Why the California Drought Could Mean a “Flood” of Insurance Bad Faith Claims in 2014 and Beyond

Feast or famine. That pretty much sums up California’s fickle weather – a state that regularly endures a flood and mudslide season only to suffer an equally intense fire season six months later.

As most Californians know, this winter is proving to be a precipitation famine. In fact, with 2013 coming in as the driest year since record keeping began in 1849, experts now say the Golden State is the driest it’s been in half a millennium.

But droughts, no matter how historic, have a funny way of ending. Often a new weather pattern unfolds and all of a sudden Mother Nature’s spigot turns back on. Like a dried out sponge, drought-baked earth is reluctant to absorb the new-found moisture. And just one Pacific soaker can deliver enough water and snow for an entire month – or more. The result of these scenarios can be epic floods and significant or even serious property damage.

Unfortunately, another result can be entirely man-made: an insurance company’s unreasonable and sometimes willful resistance to cover damages, known as insurance bad faith.  Insurance bad faith is a legal term of art when insurance companies behave unreasonably and/or act in an unfair or arbitrary manner after a claim is made.  As Viau & Kwasniewski know all too well, baseless claims denials, unreasonable delays, and inaccurate property damage valuations are three of the most common insurance bad faith violations.

A Floodtide of Bad Faith Insurance

One bad faith case which involved water damage from heavy rains began in February 2010. Unlike this winter, February 2010 was wet. On February 6, a powerful storm dumped up to 4.5 inches of rain in the mountains above Los Angeles. Near Pasadena some 41 homes were seriously damaged and 500 were evacuated.

In a case Viau & Kwasniewski litigated, wind driven rain inundated the insured’s home through a hole in the roof, caused in part, by damaged tiles. The rain saturated the home’s drywall, damaged floor tiles, caused widespread mold and warped and caused damage to the interior cabinets.  In the months and years that followed, the insurance company and its representatives violated numerous fair claims regulations, hired biased experts to evaluate the loss and unreasonably delayed in the investigation of the claim.

After first disputing that a claim was even made, the provider rejected the insured’s claim several months after the claim was initially made.

Second, the insurance company failed to mitigate homeowner property damage when they neglected to inform the claimants that, following a serious water intrusion, structures need to be dried out within 24-72 hours or they risk severe mold contamination. Third, after being confronted with third-party review of the damages, the insurance company agreed to pay only a small fraction of the true cost of repairs.   The lawyers at Viau & Kwasniewski were retained by the homeowner, and after significant litigation, the insurance company settled the case for an amount compensating the insured fully after litigation fees and costs were paid.

Mitigating Risk vs. Shirking Responsibility

The bottom line is this: insurance is designed to spread the risk of loss.  It is the insurance company’s job to evaluate that risk and to charge an appropriate premium to underwrite (insure), that risk.  The insurance company is betting that you will not experience the loss for which you are buying insurance.  If the insurance company does not evaluate the risk correctly and later wants to avoid paying on a covered claim, by law, they cannot properly refuse to pay simply because they did not do a correct assessment of the risk and charge enough premium for it.  

Insurance companies sometimes attempt to make up for their underwriting mistakes by not paying or by making the claim process exceedingly onerous, forcing an insured to abandon a legitimate claim.  This is an abuse of power, breach of contract, unreasonable, patently wrong and clearly illegal. Winter 2014 might end as dry as it began. But, if the Pacific floodgates open and rain gauges fill up, expect a corresponding rise in insurance bad faith claims. Know your rights and protect yourself by contacting Viau & Kwasniewski via phone at 1-800-663-1095 or via email at gkk@vklawyers.com or jlv@vklawyers.com.