The 25-Day Denial and the 14-Day Seepage Clause
An HO-B insured finds water in a wall on March 1 and reports it March 3. The carrier acknowledges in writing March 12. On April 2 it requests the plumber's report, a contractor's estimate, and three years of maintenance records. The insured sends everything on April 10. The carrier's engineer inspects April 24 and reports May 8 that a supply-line fitting failed and had been leaking "an estimated 3 to 4 weeks" before discovery. On May 20 the carrier denies the entire claim, citing the exclusion for constant or repeated seepage over 14 days or more and, "in the alternative," the policy's $15,000 mold remediation limit. The insured's remediation contract is $38,000, plus $12,000 to open and repair the wall.
1. Critique both grounds in the denial letter. Which one is a coverage defense and which is a misstatement of the policy?
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Ground 1 - the seepage exclusion. This is a real exclusion in the Texas homeowners form, but it is an exclusion the carrier must prove, not assert. The engineer's "3 to 4 weeks" is an estimate; the adjuster should demand the underlying moisture readings, drying logs, photographs of the fitting, and the plumber's contemporaneous notes. Even if the exclusion applies, it is partial: it bars the damage attributable to the long-term seepage and the cost to access it, but a sudden and accidental discharge from a plumbing system remains covered for the resulting damage in the initial period. The proper outcome is usually an apportioned payment, not a zero.
Ground 2 - the $15,000 fungus limit. This is the misstatement. A limit of liability is not a coverage defense. Citing a sublimit as the alternative reason to deny concedes that mold coverage exists and is payable up to that limit. If the carrier truly believes the sublimit is all that applies, its own letter says it owes something - and refusing to pay anything while citing the limit is a misrepresentation of policy provisions under Chapter 541.
Additional problem. Denying wholly on a ground that at most reduces the claim, without a documented apportionment between covered and excluded damage, also undercuts the reasonable-investigation duty. The adjuster should demand the apportionment calculations in writing and reserve all Chapter 541 arguments.
2. Build the Prompt Payment timeline from the dates given and quantify the exposure on a $50,000 claim.
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Acknowledgment (15 days from notice). Notice March 3 → due March 18. Acknowledged March 12. Compliant.
Request for necessary items (15 days from notice). Due March 18; the carrier asked April 2 - 15 days late. Items the carrier could and should have requested at the outset are late requests for this purpose.
Accept or deny (15 days after receiving all reasonably requested items). All items received April 10 → due April 25. The carrier's own engineer's report is part of its investigation, not a claimant item, so it does not restart the clock. Denial May 20 = 25 days late.
Payment. Had it accepted, payment was due within 5 business days of notice of acceptance.
Penalty math. Late-paid claims carry 18% per annum plus reasonable attorney's fees. On $50,000: $50,000 × 0.18 = $9,000/year = $24.66 per day. From April 25 to, say, a September 1 payment date is 129 days → 129 × $24.66 ≈ $3,181 in penalty on top of the claim. The clock runs from the date payment should have been made, so every week of continued delay adds about $173.
How to use this. The penalty is leverage, not a windfall - it belongs to the insured, not the adjuster, and it is not part of the base on which a public adjuster's fee is normally computed. Confirm that with the client in writing before the demand letter goes out.
3. What should the public adjuster do in the next ten days, and what should she avoid?
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Do:
- Serve a written demand that recites each deadline date, the amounts due under the covered portion, and the 18% accrual; attach the itemized estimate and the code/scope support.
- Demand a complete copy of the claim file, including the engineer's field notes, moisture readings, and any internal apportionment worksheet.
- Retain her own licensed engineer or industrial hygienist and a separate mold remediation protocol, so the causation question is tested by two sources rather than one.
- Preserve the failed fitting and photograph it in place before anything is removed; chain-of-custody documentation matters if the causation dispute escalates.
- Direct the insured to mitigate - dry-out, temporary containment, relocate valuables - and document every mitigation dollar, because failure to mitigate is the carrier's easiest counterattack.
Avoid:
- Authorizing demolition or remediation before the damage is documented; that destroys the evidence and the claim.
- Including mold remediation in the general repair lines where the sublimit can be applied to the whole invoice; separate the buckets.
- Any written or verbal threat of criminal prosecution or regulatory referral as a collection tactic - that is itself an unfair practice.
- Promising a specific outcome on the exclusion; promise process and documentation, not results.