Tag Archives: negligence

5 Misunderstandings on Home Insurance

Hiring an insurance broker should mean ease, speed and extra security. But not everything about putting a middle man in the process of buying insurance is great. Mistakes and mishaps are bound to happen at some point.

Misunderstandings between homeowners and insurance brokers aren’t uncommon. The insurance industry has become a lot more chaotic. More clients are finding it hard to trust agents and brokers, who do sometimes use unethical tactics to earn a living.

Let’s take a look at some of the most common misunderstandings.

1. Conflict of interest

Insurance brokers get remunerated through a fee or commission for their services. They can get paid by the insurer for bringing a large volume of business to the company. They can also get a commission from their clients by finding the best deal and insurance for them.

The risk of conflict arises when the insurance broker favors his personal gains over his duty to his client. This can result in the client agreeing to higher prices or extra coverage he doesn’t really need.

See also: A Wakeup Call for Benefits Brokers  

2. Nondisclosure and negligence

Before a client signs up for insurance, it is his responsibility to divulge all pertinent information, including his income, medical history, home values and details of his home security. Failure to disclose all this information can render him uninsured when he files a claim.

There are cases, however, where even forthright and honest men can forget pieces of information. Having an insurance broker handling all the processing can make it more likely to happen. And negligence by a broker can result in a costly misunderstanding.

3. Failure to understand exclusion

Clients mostly shop around for price and reputation without realizing the other important factors that can affect their coverage.

Insurers are slowly cutting back on coverage and increasing their deductibles in an attempt to increase profits. While insurance brokers can give their best when discussing the exclusion clauses buried in lengthy policies, they can still miss critical details, and one word or phrase can mean thousands of dollars when it’s time to make a claim.

A carport, for example, does not technically fall into the category of a building, which means that a client should not expect his insurance to cover a collapse.

4. Underinsurance

When doing an assessment, a typical insurance broker would need the help of real estate appraisers or an online program to know how much coverage a homeowner can get. If the broker is fairly new and untrained, he may even obtain figures by directly asking the homeowner how much exactly he is expecting to get.

This lack of knowledge can mean that homeowners are greatly underinsured. Yet they will have a false sense of assurance and only realize their problem in the wake of a disaster, such as a tornado or flash flood.

Another common misunderstanding between homeowners and insurance brokers involves replacement cost and market value. Most homeowners expect to receive a coverage that will equate to their home’s market value. Replacement cost, on the other hand, is generally higher than the amount a buyer is willing to pay for a house. It’s based on a lot of factors, including the materials used, cost of labor for the demolition and repair, etc. An agent or a broker needs to be very thorough in discussing these details so that he and his client can determine the right insurance and coverage.

See also: A ‘Perfect Storm’ of Opportunity (Part 3)  

5. Change of policies

It’s the insurer’s obligation to notify its clients about any changes in their insurance coverage. It’s also a part of the broker’s responsibilities to let his client know the terms of renewal, cancellation and expiration of the insurance he’s offering and to make sure the client understands.

But sometimes clients don’t get the message and are underinsured or even uninsured when they file a claim. In cases like this, a client can take legal action against the broker. He may also file a case against the insurer, if it changes the insurance without its client’s consent.

Interpleader Not a Defense To Negligence

When Stakeholder Causes Dispute It Can Still Be Sued For Negligence Not Related to Dispute
The Ninth Circuit Court of Appeal was asked to determine whether the federal interpleader remedy shields a negligent stakeholder from tort liability for its creation of a conflict over entitlement to the interpleaded funds? The Ninth Circuit resolved the issue in Robert S. Lee; Gina Stevens; Laura Stevens v. West Coast Life Insurance Company, No. 11-55026 (9th Cir. 07/31/2012).

Facts
On March 13, 1998, West Coast Life Insurance Company (“West Coast”) issued a life insurance policy with a death benefit of $800,000 to the late Steve Lee, Sr. Steve Sr. was the original owner of the policy. William Lee, Steve Sr.’s brother, was the original beneficiary. In the subsequent years, West Coast received numerous changes of ownership and beneficiary forms from members of the Lee family. At issue is a policy change form signed and executed in July 2005, purporting to change the ownership and beneficiaries of the policy to Robert Lee, Bobbie Bill Lee, and Steve Lee, Jr. Bobbie and Steve Jr. are Steve Sr.’s nephews. Robert is Steve Sr.’s grandson.

Robert, Bobbie, and Steve Jr. executed the aforementioned change forms in West Coast’s San Francisco office with the help of West Coast’s Director of Policy Administration, James Davis. Davis erroneously instructed Bobbie and Robert to sign as the existing owners of the policy, when in fact Steve Jr. was an existing owner and Robert was not. Davis also erroneously failed to ask Steve Jr. to sign a change of beneficiary form which would have transferred a 62.5% interest to Robert as a beneficiary.

The Lee family members made several additional, subsequent changes to the policy’s ownership and beneficiaries. The final change occurred in December of 2008 when Robert Lee and Gina Stevens became the sole beneficiaries. Steve Sr. died in January 2009. Robert and Gina then submitted claim forms to West Coast. In response, West Coast informed Robert and Gina that the July 2005 changes were improperly executed, and therefore that they had no interest in the policy. In March 2009, upon learning that he retained the interest in the policy that he held in 2005, Bobbie submitted a claim form to West Coast. In April of 2009, West Coast responded by contacting all parties involved regarding the disputed claims, urging them to reach a mutual agreement regarding payment of the insurance policy benefits, and informing them that it would file an interpleader action if no agreement could be reached. The parties were unable to reach an agreement.

In August of 2009, Steve Jr., Bobbie, and William Lee (collectively, “plaintiffs”) filed suit against West Coast in the Los Angeles Superior Court alleging claims for breach of contract and breach of the covenant of good faith and fair dealing under California law. West Coast removed the case to federal court invoking diversity jurisdiction, filed an answer and counterclaim in interpleader, deposited $800,000 plus accrued interest with the district court, and added Gina and Laura Stevens as counterdefendants. Robert, Gina, and Laura (collectively, “counterclaimants”) filed counterclaims for negligence and declaratory relief against West Coast, and cross-claims against the plaintiffs.

West Coast moved for partial summary judgment, which the district court granted in West Coast’s favor as to its interpleader claim and on the claims sounding in contract. The plaintiffs and counterclaimants then reached a settlement to distribute the interpleaded funds amongst themselves, and the district court entered an order approving the distribution. The district court concluded that counterclaimants’ negligence claim against West Coast was the only claim remaining to be tried. The court did not address the merits of counterclaimants’ negligence claim, reasoning that they had failed to allege any cognizable damages flowing from West Coast’s alleged negligent conduct.

The Purpose of Interpleader
Both Rule 22 and the interpleader statute allow a party to file a claim for interpleader if there is a possibility of exposure to double or multiple liability. The purpose of interpleader is for the stakeholder to protect itself against the problems posed by multiple claimants to a single fund. This includes protecting against the possibility of court-imposed liability to a second claimant where the stakeholder has already voluntarily paid a first claimant. But it also includes limiting litigation expenses, which is not dependent on the merits of adverse claims, only their existence.

The protection afforded by interpleader takes several forms. Most significantly, it prevents the stakeholder from being obliged to determine at his peril which claimant has the better claim. It is thought that the stakeholder should not be compelled to run the risk of guessing which claimants may recover from the fund.

The stake marks the outer limits of the stakeholder’s potential liability where the respective claimants’ entitlement to the stake is the sole contested issue; however, where the stakeholder may be independently liable to one or more claimants, interpleader does not shield the stakeholder from tort liability, nor from liability in excess of the stake. Congress, in the enactment of the interpleader statute, did not intend thus to wipe out the substantial claims of persons asserting rights against insurance companies. The purpose of the interpleader statute was to give the stakeholder protection, but in nowise to change the rights of the claimants by its operation. Congress had no intention to permit destruction of acquired rights under state law, if indeed it had power so to do.

Many courts have held that those who have acted in bad faith to create a controversy over the stake may not claim the protection of interpleader. Interpleader, which is an equitable remedy, is not available to one who has voluntarily accepted funds knowing they are subject to competing claims. It is the general rule that a party seeking interpleader must be free from blame in causing the controversy, and where he stands as a wrongdoer with respect to the subject matter of the suit or any of the claimants, he cannot have relief by interpleader.

Counterclaimants did not allege that West Coast acted in bad faith, nor do they contend that the interpleader remedy was, or should have been, unavailable. Rather, they allege that West Coast’s negligent actions in 2005 caused the instant controversy, and claim damages flowing from that negligence. The district court’s conclusion that counterclaimants were required to show that West Coast acted in bad faith in order to claim attorney’s fees as damages that flow from West Coast’s negligence is without support.

Nor does counterclaimants’ negligence claim arise from West Coast’s failure to resolve the controversy over entitlement to the insurance proceeds in their favor. But for Davis’ erroneous recording of the July 2005 change forms, counterclaimants allege that they would not have been forced to litigate their adverse claims against the plaintiffs. In other words, West Coast’s alleged negligence directly and proximately caused counterclaimants to forgo $290,000 to which they claim they were rightfully entitled, and caused them to incur attorney’s fees in litigating this action. Their damages flowed not from West Coast’s filing of an interpleader claim but from its alleged negligent conduct.

Conclusion
Interpleader is an important tool to insurers who have competing claims against a particular benefit where it would not be safe to pay the sums out to one only to be sued by the other. It protects the stakeholder – if filed in good faith – against the competing claims. It does not protect the insurer from independent claims of negligence.

In this case the insurer negligently dealt with the request of the parties to change the beneficiaries and owners of the life insurance policy. As a result of its negligence there was a dispute that was only resolved by litigating the interpleader. The plaintiffs — after resolving the interpleader — had the right to sue and prove damages against the insurer for its negligence.

If, on the other hand, the insurer had done nothing other than determine that there existed multiple claims from disparate parties to the benefits of the life insurance policy and could not safely determine which were entitled to the benefits, the interpleader would have resolved all disputes between those seeking benefits and the insurer.

Flo Won't Handle Your File: Claims in the Social Media Age

Viral phenomena on the Internet more frequently concern “Cats that Look like Hitler” or racy photos of Prince Harry cavorting in Las Vegas.

Insurance claims rarely go viral on social media, but that changed recently with a controversial underinsured motorist claim involving Progressive Insurance Company. You can find background on the case here.

The sad facts here are straightforward. Progressive Insurance Company policyholder Katie Fisher died in a 2010 automobile crash in Maryland. Allegedly, the other driver ran a red light, though there was a dispute as to who had the green light and the right-of-way. The driver that struck Katie’s vehicle was under-insured. The good news: Katie had bought underinsured motorist coverage (UIM).

The bad news: to collect, Katie’s family had to sue the other driver for negligence to force Progressive to pay. However, when the family sued the other driver, Progressive’s attorneys associated with the other driver’s attorneys to defend the liability claim. As a result, the deceased’s brother went viral in social media rounds, complaining that Progressive used premium dollars to defend his sister’s killer in court. That makes for an arresting headline.

This claim illustrates the importance of an insurance company being attuned to social media and having a social media policy. Of course, here Progressive did not stick its head in the sand. It did not ignore the social media buzz surrounding its handling of the case. Apparently, it responded but responded in a way perceived as tone-deaf.

Progressive In A Lose-Lose Situation?
Maybe Progressive Insurance Company was in a no-win situation. If it ignored the social media banter about its stance, consumers would accuse it of insensitivity. It entered the dialogue to justify its actions. In so doing, people accused it of being tone-deaf to consumer sensitivities. I don’t know what response Progressive could have launched on social media that would have satisfied its critics.

This vignette underscores how little people understand what they buy when purchasing underinsured motorist coverage. Buying underinsured motorist coverage essentially risks putting you at odds with your own insurance company. In such a claim, your own insurance company is incentivized to show that you in fact were at fault for the accident and/or that your injuries were not the result of the negligence of an underinsured driver. People assume that the insurance company to whom they paid their premiums will always be on their side. Typically, this is the case. Typically, this is the alignment of interests.

In underinsured motorist coverage and claims, however, “typical” doesn’t necessarily apply. Here, interests are aligned differently. Just because you pay your insurance company for the coverage doesn’t mean that — in a claim involving an underinsured adverse driver — your insurance company is going to act all soft and fuzzy.

Of course, insurance companies would not effectively market and sell underinsured motorist coverage if they made this reality explicit and spotlighted it in the sales process. People don’t think it through. Nobody really believes deep down they will be hurt due to the fault of an underinsured driver. If they pay for the coverage, perhaps they pay for it begrudgingly at best.

Policyholder Ignorance About Underinsured Motorist Coverage
So, those who say “Shame on Progressive” for its stance adverse to its own policyholder could add, “Shame on the policyholder” for not realizing the dynamics in underinsured motorist claims. Of course, it sounds callous to be lecturing a family on the dynamics of claims-handling when they have lost their daughter in a fatal car accident.

Further, there was a reasonable question of fact as to who had the right-of-way. Should Progressive and its adjusters have ignored evidence that the deceased may have been at fault in order to pay the claim? It’s difficult to fault Progressive’s adjusters here, as tempting as it may be to do so. There was a legitimate dispute as to who had the right-of-way and who ran the red light. Was Progressive wrong for exercising its legal right to seek a judicial determination of liability?

Personally, I don’t think so.

Nevertheless, insurance companies now face not just bad faith risks over how their claim department handles or mishandles an automobile loss. They also face reputational risks if disgruntled consumers take to Twitter, Facebook, blogs, Tumblr, etc. to air their gripes.

Internet Megaphones
The Internet and social media provides a bully pulpit and cyberspace megaphone for anyone who has a beef, whether that complaint is justified or specious. On the other hand, since everyone now has an electronic megaphone via the Internet, World Wide Web and social media, the cacophony of complaints can create a “white noise” effect that makes any one complaint difficult to stand out. This complaint did stand out, though, and got widespread media play.

While it is tempting to say “No comment” or “We won’t try our case in the media,” insurance companies — like other businesses — cannot take an ostrich approach and stick their heads in the proverbial sand.

The takeaways and lessons from this go beyond Progressive Insurance Company. Katie Fisher’s case illustrates that in the 21st century:

  • insurance companies must have social media policies,
  • they must monitor social media, and
  • they must be able to articulate a concise yet compelling message to an often skeptical audience.

It’s not enough to handle the claim conscientiously.

It’s not enough to handle it in accord with the policy conditions.

It’s not enough to comply with state insurance department regulations.

It’s not enough to believe that you acted in good faith.

If you have an under-insured motorist claim, you must realize that your adjuster will not be perky Flo from the TV commercials.

Insurers Need Social Media Strategy
This case study also spotlights the need for insurance companies to have a refined social media strategy. That goes beyond grappling with questions like, “Should we be on Facebook or Twitter?” or, “Should we have a blog?”

Sorry — those questions are so 2010. That no longer cuts it as a coherent social media strategy.

It’s no longer enough to have a digital footprint in the social media world. The content of what companies put out on social media is vital, scrutinized, and should promote their brand. Content is king.

Moreover, insurance companies must have institutionalized disciplines to monitor what is being said about them on social media so they can respond quickly and persuasively. The consumer conversation about your service and policies is going on — with you or without you. It is best that it goes on with you. It’s best that you have an opportunity to be aware of customer service firestorms brewing so that you have the opportunity to squelch them, address them and nip them in the bud.

You may have to justify your steps in the court of public opinion through social media or suffer the consequences of a public relations black eye if you hunker down and go incommunicado.

As this case study shows, adjusters are sometimes damned if they do and damned if they don’t.

Pay the claim in the face of conflicting evidence, and be second-guessed for poor decision-making by higher-ups. Contest the claim and align yourself with the other driver’s insurance company, and you get criticized in the court of public opinion for callousness.

No one promised adjusters a rose garden and they certainly don’t get to operate in one in the age of viral posts and social media!