We live in an age of disasters. Devastation to manufacturing facilities by fires, tornados, explosions, floods, hurricanes, earthquakes, tsunamis, etc., is now commonplace. So, you have sought to protect your business with an expensive insurance program. While it is hard to predict when and how a calamity will affect your business, you should know now the steps that you will need to take immediately after disaster strikes. The preparedness of your company’s response correlates directly with the extent and speed of your recovery, including funding by your insurance policy.

In today’s economic climate, it is not enough to hope that the good relationship a business has with its insurer and/or its brokers will carry you through to a fair and speedy claim resolution. It is a common misconception, even among sophisticated corporate policyholders, that the insurance carrier will handle everything following a large loss. In fact, it is the policyholder’s responsibility to handle most aspects of its loss and insurance claim. The insurance policy specifically requires the insured to mitigate its loss and pursue its claim. So do management, customers, and the market. The competition will not wait for you to fully recuperate. Everyone will be watching to see how well you respond and recover from a large loss event.

Good disaster planning begins with focusing on the immediate response, or “emergency” phase, of a loss. Decisions made and actions taken within the first days and weeks after a disaster are critical. The damage caused to the facility and remaining operations, combined with navigating the claim process, will prove to be overwhelming. You will need to know how to handle the following:

Investigating The Cause Of Loss
Determining how damage occurred is the urgent focus of all losses. The exact cause of loss is critical to knowing who is responsible and/or if it is covered by your or another insurance policy. As many businesses learned in the aftermath of Hurricane Katrina, if the loss was primarily caused by wind, as opposed to flood, then the loss was covered under the insurance policy. Determining cause requires an investigation by competent and qualified professionals. For instance, experts are called upon to discover if a fire occurred by natural, accidental/negligent, or willful means; the results of this investigation will control whose insurance policy responds to the loss. What caused the loss will also heavily influence the investigation into the full scope of damage as different causes dictate the nature and extent of the damage.

Developing Preliminary Scope Of Damage
A preliminary assessment must be made early as to the scope of damage caused to a facility and its operations. Important questions are: what is the full extent of physical damage, what operations and sales have been affected, what customers have been impacted? Internal and external specialists will be needed to answer these questions. For the insurance claim, you will need experts to make a preliminary assessment into valuing the damage to the physical structure, equipment and business income. Simultaneously, your team must work in tandem with the insurance company’s team of professionals as they develop their perspective of the scope.

Controlling Site Access
Immediately following a disaster, the policyholder will learn that many, often competing, interests heavily desire access to the loss site. First, the individuals handling the investigation into the cause and scope of loss above, on behalf of the policyholder and the insurer (of both the company as well as a tortfeasor), will demand full access. Moreover, various local, state and federal authorities (building inspectors, police and fire officials, environmental, regulatory) often request access for their investigation. In addition to the chaos involved in trying to coordinate these efforts, it will be incredibly disrupting to the business and ongoing operations. Your team needs to control who gets in, when, and for what purpose. Reasonable protocols need to be established and enforced.

Controlling The Message Regarding The Loss
Your employees will want to know the extent of damage and how it may impact the company and their jobs. Your customers will need to know whether you can still meet their needs or if they should look instead to your competition. Management will need to know how to plan for the short and long term. The press will demand information. Some information you simply will not want disclosed in a competitive market place. Your team needs to be consistent with answers given to these questions, as well as how the loss is being presented to the insurance carrier.

Stabilizing The Facility, Mitigating The Loss
You will need to establish a facility, or a portion thereof, that can continue operations to the extent possible. Any temporary repairs necessary to stabilizing the facility must be identified and made. This is important both in terms of continued income for your business, and it is a requirement of your insurance policy after a property loss to minimize the loss.

It is imperative that a business handle these and additional responsibilities immediately after a loss. While no one enjoys thinking about the possibility that a catastrophic loss will befall their business, knowing what to do after a large loss is the key to recovering the insurance benefits paid for. The insurer has its own interests and will view the loss through its own lens, as an outsider to your business. You will often disagree as to the amount of money lost and effort required to restore your business to its pre-loss condition. The key to controlling such potential issues is by having a qualified full-time team in place to take full ownership and responsibility for the claim. When an insured develops its own perspective on the valuation of the loss, it can more fairly resolve the claim. A properly handled emergency response to a disaster sets the groundwork for getting your business back to its pre-loss conditions and recovering the insurance benefits owed.

Click here to view the article as published in the Fall 2011 issue of The Illinois Manufacturer magazine.

The first four posts in this five-part series discussed the issues involved in determining when interest begins to accrue on belatedly paid insurance proceeds and what adjusters can do to maximize insureds’ likelihood of recovering that interest from the insurer. This post will frame those issues in terms of the dollars and cents that can be won for the insured or, alternatively, left on the table by the parties’ conduct during the life of the claim.

In the event an insured’s claim proceeds to litigation and, ultimately, to a judgment, the rate of interest on the amount found due and owing to the insured is determined by reference to published interest rates set by the Florida Department of Financial Services (DFS). The interest rate was previously set annually by the DFS. However, beginning with October 1, 2011, the DFS is required to establish interest rates quarterly. Looking back to 2004 and 2005, when a spat of hurricanes tore through Florida which insureds and insurers are finally putting behind them, interest accrued at an annual rate of seven percent (7%). The annual rate hit eleven percent (11%) for 2007 and 2008, before falling to six percent (6%) in 2010. The first quarterly rate established by the DFS, effective from October 1, 2011 to January 1, 2012, is four and three quarters percent (4.75%).

Given those rates, a claim for damage from Hurricane Frances in 2004, which five years later resulted in a million-dollar judgment for an insured, could conceivably have been supplemented by over $450,000 of accrued interest. This scenario highlights not only the boon to the insured of recovering interest from the date of loss, but also the potential savings to an insurer when, by a strict application of a loss payment provision, no interest is owed to the insured. In the latter case, the investment income earned on the principal amount found owing to the insured is retained by the insurer and, essentially, offsets nearly half of the insurer’s indemnity payment to the insured to satisfy the judgment.

In the more typical scenario, when the amount of the loss and the time it takes to resolve it are fractions of the amount and duration used in the hypothetical above, the same benefits and incentives exist in proportion to the size and timing of the particular claim. And while the amount an insured may recover as interest on wrongfully withheld proceeds is tempered by today’s interest rates in comparison to the double-digit returns of only a few years ago, the potential savings to an insurer from delaying claim payments in the first place has lost some of its allure as well.

Childress Duffy, Ltd.

Recently, in a local newspaper, there was a story about a convenience store owner who suffered a fire that nearly destroyed the entire store. Prior to the loss, the store owner was lucky enough to convince a bank to lend him some money for operating capital. After conducting an investigation and being unable to find sufficient reason to fully deny the store owner’s claim, the insurance company reluctantly issued a check to the store owner for a fraction of the policy limits. The check, however, did not also name the lender. The check provided by the insurance company for the damage to the store owner was a paltry sum and only covered a fraction of the costs it would take to rebuild. Therefore, the store owner took the money and left town for greener pastures. The lender learned of the loss and subsequent claim adjustment by the insurance company and decided to make its own claim against the insurance company to cover its loan. Unsurprisingly, the insurer responded that the lender was not listed on the policy as any type of “insurable interest” and therefore owed the lender nothing. Following several rounds of correspondence between the lender and the insurer, the lender decided that it had sufficient grounds to sue both the insurance agent and the insurance company.

After some intense discovery battles during the litigation, the lender was able to obtain a court order to obtain copies of the insurance company’s underwriting and claim files. These documents provided important information including the insurance application submitted by the storeowner, the identities of the various “insurable interests” under the policy, coverage effective dates, what coverage applies and deductible(s).

The underwriting file revealed that the insurance agent had neglected to include the lender’s name as a loss payee on the insurance application. However, when questioned during his deposition, the agent admitted that the store owner did inform him of the identity of the lender and that the lender needed to be identified on the policy as an “additional insured” or “loss payee”.  The agent, fresh out of college not yet familiar with the customs and practices of the insurance industry, scrupulously testified that he simply forgot to inform the insurance company that the lender needed to be included on the policy. When further questioned by the bank’s attorney, the agent said that the lender’s interest should have been defined as a “lender loss payee.” While the insurance company fought as hard as it could as long as it could, it eventually concluded that it would likely lose at the trial. Just days before the trial after many, many depositions, the insurer sent a check to the lender for the full amount remaining under its loan to the storeowner.

This example shows that a lender or anyone financing the sale of equipment, i.e., mortgagee, has little control over whether or not his customer notifies the insurance agent of its insurable interest under the storeowner’s policy and even less over the agent in informing the insurance company of that interest. That is why the mortgagee should take the initiative to independently confirm with the insurance agent and insurer that his “loss payable” interest is properly reflected on the policy. However, knowing that one should just be a “loss payee” on the policy is not enough information. Loss payables need to make sure that their interest is correctly reflected on the policy.

Here are a couple of other illustrations of the operation of loss payable clauses.

*        Tornado Bowling Alley, LLC (“TBA”), secured a loan from Johnson Bank. The bank granted the note for the loan without securing an interest in any of TBA’s property. This loan is similar to commercial paper. The loan is based upon the good reputation of the person or firm that is borrowing the money. Due to the nature of the transaction, TBA’s insurance contract showed Johnson Bank as a “loss payee”.

A windstorm totally destroyed TBA’s bowling alley including the roof, automatic pinsetters and all thirty-two of the finely polished oak lanes. TBA chose to rebuild as soon as possible. During the process of planning the rebuilding, it became obvious that TBA did not have enough insurance. TBA wanted all of the insurance proceeds and did not want its insurer to give any money to the bank.

The insurer could not ignore a loss payable on its insurance contract and issued a draft that included the names of both TBA and Johnson Bank. Angry that it could not think of a way to avoid paying out on the claim, the insurer did not allocate the amount of the losses to each party. It was up to TBA and Johnson Bank to decide how much each would receive. Had it been described as a lender loss payee, Johnson Bank’s claim would be first in payment preference.

*        Torches, Ltd. owned a building and business personal property. It borrowed money from a lender, which was named as a loss payee on Torches’ insurance contract. Torches suffered a severe fire loss. The insurance company’s special unit investigator (“SIU investigator”) conducted an investigation and concluded that the loss was caused by arson and that the owners of Torches had started the fire. (The SIU investigator’s compensation structure by the way, is such that the great majority of his salary is based on how many claims he can have denied in a given year).

Unsurprisingly, Torches’ insurer declined to make any payment for the loss. The lender also presented a claim for its interest, but the insurer denied the claim. The insurance company contended that the lender’s recovery right as a “loss payee” was no better than that of the insured.  The lender did not choose to hire an attorney skilled in suing insurance companies and had to eat its loss.

Lenders Loss Payable

This category of loss payables deals with creditors, mortgage holders or trustees. An insurer will pay these insurable interests even though no money is owed to the named insured.

*           Fast Eddie’s Machine Tool Company (“Fast Eddie’s”) obtaining financing from Smart Finance Company for a new drill press. Fast Eddie’s suffers a fire loss. Based on various alleged ‘red flags’ such as personally hand delivering its sworn proof of loss to the insurance agent, the insurance company’s SIU investigator concluded that the president of Fast Eddie’s  committed arson. As a result, Skinflint Insurance Company declined to honor Fast Eddie’s claim. However, Skinflint Insurance Company after much prodding from Smart Financing Co.’s attorneys decides to honor Smart’s claim as a “lender loss payee”.

            When Skinflint Insurance Company makes payment to Smart Finance Co., the insurance company acquires the bank’s rights against Fast Eddie. This means that Skinflint Insurance Company can sue Fast Eddie’s to get back the monies it paid out to Smart Finance Co. Fast Eddie also will likely need a good attorney.

Summary

In any secured finance scenario, the prudent mortgagee must ensure that the collateral pledged as security for the loan is protected against potential loss. This is advisable whether the collateral is comprised of real estate, equipment, inventory or another form of asset. In order to protect such collateral against losses due to fire, flood or other casualty, the mortgagee should make sure that its borrower provided adequate evidence that the collateral is appropriately insured against loss. Obtaining a certificate of insurance, however, is not the end of the game. The mortgagee should also require the insurance policy to be modified so that it also protects the mortgagee through a policy endorsement which describes the mortgagee’s interest in the collateral as that of a “lender loss payee”.  A mortgagee must ensure at the outset that such endorsements are correct and valid. Otherwise, the mortgagee may not obtain the benefit of the policy in the event of a loss.

The designation “lender loss payee” is distinguishable from “loss payee” in that a lender loss payee is deemed to have separate contractual rights of recovery under the insurance contract independent of the rights of the insured, whereas if the mortgagee is named as “loss payee,” their right of recovery will be conditioned upon, or subject to, the actions of the insured. Thus, if the insurance company’s investigation concludes that insured had engaged in conduct that would negate the benefits afforded by the policy and thus release the insurer from its obligation to pay the insured under the policy, the mortgagee, if properly identified as “lender loss payee,” should still recover under the policy, regardless of the insured’s purported misconduct. In contrast, the mortgagee identified merely as “loss payee” will be subject to the same coverage defenses and exceptions applicable to the insured. Thus if the insurance company assert that the insured committed arson, the mortgagee still has a right of recovery regardless of the insured’s alleged conduct. In contrast, if they have a “loss payee,” the mortgagee will have to fight hard to recover.

To best ensure itself when lending money to its customer a mortgagee should do the following:

1. Obtain a certificate of insurance which identifies the mortgagee as a “lender lost payee on its customer’s anticipated insurance policy;
2. Confirm this status in writing with its customer’s insurance agent (put’s the agent on the hook for possible liability if the agent forgets to do so);
3. Obtain a copy its customer’s insurance policy to see that it is, in fact, listed and identified on that policy as a lender loss payee;
4. On the policy’s subsequent renewal dates so long as the customer’s loan is outstanding, confirm with the insurance agent and insurance company that the mortgagee’s interest as lender loss payee remains on the policy; and
5. In the event of a loss under the policy; keep a close watch on the insurance company’s adjustor to make sure that the mortgagee’s interest is paramount to that of its customer, the named insured under the policy.

When dealing with an insurable interest, the mortgagee should always remember Ronald Reagan’s maximum about dealing with the now defunct Soviet Union: “Trust but verify.”

Anthony J. Bruozas, a partner at Childress, Duffy, Ltd., focuses his practice in the areas of insurance coverage, construction/design defect, commercial litigation, and general tort and product liability law.  He counsels both manufacturers and sales representatives in cases involving disputes over the payment of commissions for manufacturers’ representatives.  He represents national and international clients in a wide array of industries, including steel and aluminum manufacturing, printing press, electronic and machine tool manufacturers and distributors, automotive part suppliers, and tobacco and food distributors.  You may contact Mr. Bruozas at abruozas@childressduffy.com or at 312.494.0200.

In response to efforts by insureds to be compensated for the time value of insurance proceeds wrongfully withheld, insurers have increasingly relied on the Loss Payment provision to avoid any such obligation to their insureds. The previous articles in this series have touched on what adjusters can do to maximize the insured’s chances of overcoming that obstacle. The insurer, however, is uniquely positioned to pull the rug out from under itself.

Florida courts have held that when an insurer wrongfully refuses to pay an insured’s claim, prejudgment interest may be awarded as far back as the date of the physical loss giving rise to the claim, even where the policy provides for payment at a later date. In that case, the insurer’s wrongful refusal operates as a waiver of the right to rely on contract provisions allowing for payment at a later date. Not all refusals to pay are created equal, however. When determining whether an insurer has waived the right to rely on a policy provision deferring the time of payment, courts have distinguished between a denial of coverage for the loss as a whole, a denial based on damage not exceeding the deductible, and underpayments disputed by the insured.

In the first instance, an initial denial of coverage for the loss as a whole, the insurer is deemed to have forfeited the benefit of a policy provision deferring payment. This is so even if the insurer later submits to an appraisal of the loss and pays the award. On the other hand, when the dispute centers on the amount of the insured’s loss rather than on the existence of coverage, courts have allowed insurers to stand on deferred-payment provisions and thereby avoid liability for interest. Thus, when an insurer’s initial underpayment of a loss forces an insured to litigate its right to additional policy benefits, the insurer may nevertheless escape liability for interest by paying a subsequently entered appraisal award within the time allotted by the Loss Payment provision.

This distinction may seem harsh given that the reason an insurer refuses to pay benefits owed is irrelevant to the fact that the insured was deprived of the use of money it was entitled to under the terms of its insurance policy. Nevertheless, it is to the public adjuster’s advantage to be aware of the implications not only of an insurer’s refusal to pay a claim, but also of the basis for the refusal.

Their topic, Protect Your Bottom Line: Critical Steps for Manufacturers, will help you to explore whether you have a plan in place in the event of a man made or natural disaster causing damage to your property, including business interruption. Katherine Smith Dedrick and Andy Plunkett will discuss what steps you should take, including liability claims and changing regulations.

Their presentation will also cover the critical steps to respond to a claim from the perspective of the property owner, the property insurer, and the liability insurer. Points that will be covered include:

• How to respond to the changing regulations
• The top 10 steps a manufacturer should take in the event of a loss
• How to reduce the financial effects after a loss
• What to do to protect the bottom line in the event of a loss


Agenda

8:00 a.m. – Registration and Networking Continental Breakfast

8:30 a.m. – Critical Steps for Manufacturers

9:30 a.m. – Break

9:40 a.m. – Liability Claims and Changing Regulations

10:40 a.m. – Questions & Answers

You may download the brochure/registration form here.

If you have any questions, please contact kdedrick@childresslawyers.com or Andy Plunkett at aplunkett@childresslawyers.com.

The interesting part about this case, at least as far as manufacturing is concerned, is that the case began with a 2004 lawsuit in which the plaintiffs — eight states, New York City, and three land trusts – brought public nuisance claims against four private power companies and the federal Tennessee Valley Authority. The plaintiffs alleged that the power companies are the five largest emitters of carbon dioxide in the country, and their greenhouse gas emissions are significantly contributing to global warming and thus impinge on public rights by threatening human health and safety. The plaintiffs sought to have a federal judge order the companies to decrease their emissions of carbon dioxide. The District Court dismissed the suit, holding that the case presented a political question unsuitable for judicial review. The Second Circuit reversed, which would allow the case to proceed, and the Supreme Court granted certiorari.

The Supreme Court issued an opinion written by Justice Ruth Bader Ginsburg rejecting the lawsuit against the power companies. The Court found that the Clean Air Act displaces the plaintiffs’ right to sue under federal common law, stating that “the test is simply whether the statute speaks directly to the question at issue.” In other words, common law claims cease to exist when Congress has drafted federal legislation that governs the same activity. The Court also encouraged judicial restraint in cases like these, reasoning that the EPA is better suited to handle greenhouse regulations. Justice Ginsburg focused on the fact that federal judges are not equipped with the scientific, technological, and economic resources that the agency possesses to deal with these complex issues. “It is altogether fitting that Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse gas emissions,” Justice Ginsburg wrote. “The expert agency is surely better equipped to do the job than individual district judges issuing ad hoc, case-by-case injunctions.”

The Supreme Court’s decision may impact industry in Illinois, both positively and negatively. On the surface, the holding is a win for power companies and manufacturers and provides the industry with some regulatory clarification. Electric utilities and other manufacturers that produce greenhouse gases know, at least for the time being, that they will only have to comply with one set of federal standards: those implemented by the EPA. Had the Court ruled in favor of the plaintiffs, these businesses would have been doubly burdened by having to adhere to judicially created standards and then further adapting them to meet whatever regulations the EPA ultimately enacts. For now, the Supreme Court has provided manufacturers with a clearer view of regulatory progression, something the industry has been demanding for years.

While the Court held in favor of the plaintiffs, states and environmentalists took away some victories as well. One of the big issues in the case was whether the plaintiffs had Article III standing to even bring these claims. The Court upheld the Second Circuit’s affirmation of standing, thus leaving the door open for conservation groups and private land trusts to assert claims in the future. The Court also did not decide the issue of whether the Clean Air Act preempts state common law nuisance claims. It expressly left these actions available to future litigants to be decided by lower courts.

And for the second time in four years, the Supreme Court made it clear that it trusts the EPA to make decisions on important environmental issues. Environmentalists are pleased that the government has taken a firm stance on climate change and view the ruling as a call to action for the EPA. They posit that the ruling places an unquestionable duty on the EPA to impose emission regulations on certain industries, something the agency has not done despite the Court’s 2007 ruling in Massachusetts v. EPA. In its most recent opinion, the Court noted that the EPA is currently proposing strict standards for greenhouse gas emissions from fossil-fuel fired power plants and has agreed to complete its rulemaking by May 2012. While the Court’s decision reaffirms the EPA’s power to do so, whether or not the agency will retain that authority remains to be seen.

One reason for the uncertainty is that the EPA has faced strong opposition from Republicans (and a few Democrats) in Congress. These politicians are attempting to introduce bills that would limit the EPA’s regulatory powers. EPA critics fear that emission restrictions will further damage an already struggling economy by killing industry jobs and putting an unnecessary burden on taxpayers. According to a press release from its website, American Electric Power Company (“AEP”) warned that it would have to shut down five plants and reduce operations at six others to comply with the EPA’s proposed regulations. AEP estimates that this will cost about 600 power plant jobs and a net loss of approximately $40 million in annual wages.

Furthermore, manufacturers will see their bottom line affected by a sharp increase in energy costs. AEP stated that the EPA proposal would lead to higher electric rates, including increases of more than 35 percent for some businesses. Industry in the Midwest could be hit hard, with AEP warning that their “compliance plan alone would abruptly cut generation capacity in the Midwest by more than 5,400 megawatts.” And this is just one report from one utility company. Other power companies and greenhouse gas emitters are likely to face similar difficulties if the proposed regulations take effect.

And, if the EPA does retain its regulatory authority, greenhouse gas emitters are hardly the only manufacturers that will be affected. The Supreme Court’s decision has given the agency the opportunity to speed up its regulatory scheme for other environmental issues. The EPA has proposed air quality regulations, fuel regulations, air toxic regulations, hazardous materials regulations, and water quality regulations to take effect in the next decade. For example, earlier this summer the EPA released its proposed regulations for cooling water intake structures that sets a ceiling for “impingement mortality.” These regulations are designed to decrease the number of fish and other aquatic life that are killed in the process of cooling industrial facilities. When these factories draw in water from nearby lakes and rivers, fish get trapped and die in the screens covering the intake structures. The EPA gives two options to comply with the threshold: either by installing new fish screen technology or by reducing intake velocity. The rule also requires existing facilities to add new units to match the agency’s current requirements for cooling water intake structures at new facilities.

Most recently, according to a press release from the EPA’s website, the agency finalized its Cross-State Air Pollution Rule on July 7, 2011. The rule is designed to reduce power plant emissions of sulfur dioxide and nitrogen oxide that, according to the release, travel to other states and damage their environment. The EPA propounds that by 2014, the rule will reduce sulfur dioxide emissions by 73 percent and nitrogen oxide emissions by 54 percent from 2005 levels. These current and future proposals have caused many critics to lash out at the EPA for overregulation, with the National Association of Manufacturers starting a campaign called “No New Regs.” According to its website, the campaign “exposes the devastating impact the EPA’s overregulation would have on America’s prosperity and urges lawmakers to pursue a national energy policy that protects the environment and increases access to affordable domestic energy.”

Finally, it is important to note that whatever decisions the EPA does reach will be reviewable by the courts. The Supreme Court expressly gave environmental regulation power to the agency, but made it clear that the courts will be there to ensure that the EPA’s decisions are not “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” This will hardly be enough to quell industry concern, and only time will tell the ultimate victor in the highly polarized environmental battle.

In addition to the insurer receiving a sworn proof of loss, or information constituting its equivalent, the Loss Payment provision of the Florida Changes Endorsement (CP 01 25 06 95) conditions the insurer’s payment obligation on the occurrence of one of the following events:

(1) the insurer and insured reaching written agreement,
(2) the filing of an appraisal award with the insurer, or
(3) entry of a final judgment.

While the latter two are somewhat removed from the public adjuster’s control, given the moving parts and actors involved once a claim reaches that point, the adjuster’s central role during the claims process can and should include documenting efforts to reach written agreement with the insurer before a claim reaches appraisal or litigation.

When it comes to determining an insured’s right to prejudgment interest, courts will look to the insurance policy to determine the trigger date of the insurer’s payment obligation. In the absence of a written agreement, a record showing the failure to reach an agreement to be attributable to the inaction of, or positions taken by, the insurer during the claim process will provide a basis for a court to award the insured interest accruing from the date the insured’s attempts to reach agreement were rebuffed. The alternative, if a court can find no such basis in the record of the claim, is likely to deprive the insured of any compensation whatsoever for the time-value of proceeds they were forced to pursue through appraisal or through litigation.

The preferred result for the insured – to be compensated as fully as possible for an insurer’s delay in paying amounts rightfully owed to the insured – is also intuitively appealing to an impartial observer. Even though strict application of the insurance policy’s language would not trigger the insurer’s payment obligation until an appraisal award or final judgment, the insurer should have reached written agreement with the insured long before that. Fairness dictates that the insured be compensated for the insurer’s failure to do what it should have done in good faith performance of the contract.

This result is also supported by Florida law, which does not allow a party to a contract to benefit from his or her own actions that prevent the occurrence of a condition on which his or her liability depends. In this situation, the insurer cannot delay or avoid liability for interest by arguing its payment obligation was not triggered until an appraisal award was filed or final judgment entered because its own conduct – failing to reach written agreement and frustrating the insured’s attempt to do so – prevented the earlier activation of its payment obligation.