Shall we say, with some apparent reluctance, Judge Walker issued an Order granting plaintiff’s Motion to Amend?
Before the Court is Plaintiffs’ July 13, 2009 motion to amend their complaint to add proposed class action allegations against USAA Casualty Insurance Company (USAA) for failing to properly pay its insureds general contractor’s overhead and profit…The Court having considered the motion pleadings and argument of the parties finds that in light of the liberal standard applicable to amended pleadings, the fact that the motion to amend was timely filed under the case management order, and discovery is ongoing, the Court finds insufficient basis for denying the motion. It is therefore, ORDERED that Plaintiffs’ motion to amend the complaint is granted, this the 19th day of October, 2009.
Contractor overhead and profit is such an expected construction cost, it simply never occurred to me that payment could be a disputed issue. Consequently, I found the Affidavit of Stephen L. Strzelec incredibly interesting. Strzelec has been working as a claims practices expert since November 2002 after approximately eighteen years in the insurance industry working for State Farm:
It is a well known fact within the insurance industry as well as the adjusting community that if repairs to a dwelling require the services of three or more different “trades” (such as roofers, drywall, electricians, painters, and carpenters), then the labor involved in the hiring and coordinating of the work of the different trades during the repair process must be completed by someone.
The insured can deal with this problem in two ways: the insured can hire a general contractor and pay this person the customary fee (usually 20% of the entire job), or do it himself/herself. Requiring the insured to perform these necessary tasks without compensation does not comply with the insurer’s policy obligations. This is why for decades it has been the standard practice in the insurance industry to include general contractor’s overhead and profit (O&P) of 20% (10% overhead + 10% profit) with the total cost listed on the estimate.
On occasion an insurance company as a general policy will decline to pay this O&P for repair work regardless of the number of trades required to make repairs. Other companies have attempted to leave the question of including O&P in a repair estimate up to the discretion of the adjuster. If, based on the adjuster’s subjective opinion, the administrative efforts of a general contractor would be necessary during the repairs, O&P would be included. Under either of these circumstances, however, when there are three or more trades involved in the repair process, failure to include O&P constitutes a breach of the insurer’s obligations to the insured and violates industry adjusting practices.
The USAA estimate shows a minimum of 6 trades are required to complete the repairs. Clearly, these repairs require someone to coordinate the work ofthese different trades. Mr. Burger, if the insurance policy is to be followed, should not be required to provide this labor himself anymore than he should have to apply the roofing or paint without compensation. An insurer should never be allowed to profit from the insured’s labor on a covered loss, or reap a bargain at the insured’s expense. Doing so is an example of an insurer holding their own financial interests above that of their insured.
In my opinion, overhead and profit of twenty percent is a standard expense when estimating the actual cash value or replacement cost value of damages to a structure necessitating repairs that would require three or more trades. As such, remuneration for overhead and profit of twenty percent should be included with an insurer’s actual cash value payment to an insured when three or more trades are involved.
A reading of the Complaint leads one to conclude Burger began as a typical Katrina insurance claim in litigation – a letter of denial citing the all-risk policy’s anti-concurrent causation language.
The meteorological and physical evidence at the site of the insured property and the accounts of eyewitnesses also establish that the insured property was completely destroyed by wind activity prior to any storm surge.
In accordance with policy provisions, Plaintiffs notified DEFENDANTS of their “direct physical losses.” . However, DEFENDANTS failed to fairly, adequately, and sufficiently investigate or adjust Plaintiffs’ losses.
Based on its inadequate claims investigation and adjustment and, in certain instances, engineering reports that were speculative, inadequate, and inconclusive concerning the extent to which Plaintiffs’ losses were caused by water or water-borne debris, if any, and how much of the losses were caused by hurricane wind, DEFENDANTS denied Plaintiffs’ claims for hurricane damage and failed to pay Plaintiffs for the amount of their losses that it could not prove was caused by hurricane water. In denying Plaintiffs’ claims, DEFENDANTS cited their “water damage” exclusion and the “anti-concurrent cause clause,” which state as follows:
We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other causeor event contributing concurrently or in any sequence to the loss…
…DEFENDANTS’ failure to pay Plaintiffs all insurance proceeds promptly upon completion of their alleged investigations is without legitimate or arguable reason in fact or law.
Although Plaintiffs fulfilled any and all obligations imposed upon them under their Policy, DEFENDANTS failed to properly pay Plaintiffs for all loss or damage to Plaintiffs’ dwelling and personal property contained therein. Plaintiffs should have received payment for general contractor’s overhead and profit with their initial payment from DEFENDANTS.
Although the services of a general contractor were anticipated and required because of the loss and damage to Plaintiffs’ dwelling, DEFENDANTS made no payment to Plaintiffs for general contractor’s overhead and profit. DEFENDANTS frequently and arbitrarily fail to make payments for general contractor’s overhead and profit when paying their insureds’ claims for loss or damage to dwellings in Mississippi and throughout the United States… (emphasis in the original).
However, the Amended Complaint is not at all typical in seeking Class status. To my knowledge there have been only two prior attempts in the four-year history of Katrina insurance litigation in Mississippi – Woullard v State Farm and Guice v State Farm – and neither resulted in a Class action. Burger, on the other hand, more narrowly defines the Class:
Plaintiffs bring certain claims in this lawsuit on behalf of themselves, and all other persons similarly situated, pursuant to Fed. R. Civ. P. 23. The Class that Plaintiffs seek to represent consists of:
Any and all USAA insureds who received payments, directly or indirectly, from USAA for physical loss or damage to their dwelling, such dwelling located in the United States, at any time between August 15, 1998 and the date of class certification but who were not compensated for general contractor’s overhead and profit. Excluded from the Class is/are: (I) USAA and all directors, officers, employees, partners, principals, shareholders and agents of USAA; (2) Persons or entities who timely opt-out of this proceeding using the correct protocol for “optingout” that is formally established by this Court; (3) any and all Federal, State and/or Local Governments, including, but not limited to, their Departments, Agencies, Divisions, Bureaus, Boards, Sections, Groups, Councils and/or any other subdivision, and any claim that such governmental entities may have directly or indirectly; (4) Any currently-sitting Federal Court Judge or Justice, and the current spouse and all other persons within the third degree of consanguinity to such judge/justice; and (5) Plaintiffs Counsel.
Although Judge Walker’s Order allows the Plaintiffs to seek class status, it is worth nothing that over one-half of the two-page document was devoted to text summarizing the Defendant’s objections:
The lion’s share of Defendant’s argument opposing the motion to amend is directed at whether the class allegations can survive a motion to dismiss. However, the issue to be addressed on this motion is not the ultimate viability of Plaintiffs’ class allegations, but whether Plaintiffs should be permitted to amend their complaint to state them.
The Response in Opposition filed by USAA is well written and thought provoking. Burger appears to face an uphill battle. However, Plaintiff’s counsel is experienced in class action litigation – former SKG members DeWitt Lovelace and Don Barrett, joined by Arkansas attorney Thomas Thrash. Their point – counter point presentation of USAA’s objections in Burger’s Reply provides insight on the key issues raised by Defendants in their opposition, for example:
Plaintiffs’ proposed Amended Complaint explicitly alleges that Plaintiffs should have received general contractor’s overhead and profit with their initial actual cash value payment from Defendant. (Proposed Amended Complaint, ‘J(24). And Defendant plainly admits in its Response that “USAA CIC would not pay O&P as part of the actual cash value payment…” (Response at 4). Defendant contends that its actions were appropriate and argues that Plaintiffs have no claim, notwithstanding Defendant’s failure to pay O&P with Plaintiffs’ actual cash value payment.
Yet addressing a related issue in its Response, Defendant cites Louisiana case law, which it relies upon, finding that in numerous jurisdictions courts have held that an insurer isrequired to include GCO&P in an actual cash value payment when an insured is reasonablylikely to require the services of a general contractor. Nguyen v. St. Paul Travelers, 2008 U.S.Dist. LEXIS 87706, *13-14 (E.D. LA 2008). The Nguyen court stated: Although there is no Louisiana law on the payment of GCO&P as part of an ACV payment, numerous other jurisdictions have held that an insurer is required to include GCO&P in an ACV payment when it determines that an insured is reasonably likely to require the services of a general contractor to repair covered property damage. See, e.g., Mills v. Foremost Ins. Co., 511 F.3d 1300, 1305-06 (lIth Cir. 2008) (holding that “actual cash value” includes contractor’s overhead and profit charges if it is reasonably likely that insureds would incur such charges); 4 Parkway Associates, LLC v. Harleysville Mutual Ins. Co., 129 Fed. Appx. 955, 963 (6th Cir.2005) (holding that costs of contractor’s overhead and profit should be included in actual cash value of loss when insured [*14] would reasonably be expected to hire a contractor to repair its property). This is true whether the insured hires a general contractor, acts as his own general contractor, or does not ever repair the property. See Mee v. Safeco Ins. Co. of America, 2006 PA Super 257, 908 A.2d 344 (Pa. Super. 2006) (an insured is entitled to overhead and profit when use of a general contractor would be reasonably likely, even if no contractor is used or no repairs are made); Mazzocki v. State Farm Fire & Cas. Corp., 1 A.D. 3d 9, 766 N.Y.S.2d 719 (NY 2003) (holding that insurer is obliged to include overhead and profit in actual cash value payment whenever it is reasonably likely that a contractor would be needed to repair or replace the damaged property); Ghoman v. New Hampshire Ins.Co., 159 F. Supp. 2d 928 (N.D. Tex. 2001) (holding that insured is entitled to GCO&P under an actual cash value policy, even if the insured is able to repair or replace the property for less money than paid by the insurer); Salesin v. State Farm Fire & Cas. Co., 229 Mich. App. 346, 581 N.W. 2d 781 (Mich. App. 1998) (holding that insurers cannot deduct contractor’s overhead and profit in paying actual cash value) Id.
Thus, the case law relied upon by Defendant contradicts Defendant’s claim that permittingPlaintiffs to amend their Complaint would be futile and instead suggests that Defendant, asalleged by Plaintiffs, breached its contract with Plaintiffs and the many other individuals whowould potentially be members of the Class Plaintiffs propose, by undertaking its practice ofremitting payment for its insureds’ actual cash value losses without including compensation for GCO&P…
Plaintiffs, as alleged, were unaware they were entitled to GCO&P with their initial actual cash value payment from Defendant because, as Defendant’s documents show and as Defendant admits, Defendant both declines to pay its insureds GCO&P when making actual cash value payments and declines to inform its insureds that they are entitled to such payment. Upon learning that they were entitled to payment of GCO&P at the time they received their initial actual cash value payment from Defendant, Plaintiffs promptly moved to amend their Complaint.
An uphill battle, maybe – but no hill for a climber. not to mention, in the current economy, there are general contractors that could use the work.