United Policyholders is the one organization that policyholders can count on to stand up and comment on what insurance companies are trying to push through departments of insurance. United Policyholders Sandy Watts and I will be presenting today about insurance gaps created in new language found in insurance policies. One policy form we will be talking about is the one State Farm is pushing for approval in the California Department of Insurance.

I attach a side-by-side comparison of the old form versus the new form for readers to study. Does anybody believe that a lay policyholder will understand all the significant changes in this new form?

The new policy form significantly limits coverage for water loss. The Insurance Information Institute lists water damage claims as the second most frequent cause of loss. The State Farm new form actually calls for limiting coverage and provides for sublimits in amounts between $5000 to $25,000 of damage. I am certain such sublimits violate requirements in all standard mortgage contracts which call for full replacement cost coverage. How State Farm can demand California and other state insurance regulators approve a form that violates standard mortgage contracts is probably because State Farm management is not being transparent about this mortgage issue with insurance regulators.

Look at this new appraisal clause:

Appraisal. If you and we fail to agree on the amount of loss, either party can demand that the amount of the loss be set by appraisal. Only you or we may demand appraisal. A demand for appraisal must be in writing. You must comply with SECTION I – CONDITIONS, Your Duties After Loss before making a demand for appraisal. At least 10 days before demanding appraisal, the party seeking appraisal must provide the other party with written, itemized documentation of a specific dispute as to the amount of the loss, identifying separately each item being disputed.

a. Each party will select a competent, disinterested appraiser and notify the other party of the appraiser’s identity within 20 days of receipt of the written demand for appraisal.

b. Where the request is accepted, the appraisers shall first select a competent and disinterested umpire. If the appraisers are unable to agree upon an umpire within 15 days:

(1) you or we may make a written application for a judge of a court of record in the same state and county (or city if the city is not within a county) where the residence premises is located to select an umpire;

and

(2) the party requesting the selection described in item b.(1) must provide the other party:

(a) written notice of the intent to file, identifying the specific location and identity of the court at least 10 days prior to submission of the written application; and

(b) a copy of the written application.

c. Appraisal proceedings are informal unless you and we mutually agree otherwise. For purposes of this section, “informal” means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence shall be applied, and no court reporter shall be used for the proceedings.

d. The appraisers will then attempt to set the amount of the loss of each item in dispute as specified by each party, and jointly submit to each party a written report of agreement signed by them. In all instances the written report of agreement will be itemized and state separately the actual cash value, replacement cost, and if applicable, the market value of each item in dispute.

The written report of agreement will set the amount of the loss of each item in dispute and will be binding upon you and us.

e. If the two appraisers fail to agree upon the amount of the loss within 30 days, unless the period of time is extended by mutual agreement, they will submit their differences to the umpire.

A written report of agreement signed by any two (appraisers or appraiser and umpire) will set the amount of the loss of each item in dispute and will be binding upon you and us. In all instances the written report of agreement will be itemized and state separately the actual cash value, replacement cost, and if applicable, the market value of each item in dispute.

f. To qualify as an appraiser or umpire for a loss to property described in COVERAGE A – DWELLING, a person must be one of the following and be licensed or certified as required by the applicable jurisdiction:

(1) an engineer or architect with experience
and training in building construction, repair, estimating, or investigation of the type of property damage in dispute;
(2) an adjuster, public adjuster, or attorney with experience and training in estimating the type of property damage in dispute; or
(3) a contractor with experience and training in the construction, repair, and estimating of the type of property damage in dispute.

g. A person may not serve as an appraiser or umpire if that person, any employee of that person, that person’s employer, or any employee of their employer:

(1) has performed services for either party with respect to the claim at issue in the appraisal; or
(2) has a financial interest in the outcome of the claim at issue in the appraisal.

h. Each party will be responsible for the compensation of their selected appraiser. Reasonable expenses of the appraisal and the reasonable compensation of the umpire will be paid equally by you and us.

i. You and we do not waive any rights by demanding or submitting to an appraisal, and retain all contractual rights to determine if coverage applies to each item in dispute.

j. Appraisal is only available to determine the amount of the loss of each item in dispute. The appraisers and the umpire have no authority to decide:

(1) any other questions of fact;
(2) questions of law;
(3) questions of coverage;
(4) other contractual issues; or
(5) to conduct appraisal on a class-wide basis.

k. A party may not demand appraisal after that party brings suit or action against the other party relating to the amount of loss.

l. In the event of a government-declared disaster, as defined in the Government Code, appraisal may be requested by either you or us but shall not be compelled.

This is significantly different than the old standard appraisal clause. Merlin Law Group attorney Ed Eshoo wrote about this topic in State Farm’s Appraisal Provision Violates the Standard Fire Policy.

The bottom line is that many insurance companies are in a race to the bottom by selling and advertising their products based on price. They can only do this by re-writing their products with less coverage and without fully disclosing how poor their new policy forms are in fully covering customers on a replacement cost basis. This is a huge public policy issue facing insurance regulators who oversee an industry whose mandated purpose in law is to serve the public trust.

Thought For The Day

Anyone who believes in the essential role government can play in improving people’s lives must also be the toughest critics of those who abuse the public trust.
—Eric Schneiderman