Why do some insurance companies nickel and dime their customers who have sustained a covered property loss? I was thinking about that while reading the case highlighted in yesterday’s post, Appraiser Qualifications and Bad Faith Suits Against Policyholders in California—Chubb’s Attempt to Vacate Huge Glass Fire Appraisal Award Largely Fails. Chubb successfully argued that the investigative costs to determine the full extent of a loss were not covered. While this may be true of pure estimating costs, I completely disagree if the covered damage would require a step in the construction to inspect and determine whether additional damage had occurred.
We had this situation in a sinkhole case that went to trial. 1 The construction expert explained that those doing the work would be required to search for other structural and possible electrical damage as a result of possible hidden damages behind the walls of a house damaged by a sinkhole. The insurer’s attorneys argued that those construction costs were really investigative costs to determine the full extent of damage and were not covered.
This subtle argument would be costly to policyholders, who would then have to pay out for such costs from their pockets. I suggest that is a lack of good faith because the insurer is acting like the three monkeys who do not want to see, hear or talk about the full extent of damage that it may then have to pay.
The court noted the issue as follows:
Nationwide also argues that it was error for the trial court to deny its motion for directed verdict as to the Chilluras’ claim for damages to the interiors of the apartments. At trial, the Chilluras’ expert testified that since the foundations of the four buildings were displaced, the interior walls necessarily would have moved or would have been placed under stress by the restraint on the movement created by the roof and other portions of the structures. Accordingly, the expert testified that it was necessary to remove the drywall and insulation from at least one side of each interior wall to inspect the wiring, plumbing, and nails within the walls that may have been damaged or compromised. Nationwide maintains that this was an attempt by the Chilluras to prevent future damage and that since no proof of direct physical damage to these walls had been presented, the claim was for speculative damages not covered by Coverage A. According to Nationwide, any such claim would fall under separate coverage that required actual performance of the repairs before Nationwide would be liable.
The court then ruled that it was a jury question to determine whether these costs were properly construction-related to the sinkhole damage.
To be fair, if there were no covered damage, these investigative costs have been held to be not covered under the policy. So, this situation applies only to a covered claim and not to investigative costs where no covered damage was first proven under the policy.
Thought For An Afternoon
The reason people blame things on the previous generation is that there’s only one other choice.
—Doug Larson
1 Nationwide Mut. Ins. Co. v. Chillura, 952 So.2d 547 (Fla. 2d DCA 2007).
