Property insurance companies have a duty of good faith to promptly investigate the facts related to coverage and evaluate damages for a covered loss after notice of loss. If there is coverage and the loss exceeds the deductible, property insurance companies should immediately issue payment explaining how the amounts were determined. What if the policyholder believes more is owed?
Policyholders must prove that a covered loss occurred during the policy period and prove the amount of the claim. If the insurer makes reasonable demands for documentation and explanation of the damage and amounts owed, the policyholder must cooperate with the insurer. Most replacement costs only pay for the actual cash value unless the repair or replacement has been performed. Accordingly, policyholders may be required to provide replacement cost and actual cash values in their claims.
These basic property insurance adjustment concepts were not followed by a policyholder, resulting in a lost tornado damage case in Missouri.1 The Federal Court judge noted:
Plaintiff’s expert opinion addressed “potential” storm-related damages, and he conceded that plaintiff would not be entitled to some of the damages he included in his opinion. His report did not include storm-related damage to corporate personal property, business income or extra expenses, whereas the plaintiff alleges such damage in her claim.
The record shows that the defendant attempted to obtain documentation and support for the damages claimed by the plaintiff. These attempts were thwarted by the plaintiff’s failure to respond to correspondence and its repeated claims that the support for damages was already in the defendant’s possession. The problem with this contention, however, is that plaintiff’s documents were for estimates, were duplicative, and related to items that could not be separated with respect to storm damage or upgrades that plaintiff chose to perform.
Plaintiff’s documentation is a mixture of paid items and estimates received by Plaintiff. There is no indication in the documentation that the plaintiff accepted the tenders it received for any of the work described in the tenders. As such, the plaintiff is not entitled to damages for repair or replacement. Therefore, as the defendant correctly argues, the plaintiff is only entitled to the actual cash value (‘ACV’) of the property at the time of the loss. Plaintiff failed to provide any evidence in response from ACV for the alleged damage to the property.
The court also stated Missouri law regarding the duty to cooperate with a policyholder:
Cooperation clauses are valid and enforceable in Missouri. Hendrix vs. Jones580 S.W.2d 740, 742 (Mo. 1979). “Missouri courts have consistently recognized an insurer’s right to a full investigation of a claim, including examinations, and have found that the insured’s failure to assist in the investigation precludes all coverage.” Roles v. Am. Modern Home Ins. Co., 484 SW3d 110, 116 (Mo. Ct. App. 2015). To deny coverage, “an insurer must prove: (1) a material breach of the cooperation clause; (2) the occurrence of substantial prejudice as a result of the breach; and (3) the exercise of reasonable diligence to secure the insured’s cooperation.’ With. Protective Co. v. Bubenik594 F.3d 1047, 1051 (8th Cir. 2010).
Missouri courts have recognized an insurer’s right to a full investigation of a claim, including examinations, and that the insured’s failure to assist in the investigation precludes all coverage. Union Ins. Co. of Providence v. Williams, 261 F.Supp.2d 1150, 1152 (EDMo.2003) (holding cooperation clauses valid and enforceable under Missouri law). “Once the insurer has proven a material breach of a cooperation clause, the insurer may deny liability coverage under the policy”…
Failure to provide appropriate, clear and detailed information will result in damage to the insurer. It impedes the insurer’s ability to fully and effectively investigate the facts applicable to it [the insured’s] claim…, which extends [the insured’s]  investigation; [the insurer] repeatedly noted that the information [the insured] provided was insufficient to permit it to determine whether it owed the plaintiff additional damages. Northrop Grumman Guidance & Elecs. Co., Inc. v. Emps. ins. Co. of Wausau, 612 SW3d 1, 26 (Mo. Ct. App. 2020)
The judge ruled that the insurer found the following:
The record is replete with defendant’s attempts to secure the information needed to evaluate plaintiff’s new claims. After paying what it could substantiate as a result of the storm, the defendant carefully and meticulously requested clarifications, documentation and details of what was storm-related and what was not. The claimant ignored almost all requests. When it did react, it just told the responder that it had everything it needed. The record clearly shows that defendant did not. Varying amounts, double amounts claimed for the same claim, and a mix of covered and non-covered expenses.
Based on the foregoing, Defendant is entitled to judgment as a matter of law for Plaintiff’s failure to cooperate, as provided in the applicable policy, with Defendant to determine with reasonable certainty the additional damages Plaintiff seeks.
Missouri has a different method of determining actual cash value, which I noted in Missouri property insurance losses differ — an update to Missouri’s fair market value approach to fair cash value.
But I was curious what the policyholder’s lawyers argued to avoid this disaster. In reading their brief and argument, I noted that their brief cited only one case and did not address the legal issues of cooperation. Like the judge, I could not determine the amount the policyholder believed was owed by reading the letter.
Here are the lessons from this case:
- Try to provide the insurance company with requested information that makes it clear what is being requested.
- Enter any information requested by the insurance company if available.
- Make estimates and proof of damages that reflect what is owed and have experts who can explain it.
- Make sure that the damages are related to the injury and that the expert retained can state the value of the damage from the actual injury.
This may seem basic, but these questions are at the heart of most contested insurance cases. I often go through the following thoughts in my head and verbally ask those with cases about my consideration of the following:
- What caused the loss and when did it happen? What evidence is there for this?
- Does the insurance cover the loss? If so, what are the valuation provisions in the policy?
- What are the valuation amounts for these damages at replacement value and fair cash value? What is the evidence for that, and who is the expert to say?
- What has the insurance company paid and for what? How much more is owed, and who will testify to it? What documents does the expert rely on?
- Have we met all the conditions for filing a lawsuit and cooperated with the insurance company? What is the evidence for that?
- Has the insurance company breached fiduciary obligations during the adjustment? What is it specifically, and what is the proof? Did the behavior violate any laws or regulations? What are the damages from that behavior? Is bad faith behavior systemic?
Studying cases that others lose and learning from their loss is much cheaper than losing your own case. I’m sorry the policyholder lost, but there are some valuable lessons to be learned.
Everything good is difficult. All evil is easy. Dying, losing, cheating and mediocrity are easy. Stay away from easy.
1 Cardinal Building Materials, Inc. v. Amerisure Ins. Co.No. 4:20-cv-963 (ED Mo. Feb. 17, 2023).