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The following posts are not legal advice. If you are need to retain counsel to seek legal advice, you can contact us at 734-648-8030.

Real Property Insurance

What is Appraisal?

by Charlotte McCray on December 1, 2023

After a large loss, insurance companies will often send someone out to create an estimate. Sometime, these estimates are sincere and relatively accurate, but too often we often receive calls from insured who have received estimates far below the actual amount of their loss and what any contractor is willing to take the job for. A few companies, in particular, regularly generate radically low estimates to justify underpaying claims. What can you do if you disagree with your insurance company's valuation of your loss (and thus the amount it will pay)? 

if the insured and insurer fail to agree on the actual cash value or amount of the loss, either party may make a written demand that the amount of the loss or the actual cash value be set by appraisal. If either makes a written demand for appraisal, each party shall select a competent, independent appraiser and notify the other of the appraiser's identity within 20 days after receipt of the written demand. The 2 appraisers shall then select a competent, impartial umpire. If the 2 appraisers are unable to agree upon an umpire within 15 days, the insured or insurer may ask a judge of the circuit court for the county in which the loss occurred or in which the property is located to select an umpire. The appraisers shall then set the amount of the loss and actual cash value as to each item. If the appraisers submit a written report of an agreement to the insurer, the amount agreed upon shall be the amount of the loss. If the appraisers fail to agree within a reasonable time, they shall submit their differences to the umpire. Written agreement signed by any 2 of these 3 shall set the amount of the loss. Each appraiser shall be paid by the party selecting that appraiser. Other expenses of the appraisal and the compensation of the umpire shall be paid equally by the insured and the insurer.


It is best if appraisers have expertise in assessing damage and are familiar with the appraisal process. Public adjusters and contractors are common choices. It is important to make your appraisal demand in writing and send it by a method where you can prove that your insurance company has received it, such as email or mail with tracking, while retaining a copy for your records. The identity of and contact information for the insured's chosen appraiser should be included in the demand letter.

If your insurance company refuses your demand to proceed to appraisal, please call for a free consultation.

The answer to that question can be found in a statutorily required policy provision that governs "appraisal." Usually, when people hear the word "appraisal," they think of someone estimating the value of a house in connection with the purchase of a new home. In the insurance context, "appraisal" is a term if art that refers to the process for determining the amount of loss when the insurer and the policyholder disagree.

Chapter 500 of Michigan's Compiled Laws (MCL) pertains to insurance, and section 2833 sets forth mandatory provisions for Michigan fire insurance policies, including homeowners policies. Such policies are not, as the name might imply, typically restricted to coverage for fire losses. Rather, at a minimum they must include coverage for fire and a few other specifically listed events. However, they almost always cover much more, including losses caused by hail, failed water pipes and wind.

If you have a homeowners policy, Section 2833 almost certainly applies to it. This statute requires that such policies contain language stating that you have a right to demand appraisal if you disagree with your insurer regarding its assessment of the amount or actual cash value of a loss. Specially, MCL 500.2833 (m) states that

Water Loss Prevention

by Charlotte McCray on June 21, 2023 • 4 min

Fortunately, one of the most common causes of water losses, the sudden failure of pressurized water pipes, generally is covered. These are often difficult to predict or prevent. However, they don't tend to be catastrophic if someone is there when they occur. For example, failure of a pressurized line (such as those supplying a faucet) might produce three gallons per minute. If someone notices the water quickly, he may be able to get it turned off within a few minutes, and the majority of it cleaned up within in a few more. Five minutes might translate to roughly fifteen gallons. In contrast, in one weekend that same failed line could result in over 8000 gallons of water escaping. This is enough to drench wood, drywall, electrical

Most people understand the basics of fire prevention. They know to check their smoke detectors and lint catches regularly, store flammable liquids safely, and never leave flames unattended. There are also numerous regulations designed to prevent fires, such as those codified in building codes or requiring the inclusion of flame retardant chemicals or various safety features in consumer goods. 

 

Water loss prevention receives much less attention, in part because it's less dangerous. However, water can be just as destructive to property. There are many different kinds of water losses. The most dramatic come from nature in the form of floods, tidal waves, and storm surges. Others can be subtle, like ground water intrusion, or gradual and repeated seepage. Many of these events are specifically excluded in typical homeowners policies.

 

components and any possessions in the water's path. Over a week, the volume increases to over 30,000 gallons.

 

At first, water travels downward, through gaps and porous surfaces, bringing waterborne contaminants from the building materials along with it. It also leaches upward through porous materials like drywall, fabric and wood. The humidity inside the building increases, especially if the water is hot, resulting in something like a greenhouse. If a hot water loss occurs during cold weather, warm water vapor may rise to the top of the structure, then condense on cold surfaces and drip back down. Wood buckles, drywall and plaster weaken and collapse, and electrical components may corrode and short, increasing the risk of fire. This doesn't have to happen. The following tools and strategies can greatly reduce the chance of a major loss:

          1.  Water Shutoff Valves,
          2. Smart Thermostats,
          3. Smart Water Meters, 
          4. Water Alarms,
          5. Humidity Monitors, and
          6. House Sitters.


Water Shutoff Valves: You can turn off the water if you plan to be gone for a while. This solution is free, easy, and close to foolproof. If people consistently did this, we would have had significantly fewer cases. If the weather may get below freezing, you may also want to drain the pipes and to know where in the system you are stopping the flow. For some houses, you may remain vulnerable to leaks and frozen pipes before the shutoff valve if they are not properly heated. 

Smart Thermostats: Frozen pipes are a common cause of Michigan water losses. A smart thermostat can be configured to send alerts if the temperature drops too quickly or below a set point. My ecobee thermostat let me know my furnace was failing when I was out of town on Christmas eve. This allowed me to get home and get the water shut off before the frozen pipes thawed and let significant water escape. 

Smart Water Meters: If you have a smart water meter, you may be able to set usage alerts and receive a notification if your usage goes above them. For example, you might be able to arrange to receive an alert if you use more than 20 gallons per day while on vacation. These systems measure usage at the meter,

Water Alarms: In contrast, water alarms detect the presence of water in a specific place. There are many different kinds, including some that do not require a subscription. The general idea is to place the alarms near likely water sources (such as under sinks, plumbing stacks, and major appliances), and receive immediate mobile alerts if they detect water. They work best in combination with remote shutoff systems (such as those included in some smart meters) or someone who can quickly shut off the water if the owner is too far away. If these aren't options, many municipalities will shut off water at the street fairly quickly upon request. 

Humidity Monitors: Humidity monitors are similar to water alarms, but better tailored to detect ambient moisture in obscure places like attics, crawl spaces, and walls where the locations of potential water sources are difficult to predict and see. Because these locations are susceptible to hidden water and mold issues, it may be worthwhile to monitor their humidity levels constantly, even when people are present. 

House Sitters: A good house sitter is the gold standard of low tech loss prevention. If you have one, let them know how to turn off the water in the event of an emergency. Similarly, it helps if all the adults in the home or business know how to quickly turn off the water. It's much better to know in advance, rather than trying to learn during one of Michigan's many post winter storm power outages while freshly thawed pipes are spraying frigid water.

After the Loss: For all but the smallest water losses, it's critical to dry out the house quickly. As noted above, liquid water and water vapor will continue spreading throughout the building, and eventually spur the growth of fungi and bacteria. Quickly drying out the water (sometimes referred to as "water mitigation," "restoration," or "emergency measures") can prevent much of this additional damage. The size of the loss, the construction of the building, the owner's limitations and resources, and the coverage of the loss all factor in to whether professional mitigation services will be necessary or advisable. The sooner water mitigation begins, the more effective it will be.


The Recorded Statement and Examination Under Oath

The interview may take place over the phone. However, the insurance adjuster or investigator often arranges to meet with the insured in person. Upon arriving at the scene, the company representative exchanges a few words with the devastated insured, then pulls out a tape recorder and starts asking questions about the loss, finances, recent activities, family members, prior insurance claims, and any other topic he or she cares to. Later, a transcript of the recorded interview is prepared, preserving the insured's statements in an easily consulted form. In the absence of litigation (i.e. a lawsuit), the insured is almost never given a copy of either the recording or the transcript.

 

Recorded interviews are generally fairly short, ranging from 10 minutes to a half hour or so. However, they occasionally run several hours, with transcripts exceeding 100 pages.

 

Unfortunately, when the interview takes place, the frazzled policyholder—who may still believe the insurance company has his or her interests at heart—is rarely at his or her best. Often, the policyholder gets one or two facts wrong, if only because he or she guesses instead of saying "I don't know," or is half-asleep when providing the answers. When this happens, many insurers will seize upon the mistake to assert that the insured intentionally lied, as a result of which coverage for the claim is barred.

 

Because of its informal nature, as well as the fact that it takes place early in the process, many insureds think nothing of giving a recorded statement, and do not even consider consulting with an attorney. Consequently, by the time the insured finally realizes something is wrong (i.e. the insurer might not really be their "good neighbor") the recorded statement has already come and gone. Unfortunately, unlike the examination under oath, when the recored statement takes place the exhausted insured may have no idea what is at issue, what the policy language means, and no reason to suspect that the insurance company's primary goal is to avoid paying the claim. In contrast, the adjuster or investigator asking the questions may be fully aware of these facts, and often asks questions that are designed to elicit responses that could potentially trigger the policy exclusions (for instance, asking an insured with a broken second-floor water pipe to indicate when the "leak" occurred, as opposed to asking when the pipe failed).

 

If it is at all possible, it is a good idea to speak with an attorney before giving a recorded statement, rather than after.

The Examination Under Oath

Investigations can go on for months following a large loss,, with experts visiting the property, document requests, criminal history searches, and additional recorded statements. Eventually, the insurer may demand an "examination under oath" ("EUO"). Like a recorded statement, the EUO consists of a series of questions that must be answered by the insured. However, it is different in that:

  1. it is typically much longer, sometimes taking multiple days;

  2. the questions are asked by the insurance company's attorney (although the adjuster may also be present);

  3. the insured is sworn in prior to the proceeding, just as if the he or she was testifying at a trial; and

  4. every word is taken down by a court reporter.
     

The EUO is typically one of the last steps prior to the insurance company's claim decision. Prior to conducting the EUO, the insurance company's attorney will have reviewed the file in depth, and will be on the lookout for any conflicts between the insured's testimony and the documents in the insurance company's file (including the transcript of the earlier recorded statement). Again, if the insured gets something wrong—if he or she guesses, misunderstands a question, mixes up two dates or locations, or simply misspeaks—the insurer may seize upon the error to claim he or she intentionally lied, and the claim is barred based upon fraud or arson.

 

In my opinion, it is critical that an attorney be retained prior to submitting to an EUO, which is a long, intense process that, if it goes badly, may well cost the insured his or her claim. Fortunately, unlike a recorded statement, the insured usually has plenty of warning before an EUO, as it is typically preceded by a detailed letter from insurance company's counsel. 

 

Think the insurance company has your back? Think again. Insurance companies make their money by collecting big premiums, not by paying claims. Especially in Michigan, the moment a policyholder calls in a claim, many insurers use every available tactic to make sure the he or she does not get paid. Two of these techniques are the recorded statement and the examination under oath.

The Recorded Statement

In the days following a fire or other loss, the insured is often sleep-deprived and emotionally devastated, and suddenly homeless. It is during this miserable period that the insurance adjuster first approaches the insured to obtain a recorded statement.

 Image by DS stories

by Doug McCray on June 1, 2023 • 4 min

h. Constant or repeated seepage or leakage of water or the presence or condensation of humidity, moisture or vapor, over a period of weeks, months or years unless such seepage or leakage of water or the presence or condensation of humidity, moisture or vapor and the resulting damage is unknown to all “insured” and is hidden within the walls or ceilings or beneath the floors or above the ceilings of a structure.¹

 

Although the exact language varies, most Michigan homeowners policies include some version of this exclusion. The exclusion applies to slow, low volume leaks that cause damage over "weeks, months or years," such as a dripping drain pipe under a sink. If discovered early, virtually all damage from such losses can be prevented by catching the water before it reaches vulnerable building components (like cabinets, subfloors and lower level ceilings) until the leak is repaired. This can be a simple as placing a bucket under the sink and emptying it until someone is able to fix the plumbing. Slow leaks can originate from toilets, tubs, washers, and pipes, so it's a good idea to inspect them regularly.

bucket catching leak under sink

Doug's new article Water Damage: What Does the Seepage and Leakage Exclusion Actually Exclude? was just published in the Journal of Insurance and Indemnity Law. It addresses "gradual or repeated leakage or seepage" exclusions, such as the following:

 

1. “We” do not insure “physical loss” caused by:

* * *

In contrast, sudden, high volume water losses cause substantial damage almost immediately. A failed pressurized pipe can release thousands of gallons per day. This is obviously not "gradual or repeated leakage or seepage." However, insurance companies sometimes cite similar exclusions when denying coverage for high volume water losses when the insured does not know the exact date of loss, and thus whether water continued flowing for two weeks or more. Doug's article discusses why this is incorrect and these exclusion do not bar coverage for high volume loses, as the Michigan Court of Appeals decided in Cincinnati Insurance Company v. Kaeding.²

 

 

 

¹ Taken from the policy at issue in Cincinnati Insurance Company v. Kaeding, Mich. Ct. App. 332559, (7-20-2017; unpublished).

² Cincinnati Insurance Company v. Kaeding, Mich. Ct. App. 332559, (7-20-2017; unpublished).

Agent Errors and Omissions: Can I Sue?
by Charlotte McCray on May 8, 2020 • 4 min

man typing mistakes

The State Bar of Michigan's Journal of Insurance and Indemnity just published Doug's new article on agent errors and omissions. You can read it here, starting on page 5. McCray Law Office usually represents clients against their insurance companies. Sometimes though, an insurance agent negligently fails to procure the correct insurance for a property, and the coverage gap isn't noticed until a loss occurs, revealing the absence or insufficiency of the necessary coverage. In these cases, it may be necessary to sue the agency, which is typically able to pay out of its own professional errors and omissions insurance.

The COVID-19 virus is here, and Shelter-In-Place orders have been issued in Michigan (and most states), requiring businesses to shut down. Many business-owners have commercial insurance policies with coverage for loss of business income. However, these generally apply to situations in which “direct physical loss or damage” to property requires the business to suspend its operations while repairs are completed. 

Even if the policy's coverage is broad enough to encompass business income losses from COVID-19, insurers may claim the policy exclusions bar coverage. Some policies specifically exclude coverage for "governmental action." Others bar claims for losses caused by “Fungus, Wet Rot, Dry Rot And Bacteria,” but do not list viruses. While these exclusions might bar BI losses caused by the Black Plague (a bacterial disease), they would not bar losses caused by COVID-19 (a virus) so the exact language is critical.

 

Of course, many insurance adjusters will be happy to volunteer their opinions regarding whether business coverage exists. However, if these losses are covered, insurance companies face enormous potential liability, so that opinion will often be "no." If you have a COVID-19 related loss, we suggest that you not treat the adjusters assertion that there is no coverage as the final word. Instead, if you can decipher the policy (which is difficult for many attorneys), read it carefully. If, as is the case for most people, it seems like a confusing mess of legalese, get help. In either event, you should move quickly, if only to have an attorney who understands insurance look at your policy to determine if: (1) you have a potential claim; and (2) any important deadlines are approaching (see Proof of Loss post below). 

While we cannot guarantee that coverage exists for COVID-19 related losses of business income, if you have suffered a significant loss, we would be happy to discuss your claim. There is no fee for this (or any) initial consultation. We are still working our usual hours during the pandemic and are available by phone and email.

pexels-cdc-3992933.jpg

Are business income losses caused by a pandemic covered? In Michigan, the answer will likely vary from case to case. As with most coverage-related issues, whether an insured will be able to recover for such losses will depend on the policy language, including: (1) whether it initially affords business income coverage; (2) if so, whether an exclusion eliminates that coverage. These questions must be assessed in the context of Michigan law. With respect to the coverage afforded, Courts will first have to address causation issues (i.e. whether the loss was caused by COVID-19 or the Shelter-In-Place order) to determine which policy language applies. If the virus is the cause (as opposed to the order), does the presence of COVID-19 constitute “physical loss or damage”? Cases from other states imply that the answer is yes (see Gregory Packing v. Travelers, Civ. No. 2:12-cv-04418 (11-25-2014)), but the issue has yet to be addressed by the Michigan courts in the context of COVID-19. If the order is the cause of the loss, whether the policy covers “government action” or provides “Civil Authority” coverage will become an issue. 

Are Covid-19 Shut-Downs Covered by Business Interruption Insurance?
by Doug McCray on April 7, 2020 • 2 min

  • your name (and that of any other claimant);

  • policy and claim numbers;

  • cause, date and time of loss;

  • use of the damaged building;

  • ownership information for the property (including any liens);

  • amount of insurance;

  • amount of loss; and 

  • amount claimed.
     

Once the requested information is provided, the form must be signed by the claimant(s) and notarized. Often the insurance company will also require you fill out an inventory of 

personal property. Usually the inventory will ask for each damaged item’s description,

After a major loss to your home or business, the last thing you probably want to think about is paperwork. However, there is one important form that you may need to make time for, which is the “sworn statement in proof of loss” (or just “proof of loss”). A proof of loss is a one or two-page form that you may have to fill out, sign and have notarized. Typically, it requests the following information:

person signing form

quantity, age and replacement cost. People can lose hundreds or thousands of items in a fire or other disaster, so correctly filling out the inventory can be overwhelming. Because filling out these forms and navigating the claims process is complicated and important, it often makes sense to hire a public adjuster to help you. With respect to the proof of loss and other documents you should keep the following in mind:

1. Submit the Proof of Loss on Time

Disputes about whether an insured has complied with the duty to submit a timely, signed, sworn proof of loss give rise to many lawsuits.  Sometimes the policyholder prevails, and sometimes the insurance company wins (and the insured loses their claim). When the insured loses, it is generally because they have not submitted a timely, signed, sworn proof of loss.

The timing requirements for submission of a proof of loss are generally set forth in the insurance policy. In my experience, the most common deadlines are within 60 days of the loss or of the insurance company’s request although some policies use other time-frames. However, after a loss your policy may be a pile of ashes, and even if it is available, a layperson may have a difficult time interpreting it.

I think it is generally a good idea to assume the worst. In other words, if you think that the proof of loss due date may be approaching but cannot determine this for certain, file one. Certainly, if you receive a letter demanding a proof of loss, move quickly. Ideally, speak with your public adjuster immediately, and in any event make sure a signed, sworn proof of loss is submitted within the time frame set by the company. Failing to do so could cost you your claim. If for some reason you cannot do this, you should get a written extension (do not rely on oral assurances). 

2. Submit the Proof of Loss by a Reliable Method

The insurance company may tell you how to submit the proof of loss (in the policy, the letter demanding it, or the form itself). You should follow its instructions. However, it is good to use a backup - say, certified mail and email - which makes it more difficult for the insurer to claim it never received the proof of loss. Email is particularly good when you are up against the deadline, as it is very fast and it retains a copy of everything you have sent. Make sure you keep a copy of everything you send, and retain all certified mail documents.

3. Be Accurate

By signing the Proof of loss, with notarization, you are swearing that as far as you know it is correct. If it is not, the insurer may take the position that you have committed fraud. Guessing is generally undesirable. Everything on the form - the date of loss, its cause, the amount of loss - should be as accurate as possible.

The insurer may plug in numbers - typically low ones - before it sends you the form.  If you sign the form with the insurance company's numbers, it may later claim you agreed to its calculation of the amount of loss.  If it entered (for instance) $25,000 for a $150,000 building loss, that is a problem. You should have someone who understands your loss review the insurer's numbers to determine if they are accurate. If not, you may have to submit a proof of loss setting forth the correct numbers or take other action to deal with the incorrect calculation. 

4. Be Thorough

Blank spots may result in the insurer rejecting the proof of loss or (less frequently) denying the claim. While sometimes unavoidable, answers like "to be determined" are not as good as an accurate number. Try to get an estimate for the building repairs sooner rather than later. If there are open items, indicate that on the form, but give the insurance company as much correct information as you can.  If you are living in a hotel, list your living expenses to-date (while also stating that they continue to accrue, giving specific figures if possible).

Also, the insurer will often ask that supporting documentation be submitted as part of the proof of loss, such as estimates, personal property inventories, and copies of receipts. You should include all such documents you are able to obtain with the proof of loss submission, and supplement your initial documents if more information becomes available. Again, retain a copy of everything you submit.

Lastly, if more than one person is making a claim - for instance, a husband and wife - they both need to sign the form, and of course it needs to be notarized.

Dealing with the proof of loss requirement can be a headache, and is the last thing most policyholders want to deal with following a disaster. However, careful attention to this important condition early in the process can avoid worse problems down the road.

What is a Sworn Statement in Proof of Loss?

by Doug McCray on October 8, 2018 • 4 min

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