Tag: Hurricane

State Farm Faces Criminal Investigation Over Hurricane Claims

By MARK GREENBLATT (@greenblattmark)
Sept. 7, 2012

State Farm Insurance, the nation’s largest home insurer, faces a new criminal investigation in Texas related to how it handled potentially tens of thousands of hurricane claims there, ABC News has learned exclusively.

Gregg Cox, who leads the public integrity unit of the Travis County District Attorney’s office in Austin, confirmed to ABC News his investigators recently launched the probe after reviewing newly released communications from top State Farm managers in Texas. Some of the same communications have led to lawsuits by customers who say they were defrauded by State Farm Lloyds, the Texas subsidiary of the larger insurance company.

The documents in question relate to an alleged cover-up by State Farm management related to its denial of consumer insurance claims for a common type of roof damage that occurs during high wind events and hurricanes.

Jim Warner, a longtime homeowner in Missouri City, Texas, had been a customer of State Farm Insurance for more than 20 years before finding himself in the center of the now brewing criminal investigation. He says he had never filed an insurance claim until Hurricane Ike in 2008 and had always paid his monthly bills to State Farm on time.

However, Warner filed suit against State Farm after he says the company did not follow through on its slogan that promises, “Like a good neighbor, State Farm is there.” Warner always believed his policy would cover all types of damage to his roof, but when he went to file a claim he says he was shocked to learn that was not the case.

However, when the “catastrophe section manager” for State Farm saw that statement written out, he directed it be removed from what state regulators would be told, instructing, “This letter needs to be revised to delete the reference to unseal tab.”

The reference was subsequently removed, and that same catastrophe manager then forwarded the newly revised letter to other unnamed colleagues at State Farm “for your review” before it was sent off to the state.

Attorney Mostyn says State Farm fought hard to keep from having to disclose those and other documents, but lost the fight. He says other documents show the insurer attempting to delete other references to the company’s policy of not paying lifted-shingles claims.

Warner’s lawsuit alleges that nearly 100,000 people may have had their claims for similar problems wrongly denied, estimating that many additional consumers who did not hire independent investigators to inspect their roofs may be unaware they are actually damaged today and susceptible to problems in future windstorms.

Longtime Texas state Sen. Rodney Ellis reviewed many of the documents and communications.

“The documents are troubling, and very scary,” Ellis said. “They tell a story that indicates there is a serious problem. I think law enforcement ought to step in and people ought to be held accountable.”

Ellis says he had received many complaints from his own constituents about similar problems and had previously asked the Texas insurance commissioner to launch a widespread investigation of State Farm. While he says that has not happened to date he welcomes the Travis County criminal probe.

Ellis has successfully called other insurance companies to task on the very same issue of not paying for lifted shingles damage. He previously called for a civil investigation by the Texas Department of Insurance against the Texas Windstorm Insurance Agency and its sister company the Texas Fair Plan Association, alleging a similar organized pattern of non-payment of lifted-shingle claims.

The resulting investigation ultimately led to enforcement action by the Texas Department of Insurance against both companies. The state regulator required each of those companies to go back and reevaluate claims and pay for, among other things, shingles lifted and unsealed by hurricane force winds on roofs.

ABC News has confirmed grand jury subpoenas have been served to State Farm.

“We have requested a large amount of information from them, and they are complying with our requests,” said Gregg Cox of the Travis County D.A.’s office.

State Farm declined an interview request for this story. However, the insurer said in a statement that, “State Farm Lloyds is cooperating fully with the Travis County investigation and has successfully settled the majority of civil litigation involving Hurricane Ike claims. To date, we have paid policyholders more than $1.5 billion dollars, much of which went to repair or replace roofs. We have been actively working to resolve questions related to roofing shingle claims. We will continue these efforts to maintain the trust of Texas homeowners, of which more than one in six has placed their confidence in State Farm Lloyd’s to protect their homes.”

State Farm Lloyds says it will soon file papers with the court disputing the claims made in the Warner’s recently amended lawsuit.

The criminal investigation by the Travis County District Attorney’s office is focused on State Farm’s actions in Texas. ABC News will be looking into stories and complaints from consumers who live in other states. If you have something you would like to share you can email Mark Greenblatt.

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Warner’s lawsuit alleges that State Farm documents establish a clear internal policy of intentionally denying consumer claims for roof damage similar to what Warner experienced. Warner’s attorney, Steve Mostyn, claims the systematic denial of those types of claims may have quietly saved State Farm close to $1 billion.

Mostyn says State Farm documents obtained in the lawsuit reveal an attempt by managers to hide the company’s policy of non-payment from state insurance regulators.

“They absolutely went through an effort to cover it up,” Mostyn said. “These emails are coming from the top. They’re setting policy. And that policy by their own admission … shows conclusively they have not paid thousands of people.”

In Warner’s case, his problems began after he says the high winds of Hurricane Ike caused the shingles on his roof to become “lifted.” Those winds, Warner alleges in his suit, broke the seal under Warner’s shingles that normally create a water-tight barrier. Warner says an independent adjuster he hired agreed the damage was extensive and recommended Warner’s roof be replaced.

Warner alleges, however, State Farm repeatedly refused to admit the unsealed tabs were damage that should be paid under the policy. So Warner filed a consumer complaint with the Texas Department of Insurance, hoping the regulator could help. However, Warner’s lawsuit says it was during that very investigation of his complaint to insurance regulators that State Farm began to cover up its practices of refusing to pay for this kind of damage.

ABC News reviewed documents obtained in the lawsuit including an initial draft of State Farm’s response to insurance regulators about Warner’s complaint. In that draft letter, State Farm clearly disclosed how the company did not pay for insurance claims related to broken seals on roofs, saying, “Regarding the detached seals, there is no coverage as this condition is not considered… physical loss.”

Hurricane Irene Damage Claims

Hurricane Irene property damage insurance claims:

While Hurricane Irene’s winds didn’t live up to concerns, it appears that the flooding far surpassed all expectations.  When dealing with a flood claim you are facing an entirely different set of circumstances.  I would like to offer the followinng tips for dealing with your flood claim:

1. Take pictures and make a video of the structure in flooded conditon as soon as you return and prior to removing anything.  Allow the flood adjuster to see the home as is following the flood if possible.

2. Remove all wet and damaged contents and place it in a pile for inspection by the insurer.  DO NOT throw things out until you have photographed all items and have allowed the adjuster to inspect them.

3.  If you flooded to 4′ or less in side the structure, remove all water damaged building materials that are under the 4′ level.  If you have paneling you will probably have to remove the paneling to 8′ high because that’s how its produced and you can’t splice it.

4.  If you flooded to above 4′ in depth you will likely have to remove all items touched by the water up to 8′.

5.  Ensure that the adjuster views all removed items in person and if not take lots of pictures.

6.  *** You will be approached by numerous contractors offering to “demolish and dry out” your structure.  Be very careful because the flood policy will not normally cover large amounts of drying and when your claim is paid, they will only pay for removal and replacement of water damaged items.  Often times, drying contractors will attempt to charge exhorbitant fees to demolish and dry your facility and those per square foot fees often exceed what the insurer will allow for removal, drying and replacemetn combined.  Be very careful as to what you sign.

7.  Never sign a sworn proof of loss for the flood adjuster unless you wholely agree with the estimate as presented.  A common request you may hear from a flood adjuster is to sign the proof of loss for what he has written up regardless of the amount because “you can always file a supplement later”.  If you sign a sworn proof of loss for an amount you don’t agree with this may come back to haunt you later.   Press the adjuster to get the estimate correct up front!

8.  Be proactive regarding the removal of damaged items.  If you fail to take action and your home eventually dries out you may be stuck with decaying building materials simply because the adjuster deems them “now dry”.

9.  Never give the adjuster original docuements of any type.  Keep copies of everything and when you provide documents to the adjuster, ask the adjuster to sign for receipt of such items.  Request an address, phone, fax and email for the flood adjuster.  Remember they are likely from somewhere other than where your loss is and you want to be able to locate them later if needed.