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Property Damage and Homeowners Insurance 101

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Property Damage and Homeowners Insurance 101

Weather is becoming more erratic and insurance policies are becoming more complicated. Policyholders are often confused about coverage and whether the insurance company is correct. Many are turning to attorneys for answers. This course aims to give attorneys an overview of a homeowners policy. We will break down and explain the policy and help you decide whether the insurance company is following its terms.


Evan Walker
The Law Office of Evan W. Walker


Evan Walker: Hello, welcome to Property Damage and Homeowners Insurance. This may sound boring, but it's not. It's exciting. Why? Because we're talking about fires, flood, hail. And because we're talking about the most important asset for most people, their home, where they live, where they raise a family and now in the age of COVID, it's where a lot of us work, it's our office.

And if you're home, your greatest asset is damage and you don't have insurance or you're underinsured that could be financially catastrophic. In fact, just today, I called my own insurance company to increase our dwelling limits, to ensure we as of family are not uninsured. So this is important information.

It's going to have a direct impact on your life, and it could have a direct impact in your client's lives if you decide to practice in this area of law. Which brings me to the next point, we will end our talk today about litigation, insurance litigation about suing your insurance company, about not taking the insurance company's decisions as final.

Stepping up and challenging them and holding them to account if need be. A little bit about me, I'm from a small town outside of New Orleans. I graduated in 2008 as part of the Hurricane Katrina class. In fact, my first week of law school ended on a Friday, Hurricane Katrina was Monday. So and I wound up going to Houston as a FEMA evacuee.

I bring that up to say, by the time I graduated three years later, the entire city of New Orleans and most of the state of Louisiana were engaged in insurance litigation relating to Hurricane Katrina. So I graduated in '08 I worked for a defense firm, defending Hurricane Katrina claims, working for insurance companies. After that, I moved to the east coast and worked for another insurance company, defending claims.

So I had a couple of years experience as a defense attorney. And then in 2015, we moved to California and I opened up my own practice then, and I've been doing plaintiff work. And so now about 60% of my practice is high end serious personal injury. And the other 35, 40% are significant large scale property damaged claims.

And that breaks down into a first party claim, when there's a dispute with your insurance company, you're challenging your insurance company. The other part of that are third party claims where we turn around and we sue a third party who has caused property damage. And we'll speak a little bit about those experiences.

I really break those down into government tort claims and inverse condemnation, which is a particular California constitutional claim that we have out here. So as far as a roadmap goes, we're going to be talking about just some general background and then the types of insurance. We'll talk about the declaration page, the policy, which is also known as the insuring agreement.

We'll talk about endorsements. We'll talk about claims. How do you make a claim? Why do you make a claim? We're also talk about litigation, suing your insurance company. How does that work? We're not going to be talking about CGL or commercial general liability policies. We're also not going to be talking about renters insurance or condo's insurance. We're sticking to homeowners insurance, understand however that there's going to be some overlap with renters and condos insurance, but overall that's a general background of where we're headed. So let's get started.

All right, now let's talk about just some background information. So what's the purpose of insurance? Well, is the purpose to ensure against risk? Well, that's true in part. The purpose of insurance, as I understand it is to protect against large risk, not small risk, for instance, your iPhone. And I know there are companies out there that sell these types of small policies, but the general consensus and one which I subscribe to is that's not really the purpose of insurance.

The purpose of insurance is to protect you against a catastrophic loss. It's to protect you against a loss where if it occurred, you could not bounce back from it. So that's the point of insurance. And it's important to keep that purpose in mind when we are discussing this topic. Insurance policies, here's a few things to know about those. What are they? Well, fundamentally their contracts.

That's what we're talking about. You as a policy holder and the insurance company are in a contractual relationship, that relationship is defined and understood by the contract caveat to that. A contract is not understood and interpreted in a vacuum. You have to look to state law and state court decision, state statutory law.

We'll talk about that a little bit later, but fundamentally what we're talking about when we're talking about insurance policies are contracts and contractual relationships. Most of these insurance policies are on standard forms. Most adjusters don't know the nuances of the policies, some do, but a lot don't and these are standard. I think the term is ISO forms. They've been around for years, and there's not much difference between them when you're dealing with the actual policy itself also known as the insuring agreement.

There are a lot of provisions and there are a lot of interpretations and a lot of the litigation over insurance policies are about interpretations. What does this mean? How is this understood? And we'll talk about definitions later, but what you'll find out, once you start to look more closely at this is some obvious words are defined. A lot of words, which are important to the policy are not defined. So then the argument becomes, well, what does that term mean?

So we talked about this insurance it's eight law. I mean, that's something that's fundamental you have to know, we're not talking about one law fits all. It's different from state to state. Is there some overlap? Yes. Is there some consistency? Yes. Even though the contract policies are basically all written on the same forms, they are understood and interpreted and still subject to different state law and state bodies.

Here in California, we have the CDI the California Department of Insurance. Other states have similar agencies that oversee the insurance industry. What typically do insurance companies do and this is kind of beyond the scope of our talk, but succinctly what they do at least my understanding is they take the money from the policy holders by way of deductibles or premiums and they invest that money in the equity market.

And frankly, the last couple years they've had a great rate of return. And so that's how the insurance companies are operated. And when it comes to claims, that's always where insurance companies lose money. Now by state law, with respect to claims, insurance companies need to have enough reserves to cover potential loss. You might have heard that term before about reserves. So it's important to know that too, that state law generally requires insurance companies to have enough money set aside for every claim to pay that claim in its entirety.

Now, let's talk about the types of policy. Really, there are just two types for our purposes, the first type is what's called an all peril policy. The other type is what's called a named peril policy. So let's break that down all perils, frankly, it's a misnomer because it doesn't mean all pearls. What it means is all perils, except for the perils that are excluded by the policy.

For example, flood is going to be excluded under your standard homeowner's policy. And we'll talk about exclusions later, but that exclusion is important, I mean, we saw that litigated time and again, going back to the Hurricane Katrina litigation, what was interesting about that was the argument was, well, what caused the water damage?

Because 98% of all homes in New Orleans did not have flood insurance. They had homeowners insurance, but flood was excluded. And we all know that Hurricane Katrina caused massive flooding in New Orleans. And so what Hurricane Katrina also did was caused wind to tear off the roofs of homes. And then at that point, wind driven rain came in and caused water damage.

So time and again, what was litigated during the Hurricane Katrina lawsuits was this issue was the water damage that was in the home caused by flood, therefore not excluded, or was it caused by wind driven rain, which was excluded. So exclusions are extremely important and you need to get your head wrapped around that because it's something you need to understand.

Now, have it in parallel policy. It's good because you can argue that as a general rule a peril is covered. Because it's an all a peril policy. So unless the policy specifically excludes a peril like it does for flood you as a policy holder argue, "Hey, it's excluded," because insurance companies have the burden of exclusion.

They have to step up and say, "Look, this peril is not covered by your policy. It's excluded on page 17." Flood for example. Whereas policy holders, their burden of proof is covered. They have to prove that something is covered, but you understand when you're looking at all peril, that is flipped because you, as a policy holder, you step up and say, "Look, insurance company everything's covered unless it's excluded." If you think this per is excluded, prove it.

And here in California, what insurance companies have to do in that regard is they have to send a letter to the policy holder stating that this peril is not covered. And they have to explain why. They have to cite the applicable policy language. For example, Mr. Policy holder on page 17, your policy specifically excludes flood and the damage to your home was caused by flood. Therefore, your claim is not covered.

That's how it happens. The other type of policy is what's called a named peril. What this means is that the only perils that are named in the policy are covered. So where you can see this often it gets a little confusing. Is that your homeowner's policy, when it comes to the actual insurance coverage of your home, the dwelling is often an all peril policy.

However, when it comes to the contents in your home or your stuff that is often covered under a named peril policy. So you need to look at your policy and understand it can be a little confusing, but you could have this hybrid approach to coverage when it comes to your own insurance policy. So getting back to the named peril policies, it means only perils named in the policy.

For example, that means a policy will only cover damage caused by fire, hail, theft. These are named perils in the policy. So if damage is caused by smoke and smoke is not a named peril in a policy, the damage is not covered, period. And generally that's why these policies are less expensive because there's less coverage. And therefore there's less risk to the insurance company.

So what's a peril? Well, a peril are mostly acts of God, acts of nature. Fire, lightning, hail, but that's not always true. Sometimes perils could be nonnatural acts, for example, theft, that's a common peril or a dishwasher breaks. It's going to be covered under water damage. So a better way to think of perils are risk. They're just risk that are insured under the policy. That's all we're talking about.

So when we're talking about named perils, these are risk that are set forth in the policy, black and white language. When we're talking out all perils, remember that's all the risk. The insurance company says, "I will pay for all risk that come to your home, unless I specifically exclude, I specifically tell you policy holder, I'm not covering risk ABC."

So what are some common perils under these policies? Fire is one that's obvious, right? I mean, I'm sure most people, if they've had to personally deal with this, you're going to come across fire a lot. I mean, frankly, we saw a lot of this in the last couple years in Southern California. And I had litigated a case in one of these larger Southern California fire cases.

So, fire's going to be covered, but usually what happens is most people are underinsured. So even if a person's home is damaged by fire. Fire is a covered peril. The insurance company steps up and pays the policy limits. Often that's not enough because the policy holder was uninsured. Another common peril, hail, hailcan cause damage to the roof to other structures. When you have these big balls of ice that fall down smoke, that could be a commonly covered peril as well.

Theft, we talked about that. Falling aircraft actually is a, somewhat common peril. I don't know if any of you all remember that Breaking Bad episode where the plane crashed, but fallen aircraft is actually a somewhat common peril. I bet if you looked at your policy, you'd be surprised that you may see that on there.

Vehicles, that's a common peril, but we're not talking about your auto insurance. We're talking about actual vehicles or cars driving into your house, and that's not as uncommon as you may see. For example, I know that I had consulted one client about it, and I actually represented a family where a driver had drove into a building and had killed someone.

And I represented the family of the decedent. So I bring that up to say that it's interesting once you start to look at, to see the perils that are covered under these policies, again, whether the policy is a named peril or an all peril, but the close out this section perils remember are risk that are insured under the policy. The two types of policies are named peril and all peril. Named peril means the insured company has agreed to only cover the perils named in the policy. The all peril means the insurance company agreed to cover all perils, except for those specifically excluded under the policy and the insurance company at all time bears the burden of exclusion.

Now let's talk about the declarations page or the deck page. Arguably, this is the most important part of the policy. Why? It's tailored to you. We talked about before that the insurance policy itself known as the insuring agreement. Most of them, in fact, I would say 98% of them are on these standard. I think they're called ISO forms. So there's nothing specific to you on there.

Rather regardless if it's a named peril policy and all peril policy, these policies are the same where things get specific, where they get tailored to you and your family are going to be the deck page. And it'll be one of the first pages of the policy. And it's going to be tailored to you. You're going to look at it. It's going to have the named insured, which is going to be you or not just you I mean, it could be husband and wife or spou- whatever, but it's going to have the named insured at the top.

It's not just limited to that, you also have, what's called the resident relatives. So cover your children or things like that. But the named insured will be on there. The insured property and its location will be on there. So you're home, one, two, three Spring Bird Lane. So that's going to be on there. And then after that, you're going to have the policy period. It's usually a year. So January 1st, 2022 to December 31st, 2022.

After that, you're going to have the policy limits. So let's talk about this for a minute. Really, there are two parts of the policy at this point, you're going to have section one, which is property damage. And you're going to have section two, which is personal liability. We're not going to get into that here.

Maybe we'll save that for another talk, but suffice it to say that the policy limits under section two personal liability, you'll just have the limit listed. So that could be a 100,00, 500,000 maybe have an umbrella policy sitting on top of that. But again, that's beyond the scope of what we're talking about here today. So getting back to the policy limits under what's called section one property damage you going to basically have four main groups, and this comes with a caveat.

This is basically what you're going to see. It doesn't always hold true. So these are just some general principles. Start with coverage A, dwelling, that's your home. So when you think about homeowners insurance, I mean, that's a first thing that should pop into your head. It's my house. It's where I live. It's where I raise my family, where I work all the time now, whatever. That is covered under coverage A, dwelling, and it's going to have a limit.

It'll say coverage A, dwelling, $800,000. Yeah. $200,000, whatever those are the policy limits for coverage A, dwelling, after that, you're going to have coverage B, other structures. So what that means is if you have a second garage, if you have a pool, if you have a fence, basically what that's getting at are unattached structures, meaning other structures like your home that are unattached to your home, a fence, a pool, second garage followed after that is coverage C, your personal property contents.

Well, that's your stuff. So if your house burns down and all you have is coverage A, okay, okay, take coverage B, you have coverage A, coverage B, but that's it. Well, you could get your house built back. You could get your second garage built back, but there's not going to be any coverage to your stuff.

Now that's really not going to happen because what usually happens when you go and get your insurance policy, is that you going to get all of this. So you going to have coverage A, coverage B, and coverage C is usually a percentage of coverage A. So if let's say you have coverage A, limits of 200,000, and then you get coverage C those limits are tied to 20% of coverage A so now it's 20,000. That's usually how it's done.

And we talked about this before. You need to watch out for, because oftentimes your policy, when it comes to dwelling could be a all peril policy whereas when it comes to coverage C your contents, it could be a named peril policy. So let's think about this hypothetical for a minute. You could have a fire and for some reason, fire is not covered under your named peril policy for the contents.

It's just not a named peril. And let's say that fire burns down your house. All right, well, your house is an all peril policy. Fire was not excluded. So that's a covered peril. So you're good to go. But when it comes to coverage, C it's a name, peril policy. Fire was not named and now your stuff, your contents, your property is uninsured. That could happen.

Lastly, we're going to look at coverage D, which is ALE, it stands for additional living expenses or loss of use. Where this comes in is let's stick with this fire example. Let's say that a fire burns down your house. It's going to take four months to rebuild. So during that time, you want to invoke the coverage under the ALE. So what that means is these are the additional living expenses you have incurred. Incurred is the operative word. That's important because of the loss.

So what's it not going to cover? Well, it's not going to cover your mortgage, because you had to pay that anyway. But if you had to instead go and stay at a hotel, you instead had to eat food, go out to eat every day, you instead had to drive further to work. So all these are additional living expenses incurred because of the damage to your home. That's coverage, the ALE loss of use.

I've seen it sometimes where the limits are an actual number. Other times I see it limited by time. It'll say like up to 12 months, up to six months, something like that. Then taking a step back, getting back to the declarations page. Again, we talked about the named insurer, the insured location, the policy periods, the policy limits A, B, C, and D. Now we're going to talk about the types of coverage. Usually that's listed on the declarations page. Followed by that is usually just a jumble of letters and numbers.

And that usually refers to endorsements, which we'll talk about later. These are actual think of them as if anyone does any construction as like change orders to a contract. So these are modifications to the actual insuring agreement. And we will talk about that later. Then you'll also have listed the premium. How much money you pay to the insurance company to have this policy of insurance in effect for the policy period, which is usually a year.

So that's really the overview of the declarations page. I would say, if you have a loss to your property or you want to advise a client or a potential client, anything like that, the first thing you need to do is go straight to the declarations page because doing that is going to give you an overview of what is insured under the policy, who is a named insured? What is the applicable time period? What are the applicable limits? What are applicable endorsements?

I mean, premium's not really going to matter, but you're going to look at, it's just a snapshot of all the important pieces of the policy that are specific to the policy holder, that are tailored to that policy holder. So it gives you a good one stop shop, just an overview of what we're looking at here, when it comes to the policy holder's insurance policy.

Now let's talk about the policy. We've also called it the insuring agreement. So if you go and you order the insurance policy from your insurance company, or you're advising a client, you tell them to bring the insurance policy. So that what they should bring to you. And what you should have is 30, 40 page document, one to two pages should be the declarations page, which we just talked about. And then maybe three to eight are going to be any endorsements.

And then otherwise the bulk of policy, 85, 90% are going to be what's called the insuring agreement. And this is the standard policy written on standard ISO insurance forms. And we talked about this before these don't change, these are customary, these are standard. All the insurance companies use them and they're fairly standard. That's the agreement. That's the contract.

That is the contractual agreement between the policy holder and the insurance company. Now the endorsements and the declaration page are two. I don't want to be misleading, but this, the insurance agreement is really the heart of the contractual relationship. What are some problems with this? Well, frankly, there's a lot of legalese and it's convoluted.

And we spoke about this earlier that oftentimes, and I could only just speak from experience adjusters don't really understand the language and your average person, even your average sophisticated person doesn't really understand it either. It's if you ever, I mean, I'll ask you sit down and read it and see if it makes sense to you. I know all the heroes are sophisticated, intelligent people, but it's not an easy read.

And it's very confusing. I think they've gotten a little bit better, but frankly, I don't think they have been written to be understandable. They certainly could be written where they're more clear, but these are the agreements we have. So just know that, that they're not very easy. A lot of legalese, very convoluted. So usually these policies start broad and then are narrowed by exceptions and endorsements.

So that's what we just talked about these policies being convoluted. And I'm not even limiting this discussion to all peril or named peril policies. It's just that the insured agreement will start broad and then everything is kind of hollowed out or tightened up with various exceptions and endorsements that come later. But overall, the insuring agreement explains the perils that are insured against under the policy. It also has conditions, a couple of important conditions you need to be aware of. The first one is what's called suits against us. It may be called something different, but I think almost every time I've looked at this, that's the language that's used.

And usually it's one to two years. I don't think I've seen it any less or anymore. I've seen one. I've seen two. What this means is, is if the policy holder wants to turn around and sue the insurance company. So now we're talking about a first party claim, which in part is a breach of contract claim, which we will talk about later. That's the contractual statute of limitations one year or two years. And it's measured from the date of loss.

Another important condition is the duty to cooperate. So that should be in the policy. And what that means is that the end insurance company has a contractual, right to deny coverage or restrict coverage if the policy holder doesn't report a loss. So that's extremely important. So the policy holder needs to know that because oftentimes I hear there people that call me potential clients all the time. "Oh, well I have insurance, but I don't want to report the loss. I'm afraid my premiums are going to be raised."

Okay, I get it. But that could be a problem going down the road because the duty to cooperate, finally, the insurance agreement is going to have definitions. We talked about that a little bit earlier. That's crucial. Some important words are defined. Arguably some important words are not defined, but what will be defined is the insured property because it's expanded out from what's listed in the declaration page.

Same as he insured, we talked about the named insured will be set forth in the declarations page. However, the definitions part of the insured agreement often expands that definition. We talked about resident relatives. You'll often see that. And finally, what about words that are not defined? This is what can arguably invite litigation. What do the words of this contract mean in this dispute?

Let's talk about endorsements. Endorsements are changes to the underlying insuring agreement. We talked about them earlier, like change orders to a contract. That's really all they are because the issue that the insuring agreement is standard. There's not any opportunity for modification or any tailoring. We talked about that the declaration page is tailored to the policy holder. However, the bulk of the policy member, the 90% of it is written on these standard ISO forms, which are full of legalese and convoluted. And they're just not tailored or modified to the policy holder and the insured property.

That's where endorsements come into play. The purpose of them are to make these modifications that may be required or requested by the insurance company or the policy holder. That's all they are. And again, you can find them. They're usually listed at the bottom of the declarations page in a jumble of letters or numbers.

So what are some common examples of endorsements? One common example is what's called replacement cost coverage for personal property. Now that's actually what I have in our home. So what that means is there is no depreciation. So what happens is if you just have coverage for your personal property and there's loss, the insurance company will come in and give you actual cash value, meaning they will appreciate your property and therefore say that it's worth less.

However, if you have replacement cost, you don't get that. Rather you get to be paid, whatever it costs to replace the items you have insured. So of course this costs a little bit more, but in my opinion, it's well worth it. However, it's not as clear cut as that. So I had a case where that was an issue. Where the client had replacement costs coverage, but it didn't work out that way.

What happened was the insurance company came and let's just say, gave them 50 grand and say, "Okay, here, I know you have replacement cost coverage. I know that the cost to replace your property is $200,000, but I'm not going to give you $200,000. I'm going to give you $50,000. And then what you have to do is go and spend that 50 and then if you have to spend more money out of your pocket to replace the items, submit those receipts to me and I'll pay you."

Well, I can guarantee you when that client bought that policy and got replacement cost coverage, that's not what he was thinking he would have to do. That's why [inaudible 00:39:24] you got to look at the contract, but that's what he had to do. So that's what replacement cost coverage means. But understand it's not always is as clear cut. Sometimes you have to make these steps.

So it's always important to go back and look at the policy like we discussed and to take an even further step back. That's why it's always important to keep in mind. What we're talking about here is a contractual relationship. The duties and rights are spelled out in the contract that is arguably difficult to understand. Another common example is going to be earthquake coverage. I mean, here in Southern California and throughout California, that could be a big deal.

And so that's commonly excluded. So if you would want that to be covered, you would need to get what's called an earth quake endorsement. So that's going to allow coverage for damage caused by earthquakes. Another common endorsement you may see is to raise the coverage limits for jewelry or collectable art or antiques. Now we talked early on that you don't necessarily want to have insurance against small risk, but let's say you may have some antique art or some valuable jewelry and your standard policy, I think will limit it to 1,000, $2,000 in the event of loss.

So maybe you want to increase those limits due to your heirlooms. Another common example is going to be cyber security, which is interesting. We're seeing a lot more of that. So those are just some common types of endorsements. You may come across. Now let's talk about one of my favorite parts of this talk claims. Actually my favorite part is going to be litigation. We'll get to, but claims iis the step right before that.

So we're talking about first party claims, not third party claims. So we're talking about bringing a claim against your own insurance company. One, because they've either denied your claim for coverage and you want to challenge that denial or two they've limited the scope of coverage and they want to challenge that. For example, let's say you have water damage to your home and you hire a contractor who comes out and says, "I think the damage is a $100,000," and this is covered under your policy.

So you submit a claim to your insurance company for a hundred grand. They send their adjuster out there that says, "No, I think it's 10 grand." I've seen this a number of times. And so this would be the second type of claim. Where there's just a dispute over the scope of the coverage. Here in California, you can report to the CDI, the California Department of Insurance, a first party claim. And I often tell potential clients to do that if I don't think I need to be involved or it's not worth being involved or whatever the case I'll tell them to report the claim to the CDI. There's an online claim form and it's free and it takes about 10 minutes.

And what the CDI does is they write a letter to the insurance company, asking them to explain their position. And then the insurance company by law has to write a letter to the CDI and the policy holder explaining their condition or I'm sorry, explaining their position. So if you are here in California, that's a good piece of information to know if you want to advise potential clients.

And I'm sure they have similar outfits in different states. Make sure that the insurance company tells you in writing why the claim is denied or why the scope of coverage is limited. We talked about this a little bit earlier, the insurance companies need to cite policy language. They just can't say claim denied. Here in California we have the fair claim settlement act. And one of the obligations insurance companies have under that act is if they want to deny a claim, they have to set forth the legal and factual basis for the denial, for the exclusion.

And frankly, that's see a lot of insurance companies they don't do that, but some do, I mean a good, a good percentage do, but insurance companies need to do that. Remember, this is a contract, this is a contractual dispute. So go to the terms of the contract. If the insurance company says this isn't covered, or if the insurance company says this scope is too high or too low, push it back to the contract. What does a contract say? Frankly, you usually don't get very far once the insurance company has drawn the proverbial line in the sand because of ingrained bureaucracy.

I mean, you have to understand the hierarchy of insurance companies, the claims division, and I can speak to this because of my years working for insurance companies, like we talked about before. I mean, you're dealing usually the hierarchy is adjuster, supervisor, manager. So there are all these layers of bureaucracy and hurdles that you have to go through. And insurance companies are conservative in that regard where they're slow moving and once they make a decision, really that's it. There's not a lot you can do.

I mean, maybe you could have them put a little bit more money on the claim, but frankly, I haven't seen that be very successful which is why we have to move on to the next topic, which is litigation. Let's talk litigation, taking it to the next level, suing your insurance company. Look, the fact is, is that lawsuit get the attention of insurance companies. It's one thing to make a claim against the insurance company. It's one thing to send a nasty letter. It's one thing to say, "I'm going to sue you." It's completely different.

If you sue them actions speak louder than words. And what I tell clients, when we're dealing with these types of claims, I always want to negotiate from a position of strength. And to me, a position of strength is you file suit. You're headed toward trial. Now understand that although lawsuits get insurance company's attention. That doesn't mean they turn over. I remember I was in mediation, I think last Q4 of last year or Q3 of last year. And it was a first party claim, meaning I was representing a client and we had sued his insurance company because there was a dispute over the scope of coverage.

And we wound up going to mediation in front of this very well known retired judge. And I remember talking to the judge about the case and he looked over to us and he said, "This is litigation. You sued the insurance company. This isn't a pillow fight." And that really stuck to me because I think that was a great point. I mean, this is it's serious. And you're alleging that the insurance company is doing something wrong that they've breached the contract. They're acting in bad faith, whatever. And I think almost every time no insurance company who've, we've sued has taken this line down. So it'll get their attention, but not necessarily...

Well, let's just say you will probably be in for a fight. So you got to make sure you have the stomach for it. And you also have to understand just speaking from the plaintiff side, because that's really, that's all I do. That's all I've been doing for years is that insurance companies have more lawyers than you, more time than you and more money than you, especially the policy holder, but you can still hold the insurance companies to account, but you need to be steadfast, smart and prepared.

What do you need to know? Well, what type of dispute are we talking about? That's really the first port of call. And we kind of touched on this briefly. You really, it gets down to either a complete denial or a limited scope. So complete denial. The insurance company says, "Thanks for reporting the claim that peril is excluded under the policy claim denied. Have a nice day." In that scenario the policy holder has the burden of coverage.

That's the burden of proof, burden of claim. The policy holder has to show that the insurance company was wrong because this peril was covered under the policy. Compare that if the complete denial is based on an exclusion, if the insurance company says, "Well, Mr. policy holder, thanks for making the claim. But this claim is excluded under the policy because the peril is excluded." Oh right, great. In that scenario, the insurance company has the burden to show that the peril is excluded.

And we talked about this before. I mean, oftentimes all the insurance company needs to do is to cite the applicable language. However, the insurance companies should also do their due diligence, meaning they need to send somebody out there. They need to have boots on the ground that can go out there and assess and determine that the peril, that cause the damage is well, I'm sorry I misspoke.

They need to assess and determine the actual a peril that cause the damage. And if that peril is one that's excluded under the policy, well, the insurance, company's probably in a pretty good position. So look at the type of a peril. The other type of dispute is a limited scope. And that's very similar to a complete denial, but really it turns on causation.

For example, did the water damage the kitchen cabinets too? Let's say you have a client where there is water to damage that's covered under the policy, the dishwasher pipe broke and I've consulted people about this. And then the kitchen floors flood and the insurance company says, "No problem we'll pay for that." But the policyholder's position is that the kitchen cabinets were also water damage because they soaked up the water on the floor and it went into the cabinets and damage them. The insurance company says, "No way didn't happen."

All right, I've seen disputes over that. I've also seen disputes arising from limited scope, but the insurance company's position is look, we will pay for the damaged property however, the policy holder wants an upgrade. They want a replacement. When the standard is supposed to be put the policy holder in the position they would've been had the loss not occurred that should give you all a throwback to contracts when we talked about the standard for the measure for damages, again, same thing here, when we're talking about a contractual relationship, but sometimes you'll see policy holders want to claim more than that.

And I've disputed that piece too. And so the question becomes well, is what the policy holder demanding an actual replacement or is it of like material and kind. So I've litigated that too. And you may come across that. So that dispute is not so much the type of the peril as it is the extent of damage caused by the peril. Because again, we're in a situation where there is coverage, but causation is the issue.

Now let's talk about the types of lawsuits and really they're just two. And it's either breach of contract or breach of good faith and fair dealing. So let's talk about breach of contract first. We've hit this issue a number of times. The policy is a contract. The relationship between a policy holder and the insurance company is a contractual relationship. And so if the policy holder thinks that the insurance company has not kept up with their benefit of the bargain has not followed the contract, they sue them for breach of contract.

So you look at the terms, what are the terms of the contracts? Are the terms clear? Is it a contract of adhesion? Frankly, that's not going to get you very far in my opinion. Then you look at the definitions are some of the operative words defined, are they not defined? What do they mean? Remember when you're looking at this type of dispute, that the interpretation is drawn against the drafter of the contract, meaning the insurance company.

So if there's any ambiguity, you as a policy holder, want to argue that the words of the contract should be interpreted against the insurance company. Breach, what did the insurance company not do? And did you as a policy holder, do what you were supposed to do? Remember we talked about the duty to cooperate, and then finally you want to look at the harm. All right, if there's been a breach of contract by the insurance company, what are your damages? If there's been a breach, but there's not really any damages why do you sue the insurance company? On principle?

So the other type of contract is I'm sorry the other type of lawsuit besides breach of contract is breach of good faith and fair dealing. That's bad faith. I mean, that's the easier way to say and understand it. That's what we're talking about here. And frankly, it's a combination between contractual law and tort law. So good faith and fair dealing are implied in insurance policies.

So you're not going to find policy language that says, "We, the insurance company agree to act in good faith and in fair dealing visa vie the policy holder, but state law and I'm not aware of any states that don't have this read into each insurance policy that duty of good faith and fair dealing. And what that basically means is that the insurance company must treat the policy holder with as much consideration as the insurance company gives itself.

So that's huge if you understand that. What that means is that the insurance... It's basically the golden rule, the insurance company has to treat the policy holder like it wants to be treated. To be crass about it is insurance companies don't screw your policy holders. That's what it means. Now, again what does that mean in practice? Well we'll see, but if you bring a bad faith claim often entitled to attorneys fees, often entitled to emotional distress damages on top of any other kind of hard economic damages.

And so in these types of lawsuits, which I've brought these before you want to focus on the insurance company's duties, what were they supposed to do? Oftentimes we'll see the duty to settle. We're going to not talk about that, because that really comes into third party claims, but that's beyond the scope, but that's a very interesting and litigated area of bad faith, which I've had some experience in. Duty to pay covered claims, duty to pay covered claims in a timely manner.

I mean, you want to look at these types of duties that are oftentimes spelled out in state statutory law, like here in the California, the fair claims act and see if the insurance company's doing what they're supposed to do. But the overarching analysis you need to make in terms of the insurance company in bad faith claim is did the insurance company act unreasonably. That is the standard. That is the analysis you need to take when it comes to bad faith litigation.

That's the end of our talk. It can be a little bit complicated at least I think there's more than meets the eye when you start to talk about insurance and homeowners’ policies and claims and litigation. But I hope that this gives you a 30,000 foot overview of homeowners insurance and what you may need to know personally and then professionally, if you wind up advising clients.

So again, the roadmap that we went through background. We talked about the types. We talked about the declaration page coverages, A, B, C, and D. We talked about the policy or the insuring agreement. We talked about the endorsements. These are model modifications, change orders to the insuring agreement. We talked about claims. We also talked about litigation, breach of contract, bad faith claims against your insurance company.

Look at the end of the day, we need insurance. And so we need to know the type and what's best for your situation. Whether we're speaking for you yourself or on behalf of a client. You need to understand the insurance and you need to know if your insurance company is following the terms of the contract. So you need insurance, but don't think that your insurance company is always right when it comes to the policy, when it comes to claims.

I mean, I've been on the receiving end of representing clients where the insurance company were blatantly wrong, but that's you see that. And you see that more often than not at least in the sphere of litigation. And the other thing to know is that most people are underinsured and most people don't understand their homeowner's insurance. And so it's important to have a working knowledge and overview of what these policies are, what they do and what to do when things go wrong. That's it for me, this is been great. I hope it's been informative. If any of you all have any questions, feel free to contact me. Thanks again. Take care.

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