On the Podium: Insurance, A Neccessary Evil
Published on Tuesday, 25 October 2011 14:38 Written by Julie L. Morris
A few days ago a woman called me to tell me a story of flooding she was experiencing in the basement of her house. She explained that the flooding started when her neighbor placed railroad ties along his driveway. During times of heavy rain, the water would flow along the base of the railroad ties, across the woman’s driveway and directly into a window well that was located on the foundation wall. Of course, this caused damage to the finished game room, and she wanted to know what I could do to get her neighbor to remove the railroad ties.
My first question for her was if she had called her homeowner’s insurance company. She replied that while she had not called them, they would not do anything for her because she did not have flood insurance. I explained that I would love to have her retain me and pay me to go after her neighbor, but that she should place a call to her insurance agent first. Firstly, this was not “flooding” in the normal sense of the word --- it was not caused by a stream rising or storm sewers backing up due to a period of torrential rain. This was caused by an artificial condition on land, i.e. the railroad ties that her neighbor had put along his driveway. I told her that it was my feeling that her insurance company would pay for the damage done in her basement and, in turn, it would exercise its right of subrogation and say, “Hey, Neighbor, you caused this mess so you have to pay us back.” Neighbor then turns that over to his homeowner’s insurance company, who either realizes that their insured was at fault and reimburses the other insurance company; or they deny liability and hire an attorney to defend him. Thus, the circle of legal life goes on. Hakuna Matata.
What disturbs me, though (and I’ve heard this from many people), is that people are reluctant to call their insurance company to report a claim because they just assume that the claim will be denied. That has even been my personal experience --- whenever I have called to report a claim I have never had anyone immediately say to me, “Absolutely, Mr. Neely, you are covered for that loss and you should receive a check from us within the next few days.” In fact, the exact opposite happens: They pull out my policy and they look for language that will serve as a basis for denying my claim. Isn’t that something? We pay our premiums faithfully but when we need assistance, our insurance companies would rather find a way to deny us than help us.
A few years ago, I represented two brothers who owned a large building in the Strip District. The building was home to several nightclubs and restaurants. My clients ran a grocery store out of the basement. Their store was unique in that their merchandise was made up completely of salvaged goods. For example, if a train carrying 10,000 bottles of ketchup derailed, my clients would get a call. They would dispatch a crew to the scene of the derailment. The crew would recover the cartons of ketchup, take them back to the store, discard the breakage, clean up the rest and put them on the shelves at a discounted price from what you might be charged in a so-called “normal” grocery store.
One evening a fire broke out on the roof of the building. The Pittsburgh Fire Department responded and doused the blaze with thousands of gallons of water. Of course, the fire suppression efforts, while successful in saving the building, completely wiped out my clients’ inventory. When they contacted their insurance company, the claim was not denied, however, the insurance company only offered them $400,000 for their inventory. The insurance company justified this by saying that my clients dealt in “damaged goods.” My clients called me to get involved. I explained that these were not damaged goods and that everything on their shelves was fit for consumption. I showed receipts which proved that my clients had paid in excess of $800,000 for the destroyed inventory. The insurance company stood firm and would not move beyond their initial offer. I asked them how my clients were supposed to replace their inventory with only $400,000. The insurance company responded that they should go out and buy more salvage. Eureka! I next argued to the insurance company that my clients had a replacement cost policy. Part of my clients’ inventory at the time of the fire was 600 bottles of ketchup. I told the insurance company that if they could tell me when the next train carrying 600 bottles of ketchup was going to derail, my clients would be happy to go pick it up. From there we could move on to 2500 cans of cling peaches and so on until the inventory was replaced.
However, that is not how a replacement policy works. It mandates that your possessions be replaced in a timely fashion. The only way for my clients to replace their inventory in a timely fashion was through a wholesaler. We provided a list of the damaged inventory to a wholesaler, and he gave us a price of $1.5 million to replace it. The insurance company was flabbergasted and said there was no way they were going to give us $1.5 million to replace our inferior quality inventory with brand new merchandise. We sued the insurance company. The verdict was $1.5 million. Nothing like a steaming hot cup of justice.
Two suggestions I always make are that when you are insuring your home and possessions get a replacement cost policy. Also, when insuring your vehicles always opt for full tort coverage. If you have an insurance issue or would just like to discuss coverage options, I would be happy to speak with you.