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The Perils of Negotiating Insurance Claim Issues With Contractors

What gives your humble correspondent the audacity to advise such an august body of professionals as Arizona Bar members of the perils of negotiating with contractors? Simply put, when contractors adjust insurance claims and/or act as advocates for the people with whom they have been retained to use their hammer and saw, it is a problem for all of us. Almost half of the cases in which I served as an expert witness in the past year involved contractors representing homeowners or business owners and adjusting claims without a license. One case even involved a lawsuit against a contractor for participating in the unauthorized practice of law. Obviously I work with many attorneys including some who work for insurers and some who do not. Many have told me contractors have been involved in cases they are defending or prosecuting.

Contractors are not often members of the bar (a prominent remediation contractor in the Valley is) and certainly very few contractors are licensed as adjusters. Inasmuch as the Arizona State Bar Committee on the Rules of Professional Conduct has taken the position that attorneys must not assist non-lawyers in the unauthorized practice of law, there is a professional reason not to negotiate with contractors. Rule 5.5 (b) of the American Bar Association tells us emphatically that an attorney shall not assist a person who is not a member of the bar in the performance or activity that constitutes the unauthorized practice of law. Negotiating with a contractor involves negotiating with someone who is not licensed to represent a claimant. While it is “appropriate and even necessary for an attorney to negotiate with adjusters” (ADOI Circular Letter 2000-11), there is no authority for an attorney to negotiate with contractors. Indeed, the Arizona Department of Insurance has clearly presented this message:

It is not unusual for a property owner’s contractor to discuss the details of building damage with the insurance company’s adjuster, particularly when there is extensive or complex damage. Often the contractor’s expertise is essential to identify precisely what was damaged, the extent of the damage, and the cost to repair it; however, contractors cannot “negotiate” the settlement of the insurance claim with the insurance company representatives on behalf of the property owner, unless they have an adjuster’s license.

Contractors who do obtain an adjusters license represent the single most divisive issue in the regional and national trade associations of public adjusters throughout the country. Serving as president of the Rocky Mountain Association of Public Insurance Adjusters and on the board of the National Association of Public Insurance Adjusters, I can address this issue first hand. Both associations have taken the position that contractor adjusters represent too great a conflict of interest to be a member of either association.

Everyone needs to discover what they want to do when they grow up. If someone wants to be a contractor that is a laudable career. So is being an adjuster. So is being an attorney. It is just too great a conflict to be a contractor and to be allowed to negotiate for his or her client in the role of adjuster or attorney. The contractor can negotiate for himself but it is inappropriate for the contractor to negotiate for others. As adjusters and attorneys, we should not encourage this practice.

The above blog post was published in the July 2015 issue of ATTORNEY AT LAW MAGAZINE.  It was authored by Dave Young who has had a number of his articles published in this magazine.

The Umpire’s Role in the Resolution of Insurance Valuation Disputes

Insurance policies provide a method of dispute resolution called “appraisal”. When an impasse in the determination of the amount of a loss is reached, one party will demand (or request) appraisal and will name an appraiser. The other party will do so as well. The two appraisers will appoint a third appraiser to serve as an umpire and two of the three can render an award that will bind all parties.

This simple explanation of the appraisal process ignores the fact that there are other considerations such as cost sharing and scope of what the appraisal will determine but essentially, this description of appraisal is at the heart of the dispute resolution provision in the insurance policy itself.

As the determination and valuation of insurance losses has become more sensitive, we will see more and more need for umpires and the best place to look for those umpires is the legal profession. To serve as an umpire, one does not need to have a practice limited to arbitration or dispute resolution to be selected for such a role and, in fact, what is needed is simply a penchant for fairness and an understanding of the appraisal process.

While the appraisal panel (all three appraisers) is not unlike a three judge appellate court, there are several varying opinions of the umpire’s role in this process. Is it the role of an umpire to apply rules of evidence or is it the umpire’s role to act as a deal maker? Based upon their backgrounds many, albeit far from all, attorneys will accept legal principles and will attempt to apply the rule of law. Yet, appraisal itself encompasses a confusing body of law. There is very little law and little to no appraisal guidelines in the policy. Is it acceptable for umpires to use rules of evidence and apply burden of proof in appraisals as some umpires wish to do?

I recently participated in an appraisal where the umpire felt that there was not enough evidence presented and “devined” an award that wherein an insured felt the dagger of unfairness stabbed in his heart. Can umpires just make such a declaration and send one of the parties home with nothing? I personally think that they can not. Umpires who believe that they lack information, must give the parties ample opportunity to produce available evidence [St. Paul Fire & Marine Ins. Co. v. Tire Clearing House, Inc., etc., 58 F.2d 610 (8th Cir. 1932)]. They can not move forward with partial information from either side.

Indeed, the Declaration of Appraisers requires that an appraiser will ” … will make a true, just, and conscientious evaluation according to the best of my knowledge, skill and judgment”. In my mind that means that ALL available information must be considered. To apply the belief that not enough information has been provided or state that someone has not made their case might very well indicate that the umpire hasn’t fully done what he or she was retained to do.

There are others who disagree with me and wish to apply the “proof” presented in the appraisal applying a standard of “who has the better proof”. It is a natural response. Common sense tells us that appraisers can not divorce themselves from the evidence presented. When all parties have presented evidence they feel is adequate, appraisers may come to a conclusion, persuaded by the evidence, as long as it is COMPLETE evidence.

While the “prove your case” theory may be legally sound in litigation, I have participated in hundreds of appraisals and believe that the role of an umpire is more than just to advocate this approach. I believe that the role of the umpire is to help the parties REACH A CONSENSUS. Many years ago I watched an Insurance policies provide a method of dispute resolution called “appraisal”. When an impasse in the determination of the amount of a loss is reached, one party will demand (or request) appraisal and will name an appraiser. The other party will do so as well. The two appraisers will appoint a third appraiser to serve as an umpire and two of the three can render an award that will bind all parties.

This simple explanation of the appraisal process ignores the fact that there are other considerations such as cost sharing and scope of what the appraisal will determine but essentially, this description of appraisal is at the heart of the dispute resolution provision in the insurance policy itself.

As the determination and valuation of insurance losses has become more sensitive, we will see more and more need for umpires and the best place to look for those umpires is the legal profession. To serve as an umpire, one does not need to have a practice limited to arbitration or dispute resolution to be selected for such a role and, in fact, what is needed is simply a penchant for fairness and an understanding of the appraisal process.

While the appraisal panel (all three appraisers) is not unlike a three judge appellate court, there are several varying opinions of the umpire’s role in this process. Is it the role of an umpire to apply rules of evidence or is it the umpire’s role to act as a deal maker? Based upon their backgrounds many, albeit far from all, attorneys will accept legal principles and will attempt to apply the rule of law. Yet, appraisal itself encompasses a confusing body of law. There is very little law and little to no appraisal guidelines in the policy. Is it acceptable for umpires to use rules of evidence and apply burden of proof in appraisals as some umpires wish to do?

I recently participated in an appraisal where the umpire felt that there was not enough evidence presented and “devined” an award that wherein an insured felt the dagger of unfairness stabbed in his heart. Can umpires just make such a declaration and send one of the parties home with nothing? I personally think that they can not. Umpires who believe that they lack information, must give the parties ample opportunity to produce available evidence [St. Paul Fire & Marine Ins. Co. v. Tire Clearing House, Inc., etc., 58 F.2d 610 (8th Cir. 1932)]. They can not move forward with partial information from either side.

Indeed, the Declaration of Appraisers requires that an appraiser will ” … will make a true, just, and conscientious evaluation according to the best of my knowledge, skill and judgment”. In my mind that means that ALL available information must be considered. To apply the belief that not enough information has been provided or state that someone has not made their case might very well indicate that the umpire hasn’t fully done what he or she was retained to do.

There are others who disagree with me and wish to apply the “proof” presented in the appraisal applying a standard of “who has the better proof”. It is a natural response. Common sense tells us that appraisers can not divorce themselves from the evidence presented. When all parties have presented evidence they feel is adequate, appraisers may come to a conclusion, persuaded by the evidence, as long as it is COMPLETE evidence.

While the “prove your case” theory may be legally sound in litigation, I have participated in hundreds of appraisals and believe that the role of an umpire is more than just to advocate this approach. I believe that the role of the umpire is to help the parties REACH A CONSENSUS. Many years ago I watched an attorney (name available upon request) as he forged a consensus between the appraisers that was so acceptable to the appraisers that there was no need for the umpire to sign the award himself. The action of two of the appraisers without the umpire bound the parties.

Another element of helping the party appointed appraisers is to reach a consensus, is that such a process helps bring CLOSURE. There are some who will disagree with this and I understand. But, assuming that all the appraisers sign the award, how could anyone dispute the fairness of an Appraisal Award if all the appraisers agreed? In the reality of the world of insurance, a Consensus dictates CLOSURE. When an umpire reaches a decision by fiat and does not forge a consensus, one party might have a inclination to believe that the deck was stacked.

Very recently an attorney serving in an umpire role in a claim in which I participated, said that he did not have enough information presented in the appraisal, so he sent one party away with virtually nothing claiming total authority and immunity as he stated that, “the outcome would have been different if we were involved in a mediation instead of an appraisal” and issued an award. Considering the long established protocol previously mentioned (St. Paul Fire & Marine Ins. Co. v. Tire Clearing House, Inc.), it is easy to understand that the offended party would regard the appraisal as one of an non-level playing field.

An umpire might ask the other appraisers to come up with a solution that all might endorse noting that if they can’t agree the umpire will either have to go up or will have to go down. Can the appraisal process always end with the parties reaching a consensus? No. Sometimes an umpire has to bite the bullet but I say this because, serving as an umpire myself three times in the last year, the end result was all three appraisers signing the award. No one could claim they were a victim of bias in those appraisals. It can be done. Bringing a CONSENSUS in an appraisal leading to CLOSURE is a laudable goal.

Identity Fraud Expense Reimbursement

“Identity fraud occurs when someone uses stolen personal information to commit a crime or fraud in your name. Once the damage is done, the road back to restoring what was yours can be both time-consuming and expensive. As the first insurer to offer reimbursement for identity fraud expenses, Big Insurance Company (name omitted to protect the guilty) can help you repair the harm that’s been done.”

Those 58 words carefully crafted by a creative person or ad agency, GIVE. Those words would lead someone to believe that he or she has coverage for what has become the fastest growing crime in America: Identity Theft. Identity theft statistics show approximately 15 million United States residents have their identities used fraudulently each year with financial losses totalling upwards of $ 50 billion. (http://www.identitytheft.info/victims.aspx)

It would be an astute business decision for an insurer to decide such losses belong in their offering portfolio. After all, insurance is a tool to eliminate, minimize or otherwise share risk. Policies are purchased when insurance consumers see the possibility of loss and an insurer enters the insurance market to provide such policies. However, as is often so prevalent in the marketplace, sometimes the red apple we purchase turns out to be a yellow lemon or a green lime. Please consider the small print of the policy that TAKETH AWAY from the glowing promises in the advertisement:

“We will reimburse up to $ 25,000.00 for ‘expenses’ incurred by an ‘insured’ as the the direct result of any one ‘identity fraud’. This coverage applies to any one ‘identity fraud’ discovered during the policy period.”

Losses in excess of $ 25,000.00 simply are not covered at all. The maximum an insured could expect to recover is capped. Further, expenses under the Identity Fraud Endorsement are defined as:

1. Costs for notarize fraud affidavits or similar documents.

In Arizona notary fees are capped at $ 2.00 so it would seem that payouts for this time of claim would not bankrupt the insurer.

2. Costs for certified mail to healtcare providers, merchants, law enforcement and credit granters. That could easily ad up to fifty dollars.

3. Lost wages capped at $1,000 a week for up to five weeks.

4. Loan application fees.

5. Reasonable attorney fees incurred with the insurers prior written consent.

“Reasonable attorney fees incurred” comes with a caveat: “with our prior written consent”. Caution must be made before proceeding. I am currently working on just such an incident where permission was granted over the phone to retain counsel but was not put in writing.

6. Charges for long distance telephone calls. Such a promise helps me recall when I didn’t have a cell phone which provided a minute rate for calls or when my home phone provider didn’t give me this service for free.

7. Costs for day care capped at $ 1,000 per week for up to five weeks.

8. Travel costs for travel and accommodations capped at $ 1,000 per week for up to five weeks to participate in the DEFENSE of lawsuits, challenge accuracy or completeness of credit information, participate in criminal prosecution, filing affidavits, etc.

9. Fees for re-issurance of government i.d. such as passports

10. Fees charged for copies of medical records.

Perhaps there is some coverage here for you in areas 1-4 and 6-10 although I would think it would be minimal. The one area where we thought we had agreement (5), in our case. Perhaps, however, the words conveying permission for attorney fees, might take precedent here.

Fortunately there is no deductible.

Before proceeding with a claim, we must address the definition of “identity theft” itself. Identity theft implies someone has acquired a person’s personal information for personal their own financial gain. If there is no attempt for financial gain by the evil-doer stealing your identity, there will be no coverage.