Property Loss Update (February 01, 2009)

Continuous change is simply a way of life for modern-day, professional loss adjusters. It hits from many different directions and the ability to adapt can be impacted by the daily challenges of dealing with customers who have been traumatized by a significant loss. But, our adjusting profession does a marvelous job of being able to integrate all of this while fulfilling our core purpose: We help people!

Many organizations are seeking to build an internal culture that will drive the execution of their strategic plans. This is all with a long-term game plan in mind. Building a culture or changing one is not easy, but there is something our industry leaders need to be mindful in doing so: It is not about what people do, it’s about how people feel about what they do! Think about that in the context of our core purpose: Adjusters make choices daily on how much of themselves they are willing to give to their job. Their choice will depend on how they feel. And, winning the hearts, minds and spirit of our workforce has to be part of the way forward. Food for thought as a new year begins.

With constant change in mind, here are some interesting decisions that are worthy of further thought.

C. S. Bachly Builders Ltd. v. Lajlo, Ontario Superior Court, J. Hill, Oct. 28, 2008

On Jan. 24, 2003 an accidental fire caused significant damage to an occupied residence. When the wood-framed, brick-clad residence was originally built in 1984, Donna Lajlo, the homeowner, had acted as a general contractor. She resided in the home with her mother and her two adult sons.

The insurer appointed an independent adjuster to handle the claim on their behalf. The adjuster arranged for some preliminary clean-up of the site to be done and orchestrated the removal of content items for storage and/or cleaning.

Two general fire contractors, who were on the insurer’s preferred contractor list, were brought in to provide a scope of work and repair estimates on damage to the building. During early site visits the homeowner and her adult sons formed a poor “impression” of the contractors. One son, in court, said the family had “suspicions of collusion.” This came after the contractors were presented with the insured’s own scope of building damage, which the homeowner wanted included in the pricing. The contractors refused.

The family rejected the proposals from the original restoration firms and retained C. SA. Bachly Builders Ltd. to provide a repair estimate. This company had been in the insurance restoration field since 1977 and had repaired thousands of fire-damaged homes. The estimate totalled nearly $153,000 to repair the building and was submitted almost three months post fire.

When the insurer received the original third estimate, the company did not immediately agree to the price or scope of damage. The insurer acted prudently, however, by engaging a structural engineer to inspect the fire-damaged home. Input from this engineer led to the contractor reducing the estimate to just over $145,000. The insured eventually signed an authorization to have C. S. Bachly Builders do the repair work.

However, the repair work did not begin immediately as the homeowner was requesting a further price from the contractor for non-claim related work. Additionally, there were still ongoing issues between the insured and adjuster on the scope of the fire damage reparation. Understandably, the contractor wanted all issues related to scope and price resolved before any work was started. By mid-July 2003 the contractor was ready to walk unless the company received a commitment. On Jul. 24, 2003 the homeowner authorized the repair work to be started based upon the revised scope of damage, but with the understanding she still had issues relating to the repair scope she was going to continue discussing with her adjuster.

In late September, the company began roof repairs. At that time the contractor was projecting it would have all of the repair work completed by the end of November.

On Oct. 7, 2003 the homeowner and her sons met with a public adjuster. A retainer agreement was signed. The evidence at trial was that the insured had decided to go in “another direction” and now wanted to explore a “cash out” from the insurer.

The insured and one of her sons, the contractors and the insurance adjuster held a meeting on Oct. 10, 2003. It did not go well. There was a continuum of “friction” relating to the scope of the damage between the adjuster and insureds. The contractor’s viewpoint was that any issues relating to the scope of damage was between the insured and the adjuster — the contractor did not view himself as being involved in the dispute.

On Oct. 27, 2003 the contractor was discharged from doing further work on the dwelling. The insured had done a further site inspection and was not happy with the roof repairs. In an e-mail to the contractor, the insured’s son noted a public adjuster had been hired to “work out a cash settlement.”

The contractor acknowledged deficiencies relating to the roof repairs. On Nov. 14, 2003 the contractor formally offered to return to the site and correct the problems. The public adjuster’s representative refused the contractor the opportunity to return and do the work. The evidence at trial was that the cost to fix the problems would have totalled $1,500.

In early December 2003, the public adjuster retained a structural engineer to inspect the building damage. In particular, he was to look at roof repairs already completed. The engineer identified deficiencies with the roof work and suggested in his report that to remedy the problem it might be more economical to demolish the existing work and redo it completely.

The contractor had invoiced the insured for the work completed on the dwelling and when the company was not paid, it executed a contractor lien in court in January 2004.

The homeowner’s sons executed repairs to the house in 2004, while further negotiations took place between the public adjuster and the insurer. This eventually led to a cash settlement for building, contents and additional living expenses that totalled $497,900 in addition to fees to the public adjuster of $33,100. This settlement was reached in early July 2004. The dwelling was ready for occupancy in late 2004.

There was still the matter of a lien action filed by the contractor in January 2004. Additionally, the insured had issued a Statement of Claim against the insurer in November 2003. That action was dismissed when the insured agreed to their settlement in July 2004. The contractor issued their own Statement of Claim against the policyholder in February 2004. A Statement of Defence was filed in late August 2004 when efforts to negotiate a settlement with the contractor failed.

This all resulted in a four-day trial before Justice J. Hill. The judge reserved his decision for 10 months before releasing a 39-page judgment.

According to the judge, as of Oct. 27, 2003 the defendant had been the beneficiary of months of work by Bachly. Subsequent to the Oct. 10 meeting, Lajlo decided to pursue the alternative of having a professional agent (NFA) negotiate with the insurer and obtaining a cash-out. “She became a party to two contracts. These were effectively competing agreements -one with the plaintiff for the fire remediation and extra work agreed to, and, a second with NFA to pursue the cash-out option,” the judge wrote.

This set up an interesting set of circumstances. There was remedial work needed to fix the roof problem, which could constitute a “breach of contract” between the insured and contractor. However, was this sufficient enough to mean there was a “repudiation of contract”? In the trial judge’s opinion the deficient work was not so defective as to go to the “root” of the contract. At no time was the contractor indicating he would not honour the original contract. The company was prepared to remedy the problem with the roof but were refused entry to do so. The judge stated:

”
For the defendant, the roof repair deficiencies became a convenient coincidence with her plan to pursue a cash settlement through the vehicle of NFA permitting, in her view, her act of taking the work out of the hands of the contractor.”

The judge ruled the plaintiff is entitled to a recovery of damages in the amount of $39,297.75 plus GST and pre-judgment interest.

Summary

These kinds of situations evolve from time to time on fire losses. The initial building scope of damage is very important to the overall ability of the adjuster to try and control the outcome on the loss.

At trial, an incredible amount of weight is given by the trial judge to the credibility of the witnesses. The paper trail and being able to provide good recollection on key details obviously made the contractor an impressive witness. This was a costly end to a long road for the homeowner denying payments to the contractor.

McDougall V. Black & Decker Canada Inc., Alberta Court Of Appeal, Feb. 5, 2008

This was an appeal from a decision of a chambers judge on Mar. 8, 2007.

The case involved a “spoliation” argument arising from a Jan. 4, 2004 house fire. This was a substantial fire that started in an attached garage and spread quickly to the rest of the house.

The cause of the fire was investigated by both the local fire department and by a private origin & cause expert hired by the insurer of the house.

• The fire department concluded the cause was either from an un-extinguished cigar or by an overheated drill that was manufactured by Black & Decker. A number of events unfolded:

• The insurer’s expert gathered up the remnants of the drill — in addition to some other physical evidence — which he took away for further inspection by an engineer.

• The house was demolished after the fire investigators had completed their investigations.

• In June 2004, the appellants, Gordon and Lolita McDougall, notified Black & Decker of its potential liability for fire.

• Eighteen months later a Statement of Claim was issued against the drill manufacturer.

As events unfolded, Black & Decker argued its investigation into the cause of the fire had been prejudiced because:

1. The company had been denied an opportunity to inspect damage to the house. By the time they were put on notice the house had been demolished.

2. The fire department had come up with two possible causes for the fire, including an lit cigar in a garbage can.

3. The garbage can was not seized or preserved for inspection.

4. A representative appointed by the manufacturer was given the drill by the insurance company’s expert in January 2006, at which time parts of the drill were missing.

The manufacturer made a motion to strike out the action based primarily on these facts. The chambers judge agreed indicating this was a “…perfect example of spoliation…”. This judge struck down the original Statement of Claim.

The Alberta Court of Appeal noted that the problem of lost or destroyed evidence is not new to litigation. In Rome, business men were required to keep a written record of their affairs for a specified time period, and if those documents were not produced when required, the maxim omnia praesumuntur contra spoliatorem (all things are presumed against the wrongdoer) was applied and a claimant could be denied a claim or found to have committed fraud. Over time, the maxim’s strict application has moderated. “Thus, in a country like England, it now takes the form of a presumption that if the evidence relevant to the litigation has been intentionally destroyed a strong presumption arises that the evidence would not assist the party responsible for its loss or destruction (spoliator) (The Ophelia: 1916-2 A. C. 206, 32 T. L. R. 502, (P. C.).”

In Canadian cases on this topic a few themes begin to emerge:

1. Spoliation in law doesn’t occur just because evidence is destroyed. It occurs when a party has intentionally destroyed evidence that is relevant to the litigation at hand. Spoliation should not be confused with the unintentional destruction of evidence.

2. There are many different ways, in law, to remedy spoliation. This can be found in the “court’s rules of procedure and its inherent ability to prevent abuse of process, and remedies may include such relief as the exclusion of expert reports and the denial of costs.”

3. Whatever the remedy might be it is for a trial judge to determine where they can consider all the facts and fashion the right outcome.

In this case, the Court of Appeal overturned the decision of the chamber judge to strike the cause of action. It did, however, order that the manufacturer was entitled to “examine” the insurer fire expert in accordance with specific directions that they outlined in their judgment.

This will be an interesting case to follow to see the eventual outcome. Clearly, the best course of action is to notify any potential third party of the intention to subrogate as soon as practical.

Summary

Filek v. Nute and McDonald v. Nute, Supreme Court of B. C., Master Hyslop, Jun. 2, 2008

In the early morning hours of Apr. 4, 2004 a fire started on the patio of David Paul Nute and Remi Nute’s home. According to an inspector with the Kamloops Fire Department, the fire started on the patio area of the home and a gas line at the residence ruptured. The defendants’ home was destroyed by the fire. The fire spread, burning the home and contents of the plaintiffs, the Fileks, and damaging the plaintiffs’, the McDonalds’, home.

Two-years post-fire subrogation actions were commenced against the homeowner where the fire originated. Allegations of negligence were made, based in part on a fire department inspector’s views that careless smoking may have been the initiating cause of the fire.

At issue was what documents should the Nutes’ lawyer be required to release to the plaintiff’s in this action?

Immediately following the fire, the insurer of the Nute home appointed an independent adjuster. Within 24-hours of assignment the adjuster provided a verbal report to the claim’s examiner the fire department thought the fire was the result of the negligence of the Nute family. The claim’s examiner stated in an affidavit she formed an opinion based on the conversation with the adjuster that this matter was headed for “litigation.” Two months later the same claims examiner hired outside legal counsel to represent her on this matter.

There were 37 reports generated by the independent adjuster for the insurer on the Nute file. These began with a report dated two days after the fire and extended onward 17 months. The plaintiffs in this case tried to argue “privilege” on the reports should begin from the date upon which the litigation was commenced (24 months post-fire). That suggestion was flatly rejected by Master Hyslop.

The plaintiffs then argued they had not had the ability to access “scientific data or measurement of the initiating cause of the fire. This information rests with the Defendants and they deny liability.” Hyslop did not accept this because there was no evidence that access to the fire scene had been denied to the other insurers. They had to have had the same information about the allegation of careless smoking and would have known early on the prospect of litigation was looming.

On the other hand, the defendants’ insurers knew early on they may be the target of subrogation actions so they went out and obtained “certain reports” which were for the purposes of defending any claims.

The Master found there was a reasonable prospect of litigation two days post fire when a report on the loss from the adjuster was received. The subsequent reports were therefore deemed to be generated in contemplation of litigation therefore “privileged” and not subject to disclosure.

Summary

In this case, the plaintiffs tri
ed to argue that while they seemed to have access to the scene following the fire they did not have access to “scientific data or measurement.” That implies they were fishing to review any fire investigation reports that might be on the Nute insurer file that might be helpful to their subrogation actions.

Sobeys Land Holdings Limited v. Harvey & Company Limited and CRA Trailers, Inc. Supreme Court of Newfoundland and Labrador, D. Orsborn, September 2008

This trial resulted from a fire that happened on May 15, 1993. The matter took 15-years to bring to a final conclusion, and 103-page judgment.

A massive fire destroyed a warehouse, which was a central storage and distribution facility for Sobeys. The plaintiff asserted the fire started in a trailer due to the negligence in the trailer’s design and manufacture by CRA Trailers (Great Dane).

Prior to the trial, Sobeys had reached a settlement with Harvey & Company, who was contracted to do the maintenance and repair of the trailer’s electrical system. Sobeys lawyers assumed carriage of Harvey’s defense of the third party claim by CRA Trailers.

CRA took the position at trial the fire started in the warehouse and did not start in the circuitry of the trailer as alleged by the plaintiff.

The case involved circumstantial evidence. There were numerous eyewitnesses to the fire and a host of experts engaged by both sides.

One of the initial fire experts hired by Sobeys suddenly died in 1997 and a second expert was hired. This expert relied upon the first fire expert’s material to carry on with the investigation. The second expert gave evidence during a seven day Examination for Discovery, relying on over 20 binders of investigative material and research to render an opinion that a defect in a ceiling light fixture in the trailer caused the fire. Unfortunately, this second expert died prior to the trial. With consultation from the lawyers involved, the trial judge did allow into evidence the written material of these two fire experts.

During the trial, the judge referred to these opinions in great detail, but said he was not impressed with the findings of these experts. He said he did not feel they gave a clearly articulated expression of the fire cause. In reviewing the written evidence, the trial judge provided several clear examples of the problems he had with the reports. He acknowledged, however, that had the experts been able to give evidence at the trial this would have allowed an opportunity to gain clarity from their work.

The trial judge pointed out the burden of proof as to the origin of the fire rests with the plaintiff. When considering the weight to be given to the evidence it was interesting to see his comment that:

“There was no factual imbalance in favour of Great Dane. The facts of the fire, its circumstances and progress, the ensuing gathering of the evidence, the post-fire custody of the trailer — and the working and maintenance history of the trailer — were all under the control of Sobeys. Great Dane was not notified of the fire until August, some three months after the fire and did not receive actual formal notification until November. Litigation, with its opportunities for discovery and inspection, was commenced only in 1998, five years after the fire.

“These circumstances do not support a relaxed approach to the assessment of evidence for the purpose of drawing factual inferences in favour of Sobeys.”

The judge also highlighted a report of a fire investigator who was initially called to examine the fire scene by Sobeys. This report was produced after a long fight where Sobeys tried to fight disclosure of the report by claiming “litigation privilege.” Eventually, another court determined the report had to be produced. The trial judge duly noted this fire investigator’s first report pointed away from the trailer in question as being the origin area of the fire. When this fire investigator’s report was produced, the investigator was told to “stop investigating.” The judge noted that, in effect, he was “fired” from this job. It seemed to the trial judge the intention from early on was to “build a case against Great Dane”.

The trial judge went to great lengths in his decision to review the evidence of the individual experts. He commented on Cal White’s evidence as follows:

“Overall, I found White’s evidence to be clear and persuasive. I am satisfied from observing him and listening to him that he retained throughout the objectivity and independence necessary of an expert witness. That he was not cross-examined on significant aspects of his evidence — particularly his testing — gives me some additional comfort in considering his opinions.”

It was interesting to see the trial judge was noting not only the direct evidence of the expert, but also, that the person was not cross-examined on while in the witness box. The judge felt on some key points White’s evidence was “un-contradicted”.

Other experts gave testimony at the trial. A number of these experts had specific areas of expertise and the judgment covers off the judge’s view of the opinions expressed. At the end of the day, the judge said he did not feel the plaintiff had proved the fire had started in this trailer. In fact, he said he felt the evidence he heard pointed away from the trailer as being the origin of the fire. The evidence he heard did “not move the scale from speculative to probable.” On that basis he made no finding of negligence against Great Dane.

Summary

The rubber hits the road when you get into the witness box. How you present your evidence is critical. This is especially true of an “expert” witness who is supposed to be a “friend of the court.” If the trial judge feels that the expert is showing bias and is an advocate for one side or another then they will ‘mark down’ the weight they give to that witnesses testimony.

When’s the last time you went to court to listen to an “expert” give evidence?

Conclusions

The first case in this article illustrates how difficult the loss adjusters’ job can be at times. The adjuster and the contractor in that case were both challenged in many different ways to maintain their professionalism. At the end of the day, the trial judge was very clear as to how he viewed the credibility of the parties involved in the action.

The other cases all have an element of the emerging law on “spoliation” in Canada. We would be foolish to ignore some of the lessons learned in these cases as we will see more of them on the road ahead. It is important to ensure you are thinking about subrogation potential from the first moment you arrive on a fire scene. This is not just about hiring your own fire expert to prove your case, it’s also about making sure the parties you may wish to subrogate against have access to the scene as a means to creating a level playing field. You may have to sort out issues such as who is gathering up the physical evidence and to what extent future co-testing might be done. The point is: you need to be thinking about these things!

Glenn Gibson has 35-years experience as a loss adjuster. In addition to being an executive general adjuster he is the global chief strategy officer with Crawford & Company Inc.