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JimF
USA
1014 Posts |
 Posted - 12/23/2002 : 19:34:49
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Here is another simple on the surface claim, but which gets sort of sticky once you get into it. It is an actual claim which was recently handled (and mishandled) by two separate carriers here in Greensboro, N.C. (More on the mishandling later). State Farm actually was one of the two carriers.
Joe and Jean Jones are having their large expensive home painted for the Christmas Holidays by All Seasons Painting for a contract amount of $7,000.00.
All Season's Painter, Speedy Drinker, accidentally turns over a large pail of paint which damages the wood floors and replacement estimates are in the amount of $10,000.00. (Don't worry or concern yourself with repair or other options, that is not at question). The floors are approximately 30 years old and deprecation is assumed at 30%.
Jones has an HO-3 with $300,000 Coverage A with a $500.00 deductible with State Farm Insurance.
Joe Jones calls All Seasons Paint Company and All Seasons tells Jones they will report the loss to their CGL (Commercial General Liabilty) policy carrier, Top Notch Commercial Insurance.
Able Alert, the adjuster for Top Notch, agrees their insured painter is responsible for the damages and Top Notch will pay $7,000.00 for the repairs.
Able also advises Mr. and Mrs. Jones to call and report the loss to State Farm under their HO-3 policy to recover the difference.
Able takes the requisite time to explain not only the CGL policy provisions but also the provisions and coverages under a standard HO-3, and clarifies any overlaps and/or gaps, thus helping the Jones family to understand their insurance coverages and rights in the instant situation.
When Joe Jones call his State Farm agent, the agent says: "I thought the paint company would be responsible for the entire loss." (This was the first mistake made by State Farm in the claims process. Can anyone tell us why?)
Joe Jones then calls the State Farm claims office where the adjuster makes the same comment as the SF agent, also suggesting there was no coverage under the State Farm HO-3 (Mistake # 2. Why?) When pressed, the adjuster agrees to discuss the loss with a manager and then call Jones back.
Later in the day, the adjuster calls back and tells Jones that State Farm is sending a check out in the amount of $2,500.00. (Mistake # 3. Why?)
Jones then calls the State Farm claims supervisor and reports that his claim is not being handled correctly, and the supervisor says he will see that a check in the amount of $3,000.00 is sent to Jones (Mistake # 4. Why?)
and that the $2,500.00 State Farm check will be recalled.
What's going on here?
What's the story on the deductible?
Why isn't the CGL carrier responsible for total (RCV) replacement?
Can anyone explain the 4 mistakes made by State Farm?
What should have happened?
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Edited by - JimF on 12/23/2002 20:03:30 |
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tomgriffin56
USA
88 Posts |
Posted - 12/24/2002 : 00:10:19
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In regards to the mistakes made by State Farm, it seems that #1 & #2 are wrong because they should initiate an investigation on any claim presented by a policy holder, and again with #3 & #4 they are settling a claim before there was a proper investigation of said claim.
I don't believe there is a covered peril (in the HO 3)here unless I'm just totally missing the boat. Let me know how far off base I am Guys! |
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CCarr
Canada
1200 Posts |
Posted - 12/24/2002 : 01:44:04
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I find it best with puzzles like this, to start at the beginning of a policy and work your way through it; picking out the pieces you need.
This is an accident within the definition of "Occurrence" as found in the HO3, which resulted in "Property Damage" as per the definition in the HO3, and that is where we get the trigger for "if that loss is a physical loss to the property"; that is needed when you consider the preamble for Section I - Perils Insured Against.
So, so far, the occurrence was the accidently spilled paint at the insured location, in the residence premises, on the dwelling floor; causing a physical loss to the property.
There are no applicable exclusions noted. This is a covered loss.
The SF agent erred in suggesting to the insured that the paint company is responsible for the entire loss, in part because it is not his role to suggest that, but more specifically because the paint company is only legally liable for their damages imposed by law, in contrast to the SF HO policy being liable for the physical damage driven by the principal of indemnity and measured by contract which stipulates replacement cost subject to the 'Loss Settlement' clause.
The SF adjuster erred in his suggestion to the agent that there was no coverage, because he did not approach the claim as noted in my first 4 paragraphs.
The SF adjuster erred in sending a check for $2500. It appears that he has done so without any documentation concerning the loss value, other than heresay discussion. Also, there is no mention of the SF adjuster giving any consideration to the conditions in which his attempt to 'make up' the replacement cost loss is based, i.e. the building adequately insured. However, the error is largely based on the SF payment having no relationship to the principal of indemnity from which a first party payment should be based.
The SF claims supervisor erred in his handling of the concern raised to him by the insured, and erred in sending a $3000 check. The supervisor did nothing with regards to the carriers obligation, the "Agreement" is, as noted at the beginning of the policy, "we will provide the insurance". To attempt to 'fill a hole or gap' does not result in 'providing the insurance'. The issuing of a $3000 check is now a worse attempt to 'make up' the replacement cost as noted above, and now compounds their shrugging of their responsibility by 'overpaying' the loss considering their unique method of approach; as there is no longer a deductible attributed to the SF attempt at indemnity.
What's going on? A bad situation, turned worse by SF not dealing initially with a first party claim.
The deductible has become a 'disappearing story', due to the SF mismanagement of the loss. The deductible exists and it should be deducted from the adjusted value of the whole first party loss, as determined by the carrier SF.
The CGL is only responsible for damages imposed by law, as opposed to a first party contract that has a replacement cost provision as part of its 'Loss Settlement' wording.
What should have happened? The first call the insured should have made, should have been to his agent to report the claim. The SF agent, and in turn the SF adjuster should have accepted the new claim, and the SF adjuster should have advised the insured not to communicate further with the painters or the painter's insurers, regarding the loss. The SF adjuster then should have investigated and adjusted the loss properly, considering all the applicable provisions, indemnified the insured less the deductible; and then subrogated against the painter.
Poor Jones (the insured), considering the policy "Agreement", paid a premium and did not get provided with "the insurance described".
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JimF
USA
1014 Posts |
Posted - 12/24/2002 : 06:40:09
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Clayton is correct that this would be and is a covered loss under the HO-3 policy; and for all the reasons he outlined in his logical well worded way.
The CGL carrier paid the replacement cost for this loss less depreciation because it was only responsible for actual (cash value) damages by the CGL policy language. As an aside, the same would also be true under the liability section of a BOP policy.
Clayton is also correct that the claims situation might well have been handled with less distress to the insured by reporting the claim to his HO carrier, State Farm first, but that is not what happened.
Had the loss been first reported to the HO carrier, subrogation would indeed have been in order.
Since that was not the case, the money received from the CGL carrier became a partial 'recovery'.
How did and would a partial 'recovery' affect a loss settlement between the homeowner and the insured?
Ironically, the insured would in fact (in theory) receive more money in his pocket legally by his reporting the loss to the CGL carrier first; although no one has yet explained or explored why (see paragraph above).
In the instant situation, once the State Farm adjuster realized that the loss was covered under the HO policy, supporting documentation of the replacement costs for the damages (as well as the CGL settlement) were provided to State Farm.
There is an interesting 'quirk' in the net effect of deductible treatment in a situation such as this, and I await someone discovering and pointing that out to us.
Still, there are some questions which remain which have not been answered, and wait to hear those answers from you.
Clayton mentions the CGL responsibilty for liability imposed by law.
What are the 4 elements of a 'tort' and were they met in this situation, thus triggering CGL coverage?
Forget that the HO-3 checks may have been sent out or agreed to prematurely by State Farm, and concentrate on pointing out why both check amounts were incorrect under this scenario.
Stay with me on this one. I promise you may learn something new (and amazingly legal) about the net effect of a 'real' deductible application. (Hint: How and under what circumstance might a deductible and SIR differ in net 'cost' to the insured?)
Can State Farm still subrogate against the CGL carrier despite the CGL having made a partial payment for damages?
One last question: If the insured signed away or waived any rights to subrogation in accepting the CGL settlement, could the HO carrier, State Farm, subrogate against it's own insured for such waiver? |
Edited by - JimF on 12/24/2002 07:40:44 |
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Newt
USA
657 Posts |
Posted - 12/26/2002 : 11:49:19
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This is difficult to answer for me, because I don't know what rights were waived upon acceptance of the partial payment. It seems the insurer would then become the agent of the insurer in any subrogation rights instead of being a first party.
The insured could have received full indemity, without any deductable and expenses.
Your work
Your product
Damage to property
Bodily Injury
YES, DAMAGE TO PROPERTY BY ACCIDENT CAUSED BY THE CGL INSURED.
The carrier, by not being privy to the claims process as the primary indemifier(?) would be limited in subrogating a claim (I think). The only thing they owe to the insured is to insure they are indemified, or make up the difference, if they can recover from CGL. If the carrier denied the claim before they chose CGL as the primary then it would be subject to litigation as unfair trade practices.
I would like to understand how this first action of the insured effected the subrogation rights of the carrier,IMHO , seems like they would be hampered since the insured accepted the payment as the first party. I would like to know if this would make void any third party claims.
This is becomming more interesting all the time, and with the brain of a chicken on legal matters, all I can do is marvel at the wisdom of CC( Canadian Club) and Cousin Jim.
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Newt
USA
657 Posts |
Posted - 12/26/2002 : 14:29:08
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| Post Script: Isn't the CGL supposed to cover the complete cost of damage, and the CGL insured supposed to pay his detuctable. I still don't understand the claim being filed on the HO after filing with the CGL. Is that even legal? Seems like I read something on filing double claims, I know there are cases of shared liability, however not without all parties participating from the onset or being in on the initial settlement. |
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JimF
USA
1014 Posts |
Posted - 12/26/2002 : 20:16:03
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Newt, as I stated when I first posted this coverage question, this is a simple, yet tricky claim below the surface.
While I am tempted to give up all the answers now, I still would like to see responses from some of the more seasoned property adjusters to see if they can provide clear insight and answers to what is not all that an unusual property claim to be assigned out by a carrier.
I will respond to your two posts by suggesting the following:
The homeowner's policy (HO-3) is actually PRIMARY insurance, and the obligation of the HO-3 is to INDEMNIFY an insured for replacement cost for damages from a covered peril (which this damage qualifies for).
The CGL (Commercial General Liability) policy (or any liability policy for that matter [generally speaking]) is responsibile for ACTUAL (read that to mean ACV) damages (as measured in cash, hence ACV). Rest assured that a BOP liability or any other liability policy basically cover damages on an ACV basis.
Recall too, that in the instant situation the HO-3 is responding on a First Party basis while the CGL or BOP would always respond only to 3rd Party Claims.
You are also correct Newt, that the CGL Insured would be responsible for any applicable deductible under the CGL policy for a claim made.
How would this claim be handled by the adjuster differently under the CGL "claims made form" as opposed to the CGL "occurrence form"?
What about the treatment of the deductible by the HO carrier?
What about subrogation rights by the HO carrier?
And what about "recovery"? How does 'recovery' become the secret ingredient in unraveling this whole claims process?
And how is it that an insured can actually put more money in their pocket in this specfic claims scenario by reporting and settling the claim with the CGL carrier before reporting it to his primary HO-3 carrier? (How many "REAL" adjusters here on CADO know the answer to this question?)
Those questions remain to be answered.
Where are all the "hot shot" property adjusters around here who are always bragging about their knowledge and skills?
I thought CADO was a website for experienced multi-line property adjusters and not just wannabees?
Newt, I appreciate the effort you are making, and heck, you just might show up a few of the old pros! At least you are trying to handle the claim, and for that, you deserve an "A" for effort!
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Edited by - JimF on 12/26/2002 22:02:00 |
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JimF
USA
1014 Posts |
Posted - 12/26/2002 : 20:46:57
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PS NEWT: 'Where' would one go to find out what the word 'recovery' means and what the implications of a 'recovery' in a claims scenario might be?
HINT! HINT! |
Edited by - JimF on 12/26/2002 20:48:49 |
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F. H.
USA
2 Posts |
Posted - 12/26/2002 : 21:08:02
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Greetings. I hope everyone had a Great Christmas. I'm really new to this, and I'm still debating if I really want to invest in becoming an adjuster. But reading this little problem with the Jones' and the paint company I have a few questions.
1. How is anyone going to replace a 30 year old hard wood floor, there aren't those kind of trees around. If the replacement is only valued at 70%; will they put in a 100% new wood and grind it down 30%?
2. If the homeowner did not cause this tragic accident, why should he worry about his $500 deductable. Myself I would expect the painting company to cover 100% of all damages, labor,or repairs to my property.
I live in Georgia, and the rule here is...You break it you fix it. If you don't fix it; you talk to my Attorney, not my Insurance Company. |
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CCarr
Canada
1200 Posts |
Posted - 12/26/2002 : 21:34:53
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F.H., welcome to the dark and at times intriguing but always interesting world of 'liability insurance'.
I don't care about your attorney, 'the claim' is as laid out in the first post, it is an every day quite common situation; aside from the way Jones and SF acted and reacted.
However, get used to the fact that an estimate of $10K to replace the damage (at replacement cost), considering a 30 year old building component, would have 30% or so depreciation factored to create an ACV of $7K.
It is a basic principal at law, that a negligent party owes for actual damages that are measured as the actual cash value of the damages.
Think about it, for the liability insurer of the paint company to 'replace' the damaged flooring, would create a betterment to the homeowner. The homeowner is paying a premium in his insurance costs so any indemnity they get from the insurer under contract is at replacement values.
You have to come to grips with these types of differences, or you will have great difficulty becoming an adjuster. |
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JimF
USA
1014 Posts |
Posted - 12/26/2002 : 21:38:12
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If 'our' insured runs into your 1991 Cadillac and 'totals' it, 'we' (the insurance company) are going to pay you for a 1991 Cadillac and not a 2003 Cadillac.
That is the basic difference between ACV and RCV. The insurance company will pay to replace your 1991 Cadillac with the value of another 1991 Cadillac.
The carrier only owes for the 2003 Cadillac when that is what was damaged.
Your attorney will understand that even if you don't. |
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JimF
USA
1014 Posts |
Posted - 12/26/2002 : 21:48:22
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PS: The insured does not have to 'worry' about his 'deductible' as long as he is content with an ACV settlement (as a 3rd Party Claimant) for a property loss.
It is only when the insured seeks the full indemnity benefits of RCV (replacement cost value) coverage from their primary carrier that they carry 'their portion' of the loss as a Self Insured Retention (SIR) which is what in effect, a deductible really is.
The insured determines in advance what level of self insurance (SIR or deductible) they are willing to accept in exchange for higher or lower premiums accordingly. The higher the deductible (insured's self retention) the lower the premium.
The first dollars of loss always flow to (or are absorbed by) the insured by way of their retention (deductible). |
Edited by - JimF on 12/26/2002 21:58:25 |
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CCarr
Canada
1200 Posts |
Posted - 12/26/2002 : 22:30:08
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Back to the original post, 'the claim' scenario presented. A lot more questions posed since then, but I looked at the 'numbers' question, ".... how is it that an insured can put more money in their pocket 'in this specific claims scenario' by reporting and settling with the CGL before reporting to the primary HO3?"
It has taken me down the road of another area or concept, that is not consistently applied among carriers faced with the same situation. The concept is the apportionment of recoveries.
Review the 'numbers' again;
SF loss (should have been if handled as primary) = $9500. (95% of RC)
Insured "loss" (should have been if receiving indemnity from primary) = $500. (5% of RC)
Damages assessed at replacement cost = $10,000
ACV damages and the amount of CGL payment = $7000.
Now, most primary carriers who would have paid $9500. RC and received $7000 ACV, and acknowledged that as a 'full recovery', even though it is an incomplete revovery, would reimburse the insured's deductible of $500 and net recover the balance of $6500.; all this given there is no contributory negligence on the part of the insured. I must admit, this was the way I was taught, and I still understand it to be common practice; I don't know if it is supported by any doctrine or guiding principal. I have heard this approach expressed as 'good customer service', and companies use it as a measure of their 'good claims practices'.
Alternatively, other primary companies simply pro rate the revovery of $7000. That is, the insured's loss was 5% of $10K; therefore he would receive $350. The carrier loss was 95% of $10K; therefore they would net $6650. As I suggested, some carriers use this apportionment method for all recoveries, and some for only 'complete recoveries'.
So, going to 'the claim', by the CGL first paying the insured $7K, then homeowner insurer paying $3K to the insured, the insured has received $10K; it could be said the insured is $500 ahead in his 'pocket' versus the 'primary carrier' settlement route.
Or, depending how SF would apportion the recovery of $7K (which should have resulted from subro of a first party paid claim), and I suggest it is more likely they would pro rate as per the 2nd example I gave; then the insured is ahead in his 'pocket' $150.
I seem to recall after getting this far with my thoughts, of having 'apportionment rules' at hand when I was with a carrier. Whether they were 'inhouse doctrine' or industry agreements; I can not recall. |
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JimF
USA
1014 Posts |
Posted - 12/27/2002 : 06:37:19
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It has taken me down the road of another area or concept, that is not consistently applied among carriers faced with the same situation. The concept is the apportionment of recoveries.
With that comment and his seasoned understanding, Clayton has unravelled and unveiled to us the technique necessary for the proper handling of this claim and provided the 'platform' for proper claims payment.
Clayton has done what a State Farm agent, a State Farm adjuster, a State Farm manager and a State Farm supervisor here in North Carolina could not do in a very real world claim: properly understand and apply correct insurance principles to provide an insured with expected and exemplary service.
The whole key to the mishandling of this claim, was the repeated naivete if not downright ignorance of some basic claims tenets by adjusting personnel who SHOULD know better.
I'll post later to share what the CGL adjuster in this scenario suggested to the insured he should receive in net benefits from the application of both the CGL and HO policies. In the example I provided, State Farm first underpaid the Insured due to ignorance and then overpaid the same claim out of first ignorance, and then frustration (although under one of Clayton's apportionment scenarios, finally paid by refunding the deductible as part of a recovery).
Clayton in using two examples of apportionment of a recovery, suggests that there may well be two different correct answers, depending on the carrier policy of apportionment, as well as whether the recovery is full or partial.
Before I complete this thread and share what I think the answer should have been, I would like to pose a couple of additional questions for your response first:
(1) Did the insured in this example by accepting payment from the CGL carrier, waive any rights to subrogation by the homeowners carrier State Farm?
Now, assume this same damage scenario by the painting company.
Assume the insured has Contents (Coverage C) 'Open Perils' coverage.
Assume personal contents subject to policy sub-limits (furs, guns, jewelry, etc.) were damaged in excess of the HO policy coverage sub-limits.
(2) What would be the net effect to the Insured of a claims settlement between the CGL and HO carrier, where NXS damages were to those personal sub-limited items?
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Edited by - JimF on 12/27/2002 06:47:14 |
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Newt
USA
657 Posts |
Posted - 12/27/2002 : 10:46:43
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Sections I&II Conditions HO 00 03 10 00 ISO
Par F. Subrogation
THE CARRIER MAY REQUIRE AN ASSIGNMENT OF RIGHTS OF RECOVERY TO THE EXTENT THAT PAYMENT IS MADE BY US.
IF ASSIGNMENT IS SOUGHT BY THE CARRIER, AN INSURED MUST SIGN AND DELIVER ALL RELATED PAPERS AND COOPERATE WITH US.
If the insured had used ACTUAL DAMAGES REMEDY , many states have a multiplier of as much as 3 times the first 3000 dollars of actual damages. This includes cost of repair, diminished value, mental anguish, the loss of bargain, interest or finance charge and consequential economic loss.
I don't think the rights of recovery prevents the insured from collection of the balance of his claim through a suit if called for. This is a possible way for the insured to put more money in his pocket.
The insurer through the rights of recovery, bill the CGL for the ACV, the deductable and expences. this ammount is passed to the insured, which would be the acv. That which was allowed by the policy without a deductable. The HO Ins collects the deductable from the CGL.
The rights of recovery through subrogation prevents violations of the principles of indemity.
The ACV settlement by the insurer would not include replacement cost, the insured would not be fully indemified, therefore the CGL would be liable for the balance.
I think the HO insuser could go the CGL and expect recovery of their payment to the insured. I can't find anything to base this on because all parties made errors in their approach to the claim.
Another unknown for me is, is there a Mortgagee?
Generally, an insurer cannot be subrogated to a claim against its own insured, it would make the benifits of the insurance worthless.
The right to recovery by the insurrer in most cases is a Judicial right, in some states it is a statute, this makes the whole subject of subrogation clearer to me. In other words the insurer have the right to stand in the insured shoes in order to subrogate a claim, by judicial authority or by statute.
Jim I appreciate your holding off on answering the questions, it makes it better if we got more on the table, if every one gets in here I learn more. I also learn from other views and mistakes.
It takes years to collect a good library, I'm still in "Dick and Jane " stage so don't give up on me.
JH, hang in there, I am just learning also and this is where the rubber meets the road. I don't consider myself an adjuster yet. In the past five months on this forum I have got more education than I would have in many schools in the same time span. There is always an answer here, may not be what you want to hear but you can take it to the bank.
The subject here is some of that nice to know stuff that goes on behind the scenes. Actually my take on this is as an adjuster, work the claim, it is covered under the HO3, give it to the shirts. If they have other things for you to do, I am sure you will know about it. My speculating or trying to solve the problem on who owes what extends no further than the policy.
Its kinda like driving an auto, its nice to know what goes on under the hood.
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Ron McGuire
7 Posts |
Posted - 12/27/2002 : 16:33:05
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Well stated, Mr. Carr.I think the pro-rata return of the PH's deductible, or $350. in this case, is the more proper method.The same principle applies to Salvage recovery. On a commercial policy,with a large deductible or co-insurance penalty, the pro-rata distribution of recovered monies can be substantial.
Newt, the Insured paid an additional premium for RCC, and the "contract" does not include other parties. All that is owed on third party claims is the ACV.
On personal lines claims, I don't think many companies handle the recovered monies properly. |
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Floor Covering Coverage Question
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