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How to Make an Insurance Company Take Responsibility
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Storm Drain
Case Study, Litigation

How to Make an Insurance Company Take Responsibility

August 24, 2020 | by |
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Refusing to Fold Under an Insurance Company’s
Aggressive Litigation Tactics Leads to Large Settlement

The Challenge

Helped clients recover the value of their lost property after a neighbor damaged the city’s underground storm water system, flooding the clients’ home, and no responsible parties would take responsibility.

The Solution

We held all parties accountable for their part in negligently damaging the home and brought claims against the insurance company for refusing to pay out the policy without conducting a reasonable investigation.

The Result

Clients received a combined six-figure settlement from all three defendants to compensate for the clients’ loss, to punish the insurance company for its bad behavior, and to send a message that insurance companies must treat all claims fairly and with diligence.

Leanna* owned the home she shared with her husband and mother in North Carolina. Just across the street from Leanna’s home, Madeline lived with her son, Greg, until her death. Though their houses were separated by a residential street, an underground drainage system connected the two properties. Running underneath several homes in the area, including Madeline’s property, the system was originally designed to ensure any extra surface water on Leanna’s property would be properly drained to a culvert on a neighboring street. The drainage system, which is maintained by the City, features two drains on Leanna’s property, a stormwater drain in the backyard and a drain in the basement of her home.

 

In 2013, a sinkhole developed in front of Madeline’s yard. Madeline and her son hired a contractor to fill the dangerous sinkhole. Under Greg’s supervision, the contractor attempted to plug the hole in with dirt and gravel. Shortly after this attempted fix, the sinkhole developed again. Greg directed his work crews to fill the hole with broken up pieces of the sidewalk that was in front of the property. During this process, the material used to fill the sinkhole clogged the subterranean drain. Because the pipe beneath Madeline’s home was clogged, on December 29, 2013, five and a half feet of water discharged into the basement of Leanna’s home. In this process, the furnace, water heater, and valuable personal property of Leanna’s mother were damaged and destroyed beyond repair. A few months later, on March 7, 2014, another four feet of water backed up into Leanna’s basement further damaging her home. The repeated water damage led to structural and extensive mold damage.

sink-hole

A few weeks after the initial flooding, Leanna filed a timely claim under her homeowner’s insurance policy with Insurance-R-us. Six days after she filed the claim, a claims adjuster came out to her home to assess the damage to her property and investigate its cause. While on the property, the claims adjuster discussed what had happened with Leanna, took some photos of the damage, and quickly assumed the water had entered the basement through the drain on the basement floor. After making this determination, the claims adjuster informed Leanna that her policy would not cover the damage because her policy had an explicit exception for water damage caused by surface water. A few days later, Insurance-R-us sent a formal letter further explaining that the damage to her basement would not be covered. After receiving this notice, Leanna paid for the repairs to her home and replaced as much of the personal property as she could.

 

Though Insurance-R-us characterized its denial of Leanna’s claim as very straightforward, the language of the policy about what types of water damage would be covered was extremely confusing. The policy distinguished between types of water, events that would create flooding, and types of drainage systems. Some types of water, flooding events, or drainage systems were covered under the policy, while others were not. The policy also had exceptions to the exclusions based on other facts of the event that caused water damage. Feeling as though Insurance-R-us oversimplified the policy and overlooked coverage for her damage, Leanna spent several months working with a lawyer to bring a claim. However, the lawyer failed to move her case forward, and Leanna scrambled to find other representation. Nearing the statute of limitations for her claims, Leanna reached out to the JC White Law Group in a final attempt to bring her case.

flood

The Legal Claims

Moved by Leanna’s story, Jim White filed a complaint on behalf of Leanna and her mother against the City, the late Madeline’s estate, and Greg under negligence theories and asked the court to mandate Insurance-R-us payout Leanna’s homeowners’ policy. At first, the dispute seemed like a straightforward negligence case. However, the JC White Law Group quickly discovered that Insurance-R-us was engaging in unfair settlement practices and later amended the claims to include these allegations. By bringing the negligence, declaratory judgment, and unfair settlement practices claims, the JC White Law Group sought to hold all actors responsible for their contribution to Leanna’s harm and send a message to Insurance-R-us that they are legally required to treat all insurance claims with diligence.

State Court Negligence Case Against Madeline, Greg and the City

Leanna brought negligence claims against the late Madeline’s estate, Greg, and the City in North Carolina state court. The negligence claims sought to hold Madeline’s estate and Greg accountable for fixing the sinkhole in a manner that carelessly damaged the underground pipe system and the City accountable for failing to use reasonable care in maintaining the underground pipe system. Leanna also sought declaratory judgment against Insurance-R-us. Declaratory judgment is when a court decides a direct question about what parties in a dispute owe each other or are entitled to. Through declaratory judgment, Leanna sought to have a court order explicitly hold that Insurance-R-us wrongfully denied Leanna’s claim and that she was entitled to her policy coverage.

 

Though this case seemed like a straightforward negligence case, the defendants each attempted to avoid liability by blaming each other for Leanna’s harm. The defendants argued Leanna couldn’t prove which individual defendant’s actions caused her harm and therefore none of them were liable. Greg filed crossclaims against both his co-defendants, claiming the City and Insurance-R-us were actually responsible for Leanna’s harm. Additionally, Insurance-R-us counter-sued Leanna also seeking declaratory judgment that the water damage was not covered under the policy. By pointing the figure at each other and Leanna, the defendants tried to skirt their share of responsibility for Leanna’s harm.

 

The City also raised the affirmative defense of governmental immunity. An affirmative defense is a legal theory that excuses the defendant of liability for their actions, even if the plaintiff proves the defendant’s bad conduct. Governmental immunity is the affirmative defense that a government actor cannot be held civilly liable for conducting its civic duties. However, the City quickly withdrew this defense when the JC White Law Group argued the City waived immunity and opened itself up to liability by placing the government property on private land.

 

Ultimately, the court mandated all four parties submit the dispute to mediation before a trial could commence. In mediation, the estate, Greg, and the City settled the negligence claims with Leanna for $45,000. Though Insurance-R-us was legally obligated to participate in the mediation, it refused to meaningfully engage in the process and did not contribute a single dollar to the settlement agreement. Because it was not a part of the settlement reached, the claims between Insurance-R-us and Leanna continued.

With the dispute between Insurance-R-us and Leanna still alive, Insurance-R-us hired a national law firm to litigate the claims. With this new firm, Insurance-R-us removed the case from state court to federal court, which was largely seen as an intimidation tactic. Throughout the declaratory judgment claim and counterclaim, Insurance-R-us’ new attorneys repeatedly attempted to intimidate Leanna and the JC White Law Group with motions, legal maneuvering, and a firmly uncooperative attitude. Insurance-R-us’ new attorneys were not willing to negotiate or discuss settlement agreements at all and unwaveringly believed they would get the claims dismissed at the pre-trial stage.

 

Despite their attempted intimidation, the case moved forward and both parties were entitled to discovery procedures to gather the necessary evidence to prove or disprove their stance on Leanna’s policy coverage. Both Leanna and Insurance-R-us used requests for production, interrogatories, and depositions to find evidence that supported their arguments. However, in this process, the JC White Law Group discovered concrete proof that Insurance-R-us engaged in unfair insurance settlement practices when it improperly denied Leanna’s coverage without conducting a reasonable investigation. The JC White Law Group had always suspected Insurance-R-us had engaged in unfair settlement practices, but at the time of the suit, it did not have enough evidence to prove it. Based on the discovered evidence, gathered expert testimony, and predatory attitude of Insurance-R-us, the JC White Law Group felt it had enough proof to allege an unfair and deceptive trade practice claim based on unfair insurance settlement practices and quickly amended Leanna’s complaint to include these new issues.

Leanna’s new case alleged that Insurance-R-us failed to implement proper standards and procedures to fairly handle coverage claims and that Insurance-R-us denied Leanna’s claim without conducting a reasonable investigation. Under the Unfair Insurance Settlement Practices Act, these behaviors are considered unfair settlement practices. Though the Act does not give private citizens the power to sue insurance companies for engaging in these unfair practices, consumers can hold insurance companies accountable for this behavior by bringing a claim under the Unfair and Deceptive Trade Practices Act. The Unfair and Deceptive Trade Practices Act creates grounds for individuals to sue companies that have harmed them through unfair or deceptive behavior. Within the act, violations of the Unfair Insurance Settlement Act are explicitly held to be unfair and deceptive acts.

 

Leanna filed an Unfair and Deceptive Trade Practices Act claim for Insurance-R-us’s failure to implement proper standards and conduct a reasonable investigation before denying her claim. Both parties conducted discovery, gathering evidence to support their argument and hired expert witnesses to confirm their claims. Leanna claimed Insurance-R-us failed to implement proper procedures and standards for settling claims because Insurance-R-us’ adjuster acted unreasonably in handling Leanna’s claim, yet followed the company’s policies. This suggests that Insurance-R-us must be failing to maintain and implement the appropriate procedures and policies necessary to handle claims in a reasonable manner. Leanna also alleged Insurance-R-us failed to handle her claim in a reasonable manner because the adjuster solely investigated the only possible source of water that would deny coverage under the policy.

 

Leanna claimed Insurance-R-us failed to conduct a reasonable investigation to determine the source of the water because the insurance adjuster reported the water entered the basement through the plumbing system, which was not covered, without conducting a thorough investigation. North Carolina Law requires insurance companies interpret ambiguities in policies in the light most favorable to coverage of the damage. Whether or not Leanna’s water damaged was covered under the policy hinged on where the water actually came from. The policy generally excluded water damage and specifically limited coverage where the excess water flowed from a backed-up plumbing system. However, the policy also contained exceptions to the water damage exclusions, such as for surface water or water overflow that seeped under or through the structure. Leanna’s hired expert witness reviewed the facts of the flooding and determined there were four potential ways the water could have entered the basement and three out of four of those ways would have been covered under the policy. If the adjuster had conducted a reasonable investigation, he could have found the water entered the property through a covered means and Leanna’s claim would have been paid out.

 

Fairly quickly into the new case, Insurance-R-us attempted to end the case with a pre-trial motion for summary judgment on both claims. Insurance-R-us argued the evidence presented by both parties disproved Leanna’s claims. They told the court that Leanna’s own expert witness had said Insurance-R-us maintained reasonable policies. They also implicitly argued that insurance companies can escape liability for payment by not conducting a thorough investigation that would have discovered grounds for claim coverage. Ultimately, the court dismissed the first claim, finding Leanna had failed to provide evidence that Insurance-R-us systemically failed to maintain and implement reasonable policies and procedures. However, it denied the motion for the reasonable investigation claim, holding that Leanna had presented evidence that supported Insurance-R-us failed to reasonably investigate her claim. The court also specifically rejected Insurance-R-us’s argument that it could avoid liability by not investigating water damage causes that would extend coverage to Leanna’s harm.

 

Reaching a Settlement

Insurance-R-us contested the court’s ruling and further drug out the pre-trial process. Despite its best efforts, a trial date was set for April 2019. A few weeks after the trial date was set, Insurance-R-us finally agreed to settle the claim out of court. As soon as it became clear that Leanna and the JC White Law Group were not going away and were not afraid of trial, they quickly offered Leanna a large six-figure settlement.

 

The Impact

After six long years, Leanna’s claims were finally resolved. Ultimately, she received the value of her lost property in her initial settlement with the City, Madeline’s estate, and Greg. The JC White Law Group purposefully filed claims against all of these actors to ensure they each were responsible for their share of Leanna’s harm. Leanna also received a large settlement to punish Insurance-R-us for its unfair behavior in handling her policy. This sent a message to Insurance-R-us that it must treat all claims fairly, reasonably, and with diligence. Insurance companies are designed to help customers in their time of need. The law will not allow them to purposefully engage in incomplete investigations in order to avoid paying out a policy.

* Names have been changed to protect confidentiality, but the results are real.

Case studies do not represent this law firm’s or our lawyers’ entire records. Each case is unique and factors outside the control of attorneys and clients can produce very different results .   This case study is not intended as a guarantee that the same or similar results can be obtained in every matter and you should not assume that a similar result can be obtained for you.

This post was co-written with Mallory Miller, JD.

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