Why Aren’t More NY and NJ Lawyers Looking For Hurricane Sandy Insurance Claims?

Via Overlawyered*, I saw a new article in an Austin, Texas paper titled, “Texas trial lawyer eyes New York storm cases”:

 

[Trial lawyer Steve] Mostyn sees potential riches on the horizon. The lure of New York, and all those insurance claims spawned by the destructive wrath of Superstorm Sandy, is irresistible for an ambitious litigator with political connections, piles of money and a fearsome reputation.

 

Mostyn — 41 years old with a shaved head, steely blue eyes and linebacker physique — plans to move much of his Houston-based Mostyn Law Firm to New York City soon, with dreams of landing about 10,000 cases worth more than $1 billion in insurance claims from the storm that pummeled the Northeast last October.

 

You can imagine where the rest of the article goes from there, and it’s worth a read just to see Professor Anthony Sebok’s understated response to Mostyn’s claim that he wants to take on $1 billion in disputed Hurricane Sandy insurance claims. I haven’t a clue who Mostyn is; he could be the best insurance bad faith lawyer in Texas for all I know. I want to focus on two critical pieces of the article that tell a lot about the sorry state of insurance policyholder’s rights in New York and New Jersey.

 

But Mostyn already has fans, like Carleanne Fierro, 51, a swim club owner from Pound Ridge, N.Y., whose house was damaged and is glad to know the hulking Texas lawyer is coming. Fierro, who lives in a town about 13 miles from Long Island Sound and 40 miles from Manhattan, said she quickly became frustrated seeking help with her claims from New York lawyers. “They don’t know how to handle this,” she said. “I think you need an expert. I think you need someone who is familiar with wind damage.” When she found Mostyn’s firm, she signed a contract quickly. “It is worth the 40 percent just for someone to listen to my story and be kind to me,” she said.

 

Back in Austin, a political foe of Mostyn, state Sen. Larry Taylor, R-Friendswood, shook his head when he heard about Mostyn’s plan to enter New York. “It’s the new thing,” Taylor said. “It’s the new cash cow.”

 

Let’s stop and think about that for a second: how is a lawyer from Texas able to walk into New York and start charging a 40% contingent fee on a “cash cow” claim? Why did Ms. Fierro have trouble finding someone to handle her insurance claim? It’s not like there’s a shortage of trial lawyers in the Mid-Atlantic States.

 

Certainly, Hurricane Sandy wrecked havoc on the East Coast, and as someone who regularly deals with insurance companies (and who grew up on Hurricane Alley down in the South), I have no doubt the insurers have taken a hard line on the claims to avoid shelling out billions of dollars to homeowners and businesses. That’s how, despite the fact that an extraordinarily devastating storm hit one of the most populous and wealthy areas in a country in 2012, the reinsurance industry still turned a healthy profit.

 

It has been widely reported that 93% of New Jersey homeowner’s claims have been “closed,” but that doesn’t mean the homeowner agrees with the result — if an adjuster said a house with the roof blown off and some water in the basement was destroyed entirely by a “flood,” then that counts as a “closed” claim. The State of New Jersey has already taken some grief in the press for how it keeps insurance data under wraps. There’s every reason to believe insurers up here are doing the same things insurers do in the South after a hurricane: offer the policyholder half of what they deserve, then claim the damage was “flooding” or “fraud” if the insured doesn’t take it.

 

But, back to our original question — why don’t you see New York City lawyers falling over themselves to get Hurricane Sandy insurance claims in the NYC, on Long Island, and down the Shore the same way, for example, they fall over themselves to get construction injury claims?

 

It’s because insurance bad faith claims in New York and New Jersey are not a “cash cow.” They’re risky and difficult cases that usually pay poorly, and often don’t pay at all. As I’ve written before, if something was easy for plaintiff’s lawyers to do, everyone would be doing it — if lawyers could just take Sandy insurance claims and make a ton of money off them, an unknown lawyer with his principal office 1,700 miles from New York City wouldn’t have a chance breaking into the Hurricane Sandy claims market, certainly not with a 40% fee.

 

Litigating against an insurance company is like litigating against the government: they have essentially unlimited resources, a phalanx of experienced lawyers, and, because every they spending someone else’s money (taxpayers’ or insureds’, respectively) to defend the case and pay any judgment against them, no incentive whatsoever to settle. They can, and do, litigate cases forever.

 

In recognition of this problem when it comes to cases against the government, our federal civil rights laws (specifically, 42 U.S.C. § 1988, which applies to several civil rights claims, including the most common one, the 42 U.S.C. 1983 claim) allows the award of “a reasonable attorney’s fee” if the plaintiff wins, even if their success is limited. Hensley v. Eckerhart, 461 U.S. 424, 435 (1983). The attorney’s fee thus both gives plaintiff’s lawyers an incentive to take meritorious claims, and gives the government an incentive to settle the claims more promptly, because the plaintiff’s fees will only get higher as the case goes on.

 

Suing an insurance company can be even worse than suing the government, because, while the government generally doesn’t pay as a result of bureaucratic recalcitrance, the insurance companies actively strategize ways to thwart claims. In recognition of the challenges of insurance litigation, federal insurance laws — i.e., ERISA, which covers employer-sponsored health, life, and disability insurance plans — provide for an award of attorney’s fees in the court’s discretion if a party has achieved “some degree of success on the merits.” Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149 (2010).

 

The attorney’s fees statutes create an incentive for attorney’s to bring these challenging claims against governmental and insurer defendants with essentially unlimited resources and time to wrongfully deny meritorious claims. That’s why in many states, like Pennsylvania, policyholders who win bad faith claims against insurance companies can recover attorney’s fees.

 

New York and New Jersey, however, do not permit policyholders to recover attorney’s fees when they win insurance bad faith lawsuits. (As Gene Killian notes, there’s a bill pending in New Jersey to fix that.) They generally do not even permit policyholders to recover damages beyond the value of the claim itself, like consequential damages to a policyholder’s business and income. (New York recently allowed a limited exception to that for business interruption insurance.) The situation is so bad that most lawyers aren’t talking about insurers — no matter how bad their conduct — but rather suing brokers for failing to properly inform policyholders just how awful their coverage was.

 

The end result is that a plaintiff’s lawyer considering taking on an insurance bad faith case in New York or New Jersey has a lot to lose (because the lawyer could invest five-or-six-figures into the case as expenses, plus hundreds of hours) yet can at best only recover the face value of the claim.

 

Hence, most trial lawyers don’t even want most of the Hurricane Sandy insurance claims. They’re too difficult and expensive, and with damages that are too low, to warrant the risk — unless, that is, you already have an entire bureaucracy in place to handle hurricane claims, plus a number of experts / engineers / investigators you can rely on, as it seems Steve Mostyn might already have given the volume of his Hurricane Ike claims.

 

So that, in a nutshell, is why a Texas lawyer can come to the East Coast charging a 40% contingency fee for Hurricane Sandy claims: because New York and New Jersey’s laws are so unfriendly to policyholders that local lawyers won’t take the claims.

 

That reality makes this quote in the article all the more appalling:

 

Thomas Stebbins, executive director of Lawsuit Reform Alliance of New York, said he was troubled — though not surprised — to hear that out-of-state lawyers would converge on New York because of its lax tort laws. “We’re disappointed when we see someone trying make a buck out of a tragedy,” Stebbins said.

 

Indeed, we’re all disappointed by that — which is why I hope Mr. Stebbins calls up those insurance companies that fund the Lawsuit Reform Alliance and tells them to evaluate their policyholders’ claims fairly and and to pay them promptly. After all, the only way Steve Mostyn can make a dime is if he proves the insurance companies cheated their insureds; if the insurers and their public relations groups are so concerned about policyholders being taken advantage of by trial lawyers, why not just pay the claims in the first place?

 

* I appreciated the sly Christopher Guest reference in Overlawyered’s post.

Related post of mine: Was Hurricane Sandy (Legally) An Act of God?

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  • Ralph

    Claims against insurance companies are never going to be legislatively protected, with an attorney’s fees remedy, in the way that 1983 cases are and employment discrimination cases are. Look at how most states have destroyed the insured’s remedy for a carrier’s breach of the covenant of good faith and fair dealing (or the quasi-fiduciary duty). It’s the lobbying presence of the insurance industry. Look at the attack on class actions as a remedy, same thing.

    • http://www.litigationandtrial.com/ Max Kennerly

      I agree, but there is some reason to hold out hope. Here in PA, for example, you can get attorney’s fees and punitive damages in bad faith cases — and, consequentially, our insurers tend to be a little bit better behaved.

      Then again, for the last 20-30 years the trend has been against consumers, and it doesn’t seem like that’s going to be reversed any time soon. I just wish there was a little more honesty in the reporting about these issues; this isn’t some sort of natural phenomenon, insurance companies are difficult to sue because your elected officials want it that way.

  • Chip

    The news from legislatures isn’t all bad. HB 3160 just passed out of an Ore. House committee with a bipartisan vote and is headed to the House floor. Still has a long way to go but for enactment, but…

    http://www.blueoregon.com/2013/03/shields-and-holvey-take-insurance-industryures