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Can insurance company deny claim if unpermitted work causes fire?

Can insurance company deny claim if unpermitted work causes fire?

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  #1  
Old 12-07-09, 10:06 PM
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Can insurance company deny claim if unpermitted work causes fire?

A couple friends were discussing this the other day. One guy is finishing a basement (not me, I swear!) and was talking about permits, etc. Another guy who is an architect said that if he didn't get permits for the electrical and ended up burning the house down, that his insurance company would deny the claim. I told him I thought this was an urban legend. Just out of curiosity, I looked over my homeowner's policy and couldn't find anything that said they would deny a claim for unpermitted work. After searching the internet, I find lots of people claiming that insurance companies can deny claims for unpermitted work, and a few people saying that insurance pays off claims except if they can prove that the work was done specifically to cause a fire.

So, to anybody who believes this urban legend, I challenge you to pull out your insurance policy and quote the section that says they can deny claims in the event that unpermitted electrical work causes a fire.

As an aside, after living in my 10-year-old house for a couple years, it's obvious to me that the previous owner finished it without getting permits. Just minor things, nothing I would deem dangerous, but who knows what lurks behind the walls. If this place burned to the ground, and the insurance company found that the basement wasn't permitted, would I have to prove I wasn't the one who finished it? Maybe produce the listing for the house when I bought it that shows a finished basement?

How about if I hire a contractor who tells me he took care of permits, but didn't actually pull them? They are ultimately my responsibility, so I suppose the insurance company could also deny my claim in the event that the contractor's work caused the fire.
 
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Old 12-08-09, 04:15 AM
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This is probably a question that would be better asked of someone in the insurance industry.
It's always been my understanding that while an insurance company might be able to deny a claim caused by faulty unpermitted work, they rarely do so. I suspect it would be hard to find a 25 yr+ old house that didn't have some unpermitted work done on it.
 
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Old 12-08-09, 04:42 AM
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I think the word your are looking for is not permit, but "negligence". Insurance companies will look at all claims to establish cause. For many of us who work on existing homes, we come in behind all kinds of work, some of it totally unsafe and a potential fire hazard. Even if the work was done by a licensed contractor, with all permits and inspected, it might still be determined that the fault was with that work. In such cases, the insurance company will/could sue the contractor to recover their loss, hopefully after they have paid the homeowner. Now, substitute your friend, no permit, no license, and no inspection, but the work was found to be the cause of the fire. What do you think they are going to do. I'm not an insurance expert, but my guess would be sue to recover their loss (same as before) or just not pay (deny the claim). Proving who did the work without permits, receipts, and an inspection might make it difficult for the home owner to point the finger at someone else.

It's not just electrical, and this doesn't say they won't pay and then just cancel the policy, I don't know. As Marksr said, you need a professional opinion, probably from the company involved, as companies may differ.

Interesting related reading would be on "full disclosure" where the seller must sign a piece of paper disclosing everything.

Bud
 
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Old 12-08-09, 07:28 AM
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From the following web site...
Insurance Terms

["Negligence - ...The failure to exercise that degree of care that the law requires to protect others from an unreasonable risk of harm..."]

(In my state electrical and building codes are the law!)
 
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Old 12-08-09, 07:57 AM
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Originally Posted by Bill190 View Post
From the following web site...
Insurance Terms

["Negligence - ...The failure to exercise that degree of care that the law requires to protect others from an unreasonable risk of harm..."]

(In my state electrical and building codes are the law!)
If insurance companies deny claims based on not following electrical codes, it should be in the insurance policy, right? Mine doesn't have it. Does yours?

I think this is an urban legend because I spent several hours researching it on the internet and couldn't find one single person who quoted their insurance policy. There's a whole lot of speculation, but nobody can back it up.
 
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Old 12-08-09, 08:15 AM
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I do not believe that they would automatically deny a claim because of unpermitted work as long as it was not directly provable as the cause of the fire. However you can bet that it would come up if the case ever had to go to litigation over the claim. It's the sort of thing they can use to drag a claim out in court for years. Even if you eventually win and get your house rebuilt, you've still spent a long time living in your parent's basement.

There are an awful lot of vague terms in insurance policies like "reasonable" and "negligence" which can be twisted to mean anything in a legal situation. The point is that unpermitted work gives them a weapon against you if they ever choose to exercise it.
 
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Old 12-08-09, 08:27 AM
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Originally Posted by ibpooks View Post
I do not believe that they would automatically deny a claim because of unpermitted work as long as it was not directly provable as the cause of the fire. However you can bet that it would come up if the case ever had to go to litigation over the claim. It's the sort of thing they can use to drag a claim out in court for years. Even if you eventually win and get your house rebuilt, you've still spent a long time living in your parent's basement.

There are an awful lot of vague terms in insurance policies like "reasonable" and "negligence" which can be twisted to mean anything in a legal situation. The point is that unpermitted work gives them a weapon against you if they ever choose to exercise it.
From reading my policy, the "Exclusions" section lists things like floods, earth movement (I don't have earthquake coverage), war, nuclear hazard, intentional loss, etc.

If it were regular practice to deny claims for losses caused by unpermitted work, surely there would be a clause stating this in my policy. Why wouldn't there be? It just seems like common sense that if this is common industry practice, somebody should be able to produce such a clause from their policy.
 
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Old 12-11-09, 05:17 PM
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There may be an insurance law in the state laws which says they don't have to pay if someone breaks the law? And if this was the case, then it would not be necessary to also state this in the policy.

Or in the policy they could just say something about not breaking the law, then all laws would apply to the policy coverage.

This would be in state, federal, or other law books.

Or with a building/electrical code, the state would "adopt" the code as being state law. Then the text of that law would be the code book itself.

Also court cases are a part of the law as well as "administrative rules" of government agencies.

So in addition to the policy, you would need to look at state/federal laws, state administrative rules, building/electrical codes, and court case history (how have courts ruled in the past with cases where someone has violated the law, then filed a claim?).

I would start by reading the state insurance laws. These are online for many states.
 
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Old 12-11-09, 05:40 PM
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Here is some language which might apply from the Oregon insurance laws...

"...this entire policy shall be void if, whether before or after a loss, the insured has willfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof..."

"...742.216 Conditions suspending insurance. A fire insurance policy shall contain a provision as follows: “Unless otherwise provided in writing added hereto this company shall not be liable for loss occurring:

“(1) While the hazard is increased by any means within the control or knowledge of the insured..."

From...
Chapter 742 — Insurance Policies Generally; Property and Casualty Policies
 
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Old 12-11-09, 05:50 PM
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It is probably not just if the work was unpermitted, but if there was no permit pulled it makes it much more difficult to show that work was done right since there was no inspection for you to use as proof of not being negligent. On of the values of a permit is that it protects you from yourself or a bad contractor or sloppy work if it was signed off as being proper by the inspector. Even an insurance company can't fight the law and government if you have the written proof.
 
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Old 12-11-09, 05:56 PM
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Well, the insurance company has a bank of lawyers that would make your head spin. They are heartless *******s who like nothing better than to deny a claim if they can! So the question is: Do you want to be the one to be the test case?? WELL DO YA...PUNK???
 
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Old 12-11-09, 06:38 PM
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If you own enough judges you can deny any claim.
 
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Old 12-11-09, 07:52 PM
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Bill, you bring up some interesting points, but again, it doesn't make sense that insurance companies would regularly deny claims in these instances, yet not bother to put language stating such in their policies. These policies are many dozens of pages long, and it would only take one paragraph to state that any unpermitted work that resulted in a loss would lead to a denied claim. Seems like the insurance industry lawyers would've thought to put that in their policies.

Has anybody besides me actually looked at their policy? This is a good idea beside the point of entertaining my little topic.
 
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Old 12-11-09, 08:17 PM
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"“We thought we did everything right when we bought a house with a 30-year loan and a low fixed rate,” Broke said. “There was a small room addition built at the back of the house that was disclosed to us, as built to code, but not permitted. The house had been painted and decorated and looked great. We had the house inspected, everything checked out and we did everything required to purchase the house.”

Note the “not permitted” aspect — this is where it all went wrong.

“Four years later our house literally started to cave in. The sliding door in the back of the house completely froze up and the front door was suddenly very difficult to open. A big crack started developing across the ceiling under the center of the house, and cement roof tiles starting falling off the edge of the house.

“We notified our homeowners insurance company and they sent a structural engineer to assess the house. The can of worms was just opening, as it was then discovered there were cut and modified trusses under the apex of the roof. The original composite roof shingles, weighing less than one ton, had been replaced with cement roofing tiles, weighing nine tons, and all that weight slowly began to cause the structure to cave in. To make matters worse, unsafe electrical work was discovered in the attic as well as plumbing work, and gas lines had been tampered with.

"Ultimately, our insurance claim was denied due to construction defect, meaning the cost of this nightmare was now squarely on us..."

“A check with Santa Clarita Building and Safety revealed none of the work had been inspected or permitted,” he said. “Our choices at this point (keep in mind we could not sell the house in this condition) were two. For one, we could walk away, filing bankruptcy and destroying our credit. We are both in our mid-50s and bankruptcy would destroy our hard earned FICO scores of over 720. The other option was to refinance the house and begin repairs at an approximate cost of $100,000.”

“After consulting with a local attorney, and assured that we had a solid case, we filed suit to try and recover our cost of rebuilding and permitting our broken home.

"To make a four-year-long story short, we have spent thousands of dollars, are in debt for hundreds of thousands of dollars and recently lost the lawsuit in arbitration,” he said. “This little can of worms has financially devastated us, ruining any chance of ever retiring or paying off our house.”

Summing up, the Brokes not only had to pay the cost of rebuilding, but also the attorney fees for both sides of their case. The previous owner got off scott-free, as did his contractors, who had gone, conveniently, out of business. All of this, added to their original debt in purchasing the home, put the Brokes about a half-million in the hole..."

- ICC - Learn the Importance of Getting Permit Inspections
 
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Old 12-11-09, 08:22 PM
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Originally Posted by jumpyg View Post
Bill, you bring up some interesting points, but again, it doesn't make sense that insurance companies would regularly deny claims in these instances, yet not bother to put language stating such in their policies...
Actually it would be a BIG mistake to say what they do not pay for! Then what they wrote would limit their ability to deny claims. Limit it to only to what they have in their list.

And that's the way the law works, it works "backwards" as well.

For example companies were firing employees, then giving them bad references, when other companies called for a reference. Then the past employees sued the company for giving them a bad reference.

So then the companies only gave out good references for good past employees and said nothing about the bad employees. Well a clever lawyer argued that the good references for everyone else implied a bad reference for those the companies said nothing about, and won the case.

Now the companies don't give out ANY reference good or bad.

And they get some pretty smart lawyers arguing these things either way - either side. Wording needs to be "broad" and cover everything as opposed to being specific. If they list something specific, some lawyer is going to come along and say a certain situation was not listed, therefore they are implying it is allowed!

I read on another forum where a lawyer said he used to work for an insurance company and his job was to find ANY reason to deny claims. (I tried finding that thread again to post here, but can't find it.)

But that has also been my personal experience with friends I know. They make claims and are denied. One friend was injured at work and they denied his claim. And this is a state insurance fund which has billions of dollars! His family lost their house, cars, everything. Then they hired a lawyer and eventually were paid. But these people are heartless. There is no reason to not pay a claim like that! He was injured at work. And they have billions of dollars to pay just for those things, yet they refused to pay! I've learned this is not unusual.

Here is a good google.com search on this in general...
Google
 
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Old 12-13-09, 07:42 AM
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Have you ever heard of "bad faith"?

Originally Posted by hesaidshesaid View Post
If you own enough judges you can deny any claim.
First off, insurance companies are too scared of bad faith these days to wrongfully deny a claim. While it does happen, it is usually at an unintentional error caused by the adjuster. Most files to be denied are discussed by management and legal to ensure that a claim is not wrongfully denied. But I digress...

Regarding improper wiring, depending on the policy you have, you should have coverage for at least a portion of the claim. Most policies either state what they cover (Named peril policy - lists specific causes of loss that are covered) or state what they exclude (All peril policy - covers everything except what is specifically excluded). You should notice under Exclusions that loss caused by improper installation is not covered under your policy, but it may cover ensuing damages or just ensuing water damages. While policies can be confusing (because they are written by lawyers), everything is in there. You also have to look at endorsements which will change the coverage of the policy. This is because certain states require the use of an approved policy, and homeowners choose to change and sometimes decrease their coverage to get a cheaper rate. Where people get upset is when they want the most basic coverage and then have a loss and find out they opted out of that coverage. This isn't 1942, and the Department of Insurance keeps a close eye on what insurance companies do. They can get into a lot of trouble for paying a claim that shouldn't be paid (keep in mind that there are public investors) and not paying what should.

There is no way to answer this question based on the fact that there are so many different policies, endorsements and court decisions in each state, but I would suggest looking under exclusions and checking to see if ensuing damages from this loss would be covered.

Not to go on a rant here, but the biggest issue is that the general public are just misinformed. Homeowner's policies usually do not cover flood, surface water, wear and tear, long term leakage of water (in most cases), vandalism in a house vacant for more than 60 days, land, equipment malfunction among many others.

See insurance isn't that complicated...Hehehe
 
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Old 12-13-09, 08:08 AM
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Just to mix in..and it may have been said...there are still places that do not require permits and inspections...or possibly not both. There are also still places (Illinois?) where some trades don't have to be licensed....

So just because something isn't permitted/inspected doesn't necessarily mean its bad or wrong.

No real point to my post...just wanted to thow that out there..
 
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Old 12-13-09, 08:09 AM
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The lack of having a permit or not does not constitute having poor/unsafe work. Inspectors can't see everything that is done on the job. You can still have a permit and still have poor quality work that doesn't last or causes fires or other damage.
 

Last edited by Tolyn Ironhand; 12-13-09 at 10:58 AM.
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Old 12-13-09, 01:28 PM
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So what good does permit do ?

So what is the real purpose of a permit for work done on a house ?
In my state MA and in certain towns here you can lookup and find most permits pulled for work, worker who did it, homeowner, vaue in $$, location, amt of fee $ collected, alot of info and is all public. Very interesting (and can be great for nosy neighbors)

Also - I see lots of homeowners pull a permit and do their own work - so how does anyone know if that homeowner does/knows what he is doing ?
(which brings in question of tradeworkers' licensing )
Is a licensed electrician or plumber guarantee the work will be done 100% correctly vs if I do or try to do it myself ?

So is permit mainly for town or state to collect extra $$ in fees, OR for the inspector to keep track of things OR
owner or the Town to cover their *ss ? Or for realtors to check when selling/buying houses ?
OR all above ?

It looks like too the town inspector does not bother/or have time or "care" about coming out to home and actually "inspect" the work. So what is their (mal)function then actually ? Is homeowner supposed to bug/drag the inspector down to his house to see it ?

I need to get a new roof/shingles put on - I recently asked the roof contractor during the estimate if the inspector bothers to come out and check/see. He said no they dont. Great! So what am I paying the extra $$$ to town for a permit ?

Do insurance companies usually bother to go lookup town records of any permits ?

Like said a permit does not always mean good/better work.
Seems like this whole permit/inspection thing is very grey and fuzzy and kinda gimmick so towns can pick up some hefty $$$ from homeowners (and homeowners dont realy get much from it all )

So what are they really for or good for ?

I did read this earlier post by someone below

http://media.iccsafe.org/news/eNews/...spections.html
It does answer some of my questions above - but still that looks to be the "perfect" world and lots seems left up in the air.
 

Last edited by philb00; 12-13-09 at 01:44 PM.
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Old 12-13-09, 02:21 PM
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In my area, the electric company will not connect the electricity to new work unless the local electrical inspector has placed his "passed" sticker on the main panel.

In another state I heard of unpermitted electrical work which was done for a business remodel and someone told me the city would not give them a "certificate of occupancy" and they could not open their doors for business without this.

Then I installed a woodstove in my house and my insurance company wanted a copy of the inspector's "passed inspection" paperwork. Plus they took pictures and measurements of the woodstove. Wanted to see the label on the back. THEN they covered me.

And with home inspections when a property is sold, they will document all electrical problems they find which would not have been up to code at the time the work was were done. Then the lender, especially FHA, will not approve financing unless certain problems are fixed. And the buyer might walk of course!

Here is some of the handiwork home inspectors find...
Crank it up | ASHI Reporter

Bottled Water | ASHI Reporter

Shockingly clean | ASHI Reporter

Bright Idea | ASHI Reporter

All the modern conveniences? | ASHI Reporter

Etc.
 
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Old 12-13-09, 02:44 PM
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I built a 1860 sf all masonry home in an area that had no municipal inspection or authority. The permit cost $10 (dirt cheap).

If you needed any inspections, you had to find someone and call for them except for the electrical (the utility will not provide power without a rough-in and final) and the septic installer include the VERY VALUABLE state inspection, whether they were really there or not. My septic inspection gave me an invaluable 11x14 gold edged certificate of compliance, which is very valuable for a lake home.

When I had the electrical inspection, the inspector did not like the first outlet he looked at, but it was OK. then he dug into the fireplace electrical (3 speed fan, thermostat, etc. with THHN blue white, red and green, etc. wires) and I did the running of the conduit since it could be exposed for a while, but my 12 year old son pulled the wires and made the connections (he could understand the book and the installation instructions). After looking a couple of boxes, the inspector immediately approved everything including my own connections with the wires wrapped in the wrong direction.

Not a problem or a big cost, but a great benefit for resale and insurance.

Dick
 
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Old 12-13-09, 03:06 PM
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While permits and inspections do provide a service inspectors are not held liable for any "issues" that arise in a job, (IE: electrical fires, plumbing failures, structure failures) it the contractor or homeowner that must fix it or pay. (or both)

What are inspections for? I believe a lot of it is a revenue generating machine for the city/state. Some cities you even have to get a permit to paint your home.
 
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Old 12-13-09, 04:33 PM
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The value of a permit and inspection varies with the territory. Some thirty years ago I installed a new electrical service to my house. I knew the utility would not connect without a permit so I bought one. The "inspector" from the city made his "inspection" from the comfort of his car while driving by the house. He called the utility and told them everything was fine.

I had taken the day off from work to meet with the inspector. It was about four in the afternoon when I noticed someone looking at the power pole across the street and then to the mast of my new service. I went out and saw that the man had come in a car with the utility's name on the door. I asked him if he was also the city inspector and he said no, the city inspector had already okayed the installation. I pointed out that the city inspector had not talked to me and that he had not even signed the permit as okay. The utility engineer said, "Oh, they just want the money."

I didn't like that attitude on the part of the city inspector so I called and said he didn't sign the permit. A few minutes late he showed up, obviously upset that I dared to question him. He then proceeded to nit-pick my work finding all sorts of things that were wrong (in his eyes) and after he left I called the utility engineer who said he had just gotten off the phone with the guy and that he now said I was NOT okay for connection. When I detailed what the city inspector was taking issue with the utility engineer said the city guy was wrong but that he could make a whole lot of trouble for me and that it was best for me to comply with his wishes if it wasn't an extreme hardship.

It took another two weeks to get that city inspector to okay the work and he never did sign the permit.

When I had a new roof put on that house I demanded that the contractor write it in the contract that he (contractor) would be responsible for the permit. He replied that he didn't know anyplace that required a permit for a re-roof. The second day I came home to find a stop work order posted on my house because no permit had been issued. I called the contractor and told him to fix it. The next day I came home to see a permit posted but the job cost was listed as about 1/3 of what I was paying.

I have more stories but that should be enough right now.
 
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Old 12-14-09, 03:48 AM
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Furd, I'd bet either the permit value was for materials only or the contractor was trying to save you tax money by claiming a lower $ amount.

When I left fla, either orlando or orange county [can't remember] passed an ordinance requiring a permit for any paint job exceeding $1k. My boss along with other contractors were working with lawyers to stop it. I don't know what the outcome was but I'm sure there was no purpose for the permit other than to generate money for the gov't. Orange county also required a permit to have a garden although I never pulled one

When I moved to east tenn, there really wasn't any building code or inspections with the exception of electrical [permit and inspections came thru the electric company] and septic. They are slowly adding on permits. Just this summer they started requiring permits for driveways connected to county roads, but no teeth to inforce it. If you fail to get a permit, the county won't fix any problems associated with where the drive meets the road.
 
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Old 12-14-09, 06:44 AM
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Originally Posted by Scruffy Hurley View Post
This isn't 1942, and the Department of Insurance keeps a close eye on what insurance companies do.
People haven't changed since Eve, and she lived, what?, 500,000 yrs ago?

Regulatory capture - Wikipedia, the free encyclopedia
 
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