Citizens May Eliminate Appraisal
Suppose you were not such a good person and tried to pay less than you owed on several debts. There was a process to resolve those debts, and you repeatedly lost and eventually had to pay the debts. What would you do? Well, if you are Citizens Property Insurance Corporation and its Board of Governors, you change the rules, looking for a different resolution process to avoid paying the debt and the publicity of underpaying claims.
Of course, that is not how Citizens’ in-house attorneys and management try to spin what they are doing by removing the appraisal clause from their property insurance policies. After all, if the Board of Governors really wanted to know why Citizens loses at appraisal, it would not make an in-house inquiry. The claims managers would just make excuses for losing. If the Board of Governors wanted to know the embarrassing truth, they would ask their opponents, “why are our claims handlers losing these appraisals?”
Citizens is a part of Florida’s government. So how embarrassing would it be for our elected representatives and our appointed Board of Governors if the media reported that Citizens lost so many appraisals because it severely underpays claims and battles its policyholders regarding how much is owed? What if the media reported that this is the true reason that Citizens wants to end appraisal?
Citizens usually loses badly in appraisal because its adjustments are not correct and reflect a bias to underpay policyholders. It delays claims and battles policyholders rather than engaging in a dialogue about resolution and why a dispute occurs.
For example, I have invited Citizens senior management to speak on a multi-million dollar claim that has been pending for several years with another attorney in our firm. They refused to even speak with us, cancelled settlement meetings, refused the less expensive alternative of appraisal, and forced us to file a lawsuit to force a resolution. All this, despite our client’s hope that the matter could be resolved amicably, without a lawsuit. When claims managers refuse to talk and discuss differences, lawsuits are the only option. Citizens customers must wait and then fight for money that is rightfully theirs.
Many of Citizens’ claims are handled so poorly that almost anybody reviewing a closed claim can find significant amounts that were not paid. I hear this all the time. It is the major reason Citizens has re-opened claims--it underpays the initial adjustment.
Still, appraisal is not a “right” for policyholders. Citizens management and in-house attorneys made an excellent point that appraisal has no written rules and is subject to abuse. I am surprised that the Florida Supreme Court has allowed appraisal, an informal process, to bind parties. I have long felt that an informal process of binding resolution violates due process. At one time, Florida Courts ruled that the appraisal process was subject to the Arbitration Code. This is no longer the case, and Citizens correctly pointed to the deficiencies of appraisal in its report to the Board of Governors.
Citizens did not report to its Board of Governors the true reason management wants to change the rules and take appraisal out of the policy. Somebody on the Board of Governors should question whether Citizens management is being truthful and the media should start an inquiry. Everybody in the business knows that the true reason for removing appraisal from the policy is because Citizens underpays many claims, and appraisals embarrassingly prove it.
Dan Luby of Precision Advisors forwarded me the following story of Citizens’ change to eliminate the appraisal clause:
It would appear that Citizens Property Insurance Corporation is changing their previous position on amending the Appraisal process and is now recommending the elimination of the Appraisal process.
The following are the minutes from the Citizens ‘Actuarial and Underwriting Committee Meeting’ held on May 11, 2009:
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DISPUTED CLAIMS/APPRAISAL – POLICY FORM CHANGES
MAY 11, 2009
EXECUTIVE SUMMARY
Staff seeks approval to amend Citizens’ policy forms (1) to eliminate appraisal as a mechanism to resolve disputed property claims, and (2) to improve certain claims adjusting processes. The elimination of appraisal is a change from the recommendation made last year to reform appraisal policy language. See minutes of Actuarial & Underwriting Committee, May 29, 2008; Board of Governors, June 19, 2008.
Background
Citizens’ property policies generally provide that, in the event of a dispute related to the “amount” of a loss, either Citizens or the policyholder may demand an appraisal of the loss. Citizens’ policies currently use industry standard language. The principal advantages of a disputed claims appraisal are that it generally resolves claims disputes more quickly and with less expense and fees than litigation. But its advantages are overshadowed by its disadvantages.
Notwithstanding significant and meaningful operational reforms that Citizens and its Litigation & Disputed Claims Unit (“LDCU”) have instituted, appraisal remains very flawed and subject to abuse by third-party stakeholders. The standard language used by Citizens and the industry is problematic because it provides virtually no rules for the process. As a result, insurers (including Citizens) are legally required to pay damages that may not be covered by the policy form, nor caused by a covered peril, nor supported by substantial evidence, and without recourse to meaningful judicial review. The process is so problematic that some carriers have eliminated appraisal from their policy forms (and some others are in the process of doing so).
In its January 2009 report on Citizens, the Auditor General recognized the flaws of the appraisal process and the challenges of third-party stakeholders, and further encouraged Citizens to complete its work on this issue, by stating: “Citizens’ staff is reconsidering whether to move forward with these amendments or, instead, whether it should eliminate appraisal from its policy forms (in which case these disputes would be resolved through litigation). . . We recommend that Citizens continue to evaluate its options . . . and select an option which ensures the fair treatment of policyholders and full disclosure of all decisions made relative to the claim amounts ultimately paid.”
Recommendations
Staff recommends the following changes to its various property policy forms, as applicable:
- Eliminate the provision for appraisal of disputed property claims.
- Provide Citizens with the option to require examination under oath and recorded statements for all property claims. When the insured is an association or corporation, require that certain representatives must submit to examination under oath and recorded statements.
- In multi-peril policies, conform the “duties after a loss” provisions to those in wind-only policies; and modify the “duties after a loss” provisions of all policies to improve the claims adjusting process.
Staff recommends elimination of the appraisal provision principally for the following reasons:
- Citizens has more confidence in the judicial system than in the appraisal process. Litigation has known rules and procedures. Whereas appraisers and umpires are essentially unregulated, opposing attorneys and judges are subject to the Florida Code of Professional Responsibility (essentially, an enforceable code of ethics and rules of compliance), as well as supervision by The Florida Bar Association and the Florida courts (including discipline by the Florida Supreme Court).
- Alternative dispute resolution (ADR) is important from consumer perspective, but stakeholders are skipping statutory mediation and filing appraisals as the ADR of choice. By eliminating appraisal, statutory mediation favored by the Florida Legislature will again be the ADR of choice. Should Appraisal be eliminated, there will remain multiple opportunities for mediation and early settlement. Citizens may institute other ADR if the insured agrees.
- For policyholders, appraisal is a secretive process, with the basis of the award outside the scrutiny of the policyholder and the insurer. Like Citizens, policyholders have virtually no way to seek judicial review of an appraisal award. In litigation, a policyholder is able to recover its attorney fees, while its appraisal expenses generally come out of the award.
- Elimination of appraisal meets the objectives suggested by the Auditor General’s office (fair treatment of policyholders and full disclosure of all decisions) because the courts are very attentive to policyholder rights, and because judicial decisions and jury verdicts are fully disclosed.
RECOMMENDATION
Citizens’ staff requests that this Committee recommend to the Board of Governors that Citizens amend its policy forms and submit appropriate filings to the Office of Insurance Regulation to: (1) eliminate disputed claims appraisal, and (2) improve claims adjusting as described in this Executive Summary.
Chip,
Please post a follow up to this post and explain in detail to all of us how Citizens pays attorneys fees on lost litigation when they close out and pay the claim. How they intentionally misclassify, disguise, and sugarcoat the payment of attorney's fees on claim files. When they reach a global settlement on a file they deliberately bury the attorney's fees in with the loss payments to hide what they have to pay in additional attorney's fees so they do not have to show the public/board of governors and the DFS the massive amount of attorney's fees they are paying. Do they think that this number will not go up substantially after they eliminate the appraisal clause and/or will they continue to hide attorney's fees to justify that they are saving money by eliminating appraisal. Please address this issue without a self serving response suggesting that there be formal rules on appraisal as this will only increase the attorney's involvement and fees. The public and board of governors need to have an accurate number in attorneys fees that are paid on all of the current litigation and expect that this will mushroom exponentially and cost them substantially more in cash outflow then the alternative of eliminating appraisal.....Let us get the true estimated amount of attorney's fees in the open for the public to see and to put an end to the accounting trickery that goes on in the cpic claims/legal departments.
Eric,
I really have no idea how they go about classifying what you have stated. I have no idea how much Citizens pays in attorney’s fees to defend its cases nor how much it pays policyholders for attorney’s fees when it loses. Do you have any evidence to support your allegations? Send it to me, and I would be more than happy to share it.
I appreciate that you are upset that the manner in which you resolve cases with Citizens may no longer be available. You have told me that most of your cases go to appraisal because Citizens never comes close to agreeing with amounts you provide. And, you get significantly more money back for the policyholder.
Indeed, I predict there will be considerable "push back" because a cottage industry of appraisers for each side and umpires may no longer be making fees from the number one source of appraisal--Citizens.
Still, the process is inherently flawed. There is no due process. I have said that since there are no rules, the only rule is to be honest, but do everything you can to win.
In Florida, when the appraisal result is unfair, there is little either party can do about it. Unfairness may occur in arbitration or litigation, but I can assure everyone that they will be able to present their case, subject the opposing view to critical review, and submit the matter to a somewhat independent panel or jury. All of this guaranteed by the due process clauses of the United States and Florida Constitutions.
The other truth is that Citizens management may feel that the appraisal process results in unjust awards favoring policyholders. If so, they should explain why and how the appraisal process favors policyholders over insurers.
My impression is that the cases going to appraisal now have a policyholder who knows to get evidence and make a presentation to show the validity of the claim amount. In the past, insurers would run over policyholders, thinking their appraiser would do all this work. The appraisal process is no longer a "winning" proposition for insurers as it was in the past, and now some insurers are seeking other ways to game the system to lower claims payments to customers.
Citizens makes several valid points in its report, although I disagree with its publicly stated motive for requesting eliminating the appraisal clause.
You write:
"...Suppose you were not such a good person and tried to pay less than you owed on several debts.."
This is what ALOT of Americans are doing in the current economic scenario - does that make them bad people? NO, of course it doesn't. The general public doesn't read your Blogs, but if they somehow came upon it today, they'd be offended by your first sentence.
Remember the little people - they're the ones whose claims give rise to the big bucks some really good attorneys make.
SHIRLEY HEFLIN
Shirley,
Maybe I should have said more precisely, "suppose you had as much money as God, maybe more, and were not such a good..." then, everybody would have known I was only talking about insurance companies.
I hope you and everybody reading knew I was not talking about people that could not pay their bills.
Thanks for correcting me. Hope you had a fantastic Fourth of July weekend.
Have been sitting in the north for some time listening to the difficulties of the Florida insurance market. Some people have abandoned settlement there due to the difficulty of the insurance market. There have in addition been many attempts to resolve the problems and have an orderly transfer of risk in the field of insurance. There can be no healthy economic market if there is not an orderly market.
There is no question that there are difficulties in the Florida area. It is subject to various risks that are not present elsewhere. This does not make it an unworkable thing but merely a little more difficult. There is no question that the elements of loss must be studied and eliminated where possible. This would promote a healthy residential community. Those people support the other industries. It is impossible for the retailers to operate without customers. Nor for any other industry to prosper except the bug control man and the like.
There are elements in the allowable construction that extend the original loss. These items may well be eliminated by altering the existing building code. There is also the factor of the stacking of risk through a cooperative. This would allow for the more economical transfer of risk and the favorable results would be quickly rewarded. A favorable tax treatment should then be offered to those who finance the activity and to the residents as their costs would be greater at first. As the costs went down, they would be able to share in the profit. All you have to do is have a profitable year and many will come flocking across your borders. Should you people continue to do nothing you will be preventing continued growth.
Tx for the clarification.
SHIRLEY
No shirley, you should of just understood that he was talking about the insurance companies. I mean really, you shouldn't read this blog if you can't make certain assertions. Chip, I apologize I lack your tact.