The Policyholder’s Perspective from Brandon McWherter
The Insurance Company’s Perspective from Parks T. Chastain

Most water damage is covered in a typical homeowner’s policy. However, this coverage may only extend to the structure, and not the personal property, depending on the policy language. This is because many homeowner’s policies cover all forms of direct physical loss – subject to certain exclusions. Conversely, personal property may be covered by only certain perils named explicitly in the policy. This results in much narrower coverage for personal property. With this in mind, would water damage resulting from a burst water bed or aquarium be covered? I believe the answer is yes depending on the applicable policy language. A policy will typically provide personal property coverage for accidental water or steam discharge from within your plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance.

If the term “household appliance” is not defined in the policy, then the common meaning of the term will be used and any ambiguities will be strictly construed against the insurer as the drafter of the document. Mirriam-Webster’s online dictionary defines appliance as “an instrument or device designed for a particular use or function.” Applying this definition to our present question, an aquarium or water bed would certainly fit the definition of a household appliance. For example, an aquarium is designed for the particular use of keeping fish and aquatic creatures alive for the personal enjoyment of spectators. Therefore, an aquarium fits within the definition of an appliance. Similarly, a waterbed has been held to be an appliance for the purpose of providing insurance coverage under the same policy language. See Azze v. Hanover Ins. Co., 336 N.J. Super. 630, 765 A.2d 1093, 2001 N.J. Super. LEXIS 33 (App.Div. 2001).

We all have heard Churchill’s commencement speech in 1941 where he included those famous words “never give in, never give in, never, never, never…” Brandon put an entry on the blog below about the burden of proof in an arson case, relying upon a case in which he was involved styled Cincinnati v. Banks.  I was in that case also, and his description of what the court ruled is accurate.  But, having now given full disclosure, I continue to maintain that it is incorrect.

Here’s the basic issue. A property policy requires that any loss be “accidental.” If that requirement exists in the insuring agreement, who should have the burden of proving that the loss is covered?  I contend it should be the insured.

The briefing in the Banks case is public record.  One of the cases we included in our briefing was a unreported Tennessee Court of Appeals case styled William G. Hall v. Allstate Insurance Company, 01-A-01-9607-CV-00305, (Tenn. Ct. App., 1996). In Hall, the insured sued Allstate for damage to his truck caused by fire – a fire Allstate believed was the result of arson by the insured.  The trial court found Hall failed to carry his initial burden of proof and awarded judgment in favor of Allstate. Id. at 3.  Hall appealed, and one of the issues on appeal was whether the “trial court erred as a matter of law, in holding that the [insured] had the burden of proof as to the nonexistence of an exception or defense to the insurance policy.” Id.

As referenced by the Tennessee Court of Appeals in its decision in Hall, the Allstate policy covered “‘loss’ mean[ing] direct and accidental loss of or damage to” the automobile, requiring both a direct and accidental loss. Id. at 4.  The Court of Appeals expressly found “Hall had the burden of proving these details of his claim.” Id.  In its decision, the Tennessee Court of Appeals held under Tennessee law it was first the insured’s:

burden at trial to show that the loss fell within the terms of the policy.   We are of the opinion that the trial court’s finding that the [insured] failed to prove the accidental nature of the fire and the entry of judgment in favor of Allstate was proper.  There is ample evidence from which the trial court found that the loss to the pickup truck was not accidental and that [the insured] failed to meet his burden of showing that a covered loss occurred.

Hall. at *5-6 (emphasis added).

A federal court decision is not binding on a state court. Obviously, under our rules, neither is an unpublished state decision.  But I submit to you that the issue is not as “black and white” as my learned co-author has put it.  This issue still needs to be addressed by the Tennessee Court of Appeals of the Tennessee Supreme Court in a reported opinion to resolve the question of how Tennessee will address this issue once and for all.   Eliminating the requirement that the insured establish an “accidental” loss seems to be rewriting the policy, which should not occur. I just wanted to put this case out there for everyone’s consideration.

The opinion was not available on West initially, but we advised West of the omission and it is now included at 1996 WL 34905699. Here is a link to the unreported case of Hall v Allstate Opinion Burden.

Almost yearly (if not more frequently), insurance companies face the argument that the appraisal process provided by the typical insurance policy should be expanded. As a refresher, back in 2001, the Tennessee Court of Appeals issued its opinion in Merrimack Mutual Fire Insurance Company v. Batts, 59 S.W.3d 142 (Tenn. Ct. App. 2001), where it held that questions of coverage and causation were not appropriate for resolution through the appraisal process, and that the question of ultimate liability is something not for resolution through appraisal, but rather judicial challenge. The purpose of appraisal, as that case explained, was a determination of the monetary value of the damage.  Since that time, Tennessee has produced other opinions dealing with the scope of the appraisal process, such as Artist Building Partners v. Auto-Owners Mutual Insurance Company, 435 S.W.2d 202 (Tenn. Ct. App. 2013).  Basically, these opinions deal with the proper scope of appraisal, and conclude that the appraisal panel is authorized to decide only those issues which are within the scope of its authority as granted by the insurance policy.

On February 17, 2016, our Court of Appeals issued an Opinion in Thomas v. The Standard Fire Insurance Company, No. E2015-01224 –COA-R3-CV, which reaffirmed both Batts and Auto-Owners.  The policy in that case indicated the appraisal panel would “set the amount of loss,” similar to the charge given to the appraisal panel in Batts.  When the umpire and one other appraiser agreed on the amount of loss, the insureds sought more money.  There was no allegation that the appraisal was improperly conducted, nor were there any coverage issues involved with the award.  As the Court noted, the insureds simply desired more money.  The Court found that, in simply ruling on the amount of loss, and not addressing any coverage issues, the appraisal panel did not exceed the scope of its authority.  In so ruling, the Court once again concluded that appraisal is not arbitration.

For a copy of the opinion, download Standard Fire Opinion.

When you file an insurance claim, your insurance company will almost always request a significant amount of information from you. Depending on the type of loss you have suffered, this type of information can typically include an estimate of your damages, an inventory if you had business or personal property coverage, and a litany of other documentation such as tax returns, leases, contracts, etc.  I’ve handled cases where there were literally dozens and dozens of separately numbered requests for documents.  You may also be requested to submit to a recorded statement or an examination under oath. How can they require this information from you and how far do you have to go to satisfy their requests?

The answer can be complicated but we should start with the language in your policy that mandates your cooperation: it is (creatively) referred to as…. Drumroll please… The Cooperation Clause. Here is a sample cooperation clause found in many policies:

Duties In The Event Of Loss Or Damage

You must see that the following are done in the event of loss or damage to Covered Property:

…

(5) At our request, give us complete inventories of the damaged and undamaged property, Include quantities, costs, values and amount of loss claimed.

(6) As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records.  Also permit us to take samples of damaged and undamaged property for inspection, testing and analysis, and permit us to make copies from your books and records.

…

(8) Cooperate with us in the investigation or settlement of the claim.

We may examine any insured under oath, while not in the presence of any other insured and at such times as may be reasonably required, about any matter relating to this insurance or the claim, including an insured’s books and records.

As you can see, the cooperation clause is quite broad and can encompass many different types of documents and information. But, does this allow your insurance company unfettered access to any information it requests? The short answer is no; requests must be material to the loss. In defining what is material, it is a fact intensive question that merits close scrutiny and knowledge of the insurance claims process.

For example, nearly 150 years ago, the U.S. Supreme Court upheld an insured’s refusal to provide information regarding settlements to an insurer.  See Ins. Cos. v. Weides, 81 U.S. 375, 20 L. Ed. 894, 1871 U.S. LEXIS 1003, 14 Wall. 375 (U.S. 1872).  In Weides, the insured had insurance with four insurance companies and they settled with all but one.  The remaining insurer demanded an examination under oath (for questions about an EUO, see my prior blog here), and the insured complied with the EUO but refused to provide information pertaining to settlements it had agreed to with the other insurers. The insured had settled with the other insurers at an average of $.54 on the dollar for the amount claimed and the current insurer desired to utilize this information in order to force the insured to settle for an amount less than what they were claiming with the current insurer.

The Court ruled that the insured was only required to answer questions that were material to the loss, and decided the questions regarding what the insured had agreed to with the other insurers was immaterial to the subject claim.  The Court had this to say:

Of course it is to be understood that the examination contemplated relates to matters pertinent to the loss. In these cases the plaintiffs did submit to an examination, but declined to answer questions respecting the amounts for which they had made settlements with other insuring companies. We are unable to perceive that the questions proposed had any legitimate bearing upon the inquiry, what was the actual loss sustained in consequence of the fire. If the plaintiffs had claims upon other insurers, and compromised with some of them for less than the sums insured, it is not a just inference that their claim against these insurers was exaggerated. A compromise proposed or accepted is not evidence of an admission of the amount of the debt. There was then no sufficient foundation laid for the instruction requested by the defendants, that if the jury should believe that the plaintiffs, or either of them, in the course of an examination on oath, under the policies, refused to answer any questions by which  the defendants could fairly estimate, or reasonably infer plaintiffs’ real loss in the insured property, and had not before the commencement of the actions answered the questions under oath, the verdict must be for the defendants.There was no evidence of refusal to answer such questions.

Ins. Cos. v. Weides, 81 U.S. 375, 20 L. Ed. 894, 1871 U.S. LEXIS 1003, 14 Wall. 375 (U.S. 1872) (emphasis added).

Most other cases around the country, including Tennessee, confirm that the insurer may only request documents and ask questions that are material to the loss.  However, many courts also recognize that the cooperation clause is broad so it is best to err on the side of caution when dealing with whether a request is material to the claim. Of course, every claim is unique and some questions may be material and the same question in the context of another claim may not be material.  It’s important to seek counsel from a qualified attorney if you feel you have a complicated issue regarding the materiality of an insurer’s inquiry.

If you’re reading this blog, chances are you (or someone you represent) has been requested to submit to an examination under oath by your insurance company’s attorney.  This process can be intimidating and confusing.  I field a lot of questions from insureds, public insurance adjusters, and attorneys about examinations under oath (“EUOs”).  As a general rule, you need to understand that, although an EUO is not part of a court proceeding, it is taken under oath, so anything you say can (and likely will) become a part of the court’s record if your claim is taken to litigation.  Therefore, it is crucial for you to understand the importance of the EUO in relation to your claims process as well as how the insurance company may utilize it to deny your claim.  Here are some of the most common questions I get asked about EUOs:

  1.  What is an Examination Under Oath? – In the past, insurance companies utilized their own adjusters to conduct EUOs, but due to the legal nature of the questioning and the consequences, EUOs are now almost exclusively conducted attorneys for the insurance company.  You will be asked to bring several documents in support of your claim and you will be asked questions about those documents and specific questions about the loss by the attorney. EUOs are often demanded when there are red flags for fraud, strange circumstances, large claims, potential problems with the application for insurance, etc.  There will be a court reporter present, you will swear to tell the truth, and the lawyer will ask you questions, often for hours.
  1.  Do I have to attend or cooperate with the Examination Under Oath process? Yes.  Your insurance policy has a section that provides you, as the insured, have a duty to cooperate with your insurance company’s investigation, including submitting to an examination under oath.  However, you may not have to answer every question or provide every document – I plan to address the cooperation clause of the insurance policy in more detail in a later blog.  For now, it is important to know that you need to cooperate with your insurance company as your failure to do so may result in the denial of your claim.
  1.  Do I need an attorney on my side?  The short answer is yes. I would advise anyone who has been requested to submit to an EUO to be represented by an attorney experienced with the examination under oath process within the context of first party insurance claims.  An attorney experienced with EUOs can prepare you for the types of questions you will face, assist in the gathering (and presenting) of documentation, streamline and coordinate communication with the insurance company, and assist you in making strategic decisions, all of which can impact whether your claim is paid or denied. If you handle it on your own, you may do irreparable harm to your claim.
  1.  But I’ve already answered an adjuster’s question that he recorded; do I still have to submit to an EUO?  Yes.  This is quite common.  If your claim is being investigated to the degree that you have been requested to submit to an examination under oath, you have likely already been questioned extensively by the special investigator for your insurance company, maybe even more than once.  Often, these questions can give valuable insight to your attorney as to the nature of the red flags that triggered the request for an EUO.
  1.  I didn’t do anything wrong, why am I being investigated?  Insurance companies get thousands of claims a year.  Consequently, they send insurance claims into the examination under oath process for a variety of reasons.  Some reasons are more serious than others and some reasons are legitimate while other reasons seem to be trivial. That is why it is so important to consult with an experienced attorney to be sure you are receiving the best advice possible.  Your claim’s outcome may very well depend on it.

 

Back in November 2013, I had the great honor to represent Larry and Sue Banks in their case against Cincinnati Insurance Company.  My partner, Clint Scott, and I presented the case to a federal jury and after deliberations, the jury returned a verdict for more than $2.2 million.  The insurance company accused the Banks of burning their house, but the Banks ultimately prevailed.   That is a story for another day, but one of the big legal issues in the case was who had the burden of proving the cause of the fire, the Banks or the insurance company.

In Cincinnati Insurance Co. v. Banks, 610 Fed. Appx. 453 (6th Cir. 2015), the Sixth Circuit answered that question by confirming that the insurance company bears the burden of proving arson.  In the Banks case, the insurance policy insured against “accidental” direct physical loss.  Because the general rule is that the insured bears the burden of proving that he or she comes within the terms of the policy’s coverage, the insurer argued that the Banks had to prove that the fire was accidental.  The problem was that such would require the court to ignore the longstanding principle that an insurer bears the burden of proving arson.  So the Sixth Circuit was faced with the unusual circumstance where two general rules of insurance policy interpretation conflicted.  In deciding the issue, the Sixth Circuit noted that there is a presumption in Tennessee that “the burning of a property is the result of an accidental cause,” and then held (without much discussion at all),  that the trial court properly held that the insurance company had the burden of proving arson and that the Banks did not bear the burden of proving the fire was accidental.  This opinion upholds the longstanding rule of law that the insurance company bears the burden of proving arson, even when the insurance policy seemingly shifts the burden to the insured by limiting its coverage to accidental losses.

A copy of the opinion can be downloaded here.

In the past, I’ve posted a few articles regarding the recent trend of insurers to attempt to deny hail damage claims on the basis that the damage is “cosmetic” rather than “functional.”  Most commonly, the issue arises when there are hail dents to a metal roof and the insurance company denies the claim on the basis that the roof still functions and the damage is only aesthetic.  In the past several years, I’ve had to deal with this issue several times.  This past summer, we finally had an opportunity to get a ruling on this issue from the Davidson County Chancery Court.   In that particular case, Westfield Insurance Company insured a hotel against “direct physical loss,” and hail undisputedly dented the hotel’s metal roof.  When faced with the issue, Chancellor Russell T. Perkins ruled:

Based on the undisputed facts, the Court is asked by [the insured] to rule, as a matter of law, that the hail dents to the metal mansard roof of the Insured Premises constitute direct physical loss or damage under the subject insurance policy.  . . .  The Court concludes as a matter of law that if there are hail dents to the metal mansard roofs, no matter whether they are visible from the ground or visible with or without the aid of chalk, then such dents constitute direct physical loss or damage under the insurance policy and therefore constitute a covered claim under the policy.

Thankfully Chancellor Perkins got it right, but the fight will continue until an appellate court finally issues binding law.  This one has always seemed like a no-brainer to me. Clearly if hail dents a roof, whether it be a car, house, or office building, the dent constitutes “direct physical loss.”   For a copy of the Chancellor Perkins’ opinion, click here.

In the most recent statement by the Commissioner of Insurance regarding insurance companies’ marketshare of homeowners’ policies in Tennessee, it appears that there are two primary players – State Farm and Farm Bureau (Tennessee Farmers Mutual Insurance Company).  State Farm leads the way with a market share of 25%, with Farm Bureau second at 19%.  No other insurer is even close to touching the “big two.” In a distant third place, USAA, Liberty Mutual, Safeco, and Allstate all have around 2-3% each.  For the full breakdown, click here.

Yesterday, the Court of Appeals issued yet another decision concerning when a lawsuit must be filed in order to be timely.  In a well-reasoned and fair opinion authored by Judge Gibson, the Court of Appeals made clear once again that the question of when a claim accrues is fact intensive and requires a knowledge and understanding of all of the subject insurance policy’s provisions, including the immunity clause.  Most importantly, the Court emphasized that in a case requiring submission of a “satisfactory proof of loss,” an insurer would be wise to let the insured know when it deems a proof of loss satisfactory in order to be sure the immunity period begins to run.

In Riggs v. Farmers Mutual of Tennessee, the insurance policy provided that payment would be due 45 days after submission of “a satisfactory proof of loss is received and the amount of the loss has been established by written agreement . . . or the filing of an appraisal award with us.”  The policy also provided that suit must be “commenced within 1 year after the loss.”   The facts reveal that the fire occurred on May 29, 2011, that Riggs provided an executed proof of loss form to the insurer on October 3, 2011, that the insurer conducted an examination under oath of Riggs on November 10, 2011, that the insurer denied the claim on September 24, 2012, and Riggs then filed suit on December 11, 2012.

As a prefatory matter, the Court noted the established rule that suit must be filed within the contractual limitations period following the accrual of the cause of action, not the date of the loss.  When the insurance policy provides a period of immunity in which the insurer cannot be sued, the accrual of the claim occurs upon expiration of the immunity period or when the claim is denied, whichever comes first.  In the Riggs case, the issue was when the immunity period began, which in this case was the 45 day period that the policy allowed the insurer to make payment after submission of a “satisfactory proof of loss.” Riggs claimed the immunity period did not begin until after she fully complied with the insurer’s investigation by examination under oath and re-submission of a completed contents inventory as requested.  On the other hand, the insurer argued that the immunity period began when Riggs sent in her proof of loss form on October 3, 2011.  This, in turn, led to a dispute about what the policy meant when it referred to a “satisfactory proof of loss.”

In a great opinion, the Court ultimately held that the insurer’s position was illogical because it did not stop requesting additional information from Riggs until November 10, 2011.  Accordingly, any “proof of loss” submitted before that time was necessarily not “satisfactory.”  Thus, because suit was filed within one year and 45 days after that date, the suit was timely.

But the Court did not stop there.  Focusing in further on the language requiring that payment be made “within 45 days after a satisfactory proof of loss is received,” the Court noted that because the insurer declined to pay then it necessarily did not consider Riggs’ proof of loss satisfactory.  This circumstance would leave an insurer “with no way of knowing when her proof of loss was satisfactory or when the immunity period began to run.”  So, the clear take-away from this opinion is that submission of a “proof of loss” form may not necessarily be considered submission of a “satisfactory proof of loss,” particularly when the insurer continues to investigate and request information after submission of the form.

You can view the opinion here.

The Court of Appeals recently issued its opinion in Maples v. Tennessee Farmers Mutual Insurance Co., E2015-00285-COA-R3-CV (Tenn. Ct. App. 2015). The Maples case dealt with fire damage to the Maples’ home in Crossville, Tennessee, insured with Tennessee Farmers Mutual Insurance Company.  Coverage was denied on August 26, 2013.  Suit was filed on August 6, 2014, against Tennessee Farmers along with the insurance agent and agency.  Maples asserted the agent was negligent because he was aware Maples had prior felony convictions that never made it onto the insurance application and failed to procure insurance.

Defendants filed motions based upon the suit limitation clause of the policy requiring full compliance with all terms of the policy and that any legal action concerning the policy brought within one year from the date of loss.  Id.  The trial court granted summary judgment and dismissed the case completely.  Id.  Maples contended, however, that the actions against the agent and agency survived even if summary judgment granted to Tennessee Farmers was proper.

The Court of Appeals cited abundant case law that even though there is a six-year statute of limitations in Tennessee for contracts, but that  changes to the applicable statute of limitations by contract are enforceable.  Id.  Because the fire occurred March 25, 2013, and suit filed August 6, 2014, (more than one year and 60 days from March 25, 2013), the suit was time barred.

The Court of Appeals also dealt with the issue and claim that the agent or agency acted improperly in the procurement of the policy.  The court held if Maples had instituted the suit timely, he would have had the opportunity to raise any claims of irregularities in obtaining the policy.  However, when he failed to initiate suit within the contractual limitations period, the issues regarding the policy and its issuance became moot and irrelevant.  Thus, the Court of Appeals found that the trial court properly dismissed actions against the agent and agency.