BEFORE THE MARYLAND INSURANCE ADMINISTRATION. v. Case No. MIA O11 * MEMORANDUM AND FINAL ORDER

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1 BEFORE THE MARYLAND INSURANCE ADMINISTRATION MARYLAr~DINSURANCE ADMINISTRATION ExREL.M.B. 1 * Complainant * v. Case No. MIA O11 * STATE FARM FIRE AND CASUALTY COMPANY * Licensee * * * * * * * * * * * * * MEMORANDUM AND FINAL ORDER Pursuant to ofthe Insurance Article ofthe Annotated Code ofmaryland, 2 the Maryland Insurance Commissioner finds that the State Farm Fire and Casualty Company ( State Farm ), did not violate Maryland s insurance law in its denial of Complainant s claims for insect and water damage to her home. STATEMENT OF THE CASE On September 7, 2010, the Maryland Insurance Administration ( MIA ) received a complaint from the Complainant, Ms. B., regarding State Farm s denial of two (2) homeowners claims made under policy no.. (MIA Ex. 1.) The MIA s Consumer Education and Advocacy Unit was unable to resolve the complaint through its Rapid Response Unit. On September 13, 2010 the complaint was forwarded to the MIA s Property and Casualty Insurance Unit, which informed State Farm of its investigation by letter dated September 21, (MIA Ex. 2.) The MIA completed its investigation and, in a decision dated March 4, 2011, found that Initials are used to protect the Complainant s identity. 2 Unless otherwise noted, all statutory citations are to the Insurance Article ofthe Annotated Code of Maryland. 1

2 State Farm had not violated Maryland s insurance laws in the handling ofms. B. s claims. (MIA Ex. 8.) Ms. B. noted a timely appeal by letter dated March 31, (MIA Ex. 9.) ISSUE The issue in this case is whether State Farm acted in a manner that was arbitrary and capricious based upon all available information in violation of Maryland s insurance laws when it denied Complainant s homeowners claims. SUMMARY OF THE EVIDENCE A. Testimony A hearing was held at the MIA on November 10, Ms. B. represented herselfand provided sworn testimony., Ms. B. s brother, also.provided sworn testimony on her behalf. State Farm was represented by Melissa D. McNair, Esq. of Budow and Noble, P.C. Mylika Scatliffe, a claim representative for State Farm, also provided sworn testimony. B. Exhibits MIA Exhibits (Contained in the Record) 1 Complaint received on 09/07/10 2 Letter from MIA to Allstate dated 09/21/10 3 Response to Exhibit #2 received on 10/08/10 4 Facsimile to State Farm dated 11/29/10 5 Response to Exhibit #4 received on 12/02/10 6 Facsimile to State Farm dated 0 1/03/10 7 Response to Exhibit #6 received on 01/11/11 8 MIA determination dated 03/04/11 9 Complainant s request for hearing received on 04/04/11 10 Letter from MIA to parties dated 04/06/11 Hearing Officer Exhibits 1 Notice of Hearing dated 05/24/11 2 Entry of Appearance from Melissa D. McNair, Esq. dated 11/04/11 Complainant s Exhibits 1 Photos (7) of home 2

3 Licensee s Exhibits 1 SF letter to Complainant dated 0 1/29/07 in re 01/07/07 roof claim 2 Contractor inspection report dated 04/17/09 3 SF photos (7) ofhome FINDINGS OF FACT These findings of fact are based upon a complete and thorough review of the entire record of this case including the transcript of the hearing 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 ofthe evidence, to be true. Citations to particular parts of the record are for ease of reference and are not intended to exclude, and do not exclude, reliance on the entire record. Ms. B s home was covered by State Farm insurance policy number with an effective date ofnovember 23, 2007 through November 23, (MIA Ex. 3.) This case involves a claim for water damage with a date of loss ofapril 30, The claim adjustment on the current claim at issue, however, refers back to claims that occurred during the period from January, 2003 through January, A. Front Door Claim No. 20-R January 22, 2003 OnFebruary 12, 2003, Ms. B. reportedto State Farm that the framing around her door was cracking and separating from the wall. (MIA Ex. 5, Claim Log 02/12/03 12:09 PM.) She believed it was caused by the weight of ice and snow on the porch roofover the front door. Id. A State Farm representative inspected the damage on February 19, 2003 and concluded that the damage was due to long term settling and that the insured understood there was no coverage for the loss. (MIA Ex. 5, Claim Log 02/19/03 11:46 AM.) On February 20, 2003, State Farm sent 3

4 Ms. B a denjal letter informing her that the damage to the door was the result of defective materials and settlement was not a covered loss under the homeowners policy. (MIA Ex. 3.) Ms. B. stated that she did not make any repairs to the door and acknowledged that there was a structural issue with the door. (T. 24, 53.) B. Termite damage In 2005, Ms. B. noticed termite infestation in her home s front bedroom and first floor powder room. (T ) Terminix treated the problem on November 12, (T. 25.) Ms. B. recalls that she contacted State Farm and was told that termite damage was not covered under her homeowners policy. (T. 27.) Ms. B. said that when she called the State Farm toll free number, she told the customer service representative that she was calling about the 2003 claim. (T. 56.) However, State Farm has no record of her reporting the claim. (1. 56, 108.) Ms. B started making the repairs for the termite damage in the winter of (T ) C. Multiple Claim Loss Claim No. 20-R January 7, 2007 Complainant spoke with State Farm claim representative Mylika Richardson on January 10, (MIA Ex. 7, Claim Log 0 1/10/07 03:42 PM.) Ms. B. reported that a pipe in her bathroom on the second floor had leaked causing damage to the bathroom ceiling, the bathroom floor, and the kitchen ceiling. Id. She noticed the damage some time before and turned off the water. Id. She also reported that there was a leak from the roofin her son s bedroom as well as damage to the first floor powder room where the wind blew offthe siding: Id. Ms. Richardson told Ms. B. that these were three separate occurrences each with a separate deductible. Id. State Farm inspected Ms. B. s home on January 11, (MIA Ex. 7, Claim Log 0 1/16/07 11:39 AM.) The adjustor noted that the claim for the water damage to the bathroom ceiling, the bathroom floor, and the kitchen ceiling was a covered loss under the policy. Id. He 4

5 noted that the ceiling damage in the son s bedroom also would be covered as a separate claim. Id. The damage to the powder room (including damage to the front bedroom and floor joists in the crawlspace) was determined to be the result of insect daniage. Id. Ms. B. thought that the insects had been entering from a knothole in the siding. Id. The adjustor also noticed that there was a small tab missing on the front slope rooffrom wind damage, but the amount of this loss would be below the $ deductible. Id. The adjustor s estimate for the water damage from the bathroom leak was $3, based on a replacement cost of $3, less depreciation of $ less the $ deductible. (MIA Ex. 7, Claim Log 0 1/26/07 01 :43PM.). The estimate for the damage to the son s bedroom was $ based on a replacement cost of $1, less $ for depreciation less the $ deductible. Id. By January 29, 2007, State Farm sent a settlement draft in the amount of $3, for the bathroom leak and a denial ofcoverage for termite (and long term water) damage. (SF Ex 1.) Ms. B. was also advised to contact the adjustor if she wished to pursue the claim for the water damage to the son s bedroom. Id. There was hold back depreciation in the amount of $ for the bathroom claim, but State Farm did not receive any confirmation that the repairs had been completed. (T. 33, 113, 117.) The adjustor spoke with the insured on February 14, 2007 and Ms. B. said that the repairs were in process, but that she did not know the name of the contractor. (MIA Ex. 7, Claim Log 02/16/07 02:14 PM.) The adjustor called Ms. B. on February 21, February 22, and March 5 and sent a letter on June 13, 2007 to ask if the work was completed. (MIA Ex 7, Claim Log 02/21/07 10:39 AM, 02/22/07 01:38 PM, 03/05/07 03:20 AM, 06/13/07 03:12 PM.) 5

6 D. Water Damage Claim No. 20-R April 30, 2008 Ms. B. called State Farm on May 2, 2008 about her 2003 and 2007 claims. (MIA Ex. 3, Claim Log 05/02/08 9:33 AM.) The claims adjustor spoke with Ms. B. on May 8, 2008 and she told him that there was recent storm damage to her home with extensive damage to her roof. (MIA Ex 3, Claim Log 05/08/08 05:03 PM.) She also said that the water damage had been going on for a long time and she had not done anything about it. Id. An inspector visited the home on May 13, 2008 and determined that the majority ofthe damage was the result of earlier claims, (MIA Ex 3, Claim Log 05/24/08 06:18 PM.) He did allow for a minor roofrepair and a screen repair to the porch. Id. He contacted Ms. B. on May 24, 2008 to review his findings and she was unhappy with State Farm s determination..(mia Ex 3, Claim Log 05/24/08 06:11 AM.) The inspector advised Ms. B. to submit a report from her contractor and State Farm would review it. Id. On May 30, 2008, State Farm sent Ms. B. a partial denial letter stating that damage throughout your home included long-term seepage of water, insect damage and was excluded from coverage in under her policy. (MIA Ex. 3.) The letter included a check in the amount of $ to cover the minor roofdamage and screen damage. Id. Ms. B. spoke with claim adjustor on June 6, 2008 and said that she had suffered storm damage back in 2003 but had not made any repairs. (MIA Ex. 3, Claim Log 06/06/08 12:3 1 PM.) On April 20, 2009, Ms. B. sent State Farm an estimate from Barrow and Sons, LLC to repair her termite damage and her roof damage. (MIA Ex. 3.) The adjustor spoke with Ms. B. and advised her that this estimate was for damage that was not covered under the policy. (MIA Ex. 3, Claim Log 04/20/09 11:41 PM.) On April 21, 2009, State Farm sent a denial letter after reviewing the Barrow and Sons, LLC estimate. (MIA Ex. 3.) On April 5, 2010, Ms. B. 6

7 contacted State Farm to say that her walls had been torn out and that she wanted a re-inspection regarding the 2003 claim. (MIA Ex. 3, Claim Log 05/04/10 08:30 AM.) State Farm s Team Manager reviewed the damage on April 5, 2010 and Ms. B. admitted that this had been going on for years but that she was unable to address it due to her health issues and that she believed that State Farm should help her out. (MIA Ex 3, Claim Log.04/05/10 12:24 PM.) On April 5, 2010, State Farm sent Ms. B. another denial letter again reviewing the exclusion for long term water damage and termite damage. (MIA Ex. 3.) STATUTORY FRAMEWORK The notice ofhearing in this case says, that specific attention at the hearing will be directed to Maryland Code Annotated, Insurance Sections Title 27 ofthe Insurance Article of the Annotated Code ofmaryland outlines unfair trade practices and other prohibited practices. Subtitle 3 oftitle 27 involves unfair claim settlement practices and states that it is an unfair claim settlement practice and a violation ofmaryland law for an insurance company to refuse to pay a claim for an arbitrary or capricious reason based on all available information. Section (2). The definition ofthe term arbitrary and capricious applied by the MIA was recognized by the Court of Special Appeals in the Berkshire L~feIns. Co. v. Maryland Ins. Admin., 142 Md. App. 628, 672 (2002). The Court quoted the Insurance Commissioner: 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 ofremand 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 7

8 a refusal to pay a claim based on an i.rnpredictable 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 Life Ins., 142 Md. App. at 672. Complainant has the burden ofproving by a preponderance ofthe evidence that an insurer violated the Insurance Article. MD. CODE ANN., STATE GOVT. ART., ; Md. Bd. of Physicians v. Elliott, 170 Md. App. 369, 435 cert. denied 396 Md. 12 (2006); Berkshire Life Ins. Co. v. Maiyland Ins. Admin., 142 Md. App. 628, 672 (2002). As discussed below, Ms. B. has failed to meet that burden. A. Position ofthe Parties DISCUSSION Ms. B. argues that State Farm failed to adequately inspecther home in 2003 and failed to put her on notice oftermite damage. (T. 154.) She believes that, in 2003 when she reported a problem with her door frame, State Farm had the duty to fully inspect her home to determine if there were issues other than those that she reported. (T. 156.) She also believes that State Farm erred in denying payment for a decline in the value of her property. (T. 155.) State Farm argues that it has no obligation under a homeowners policy to inspect a policy holder s entire home. (T. 157.) Rather, an insured has a duty under the policy to properly maintain the home and mitigate any losses to the property. (T ) B. State Farm did not violate This dispute arises from a fundamental misunderstanding about the scope and purpose of a homeowners insurance policy. The purpose of a homeowners insurance policy is to insure against the risk ofan accidental direct loss to the covered property. A homeowners policy is not 8

9 a property maintenance agreement or a warranty ofthe home s structure or its systems. (MIA Ex. 3, FP-7955.p ) The exclusions section of Ms. B. s policy, states that any loss that is a direct result or immediately caused by wear and tear, deterioration, latent defect, mechanical breakdown, settling, bulging, birds, vermin, rodents, or insects is excluded and not covered under the policy. Id. These exclusions place the burden ofmaintenance of the home on the insured. Ms. B. readily admitted that the damages she reported in 2003 for the door and the porch were excluded under the policy. (MIA Ex. 5.Claim Log 02/19/03 11:46 AM., T. 24, 53.) She also admitted that she did not make any repairs to the door. (T. 53.) In 2005, Ms. B. discovered termite damage in her home and was told by State Farm that termite damage is an excluded loss., (MIA Ex. 3, FP p. 9; T ) Ms. B started making the repairs for the termite damage in the winter of 2009, four (4) years after she initially became aware of the damage. (T ) The evidence in the record demonstrates that State Farm attempted to secure all available information about the various claims filed by Ms. B. For example, although requested several times, Ms. B has yet to send evidence ofcompletion ofthe repair in her son s bedroom in order to receive the held back depreciation amount of $ (T. 33.) State Farm attempted to secure all available information from Ms. B. about the contractor working on her home, but the information was not provided. (MIA Ex 7, Claim Log 02/21/07 10:39 AM, 02/22/07 01:38 PM, 03/05/07 03:20 AM, 06/13/07 03:12 PM.), Because of difficult personal circumstances, Ms. B. was unable to make timely repairs to her home and she continually looked to State Farm to pay for the cost ofrepairs that she knew had been denied as outside the scope ofher policy. Her lack ofmaintenance exacerbated the initial termite damage and resulted in continual water seepage. She asserts that State Farm should have discovered the water and/or termite damage in 2003 when it inspected the damage to 9

10 her outside door. State Farm was under no such obligation. The insurer is under an obligation to inspect and adjust the loss reported by the policy holder. A homeowners policy is not designed to cover every loss and is not a maintenance agreement. The issue in this case is a straight forward one: whether Complainant met her burden of persuasion by demonstrating that State Farm made a claim determination that was arbitrary and capricious based upon all available information. Complainant failed to provide any credible evidence that could support a finding that State Farm acted in a manner that was arbitrary and capricious based upon all available information in makings its determination on any ofher claims. CONCLUSION OF LAW Based upon the foregoing Findings of Fact and Discussion, it is found, as a matter of law, that State Farm did not violate the Insurance Article ofthe Annotated Code of Maryland. FINAL ORDER B~edupon the foregoing reasons, it is O~E~Dthis th 13 day of December, 2011, that the decision ofthe Maryland Insurance Administration is hereby AFFIRMED and that the records and publication of the Maryland Insurance Administration reflect this decision. THERESE M. GOLDSMITH Insurance Commissioner Signature on file with Orignal Deputy Commissioner 10