Cosmetic Damage Hail Issues—Biased Engineering Reports and Bad Faith | Property Insurance Coverage Law Blog

Dan Ballard is at New Jersey Professional Association of Public Adjusters (PPAANJ) Fall meeting, presenting on “Everything New Jersey.” One case he highlights in the presentation involves a hail damage case where “cosmetic damage” was an issue.1 The trial court ruled that the interpretation of the policy would be in favor of the policyholder, even though the insurance company’s expert could attempt to prove that the hail had nothing to do with the loss :

[T]The term “direct physical loss” is not defined. The Grablows argue that the term encompasses any type of physical damage, including cosmetic damage, while NJM contends that the term akin to the property being rendered useless, requiring replacement, or damage affecting its structural integrity. Both are reasonable interpretations of the meaning of the phrase and, therefore, the Court finds the term to be ambiguous. See Identifier. at pages 541-42 (“Since ‘physical’ can mean more than physical alteration or damage, it was incumbent upon the insurer to clearly and specifically exclude coverage in the event that it was not to be provided. . . . .”) (quoting Personalized distribution services. v. Zurich Ins. Co., 373 NJ Super. 480, 491 (App. Div. 2004).

Accordingly, the interpretation proposed by the Grablows must be applied consistent with the precedent of the courts of this state. See Wake fern406 NJ Super 538 (“Where the language of a policy supports two reasonable meanings, one favorable to the insurer and the other favorable to the insured, the interpretation supporting the coverage will be applied “)

Under the terms of the Policy, “normal wear and tear” and “mechanical breakdowns” are excluded from the warranty. (PI. Br., Ex. C at p. 8) If Mr. Frye’s findings were accepted as true by the investigator, then the Grablows’ allegations could be excluded by the terms of the policy. Therefore, the Court concludes that there is a genuine question of material fact as to whether the damages claimed by the Grablows were caused by the hailstorm or by another event that could exclude coverage.

Many policyholders and public adjusters find that insurance company hail adjusters appear to have reports and opinions that overlook the obvious damage caused by hail. They claim that adjusters collude with insurance companies to invent bad faith reasons for denial and underpayment.

An Indiana case shows that courts will entertain these allegations, but proving wrongful collusion is another matter. An order authorizing the continuation of a bad faith case stated:2

Indiana recognizes a legal duty, implicit in all insurance contracts, requiring the insurer to deal in good faith with its insured…. The standard for establishing bad faith is high: ‘[A] a good faith dispute as to the amount of a valid claim or whether the insured has a valid claim shall not constitute grounds for tort recovery for breach of the duty of good faith. the claim is wrongly denied and the insurer knows there is “no rational and principled basis” for denying the claim…..Masonic Temple v.Ind. Farmers Mut. Ins. Co.779 NE2d 21, 29 (Ind. Ct. App. 2002) (“bad judgment and negligence do not constitute bad faith; rather, the additional element of conscious wrongdoing (dishonest purpose, moral oversight, furtive design or ill will) must be present.’).

North Shore’s factual allegations are sufficient to support the conclusion that Nationwide intentionally attempted to deceive North Shore and denied liability without a rational basis for doing so. The complaint does not simply allege that Nationwide denied coverage for hail damage that should have been covered. It also alleges that Nationwide hired Nederveld, a preferred vendor, who defined hail “damage” to include only functional damage when the policy covered cosmetic damage to shingles and reported to Nationwide that the roofs had no suffered no damage, even though the damage was open and obvious. The complaint further alleges that by denying cosmetic damage claims, Nationwide “misrepresented its policy” and “conspired with Nederveld to deceive [North Shore].’ These allegations suggest that Nationwide knew there was no legitimate basis for defining damages to include only functional damages and denying coverage. See Hickman622 NE2d at p. 519 (“The obligation of good faith and fair dealing with respect to the performance of the insurer’s contractual obligation includes the obligation to refrain from unjustifiably refusing to pay the proceeds of the police… “).

The case unfolded in highly adversarial litigation. The court ultimately found that the policyholder had not met the heavy burden required to bring a bad faith action:3

…North Shore argues that Nationwide acted in bad faith because Ladder-Now and Nederveld are “simply biased privileged sellers who receive large sums of money each year from Nationwide,” a jury could conclude that Wildason ignored the report of Shields and that Wildason “intentionally performed an inadequate inspection for hail damage.” North Shore repeatedly asserts that these questions must be submitted to a jury for resolution, but “bad faith is a legal question for the Court to resolve, not a factual question on which [North Shore’s] the claim rests.’…

North Shore’s arguments “are not related to the elements of insurance bad faith under Indiana law.” North Shore’s arguments focus primarily on facts material to the breach of contract claim, but even if Nationwide were found liable at trial for erroneously denying coverage and breaching the contract, that alone would not be enough to support a bad faith claim…Instead, North Shore must affirmatively demonstrate, through specific factual allegations, that there is a genuine question of material fact as to whether “the insurer knew that there was no had no legitimate basis to deny responsibility. »…

North Shore has demonstrated that its dispute with Nationwide is nothing more than a good faith disagreement over the terms of Nationwide’s insurance coverage and, as previously explained, a ” Good faith dispute regarding insurance coverage cannot form the basis of a claim. tort that the insurer failed in its obligation to deal in good faith with its insured. Sinuous ridgethere was no evidence that Nationwide delayed payment to North Shore, deceived North Shore, or exercised an unfair advantage to pressure North Shore into settling the claim…There was also no evidence that Nationwide had baselessly refused to disburse policy proceeds to North Shore.

Aesthetic damage and functional damage constitute a vast debate following the numerous losses caused by hail. Policyholders and public adjusters should be concerned about the veracity of insurance company experts and seek their own opinions. Many believe that most expert opinions from insurance companies are biased and results-oriented. The lesson of today’s blog is that proving the wrong result and biased opinion is a different matter than saying it.

Thought of the day

Extraordinary claims require extraordinary evidence.

-Carl Sagan

1 Grablow v. New Jersey Manufacturers Ins. Co.No. L-858-15 (NJ Super. Ct. [Burlington] January 8, 2016).

2 Association of co-owners of the North Shore. vs. National change. Ins. Co.No. 1:18-cv-03632, 2019 WL 3306212 (SD Ind. July 22, 2019).

3 Association of co-owners of the North Shore. vs. National change. Ins. Co.624 F.Supp.3d 1008 (SD Ind. Aug. 30, 2022).

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