Hurricane Nate made landfall on the Mississippi Gulf Coast near the city of Biloxi on Sunday, October 8, 2017, as a Category 1 Hurricane. The eastern quadrant of the storm’s center also passed over significant portions of the Alabama Gulf Coast, including the city of Mobile. Although the initial damage appears to be relatively minor in comparison to past catastrophic storms such as Hurricane Katrina, many businesses and homeowners appear to have suffered damage.
Both Alabama and Mississippi have aspects of property law that you should be aware of as you move forward with the insurance claim handling process. The following is a brief, basic summary of some of the unique issues property coverage lawyers may face when advising clients on Alabama and Mississippi property coverage issues.
A. Valued Policy Law:
Alabama does not require an insurer to pay the full face value of a policy in the event of a total loss. Rather, property damage claims are adjusted per the terms and limits of the policy. In general, actual cash value payments are appropriate for most claims under standard ISO-form policies. Disputes have arisen where an insured sought replacement costs in lieu of ACV payments. However, keeping with the general rule of policies being enforced as written, carriers are allowed to pay the ACV and then await actual replacement of the damaged property before reimbursing the insured for any additional incurred costs related to the replacement.
Likewise, Mississippi’s valued policy law only applies in circumstances where the insured property is damaged or destroyed by fire.
B. “Wind vs. Water”:
Following Hurricane Katrina in 2005, Mississippi courts spent years dealing with litigation from the aftermath of the storm. Many of the issues addressed included the classic “wind vs. water” causation issue. Following several competing opinions, the Mississippi Supreme Court eventually settled on a general understanding of how these claims are to be handled going forward. First, Mississippi courts have adopted the position that the “storm surge” from a Hurricane is excluded by the standard water damage exclusion contained in most policies.
In addition, Mississippi courts have held that “anti-concurrent causation” language contained in most policies generally requires an insurer to actually prove that the two separate losses actually combined and concurred contemporaneously. If there is evidence in the record that creates a question of fact on the issues of whether or not wind or water may have caused the damage in sequence to each other, then the insurer has the burden of demonstrating whether water (excluded) or wind (covered) caused the damage.
Unlike neighboring states such as Florida, Alabama has few appellate decisions directly relating to appraisal in the context of an insurance policy. Of the few that have been issued, the courts are quick to cite to the well-followed and general rule in Alabama that, barring an ambiguity, insurance contracts are to be enforced as written. Alabama courts generally enforce a party’s right to appraisal under an insurance policy. The Alabama Supreme Court has made it clear that appraisal is to be used solely for the purpose of determining the amount of loss in the context of a disputed claim.
Interestingly in one of the most recent cases to address appraisal on the appellate level, the Court specifically stated that it was an error for a court to order appraisal before deciding disputed issues of causation. Insurers have therefore used this position to support the proposition that all coverage issues must be resolved before the appraisal process can be invoked. Whether or not such a position will ultimately be upheld remains to be seen, as it has not been specifically challenged in the Alabama appellate courts.
D. Public Adjusters:
Public adjusters are licensed and allowed to represent the interests of individual insureds in Mississippi. However, public adjusting by non-lawyers is considered the unauthorized practice of law in Alabama. The Alabama State Bar Association has specifically addressed the issue and noted that negotiating (or adjusting) claims on behalf of an insured directly with the insurer constitutes the practice of law. The Bar encourages prosecution of those engaged in such practices.
It has become somewhat of a common practice, however, for public adjusters to enter into agreements with Alabama-licensed attorneys and act in conjunction with the attorney in negotiating and settling claims. This type of practice is generally acceptable, so long as the public adjuster acts merely as a consultant to the attorney and so long as the adjuster does not attempt to negotiate the claim on behalf of the insured in the absence of the attorney for whom he or she is working. However, often times, even when the consultant-attorney relationship exists, care should be taken to ensure the consultant is truly acting in the capacity of advisor and not as an advocate of the insured.
E. Bad Faith:
Both Alabama and Mississippi recognize the tort of bad faith. Both states also allow an insured to bring the tort as part of an initial lawsuit if there is a belief that an insurance claim has been wrongfully denied by the insurer. However, both states require a high threshold of proof in order to maintain the claim for bad faith. In each state, the insured must prove that the claim was not only wrongfully denied, but that the insurer had no arguable basis to deny the claim in the first place. This is often referred to as the “directed verdict” standard: that is, unless the plaintiff can prove that it is entitled to a directed verdict on the issue of whether or not the insurer breached the contract of insurance, the claim for bad faith cannot survive.
For the most part, bad faith in Alabama arises from the plaintiff's contention that the insurer wrongfully denied a particular claim based on a wrongful intent to deny the plaintiff his or her rights under a policy of insurance. Occasionally, however, the insured proceeds under a theory of what is known as "abnormal" bad faith. In an “abnormal” bad faith claim the insurer can be liable under one of four accepted theories: (1) That the insurer intentionally or recklessly failed to investigate the plaintiff's claims; (2) The insurer intentionally or recklessly failed to properly subject the plaintiff's claim to a cognitive evaluation or review; (3) The insurer created its own debatable reason for denying the plaintiff's claim; or (4) The insurer relied on an ambiguous portion of the policy as a lawful basis to deny the plaintiff's claim.
Most of these suits arise in the course of the initial review of a claim. Therefore, insurers should be mindful that the investigation and review process should be thorough enough to withstand scrutiny at a later date in the event a dispute arises. Typically, this is done by ensuring that each claim is treated in a consistent manner that affords the insured the opportunity to present his or her claim fully, with each area of the claim subjected to a fully documented, cognitive review before a final decision is made as to the claim’s ultimate value.
In the aftermath of the storm, care should always be taken to ensure that a proper investigation is conducted and that communication is both timely and frequent. The above issues are merely some that may arise during the claims adjusting process.