Jeffrey Stempel, a long time admired colleague and current Insurance Law Professor at the University of Nevada Las Vegas, has published a wonderful textbook, Litigation Road:  The Story of Campbell v. State Farm.  I just started reading the book, and will comment in greater detail following the Holiday weekend.

However, as a shameless and free plug, I encourage every attorney or person interested in the finest thoughts about how State Farm operates and how an actual bad faith case is litigated, to pick up a copy of this book.

You can order the book from West Group by clicking on the following link:  Litigation Road: The Story of Campbell v. State Farm.

 The insurance business constantly changes.  I have often referred to it as a gambling operation, with the insurance industry making the rules–subject to possible state regulation.  There is a definite trend of Big Insurance abandoning its customers in geographic areas where a large catastrophe is more likely.  They are doing this based upon an economic concept of Enterprise Risk Theory, where the insurer wants to prevent large and unknown losses from occuring.  Those insurers are increasingly using computer generated models of catastrophes to decide in which areas they want to stop selling policies.

The Wall Street Journal ran an excellent article detailing the controversial use of these models.  Overall, the property/casualty business has been very lucrative.  Even following Hurricanes Dennis, Katrina, Rita and Wilma in 2005, the insurance industry made over $40 billion (after paying out over $60 billion in catastrophic claims).  The industry made about $60 billion in 2006 and 2007, when the number of catastrophes was relatively small.  The main point is that even in the most severe catastrophe seasons ever, 2004 and 2005, the property and casualty industry profited approximately $70 billion.

Despite these profits, the biggest insurance companies are getting out of the insurance business in areas where their models predict the possibility of a large loss.  I call it “Geographic Redlining,” similar to the illegal discriminatory redlining large insurance companies did to minorities before laws were passed to prevent those discriminatory practices.  Geographic Redlining allows insurers to insure only where there is a very small chance of a catastrophic loss.  It would be like allowing a health insurer to not insure women of child bearing years, smokers, and those over 50 years of age.  While society would never allow health insurers to do that, we are allowing property insurers to do it through the use of their models.  They want the sure thing and avoid risk — strange since they are in the risk business.

The bottom line for policyholders is that the new models lead to insurance getting a lot more expensive if your property is anywhere hurricanes, tornadoes, earthquakes, or wildfires are more likely, and may find it difficult to obtain any coverage from any carrier.  Most will be placed with a state-run insurance plan of last resort.

   It is very, very hard to be a good judge.  Of all the human endeavors, making decisions that directly impact people, their lives, and dreams on a wide variety of intensely disputed controversies is an awesome responsibility.  To be a good judge, you have to be very smart, patient, understanding, intellectually and factually honest, have common sense, be experienced in life, energetic, restrained, detached from undue influence, noble, hard working, and intensely dedicated to seeing that people have a chance for justice.  It is impossible to find all of these traits in one person, I know my best talents are found somewhere other than as a referee in a trial courtroom.

A federal judge is appointed for life.  Like Admirals and Generals of our military and Cabinet-level Secretaries and their Deputies, they are on the Board of Directors of the United States of America.  They voluntarily take on the job of making certain that this Land of the Free and Home of the Brave is more than just an ideal we have ingrained into our souls.  They are the keepers of a governmental system of the best and longest running democracy to ever exist.

Two of my very good friends became federal judges.  As I get older, more of my colleagues are getting tapped for these positions.  They change once appointed.  The federal judiciary demands that the avoidance of conflicts and appearances of conflicts of interest become paramount.  I no longer see my federal judge friends regularly.  As an advocate, I can understand and appreciate the need for my friends and judicial colleagues to distance themselves from the lawyers and other friends that may come before them seeking results favorable to our interests.  I guess it comes with the job, but there are personal sacrifices made by those accepting these responsibilities.

One of the aspects of practicing law all over the country, is that I practice in front of a lot of different judges in various venues.  Virtually all truly want justice in each case.  Some are better at it than others.  The worst and most dangerous to our society, are those who are dishonest or who have closed their hearts to fairness or justice because they have a predetermined agenda.

Once in a while, a particular judge makes rulings that show wisdom and leadership.  Sometimes, you find these judges in places where people are surprised to find stellar and academic legal opinions, but we are often wrong to stereotype individuals based upon where they come from or live.

For instance, my mother cried the day she learned the Coast Guard was transferring our family to the Mississippi Coast.  She grew up in Philadelphia and was afraid her children would never receive a proper education.  However, the best academic and life lessons I learned were during the two years I spent with the Brothers of the Sacred Heart at St. Stanislaus in Bay St. Louis, Mississippi.  My mother cried when we had to leave for my father’s next tour of duty in California.

The Brothers are very different from most modern people.  They devote themselves to the improvement of people through the teachings of Jesus Christ.  They have no other interests; they represent higher ideals.  They inspire us to think about the welfare of others over ourselves.  I owe them so much and am so unworthy a student of them.

Good judges are very much the same, they become judges to make justice and law based upon higher ideals.  Who wants a dumb judge?  Who wants an unsuccessful lawyer who wants a raise as their judge?  Nobody.

How many successful attorneys, after working harder and better at it than others, want to take a cut in pay to be a judge?  Not many.  Those good attorneys who do, and truly desire to make this country a better place, without agenda, and with nothing more than a desire to do so, are what we need in our country.

It is truly rare when judges properly understand the practical and academic issues facing them.  Either they lack the practical experience, or the very best attorneys are simply taking advantage of their academic abilities, resulting in poor decisions.  This problem has not happened in the Southern District of Mississippi since Hurricane Katrina.  Judge Senter has repeatedly called the balls and strikes of the ensuing insurance litigation with a reserved attitude and a voice of experience, trying to get the litigation resolved.  A good example of this was the recent ruling in the McIntosh case, where he stopped State Farm from its onslaught of getting opposing firms kicked off cases.  His request for the attorneys to get back to the work of resolving cases was well founded.  I have been fighting State Farm regarding their request for information which they will use to kick us (policyholder attorneys) off cases.  It is obvious State Farm and our clients may benefit from a change of focus, and this was the point Judge Senter made…again.

Over a year ago, he publicly applauded Dick Scruggs on his settlement of over six hundred State Farm cases.  Some of Scruggs’ clients did not accept the deal, and I spoke out against the “taking pennies on the dollar” mentality at the class action hearing in February 2007.  Still, Judge Senter’s remarks regarding Scruggs’ success in getting resolution did have an effect on us.  

Judge Senter appointed his magistrate, Judge Walker, to help in our mediation.  I cannot comment on the settlement negotiations we had with State Farm.  However I can say that after a number of disagreements regarding Judge Walker’s rulings on discovery, he is a very personal and persuasive type of guy when it comes to settlement. I, and my clients, owe him an awful lot.  So does State Farm.

Judge Senter set up a special web site for those interested in reading the more important Katrina Claims decisions.  I have disagreed with some of his rulings.  He has never strayed far from what most of my colleagues have predicted, either on the insurance company or policy holder side.

Still, it is obvious that he and Judge Edith Jones from the Fifth Circuit have a very different view regarding how badly an insurance company can treat its customer before being subject to punitive damages.  Some of my colleagues often say that Judge Jones is one of those “agenda judges.”  I am certain that State Farm and the insurance industry hope more Edith Joneses are appointed to the bench.  I wonder how she would rule if her home were wiped out and State Farm made up a brand new and subjective test to deny her insurance benefits.

 Some of the interesting changes in the public adjuster trade are the increased requirements to obtain and maintain a license.  This past legislative year, the Florida Association of Public Insurance Adjusters (FAPIA) lobbied for and obtained an apprentice period as well as specific continuing education requirements for public insurance adjusters.  Some may be surprised that FAPIA pushed for this legislation, but there was an obvious need for it.

In 2004, there were several hundred licensed public adjusters in Florida before Hurricane Charley set off a wave of storms, culminating with Hurricane Wilma in 2005.  The number of licensed public adjusters swelled to over three thousand in Florida.  While there was and is a need for policyholders to have experienced professionals assist them to establish the proper value of any significant claim, many of the new public adjusters had little experience, understanding, or training.  All one had to do to obtain a license was pass an open-book online test.

I have met preachers, car salesmen, fitness trainers, and salespeople who became licensed public adjusters after the first storm of 2004.  The public suffers when inexperienced and inadequately trained people represent themselves as “professionals licensed by the state” to help consumers.  I do not begrudge anybody the opportunity to make a living in this field, but good adjusters have a tremendous amount of training gained over years of practice.  A thorough understanding of policy language, rules, laws, industry practices, construction estimating, building code knowledge, theories of coverage, financial issues, and adjustment techniques are learned through years of practice and diligent study.  Adjusting claims is serious business with serious consequences if not done right.  Could you imagine letting doctors practice brain surgery the day after they graduate from medical school?  This is essentially what Florida allowed; with some consumers unknowingly hiring “first time” adjusters.

Accordingly, except for a minority of public adjusters that did not want any fee caps, the Florida public adjuster legislation was supported by FAPIA, NAPIA, the insurance industry, and the Citizens Property Insurance Claims Task Force.  (Of special note, the Citizens Task Force, which was formed to suggest legislation regarding Citizens’ handling of claims, did not make one such suggestion, but was instead used by the insurance industry to make laws regarding other aspects of insurance.)

My suggestion for those seeking to hire public adjusters is to look for the following:

1. Reputation
2. Membership in FAPIA and NAPIA
3. Experience with the policyholder’s type of claim
4. Sufficient manpower
5. Price

I include price because you usually get what you pay for.  Public adjusters typically charge ten percent (10%).  Many will charge less, but they may not work the claim as diligently and make up the lost value of one claim by settling in volume.  Ask for references.  The lowest priced adjuster is often not the best.  The highest may not be the best either.  Look for experience, reputation, and past results so you have a good sense of trust with the person you select as your representative.

Last week I attended the National Association of Public Insurance Adjusters (NAPIA) Annual Convention in Chesapeake Bay, Maryland.  Tuesday I spent most of the afternoon with the Board of Directors for the Florida Association of Public Insurance Adjusters (FAPIA) in Ft. Lauderdale.  I have been going to NAPIA conventions since I first spoke to that organization in 1985, and I helped form FAPIA in 1993.

If there is one trend apparent in both organizations, it is growth.  There may be a number of reasons for this including an ever increasing tendency of insurers to not pay benefits which fully reimburse policyholders for their losses.  Motivated and trained claims professionals are needed to help policyholders obtain benefits the insurers are trying not to pay.

 Some of my insurer colleagues may dispute this, but I have yet to read an internal insurer claims goal which increases the amounts paid to its policyholders.  The goals are just the opposite, and the pressure to reduce claims payments is often confirmed by adjusters who leave the insurance industry to become public adjusters.

Tuesday night, I spoke with three former State Farm adjusters.  All three spoke of the pressure to handle and close more claims, to closely read the policy language, and to not pay for certain items following disasters before actually adjusting losses.  They went so far as to have role playing scenarios where they practiced negotiating techniques which dupe customers into believing the insurer position regarding adjustment is proper.  Adjusters should be looking for ways in the policy and facts of the loss to pay more.  Does any policyholder truly have a chance when all the training is geared towards non-payment?

One public adjuster talked of going to a Haag Engineering seminar regarding roof damage.  These are generally attended by the insurance company adjusters.  The Haag trainer opened the seminar claiming that adjusters would learn techniques to pay for little, or possibly nothing, on roof claims where the adjuster would otherwise pay for complete replacement.  How insurance companies can repeatedly escape accountability for procuring outcome oriented investigations still amazes me.  Most policyholders have no clue that an adjustment is being made for the appearance of good faith, when it is anything but that.

These former insurance company adjusters revealed that all these wrongful activities were culturally accepted as proper.  Some admitted they were “brainwashed”, by subtle motivation and goal setting on how they paid claims, into thinking they were the guardians of the insurance company treasury.  Without exception, I have never met a public adjuster who wanted to go back to the insurance company.  They all express much greater job satisfaction as public adjusters and genuinely helping people.

To be fair, I see the denials and problem cases.  I do not have policyholders calling me when an insurance company adjuster goes out of his way to provide the service required by a good faith adjustment.  I know there are many well-meaning and professional adjusters helping the company customers.  I am certain I see mostly the unethical adjusters and not those who do their job ethically.

So long as the insurance industry promotes severity control goals and motivates its field adjusters to look for ways to pay policyholders less than what is owed, the public adjuster business will be a brisk and growing industry.  In today’s claims environment, every policyholder with a significant loss should consider hiring their own claims professional.

 Best is reporting that State Farm continues to retreat from the insurance business in Mississippi.  The headline suggests that State Farm merely canceled policies, but the article reveals that State Farm canceled 900 policies, and changed the terms of 5,000 more customers by refusing to insure for wind peril.

As I have explained, our largest insurance carriers are getting out of the risk business.  Allstate, State Farm and Nationwide are following a business strategy that reduces their financial risk to catastrophic loss.  They want to be in the business of “for sure” profits, which is more commonly found in the automobile and life insurance industries.

These insurers are getting out of a business they once fought to dominate.  Like casinos in Las Vegas, they want the odds only in their favor and will change the rules to make this happen.  Blackjack was the only game against the casino where careful play could provide an advantage to the player.  The casinos have changed those rules, just like the insurance industry is doing to its customers.

State Farm only wants to insure structures where the rates and percentages are so far in its favor, it can never lose.  By excluding wind and flood peril from coverage, State Farm truly covers only the very remote peril of fire in its customers’ policies.  This results because all other ensuing losses can arguably be denied under the anti-concurrent causation language found in their policies.

The implication is that consumers are going to have to help “start up” competitors and have some governmental backup until the private insurance market can develop these new entrants.  Regulations should be considered which provide rate incentive for these entrants and penalize the old line carriers for depopulating its pool of customers through the cherry-picking of risks.  The old line carriers are simply killing society’s ability to have an orderly insurance market.

Could you imagine if the health insurance industry started to cancel policies for people over sixty and women between the ages of 18 and 38?  What if we allowed health carriers to cancel or non-renew your policy if you were 15 pounds overweight or had a history of cancer in your family?  This is what we are allowing the property and casualty industry to do.  We simply have to stop it.

 The Tampa Tribune and St. Petersburg Times ran front page articles regarding a surcharge being made to all policyholders in Florida.  The cost for a typical policyholder with a $1,000 to $1,500 premium is $30 to $40.

This morning I spent nearly $90 to fill my car’s gas tank.  Not that long ago, it cost about $60.  So, to put that insurance surcharge in perspective, many of us pay the same additional amount as the annual surcharge every week or so when we fill our gas tanks.

The story did not deserve front page coverage.  What does deserve to be on the front page is an article informing people what the assessment would be if a Hurricane Katrina struck Miami, Ft. Lauderdale or Tampa.  The assessment would be hundreds, even thousands, of dollars tacked on to every auto, boat and homeowner’s policy.

 Kevin McCatry, of the Office of Insurance Regulation, announced that six fairly obscure insurance companies have taken the insurance for 100,000 risks which were previously underwritten by Citizens Property Insurance Corporation.  The good news for consumers is that their new insurance carriers are insuring them for the same or better coverage and for the same or better price.  What a deal!!  Or is it?

As much as I have criticized large and mature property insurers such as Allstate, Nationwide, and State Farm, I always knew that they had professional claims management and could pay any claim.  Our experiences with smaller carriers vary.  Generally, claims management of small carriers is less professional, and their capabilities are extraordinarily stretched following a catastrophe.  Further, companies with little surplus (net worth in insurance terms) often come up with creative claims policies and decisions which invariably involve paying less than what is owed or extending the time for payment with excuse after excuse.

For example, Southern Family and Atlantic Preferred were two companies that were part of the Poe Insurance Group that became insolvent following Hurricane Wilma in 2005.  The Poe companies were never strong financially.  The four 2004 storms caused a rash of bizarre interpretations of policy language, all favoring non-payment.  It got worse after Hurricane Wilma, and speculation was rampant that the claims personnel were given the customary “do not pay if you do not have to” orders from management.

How valuable is insurance that is not going to pay promptly and in full?  How valuable is a deal for better coverage if the insurer is going to not have sufficient assets to treat the policyholder in good faith, with an eye towards payment rather than safeguarding the company treasury?

Surplus is important to insurance companies and their customers because it shows the company’s ability to pay unanticipated losses.  It is a value after you take away all the anticipated claims.  Insurance companies with big surplus have the financial means to do things right.  Those without big surplus often cheat to stay in business or are cheating on the level of service they provide to customers because they simply cannot afford to do things right.

Hopefully, these smaller companies will find top notch methods of insurance operations.  But insurance is unlike any other business because the delivery of the insurance company’s product often does not occur until years after the first policy is written.  Talk is often loose and cheap until the claim arrives; only then will anybody know how good of a deal these takeout companies really offered to Citizens’ customers.

Tropical Storm Arthur starts off the 2008 hurricane season with some early inning excitement.  In my line of work, I am always asked during the summer months how many hurricanes there will be and where they will hit.  The newspapers are full of stories from meteorologic prognosticators regarding these events.  I simply reply it is a guess:  the odds are a major hurricane will form in the Gulf of Mexico and there may be an Atlantic Coast hurricane as well.  The truth is nobody knows.

But the fact that nobody knows does not mean that you should not be vigilant, especially along the Gulf Coast areas in June and July.  Arthur is a classic early season storm because generally, hurricanes will form only in the Gulf of Mexico early in the season.  Why?  The warm water temperature needed to form major storm systems is most favorable only in the Gulf of Mexico.  The entire Atlantic Caribbean area warms as the summer progresses.

The Associated Press ran a story correctly noting that hurricane forecasts should not be the basis for bets.  It quoted Craig Fugate, the Director of Emergency Management in Florida, as stating that these early forecasts “are not useful at all.”  Indeed, I believe that most people, having two years of dire forecasts which never materialized, will inevitably become complacent.  This is human nature.

Instead, as indicated by the Insurance Information Institute, now is the time to make final preparations for the hurricane season.  The Institute lists five tips:

1. Buy Enough Insurance;
2. Buy the Right Insurance;
3. Create a Home Inventory;
4. Prepare an Evacuation Plan;
5. Hurricane-Proof Your Structures.

Numbers one and two are easy enough.  Call your insurance agent and make certain you have high enough policy limits to rebuild your structure–brand new–to new codes.  Obtain Flood Coverage if you live even remotely close to a body of water–even if you are not in a flood zone.  For businesses, buy Business Income and, especially, Extra Expense Coverage.  Many businesses need off-premise power coverage.

Nobody does number three.  I have yet to have a residential client who has made an inventory before a hurricane.  Businesses and governmental clients are not much better.  Indeed, some businesses have coverage for non-listed assets.  A before-loss videotape of structures and everything contained in them can be a big help for a number of adjustment reasons.

Businesses cannot spend enough time going over a risk management operation plan in the event of a catastrophe.  Safekeeping of records, property and information is one aspect.  Making contingency plans to get back in business as soon as possible is crucial to the survivability of many businesses.

Hurricane-proofing residential and business structures is the best thing that can be done.  Repair and maintain the exterior envelope of the building.  Trim trees and remove objects that can crash into structures.  Think about purchasing an alternative energy source if you have a business or can afford one for your home.

As I have said before, if you do all of the above five steps, chances are nothing will happen to you.

Capitalism and economic venture are alive and well in the Florida insurance market.  The Florida Underwriter reported this month that over 1.7 million policies have been written by new insurance companies since the 2004 hurricane season.  As Allstate, State Farm and Nationwide retreat from the Florida property insurance market, these new insurance companies are accepting risks that would otherwise end up with Citizens Property Insurance Corporation.

My initial reaction has been that this is a good development.  We need an infusion of new companies to take the place of the older established insurers that seem determined to leave the insurance business in an effort to safeguard all the surplus they previously made.

The new economic premise of Enterprise Risk Management has led old lines carriers to get out of the alleged “risky” Florida insurance business to preserve the profits they made and enter other financial arenas–such as banking, life insurance, and pure investment.  It is refreshing to see new private insurers take the place of old line carriers in the property insurance market.

This has not occurred without some governmental help and a fortuitous influx of money into the re-insurance markets.  The Florida Legislature passed legislation which allowed up to $25 million in matching funds to loan any insurer who was willing to write business in Florida.  At the same time, the re-insurance market has greater capacity to write business and the market has “softened” to afford lower rates to these newer carriers.  The bottom line is an influx of new carriers entering Florida and writing insurance policies where the old line carriers dare not go. 

Florida is still far from being economically insulated should a major storm hit the state.  It is a Hurricane Katrina away from financial catastrophe.  Still, it is encouraging to see these new companies enter the market.  Hopefully, they will enjoy a number of profitable years to build their surplus (”surplus” is the net worth of an insurer) before faced with any widespread catastrophic losses.