With all due respect, in-the-trenches insurer \”adjusted\” construction estimation data, proves that Allstate, State Farm, Farmers, USAA, and the TWIA, in Texas, attempt to circumvent replacement cost loss values owed claimants.
Actuarially factored / Underwritten [structure replacement cost] contractor labor, reconstruction procedures and overhead / profit premium values can be regionally collected, and NOT properly returned to claimants.
Right under naive claimants collective noses…
Certain insurers past, and ongoing, attempts to redefine [actuarially / premium necessary] replacement cost indemnifcation calculations owed claimants, when loss claims occur(ed), led to the following pointed announcement by a regulatory agency;
COMMISSIONER´s BULLETIN NO. B-0045-98
——————————————
TO: ALL PROPERTY AND CASUALTY INSURANCE COMPANIES
RE: Calculation of Actual Cash Value Under the Texas Standard Homeowner´s Policy â€â€Ŕ Form B
The Department has learned that one or more insurers have interpreted language in the Texas Standard Homeowner´s Policy â€â€ŔForm B to permit the deduction of contractor´s overhead and profit, in addition to depreciation, from replacement cost in calculating actual cash value.
This interpretation has generated two class action lawsuits and inquiries to the Department regarding the Department´s position on this matter.
The insurers are interpreting the following Loss Settlement provision of the Texas Homeowners Policy â€â€Ŕ Form B:
We will pay only the actual cash value of the damaged building structure(s) until repair or replacement is completed.
The purpose of this bulletin is to state the Department´s position that actual cash value of a structure under a replacement cost policy, when the insurer does not repair or replace the structure, is the replacement cost with proper deduction for depreciation.
The deduction of prospective contractors’ overhead and profit and sales tax in determining the actual cash value under a replacement cost policy is improper, is not a reasonable interpretation of the policy language, and is UNFAIR to insureds.
The Department´s position is based on the following:
— Indemnity is the basis and foundation of insurance coverage.
The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured.
This objective REQUIRES that the insured receive a payment EQUAL TO that of the covered loss so that the insured will be restored to the same position after the loss as before the loss.
The calculation of this payment results in UNDER-compensation if an insurer deducts prospective contractors’ overhead and profit and sales tax in determining the actual cash value under a replacement cost policy.
Conversely, the inclusion of contractor´s overhead and profit and sales tax on building materials does not over-compensate an insured for the amount of the loss because these items represent part of the insured´s loss.
Generally, the objectives of indemnity will be met if actual cash value is calculated as replacement cost with proper deduction for depreciation.
In the rare situation that defies calculation of actual value on this basis, such as cases in which the structure has historical significance or the materials cannot reasonably be replaced, other factors may be considered.
However, there is NO SITUATION in which the deduction from replacement cost of depreciation and contractor´s overhead and profit and/or sales tax on materials will be the correct measure of the insured´s loss.
–Premiums charged MUST NOT BE EXCESSIVE for the risks to which they apply.
Under a replacement cost policy, the liability limits of the policy and the premium paid by the insured are DETERMINED ON on the BASIS of the replacement cost of the structure.
The value of contractor´s overhead and profit, as well as sales tax on building materials, has been INCLUDED IN the limit of liability for which the insured has paid premium.
If the insurer in determining actual cash value EXCLUDES COSTS that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an ILLEGAL windfall BECAUSE the insurer receives premium on insurable values for which loss may never be paid.
–To deduct costs other than depreciation from the estimated replacement cost of the damaged structure is contrary to historical industry norms and practices.
Historically, insurers have determined actual cash value on the basis of repair or replacement cost less depreciation.
Only recently have some insurers deducted contractor´s overhead and profit and sales taxes on building materials.
There has been no recent change in the language in the promulgated residential property policies TO SUPPORT such a change in determining actual cash value.
–The insurers’ argument that the cost of contractor´s overhead and profit and sales tax on building materials should be excluded from an actual cash value loss settlement because the insured has not incurred these expenses is not persuasive.
Using this logic, an insured who opts not to repair or replace damaged property would not incur any of the expenses necessary to repair or replace the damaged property, including the costs of building materials, and would collect nothing under an actual cash value loss settlement.
This result would be CONTRARY to the PURPOSES of the subject insurance policy.
The scope of this bulletin is limited to the CALCULATION OF actual cash value for dwelling coverage in replacement value policies by use of the practice described herein.
This bulletin is not intended to, and does not, express any opinion of the Department as to the calculation of actual cash value in other contexts, such as personal property, or measures of the actual value of such property to the owners of such property.
The Department has CONCLUDED that an insurer providing property coverage under replacement cost residential policies that allow for the adjustment of covered losses to structures on an actual cash value basis MAY NOT calculate actual cash value on the basis of replacement cost with proper deduction for depreciation, less contractor´s overhead and profit, nor may the insurer deduct sales tax on building materials.
ANY INSURER that determines actual cash value on this basis may be subject to disciplinary action for violations of the Texas Insurance Code, including unfair claims practices pursuant to Article 21.21 § 4(10)(a) and Article 21.21-2.
\”If the insurer in determining actual cash value EXCLUDES COSTS that are INCLUDED IN the DETERMINATION OF LIABILITY LIMITS, on which the insured´s PREMIUM is BASED, the insurer reaps an ILLEGAL windfall because the insurer receives premium on insurable values for which loss may never be paid.\”
Major insurers have, and are still, collecting premium on \’insurable
values\’, and are not voluntarily disclosing those loss values to their claim clients.
Many contractors and consumers in Texas,and other parts of the country, realize this. The Texas Department of Insurance, to date, knows about that kind of (on-going) \’Illegal\’ conduct.
Even catastrophe adjusters know how management instructions to \’underpay every claim\’ works for the interest of the insurer, and against the interests of their customers.
Consider the following (fairly recent) testimony from a ex-Allstate claim management employee, to a new adjuster;
I just recieved my adjusters liscence, from The Great State of Texas. I have 22 years in construction (framing, roofing, sales & concrete). I am an excellent estimator, and can build anything from a dawg house to a church.
I am having a hard time finding a job in the adjusting field. I know what my angle is now. Imagine having an adjusters liscence, and being a contractor. I am calling Allstate tommorow. You have to change with the times.
I would not advise calling Allstate if you wish to keep your integrity intact.
After almost 7 years with them and having held a variety of positions, including the sole Quality Evaluator for the entire southern half of Texas, I finally became fed up with their approach to REQUIRING every adjuster to KNOWINGLY UNDERPAY every claim and left them this past July.
The head of Allstate in Texas – Gary Briggs – had the nerve to stand up in front of an agent\’s meeting last spring and say (QUOTE) \”I love the new HOA+ policy! It doesn\’t cover anything and WE STILL GET TO KEEP THEIR MONEY!\”
I used to tell people whose claim I was handling that \”the good hands of Allstate were right here\” as I held my hands out for them. I could no longer do that in good faith and look myself in the mirror so I left.
One of these days the Texas DOI is going to catch up with their property handling practices and then it will all hit the fan!
Good luck with anyone else!
Kevin Hromas Country: USA | Posts: 75
Underwriter, there are many, many ways to \’knowingly\’ underpay claims.
Collective evidence, especially in the past 4+ years, shows beyond a reasonable doubt, certain insurers, in certain parts of the country, are practicing predatory and deceptive premium-to-claim value [settlement calculation] business strategies against their trusting clients.
It\’s just a matter of time before \’it
(the non-existing conspiracy) all hits the (federal investigation of market conduct) fan\’.
P.S. By your mature business insight, it\’s sound like you try to do the right thing.
However, we, actually in the reconstruction trenches, know when we are dealing with honorable insurers / adjusters, or not.
One big red flag is when insurers / adjusters claim, as a consistent mantra \”We don\’t pay contractor overhead and profit in [Texas, Florida, Minnesota, etc. regions].\”
I, and others, are willing to testify as to what we can prove (personally and claim data wise) is being done, unfairly, to our neighbors, relatives and clients.
Should we advise clients to have an attorney read their homeowners policy before they buy it? No insured, that I know of, has ever read the policy upon my suggestion. I tell every new homeowner, please read your policy at least once, it covers a lot of things. But I am sure no one ever has… .until the claim occurs.
So, by your \”chain of event\” standard of coverage, it\’s fair that the flood the resulted from the breaking of the levees should be covered, because the wind broke the levees, AND the movement of the stucture should have also been covered even though that was caused by, initially, the flood? You just want your cake and eat it, too. But, if you pull out your policy, it excludes tidal water WHETHER OR NOT IT WAS CAUSED BY WIND. The levee water is tidal water. And it was the weight of this water going over the top of the levees that caused them to break, NOT just wind. If this were the case, the levees would have broke everytime a severe thunderstorm went through New Orleans. Wind doesn\’t just blow over an earthan embankment, and even if it did, like I said, rising water is exluded whether or not pushed into waves or surges by wind. Sorry, should have paid for a flood policy. People need to stop blaming insurance agents for not buying their products.
If anyone here has shown totalitarian tendancies it is Mr. Hood himself. His open hostility to free market capitalism and the sanctity of contracts, held so dear by the founding fathers, shows that he is a populist demagogue or worse. Mr. Hood essentially opposes the right to freely contract for goods and services.
I think this sorry mess says a lot more about \”justice\” in Mississippi than about Democrats or, for that matter, Republicans like Trent Lott also suing their insurance companies.
It\’s not just Democrats, it appears to be any politician running for re-election that\’s trying to get votes from anyone who doesn\’t understand how insurance works.
Insurance companies better not give in on this. If there was no coverage why should they pay a claim. Figuring out if it was a flood or wind claim is the tough part. But the good people in New Orleans that decided not to buy flood insurance or were too cheap to buy flood are plum out of luck. I hope the insurance brokers that sold the HO insurance have signed documents showing their insured\’s refused flood insurance or their E&O could be paying these claims.
You all assume Hood is going to lose. He and Trent Lott should lose but I wouldn\’t count them out. Stranger things have happened in our courts. The insurance companies won in federal court but Hood and Lott\’s suits are both in state court.They just need to find a few claim managers who pushed too hard to have wind claims written up as water claims and you will be talking bad faith and punitive damages against the industry as well as coverage. I am not a betting man but,if I had to bet,I would put my money on Hood and Lott.
Everyone that\’s been in this business a few years knows that insurance is a great whipping boy for politicians. Just look at Eliot Spitzer and now a copy cat Charlie Christ in Florida. Political ambition requires that AG\’s and Commissioners attack the carriers and extract millions as bargaining chips for votes. Any chance Hood will be running for Governor or other polital office?
Insurance Companies should not pay for water damage…
BUT THEY SHOULD PAY FOR WIND.
They are trying to get away without paying for any damages by blaming the water.
MR. HOOD STOOD UP TO THE PLATE AND WENT TO BAT FOR THE PEOPLE AND HE HAS DONE MORE
THAN ANY ELECTED OFFICIAL FROM LA TO FL.
The good people in New Orleans were the same kind of people in Diamondhead.
Not too cheap but told they did not need flood.
PS Flood Insurance Pays each claim without doubt but Homeowners Insurance has underpaid almost every claim.
They simply blame the water and that\’s been their pattern forever.
In all the comments today and other days has one person not connected to the insurance industry said their insurance company has given them a fair shake and they shouldn\’t get more than what the adjuster wants to give them? That is your jury pool. If a judge lets this get to a jury,watch out!
Let me preface with this — I do work for a major insurance carrier. I am not in claims, but as an underwriter I see policies and their respective claims every single day.
Insurance companies aren\’t out there actively screwing customers. They aren\’t looking for ways to avoid paying claims. The mantra is \”pay what you owe — not a penny more and not a penny less.\” Customers pay for coverages. War is not covered (ever). Nuclear stuff is not covered (ever). Floods are not covered (ever). Folks who didn\’t buy flood coverage are victims of their own stupidity or cheapness. They are not victims of evil insurance companies.
Read your contract. Some things are paid at ACV (actual cash value), which means (for example) if your 25 year old vacuum cleaner is destroyed, you don\’t get money to buy a brand new vacuum. You are indemnified, which means you get the cash equivalent of a 25 year old vacuum. This is usually the source of the \”insurers wouldn\’t pay me what they owe me\” complaints. Folks simply don\’t read the contract to understand what they\’re getting.
If you didn\’t pay for the coverage (i.e. it\’s not listed on your coverages doc and/or in the contract) you don\’t have coverage for it. All the screaming in the world won\’t get you the coverage, unless your independent agent has a great relationship with his/her underwriter (we do make exceptions on things…all you have to do is ask).
I\’ve heard a lot of rumors about documents being forged or altered or companies just not paying out claims. However, I haven\’t seen a single shred of evidence. Most of the howling is from political types looking for re-election or some free air-time. You\’ll see indivudals say they were screwed this way or that way, but if you saw the other side of the coin (i.e. what I see every day), you\’d probably find there is a good reason they didn\’t get what they thought they should get. For example, I saw a one of our customers complaining online that my company had refused to pay for a substantial claim. He included his name, so I looked him up, just in case he was right.
What I found in the claim file was that he couldn\’t provde he\’d owned any of the property he claimed. He couldn\’t find anyone to substantiate his claims. He had lied about the circumstances of the loss. He had contradicted himself in at least 8 different parts of his statement. We denied his claim, and rightfully so. With that said, the last letter that went to him said, \”If you can provide the requested evidence to substantiate your claim, we would be happy to re-open your claim and pay for your loss.\”
I can tell you, in absolute and total honesty, that I have never seen a claim where the adjuster underpaid a claim. I see hundreds of claims per year across all P&C product lines (home, auto, fire, umbrella, rec vehicle, motorcycle and watercraft); it has been my experience that adjusters tend to pay more than what is due.
Adjusters are human (despite popluar belief). I\’ve consoled them after they\’ve had to deal with a particularly disturbing claim. They generally get into the claims business (and believe me, not everyone can adjust claims) because they have a genuine desire to work with people (and after all the nastiness they get from the public, there\’s a high turnover rate) and to do good things.
Things I can tell you about the different companies. You get what you pay for — i.e. if you\’re the type of person who shops for the lowest possible price, you\’re going to get budget service as well. Go to an independent agent and ask them about the type of relationship they have with their companies. You\’ll probably hear about three kinds.
1 – regional carriers (tend to be smaller). Pros – they know well the areas they service, so premiums tend to start off lower. They also often offer the best service because of the \”we\’re small/hometown\” relationship. Cons – they don\’t have deep pockets, so large losses like Katrina will send them into a nose-dive. They\’re more likely to have knee-jerk rate increases and non-renewal actions to preserve profitability.
2 – Large national carriers (these are the folks you see commercials for all the time. Pros – they have deep pockets and wide exposures, which means they are less likely to jack up your rates every time there is a hail storm. Cons – you won\’t necessarily get very good service from them, because your policy doesn\’t mean as much to them.
3 – Other carriers that are different for whatever reason. There are some large carriers that provide great service. There are some regionals that won\’t give you the time of day if there\’s a claim. There are some carriers you can\’t get with unless you below to an organization (government employees, military etc,).
I\’d recommend that you shop based upon service, instead of price. Find yourself an excellent local, independent agent and make yourself a valuable customer. If you constantly shop your insurance, hop from company to company, you have little (and what I mean by little is zero) bargaining power.
Sorry for the long post, but I get so very tired of the \”insurers are Nazi\’s\” stuff. It isn\’t a conspiracy. Cooperate with your adjuster, provide what you\’re asked for (i.e. proof of ownership) and you\’ll be indemnified for what you\’re owed.
Good point on agents having hard copy proof, signed by the insured, that the insured declined critical flood coverage.
My understanding is that after hurricane Andrew, if agents could not provide proof that claimants actually understood, and declined, in writting, that they wanted/purchased ACV (actual cash value) only coverage, instead of RCV (replacement cost value) coverage, that ALL such claimants never lost in (Dade County) courts, when seeking replacement cost coverage settlements.
As for covering flood losses, with wind coverage, if the causual-chain-of-events were such that wind did create the accidental opportunity for the levee breakage / NOL area flooding, then why would wind forces not be considered the accidental cause trigger for damage, by proxy?
No wind involvement, no levee breakage.
On the other hand, if coverage was clear that ONLY when wind created a opening / damage opportunity towards a wall, window, entry, garage door, or roofing system, then it seems the commonly understood concept-definition for flood water, (water that collectively gathers on the ground and rises accordingly, so as to create water floodage) is not, and was never intended to be, covered.
On properties that were not fully submerged, the wind / flood effects may be easy to determine. (Flood water marks verses ceiling and wall water stainage).
If flood water softened the ground under a concrete slab, and wind moved the structure, is that wind caused damage?
Can wind movement damage be contrasted against flood damage by carefully examining roof, wall and floor wood frame nails / fasteners for framework movement, even on structures that were submerged, and are now dry?
\”Newly\” exposed parts of fasteners, even rusting ones, have a pulled / oxidation rate history \”fingerprint\” to disclose, even after wood swells, dries out and shrinks, or doesn\’t swell, or shrink…
Seems like certain knowledgeable and experienced insurers, adjusters, engineers, contractors, homeowners, business owners, attorneys and public officials are going to be busy for a while, case-by-case…
\”Insurance Companies should not pay for water damage…
BUT THEY SHOULD PAY FOR WIND.
They are trying to get away without paying for any damages by blaming the water.
MR. HOOD STOOD UP TO THE PLATE AND WENT TO BAT FOR THE PEOPLE AND HE HAS DONE MORE THAN ANY ELECTED OFFICIAL FROM LA TO FL.\”
Two weeks after Katrina struck, Mr. Hood filed a lawsuit to force insurance companies to pay for ALL damages from Katrina including FLOOD. He \”feels\” it is unconcionable for the homeowner\’s policy to exclude flood.
Mr. Hood has only his political career on his plate.
Interesting point, Roger. I\’ve seen several posts where you\’ve included the same bits of information (no slam on you, it\’s obvious you\’re passionate about this issue).
I\’d offer a couple of things. I know that some companies (I can only speak knowledgably of my company of course) add in the \”profit\” component when adjusting claims. When I look at claims info, there\’s a line-item for \”profit and overhead\” for the person doing the repairs and/or work on the property. This info is more obvious on an auto claims adjustment, though, I will admit that.
I would add one more thing regarding the story of the Allstate claims rep who says he routinely screwed people for years. This is just one guy — I would never agree that every single company does the right thing 100% of the time. Nor would I posit that all adjusters (or claims managers) are ethical. Likewise, not all agents are ethical, and (not) surprisingly, customers think nothing of padding their claims to \”make up for their deductible.\” I am not so sure that we should offer a blanket painting of the insurance industry as crooks/thieves looking to cut a buck or two.
I would agree that companies are looking to limit expenses and exposures as much as possible (we do have to return a shareholder profit — i.e. we aren\’t a NPO). What I am saying is I would like to see some specific examples where there has been wholesale defrauding of customers.
\”When I look at claims info, there\’s a line-item for \”profit and overhead\” for the person doing the repairs and/or work on the property.\”
__________
Contractors place, and repair and/or replace, homes.
Insurers, to properly indemnify a client / structure, use construction industry generated calculations for the calculated replacement cost of a given property, and necessarily include contractor overhead and profit in those calculations.
Their replacement cost calculations for the structure would, easily, not make sense otherwise.
Calculations of the replacement cost of a given property carry over into premiums.
__________
*\”– Indemnity is the basis and foundation of insurance coverage.
The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured.
This objective requires that the insured receive a payment equal to that of the covered loss so that the insured will be restored to the same position after the loss as before the loss.
The calculation of this payment results in under-compensation if an insurer deducts prospective contractors’ overhead and profit and sales tax in determining the actual cash value under a replacement cost policy.
The value of contractor´s overhead and profit, as well as sales tax on building materials, has been included in the limit of liability for which the insured has paid premium.
If the insurer in determining actual cash value excludes costs that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an illegal windfall because the insurer receives premium on insurable values for which loss may never be paid.\”
Receiving premium (dollars) equaling future loss values, and not returning those loss values to claimants, equals receiving premium on insurable values for which loss is never paid.
Over priced premiums, illegal windfall dollars gained, and illicit contingent profit potential, are by-products of synthetically undervalued loss claim estimations.
All of which can be \”hidden\” by year-end loss-ratio appearances, and \”proper\” profit margins not exceeding regulatory boundaries, and insufficient market conduct examination of carriers claim settlement practices.
Should the premium rates need adjusting downward, after the illegal scheme bears the profit desired, carrier compliance with regulators gives the whole process a veneer of legitimacy…
Every day specific examples of keeping those contractor overhead and profit loss values claimants are paying insurers for, and are entitled to honestly receive back, are being generated by Allstate, USAA, Safeco, Farmers, State Farm and the TWIA, in Texas.
Some insurers claim a primary – general (structure placement / replacement) contractor is \”needed\” for a loss, so as to include those contractor overhead and profit loss values in estimating the value of the loss.
Not so.
Again, \”The value of contractor´s overhead and profit, as well as sales tax on building materials, has been included in the limit of liability for which the insured has paid premium.
If the insurer in determining actual cash value EXCLUDES costs that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an ILLEGAL WINDFALL because the insurer receives premium on insurable values for which loss may never be paid.\”
Predetermined replacement loss values, knowingly collected, and knowingly not repaid, apples-for-apples, thus creating illegal windfall, is knowingly defrauding people…no?
Underwriter, If you would like specific hard copy evidence that this is so, for the past 4 years, please feel free to contact me.
With all due respect, I\’ve mentioned more than one insuers\’ conduct in my commentaries, which are based on, proof positive, on-going unfair claim settlement conduct…right under claimants noses.
I\’ve also repeatedly stated that honorable insurers and adjusters exist.
In all, consistent in-the-trenches claim data, tell very interesting stories…
Roger wouldn\’t like it if we painted the entire construction industry as fraudulent by using an example of 1 contractor. If people weren\’t so greedy, no one would have any problems, and that goes both ways.
I hope that some jack-leg State Judge upholds Hood\’s silly lawsuit. Just watch the insurance companies leave Mississippi like a herd of Water Buffalo. Will the last insuror turn out the lights?
4-18-2006
Underwriter,
With all due respect, in-the-trenches insurer \”adjusted\” construction estimation data, proves that Allstate, State Farm, Farmers, USAA, and the TWIA, in Texas, attempt to circumvent replacement cost loss values owed claimants.
Actuarially factored / Underwritten [structure replacement cost] contractor labor, reconstruction procedures and overhead / profit premium values can be regionally collected, and NOT properly returned to claimants.
Right under naive claimants collective noses…
Certain insurers past, and ongoing, attempts to redefine [actuarially / premium necessary] replacement cost indemnifcation calculations owed claimants, when loss claims occur(ed), led to the following pointed announcement by a regulatory agency;
COMMISSIONER´s BULLETIN NO. B-0045-98
——————————————
TO: ALL PROPERTY AND CASUALTY INSURANCE COMPANIES
RE: Calculation of Actual Cash Value Under the Texas Standard Homeowner´s Policy â€â€Ŕ Form B
The Department has learned that one or more insurers have interpreted language in the Texas Standard Homeowner´s Policy â€â€ŔForm B to permit the deduction of contractor´s overhead and profit, in addition to depreciation, from replacement cost in calculating actual cash value.
This interpretation has generated two class action lawsuits and inquiries to the Department regarding the Department´s position on this matter.
The insurers are interpreting the following Loss Settlement provision of the Texas Homeowners Policy â€â€Ŕ Form B:
We will pay only the actual cash value of the damaged building structure(s) until repair or replacement is completed.
The purpose of this bulletin is to state the Department´s position that actual cash value of a structure under a replacement cost policy, when the insurer does not repair or replace the structure, is the replacement cost with proper deduction for depreciation.
The deduction of prospective contractors’ overhead and profit and sales tax in determining the actual cash value under a replacement cost policy is improper, is not a reasonable interpretation of the policy language, and is UNFAIR to insureds.
The Department´s position is based on the following:
— Indemnity is the basis and foundation of insurance coverage.
The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured.
This objective REQUIRES that the insured receive a payment EQUAL TO that of the covered loss so that the insured will be restored to the same position after the loss as before the loss.
The calculation of this payment results in UNDER-compensation if an insurer deducts prospective contractors’ overhead and profit and sales tax in determining the actual cash value under a replacement cost policy.
Conversely, the inclusion of contractor´s overhead and profit and sales tax on building materials does not over-compensate an insured for the amount of the loss because these items represent part of the insured´s loss.
Generally, the objectives of indemnity will be met if actual cash value is calculated as replacement cost with proper deduction for depreciation.
In the rare situation that defies calculation of actual value on this basis, such as cases in which the structure has historical significance or the materials cannot reasonably be replaced, other factors may be considered.
However, there is NO SITUATION in which the deduction from replacement cost of depreciation and contractor´s overhead and profit and/or sales tax on materials will be the correct measure of the insured´s loss.
–Premiums charged MUST NOT BE EXCESSIVE for the risks to which they apply.
Under a replacement cost policy, the liability limits of the policy and the premium paid by the insured are DETERMINED ON on the BASIS of the replacement cost of the structure.
The value of contractor´s overhead and profit, as well as sales tax on building materials, has been INCLUDED IN the limit of liability for which the insured has paid premium.
If the insurer in determining actual cash value EXCLUDES COSTS that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an ILLEGAL windfall BECAUSE the insurer receives premium on insurable values for which loss may never be paid.
–To deduct costs other than depreciation from the estimated replacement cost of the damaged structure is contrary to historical industry norms and practices.
Historically, insurers have determined actual cash value on the basis of repair or replacement cost less depreciation.
Only recently have some insurers deducted contractor´s overhead and profit and sales taxes on building materials.
There has been no recent change in the language in the promulgated residential property policies TO SUPPORT such a change in determining actual cash value.
–The insurers’ argument that the cost of contractor´s overhead and profit and sales tax on building materials should be excluded from an actual cash value loss settlement because the insured has not incurred these expenses is not persuasive.
Using this logic, an insured who opts not to repair or replace damaged property would not incur any of the expenses necessary to repair or replace the damaged property, including the costs of building materials, and would collect nothing under an actual cash value loss settlement.
This result would be CONTRARY to the PURPOSES of the subject insurance policy.
The scope of this bulletin is limited to the CALCULATION OF actual cash value for dwelling coverage in replacement value policies by use of the practice described herein.
This bulletin is not intended to, and does not, express any opinion of the Department as to the calculation of actual cash value in other contexts, such as personal property, or measures of the actual value of such property to the owners of such property.
The Department has CONCLUDED that an insurer providing property coverage under replacement cost residential policies that allow for the adjustment of covered losses to structures on an actual cash value basis MAY NOT calculate actual cash value on the basis of replacement cost with proper deduction for depreciation, less contractor´s overhead and profit, nor may the insurer deduct sales tax on building materials.
ANY INSURER that determines actual cash value on this basis may be subject to disciplinary action for violations of the Texas Insurance Code, including unfair claims practices pursuant to Article 21.21 § 4(10)(a) and Article 21.21-2.
http://www.tdi.state.tx.us/bulletins/b-0045-8.html
__________
Just consider the paragraph that states;
\”If the insurer in determining actual cash value EXCLUDES COSTS that are INCLUDED IN the DETERMINATION OF LIABILITY LIMITS, on which the insured´s PREMIUM is BASED, the insurer reaps an ILLEGAL windfall because the insurer receives premium on insurable values for which loss may never be paid.\”
Major insurers have, and are still, collecting premium on \’insurable
values\’, and are not voluntarily disclosing those loss values to their claim clients.
Many contractors and consumers in Texas,and other parts of the country, realize this. The Texas Department of Insurance, to date, knows about that kind of (on-going) \’Illegal\’ conduct.
Even catastrophe adjusters know how management instructions to \’underpay every claim\’ works for the interest of the insurer, and against the interests of their customers.
Consider the following (fairly recent) testimony from a ex-Allstate claim management employee, to a new adjuster;
Brooks Todd Posted – 12/18/2003 : 19:10:52
——————————————
I just recieved my adjusters liscence, from The Great State of Texas. I have 22 years in construction (framing, roofing, sales & concrete). I am an excellent estimator, and can build anything from a dawg house to a church.
I am having a hard time finding a job in the adjusting field. I know what my angle is now. Imagine having an adjusters liscence, and being a contractor. I am calling Allstate tommorow. You have to change with the times.
Brooks
khromas Posted – 12/18/2003 : 23:06:22
——————————————
Brooks,
I would not advise calling Allstate if you wish to keep your integrity intact.
After almost 7 years with them and having held a variety of positions, including the sole Quality Evaluator for the entire southern half of Texas, I finally became fed up with their approach to REQUIRING every adjuster to KNOWINGLY UNDERPAY every claim and left them this past July.
The head of Allstate in Texas – Gary Briggs – had the nerve to stand up in front of an agent\’s meeting last spring and say (QUOTE) \”I love the new HOA+ policy! It doesn\’t cover anything and WE STILL GET TO KEEP THEIR MONEY!\”
I used to tell people whose claim I was handling that \”the good hands of Allstate were right here\” as I held my hands out for them. I could no longer do that in good faith and look myself in the mirror so I left.
One of these days the Texas DOI is going to catch up with their property handling practices and then it will all hit the fan!
Good luck with anyone else!
Kevin Hromas Country: USA | Posts: 75
http://72.14.203.104/search?q=cache:LH8RbB9s00UJ:www.catadjuster.org/forum/m_899/mpage_10/key_/tm.htm++gary+briggs+allstate+intentionally+underpay+claim&hl=en&gl=us&ct=clnk&cd=3
__________
Underwriter, there are many, many ways to \’knowingly\’ underpay claims.
Collective evidence, especially in the past 4+ years, shows beyond a reasonable doubt, certain insurers, in certain parts of the country, are practicing predatory and deceptive premium-to-claim value [settlement calculation] business strategies against their trusting clients.
It\’s just a matter of time before \’it
(the non-existing conspiracy) all hits the (federal investigation of market conduct) fan\’.
rogerpoegc@yahoo.com
P.S. By your mature business insight, it\’s sound like you try to do the right thing.
However, we, actually in the reconstruction trenches, know when we are dealing with honorable insurers / adjusters, or not.
One big red flag is when insurers / adjusters claim, as a consistent mantra \”We don\’t pay contractor overhead and profit in [Texas, Florida, Minnesota, etc. regions].\”
I, and others, are willing to testify as to what we can prove (personally and claim data wise) is being done, unfairly, to our neighbors, relatives and clients.
Should we advise clients to have an attorney read their homeowners policy before they buy it? No insured, that I know of, has ever read the policy upon my suggestion. I tell every new homeowner, please read your policy at least once, it covers a lot of things. But I am sure no one ever has… .until the claim occurs.
So, by your \”chain of event\” standard of coverage, it\’s fair that the flood the resulted from the breaking of the levees should be covered, because the wind broke the levees, AND the movement of the stucture should have also been covered even though that was caused by, initially, the flood? You just want your cake and eat it, too. But, if you pull out your policy, it excludes tidal water WHETHER OR NOT IT WAS CAUSED BY WIND. The levee water is tidal water. And it was the weight of this water going over the top of the levees that caused them to break, NOT just wind. If this were the case, the levees would have broke everytime a severe thunderstorm went through New Orleans. Wind doesn\’t just blow over an earthan embankment, and even if it did, like I said, rising water is exluded whether or not pushed into waves or surges by wind. Sorry, should have paid for a flood policy. People need to stop blaming insurance agents for not buying their products.
Absolutely true. And when the renewal comes around no insured gets past the premium notice. Hood is an ***.
If anyone here has shown totalitarian tendancies it is Mr. Hood himself. His open hostility to free market capitalism and the sanctity of contracts, held so dear by the founding fathers, shows that he is a populist demagogue or worse. Mr. Hood essentially opposes the right to freely contract for goods and services.
We have rule of law here, not rule of lawyers.
This guy graduated from high school. Must have been a government school.
It amazes me that Democrat\’s increasingly use the word Nazi in issues involving the Govt and Business when they argue for their agendas.
I think this sorry mess says a lot more about \”justice\” in Mississippi than about Democrats or, for that matter, Republicans like Trent Lott also suing their insurance companies.
Heath,
It\’s not just Democrats, it appears to be any politician running for re-election that\’s trying to get votes from anyone who doesn\’t understand how insurance works.
At least democrats realize that you don\’t use an apostrophe to indicate a plural form of the word. Idiot.
My Coy, you sure are picky. I wonder how many Democrats from the New Orleans school system can even spell Democrat.
I thought it was spelled
S-O-C-I-A-L-I-S-T?
Your comrade, Vlad.
I think evertbody in the insurance busness should file a slander, racial lawsuit against Hood.
How many millions of dollars are going to be wasted on this lawsuit on both sides?
Here\’s a stupid question – Will Mr. Hood be held accountable?
Insurance companies better not give in on this. If there was no coverage why should they pay a claim. Figuring out if it was a flood or wind claim is the tough part. But the good people in New Orleans that decided not to buy flood insurance or were too cheap to buy flood are plum out of luck. I hope the insurance brokers that sold the HO insurance have signed documents showing their insured\’s refused flood insurance or their E&O could be paying these claims.
You all assume Hood is going to lose. He and Trent Lott should lose but I wouldn\’t count them out. Stranger things have happened in our courts. The insurance companies won in federal court but Hood and Lott\’s suits are both in state court.They just need to find a few claim managers who pushed too hard to have wind claims written up as water claims and you will be talking bad faith and punitive damages against the industry as well as coverage. I am not a betting man but,if I had to bet,I would put my money on Hood and Lott.
Everyone that\’s been in this business a few years knows that insurance is a great whipping boy for politicians. Just look at Eliot Spitzer and now a copy cat Charlie Christ in Florida. Political ambition requires that AG\’s and Commissioners attack the carriers and extract millions as bargaining chips for votes. Any chance Hood will be running for Governor or other polital office?
Insurance Companies should not pay for water damage…
BUT THEY SHOULD PAY FOR WIND.
They are trying to get away without paying for any damages by blaming the water.
MR. HOOD STOOD UP TO THE PLATE AND WENT TO BAT FOR THE PEOPLE AND HE HAS DONE MORE
THAN ANY ELECTED OFFICIAL FROM LA TO FL.
The good people in New Orleans were the same kind of people in Diamondhead.
Not too cheap but told they did not need flood.
PS Flood Insurance Pays each claim without doubt but Homeowners Insurance has underpaid almost every claim.
They simply blame the water and that\’s been their pattern forever.
In all the comments today and other days has one person not connected to the insurance industry said their insurance company has given them a fair shake and they shouldn\’t get more than what the adjuster wants to give them? That is your jury pool. If a judge lets this get to a jury,watch out!
Let me preface with this — I do work for a major insurance carrier. I am not in claims, but as an underwriter I see policies and their respective claims every single day.
Insurance companies aren\’t out there actively screwing customers. They aren\’t looking for ways to avoid paying claims. The mantra is \”pay what you owe — not a penny more and not a penny less.\” Customers pay for coverages. War is not covered (ever). Nuclear stuff is not covered (ever). Floods are not covered (ever). Folks who didn\’t buy flood coverage are victims of their own stupidity or cheapness. They are not victims of evil insurance companies.
Read your contract. Some things are paid at ACV (actual cash value), which means (for example) if your 25 year old vacuum cleaner is destroyed, you don\’t get money to buy a brand new vacuum. You are indemnified, which means you get the cash equivalent of a 25 year old vacuum. This is usually the source of the \”insurers wouldn\’t pay me what they owe me\” complaints. Folks simply don\’t read the contract to understand what they\’re getting.
If you didn\’t pay for the coverage (i.e. it\’s not listed on your coverages doc and/or in the contract) you don\’t have coverage for it. All the screaming in the world won\’t get you the coverage, unless your independent agent has a great relationship with his/her underwriter (we do make exceptions on things…all you have to do is ask).
I\’ve heard a lot of rumors about documents being forged or altered or companies just not paying out claims. However, I haven\’t seen a single shred of evidence. Most of the howling is from political types looking for re-election or some free air-time. You\’ll see indivudals say they were screwed this way or that way, but if you saw the other side of the coin (i.e. what I see every day), you\’d probably find there is a good reason they didn\’t get what they thought they should get. For example, I saw a one of our customers complaining online that my company had refused to pay for a substantial claim. He included his name, so I looked him up, just in case he was right.
What I found in the claim file was that he couldn\’t provde he\’d owned any of the property he claimed. He couldn\’t find anyone to substantiate his claims. He had lied about the circumstances of the loss. He had contradicted himself in at least 8 different parts of his statement. We denied his claim, and rightfully so. With that said, the last letter that went to him said, \”If you can provide the requested evidence to substantiate your claim, we would be happy to re-open your claim and pay for your loss.\”
I can tell you, in absolute and total honesty, that I have never seen a claim where the adjuster underpaid a claim. I see hundreds of claims per year across all P&C product lines (home, auto, fire, umbrella, rec vehicle, motorcycle and watercraft); it has been my experience that adjusters tend to pay more than what is due.
Adjusters are human (despite popluar belief). I\’ve consoled them after they\’ve had to deal with a particularly disturbing claim. They generally get into the claims business (and believe me, not everyone can adjust claims) because they have a genuine desire to work with people (and after all the nastiness they get from the public, there\’s a high turnover rate) and to do good things.
Things I can tell you about the different companies. You get what you pay for — i.e. if you\’re the type of person who shops for the lowest possible price, you\’re going to get budget service as well. Go to an independent agent and ask them about the type of relationship they have with their companies. You\’ll probably hear about three kinds.
1 – regional carriers (tend to be smaller). Pros – they know well the areas they service, so premiums tend to start off lower. They also often offer the best service because of the \”we\’re small/hometown\” relationship. Cons – they don\’t have deep pockets, so large losses like Katrina will send them into a nose-dive. They\’re more likely to have knee-jerk rate increases and non-renewal actions to preserve profitability.
2 – Large national carriers (these are the folks you see commercials for all the time. Pros – they have deep pockets and wide exposures, which means they are less likely to jack up your rates every time there is a hail storm. Cons – you won\’t necessarily get very good service from them, because your policy doesn\’t mean as much to them.
3 – Other carriers that are different for whatever reason. There are some large carriers that provide great service. There are some regionals that won\’t give you the time of day if there\’s a claim. There are some carriers you can\’t get with unless you below to an organization (government employees, military etc,).
I\’d recommend that you shop based upon service, instead of price. Find yourself an excellent local, independent agent and make yourself a valuable customer. If you constantly shop your insurance, hop from company to company, you have little (and what I mean by little is zero) bargaining power.
Sorry for the long post, but I get so very tired of the \”insurers are Nazi\’s\” stuff. It isn\’t a conspiracy. Cooperate with your adjuster, provide what you\’re asked for (i.e. proof of ownership) and you\’ll be indemnified for what you\’re owed.
4-18-2006
Confounded,
Good point on agents having hard copy proof, signed by the insured, that the insured declined critical flood coverage.
My understanding is that after hurricane Andrew, if agents could not provide proof that claimants actually understood, and declined, in writting, that they wanted/purchased ACV (actual cash value) only coverage, instead of RCV (replacement cost value) coverage, that ALL such claimants never lost in (Dade County) courts, when seeking replacement cost coverage settlements.
As for covering flood losses, with wind coverage, if the causual-chain-of-events were such that wind did create the accidental opportunity for the levee breakage / NOL area flooding, then why would wind forces not be considered the accidental cause trigger for damage, by proxy?
No wind involvement, no levee breakage.
On the other hand, if coverage was clear that ONLY when wind created a opening / damage opportunity towards a wall, window, entry, garage door, or roofing system, then it seems the commonly understood concept-definition for flood water, (water that collectively gathers on the ground and rises accordingly, so as to create water floodage) is not, and was never intended to be, covered.
On properties that were not fully submerged, the wind / flood effects may be easy to determine. (Flood water marks verses ceiling and wall water stainage).
If flood water softened the ground under a concrete slab, and wind moved the structure, is that wind caused damage?
Can wind movement damage be contrasted against flood damage by carefully examining roof, wall and floor wood frame nails / fasteners for framework movement, even on structures that were submerged, and are now dry?
\”Newly\” exposed parts of fasteners, even rusting ones, have a pulled / oxidation rate history \”fingerprint\” to disclose, even after wood swells, dries out and shrinks, or doesn\’t swell, or shrink…
Seems like certain knowledgeable and experienced insurers, adjusters, engineers, contractors, homeowners, business owners, attorneys and public officials are going to be busy for a while, case-by-case…
rogerpoegc@yahoo.com
Katrina Survivor,
You stated:
\”Insurance Companies should not pay for water damage…
BUT THEY SHOULD PAY FOR WIND.
They are trying to get away without paying for any damages by blaming the water.
MR. HOOD STOOD UP TO THE PLATE AND WENT TO BAT FOR THE PEOPLE AND HE HAS DONE MORE THAN ANY ELECTED OFFICIAL FROM LA TO FL.\”
Two weeks after Katrina struck, Mr. Hood filed a lawsuit to force insurance companies to pay for ALL damages from Katrina including FLOOD. He \”feels\” it is unconcionable for the homeowner\’s policy to exclude flood.
Mr. Hood has only his political career on his plate.
4-19-2006
Mark,
In brief, I do NOT support ideas that try to create synthetic INDEMNIFICATION coverage value, when none (rationally and honestly) exists.
I do support the opposite though.
Please consider my commentary in that context.
rogerpoegc@yahoo.com
Interesting point, Roger. I\’ve seen several posts where you\’ve included the same bits of information (no slam on you, it\’s obvious you\’re passionate about this issue).
I\’d offer a couple of things. I know that some companies (I can only speak knowledgably of my company of course) add in the \”profit\” component when adjusting claims. When I look at claims info, there\’s a line-item for \”profit and overhead\” for the person doing the repairs and/or work on the property. This info is more obvious on an auto claims adjustment, though, I will admit that.
I would add one more thing regarding the story of the Allstate claims rep who says he routinely screwed people for years. This is just one guy — I would never agree that every single company does the right thing 100% of the time. Nor would I posit that all adjusters (or claims managers) are ethical. Likewise, not all agents are ethical, and (not) surprisingly, customers think nothing of padding their claims to \”make up for their deductible.\” I am not so sure that we should offer a blanket painting of the insurance industry as crooks/thieves looking to cut a buck or two.
I would agree that companies are looking to limit expenses and exposures as much as possible (we do have to return a shareholder profit — i.e. we aren\’t a NPO). What I am saying is I would like to see some specific examples where there has been wholesale defrauding of customers.
4-19-2006
Underwriter,
You stated;
\”When I look at claims info, there\’s a line-item for \”profit and overhead\” for the person doing the repairs and/or work on the property.\”
__________
Contractors place, and repair and/or replace, homes.
Insurers, to properly indemnify a client / structure, use construction industry generated calculations for the calculated replacement cost of a given property, and necessarily include contractor overhead and profit in those calculations.
Their replacement cost calculations for the structure would, easily, not make sense otherwise.
Calculations of the replacement cost of a given property carry over into premiums.
__________
*\”– Indemnity is the basis and foundation of insurance coverage.
The objective is that the insured should neither reap economic gain nor incur a loss if adequately insured.
This objective requires that the insured receive a payment equal to that of the covered loss so that the insured will be restored to the same position after the loss as before the loss.
The calculation of this payment results in under-compensation if an insurer deducts prospective contractors’ overhead and profit and sales tax in determining the actual cash value under a replacement cost policy.
The value of contractor´s overhead and profit, as well as sales tax on building materials, has been included in the limit of liability for which the insured has paid premium.
If the insurer in determining actual cash value excludes costs that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an illegal windfall because the insurer receives premium on insurable values for which loss may never be paid.\”
*http://www.tdi.state.tx.us/bulletins/b-0045-8.html
__________
Receiving premium (dollars) equaling future loss values, and not returning those loss values to claimants, equals receiving premium on insurable values for which loss is never paid.
Over priced premiums, illegal windfall dollars gained, and illicit contingent profit potential, are by-products of synthetically undervalued loss claim estimations.
All of which can be \”hidden\” by year-end loss-ratio appearances, and \”proper\” profit margins not exceeding regulatory boundaries, and insufficient market conduct examination of carriers claim settlement practices.
Should the premium rates need adjusting downward, after the illegal scheme bears the profit desired, carrier compliance with regulators gives the whole process a veneer of legitimacy…
Every day specific examples of keeping those contractor overhead and profit loss values claimants are paying insurers for, and are entitled to honestly receive back, are being generated by Allstate, USAA, Safeco, Farmers, State Farm and the TWIA, in Texas.
Some insurers claim a primary – general (structure placement / replacement) contractor is \”needed\” for a loss, so as to include those contractor overhead and profit loss values in estimating the value of the loss.
Not so.
Again, \”The value of contractor´s overhead and profit, as well as sales tax on building materials, has been included in the limit of liability for which the insured has paid premium.
If the insurer in determining actual cash value EXCLUDES costs that are included in the determination of liability limits, on which the insured´s premium is based, the insurer reaps an ILLEGAL WINDFALL because the insurer receives premium on insurable values for which loss may never be paid.\”
Predetermined replacement loss values, knowingly collected, and knowingly not repaid, apples-for-apples, thus creating illegal windfall, is knowingly defrauding people…no?
Underwriter, If you would like specific hard copy evidence that this is so, for the past 4 years, please feel free to contact me.
Private client information will be excluded.
rogerpoegc@yahoo.com
4-19006
Mark,
With all due respect, I\’ve mentioned more than one insuers\’ conduct in my commentaries, which are based on, proof positive, on-going unfair claim settlement conduct…right under claimants noses.
I\’ve also repeatedly stated that honorable insurers and adjusters exist.
In all, consistent in-the-trenches claim data, tell very interesting stories…
rogerpoegc@yahoo.com
Roger wouldn\’t like it if we painted the entire construction industry as fraudulent by using an example of 1 contractor. If people weren\’t so greedy, no one would have any problems, and that goes both ways.
Plus this is Mississippi–the state with the most plaintiff friendly juries and judges in the country.
I hope that some jack-leg State Judge upholds Hood\’s silly lawsuit. Just watch the insurance companies leave Mississippi like a herd of Water Buffalo. Will the last insuror turn out the lights?
LS
We can afford to pay above the water line.
We will save thousands in premiums and
they will be broke.
Yea what would we LOSE?