As the weeks following Sandy have stretched into months, and the months are beginning to stretch into years, businesses and homeowners with unresolved claims have been asking me whether it’s worthwhile to complain about their carrier to the New Jersey Department of Banking and Insurance (“DOBI”).  Truth be told, it’s a complete waste of time. In the few instances that I’ve filed complaints with DOBI because of egregious delays or obvious misinterpretation of policy provisions (in one instance, the carrier contended that my client’s policy had been canceled, and I submitted proof that it hadn’t), the response essentially has always been the same: “This is a private contract matter, and the Department will not get involved.”  Worse, the recalcitrant carrier sometimes tries to use DOBI’s refusal to investigate as evidence of its good faith.

This week, I attended a business conference at which the Commissioner of DOBI, Ken Kobylowski, spoke.  I don’t know Mr. Kobylowski personally, although I’ve heard him give presentations on several occasions. He seems like a cordial and intelligent person. An industry watchdog, however, he is not. In fact, I heard him at another business conference soon after Sandy, and he said: “The Department won’t rewrite policies to provide coverage,” I don’t know exactly what that means, but it sounds suspiciously like:  “The Department will always accept the carrier’s coverage decision.” 

Here are my observations about just a few of the comments the Commissioner made in his most recent speech.

Mr. Kobylowski discussed the Sandy mediation program, and said that he was happy with its “success rate” of (supposedly) 70%, but was disappointed that only 700 policyholders had participated in the program. (According to Mr. Kobylowski, New Jersey policyholders have filed 465,000 Sandy-related claims, which means that we have a robust participation rate in the mediation program of .15% – that’s point-one-five percent.) When I was in law school, I would often stay up late at night arguing with my good friend Ronny Sendukas, now a lawyer in California, over politics, sports, and just about anything else you might think of. Ronny once said to me that there are three categories of information in the world: lies, damn lies, and statistics. (He actually used a stronger word then “damn,” but you get the point.) Along these lines, to say that the Sandy mediation program has had a success rate of 70% depends on how you define “success.” Carriers generally show up at the mediation with a lowball offer, and the policyholder, faced with the unattractive alternative of expensive and time-consuming litigation, sometimes takes the money and moves on. In government-speak, I guess that’s “success.”

Mr. Kobylowski also said that the insurance industry has done a “terrific job” with Sandy, which, according to him, was “mostly a flood event,” which is the reason that the average claim payout has only been $6000 (since flood is generally not a covered peril under commercial and homeowners’ policies). He said that out of 40,000 commercial property claims filed in New Jersey, 94% of them have been closed; and, of 14,000 business interruption claims filed, 97% have been closed.

Now wait just a minute, here. The idea that Sandy was “primarily a flood event” for insurance purposes was inflicted upon the public by homeowners’ and business insurance companies immediately following the loss. The carriers knew that flood damage was not covered and that most policyholders, dazed by the magnitude of the damage and inexperienced in insurance, would believe the rhetoric. I know from first-hand experience that carriers denied claims on the Barrier Islands on the ground that they were flood-related, without even sending adjusters onto the island to inspect the damage.

Carriers also assign “forensic engineers,” most of whom derive a significant amount of business from the insurance industry, to prepare reports to substantiate the fact that damage was caused by flood, and not wind (which usually would be covered). In reading the reports, I’m generally impressed with these engineers’ divination ability, since no scientific testing is cited, and the engineers base their conclusions mainly on their finely-honed skills of subjective observation.  To support their position, they usually include lots of colorful photos of what’s left of the house or building, construing the term “weight of the evidence” literally.  

The problem for policyholders is that obtaining a detailed engineering report to contradict the superficial reports proffered by the insurance companies can be expensive. (I’ll tell you this:  A good engineer who looks at the issue objectively – and I know several – often can present significant and powerful evidence of wind damage. The wind gusts on the New Jersey coast, after all, approached or exceeded 100 miles an hour, which is enough to ruin your whole day.)

At the end of his talk, Mr. Kobylowski said to the businesspeople in attendance, most of whom were insurance executives: “You’re doing such a good job you make my job easy.”

So:  Should you complain to DOBI about your carrier dragging its feet?  If you do, the response will likely go something like this.