Advice for people who are facing property losses in the Los Angeles fires: Hire a public adjuster

I recently saw on a Facebook group I belong to advice for victims of the California fires and how they can maximize their insurance claims. The advice was dreadful. It included, "Make from memory the most detailed list you can of every item in your house that was destroyed, and its value."

This is terrible advice.

One of my specialties as an attorney is representing people with property damage claims against their insurers (Massachusetts only).  I also represent insurers in these losses, more on this at the end.  I have seen from both sides people who have suffered this type of terrible loss who received this advice and got completely caught up in futilely trying to make a complete inventory of their destroyed personal property and its value on their own. Of course, because these items represent their life and have huge value to them, and they get lost in that.

The good news is: there is an entire profession devoted to helping people with this type of insurance claim. Their job is to advocate with an insurance company for the insured for the value of the property damage loss, including personal property claims. They have specialists who will make lists of personal property inventory and value it.  Yes, you will need to work with them and provide them the information, which may include lists, but they will help you and they will provide the valuation.

They are called public adjusters. They get paid by contingency fee, typically ten percent (at least in Massachusetts; maximum percentage is set by state law), so cost nothing up front, and for any major loss are well worth the cost because you will recover more working with them even with their fee than you would trying to do it yourself, and they will act as a buffer between you and the insurer and reduce your stress in this aspect of your loss significantly.

In all honesty, some public adjusters are terrible and some are great (and most are in between). As with any professional doing something major for you, you will want referrals if possible. Meet with several. Ask for references. Google them. But a good public adjuster will save you time and aggravation and help you move forward. Even a not very good (but not terrible) public adjuster is better than you trying to do this yourself.

My advice for anyone who may need to evacuate but is currently safe (and everyone else, do this while you are thinking about it): Go around your house and take pictures of everything. The exterior walls. Everything you own inside. Appliances. Bookshelves. Open your closets, your cabinets, and your drawers and take pictures. (Not of each item, but of the inside of each drawer.  I am not trying to make you crazy here. Maybe individual photos of items you own of high monetary value.) Hopefully you will never need to look at them, but if you do need to show what you owned, this is a good way to do it. (I do this every couple of years. It takes 30 minutes or so.) You can hand the photos to the public adjuster, who can use them as a basis for their inventory (along with conversations with you).

Why is it terrible advice for you to try to inventory and value your own goods?  Because unfortunately sentimental value has nothing to do with insurance coverage.  The items you love the most – your photo albums, the souvenirs you picked up on your travels, your paperback copy of The Lord of the Rings trilogy that first belonged to your father that you have carried around since you were 12 (yes I’m projecting here) – you will obsess over their loss, they will make you sad,  you will mourn them, all of which is understandable, but they have little value in an insurance claim.  Your ergonomic chair in your home office that you never think about may be worth something.  You will obsess over that as well.  Even if you don’t, your lists will not be put together in a way that an insurer can easily work with.  (You will also need to understand the difference between actual cash value and replacement cost value.  Actual cash value broadly speaking is the value of the item you own today.  My beloved copy of Lord of the Rings is falling apart and has no value; even a thrift shop would just throw it out.  But its replacement cost value is $26.38, because that's what I would spend for it on Amazon.  I will get that amount from the insurer if I timely actually purchase a new copy.)  This will take your attention from where it needs to be, which is working with a contractor to rebuild your house within the amount the insurer will pay. 

I have seen advice that if a house suffers a total loss don’t waste your ten percent on a public adjuster because you will get your policy limits. This is an oversimplification.  There are various coverages that a policyholder may not know about on their own, that insurers may ignore. Everything from code upgrades, which is huge (you have to rebuild to current code, which is an extra expense and an extra coverage but the amount has to be proven based on local codes) to landscaping coverage. (These coverages are often but not always in addition to your building coverage limit.)   Again, the difference between actual cash value that you get paid up front and replacement cost value, that you get paid after the rebuild is complete if you have that coverage, can be significant, and you need ACV to pay your contractor to do the work. (Some contractors understand insurance claims; most don’t -- they just want to build houses.)  And don't forget loss of use coverage, which is rent while your house is being rebuilt.  (In my experience public adjusters generally don't charge their percentage for this but if needed they will help you advocate for a suitable place to live.)  With personal property (your stuff) you have to show the value of your destroyed property, which may or may not reach the coverage limit. Many public adjusters are not interested in coming into a loss late. So, if you are someone who can read and understand an insurance policy and advocate effectively for yourself with the overworked insurance adjusters who will be flooding into California from other states, and you have the time and emotional wherewithal to do this on your own, sure, go for it. As an attorney in the industry, I would 100 percent hire a public adjuster in this situation.

Very important note: I don’t want to make it sound like I think insurers are evil. Quite the opposite.  I represent insurers as well as policyholders, and many insurance adjusters are wonderful people with integrity who do their absolute best to be fair.  But if you get off on the wrong foot with a claim it can be very difficult to course correct. Some insurance adjusters will advise you not to hire a public adjuster.  Some will be happy if you do because they know they will receive information in a form that is easiest for them to analyze.  Ultimately the choice is yours, but you know where I stand.  

 

Insurance Claims for Damage to Buildings in Massachusetts (my new brochure)

THE LIFECYCLE OF A MASSACHUSETTS PROPERTY DAMAGE CLAIM

• The property damage occurs.
  
  
• The insured submits the claim to the insurer.
  
  
• The insured chooses and retains a public adjuster.

The role of the public adjuster: to determine all applicable coverages under the insurance policy, prepare estimates, and advocate with the insurer over the amount of loss.

The public adjuster is paid by contingency fee, typically ten percent of the amount recovered.

• The insurer may raise defenses to coverage.  If so, the insured should hire an attorney immediately.  The public adjuster is not an attorney and cannot argue with the insurer about coverage issues. 
  
  
• If there is no dispute over coverage, there will usually be back and forth between the public adjuster and the insurer about the amount of loss. 
  
  
• If the public adjuster/insured and the insurer cannot agree over the amount of loss, the case goes to a reference proceeding. 
  
  
• A reference proceeding is similar to an arbitration, with three referees who decide the amount of loss based on evidence submitted by both sides.
  
  

THE INSURED SHOULD CONSULT WITH AN ATTORNEY:

• At any time, to answer questions about the process and whether the claim seems to be proceeding on track. 
  
  
• If the public adjuster advises the insured to consult with an attorney.
  
  
• If the insurer raises defenses to coverage.
  
  
• If the public adjuster and the insurer are unable to agree on the amount of loss.
  
  
• If the insurer has demanded a reference proceeding or the public adjuster advises the insured that a reference proceeding is necessary.
  
  
• If the loss occurred 18 months ago and the claim remains open.
  
  

Important:  The statute of limitations on property damage claims in Massachusetts is generally two years, but if you wait until close to two years to hire an attorney you can lose crucial rights.

HOW A PUBLIC ADJUSTER AND ATTORNEY WORK TOGETHER:

• If the insurer raises defenses to coverage, the attorney will take the lead.
  
  
• If the public adjuster and insurer are in the negotiating phase, the public adjuster will take the lead.  The attorney will be available to answer questions from both the insured and the public adjuster, and to provide advice, usually behind the scenes. 
  
  
• If the public adjuster and insurer are unable to agree on the amount of loss, the public adjuster and attorney will work closely together.  The attorney will draft formal “demand letters” to the insurer, prepare the case for a reference proceeding, and represent the insured at the reference proceeding.  The public adjuster will support claims about the amount of loss, will prepare or help prepare exhibits, and will be an expert witness at the reference proceeding.
  
  

TYPES OF COVERAGE IN MOST POLICIES

• Building damage
  
  
• Other structures 
  
  
• Personal property
  
  
• Loss of use / additional living expenses (residential) / business interruption (lost profits) (commercial)
  
  
• Code upgrades
  
  
• Mold
  
  
• Additional coverages such as landscaping, etc.
  
  

Special issues in condominium buildings:

• The master policy is issued to the condominium trust and provides coverage for common elements of the building (for example, the roof and common areas).
  
  
• The unit-owners policy (often called the HO-6 policy) provides coverage for the interior of a unit.
  
  
• Different master policies and unit-owners’ policies have different definitions of common elements.
  
  
• In condominiums, a unit-owners’ personal property and loss of use is typically covered by their unit-owner’s policy, not by the master policy. 
  
  
• Insurance proceeds from the master policy are disbursed to the condominium trust. 

VOCABULARY

• Actual cash value (ACV): 
  The value of an item on the date of loss.  This is paid immediately.
  
  
• Replacement cost value (RCV): 
  The cost to replace an item.  
  
  
• Depreciation:
  The difference between ACV and RCV,  This is paid upon completion of the work or when the item is replaced.
  
  
• Code upgrades: 
  The cost to bring a building in line with current state and local building code requirements.  This is paid upon completion.
  
  

Material presented in this brochure is for informational purposes only. It is not intended as professional advice and should not be construed as such. Unless and until you enter into a formal agreement with Attorney Kallen, she is not your attorney and you do not have an attorney-client relationship with her.

Let me Introduce Myself!

I have been an attorney in Massachusetts since 1994. I practice in general litigation and focus on insurance coverage and bad faith issues. I am available to assist claimants and insureds who have a dispute over property, homeowners, general liability, motor vehicle, and other insurance policies.

You can learn more about me on my website: www.kallenlawyer.com

 

40 FLORIAN STREET
ROSLINDALE, MA 02131
Phone: (617) 363-0547
nkallen@kallenlawyer.com
www.kallenlawyer.com

 Blog: 
Insurance Coverage Law in Massachusetts
http://insurancecoveragemassachusetts.blogspot.com

A video primer on insurance claims for damage to buildings

Welcome to my first video on insurance issues. In this one I discuss basic issues in real property insurance claims.  

First Circuit holds insurer did not act in bad faith in relying on property damage estimate that was lower than policyholder's estimate, or in delays that were also caused by the policyholder

River Farm Realty Trust owns property in Sherborn, Massachusetts.  Paul and Linda DeRensis live on the property.  As at so many homes in Massachusetts in the winter of 2015 (blog readers who lived here then will remember this well), in February and March 2015 ice dams caused water infiltration into the house.

The property was insured by Farm Family Casualty Insurance Company ("FFI").  The DeRensises notified FFI of the damage in early March, 2015. Throughout the adjustment of the claim FFI made a number of small errors, such as emailing Linda DeRensis incorrect claim information because the adjuster had mixed up her claim with another claim from a different Linda.  All such errors were quickly corrected.  

 In June, 2015, after inspecting the property, an outside adjuster for FFI provided the DeRensises with an estimate of about $18,000 to repair the damage.

The DeRensises did not make any response until November 2015, when they submitted to FFI  estimates indicating a loss of about $155,000. They retained an attorney who, in February 2016, submitted a new estimate of about $236,000.  FFI had the house reinspected by a new outside adjuster.  The new estimate, less the deductible and depreciation, was for $28,000.  FFI issued payment to the DeRensises in that amount.

On March 28, 2016, River Farm demanded a reference proceeding.  (A reference proceeding is the proceeding required by Massachusetts statute, and incorporated into property insurance policies,  in which a panel of three referees determines a dispute over the amount of loss in a property damage claim.)

The reference proceeding was conducted in June and July, 2016.  The referees found the actual cash value of the loss to be $137,888.  (Although there is a lot of debate about the precise meaning of actual cash value, in shorthand it is the value of the damaged property just before the loss, taking into account that the property is not in new condition.  Under property damage policies, an insurer pays the actual cash value up front.  After repairs are actually made, it pays the difference between actual cash value and replacement cost value.)  FFI paid the actual cash value amount within a month of the decision.

River Farm sued FFI for breach of contract and violations of Mass. Gen. Laws chs. 93A and 176D.  It alleged that FFI violated the statutes because it was first notified of the claim in March, 2015 and did not resolve it until the reference award in July 2016.  River Farm also alleged that a violation was established by the disparity in amounts between FFI's estimates, River Farm's November demand, and the final reference award.

In River Farm Realty Trust v. Farm Family Casualty Insurance Company, __ F.3d __, 2019 WL 6124489 (1st Cir.), the United States Court of  Appeals affirmed summary judgment for FFI. 

The court held that the length of time it took to resolve the claim was not a violation of the statutes. There was no evidence that the time period was unreasonable, and no evidence that delays were a result of a desire to delay or of bad faith.  Although FFI made some internal errors, those errors were not in bad faith.  Other delays were a result of the DeRensises own failure to communicate timely.  The court held that delay caused by a legitimate dispute between the policyholder and the insurer is not a bad faith delay by the insurer.

The court held that the disparity in estimates was not bad faith by FFI.  River Farm offered no evidence or argument that FFI failed to act reasonably in estimating the damage, or that its estimate varied from industry practice.  Moreover, when irrelevant numbers were removed from the estimates, they were not that far apart from each other. 

United States District Court for the District of Massachusetts holds that two year period for replacing property under replacement cost and ordinance and law coverage is not tolled by ACV payment delays caused by insured

Policies insuring property damage to buildings owned by the insured typically divide payment of loss into three coverages.  The insurer will initially pay the actual cash value (the "ACV") of the loss, which means the value of the damaged property at the time of the loss.  Then, once the property is actually repaired or replaced, insureds who have replacement cost coverage will receive the difference between the actual cash value and the reasonable amount they paid to repair or replace the property.

In a fire loss, for example, the insurer will first pay the actual cash value of the beat up, cat scratched armchairs (not that I'm projecting).  It will pay the difference between that and the cost of the new, not yet (but doubtless soon to be) scratched armchairs when the insured submits receipts that the new armchairs were purchased.  Insurance policies typically provide that replacement cost coverage will only be paid on repairs or replacements made within two years of the loss.

A third type of coverage, "Ordinance or Law" coverage, applies to the cost of bringing a building up to current codes.  Older buildings are often not compliant with current safety standards set forth in sanitary and health codes.  The buildings are "grandfathered in," meaning that the owners are usually not required to make changes that bring the buildings up to current standards. 

But once a certain amount of money is spent on a building, they are required to be brought up to current code.  (As a side note, that's why some buildings fall into worse and worse disrepair.  The owners may be able to afford to put a few thousand dollars into an electrical system, but once they do that they have to bring the entire building up to code.  That can cost many times as much as the original repairs.)

Ordinance or Law Coverage, like replacement cost coverage, is often limited to repairs made within two years of the loss.

When there is a dispute over the amount of loss in a property damage case, that amount will often be determined by a specialized type of arbitration called a reference proceeding.

One issue that often arises is whether the two year time limit to repair or replace property for replacement cost coverage and Ordinance or Law coverage to kick in is extended when an insurer's payment of the actual cash value is so untimely that the insured cannot afford to repair or replace the property within two years.

In Shri Gayatri, LLC v. Charter Oak Fire Ins. Co., 206 F. Supp.3d 684 (D. Mass. 2016) the United States District Court for the District of Massachusetts held that the time to repair or replace the damaged property was not tolled by a delay in payment of the actual cash value.  The reason for that holding was that the delay in payment was the a result of the insured's own delays and failures to communicate with the insurer.