Church Mutual’s Claims Practices Under Scrutiny: Lessons from the First Baptist Church of Iowa Case

A federal appellate decision has provided valuable insights into the claims handling practices of Church Mutual Insurance Company and the duties of insurers in Louisiana. The case of First Baptist Church of Iowa, Louisiana v. Church Mutual Insurance Company, 1 offers important lessons for property adjusters and claims managers across the industry. This case serves as a powerful reminder of the responsibilities insurers have to their policyholders.

Readers may recall that I previously wrote about Church Mutual’s claims practices in Church Mutual Is Not So Holy When It Comes to Good Faith Claims Practices. I specifically wrote of a federal judge finding that the company was systematically underpaying claims. The appellate court’s ruling in this case further illuminates the challenges faced by policyholders and the responsibilities of insurers.

The Fifth Circuit affirmed in part and reversed in part the district court’s decision. While some aspects of the lower court’s ruling were modified, the appellate court upheld several critical findings:

Failure to Properly Adjust the Claim: The court affirmed that Church Mutual failed to adjust the claim properly, supporting the district court’s finding that the insurer’s handling of the claim was arbitrary and capricious.
Statutory Penalties: The court upheld the award of statutory penalties on the total loss amount, rejecting Church Mutual’s argument that penalties should only apply to the unpaid portion of damages.
Timeliness of Payments: The court agreed that Church Mutual’s initial payment was untimely, as it was not made within 30 days of receiving satisfactory proof of loss.
Credibility of Estimates: The court found substantial evidence to support the district court’s decision to rely on the insured’s expert’s estimate as the only credible adjustment made by a Louisiana-licensed adjuster.

Lessons for Property Adjusters and Claims Managers

Timely Response is Crucial: The case underscores the importance of responding promptly to claims. Church Mutual’s failure to make a payment within 30 days of receiving proof of loss led to significant penalties. Adjusters and managers should prioritize timely claim processing to avoid similar pitfalls.
Proper Adjustment is Non-Negotiable: The court’s affirmation of Church Mutual’s failure to properly adjust the claim highlights the need for thorough and accurate claim evaluations. Relying solely on third-party estimates without proper adjustment can lead to legal consequences. I have warned about this issue in Insurance Surrogates and Insurers Delegating Those Duties Do Not Want Surrogates To Be Held Accountable For Failing To Provide Honest and Good Faith Treatment In Washington.
Pay Undisputed Amounts Promptly: The court emphasized that insurers must pay any undisputed amounts within the statutory time limit. Claims managers should implement processes to identify and pay undisputed portions of claims quickly, even if other aspects remain under review. Everybody in the first-party claims industry knows this rule, as noted in Good Faith Performance Requires Prompt Payment of Undisputed Amounts of Benefits. There needs to be an emphasis on getting partial payment checks delivered as soon as possible because this is a systemic problem across the country causing great frustration and economic harm to policyholders waiting for money, which insurers are holding up trying to get a final determination. Pay what you owe as that amount is determined.
Licensed Adjusters Matter: The court’s reliance on the estimate provided by a licensed adjuster underscores the importance of using properly credentialed professionals in the claims process. Insurers should ensure that their adjusters are appropriately licensed and qualified. Many claims departments are expecting that independent adjustment firms will thoroughly train and motivate catastrophe adjusters. This is often not the case. Expecting that poor field performance is going to be rectified by “quality assurance” desk adjusters is not solving the problem.
Document Everything: Throughout the case, the court relied heavily on documented evidence, including reports and estimates. Thorough documentation of all aspects of the claims handling is essential for demonstrating proactive good faith claims actions and decisions. Failure to show diligent claims processing is fatal.
Understand State-Specific Requirements: This case highlights the nuances of Louisiana law regarding proof of loss and statutory penalties. Claims managers must ensure their teams are well-versed in the specific requirements of each state where they operate. One reason that property claims adjusting is hard is that a property insurance adjuster must be intimately familiar with state laws and regulations regarding property insurance and the good faith ethical claims duties in the state.
Avoid Arbitrary and Capricious Behavior: The court’s affirmation of penalties due to arbitrary and capricious handling of the claim serves as a stark reminder of the consequences of unfair claims practices. Insurers should implement checks and balances to ensure fair and consistent claims handling. Closed claims file reviews should be a normal part of claims management. This is often not the case with catastrophe adjusters working for independent adjustment firms. Further, home office claims departments reviewing the work of their independent adjusters with closed claims file reviews is rare. How do insurers know how the independent adjustment firm is treating your customer without studying the claims files through a systematic audit designed to improve upon good faith claims obligations?

This case is not just about one insurer or one claim. It reflects broader issues in the insurance industry regarding claims handling practices. As I’ve noted before, the integrity of the claims process is fundamental to the trust between insurers and policyholders. When insurers fail to meet their obligations, this trust is eroded and can lead to increased scrutiny from regulators and the courts. The appellate court’s decision serves as a wake-up call for insurers to review and improve their claims handling processes. It also empowers policyholders by reinforcing their rights to fair and timely claim settlements. It also highlights the potential consequences of failing to meet these obligations.

For Church Mutual and other insurers, this case should prompt a thorough review of claims handling procedures. This might include:

Enhancing training programs for adjusters and claims staff
Implementing more robust quality control measures
Improving communication processes with policyholders
Regularly auditing claims handling practices to ensure compliance with state laws and industry best practices

For policyholders, particularly churches and non-profit organizations, this case shows the importance of being proactive in the claims process. Documenting damages thoroughly, understanding policy terms, and seeking professional assistance when needed can make a significant difference in a claim outcome.

In the end, the goal should always be to ensure that policyholders receive the coverage they’re entitled to in a timely and fair manner. This case provides valuable lessons on how to achieve that goal and the pitfalls to avoid along the way.

Thought For The Day

In business, the idea of measuring what you are doing, picking the measurements that count like customer satisfaction and performance… you thrive on that.
—Bill Gates

1 First Baptist Church of Iowa, Louisiana v. Church Mut. Ins. Co., 105 F.4th 775 (5th Cir. 2024).