Let’s talk bad faith insurer Prime Insurance Syndicate and Appraisal

A few weeks back I was contacted by a journalist inquiring if we knew anything about a small time non-admitted carrier based out of Utah, Prime Insurance Syndicate as they had plastered a press release all over the internet trumpeting a jury verdict down here in their favor as something unique and GASP they found the local jury to be very fair. The press release was so over the top we did some checking and after pulling the case up on PACER we decided it was not worth wasting time or space here on Slabbed covering. Insurers have won several verdicts here including some cases we profiled in Aiken and Bossier so we considered the source and moved on. Then in one of those famous serendipitous Slabbed moments I ran across an article in Claims Magazine which covered the verdict. As the blue collar retirees that were through my office yesterday giving me their tax information would say let tackle this for shits and giggles. We begin with last month’s press release:

Prime Insurance Syndicate, Inc. was successfully defended in a Hurricane Katrina lawsuit in the United States District Court for the Southern District of Mississippi. This is believed to be the first jury verdict in Mississippi exonerating an insurer in a Hurricane Katrina claim.

After six days of trial, the jury unanimously rendered a defense/zero verdict on January 19, 2010. The Plaintiffs’ complaint, filed in October 2007, alleged bad faith refusal to pay the insurance claim, willful and negligent breach of contract, breach of the duty of good faith and fair dealing and other claims, for which Plaintiffs claimed over $7 million in compensatory and punitive damages. The jury returned a defense/zero verdict, finding that Prime Insurance Syndicate, Inc. did not breach its contract with the Plaintiffs.

A challenging case in the post-Katrina environment, Prime had already paid everything that was owed under the policy and had come to an agreement with the Plaintiff’s own representative.

Prime withdrew from the INEX Insurance Exchange on December 31, 2009.

In our at times surreal post Katrina world we’ve had the insurance company loving luvin’ bunch over at the LexisNexis Insurance Law Center (lead by my bestest beetch David Rossmiller) opine that insurers have won all the important issues. (I’ll add that bunch has zero experience in wind water cases and all work for firms which represent insurers so we consider the source before laughing at them and their bogus commentary.) We’ve had other insurers take the attitude that verdicts like Aiken are just but when they get their asses kicked it is because the jury was homecooked. Against that backdrop and like a fly on shit here comes Prime trumpeting this verdict like they are breaking new ground. As we’ll find out the ground is actually well trodden and Prime is no angel but we need to visit with Claims Magazine for some perspective:

The case involved Prime Insurance Syndicate and one of their policyholders, whose home was heavily damaged when a large tree was blown onto his roof during Hurricane Katrina. The case is considered significant due to the fact that it is the believed to be one of the first jury verdicts in Mississippi that exonerated an insurer in a Hurricane Katrina claim.

Claims spoke with lead defense attorney Rick Bass, senior partner in the Jackson, Miss., office of Phelps Dunbar, LLP, to get a better understanding of the issues at play in the trial, the importance of having proactive catastrophe claim-handling practices, and how concern over a fair trial permeated the case.

Am I alone in feeling this demeaning to the people of South Mississippi? Phelps Dunbar is locally famous for poaching the future convicted felon, John Whitfield, from the Circuit Court Bench in Harrison County. Also it was not lost on us that Phelps Dunbar employee Jane Tucker, a proud member of the Dickie Scruggs lynch mob over at the old Folo blog, certainly represented insurers with her colleagues while running down the Rigsby sisters along with the Florida based tool that founded the blog. Far from being an anonymous coward, Ol Jane is best known for being tossed from Folo after she libeled former Mississippi Supreme Court Justice Oliver Diaz. Gotta give her credit though ’cause she had bigger balls than her former blog partners as we continue:

What caused the disagreement and the resulting litigation?

BASS: It boiled down to a disagreement over the amount that was owed. The policy had, as most homeowners’ polices do, an appraisal provision in it. Prime demanded appraisal, and so both parties appointed appraisers and an appraisal was done of the loss. Once that amount was agreed upon, Prime paid that amount within a month. However, the homeowner later fired his appraiser and then sued Prime.

The issue at hand was that, in the process of submitting a check, some of the paperwork was mishandled. This resulted in a delay of several months before the replacement check was issued, but was a question for the jury as to whose fault that was — the insurer’s or the policyholder’s. Apparently, the jury either did not believe that the delay caused any problems for the plaintiff, or believed that it was the plaintiff’s fault. In any case, the jury did not find the delay to be a breach of contract.

The counsel for the plaintiff’s in this case was the law firm of LoCoco and LoCoco a firm we at Slabbed haven’t heard too much about. Now I’ve seen too much to believe any paperwork was mishandled in this case, rather, a cursory google revealed that both Prime Insurance Syndicate and its parent Prime Insurance Company are in financial trouble which certainly explains more about why they didn’t pay a $30,000 appraisal award than anything else. I’ll add the dipshits over at Lafayette Insurance tried doing the same thing to me after I thought we reached a settlement but ol’ Sop was one step ahead of them as we continue:

The policyholder’s home was located just above Interstate 10, which runs along the Gulf Coast. Was there concern about getting a fair trial?

BASS: I know that there was a lot of speculation as to whether an insurer could get a fair trial in what was essentially Ground Zero for Katrina’s landfall. The answer was, we certainly did. We had a wonderful judge in federal court, and a jury that I thought listened to the proof and absolutely was fair and unbiased. For example, the first question asked when we were going through [jury selection] was, ‘How many of you had a Katrina claim?’ Every single hand went up. We knew we were working with a group of folks who were greatly affected by Hurricane Katrina, and many of them had difficult experiences with their carriers.

However, I would say that anyone who had questions about the jury system on the Gulf Coast and in the federal courts should take heart from this. I don’t know how many more Katrina claims are out there that have not been resolved — and every case and jury is different — but I certainly would not be afraid to try another case for an insurer on the coast.

Now boys and girls we’ve discussed the concept of appraisals a good bit before here on Slabbed and aside from Prime dragging their feet on paying this claim the legal concepts are well established. In this case Prime demanded appraisal of the damage and evidently the policyholders hired an idiot to represent them and lets be honest, their lawyers couldn’t have been much better for forcing this case to court. But Prime also found itself on the receiving end of a well done appraisal in a case I highlighted back in April of last year involving Children’s Imagination Station. In that case the umpire was Lewis O’Leary, a West Gulfport guy made good who is also one the best policyholder appraisers in this country bar none and the result was far different and paints a more complete portrait of Prime Insurance Syndicate and their penchant bad faith claims handling:

Beyond the emails in the Kuehn evidentiary record we found there is a good bit of case law in this area. One such recent case was heard by Judge Louis Guirola little more than a year ago in the Children’s Imagination Station v Prime Insurance Syndicate that addressed these issues spot on. Like State Farm in Kuehn, Prime Syndicate was unhappy with the results of appraisal.  Unlike Kuehn and its blockbuster exhibition of bad faith by Team Spragins, Prime’s lawyers did not try to interfere with the process itself while the appraisal was ongoing. Prime simply tried to negate the results which was quickly bounced out of court house. I noted one final commonality with Kuehn in that appraiser Lewis O’Leary was involved, this time as umpire. Prime fought Children’s Imagination Station tooth and nail from ever getting the appraisal pursuant to the policy provisions, probably because they knew they lowballed the damage.  Here are some snippets from the granted motion for partial summary judgment against Prime:

On August 29, 2005, CIS, which is a daycare center in Long Beach, Mississippi, was damaged by Hurricane Katrina. The daycare center was insured by a policy issued by Prime. The policy limits were $200,000, and the deductible for wind damage was $10,000. (Ex. A to Pl.’s Mot. at 1). In December of 2005, Prime demanded an appraisal pursuant to the provisions of the policy. On August 9, 2007, CIS filed this lawsuit against Prime, asking the Court to appoint an umpire pursuant to the appraisal clause or alternatively to hold that Prime had waived its right to an appraisal by failing to participate in the process in good faith. The appraisal clause in the policy provides:

1. Appraisal
If you and we disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the value of the property or the amount of loss. In this event, each party has the option to either:

a. Select an independent, competent and impartial appraiser; or

b. Use as their appraiser, the adjuster or other party they retained initially to adjust the loss.

The appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction. The appraisers will state separately the value of the property and the amount of loss. If the appraisers submit a written report of an agreement to us, the amount agreed upon will be the value of the property or the amount of loss. If they fail to agree, they will submit their differences in writing to the umpire. A decision agreed to by any two (2) will be binding.

The order continues:

CIS asserts that it is entitled to the repair costs listed in Item 2 of the appraisal award, which total $114,300, in addition to the repair costs listed in Item 4 of the appraisal award, which total $99,000. Since those repair costs total $213,000, an amount that exceeds the total of the $200,000 policy limits and the $10,000 deductible, CIS asserts that it is entitled to the policy limits. After the appraisal, Prime paid CIS $89,000, which reflects the $99,000 in damage listed in Item 4 of the appraisal minus the $10,000 wind deductible, but refused to pay any additional damages. CIS has filed this Motion for Partial Summary Judgment asserting that there is no genuine issue of material fact that CIS is entitled to an additional $111, 000 (the $200,000 policy limits minus the $89,000 already paid by Prime) under the appraisal award. CIS also demands prejudgment and postjudgment interest.

Is anyone else struck by the bald faced bad faith inherent to Prime Insurance’s treatment of this claim. The insured had a building that did not flood with clear wind damage yet the wind underwriter did everything they could to delay paying this claim from fighting CIS for ever getting the policy mandated appraisal to short paying them after. Prime’s arguments like those of State Farm in Kuehn are hollow to the point that should make them sanctionable. Evidently Team Prime’s lawyers are also of the variety that will doing anything for the right price as the order continues:

“In Mississippi, as in other states, it is difficult for a [party] to succeed in impeaching an award made by disinterested appraisers. Mississippi law favors amicable settlements of controversies without court involvement.” Mitchell v. Aetna, 579 F.2d 342, 350 (5th Cir. 1978). A court may set aside an appraisal “where the award is so grossly inadequate as to amount to a fraud in effect, although fraud is not charged, or where the appraisers were without authority, or where there is a mistake of fact or to prevent injustice.” Munn v. Nat’l Fire Ins. Co., 115 So. 2d 54, 58 (Miss. 1959).

In the present case, Prime does not assert that the appraisal award should be set aside due to fraud, mistake, lack of appraiser authority, or injustice. Rather, Prime asserts that the appraisal award is ambiguous. Prime’s argument as to why the repairs completed by a contractor, Cifra Construction Company, are not covered under the policy is apparently that the repairs made by Cifra Construction were not related to damage caused by Hurricane Katrina. (Pl.’s Resp. at 5). However, the appraisal award signed by both appraisers and the umpire clearly states:

The appraisal panel has been asked to set the amount of loss as the result of winds from Hurricane Katrina occurring on 08 29 05. The undersigned have considered all available evidence and hereby certify that the replacement cost value and the actual cash value of the loss as the result of wind from Hurricane Katrina is as follows:
. . . .
2. The ACV of damages repaired by Cifra Construction Co is $114,300.
. . . .
4. The ACV of wind damage repairs handled by the inured outside of Cifra’s contract and the damages yet to be repaired, including the replacement of the West & North brick walls damaged as the result of the storm repairs is $99,000. (Ex. C to Pl.’s Mot.) (emphasis added).

One of the appraisers, Mr. Browne, has submitted an affidavit in which he asserts: “The amounts stated in the award do not include the cost of improvements or changes made by the insured of Cifra Construction Company. The award states only the value of losses directly attributable to wind damage to the insured building caused by Hurricane Katrina.” (Ex. A to Reply). The umpire, Mr. O’Leary, has also submitted an affidavit in which he asserts: “The amounts stated in the award do not include the cost of improvements or changes made by the insured or Cifra Construction Company. The award states only the value of losses directly attributable to wind damage to this building caused by Hurricane Katrina.” (Ex. B to Reply).

In opposition to the Motion for Partial Summary Judgment, Prime requests time in which to conduct depositions of CIS’ appraiser, Kenneth Browne, and the umpire, Lewis O’Leary. In support of this argument, Prime asserts that CIS’ interpretation of the appraisal award is different from that of Mr. O’Leary and Mr. McCaffrey and submits that their testimony will establish that the intended award to CIS was $99,000. However, as explained previously, CIS has submitted affidavits from Mr. Browne and Mr. O’Leary that do in fact support CIS’ interpretation of the appraisal award and the plain language of the appraisal award. Prime has not submitted any evidence to the contrary from its own appraiser, Mr. McCaffrey, and has not submitted an affidavit to the Court asserting that it is incapable of obtaining such an affidavit from Mr. McCaffrey.

Judge Guirola concluded:

The Court finds that the appraisal award clearly and unambiguously provides that the repairs completed by the construction company were caused by the hurricane. The appraisal award is signed by all three of the individuals who participated in the appraisal, and Prime admits that the agreement of at least two of the individuals who conducted the appraisal is binding. Prime has not pointed to any policy language that excludes coverage for the repairs completed by the construction company; it has not submitted any evidence, even from its own appraiser, that the damages repaired by the construction company were not caused by Hurricane Katrina; and it has not demonstrated that it is incapable of obtaining evidence that creates a genuine issue of material fact. Therefore, the Court finds that CIS’ Motion for Partial Summary Judgment is granted.

Is it me or is Prime trying to paint a picture of their company’s behavior down here that bears no relationship to reality? Neither of these cases involved storm surge flooding yet despite clear cut damage Prime did everything in their power to avoid paying. In the end the difference was in the quality of the appraisers and lawyering for the plaintiffs. The folks at Phelps Dunbar may be proud of themselves for winning an open and shut case but we’re not impressed at here at Slabbed. And we are certainly not foolish enough to believe Safeco is any panacea for the policyholder.

Policyholders wanting additional information on the insurance appraisals should check out the United Policyholders website for their white paper on the appraisal process. Finally there is a price to be paid for insuring with a small time carriers with bad credit ratings. Prime Inusrance Policyholders down here found that out the hard way.

sop