It is curious how some insurance company claims managers allow their insurance defense counsel to treat their customers with an arrogant, demeaning tone, along with long requests for largely irrelevant lists of information following a loss. Any objection to the treatment is usually met with a threat the claim will be turned down for a failure to cooperate. The “threat” letter is usually in a similar tone requiring the policyholder to obey…or else. For insurance adjusters that do not act this way or allow their insurance defense counsel to do so, this treatment may shock you. Yet, many policyholder representatives see this as a growing trend in claims treatment following a loss.

An attorney colleague of mine, Arden Lea, asked me to co-counsel with him on a case where the cooperation clause was a central issue. He coined a phrase which I often use and teach regarding the definition of cooperation. He indicated that it does not mean “slavish obedience.” He is right. If you seek a definition of the word “cooperation,” the idea of those working together, such as in a team, for a mutual benefit seems to best define the word. If the insurer had placed the word “obey” into the policy, the entire purpose of the mutual good faith performance of an insurance policy would be changed.

A case decision last month, Coconut Key Homeowners Ass’n v. Lexington Ins. Co., No. 08-60640, 2009 U.S. Dist. LEXIS 83652 (S.D. Fla. Aug. 28, 2009), demonstrates the very high burden that insurance companies have to prove regarding the policyholders failure to cooperate before coverage is denied on that basis.

The alleged failure to cooperate apparently centered on the condominium not providing access to all the units damaged by wind. Here is what the Court found regarding the “cooperation clause” and burden of proof required to show a breach of such a requirement:

Most insurance policies have "cooperation clauses" providing that the insured "shall cooperate with the insurer, attend hearings and trials upon the insurer’s request, and shall assist in effecting settlements, in securing and giving evidence … and in the conduct of suits."… Cooperation clauses are less onerous on insured parties because courts will reject defenses based on alleged material breaches of cooperation clauses if the insurer cannot demonstrate "substantial prejudice" from the breach. While "an insurer need not show prejudice when the insured breaches a condition precedent to suit,"… the burden is "on the insurer to demonstrate substantial prejudice before a breach [of a cooperation clause] would preclude recovery under the policy."

Case law regarding insurance policies indicates the inspection provision at issue in this case is a cooperation clause. First, the inspection provision helps Lexington obtain evidence, which is one of the key purposes of cooperation clauses identified above. Second, Lexington has not presented a case indicating that inspection provisions are typically considered to be a condition precedent, nor has the Court identified any Florida case suggesting Lexington’s assertion that the provision is a condition precedent could be correct. Finally, the rule that "policy provisions limiting liability are to be construed in favor of the insured," State Farm Fire and Cas. Co. v. Metropolitan Dade Cty., 639 So.2d 63 (Fla. 3rd DCA App. 1994), weighs in favor of holding the provision is a cooperation clause because a holding that the provision is a condition precedent would make it harder for Coconut Key to recover.

As a result, to prevail on its motion for summary judgment, Lexington must show as a matter of law 1) that Coconut Key materially breached the inspection provision, and 2) that Lexington has been substantially prejudiced as a result of that breach. (emphasis added)

The fact pattern and issues of cooperation seem growing and numerous in other cases that I am aware. Condominiums are trying to prove that windstorm damages occurred and insurers are trying to disprove the same. Accordingly, the facts the Court noted are also important for many fighting damages in hurricane or other windstorm claims:

Here, Coconut Key has presented sufficient evidence for the jury to decide whether it has sufficiently cooperated with Lexington to allow Lexington adjusters to inspect the premises. The parties do not dispute that Coconut Key has extended invitations for re-inspection four times. Furthermore, the record presented to the Court indicates the blame for Lexington’s inability to access units lies chiefly with unit owners and there is no evidence that Coconut Key can compel the owners to assist Lexington. As a result, Lexington has not shown as a matter of law that Coconut Key has materially breached the inspection provision.

Even if it could demonstrate Coconut Key’s material breach as a matter of law, Lexington could not prevail unless it could also establish substantial prejudice resulting from its inability to access the units at issue. While it may be possible that Lexington needs access to the units at issue to address particularly contentious damages issues, Lexington has not offered any evidence showing that a meaningful amount of Coconut Key’s damages are located in the inaccessible units or explained why it must access each and every unit to respond effectively to Coconut Key’s claims. Furthermore, Lexington’s assertion that it has not found any additional damage to unit interiors during re-inspection tends to shows that its inability to access the remaining units has had little impact on its assessment of Coconut Key’s claimed damages. Accordingly, Lexington’s motion also fails because it has not come forward to demonstrate substantial prejudice. However, if it chooses to do so, Defendant obviously still can present evidence on this issue at trial.

I suggest that policyholders work with the insurance company to provide information for the insurer so that payment can be made as quickly as possible. Similarly, insurance adjusters should work with and assist the policyholder to get as many benefits which are owed to the policyholder following the loss.

It is my impression that there is a growing trend in claims where delay ensues; the policyholder asks for money; months go by; and then the insurance company demands all kinds of information and access that it should have started on Day One. Then, when the policyholder asks why the insurance adjuster did not ask for the information or do the work much sooner, the question is answered with a harsh letter threatening a lack of coverage for a long list of reasons which include the failure to cooperate.

While not the case all the time and maybe I would have a different impression if I were an adjuster, it seems that many adjusters are not being taught that cooperation means working with, and not against, the customer of the insurance company.