BEFORE THE MARYLAND INSURANCE ADMINISTRA1~ION

Transcription

1 BEFORE THE MARYLAND INSURANCE ADMINISTRA1~ION MARYLAND INSURANCE ADMINISTRATION Ex REL. C.K. 1 * Complainant * * Case No. MIA V. * STATE FARM FIRE AND CASUALTY COMPANY * Licensees * * * * * * * * * * * * * * MEMORANDUM AND FINAL ORDER Pursuant to ofthe Insurance Article of the Annotated Code ofmaryland, 2 the Maryland Insurance Commissioner ( Commissioner ) finds that C.K. ( Complainant or Policyholder ) failed to demonstrate that State Farm Fire and Casualty Company ( State Farm or Insurer ) violated Maryland insurance law when it refused to reimburse the Complainant for the replacement of certain carpeting and carpet padding in her basement. STATEMENT OF THE CASE On September 27, 2010, the Maryland Insurance Administration ( MIA ) received a complaint from C.K. alleging that State Farm had erred in the handling of Complainant s claim, made against her homeowners policy, relating to water damage at her home. (MIA Ex. 1.) The MIA Property and Casualty Consumer Complaint Unit ( MIA P&C Unit ) advised State Farm of the Complaint in a letter dated October 5, After an investigation, the MIA P&C Unit In an effort to protect complainants privacy, the Maryland Insurance Administration uses initials to identify complainants. 2 Unless otherwise noted, all statutory citations are to the Insurance Article of the Annotated Code of Maryland. 1

2 found that the Insurer did not violate Maryland Insurance Law in its handling of the claim. (MIA Ex. 8.) The MIA P&C Unit mailed notice of its decision to the Complainant on February 25, (MIA Ex. 8.) The Complainant disagreed with the decision and requested a hearing, pursuant to 2-210, which the MIA received on March 21, (MIA Ex. 9.) ISSUE The issue in this matter is whether Complainant met her burden ofproving that State Farm violated Maryland Insurance Law when it refused to pay for the replacement of certain carpeting and carpet padding in the Complainant s basement. A. Testimony SUMMARY OF THE EVIDENCE A hearing was held at the MIA on November 2, Complainant represented herself and provided sworn testimony. State Farm was represented by Melissa D. McNair, Esq. of Budow and Noble, P.C. Mr. Kevin O Dell provided sworn testimony on behalf of State Farm. B. Exhibits MIA Exhibits (Contained in the Record) 1 Complaint received on 09/27/10 2 Letter from MIA to State Farm dated 10/05/10 3 Response to Exhibit #2 received on 10/20/10 4 Letter from MIA to State Farm dated 12/07/10 5 Response to Exhibit #4 received on 12/10/10 6 Letter from MIA to State Farm dated 02/07/11 7 Response to Exhibit #6 received on 02/16/11 8 MIA determination dated 02/25/11 9 Complainant s request for hearing received on 03/21/11 10 Letter from MIA to parties dated 03/24/11 Hearing Officer Exhibit s 1 Notice ofhearing dated 04/29/11 2 from Melissa D. McNair, Esq. dated 10/25/11 2

3 Complainant Exhibits 1 Summary for Dwelling dated 12/09/09 (3 pages) FINDINGS OF FACT These findings of fact are based upon a complete and thorough review ofthe entire record of this case including the hearing transcript and all exhibits and documentation provided by the parties. The credibility of the witnesses has been assessed based upon the substance of their testimony, their demeanor, and other relevant factors. To the extent that there are any facts in dispute, the following facts are found, by a preponderance of the evidence, to be true. Citations to particular parts ofthe record are for ease ofreference and are not intended to exclude and do not exclude reliance on the entire record. At all relevant times, the Complainant s home was insured by State Farm, policy ( Policy ). (MIA Ex. 3.) Complainant became aware of water damage in her home on November 18, 2009, while she was out oftown. (MIA Ex. 3, T. 22.) On November 25, 2009, Complainant filed a claim with State Farm for water damage in her home. (MIA Ex. 3, 9.) Water damage to the home is a covered loss under the Policy, Form FP-7955, but mold is not a covered loss. (MIA Ex. 3.) Complainant is not requesting coverage for mold remediation or for the cost to repair the areas affected only by the mold remediation and is not disputing State Farm s refusal to pay for the mold remediation or the cost to repair those areas affected only by the mold remediation. (MIA Ex. 9.) Complainant is requesting that State Farm pay $3, to replace certain carpeting and carpet padding that, according to Complainant, was also damaged by the water. (MIA Ex. 9.) Mr. O Dell, a State Farm field task representative, inspected Complainant s home on December 1, (T. 68.) Mr. O Dell testified that he has been employed by State Farm for 3

4 approximately 23 years. (T. 60.) He testified that when a State Farm claim handler needs an inspection done, an assignment is made to a task representative such as Mr. O Dell to go out and inspect the property. (T. 61.) A task representative writes estimates and takes photographs. (T. 61.) Mr. O Dell further testified that during the past seven years, he has completed approximately 500 estimates per year and in the neighborhood of 7,000 to 8,000 estimates total. (T ) In addition, he has received training on how to scope damage, including water losses, as well as estimatic training. (T ) Mr. O Dell testified that there was no running or dripping water in the basement, which is comprised of seven rooms, at the time ofthe December 1, 2009, inspection. 3 (T. 69.) He used a moisture meter for the detection ofmoisture in the ceilings, walls, and carpets ofthe gym, study, and in two rooms that shared a common wall with the gym and study ( Two Rooms ). (T ) Mr. O Dell testified that he tests the moisture meter each time before he uses it to ensure that it is working properly by touching it to his finger because [w]e all have moisture in us. (T. 96.) Mr. O Dell demonstrated the test he performs. He testified that he detected water in the gym and study, but not in the Two Rooms. (T , 82-83, 98.) In response to Complainant s question on cross examination regarding whether Mr. O Dell took the moisture meter and examine[d] every single spot of the carpet, Mr. O Dell said that he did not, but he also testified that during his inspection of the basement he used the moisture meter working outward from the area of damage, in a circular pattern, to check how far the moisture had advanced. (T. 102.) Complainant asked Mr. O Dell whether he moved the There were a number of areas in Complainant s home that suffered water damage and a great deal of testimony regarding, among other things, the extent of water damage in different areas on several floors of the home, the source of the water, and the path of the water. The only damage that is the subject of this Hearing, however, and the only damage for which Complainant is requesting payment, is the damage to the carpeting and carpet padding in two rooms of the basement that were not included in the Insurer s estimate and for which the Insurer has refused to pay. 4

5 furniture away from the common wall between the Two Rooms and the gym and study. (T. 105.) Mr. O Dell testified that he did not move the furniture away from the common wall, but did check the carpeting in the Two Rooms along the common wall, but [n]ot every square inch. (T. 105.) As a result, State Farm did not include the replacement ofthe carpeting or carpet padding in either ofthe Two Rooms in its estimate. (MIA Ex. 5.) C.K. testified that Champion Waterproofing, Inc. came to her home on December 2, 2009, to begin the mold remediation. (T. 25.) C.K. paid Champion a flat fee of $10, (T. 18.) to perform mold remediation, and remove all contaminated materials from the home. (T. 19, 32.) The contract was not based on what Champion removed (T. 32.) and if they had found evidence if they had found water in all seven rooms, they would not have gotten any more than they would have gotten if they only found it in one room. (T. 33.) As part ofits mold remediation, Champion removed the carpeting in the gym, study, and in each of the Two Rooms. (T. 19.) C.K. testified that after returning home from out of town, she was surprisedto find that Champion had removed the carpeting in each of the Two Rooms. (T. 30.) C.K. also testified that she did not see water damage in the carpeting of either ofthe Two Rooms. (T ) Complainant further testified, I asked Champion why they had removed carpet in all four rooms and they said all four rooms had wet carpet. (T. 30.) She further testified... I was shocked, because to the naked eye, I didn t see the water, but Champion assured me that they only removed it because it was wet. (T ) Finally, Complainant testified that [Champion] did not remove the carpeting in the entire basement, because once you walked through the hallway, the rest ofthe basement was fine. (T ) In a letter mailed to Complainant, dated March 31, 2010, the owner of Champion Waterproofing, Inc. stated that during his inspection he found that there was substantially wet carpet in most of the basement. 5

6 He also stated [a]ny carpet we removed during the remediation process, was wet and had evidence ofmicrobial growth. (MIA Ex. 1.) In an estimate dated December 9, 2009, (based on the December 1, 2009, inspection) State Farm estimated that it would cost a total of $7, to repair the water damage to Complainant s home. (Complainant Ex. 1.) After deducting depreciation and the Policy s deductible of $2,000.00, the net amount was $4,953~47 4(Complainant Ex. 1.) Mr. O Dell did not include the replacement ofthe wet carpeting and carpet padding in the gym and study because State Farm was waiting for the remediation work to be completed by Champion. (T ) Until that time State Farm did not know whether the carpet in those areas needed to be entirely replaced or whether it could be cleaned. (T. 53.) Complainant called State Farm on December 9, 2009, to advise that there was additional damage in the basement beyond what was included in the December 9, 2009, estimate. (MIA Ex. 3.) Mr. O Dell returned on December 10, 2009, to re-inspect the basement. (T. 84, 89.) By December th, 10 Champion had already removed the carpeting and carpet padding from the gym, study, and each of the Two Rooms. (T ) As a result, Mr. O Dell was unable to repeat the testing he had performed on December 1, A second estimate was provided by the Insurer to Complainant, dated December 17, 2009, ( Estimate ). (MIA Ex. 5.) Mr. O Dell testified that he revised the December 9, 2009, estimate to. include carpeting and carpet padding in the gym and study. (MIA Ex. 5, T , 89.) According to the Estimate, it would cost $11, to repair all of the water damage ~Only the Summary page of the December 1, 2009, estimate was submitted by Complainant. The full estimate is not in the record. The Insurer did not submit the December 9, 2009, estimate to the MIA investigator because it was a preliminary estimate and eventually replaced by a second estimate; only the latest estimate will print out from the Insurer s system. (T. 52.) 6

7 throughout the home. (MIA Ex. 5.) The Estimate included carpeting and carpet padding for the gym in the amount of $1, and $165.35, respectively, and additional labor cost for Berber or patterned carpet of$ (MIA Ex. 5.) The Estimate included carpeting and carpet padding for the study in the amount of$1, and $237.58, respectively, and additional labor cost for Berber or patterned carpets of $ (MIA Ex. 5.) The Estimate did not include carpeting and carpet padding for the Two Rooms. (MIA Ex. 5.) State Farm paid $9, for the repairs, which is net of the Policy s $2, deductible. 5 (MIA Ex. 5.) Complainant testified that she contracted with Harry Goins Decorating and General Contractor ( General Contractor ) to repair the water damage to her basement. (T. 20.) The General Contractor provided an estimate to Complainant dated December 17, (MIA Ex. 1.) The total on the December 17 th estimate was $8, (MIA Ex. 1.) The December 17 1h estimate stated that it was for Water Damage to Property and listed the kitchen, laundry room, basement, gym, study, and closets. (MIA Ex. 1.) This estimate was provided to State Farm by facsimile on December 23, (MIA Ex. 3.) With the exception of the items listed next to kitchen and laundry room, the December 17 th estimate states the following: Basement - remove old carpet and padding replace with 117 yards of new padding and carpet 6 Gym remove and replace drywall due to water damage sand, prime and paint Study remove and replace drywall due to water damage sand, prime and paint Closets remove and replace drywall due to water damage sand, prime and paint. (MIAEx. 1.) The General Contractor provided a second estimate on February 18, 2010, with a cover letter stating, ~There was also a great deal of testimony concerning the release of the various payments to C.K. from Virtual Bank that is not relevant to the issue at hand. ~The December 9, 2009, State Farm Estimate of $11, included 1, square feet ( square yards) of new carpeting and padding for the gym and study. (MIA Ex. 5.) 7

8 Please accept my apologies for an error made on my estimate dated December 17, The previous estimate included repairs not covered by your insurance. As you know, I have done extensive work in your home to repair the water damage. (MIAEx. 1.) This estimate was provided to State Farm by facsimile on February 19, (MIA Ex. 3.) The total on the February 18, 2010, estimate was $12, (MIA Ex. 1.) The General Contractor s February 18 th1 estimate appeared as follows: Water Damage Basement & Gym check electrical wiring and replace outlets Install new insulation in ceiling and walls Detach fluorescent lighting Hang /2 drywall on ceiling and walls tape, finish, sand and prime Purchase new six panel doors and frames Install new wood base boards approx 200ft. Prime and paint ceiling, walls, doors, base and trim Re-hang ceiling lights and heat register Install new carpet and padding (4 areas) $4, Purchase materials, drywall, insulating, doors, base and paint $2, LABOR $5, GRAND TOTAL $12, (MIA Ex. 1 ~)7 Complainant is requesting an additional $3, from State Farm to replace the carpeting and carpet padding in the Two Rooms. (T. 125.) DISCUSSION A. Position of Parties. Complainant contends that Mr. O Dell did not detect the moisture in the carpeting and carpet padding in each ofthe Two Rooms during his December 1, 2009, inspection because the ~ The General Contractor was not present to provide testimony regarding his first and second estimates, including why the cost to repair the water damage increased, what rooms were covered in his second estimate, and how much the replacement of the carpeting and carpet padding in each area would cost. (T. 57.) 8

9 moisture meter was not working properly, or Mr. O Dell failed to adequately test every single spot of the carpeting, or he failed to move the furniture away from the common wall between the Two Rooms and the gym and study, or the moisture meter he used was not as sensitive to the detection ofwater as the equipment used by Champion. C.K. relies on the fact that Champion removed the carpet in each ofthe Two Rooms as indisputable evidence that the carpeting contained moisture because of the water damage. (T. 19.) As a result, Complainant asserts that State Farm s refusal to pay for new carpeting and carpet padding for eachof the Two Rooms is arbitrary or capricious and lacking in good faith. State Farm counters that based on its December 1, 2009, inspection there was no moisture in the carpeting or carpet padding in either of the Two Rooms. (MIA Ex. 3.) State Farm asserts that the moisture meter was in good working condition (T. 96.) and that Mr. O Dell correctly performed a comprehensive inspection. (MIA Ex. 3.) B. Statutory Framework The notice ofhearing in this case states, that specific attention at the hearing will be directed to Maryland Code Annotated, Insurance Section (HO Ex. 1.) Title 27 of the Insurance Article ofthe Annotated Code ofmaryland outlines unfair trade practices and other prohibited practices. Subtitle 3 of Title 27 prohibits unfair claim settlement practices. Section states that it is an unfair claim settlement practice and a violation ofmaryland law for an insurer to refuse to pay a claim for an arbitrary or capricious reason based on all available information. Section (2). The definition ofthe term arbitrary or capricious applied by the Commissioner was recognized by the Court of Special Appeals in Berkshire Life Ins. Co. v. Maryland Ins. Admin., 142 Md. App. 628, 671 (2002). The Court quoted the Insurance Commissioner as follows: 9

10 The Commissioner has previously construed (2) as requiring a licensee insurer to show that it refused to pay the claim at issue based on: (1) an otherwise lawful principle or standard which the insurer applies across the board to all claimants; and (2) reasonable consideration of all available information. Gabler v. American Manufacturers, Order of Remand at 6-7, MIA * *967 No: 60-7/97 (March 11, 1998)...The word arbitrary means a denial subject to individual judgment or discretion, Webster s II New Riverside University Dictionary 121 (1984) and made without adequate determination ofprinciple. Black s Law Dictionary 55 (Abridged 5th Ed.1983). The word capricious is used to describe a refusal to pay a claim based on an unpredictable whim. Webster s at 227. Thus, under Ins. Art , an insurer may properly deny a claim if the insurer has an otherwise lawful principle or standard which it applies across the board to all claimants and pursuant to which the insurer has acted reasonably or rationally based on all available information. Berkshire L~feIns., 142 Md. App. at 671. Section also states that it is an unfair claim settlement practice and a violation of Maryland law for an insurer to fail to act in good faith, as defined under 27~10018of this title, in settling a first-party claim under a policy ofproperty and casualty insurance. Section (9). Good faith is defined as an informedjudgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on a claim. Section (a) The Commissioner may impose a penalty not exceeding $2, for each violation of , pursuant to (a)(1). Restitution may be ordered for each claimant who has suffered actual economic damage because ofthe violation. Section (c)(1). Restitution may not exceed the amount ofactual economic damage sustained, subject to the limits of any applicable policy. Section (c)(2). ~Maryland s absence of good faith law is contained in Section of the Insurance Article, There are specific requirements for bringing an action before the Commissioner pursuant to that Section which were not invoked in the instant case. Further, Section only applies to actions under of the Courts Article which the instant matter is not. Section is cited herein for the sole purpose of setting forth the definition of good faith, provided in Section (a) and for no other reason. 10

11 As the complainant in this matter, C.K. must prove the existence of a violation of Maryland s Insurance Article by a preponderance of the evidence. See Md. Ann. Code, State Govt Art., (2009); Md. Bd. ofphysicians v. Elliott, 170 Md. App. 369, 43~5cert. denied 396 Md. 12 (2006); Berkshire Life Ins. Co. v. Maryland Ins. Admin., 142 Md. App. 628, 672 (2002). C. State Farm s Refusal to Pay the Policyholder s Claim for Carpeting and Carpet Padding in each of the Two Rooms Was Not Arbitrary or Capricious, nor did it Show a Lack of Good Faith, C.K. did not meet her burden ofproving by a preponderance ofthe evidence that State Farm s refusal to pay for carpeting and carpet padding in each of the Two Rooms was arbitrary or capricious, based on all available information, or showed a lack of good faith. Here, Complainant s evidence did not prove that State Farm s refusal to pay her claim was for a reason other than a lawful priiiciple or standard which the Insurer applies across the board to all claimants or was unreasonable based on all available information. Mr. O Dell provided credible testimony regarding his inspection ofthe carpeting in the gym, study, and in each ofthe Two Rooms, as well as the basis upon which he determined that there was no moisture in the carpeting in the Two Rooms. Clearly, C.K. relied on Champion to remove whatever needed to be removed from the home during the mold remediation process and relied on her General Contractor to repair whatever needed to be repaired as a result of the water damage. She also testified, however, that she did not notice any water in the carpeting in the Two Rooms and was not present during the mold remediation process. Complainant s assertion that the carpeting in the Two Rooms must have been wet is based solely on Champion s removal of the carpeting, its March 31, 2010, letter, and on the General Contractor s 2 ~ estimate which included carpeting for 4 areas. There was no evidence 11

12 that the moisture meter was not in good working order or that Mr. O Dell was negligent in the performance ofthe inspection. There was no opportunity to discover what Champion meant by substantially wet carpet in most of the basement. There was no opportunity to compare Champion s inspection with State Farm s inspection. Finally, there Was no opportunity to reinspect the carpeting at issue. The removal ofthe carpeting and carpet padding in the Two Rooms and the letter describing carpeting that was substantially wet throughout most of the basement was not enough to find that there was moisture in the carpeting ofthe Two Rooms. Had there been enough evidence to find that there was moisture in the carpeting in the Two Rooms, the source of that moisture would, more than likely, have been challenged as well. Complainant did not prove by a preponderance ofthe evidence that State Farm s refusal to pay for new carpeting and carpet padding in the Two Rooms was arbitrary or capricious or that it failed to act in good faith. As a result, the Insurer did not engage in an unfair claim settlement practice in violation of CONCLUSIONS OF LAW Based upon the foregoing Findings of Fact and Discussion, it is found, as a matter of law, that the Complainant did not show that the Insurer acted in an arbitrary or capricious manner or showed a lack ofgood faithunder the Maryland Insurance Article when it denied Complainant s claim. 12

13 FINAL ORDER IT IS HEREBY ORDERED that the determination issued by the Maryland Insurance Administration s Property and Casualty Consumer Complaint Unit in this matter is hereby AFFIRMED; and it is further ORDERED that the records and publications of the Maryland Insurance Administration reflect this decision. It is so ORDERED this 2~ day of December, THERESE M. GOLDSMITH Insurance Commissioner Signature on file with Orignal ANCYG DIN Associate Deputy Commissioner 13