Policyholders Need to Cooperate, Prove Damage From the Loss, and Value the Damage

Property insurance companies have a good faith obligation to promptly investigate facts related to coverage and evaluate amounts of damage for a covered loss following notice of loss. If there is coverage and the loss exceeds the deductible, property insurers should promptly issue payment explaining how the amounts were determined. What happens if the policyholder thinks more is owed? 

Policyholders have to prove that a covered loss occurred during the policy period and prove the amount of damages. If the insurer makes reasonable requests for documentation and explanation of the loss and amounts owed, the policyholder must cooperate with the insurer. Most replacement cost policies only pay for actual cash value unless the repairs or replacement have been accomplished. Accordingly, policyholders may have to provide replacement cost and actual cash values in their claims presentations.    

These basic property insurance adjustment concepts were not followed by a policyholder, leading to a lost tornado damage case in Missouri.1 The federal court judge noted:

Plaintiff’s expert’s opinion addressed ‘potential’ storm related damages, and he acknowledged that Plaintiff would not be entitled to some of the damages he included in his opinion. His report did not include storm related Business Personal Property, Business Income, or Extra Expense damages, while Plaintiff claims such damages in its demand.

The record establishes Defendant attempted to obtain documentation and support for the damages Plaintiff claims. These attempts were thwarted through Plaintiff’s failure to respond to correspondence and its reiteration that the support for the damages was already in Defendant’s possession. The problem, however, with this assertion is that Plaintiff’s documents were for estimates, were duplicative and were for items which could not be separated as to storm damage or upgrades that Plaintiff chose to perform.

Plaintiff’s documentation is a mixture of paid items and estimates Plaintiff received. There is no indication in the documentation that Plaintiff accepted the bids it received for any of the work detailed in the bids. As such, Plaintiff is not entitled to receive damages for repair or replacement. As Defendant correctly argues, Plaintiff therefore is only entitled to the Actual Cash Value (‘ACV’) of the property at the time of loss. Plaintiff failed to produce any evidence in response of the ACV of the claimed damages to the property.

The court also stated Missouri law regarding the duty of a policyholder’s cooperation:

Cooperation clauses are valid and enforceable in Missouri. Hendrix v. Jones, 580 S.W.2d 740, 742 (Mo. 1979). ‘Missouri courts have consistently acknowledged an insurer’s right to a complete investigation of a claim, including examinations, and have found that the insured’s failure to assist in the investigation precludes any coverage.’ Roller v. Am. Modern Home Ins. Co., 484 S.W.3d 110, 116 (Mo. Ct. App. 2015). To deny coverage, ‘an insurer must prove: (1) a material breach of the cooperation clause; (2) the existence of substantial prejudice as a result of the breach; and (3) the exercise of reasonable diligence to secure the insured’s cooperation.’ Med. Protective Co. v. Bubenik, 594 F.3d 1047, 1051 (8th Cir. 2010).

…

Missouri courts have recognized an insurer’s right to a complete investigation of a claim, including examinations, and that the insured’s failure to assist in the investigation precludes any coverage. Union Ins. Co. of Providence v. Williams, 261 F.Supp.2d 1150, 1152 (E.D.Mo.2003)(holding that cooperation clauses are valid and enforceable under Missouri Law). ‘Once the insurer proves the material breach of a cooperation clause, the insurer may deny liability coverage under the policy’….

Failure to provide the appropriate, clear, and detailed information results in prejudice to the insurer. It impedes the insurer’s ‘ability to fully and efficiently investigate the facts applicable to [the insured’s] claim…, thereby prolonging [the insured’s] [] investigation; [the insurer] repeatedly noted that the information [the insured] did provide was insufficient to allow it to determine’ if it owed Plaintiff additional damages. Northrop Grumman Guidance & Elecs. Co., Inc. v. Emps. Ins. Co. of Wausau, 612 S.W.3d 1, 26 (Mo. Ct. App. 2020)

The judge ruled for the insurer finding the following:

The record is replete with Defendant’s attempts to secure the information it needed to evaluate Plaintiff’s new claim. After paying what it could substantiate as a result of the storm, Defendant meticulously and diligently requested clarification, documentation, and details of what was storm related and what was not. Plaintiff all but ignored most of the requests. When it did respond, it simply told Defendant it had all that was needed. The record clearly establishes Defendant did not. Varying amounts, duplicate amounts claimed for the same damages, and a mixture of covered and non-covered expenses.

Based upon the foregoing, Defendant is entitled to judgment as a matter of law based on Plaintiff’s failure to cooperate, as provided in the policy at issue, with Defendant in establishing, to a reasonable certainty, the additional damages Plaintiff claims.

Missouri has a different method to determine actual cash value, as I noted in Missouri Property Insurance Losses Are Different—An Update on Missouri’s Fair Market Value Method of Actual Cash Value. 

But I was curious what the policyholder’s attorneys argued to avoid this disaster. When I read their brief and arguments, I noted that their brief cited only one case and did not address the legal issues of cooperation. Similar to the judge, I could not determine what amount the policyholder determined was owed by reading the brief.  

Here are the lessons from this case:

Try to provide the insurance company with requested information which makes it clear what is being demanded.
Provide all the information asked for by the insurance company if it exists.
Make estimates and proofs of damage which reflect what is owed and have experts who can explain it.
Make certain the damages are related to the loss and that the expert retained can state the value of the damage from the loss at issue.

This may seem basic, but these issues are at the heart of most disputed insurance cases. I often go through the following thoughts in my head and verbally ask those with cases for my consideration the following:

What caused the loss, and when did it happen? What is the evidence for this?
Does the policy cover the loss? If so, what are the valuation provisions in the policy?
What are the valuation amounts for those damages at replacement cost value and actual cash value? What is the proof for that, and who is the expert that will say it?
What has the insurance company paid, and for what? How much more is owed, and who will testify to that? What documents does that expert rely upon?
Have we complied with all conditions to file suit and cooperated with the insurance company? What is the proof of that?
Did the insurance company violate obligations of good faith during the adjustment? What specifically are those, and what is the proof? Did the conduct violate any statutes or regulations? What are the damages from that conduct? Is the bad faith conduct systemic?    

Studying cases others lose and learning lessons from their loss is a lot less expensive than losing your own case. I am sorry the policyholder lost, but there are some valuable lessons to take away.      

Thought For The Day

All good is hard. All evil is easy. Dying, losing, cheating, and mediocrity is easy. Stay away from easy.

—Scott Alexander

1 Cardinal Building Materials, Inc. v. Amerisure Ins. Co., No 4:20-cv-963 (E.D. Mo. Feb. 17, 2023).