Today I received a google alert on yet a 3rd overhead and profit suit file. This case, Chivers v. State Farm. Case No: 2004-294-3 in TX ,dates back to 2004 but in an April 9, 2008 news article, apparently the case is still pending and three insurance carriers -State Farm, Foremost, and Farmers are seeking to have the Judge removed from this case.
Without more details, it’s hard to know what all of the current activity is about other than I was able to locate a few recent news stories on the case that provide a summary of the allegations against the carriers (without seeing the Complaint and other documents, I don’t know how many carriers or others are named in the suit). Unbelievably, according to one of the news articles, the judge was requiring Foremost produce copies of 600,000 files which they indicate would cost them approximately 45 MILLION dollars to produce.
Here is a link to the most current news article on the case about State Farm filing a motion to recuse the judge saying that Foremost and Farmers join in the motion:
This link above says in part:
“The original lawsuit, filed Sept. 8, 2004, alleges claims of civil conspiracy, unjust enrichment, fraud, and constructive fraud by accusing the insurance companies of not disclosing or paying to the insured’s the general contractors’ overhead and profit, whenever the repair of an insured’s loss required the services of at least three trades. ”
The article mentions that Farmers and Foremost have joined State Farm in the motion.
This article below says the case was heading to the Arksansas Supreme Court over the judges instruction they had to copy all 600,000 files.
If you follow our blog, you will recall two other recent blogs we’ve done on some other recent activity regarding overhead and profit lawsuits. You can click here for the Sher case in LA where the judge allowed 25% overhead and profit and a 20% contingency fee for unspecified and unforeseen/unknown damage and here to find the blog on the OK class action case on overhead and profit.
In summary- it looks like we have three (and possibly more as there could be others I just haven’t seen anything about in the news recently) cases with three different issues on the overhead and profit:
1) Chivers v. State Farm. Case No: 2004-294-3– issue overhead and profit when three trades involved- Arkansas case
2) Sher case v. Layfayette Insurance– LA case- issue was flood definition and levee breaks but on page 25 of judge’s decision he allowed 25% overhead and profit PLUS a 20% contractors contingency fee as the plaintiff’s expert witness testimony was unopposed. Make sure to read the link above for a discussion on that as the expert used info from a Lousiana State Office Volume on state facilities. By the way- since I wrote the blog on Sher yesterday, I’ve run across and insurance article stating that the American Insurance Association president has praised the new decision on the case based on the flood provisions being upheld. AIA represents 350 insurance carriers. I wonder if he even realized the info on the overhead and profit on page 25 of the judges decision doesn’t follow insurance claim settlement normal procedures?
3) Burgess et al. v. Farmers Insurance Company, Inc. et al.-Class action case in OK on standard 20% overhead and profit and here is a brief summary from some of the links in the blog we did on that:
This is the website for the Burgess et al. v. Farmers Insurance Company, Inc. et al. class action lawsuit. Homeowners have sued Farmers saying that they improperly withheld payments for general contractor’s overhead and profit (“O&P”) from amounts paid on claims under homeowner’s insurance policies to citizens of Oklahoma. The Court has not decided if the Defendants did anything wrong. You need to decide whether to stay in the Class or exclude yourself, and you need to decide this by May 16, 2008.
It will be interesting to watch these 3 cases and see if we can find out how they are resolved. Hopefully, someone with access to PACER will provide pdf’s on these cases so we can read more detail and understand where exactly these cases stand at this point and how they end up getting resolved.
I’d recommend sharing this information with your claim managers in case they are not aware this overhead and profit issues are under attack. They may want to seek clarification from carriers on their current expectations on your estimates before you begin submitting closed files only to find out your estimates require revision to comply with any possibly new carrier expections on overhead and profit entries on your estimates.