May 2022 Property Insurance Law Updates

Issues to Watch

Causation—What is an insured’s burden when the claimed loss involves a mix of covered and non-covered causes? Overstreet v. Allstate Vehicle & Prop. Ins. Co., No. 21-10462, 2022 WL 1579278 (5th Cir. May 19, 2022). This case involves a claim to replace a leaky roof. The insured claimed that the roof leaks were caused by a hailstorm, but the insurer determined that the leaks were due to uncovered causes, including wear and tear along with damage from prior hailstorms. “Under Texas’s ‘concurrent causation doctrine,’ when insured property is damaged by a combination of covered and non-covered causes, the insured must prove how much of the damage is solely attributable to the covered cause.” Id. at *1. Because there are questions about when and how this doctrine applies, the Fifth Circuit re-certified[1] three questions to the Texas Supreme Court: (1) Does the concurrent cause doctrine apply when non-covered damage (such as wear and tear) does not directly cause the claimed loss; (2) If so, do plaintiffs have to allocate their losses between the covered peril and non-covered perils that plaintiffs contend did not cause the particular loss; and (3) If so, whether plaintiffs can meet that burden with evidence indicating that 100% of the loss is attributable to the covered peril. The Texas Supreme Court has accepted the certified questions, and its answers will likely have a major impact on the litigation of property claims in Texas.
Valuation—What is sufficient evidence to recover damages for personal household property destroyed in a fire? Dobbs v. Allstate Indem. Co., No. 21-13813, 2022 WL 1686910 (11th Cir. May 26, 2022). After a fire, the insured homeowner submitted an extensive list of damaged personal property with the cost of each item. The district court concluded that the evidence was “not sufficient to establish the fair market value of the property at the time of the loss,” because there was no evidence as to the condition as well as the age of some items. Id. at *3. Rejecting that standard as “too stringent,” the Eleventh Circuit held that the “purchase price or replacement cost and date of purchase are sufficient to prove actual case value for household items destroyed by fire.” Id. at *4. Although the case was decided under Georgia law, the opinion highlights broader issues about the sufficiency of proof required to establish the amount of a covered loss.
Appraisal—When is a demand for appraisal “ripe”? Certain Underwriters at Lloyd’s v. Lago Grande 5-D Condo. Ass’n, Inc., No. 3D21-636, 2022 WL 1397382 (Fla. Ct. App. May 4, 2022). This case arose from a hurricane claim.  After an investigation, the insurer determined that exterior damages were covered but the interior water damages were not. The insurer sent a letter explaining its coverage decision along with a check for the covered damages in June 2019. The insured did not respond to the letter. Instead, ten months later, it filed suit and then demanded an appraisal under a provision stating: “If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss.” Id. at *3.  Under Florida law, “appraisal is premature when one party has not provided a meaningful exchange of information sufficient to substantiate the existence of a genuine disagreement.” Id. In this case, the insured’s only response to the insurer’s coverage-determination letter was to file a lawsuit—“without having provided its own estimate of loss, expressing disagreement with the Insurer’s determinations, or demanding additional payment.” Id. “[B]ecause the parties never engaged in an exchange of information sufficient to establish a genuine disagreement over the amount of loss, the matter was not ripe for appraisal ….” Id. at *4. The case thus illustrates the importance of invoking appraisal at the right time—not too early (potential ripeness problem), but not too late (potential waiver problem).
Contractual Limitations—When is a contractual limitations period the price of a public adjuster’s “gamesmanship”? Legend’s Creek Homeowners Ass’n, Inc. v. Travelers Indem. Co. of Am., Nos. 20-3163, 21-1288, 21-2196, 2022 WL 1467456 (7th Cir. May 10, 2022). This case arose from a claim for hail and wind damage. The insured retained a public adjuster (the “PA”), and the parties agreed to certain repairs on one side of the building. After Travelers issued an initial payment, the PA said that the repairs were unacceptable. Travelers investigated and issued supplemental payments for further repairs, but again, the PA said the repairs were unacceptable. Less than three weeks before the contractual deadline to file suit, the PA insisted that Travelers replace all sides of the building. Travelers denied the request, the insured filed suit, and Travelers moved for summary judgment on the ground that the two-year contractual deadline to file suit had expired. The insured argued that the lengthy period of the claims investigation made it impossible to comply with its contractual duties to cooperate and still file suit within two years. Rejecting that argument, the Seventh Circuit held that, although the insured “may not have had a reason to litigate in that time period, that doesn’t render the policy requirements incomprehensible or its obligations impossible.” Id. at *2. The Court also rejected the insured’s argument that Traveler’s waived the contractual limitations period by not telling its insured about the express contractual provision. Id. (“none [of the cited cases] establish an unqualified duty to speak”). The real problem was the PA liked “the claims process [to] a ‘game of chess,’” and told the insured that, “[t]o ‘win this game,’ … they had to stay ‘several turns ahead of Travelers.’” Id. at *3. However, in trying to set up the winning move (complete replacement of all sides of the building), the PA “failed to foresee that Travelers might checkmate it by raising the contractual suit limitation.”  That defense, which precluded any further recovery, proved to be the high “price of gamesmanship.”
Prejudgment Interest—When does it begin accruing? Greater New York Mut. Ins. Co. v. Galena at Wildspring Condo. Ass’n, No. 2-21-0394, 2022 IL App 2d 210394 (May 23, 2022). Under Section 2 of the Illinois Interest Act, prejudgment interest is payable once an amount becomes “due” on an insurance policy. Id. at *3. This case concerns the point at which sums owed on a policy “became ‘due’ for purposes of the Interest Act.” Id. at *4. The insurer initially determined that the amount due was $730k, whereas the insured submitted a proof of loss for over $5M. An appraisal panel later determined that the amount due was $1.6M (ACV), (or $2.2M-$2.6M RCV). Given the disparity, the trial court concluded that the amount “due” was not readily ascertainable until the appraisal award, and, because the insurer timely paid the award, the insured was not entitled to any interest. The decision was affirmed. Although the case turns on a specific Illinois statute, it underscores the importance of evaluating the accrual date for interest, if any, that may be owed on a claim.
COVID Coverage Cases—Has the death knell sounded? There were numerous opinions in May 2022 rejecting claims for COVID coverage for lack of a “direct physical loss,” as required to trigger coverage, and/or the presence of virus exclusions. The 11th Circuit issued multiple opinions on the subject. There were also decisions by the 6th, 7th, and 8th Circuits, numerous federal district courts (including AZ, CA, CT, and IL), and several state courts (including the Supreme Courts of IA and MA). Although there are still a number of pending cases, as of May 2022, most decisions have rejected arguments for coverage of COVID-related business losses.

[1] The same questions had been certified in another case, which settled shortly after certification.