finds that all electrical causes were eliminated in a totally burned building;
  • The investigator states that the insured behaved unnaturally during or after the fire.

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.  (317) 269-2500.

Read Your Policy: Even if You Don’t, the Court Will Assume You Did — or Should Have

Insurance policy forms are about as much fun to read as the tax code or your credit card agreement.  Typically, these forms consist of various parts and pieces that refer back to one another and can only be made sense of using highlighters, sticky notes, and a diagram.  Nevertheless, they are critically important documents that set forth your rights and responsibilities as an insured.  The time to be familiar with what they say and how they work is before you suffer a catastrophic loss.  Waiting to read your policy after the loss is a mistake, and it can be a costly one.

The Indiana Supreme Court recently issued another opinion highlighting the importance of understanding your policy.  In Groce v. American Family Mutual Insurance Company and Michael A. Meek, decided on April 3, 2014 (read it here), the Court revisited the question of whether insured homeowners have an obligation to read and understand their homeowners insurance policy.  The answer is simple:  Yes.

Mr. and Mrs. Groce had been insured by American Family for 10 years before a fire destroyed their home.  They had asked their agent, Meek, to provide them with insurance that would be sufficient to completely replace their home in the event of a fire.  The evidence submitted to the trial court suggested that the agent had reviewed the Groces’ coverage with them in 2003 and that, when doing so, said, “I’m assuming you want replacement cost coverage. . . if anything ever happens – fire, tornado, wind it (sic: the Residence) will be replaced 100%?”, to which Mrs. Groce naturally replied, “Yes.”

The policy that was issued by American Family was a standard homeowners’ policy form that provided for “replacement cost coverage”.  The policy was renewed in the usual fashion from year to year and, at the time of the fire, provided for limits of coverage in the amount of $191,500 for damage to the structure.  The policy provided that American Family would pay “the full cost to repair or replace the damaged building, without deducting for depreciation, but not exceeding” repair costs and “the limit in this policy for the building. . . .”

Therein lied the problem.

The estimate to replace their home was $225,245.90; the limits of the policy were $191,500.00.  The Groces argued that when their agent asked if they wanted to obtain “100% replacement cost” coverage on their home, and they said “yes”, that the agent breached his duty to obtain the kind of coverage they wanted.  That may be true, but the Indiana Supreme Court held that the failure to obtain 100% replacement cost coverage could have been ascertained by the Groces way back in 2003 simply by reading their policy.  As the Court put it: “[w]ithout question, the Groces could have discovered that their dwelling loss replacement coverage did not exceed the applicable policy limits.”

The result?  The statute of limitations for their negligence claim against their agent (which is a 2-year statute in Indiana) started to run back in 2003 — 4 years before the fire.  Their claim was held to be time-barred.

While the Groce case dealt with homeowner’s insurance coverage, the same reasoning applies to business and commercial insurance policies.  The moral of the story is clear:  Read — and understand — your policy before you suffer a loss!

$300,001 Indiana Jury Verdict in Insurance Bad Faith Suit

Varda v. Auto-Owners Insurance Company

The aftermath of the devastating fire at the Varda residence

The aftermath of the devastating fire at the Varda residence

Sullivan Superior Court

November 2013

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).

Experts: None

Plaintiff’s Attorneys: Michael Schultz & Peter Obremskey, Parr Richey Obremskey Frandsen & Patterson LLP, Indianapolis and Lebanon