Blogger: Lee M. Epstein
Beyond the personal toll extracted by Hurricanes Harvey and Irma, the property and business losses are projected to be among the greatest caused by a natural disaster. As the recovery efforts continue in earnest, the following Checklist is offered to assist those who have suffered a loss and are planning to submit an insurance claim for any property loss and business interruption suffered.
□ Restore service to any property protection systems that have been damaged, such as
sprinklers and alarms
□ If property protection cannot be restored, post a watch
□ Notify all insurance companies whose policies may be implicated
□ Consider whether notice should be given to excess insurance companies or to
insurance companies whose policies have expired
□ Prepare a preliminary report describing:
□ The type of loss
□ The date and time of the loss
□ The location of the loss
□ A contact person at the company
□ The property involved, including: buildings, equipment and stock
□ Determine if:
□ The property is protected from further damage
□ Any buildings require temporary enclosures
□ Any utility lines have been damaged and require repairs
□ Identify and separate damaged and undamaged property
□ Commence salvage operations
□ Determine whether:
□ Production can be restored at the damaged facilities
□ Damaged equipment can be repaired
□ Substitute facilities and equipment are available and necessary
□ Lost production can be made up through inventory, overtime, or other
□ Formulate a plan with the insurance company’s input for making repairs,
securing substitute facilities and equipment and undertaking other loss
□ Set up accounting procedures to track:
□ Property Damage
□ Create separate accounts for all loss-related expenses
□ Implement procedures for collecting and maintaining all loss-related
documentation in accordance with insurance policy terms, including
invoices, contracts and manpower hours
□ Inventory damaged and undamaged goods
□ Business Interruption
□ Determine the “period of interruption”
□ Determine the quantity of lost production as reflected in inventory
records, production records and sales records. Compute what the business
would have normally produced, had there been no loss, then see how many
units were actually produced. The difference is the gross lost production.
□ Deduct any sales or production that can be continued or made up through
the use of existing inventory, the utilization of other plants, the utilization
of overtime hours or other loss mitigation efforts. The difference is the
net lost production.
□ Multiply the net lost production by the marginal value of a single
□ Add back the extra costs associated with replenishing inventory and loss
□ Prepare and submit claim
□ Date, location and type of loss
□ Amount claimed
□ Break down the amount claimed
□ Property damage
□ Real property
□ Stock and supplies
□ Demolition and debris removal
□ Business Interruption
□ Interruption Period
□ Sales value of lost production
□ Expenses incurred to reduce the loss
□ Attach supporting documentation for each element of the property damage and
□ Press for written extensions of time to submit claim and to file suit if necessary
□ Seek prompt payment of claim by insurance company
□ If a dispute over a claim arises, determine
□ Whether appraisal is appropriate or beneficial
□ Whether litigation will expedite payment of claim
For more information, please contact Lee M. Epstein, Weisbrod Matteis & Copley PLLC
In a unanimous decision, the U.S. Supreme Court upheld a jury’s verdict that State Farm committed fraud in the adjustment of insurance claims arising out of Hurricane Katrina. A copy of the Court’s decision can be accessed at https://www.supremecourt.gov/opinions/16pdf/15-513_43j7.pdf. The case involving Weisbrod Matteis & Copley clients, Cori and Kerri Rigsby, represents an important victory for both whistleblowers and insurance policyholders.
The Rigsbys sued State Farm under the False Claims Act (“FCA”), which permits individuals to sue on behalf of the federal government. The Rigsbys were former claim adjusters employed by a contractor retained by State Farm to adjust insurance claims in the aftermath of Hurricane Katrina. They alleged, and eventually proved at trial in a bellweather case, that State Farm fraudulently represented to the government that Katrina-related damage to the exemplar home was caused by flood rather than wind. State Farm sold both federal government-backed flood insurance policies and general homeowners policies. By misclassifying wind damage as flood damage, State Farm was able to shift liability to the federal government and away from State Farm.
State Farm sought to dismiss the case on a procedural technicality by arguing that one of the Rigsbys’ former lawyers had prematurely leaked the lawsuit in violation of the FCA’s “seal” requirements. Pursuant to those “seal” requirements, lawsuits brought under the FCA must be filed under seal for a minimum of sixty days. State Farm argued that the seal was broken when the Rigsbys’ former lawyer disclosed the lawsuit to the news media and others.
In a unanimous decision, the Supreme Court rejected State Farm’s contention that the seal violation required dismissal of the Rigsbys’ lawsuit. The Court recognized that the seal requirement is intended to benefit the government because it prevents those suspected of fraud from being tipped off. As a result, the Court concluded that “it would make little sense to adopt a rigid interpretation of the seal provision that prejudices the government by depriving it of needed assistance from private parties.”
With the Supreme Court’s affirmance, State Farm must now satisfy the jury’s verdict of $758,000, which represents the damages for a single home, as well as an order to pay attorneys’ fees. The Rigsbys are now ready to move forward and prove the scope of State Farm’s fraud already proven fraud, which could involve thousands of homes and billions of dollars. Indeed, the State of Mississippi contends that State Farm also improperly shifted its Hurricane Katrina losses onto Mississippi’s Homeowner Assistance Program, which was set up to pay thousands of policyholders for losses that were not covered by insurance. Mississippi has retained Weisbrod Matteis & Copley to pursue these claims against State Farm and other insurers on the State’s behalf. Stay tuned as more on these developing cases will follow.
Homeowners in coastal and flood-prone areas may receive much needed financial relief after the Senate voted 67-32 last week to pass the Homeowner Flood Insurance Affordability Act. Due to large insurance payouts made after recent hurricanes Katrina, Isaac and Sandy, the National Flood Insurance Program, the government-run flood insurance program, has suffered serious fiscal problems and incurred upwards of $24 billion dollars in debt. The step taken by the Senate, if signed into law, would delay certain provisions of the Biggert-Waters Flood Insurance Reform Act of 2012, which resulted in elevated insurance rates for many properties that had been previously “grandfathered” and premium rate increases for recently purchased homes. Many homeowners who are required to purchase flood insurance as a condition of their mortgage fear that the required flood insurance will be unaffordable once insurance premiums increase ten-fold or more.
The Senate’s bill would delay the insurance premium increases for up to four years and preserve federal subsidies for older homes built before the newer risk maps were developed for the setting of premiums. In addition, the bill would modify sections of the Biggert-Waters Flood Insurance Reform Act by requiring the Federal Emergency Management Agency (FEMA) to conduct an affordability study and report within two years of the date of enactment, removing a $750,000 cap on the affordability study, requiring reimbursement to homeowners for successful map appeals, certifying the accuracy of flood-risk maps, submitting a homeowner affordability framework based on its findings, and designating a Flood Insurance Advocate to advocate for the fair treatment of policyholders and property owners, all of which will take several years. With the Senate’s approval, the bill will now be considered by the House of Representatives.
Questions? Contact Lee Epstein at Weisbrod Matteis & Copley PLLC.