Breaking: Lexington loses big at the 5th Circuit (Again). Shades of the Warrs…

This case has a little something for the people stopping in from google checking on the recent Brent Warr news (google is very very good to us) :-) as well as those of us that like seeing the courts make insurers honor their contracts. Let’s start with an excerpt from today’s ruling at the 5th Circuit Court of Appeals in Korbel v Lexington:

In October 2002, Korbel purchased a home at 430-432 Olivier Street (the “house”) in New Orleans, Louisiana, and began extensive renovations which were not completed prior to Hurricane Katrina. Korbel ate, bathed, and slept at his parents’ house, but sometimes slept at the house when he was working there late and was too tired to return to his parents’ house. Lexington insured the house, and the policy covered damage to the house, other structures, and personal property, as well additional living expenses resulting from loss of use. Hurricane Katrina struck on August 29, 2005, before the renovations had been completed. At the time, the property was two-thirds gutted, lacked a finished kitchen (including refrigerator) and bathroom, contained minimal furniture, and received electricity via a temporary pole. Korbel first reported his claim to Lexington on September 26, 2005.

Though I’m severely pressed for time this case became compelling for obvious reasons as a large part of the criminal case against Mayor Warr hinges on his residency when the storm hit. Let’s dig deeper into the fact patterns and see if any of this applies:

On October 12, 2005, the first adjuster assigned by Lexington to Korbel’s claims, Kevin Hamilton of Brush Country Claims Service, inspected and photographed the exterior of the house. The next day, Brush Country reassigned Korbel’s claims to another adjuster, Teresa Paul. On October 26, Paul inspected the house and interviewed Korbel about the damage. After this inspection, Paul told Korbel that she would work on his adjustment and that “it might go quicker” if Korbel obtained an estimate on a new roof. Paul also told Korbel to obtain estimates for re-siding and painting the house and for replacing or repairing the windows. In the following months, Korbel made several calls to Paul, who assured him that she was working on his estimate. Korbel informed her that he had obtained an estimate on the roof, and Paul did not ask him to send it to her, but instead told him to wait until she had calculated her own figures.

In January 2006, Paul stopped returning Korbel’s phone calls, and on January 25 Korbel contacted Lexington by phone and was informed that Lexington had not received an adjustment from Paul, that his claim was “on hold,” and that no claim number had been assigned. On February 4, Lexington issued a $2500 check to Korbel for his additional living expenses, and shortly thereafter Lexington sent Korbel a letter informing him that Steven A. Butler had been assigned to investigate his claim. On March 3, Butler and two construction consultants inspected the house. A structural engineer also inspected the house later in the day. On May 6, Lexington paid Korbel $70,024.76 for damage to the house and $3,448.02 for damage to other structures.

On August 28, 2006, Korbelfiled suit in Louisiana state court, alleging that he was not adequately compensated for damage to personal property (“coverage C”) and his additional living expenses incurred as a result of the storm (“coverage D”), and seeking “bad faith” penalties, damages, and attorneys’ fees pursuant to Louisiana Revised Statutes 22:658 and 22:1220 for Lexington’s alleged failure to timely pay his claim after receiving satisfactory proof of loss. Lexington removed to federal court on diversity grounds and filed a motion for summary judgment seeking dismissal of all of Korbel’s claims. The district court dismissed Korbel’s claims under coverage D, holding that under the terms of the policy, Korbelwas not entitled to payment because he did not actually reside at the house before Hurricane Katrina. The district court also dismissed Korbel’s statutory bad faith claims, holding that Lexington did not receive satisfactory proof of loss until Korbel provided the estimates originally requested by Paul in October 2005 in his July 18, 2006, letter, and that Lexington timely paid Korbel after receipt thereof.

Summary Judgment and dismissal? This sounds like the work of a former insurance defense lawyer turned district court judge. The Fifth Circuit seems to agree:

Korbel argues that there is a genuine issue of material fact as to whether Lexington was fully apprised of his claim through its adjusters’ inspections and that the district court erred in concluding that Lexington did not have satisfactory proof of loss before Korbelprovided Lexington with written estimates in July 2006. We agree. The district court focused on the estimates requested by Paul and the “specific contractual language creating requirements for proof of loss” upon Lexington’s request. However, as discussed above, proof of loss under 22:658 and 22:1220 need not come in any particular form, and there is no evidence—and Lexington does not allege—that Lexington ever requested a signed, sworn proof of loss (which would have included estimates). Rather, Lexington, through Paul, asked Korbel only for estimates, and, viewed in the light most favorable to Korbel, the summary judgment evidence does not support the conclusion that Lexington was waiting on Korbelto provide these estimates. Paul, the only person known to have discussed the estimates with Korbel prior to the lawsuit, told Korbel that the requested estimates were intended for comparison to her own calculations, which were never provided…….We therefore reverse this portion of the district court’s judgment and remand for further proceedings.

On his claim for the ALE’s (additional living expenses) Mr Korbel was not so lucky as the 5th circuit defines residency for purposes of collecting them in his civil case and found he was not entitled to that policy benefit:

Korbel argues that there is sufficient evidence in the record to raise a question of fact as to whether he did in fact reside at the house. This evidence includes the following: 1) Korbelidentified 430 Olivier Street (the house’s address) as his address in his deposition; 2) Korbel’s driver’s license lists that address; 3) Lexington corresponded with Korbel at that address; 4) Korbel received his mail there before and after the hurricane; and 5) although he only slept there sometimes, he went there everyday before the storm. However, although Korbel clearly spent a great deal of time working on the house and intended it to be his residence in the future, this evidence is insufficient given that he only sometimes slept at the house when working late on renovations, two-thirds of the house—including the kitchen, which lacked even a refrigerator—had been gutted, and he kept only a minimal amount of furniture there. Further, beyond working on the restoration, Korbel did not engage in leisure activities at the house, but was only there if he was “[w]orking on the house, picking up mail, checking on something, [or] waiting on someone.” Moreover, many people receive mail at places other than their residences. In contrast, Korbel clearly resided at his parents’ house, where he ate, bathed, and usually6 slept, and which he referred to as his “home” during his deposition. Under these circumstances, there is no question that Korbel did not reside at the house. We therefore affirm this portion of the district court’s judgment.

In Mr and Mrs Warr’s case their criminal insurance fraud charges relate to claiming a content loss they did not incur while the majority of this case centers on residency. In the end there is no hard and fast definition of what constitutes a residence, rather it will based on the facts and circumstances. We know the Mayor’s water and sewer records were subpoenaed by the feds. It will be interesting to see what other evidence of residence is produced in the meantime.

Nowdy and I have agreed to open a USA v Warr PACER filing page so the general public can read the case filings directly and without spin. Like the Beef Plant case we will not tolerate a lynch mob but encourage frank and respectful commentary pro or con Mr and Mrs Warr. For my own part I wonder why Lexington was selling an ALE rider on houses they knew were not the insured’s primary residence.

sop

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