Washington Insurance Commissioner Releases New Guidance to Businesses in Light of Recent Events

On June 3, 2020, Washington Insurance Commissioner Mike Kriedler advised Washington State business owners to contact their insurance providers as soon as possible if they have experienced loss or damage in association with recent occurrences of looting and vandalism taking place throughout the state.  The following is a link to the full announcement:

https://www.insurance.wa.gov/news/kreidler-advises-businesses-damaged-during-protests-file-claims-asap

The announcement included the following statements:
  • Damage to commercial property/business caused by theft, vandalism, and/or fire should be covered under a commercial property policy unless that type of loss is specifically excluded;
  • Coverage for damage to plate glass windows is dependent upon the individual policy language;
  • Business that have been temporarily closed because of the COVID-19 pandemic are not considered vacant under the terms of an insurance policy; and
  • A “war and military action” exclusion should not exclude damage caused during a protest.
 In addition, the Insurance Commissioner advised business owners to take the following immediate steps if they plan on filing a claim: 1) contact their insurance company; and 2) consider hiring professional help with debris clean up and to secure their property to protect against further damage.
This announcement is not surprising given recent events and widespread resulting property damage.However, this advisement and increase in civil disturbance claims raise numerous coverage issues.These include the potential application of coverage exclusions including the vacancy exclusion, mitigation and duty to protect from further loss requirements, and valuation issues.
In addition, the steps necessary for an insured to properly mitigate damages and protect insured property from further loss is also fact dependent and will require a careful examination of the steps taken by an insured.Whether, and to what extent, any such mitigation efforts are covered by a policy will depend on the individual policy.The potential for coverage for any such steps should be discussed with an insured early in the claim handling process.

Finally, in light of the potentially severe impacts of the COVID-19 pandemic on business throughout the state and country, we expect more complicated valuation disputes.The risk of inflated claims may also increase.

Whether property damage by theft, vandalism, or fire is covered will ultimately be dependent upon the terms and conditions of the actual policy and the specific facts presented in any claim.As result, it is important that insurers proactively and thoroughly investigate each claim based on its unique facts.It will also be necessary to thoroughly and timely respond to these claims in order to avoid extracontractual exposures.

These are just a few of the potential coverage issues raised by the Insurance Commissioner’s announcement and the damage caused during by the recent civil disturbance claims.

Lether Law Group has been handling large first-party property losses for over 32 years.This includes earthquake claims, storm and hurricane losses, wildfire claims, and even a number of claims involving civil disturbances.If you would like to discuss these recent developments or any other matters, please feel free to contact us at any time.

New Federal Court Case Tests the Limits of Washington Supreme Court Ruling in Keodalah and Allows Some Claims Against Adjusters to Proceed in State Court.

As many of you likely recall, the Washington Supreme Court affirmed the trial court’s dismissal of the statutory extra-contractual claims asserted against an employee-adjuster on October 3, 2019 in Keodalah v. Allstate, 194 Wn.2d 339, 449 P.3d 1040 (2019).  However, as we noted in our newsletter discussing the opinion, the Court seemingly left open the possibility that certain extra-contractual claims could be brought against adjusters based on the common law.

In particular, we noted that the majority opinion did not address whether a common law bad faith claim against an adjuster was legally sustainable in Washington. In fact, the dissent expressed a belief that such a claim should be recognized in Washington. Further, all of the Consumer Protection Act (“CPA”) claims addressed in Keodalah were per se claims based on violations of statutes and regulations applicable to insurers. The Keodalah court did not address so-called traditional common law CPA claims based on the Hangman Ridge elements proscribing any deceptive or unfair act or practice that occurs in trade or commerce, affecting the public interest and proximately causing injury to business or property.

A recent federal court decision has once again addressed the dispute over whether adjusters can be held liable under certain extra-contractual claims post-Keodalah. In Leonard v. First Am. Prop. & Cas. Ins. Co., 2020 U.S. Dist. LEXIS 23680 (W.D. Wash. 2020), Judge Ronald B. Leighton was confronted with a Motion to Remand after First American removed the Leonards’ state court action asserting various extra-contractual claims against First American and its adjuster. The Removal was based on the premise that the claims asserted against the non-diverse adjuster were fraudulently joined and precluded by Keodalah.

In granting the Motion to Remand, Judge Leighton expressly recognized that the Keodalah court left open the possibility that a common law bad faith claim against an insurance adjuster could be a viable cause of action in Washington. He also cited to Panag v. Farmers Ins. Co. of Washington, 166 Wn.2d 27, 41-42 (2009), wherein the Court held that no contractual relationship was necessary to prevail on a CPA claim, to support the proposition that a traditional CPA claim against an insurance adjuster could also be viable. While Judge Leighton recognized that these causes of action might eventually be dismissed or precluded, he ultimately ruled that “it is better to leave such novel questions of Washington State law to Washington State courts.”

Based on Judge Leighton’s analysis in Leonard, it appears that the Supreme Court’s decision in Keodolah may have only been a partial step in addressing the viability of direct causes of action against insurance adjusters in Washington. We will likely not know with certainty what, if any, claims may be brought against adjusters in Washington until common law bad faith claims and common law CPA claims against adjusters are tested in Washington appellate courts.

If you have any questions regarding the effect of the cases discussed herein or any other issues involving Washington insurance law, please do not hesitate to contact our offices.

Continuing Developments with Business Interruption Claims

While we all continue to strive for a sense of normalcy in the midst of the ever-changing COVID-19 crisis, new arguments in support of purported coverage for COVID-19 related Business Interruption claims continue to emerge.  One such recent argument is based on the April 13, 2020, ruling by the Supreme Court of Pennsylvania in Friends of Devito v. Wolf, No. 68 MM 2020, 2020 Pa. LEXIS 1987, (Apr. 13, 2020).  In Friends of Devito, several businesses and one individual sought extraordinary relief from the Pennsylvania Governor’s Executive Order, which compelled closure of physical operations for non-life-sustaining businesses to reduce the spread of COVID-19.

The Petitioners argued that the order was invalid for a number of reasons including lack of constitutional authority.  The Pennsylvania Supreme Court disagreed and found that the Governor did have authority for the Executive Order.  In reaching its conclusion, the Court noted that the Governor had authority under the Pennsylvania Emergency Code to protect the public from natural disasters.  Under the Emergency Code, the term “natural disaster” is defined to include catastrophes that result in “substantial damage to property, hardship, suffering or possible loss of life.”  The Court held that the COVID-19 pandemic qualified as a “natural disaster” and fell within the same general class of disasters as the specifically enumerated “natural disasters” because they all involve “substantial damage to property, hardship, suffering or possible loss of life.”

The Friends of Devito Court went on to note that the Petitioners’ arguments ignored the nature of the virus including the way in which it is transmitted.  Because the virus is transmitted by person-to-person contact, has an incubation period of up to fourteen days, can live on surfaces for several days, and carriers can be asymptomatic, the Court concluded that “any location (including Petitioners’ businesses) where two or more people can congregate is within the disaster area.”  Thus, the Court rejected the argument that there had “been no disasters in the areas in which [the Petitioners’ businesses] are located.”

Based on Friends of Devito, attorneys are now raising the argument all properties are damaged just by the manner in which COVID-19 spreads.  In other words, they are asserting that coverage would exist even in the absence of the actual presence of the disease at a specific location.  In the same vein, policy-holder counsel are now arguing that property damage is not a necessary prerequisite to Business Interruption coverage where the policies provide coverage for Business Interruption caused by “direct physical loss of or damage to property.”  They argue that businesses that were forced to close due to stay-at-home orders have suffered loss of property, regardless of whether there is actual contamination or other property damage at the business location, because the property is not available for their business use.

On the surface, both arguments are concerning for insurers faced with COVID-19 related Business Interruption claims.  However, both arguments appear to conflate “loss of use of property” with “physical loss of” property.  As such, they ignore the term “physical.”  These types of arguments have already been rejected by several courts.  These courts have held that the “physical loss” is not the same as “loss” in general because actual physical change to the condition of the insured property is required to qualify as “physical loss.”  See, e.g., Ward Gen. Ins. Servs., Inc. v. Emp’rs Fire Ins. Co., 114 Cal. App. 4th 548, 556-57, 7 Cal. Rptr. 3d 844, 850-51 (2003); MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 187 Cal. App. 4th 766, 778-80, 115 Cal. Rptr. 3d 27, 37-38 (2010); Se. Mental Health Ctr., Inc. v. Pac. Ins. Co., 439 F. Supp. 2d 831, 837 (W.D. Tenn. 2006);  and Phx. Ins. Co. v. Infogroup, Inc., 147 F. Supp. 3d 815, 825 (S.D. Iowa 2015).

While unpublished, a 2006 Washington State Court of Appeals case is instructive on the flaw in the newest COVID-19 arguments.  In Washington Mutual Bank v. Commonwealth Ins. Co., the bank argued that “direct physical loss of” and “damage to” property have two separate meanings and were separated by the word “or”, such that the trial court erred in requiring actual physical damage to trigger coverage.  The bank further argued that the term “loss” was broader than the term “physical damage.”  The Washington State Court of Appeals rejected that argument and stated:

The language of this clause specifies that the loss must be “direct physical loss.”  The clause does not use the word “loss” in the abstract. … When NWPT recommended evacuation, there was no actual physical loss to the property and no actual damage to the property.  See Wolstein v. Yorkshire Ins. Co., 97 Wn. App. 201, 211-12, 985 P.2d 400 (1999) (noting that language in a similar “all risks” policy required the insured property to sustain actual damage or physical loss to invoke coverage).

Wash. Mut. Bank v. Commonwealth Ins. Co., No. 56396-3-I, 2006 Wash. App. LEXIS 1316, at *7-8 (Ct. App. June 26, 2006).

While the actual COVID-19 coverage arguments have largely yet to be formally briefed, it seems likely that courts across the country will continue to apply the well-settled rules of interpretation for insurance policies and apply meaning to each word used in a policy instead of rendering certain language superfluous.  We at Lether Law Group will continue to monitor the COVID-19 arguments and cases as they develop.

Lether Law Group is already actively defending insurers in multiple class action lawsuits filed by policyholders seeking Business Interruption coverage.  We are open and available to assist in the defense of any individual or class action lawsuits that may be brought seeking this coverage.

If you would like any assistance in navigating the coverage issues involved in COVID-19 related claims, please feel free to contact us for a free discussion regarding your issues and how we can be of assistance.

Suspicious and Fraudulent Claims

As the COVID-19 health crisis continues in the United States, a number of insurers have already seen a significant increase in claim activity. This includes not only business interruption claims but also a significant increase in property claims. Unfortunately, one of the effects of any downturn in the economy will always include an increase in suspicious or fraudulent claims. Such claims will include intentionally-caused losses (for example, arson claims) and overstated claims.

Lether Law Group has already been retained in regard to a number of commercial arson fires involving businesses that were shut down due to the health crisis. We also expect that we will see a number of overstated claims in the homeowner and commercial markets.

Tom Lether began his career in 1988 primarily as an arson and insurance fraud lawyer. Over the last 32 years he has taken thousands of Examinations Under Oath, coordinated thousands of investigations, and has successfully tried a number of arson and fraud claims. This includes such claims as the Martin Pang fire loss where four Seattle firefighters were killed (still one of the most significant commercial arson losses in Washington State history), and residential arson and fraud claims such as the Martin Manglona case (the most significant homeowner’s arson fraud claim in Washington State history).

There are a number of techniques and specific skills involved with investigating fraudulent claims. Fortunately for insurers in the Northwest, the case law in the Northwest is very favorable for insurers in regard to these issues.

Lether Law Group expects that we will see a continued increase in the need to conduct Examinations Under Oath, coordinate claims investigations, defend insurers in fraudulent claims, and address any extra-contractual claims which result from claim denials.

If you are an insurer who is seeing an increase in these types of claims, please feel free to contact us for a free discussion in regard to the applicable law involving these claims, as well as some of the tools available to insurers.

insurance fraud covid-19

COVID-19 Update

As the COVID-19 crisis continues to impact every aspect of our personal and professional lives, Lether Law Group is continuing to monitor any and all new developments that may impact our clients. To the extent that you have any questions or would like to discuss any potential issues related to COVID-19 and its impacts, please feel free to contact us at any time.

One of the issues that has been persistent since the inception of the crisis is whether the commercial impacts of COVID-19 should be remedied by federal, state, and local governments or through the private sector. Specifically, and as we have previously reported, many governmental entities have called on commercial property insurers to extend Business Interruption and Civil Authority coverage to businesses closed or limited due to the COVID-19 outbreak.

However, as has now been widely chronicled, Business Interruption coverage is only available due to necessary suspension of operations due to physical damage to the insured premises. Moreover, many modern commercial property forms contain an exclusion for any losses caused by the presence, proliferation, or spread of a virus.

As a result, under most circumstances surrounding COVID-19 related business shutdowns, there would likely not be coverage available to the insured. However, that does not mean that there is no coverage available in every circumstance.

Given what appears to be clear and unambiguous policy language concerning Business Interruption coverage, what is emerging is a series of bad faith claims against insurers that are summarily denying Business Interruption claims without conducting any investigation or even in some instances, not even with a written explanation of the coverage position. Policyholders nationwide are bringing bad faith claims alleging cursory, over-the-phone denials of these claims.

As we have previously noted, we are not aware of any insurance commissioner in any United States jurisdiction that has suspended the Unfair Trade Practices Act regulations during the COVID-19 epidemic. To the contrary, rather than suspending insurance claims regulations, insurance commissioners are taking steps to ensure that those regulations are followed. By way of example, on April 14, 2020, the insurance commissioner for the State of California issued a Notice to insurers advising of complaints about cursory denials and even refusals to open Business Interruption claims. The Notice then provided as follows:

Upon receipt of a notice of claim, the insurer is required to provide the policyholder with the necessary forms, instructions, and reasonable assistance, including but not limited to, specifying the information the policyholder must provide in connection with the proof of claim and begin any necessary investigation of the claim. (Regulations, section 2695.5(e)(2).) Thereafter, every insurer is required to conduct and diligently pursue a thorough, fair, and objective investigation of the reported claim, and is prohibited from seeking information not reasonably required for or material to the resolution of a claim dispute before determining whether the claim will be accepted or denied, in whole or in part. (Regulations, section 2695.7(d).)

(emphasis added)

The California OIC’s Notice demonstrates the conflict between the public and private sectors. The OIC cannot force insurers to provide coverage so the agency is left to issue stern Notices to insurers requiring the insurers to follow the law.

Ultimately, pronouncements such as that by the California OIC do not really change anything. Insurers are still required to comply with claim handling regulations and act in good faith. That includes promptly responding to pertinent communications, conducting a reasonable investigation, and providing the insured with a written explanation of the coverage decision, etc.

Once again, if you have any questions or concerns relating to COVID-19 related claim or any other issues, please feel free to contact Lether Law Group at any time.

Insurance – An Essential Service

The State of Washington has recently clarified its list of essential services which are permitted to remain open during the current health crisis. That notification clarifies that insurance is considered an “essential service”. See notification link below. We understand that other states have similarly concluded that insurance is an essential service and any “stop work” orders or “work from home” orders do not necessarily apply to insurance companies.

This position underlines what Lether Law Group has always believed. Insurance is an essential service. Even during the worst crisis, claims continue to occur. Car accidents happen. Fire losses happen. Lawsuits are filed.

Insurance has been an integral part of the American economy since colonial days. In fact, the oldest insurers in the United States predate the formation of this country. As a result, no matter how difficult times are the insurance industry will survive and continue to be a cornerstone of the American economy.

With this in mind, it is important to remember that in most states there has been no extensions or waivers of any of the time deadlines which apply to the insurance industry. For example, it is still necessary to comply with any “Fair Claims Settlement Practices Act” regulations and the time periods set forth within those regulations. Although it is difficult when claims professionals are working from home to keep up with all of the requirements that are placed upon insurers, it is now more than ever crucial for all insurers to bear in mind that once this pandemic is over there will be a significant increase in claims activity. Insurers that have not complied with their obligations during the shutdown period will be exposed to significant extracontractual claims.

Moreover, as all insurers are aware, most departments of insurance and/or governors around the country have issued bulletins and notifications to insurance companies to provide additional services to their insureds during this time. A failure to comply with these requirements will likewise lead to extensive bad faith claims litigation.

Given the fact that insurance is an essential service, the Lether Law Group continues to operate on a daily basis in order to provide services to its insurance clients during this difficult time. If you have questions about any state-specific requirements which have been enacted due to the COVID-19 pandemic or general questions in regard to pending insurance claims and compliance with any regulatory requirements, please feel free to contact our office.