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Surviving the Loss of Your Home

I lost my home in the 1991 firestorm in Oakland, CA. With wildfires now destroying others’ homes in California, my heart goes out to the homeowners whose homes are damaged or destroyed by fire or other disasters, to the firefighters and to others who have risked and are risking their lives. I also feel for the communities that will experience the devastating aftermath.

While I am an attorney who specializes in handling insurance claims for policyholders, the loss of my home showed me the stresses and challenges of handling my claim with my insurer, as well as those facing many other Oakland firestorm survivors whom I assisted with their claims.

Those whose homes are damaged or destroyed will face many challenges in the coming days and months — temporary shelter, replacement of necessary items, disruption of their lives caused by having to relocate, and the repair and rebuilding of their lives and homes.  I would like to offer some professional as well as personal advice in the hope I can be of some assistance.

Likely, none of you have read your homeowners insurance policies previously.  I am embarrassed to say that I had not read mine prior to the Oakland firestorm, and I am, as they say, in the business.  Do not be surprised when you attempt to read your policies if you have difficulty understanding them, despite their claims of being written in “plain English” or “easy to read” format.  Even professionals do not agree on every policy interpretation, and no one is born with an innate understanding of insurance or how to pursue their personal insurance claim.

Your homeowners policies provide a few basic coverages for your home, other structures, additional living expenses, and personal property.  Initially, you will want to focus on obtaining an advance from your insurer to cover immediate necessities, including food and lodging.  Most insurers involved in a catastrophic loss will readily issue advances from your contents and additional living expense coverages, usually in the $5,000-$15,000 range.  In fact, many insurers will set up local catastrophic loss command centers to handle requests in your community.  The easiest way to communicate or locate your insurer is to contact your insurance agent or broker.

Additional living expense coverage covers your expenses when you are dislocated from your residence as a result of its being destroyed or rendered uninhabitable.  This coverage is usually limited by a dollar limit or a maximum time. Such coverage typically covers either your actual out-of-pocket expenses, such as increased meal costs, increased cost of commuting from a different location, cost of temporary residence, etc., or the reasonable rental value of your former residence.  Most insureds opt for the latter method of determining their additional expense coverage as it is simpler, less time consuming to document and usually yields a greater dollar recovery.

You will need to immediately replace certain essential items, such as toiletries and clothes.  Most insurers will give you an advance on your contents claim with no specific proof of loss other than proof that your home was damaged or destroyed.  As time progresses, you will be required to document your loss on an itemized basis.  Most of you will have replacement cost coverage, which means you will, upon proof of replacement, be entitled to the cost of replacing lost items up to the limits shown in your policy.  For items that you do not immediately replace, the insurer usually will pay you “actual cash” value for those items.

This means that the insurer will determine the replacement cost of the item and then depreciate it for use, age or obsolescence.  If you subsequently replace the item, you can then send the insurer a copy of the receipt and receive the difference between what you were paid by the insurer shortly after the loss and what you spent to replace it.

A frequently asked question is:  What is the replacement cost of an item that is no longer made?  You are entitled to replace such items, subject to your contents limits, with items of like kind and quality.

Eventually, you will be dealing with the cost of repairing or replacing your home.  The first item you will likely have to deal with is removal of debris.  Almost all policies provide coverage for debris removal as either a percentage of the limits for the house or in addition to the limits for replacement of your house.

Next, the insurer and you will be working on determining the cost of rebuilding your former home.  Many of you will have a form of replacement cost coverage that will give you the replacement cost of your home up to some percentage in excess of your stated policy limits.  Such an increase in coverage is typically 125% of stated limits.  Additionally, most of you will have coverage for other structures, such as detached garages, decks and fences, with an additional coverage limit, usually referred to as “other structures” coverage.  Many of you will also have coverage for code upgrades, although such coverages will also have limits.  You will likely have coverage for landscaping.  Even if you had native or natural landscaping, you are entitled to have it replaced subject to the terms of your policy.

An issue that many of us dealt with in the Oakland firestorm is that policies that provide replacement cost coverage usually require you to replace the structure before you are fully compensated, although you are provided some monies on an actual cash value basis in the interim. This posed a significant challenge for those who were less affluent, because they were financially incapable of fronting the monies necessary to complete their homes.  After some negotiations and with considerable help from the then Insurance Commissioner, now U.S. Congressman, John Garamendi, the insurers agreed to either finance reconstruction costs as building progressed or advanced funds.  Most insurers will reach similar agreements in response to the current situation.

Some of you may not wish to rebuild, but may wish to relocate.  There are many considerations that go into such a decision, and it can only be made by you in the best interests of you and your family.  At the time of the Oakland firestorm, most insurance policies required that you rebuild your homes at their current sites.  However, most insurers waived this requirement, and now most policies no longer have these requirements.  If you wish to relocate, let your insurer know as soon as possible.  Even if the policy requires building on your lot, most insurers will waive that requirement as you will be in temporary quarters for a shorter time, which decreases the amount they have to pay in additional living expenses.  Most insurers are ecstatic if the insured wishes to relocate, as it decreases the amount they ultimately have to pay.  If you choose such an option, the insurer still pays you the cost of rebuilding/replacing your former home.  You will also retain title to your lot and can sell it later.

I was asked by many homeowners in the Oakland firestorm and in subsequent disasters whether they need to hire an attorney.  This is my response:  1) most homeowners insurance claims are resolved over a period of time through negotiation and with assistance from claims adjusters and contractors; and 2) most insurers are helpful and sympathetic to their insureds and will make every effort to guide insureds through the process.  However, for most homeowners, their home and its contents are their largest and most important investments.  Consequently, it is advisable to consult with an attorney who specializes in handling insurance matters to make sure that you avail yourself of all benefits you are entitled to under your policy.  Additionally, if you feel at any time you are not being fairly treated by your insurer you should either consult with an insurance coverage attorney or seek assistance from your state's Department of Insurance.

When the Oakland firestorm destroyed my home, I had two daughters: Katy, then 6, and Noelle, who was just shy of her 3rd birthday.  My now-former husband and I were lawyers, and, heck, we were insurance coverage lawyers.  We knew we could handle our claim and the situation.  We relocated our family within a week into temporary housing and shortly thereafter went into contract to purchase a new home.  We had no idea what lay ahead.

Replacing even the bare necessities was a huge project.  We were shopping both days of every weekend and almost every evening.  I wanted to keep my oldest in her school and my youngest in her preschool, so I drove a long commute from our temporary housing every morning and evening.  When I wasn’t driving, I was working on the claim or shopping to replace basic necessities.  My youngest cried every night and begged to go home.  Even though we knew how to handle an insurance claim, it was physically and emotionally exhausting.

About a month after the fire, my older daughter came home with a flyer inviting all firestorm survivors to a special day at Marine World hosted by the Oakland, Berkeley and Piedmont fire departments.  I indicated that we probably wouldn’t be able to go because we needed to go shopping for “stuff” for our soon-to-be new home.  Within an hour, Katy had organized Noelle into a joint protest.  They let their father and me have it.  They told us we had become the “no fun” family.  They were tired of not doing anything.  They missed their friends, who now lived away from them, and they missed us.

They were right!  From that day forward, we made sure that we had family day every weekend.  We went to the event at Marine World and reconnected with other relocated friends.  Katy and Noelle got to play with their friends.  We learned to be nicer to each other.  We also learned that not everything had to get done on a certain schedule, and sometimes it was better if it didn’t get done at all.  We learned that we had gotten the most important things out of the fire: ourselves.  We also learned that only those things that had memories attached were truly important, for anything else could be replaced.  None of us has ever placed the same importance on possessions.  For a long time, I resisted replacing many items, as I simply did not want as many things, and frankly still don’t.  Most importantly, we learned the importance of family and community and that we could survive a major loss in our lives and be the better for it.

Mandatory Skilled Nursing Hours Claims: Are You Covered?

As coverage counsel for policyholders, we see a variety of cases, claims, and complaints. In recent years we have observed a growing trend in health care litigation. Specifically, claims alleging violations of California Health and Safety Code Section 1276.5, which requires skilled nursing facilities (SNFs) to provide at least 3.2 nursing hours per day for each facility resident (3.2 Requirement). In the past, the 3.2 Requirement was mainly enforced by the California Department of Public Health, not private individuals. However, skilled nursing facility residents have the right to bring a private cause of action alleging violations of the 3.2 Requirement (3.2 Claims). The Lavender, et al. v. Skilled Healthcare Group, Inc., et al. matter,1 which resulted in a 2010 jury verdict of more than $670 million for plaintiff skilled nursing facility residents asserting, among other things, 3.2 Claims, demonstrates how disastrous such claims can be for skilled nursing facilities that litigate such claims through trial.

This private right of action was recently addressed by the California Court of Appeal in Shuts, et al. v. Covenant Holdco LLC, et al., where the plaintiff skilled nursing facility residents asserted 3.2 Claims under Health and Safety Code Section 1430(b).2 The Court in Shuts held that Section 1430(b) permits current or former skilled nursing facility residents to bring a lawsuit against the facility for violating any of their rights under the “Skilled Nursing and Intermediate Care Facility Patient's Bill of Rights.”3 The Patient's Bill of Rights includes the entitlement to live at a skilled nursing facility that employs an “adequate number of qualified personnel.”4 Thus, Section 1276.5's requirement that facilities maintain staffing ratios compliant with the 3.2 Requirement may be enforced by residents through Section 1430(b). Additionally, Section 1430(b) allows plaintiffs to recover monetary damages, up to a maximum of $500 per violation, as well as attorneys' fees and costs. By law, these damages may be multiplied by a factor of three if such violations caused a senior citizen or disabled person to suffer.5

Very recently, the California Court of Appeal held in Nevarrez v. San Marino Skilled Nursing and Wellness Centre that Section 1430(b) permits a maximum recovery of $500 total in a civil action for violation of the Patient's Bill of Rights.6 The Court opined that $500 is the maximum recovery available “regardless of how many rights are violated or whether such rights are violated repeatedly.”7 The trial court's award of $7,000 (based on a $500 award for each of the 14 violations alleged) was therefore reversed.8 This is an important ruling for skilled nursing facilities, and may significantly curtail litigation based on alleged violations of the Patient's Bill of Rights given the potential for very limited monetary recovery.

The Nevarrez decision is not yet final and may be reversed. Indeed, the Court of Appeal granted a petition for rehearing on the issue of the maximum recovery allowable under Section 1430(b). As a result, the decision in Nevarrez is now vacated pending rehearing.9 Thus, given the potentially significant exposure facilities still face opposing 3.2 Claims, insurance coverage is critical. Such coverage turns on the policy language at issue. Generally speaking, there are two types of liability policies: those that require physical harm and those that do not. The policies that do not require physical harm are more likely to result in coverage for 3.2 Claims, as patient-plaintiffs tend to disclaim any intent to “'seek damages for personal injuries, wrongful death or other resident-specific harm that may have been caused by inadequate staff.'”10 Such disclaimers are likely included to facilitate class certification in putative class actions; if there is any indication that individual claims of injury or death could predominate the lawsuit, the facility-defendants could possibly defeat class certification.

Despite policy language indicating coverage, insurers attempt to avoid their coverage obligations by asserting various arguments, including that 3.2 Claims amount to uncovered fines and penalties (liability policies commonly contain provisions excluding coverage for “fines and penalties”). Such arguments are unpersuasive. For example, nowhere in the statute through which patient-plaintiffs assert 3.2 Claims — Section 1430(b) — are fines or penalties mentioned. To the contrary, Section 1430(b) is entitled “Actions for injunction or civil damages.”11 Additionally, in the Shuts matter, the California Court of Appeal explained that “Section 1430, subdivision (b) authorizes statutory damages, attorney fees, and injunctive relief.”12 Further, the California Supreme Court has drawn a distinction between penalties that may be assessed by the State Department of Health Services (now the Department of Public Health) for violations, and the damages that may be recovered by a private party under the Long-Term Care, Health, Safety, and Security Act of 1973 (which includes Section 1430).13 Thus, the relief available to private party plaintiffs under Section 1430(b) constitutes covered damages, not uncovered fines or penalties.

Notwithstanding the title of Section 1430(b) — “Actions for injunction or civil damages” — and the California Supreme Court's distinction between penalties and damages, the Court of Appeal in Nevarrez referred to the amount recoverable under Section 1430(b) as a “penalty.”14 Because the Nevarrez court's reference to Section 1430(b)'s imposition of supposed “penalties” (as opposed to damages) was not an issue pending before the Court, its characterization of the relief available under Section 1430(b) is non-binding dicta.

Further, it is well established in California that insurance coverage is interpreted broadly so as to afford the greatest possible protection to the insured.15 Courts will not read words into a statute to facilitate a declination of coverage.16 Additionally, an insurer bears the burden of bringing itself within a policy's exclusionary clauses and exclusions are narrowly construed against insurers.17 Policy exclusions are strictly construed and an insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear.18

Because Section 1430(b) is properly construed to provide for damages, not fines or penalties, and insurers must meet a high burden to avoid coverage based upon exclusionary policy language, a standard “fines or penalties” coverage limitation should not preclude coverage for 3.2 Claims.

Understanding insurance coverage issues can be key for skilled nursing facilities facing 3.2 Claims. Not only can insurance funds provide a defense against such claims, they may also assist in resolving those claims so as to avoid potentially devastating results at trial.

Authors
Miles Holden collaborated with Samantha Wolff in writing this article. Ms. Wolff is an attorney at Hanson Bridgett LLP. She represents both public and private sector clients in a variety of matters, including insurance coverage disputes and putative and certified class actions, through all phases of litigation in federal and state court.

1Lavender, et al. v. Skilled Healthcare Group, Inc., et al.; California Superior Court, Humboldt County; Case No. DR060264.

2Shuts, et al. v. Covenant Holdco LLC, et al. (2012) 208 Cal.App.4th 609.

3Health & Saf. Code, § 1430, subd. (b); Shuts, 208 Cal.App.4th at p. 614.

4Health & Saf. Code, § 1599.1, subd. (a); Cal. Code Regs., tit. 22, § 72527, subd. (a)(25).

5Civ. Code, § 3345.

6Nevarrez v. San Marino Skilled Nursing and Wellness Centre (June 5, 2013, B235372) __ Cal.App.4th __ [2013 Cal.App. LEXIS 444].)

7Nevarrez, supra, __ Cal.App.4th __ [2013 Cal.App. LEXIS 444, at p. *46].

8Id. at p. *47.

9Cal. Rules of Court, rule 8.268(d).

10See, e.g., Shuts, 208 Cal.App.4th at p. 615.

11Health & Saf. Code, § 1430 (emphasis added).

12Shuts, 208 Cal.App.4th at p. 614 (emphasis added).

13Kizer v. County of San Mateo (1991) 53 Cal.3d 139, 142-43.

14Nevarrez, supra, __ Cal.App.4th __ [2013 Cal.App. LEXIS 444, at pp. *45-47].

15See, e.g., MacKinnon v. Truck Ins. Exch. (2003) 31 Cal.4th 635, 648; see also State of Cal. v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1018 (where insurance policy terms are ambiguous, they must be interpreted to protect the objectively reasonable expectations of the insured).

16Code Civ. Proc., § 1858; see also Silicon Valley Taxpayers' Assoc., Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 444-45 (statutes are to be given their plain meaning and courts are not permitted to read into the meaning of a statute if the language is clear and unambiguous); People v. Guzman (2005) 35 Cal.4th 577, 587-88 (courts may not add provisions to a statute by inserting words).

17N. Am. Bldg. Maint., Inc. v. Fireman's Fund Ins. Co. (2006) 137 Cal.App.4th 627, 642; Charles E. Thomas Co. v. Transamerica Ins. Grp. (1998) 62 Cal.App.4th 379, 382.

18E.M.M.I. Inc. v. Zurich Am. Ins. Co. (2004) 32 Cal.4th 465, 471.

Nursing Home Insurance: Are Your Policy Limits Wasting Away?

Over the last 15 years, the nursing home industry has seen substantial changes in the liability insurance markets. At one time, insurers looked at the elderly population in nursing homes using traditional measures of damages like lost income and concluded that the industry was a risk worth insuring. The tidal wave of elder abuse litigation that drove sky-high verdicts changed the insurance landscape dramatically, resulting in a dearth of available coverage and forcing many nursing home entities to become self-insured. Insurance carriers are once again writing policies for the nursing home industry, but with significant changes in how limits of insurance work under some new Nursing Home Liability forms.

Nursing home policies typically combine a Professional Liability policy with a Commercial General Liability policy with limits set for an individual case or claim and an aggregate limit for the facility or company. The policies are written in a way to make sure a claim is covered under either the professional liability side or the commercial general liability side of the policy, but never both. For example, a policy might have a $3M aggregate and a $1M per claim limit. This means that no claimant can ever recover more than $1M on the policy, but the company's overall coverage does not exhaust until all $3M has been paid out. Traditionally, Commercial General Liability policies paid for an insured's defense outside of the per claim or aggregate limit. In other words, a $1M limit could only be exhausted by paying out that sum to a claimant. There was no limit on defense costs at all, which frequently put pressure on carriers to settle cases.

Many of the newer policies for nursing homes are now being written on a “wasting” form where defense costs erode the stated limits of the policy. This means that the insurance company has now capped its liability at $1M per claim, which includes both defense costs and any money paid to settle the case or satisfy a judgment. The effects of this change are profound. Nursing home entities and their defense counsel need to reconsider their limits and how they choose to defend claims. The prospect of an expensive defense no longer concerns insurers the way it used to. Now insureds have to worry about that instead.

If you are involved in risk management for a nursing home entity, you need to know whether or not your liability policy includes defense costs within the stated per claim limit. If it does, you have what insurance lawyers refer to as a “wasting” policy. The following examples demonstrate the way a wasting policy is different from traditional Commercial General Liability policies.

Example 1:
Suit Filed — General Negligence. Taking the case to trial results in Defense Costs of $500,000 and a Verdict for $1,000,000 Standard Commercial General Liability Policy with $1M per claim limit pays all defense costs incurred and the jury verdict. Insured would be responsible for paying any deductible or self-insured retention.

Example 2:
Suit Filed — Professional Negligence. Taking the case to trial results in Defense Costs of $500,000 and a $1M Verdict Commercial General Liability “Wasting” Policy with defense costs eroding limits. Insurance carrier pays $500,000 in defense costs and $500,000 towards the jury verdict. Nursing home is liable for remaining $500,000, as well as any deductible or self-insured retention.

As Example 2 demonstrates, if you have a wasting policy, a $1M per claim limit will be reduced by costs incurred to defend the case. Under a traditional Commercial General Liability policy, the insured could afford to take an aggressive stand in litigation and try to wear down plaintiff's counsel through use of extensive discovery, filing motions for summary judgment and even taking an appropriate case through trial. After all, the aggressive defense was being paid for by the insurance carrier, not the insured nursing home. Under a wasting policy, this litigation strategy can be disastrous. A nursing home could end up spending almost its entire limit defending a serious case, only to end up funding a large settlement or verdict out of its own pocket.

A wasting policy also has significant implications for defense counsel. Normally, insurer-appointed defense attorneys never want to get involved in questions regarding insurance coverage. They cannot afford to alienate the insurers that hire them as panel counsel, so they only want to focus on defending the underlying case. When defense costs are outside of limits, avoiding all things insurance is a safe course for appointed defense counsel. All of this changes, however, when you have a wasting policy because every dollar the lawyer spends on defense will not be available for settlement. It is imperative to know at the outset of a case if you have a wasting policy. If it is, liability needs to be assessed quickly and realistically in order to preserve as much of the limits as possible for settlement. Failure to do so may result in unfortunate consequences.

Nursing home insureds are also frequently defended under a reservation of rights from their insurer that may entitle them to hire independent counsel at the insurer's expense. Whether or not you are entitled to independent counsel based on a given reservation of rights is beyond the scope of this article, but risk managers for nursing homes need to know that insurers issuing wasting policies will take the position that the cost of independent counsel will also come out of the available limit. Therefore, requesting independent counsel who bills at a higher rate than counsel assigned by an insurer can have the unfortunate effect of depleting limits even faster.

Nursing home entities also need to consider the impact of wasting limits on the aggregate limit covering all claims in a given policy year. Where defense costs erode both individual claim and aggregate limits, a nursing home entity could successfully defend a number of cases and pay out no money whatsoever in liability, but still exhaust all available insurance coverage. For instance, a company with a $3M aggregate limit could successfully defend five cases to verdict at a cost of $600,000 per trial and have no remaining insurance whatsoever. While that example may seem unlikely, you have to look at your own company's claims experience to consider what type of limits are appropriate if you have liability coverage written on a wasting form.

Recommendations
Risk Managers should review all pending litigation and the policies that are covering those claims to determine whether or not defense costs are eroding limits. Talk with your broker about what types of liability coverage are currently available in the market. If you can purchase policies with defense costs outside of limits, that may be worth paying a higher premium. If your broker can only find insurers willing to write liability insurance on wasting forms, revisit your per claim and aggregate limits with your broker to determine if you are adequately covered.

If the thought of actually reading an insurance policy is too painful to contemplate, hire coverage counsel to do it for you. Of course, this assumes you have a copy of your policy. In many cases, brokers bind coverage and the policy is not issued for months. If you are about to purchase a new policy, make sure your broker confirms the type of policy form it will be issued on. Once the policy arrives, make sure it is what you were promised. Finally, if your liability insurance is written on a wasting form and you do get sued, have a frank discussion with your defense counsel at the outset of the case before significant defense costs are incurred. Get a budget and a liability assessment as soon as possible. If you don't, the financial consequences could be painful indeed.