Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

While it is true that under the standard ISO homeowners policy homes must be insured to at least 80% of their value to avoid penalty, the current estimations seem unreasonable.

An article recently published in the Tampa Tribune cited such a case:

Joe Freitas thought $109,000 was a good deal on his new home. His insurance agent recommended a $139,000 policy - enough to give him a cushion in case of a disaster.

But Florida's insurer of last resort says that's not enough, and will only insure Freitas if he's willing to pay for a $237,000 policy.

I have a hard time believing that Mr. Freitas home, which was purchased for $109,000 and appraised at $139,000, needs almost $240,000 in coverage. Even in the most egregious cases of damage surge, the phenomenon where repair costs spike following a disaster, this number still seems exorbitant.

Industry backers will tell you that Florida’s Valued Policy Law safeguards against any ill-effects caused by over-insurance – after all, in the case of a total loss, a policyholder is entitled to receive a check for the policy limit. What they fail to mention, however, is that very few insurance claims involve a total loss. In the overwhelming majority of claims policyholders experience only a partial loss. This is where cases of over-insurance and CPIC’s new methodology are most precarious.

For example: in a total loss, the policyholder would get the benefit of a higher RCV payout, somewhat justifying the increased premium required by this new methodology. However, in a partial loss, the benefit to the policyholder is less apparent. If a Citizens policyholder is indeed over-insured, then they are paying higher premiums for a benefit that would only truly apply in the rare case of a total loss.

In practice, they are paying a great deal more for the almost the exact same coverage.

To make matters worse, it appears that Citizens, YOUR state run insurer, is the only company requiring its customers to adhere to these inflated appraisals without recourse. Does this seem fair?

While there is certainly a need for policyholders to have appropriate property insurance coverage, Citizens’ current RCV calculation methodology does far more harm then good. Especially in this economic climate, our state run insurer should make certain all the kinks are out of its Value 360 software before charging Floridians an extra $1000 in policy premiums.

To read and watch some of the media coverage on this issue, click below:

NBC: Citizens' replacement cost estimates rise for homeowners

FOX: Home values down; insurance costs up?

Sun Sentinel: Complaint: Citizens insurance inflated rebuilding costs, premiums

Unfortunately, this scenario is similar to what other policyholders in Florida have experienced with their Citizens claims. The Sheldons are making their dissatisfaction with Citizens well know.

Maryellen and Jonathan Sheldon and their public insurance adjuster, Rick Tutwiler, spoke to Tampa’s Channel 10 News about the claim in this interview.

The Sheldons hired Tutwiler and Associates as their public insurance adjusters to help them with this fire loss. Rick Tutwiler has assisted with presenting their claim to Citizens, but Tutwiler explained that Citizens is still missing the mark by tens of thousands of dollars. The Sheldons have now filed a breach of contract lawsuit against Citizens.

The complaint includes a demand for attorneys’ fees. Under Florida Statute 627.428, if the Sheldons prevail in their action, Citizens will owe damages and reasonable attorneys’ fees and costs.

Have you experienced a similar problem? Post a comment below and I will forward it to Channel 10.

Early this week I was asked by Fox 13 in Tampa Bay to discuss a situation involving a client represented by my colleague Kelly Kubiak at Merlin Law Group. The case is a sad one -- Karina Wilson, who lives in Plant City, lost her house and everything she owns in an accidental fire. Now, 8 months later, she has yet to see a dime from Citizens -- the insurance company she dutifully paid claims to for years. Sadly, stories like this are not uncommon.

I urge you to keep up the fight on behalf of policyholders like Karina. By faithfully representing clients against insurance companies like Citizens, you’re helping those who need it most. I assure you I’ll be doing the same.

With this in mind, it’s time we take a quick look at the early drafts of the Insurance-related bills winding their way through the committee process, which has already begun in earnest:

First, Senate Bill 378/House Bill 243, sponsored by Senator Richter and Representatives Metz & Weinstein, respectively. These Bills aim to bring the state of Florida’s evidentiary standard into line with Federal standard. Under the new Daubert standard, judges will be given more leeway as “gatekeepers” of science. Obviously there are problems with this standard, as precious few members of the judiciary are trained scientific experts. Many states have yet to confirm to the federal Daubert standard because, as then Former Chief Justice of the United States Supreme Court William H. Rehnquist famously said, judges are not, and should not, be amateur scientists.

Next, Senate Bill 578/House Bill 245, which are sponsored by Senator Richter and Representative Boyd, respectively. The main focus of these bills is to depopulate Citizen’s Property Insurance Corporation, returning it to its initially intended status as the state’s insurer of last resort. As currently written, the bill would allow surplus lines insurance companies to compete with private insurers to attract customers from Citizens – a move that would effectively force some Floridians to purchase property insurance from a company that’s not regulated by the state of Florida with regard to rates and forms. This bill will increase rates and decrease consumer protections.

Finally, and perhaps most troublingly, is HB 427 – the anticipated “Bad Faith Bill” which is sponsored by Representative Passidomo. Currently, there is no companion bill in the Senate. If passed, this bill would make it much more difficult for policyholders to file bad faith lawsuits against their insurers. The law would effectively chip away at the state’s bad faith statutes – statutes that exist to ensure your insurance company is holding up its end of bargain and acting in good faith. Erosion in bad faith laws lets insurance companies evade their contractual obligations and harm policyholders without recourse.

With the session approaching, we must remain vigilant in our defense of Florida’s 8 million policyholders – The insurance industry is certainly looking after their own interests. Keep looking at policyholdersofflorida.com and at this blog for updates.

This victory proves that Floridians, organized and united, can fight the insurance lobby and win.

Citizens board members proposed in July to raise sinkhole rates statewide by 430 percent on average to make them actuarially sound. In the Tampa Bay area -- nicknamed "sinkhole alley" because of insurers' losses on claims there – that would have translated to increases of 2,200 percent in coastal Pinellas County, and 2,400 percent in Tampa.

For the better part of a year, Policyholders of Florida and other consumer advocacy groups warned that insurers would seek these rate increases. It was only after overwhelming policyholder opposition that those in Tallahassee decided to listen.

Though there were some converts in the legislature, most backtracked because the people organized by consumer advocacy groups like Policyholders of Florida and the hard work of tireless consumer champions like Senator Mike Fasano, Representative Darryl Rouson, and Representative Rick Kriseman made them realize that the profits of a few could never justify tremendous financial strain for millions for Floridians. Our consumer champions made it clear that the proposed rate hikes would put some homeowners out of their homes and deliver yet another blow to our struggling economy.

What does all this mean in real terms?

Under the new rates, Pasco and Hernando counties will see average increases for sinkhole insurance of $300 to $400 as opposed to the $4,000 to $5,500 that Citizens had requested, according to State Sen. Mike Fasano, R-New Port Richey. Hillsborough will see increases of about $100 as opposed to the $3,200 increase that was requested, he said.

Though $400 is still a lot to stomach for many Floridians, it’s much more reasonable than the $5,500 hike sought by Citizens.

The Office of Insurance Regulation’s Order confirms what groups like Policyholders of Florida have argued all along: Citizens “provided no credible evidence” that it assessed the effects of SB 408 when making its rate-increase request.

Citizens merely assumed future sinkhole losses would parallel the frequency and severity of other types of losses, such as fire and water. The OIR disagrees.

The OIR is “unable to find that the upward trend for sinkhole losses that Citizens assumes is actuarially supported.”
 

Though I am certain the insurance industry and its lobbyists will continue to claim losses, consumer advocates across the state should sleep soundly knowing that their actions saved countless Floridians, many of whom live on modest fixed incomes, from losing their homes and their financial future.

I want to express my gratitude to everyone who attended the statewide rate hearing in Tampa yesterday, and I particularly want to thank the following elected officials who participated in yesterday’s activities:

Senator Paula Dockery
Senator Mike Fasano
Senator Rhonda Storms
Representative Richard Corcoran
Representative Tom Goodson
Representative Rick Kriseman
Representative Darryl Rouson
Representative Jimmie Smith

Each of these officials offered powerful words in opposition to Citizens Property Insurance Company’s proposed sinkhole rate hike. These officials stood in solidarity with hundreds of citizens who came to speak out against the proposed rate hike. I also want to thank the media for giving this effort the coverage it deserved. Stories about the proposed rate hike dominated the news from early yesterday morning until the late last night.

Insurance Consumer Advocate Robin Westscott is also to be commended for her strong comments at the rate hearing. Not only did she stress the need to “phase in” whatever increases may be needed, she disagreed with the underlying rate increase request. She did an excellent job for the people of Florida.

While these officials spoke eloquently about the financial devastation such a drastic rate increase would bring, the most passionate and effective testimony came from hundreds of ordinary citizens who told the commission how these rate hikes would affect their lives. They reminded the commission that this is not simply about numbers on a page – they are real people already struggling to stay afloat in a very real economic crisis.

I can tell you firsthand that it was pretty powerful stuff.

For those of you who were unable to attend the hearing, I put together a quick summary of the news coverage throughout the day:

• ABC Action News Noon: Residents organize to fight sinkhole insurance hike
• ABC Action News: 2 videos (5 & 11pm): Citizens defends rate hike request, hundreds protest
• FOX 13: 2 Videos (5 & 11pm): Citizens faces public after rate hike request 
• CBS 10 News Noon: Upset about proposed sinkhole rate hike? Speak out | wtsp.com
• CBS 10 6:00: Homeowners fight sinkhole insurance rate increases | Video | wtsp.com
• CBS 10 11:00: Hundreds of homeowners fight sinkhole insurance rate increases | wtsp.com
• NBC 8: Public hearing on homeowner's insurance | TBO.com
• Bay News 9: Angry homeowners give insurance regulators an earful
• Bay area residents rail against sinkhole insurance hike | TBO.com
• Regulators to weigh Citizens insurance rate hike | House Keys blog
• Citizens policyholders jeer sinkhole rate hikes at Tampa hearing - St. Petersburg Times
• Citizens insurance takes a beating over rate hike request | House Keys blog
• Citizens Blast Citizens' Rate Hike Proposal | Sunshine State News
• 5 things you need to know happening in Florida on Tuesday, September 13 

We need to continue this momentum . More than anything else, we need to remember our duty to fight for those most vulnerable and to hold insurance companies and the state accountable. This is a fight that is by no means finished – Let’s keep it up.

My impression is the efforts to protest the outrageous rate increase have proven successful. Citizens Property Insurance held a Monday emergency Board meeting regarding the issue:

Under pressure from state leaders and consumer advocates, the Citizens Property Insurance board voted Monday to raise rates gradually for optional sinkhole insurance, instead of jacking them up right away by as much as 2,000 percent or more.

The decision, which would raise rates 50 percent in the first year, came on the eve of a hearing that state insurance regulators have scheduled Tuesday in Tampa to consider the rate request.

The board had voted in late July to raise sinkhole rates statewide by 430 percent on average to make them actuarially sound -- and by as much as 2,300 percent in Pinellas County. Tampa rates would have risen by 2,239 percent on . The Bay area has earned the nickname of "sinkhole alley" because of insurers' heavy losses on claims there.

The Citizens board's vote during its emergency Monday hearing by teleconference does not actually change its rate request. The state-backed insurer still plans to ask state Insurance Commissioner Kevin McCarty to approve the same increases.

The democratic process requires citizen involvement to work. I am happy my law firm is taking a role organizing such endeavors. People can make a difference in Tallahassee.

How about a little inspiration for those protesting:

I am glad Scott Johnson is praying for me. I need all the help I can get. Hopefully, he has a good relationship with the Almighty, and I’ll be the better for it, in a Rick Perry type of way.

The first point Johnson needs to correct is that advocating for policyholders and advocating for public adjusters are not mutually exclusive. Indeed, most public adjusters I know want better benefits and coverage for policyholders and want insurance premiums to be affordable. I am not certain if Johnson uses this rhetoric because so many in the insurance industry have waged a slanderous war, without evidence, arguing that public adjusters are a menace to the insurance industry. If he is trying to use “guilt by association” propaganda, I guess Sean and I are guilty. We are attorneys who represent policyholders against insurance companies, and we generally, but not always, support the views of public adjusters.

The second point is that, after study and participation on a government task force, I support tiered increases in rates. I have repeatedly expressed my opinion that the recently passed legislation would raise rates unfairly. I wrote in Taking Tough Positions On Citizens Property Insurance Task Force, that I opposed the legislation for a number of reasons. In Rates are the "Elephant in the Room" with Government Sponsored Property Insurance Programs, I explained that that rates and coverage have wide reaching political, social and economic impact; they are not simply concerns for an insurer looking to make a profit.

My thoughts on the current situation were published over two years ago when I wrote:

The insurance industry will scream because they want no limit on what they can charge--free enterprise run amuck. Citizens policyholders will scream because they want no rate increase whatsoever--socialistic paternalism. Everybody else has a stake in what we do and maybe they will tell these two groups to shut up and play fair.

The extraordinary rate increases that our Legislature has allowed are the result of laws which allow insurance free enterprise to run amuck. As an analogy, if this were health insurance, we would have excluded the pool of people most likely to become ill with cancer. Further, we would have allowed health insurance companies to charge those poor souls whatever they want. All we need to do is substitute the words “sinkhole” for “cancer” and “property” for “health.”

The insurance industry never wanted to insure sinkhole loss. Its lobbyists and advocates, like Scott Johnson, have now found a Legislature willing to absolve them of this obligation — the premiums are so high that they are unaffordable. Even if you can afford to purchase sinkhole coverage, the draconian burdens of proof mandated by this Legislature make claims extremely difficult.

I will study this issue more when I have the chance. For now, I am leaving my office this afternoon and joining in a banner waving protest against this wrongful situation.

Now that there is a public uproar about Citizens Property Insurance Corporation raising its rates an average of 400% statewide for sinkhole insurance, CFO Atwater feels that it is safe to stand up for consumers. Unfortunately, it is too little too late. During session, CFO Atwater could have spoken out against 408 or even worked to make the bill better for consumers. Instead, the CFO acted like property insurance was not his business. In case you were wondering:

Insurance consumer service is handled by the CFO, and the office is responsible for the licensing and oversight of insurance agents and agencies, as well as funeral homes and cemeteries. The CFO appoints the Insurance Consumer Advocate. Insurance fraud investigation also is overseen by the CFO. As a member of the cabinet, the CFO oversees the Office of Insurance Regulation.

As you can see, more than any other cabinet member, the CFO has a vested interest in the insurance matters in this state. To remain detached from the debate surrounding SB 408 and to take a stand only after every newspaper in the state decries the “outrageous rate increases” is simply political grandstanding. At the August 2nd cabinet meeting, Atwater asked the Insurance Commissioner if he could require Citizens to phase in its proposed 429 percent statewide average rate hike over several years instead of all at once. Phase in the proposed increase…as in a cap on the increase…as in the law prior to SB 408? The law prior to SB 408 allowed for EXACTLY what the CFO was asked for on August 2nd.

Is this what you expect from someone who once called himself the “insurance watchdog?” In this very blog, there are posts which praise CFO Atwater for his previous pro-consumer stances with respect to property insurance. We ask the CFO return to those pro-consumer roots. 

An example of the proposed rate increase was given in the St. Petersburg Times article, Some Citizens Rates Could Rise Thousands of Dollars:

If approved, that means in Tampa the average premium for a sinkhole policy would increase from $156 to $3,651. In coastal Pasco County, rates would increase from $1,270 to $3,598. In coastal Hernando County, premiums would soar from $1,356 to $5,734.

That's on top of normal property insurance rate changes.

Fox 13 News reporter Peter Linton-Smith spoke to Sean Shaw for his broadcast news report and article, A Deluge of Empty Houses:

"I think it's pretty likely," attorney Sean Shaw reluctantly acknowledged just minutes after Citizens' Board of Governors signed off on the rate increase request.

Shaw is the former Insurance Consumer Advocate for Florida. He now works helping Bay Area homeowners who have disputes with their insurance companies.

"Citizens has their people who have said 400 percent statewide average is what they need. I've heard their spokesperson say that, so I assume they have some numbers to back that up," Shaw said. "You cannot justify that to me. That is outrageous."

State Senator Mike Fasano was very critical of the legislation that allowed this to happen. Similar to the televised news report, he claims that SB 408 will cause another foreclosure and real estate crisis in Florida.

In Citizens Prop. Ins. Corp. v. Admiralty House, Inc., No. 2D10-4967, -- So. 3d. -- (Fla. 2d DCA July 1, 2011), a condominium association filed a claim for damage from Hurricane Wilma, but the insurer valued the damage at below the policy deductible. The claim was reopened a few years later after additional damages were discovered, and the insurer paid some benefits under the policy. The insured disagreed with the insurer’s valuation of damages, and sought to appraise the loss pursuant to the appraisal clause in the insurance policy. This time, the insurer sought a fresh round of compliance with post-loss conditions before it would submit to appraisal. After years of enduring a never-ending “investigation” of the loss, the insured filed suit and obtained a court order compelling the parties into appraisal. The insurer appealed. In the appellate opinion, the Second District cites the recent string of Third District opinions as the basis for holding that the insured must submit to an evidentiary hearing before appraisal may be compelled if the insurer alleges failure to comply with post-loss conditions.

What is significant about Admiralty House, in which the Second District followed the Third, is that the Second District did not follow the direction the Fourth District has recently taken. In Must All Coverage Disputes Be Resolved Prior to a Court Order for Appraisal?, I discussed how the Fourth District has taken the position that all coverage disputes must be resolved first before the question of damages may be considered. The Third District has taken a somewhat different approach, allowing appraisal to go forward on a “dual-track” basis, where appraisal goes forward to determine damages on one track while litigation over coverage goes forward at the same time on a second track. In Admiralty House, the Second District expressly followed the Third District’s discretionary approach to the order of determining damages and coverage when it said:

We note that "[o]nce the trial court determines that a demand for appraisal is ripe, the court has the discretion to control the order in which an appraisal and coverage determinations proceed." Galeria Villas Condo. Ass'n, 48 So. 3d at 191-92 (citing Sunshine State. Ins. Co. v. Rawlins, 34 So. 3d 753, 754-55 (Fla. 3d DCA 2010)).

Merlin Law Group has been closely following these emerging cases and we have written about them frequently. In Ask for Appraisal – Get a Lawsuit and Appeal, Chip Merlin discussed the insurance industry trend of the never-ending “investigation” before appraisal, which is exactly what happened in Admiralty House. In Litigating the Right to Resolve Disputes Without Litigation, I wrote about the noticeable patterns after the fourth successive appellate decision was published from the Third District regarding appraisals with Citizens Property Insurance Corporation. Admiralty House fits right in line with the other four decisions from the Third District. We will continue to write more as new opinions are published regarding this important issue in Florida insurance law. Stay tuned to this blog and the Condominium Insurance Law Blog for the latest updates.

Last week, Citizens’ executives gave a presentation on Citizens’ financial health to Governor Rick Scott and the Florida Cabinet. Among other things, the presentation anticipates where funds will come from if there is a catastrophic loss in Florida in 2011. The report estimates that Citizens will be able to fully pay all its claims from a “1 in 5 year” hurricane event with its accumulated surplus. However, if a “1 in 25 year” hurricane event were to occur, Citizens would be required to seek additional funds from the Florida Hurricane Catastrophe Fund (FHCF) to pay claims. If a “1 in 50 year” hurricane event, or a “1 in 100 year” hurricane event were to occur, Citizens would have to seek funds from reinsurance, surcharges, and assessments.

Julie Patel, of the South Florida Sun-Sentinel, also reported on the presentation by Citizens’ executives. Based on Citizens’ estimations and Patel’s further calculations, the average Citizens policyholder could be subject to over $1,000 in additional fees if a major hurricane, the kind that is only expected to hit once every 100 years, were to hit Florida in 2011. According to Patel, these additional fees could amount to:

• An additional $1,003 for the average Citizens policyholders who pay $3039 combined on their home and car insurance policies.

• An additional $323 for the average policyholder who is not with Citizens and pays $2,522 on their policies.

• An additional $47 a year for Citizens policyholders over the next 29 years.

• An additional $39 a year for non-Citizens policyholders during the next 29 years.

Although these additional costs are not expected to be charged back to Citizens and other policyholders unless there is a major hurricane this year, the possibility of paying these costs may not be readily apparent to policyholders. Thanks to Julie Patel for her clear quantification of how much policyholders may be required to pay if a “1 in 100 year” hurricane hits this year.

Citizens Property Insurance is required by Florida statute to provide its insureds with information, but in order to get the information, the proper forms must be completed. The form required to obtain copies of the policy of insurance and underwriting file is available here. Be sure to check the boxes requesting both the policy and the underwriting file. The underwriting file should contain a copy of the insurance application and various other documents insurance companies usually try to withhold. Once complete, Citizens accepts the form via email to certifiedpolicyrequests@citizensfla.com or via fax to 850- 575-1879.

The policy request form addresses and anticipates requests from public adjusters. A public adjuster must send in the completed form along with a letter of representation or a contract signed by the insureds.

Claims documents are also available from Citizens. Claim documents provided are subject to a confidentiality provision, but various documents can be requested, including estimates, engineering reports, photographs, payment breakdowns, and denial letters. The form is available here and can be returned via email to recordsrequest@citizensfla.com or fax to 850- 575-1879.

Citizens will send the requested documents via email or fax. It generally takes one or two weeks to receive the information.

In Florida, Citizens Property and other insurance companies are required to send certified policies to their policyholders and representatives. As soon as the loss occurs, a written request for the policy needs to be sent to the insurance company. It is important that a certified policy is obtained, but if you are adjusting a loss without a policy at all, it would be wise to ask for the complete policy to be sent in an expedited fashion while the insurer processes the certified policy request. Florida Statute §627.4137(1)(e) requires insurers to provide the policies, and when a policy is certified, the insurance company is acknowledging under oath that the policy they send is complete. By using the certified copy of insurance, public adjusters can be confident that the insurance company cannot later argue that another limitation applies to the loss—if its not part of what was certified, it doesn’t count.

A number of public adjusters have called and written about this, some in disbelief. In response, this is the actual wording in the new law:

6. For any claim filed under any policy of the corporation, a public
adjuster may not charge, agree to, or accept any compensation, payment, commission, fee, or other thing of value greater than 10 percent of the additional amount actually paid over the amount that was originally offered by the corporation for any one claim.

A past President of the Florida Association of Public Insurance Adjusters (FAPIA), Randy Paul, believed that the wording was made to prevent more than ten percent of any re-opened or supplemental claim from being charged because twenty percent is allowed in other parts of the legislation. This has some validity, as I noted:

Current law provides that a public adjuster may not charge more than 10% of the amount of insurance claim payments made for claims based on an event that is the subject of a declaration of emergency by the Governor. The 10% limitation applies to claims made up to 1 year after the declaration. This law is amended to provide that after the 1 year period, the public adjuster fee limitation is 20% of the amount of insurance claim payments.

Unfortunately, though, the law was not written to apply only to re-opened or supplemental claims. The new statute says "any claim."

"The amount that was originally offered" is vague. What constitutes the amount "originally offered?" In third party scenarios, adjusters "offer" an amount to settle and get a release. In first party claims practice, insurance companies pay undisputed amounts of money as determined. An offer should only be made if there is a bona fide dispute.

Does the limitation to ten percent also include the costs of a public adjuster? Does the broad language include phrases such as "other thing of value?" Experts are often retained by public adjusters with approval of their clients to help analyze a loss. It’s not clear whether the ten percent limits the fee or includes these costs.

It is hard to see how any qualified public adjuster can make a profit when a ten percent cap is applied to monies obtained after Citizens, in good faith, fully pays a loss as its original offer. Of course, whether Citizens Property Insurance Corporation will act in "good faith" is another issue. I have heard dozens of Citizens stories in the last 48 hours and plan to share those with others in the future.

Still, the law is an unreasonable restraint of trade as written, and it will be challenged in court. It will be a topic at the next legislative session. The law is not good policy because it prevents policyholders from retaining professional services who will help them obtain the full benefits to which they are entitled. Why do our legislators want to prevent their constituents from receiving help in the wake of a disaster?

Our firm will continue to do everything we can to fight against and prevent these types of wrongs and injustice. We will never give in:

- Compensation for a reopened or supplemental claim may not exceed 20 percent of the reopened or supplemental claim payment. (pg. 9)

- Current law provides that a public adjuster may not charge more than 10% of the amount of insurance claim payments made for claims based on an event that is the subject of a declaration of emergency by the Governor. The 10% limitation applies to claims made up to 1 year after the declaration. This law is amended to provide that after the 1 year period, the public adjuster fee limitation is 20% of the amount of insurance claim payments. (pg. 10)

- Senate Bill 408 outlines the definition of “misleading and deceptive” adjuster practices in 626.9541. The following statements are prohibited:

1.      A statement or representation that invites an insured policyholder to submit a claim when the policyholder does not have covered damage to insured property.

2.   A statement or representation that invites an insured policyholder to submit a claim by offering monetary or other valuable inducement.

3.   A statement or representation that invites an insured policyholder to submit a claim by stating that there is “no risk” to the policyholder by submitting such claim.

4.   A statement or representation, or use of a logo or shield, that implies or could mistakenly be construed to imply that the solicitation was issued or distributed by a governmental agency or is sanctioned or endorsed by a governmental agency. (pg. 12)

- The following must be printed on any written advertisement (defined as newspapers, magazines, flyers, and bulk mailers) distributed by a Adjuster: “

THIS IS A SOLICITATION FOR BUSINESS. IF YOU HAVE HAD A CLAIM FOR AN INSURED PROPERTY LOSS OR DAMAGE AND YOU ARE SATISFIED WITH THE PAYMENT BY YOUR INSURER, YOU MAY DISREGARD THIS ADVERTISEMENT. (pg. 12)

- A company employee adjuster, independent adjuster, attorney, investigator, or other persons acting on behalf of an insurer that needs access to an insured or claimant or to the insured property that is the subject of a claim must provide at least 48 hours’ notice to the insured or claimant, public adjuster, or legal representative before scheduling a meeting with the claimant or an onsite inspection of the insured property. The insured or claimant may deny access to the property if the notice has not been provided. The insured or claimant may waive the 48-hour notice. (pg. 13)

- A public adjuster must ensure prompt notice of property loss claims submitted to an insurer by or through a public adjuster or on which a public adjuster represents the insured at the time the claim or notice of loss is submitted to the insurer. The public adjuster must ensure that notice is given to the insurer, the public adjuster’s contract is provided to the insurer, the property is available for inspection of the loss or damage by the insurer, and the insurer is given an opportunity to interview the insured directly about the loss and claim. The insurer must be allowed to obtain necessary information to investigate and respond to the claim. (pgs. 13-14)

-The insurer may not exclude the public adjuster from its in-person meetings with the insured. The insurer shall meet or communicate with the public adjuster in an effort to reach agreement as to the scope of the covered loss under the insurance policy. (pg. 14)

- A public adjuster must not impede “reasonable access” to the insured or the insured’s property. (pg. 14) 

- A public adjuster may not act or fail to reasonably act in any manner that obstructs or prevents an insurer or insurer’s adjuster from timely conducting an inspection of any part of the insured property for which there is a claim for loss or damage. The public adjuster representing the insured may be present for the insurer’s inspection, but if the unavailability of the public adjuster otherwise delays the insurer’s timely inspection of the property, the public adjuster or the insured must allow the insurer to have access to the property without the participation or presence of the public adjuster or insured in order to facilitate the insurer’s prompt inspection of the loss or damage. (pg. 14)

- A licensed contractor under part I of chapter 489, or a subcontractor, may not adjust a claim on behalf of an insured unless licensed and compliant as a public adjuster under this chapter. However, the contractor may discuss or explain a bid for construction or repair of covered property with the residential property owner who has suffered loss or damage covered by a property insurance policy, or the insurer of such property, if the contractor is doing so for the usual and customary fees applicable to the work to be performed as stated in the contract between the contractor and the insured. (pg. 14)

**Note: The paragraphs above apply only to residential or condominium unit owner policies. The previous statutory language was changed to specify unit owners rather than condominium associations.

- A public adjuster contract relating to a property andcasualty claim must contain the full name, permanent business address, and license number of the public adjuster; the full name of the public adjusting firm; and the insured’s full name and street address, together with a brief description of the loss. The contract must state the percentage of compensation for the public adjuster’s services; the type of claim, including an emergency claim, nonemergency claim, or supplemental claim; the signatures of the public adjuster and all named insureds; and the signature date. If all of the named insureds signatures are not available, the public adjuster must submit an affidavit signed by the available named insureds attesting that they have authority to enter into the contract and settle all claim issues on behalf of the named insureds. An unaltered copy of the executed contract must be remitted to the insurer within 30 days after execution. (pg. 15)

- For any claim filed under any policy of Citizens, a public adjuster may not charge, agree to, or accept any compensation, payment, commission, fee, or other thing of value greater than 10% of the additional amount actually paid over the amount that was originally offered by the corporation for any one claim. (pg. 30)

Statute of Limitations 

s. 95.11(2) has been amended specifically as to property insurance contracts. In an action for breach of a property insurance contract, the 5 year limitations period now begins to run from the date of loss. Previously, the period began running from the date of denial of the claim. It is extremely important to recalculate each case to be sure the limitations period does not run before a suit can be filed. (pg. 4)

Claims Handling

- A claim, supplemental claim, or reopened claim under an insurance policy that provides property insurance, as defined in s. 624.604, for loss or damage caused by the peril of windstorm or hurricane is barred unless notice of the claim, supplemental claim, or reopened claim was given to the insurer in accordance with the terms of the policy within 3 years after the hurricane first made landfall or the windstorm caused the covered damage. For purposes of this section, the term - supplemental claim or ―reopened claim means any additional claim for recovery from the insurer for losses from the same hurricane or windstorm which the insurer has previously adjusted pursuant to the initial claim. This section has an effective date of June 1, 2011. (pg. 15)

- In the event of a loss for which a dwelling is insured for replacement costs: the insurer must initially pay at least the actual cash value of the insured loss, less any applicable deductible. The insurer shall pay any remaining amounts necessary to perform such repairs as work is performed and expenses are incurred. If a total loss of a dwelling occurs, the insurer shall pay the replacement cost coverage without reservation or holdback of any depreciation in value, pursuant to s. 627.702. (pg. 55)

- In the event of a loss for which personal property is insured for replacement costs: the insurer must offer coverage under which the insurer is obligated to pay the replacement cost without reservation or holdback for any depreciation in value, whether or not the insured replaces the property. (pg. 56)

- The insurer may also offer coverage under which the insurer may limit the initial payment to the actual cash value of the personal property to be replaced, require the insured to provide receipts for the purchase of the property financed by the initial payment, use such receipts to make the next payment requested by the insured for the replacement of insured property, and continue this process until the insured remits all receipts up to the policy limits for replacement costs. The insurer must provide clear notice of this process before the policy is bound. A policyholder must be provided an actuarially reasonable premium credit or discount for this coverage. The insurer may not require the policyholder to advance payment for the replaced property. (pg. 56)

Sinkhole Laws

- CPIC must provide that new or renewal policies issued by the corporation on or after January 1, 2012, which cover sinkhole loss do not include coverage for any loss to appurtenant structures, driveways, sidewalks, decks, or patios that are directly or indirectly caused by sinkhole activity. The corporation shall exclude such coverage using a notice of coverage change, which may be included with the policy renewal, and not by issuance of a notice of nonrenewal of the excluded coverage upon renewal of the current policy. (pg. 45)

- The insurer may require an inspection of the property before issuance of sinkhole loss coverage. (pg. 58)

- The insurer may restrict catastrophic ground cover collapse and sinkhole loss coverage to the principal building, as defined in the applicable policy. (pg. 58)

Changes to Definitions:

- Neutral evaluator is defined as a professional engineer or a professional geologist who has completed a course of study in alternative dispute resolution designed or approved by the department for use in the neutral evaluation proves and who is determined by the department to be fair and impartial. (pg. 59)

- Sinkhole activity means settlement or systematic weakening of the earth supporting the covered building only if the settlement or systematic weakening results from contemporaneous movement or raveling of soils, sediments, or rock materials into subterranean voids created by the effect of water on a limestone or similar rock formation. (pg. 59)

- Professional engineer means a person, as defined in s. 471.005, who has a bachelor’s degree or higher in engineering. A professional engineer must also have experience and expertise in the identification of sinkhole activity as well as other potential causes of structural damage. (pgs. 59-60)

- Professional geologist means a person, as defined in s. 492.102, who has a bachelor’s degree or higher in geology or related earth science and expertise in the identification of 3093 sinkhole activity as well as other potential geologic causes of structural damage. (pg. 60)

- Structural damage means that a building has experienced the following:

1.      Interior floor displacement or deflection in excess of acceptable variances as defined in ACI 117-90 or the Florida Building Code, which results in settlement related damage to the interior such that the interior building structure or members become unfit for service or represents a safety hazard as defined within the Florida Building Code;

2.      Foundation displacement or deflection in excess of acceptable variances as defined in ACI 318-95 or the Florida Building Code, which results in settlement related damage to the primary structural members or primary structural systems that prevents those members or systems from supporting the loads and forces they were designed to support to the extent that stresses in those primary structural members or primary structural systems exceeds one and one-third the nominal strength allowed under the Florida Building Code for new buildings of similar structure, purpose, or location;

3.       Damage that results in listing, leaning, or buckling of the exterior load bearing walls or other vertical primary structural members to such an extent that a plumb line passing through the center of gravity does not fall inside the middle one-third of the base as defined within the Florida Building Code;

4.      Damage that results in the building, or any portion of the building containing primary structural members or primary structural systems, being significantly likely to imminently collapse because of the movement or instability of the ground within the influence zone of the supporting ground within the sheer plane necessary for the purpose of supporting such building as defined within the Florida Building Code; or

5.      Damage occurring on or after October 15, 2005, that qualifies as ―substantial structural damage as defined in the Florida Building Code.

(d) Primary structural member means a structural element designed to provide support and stability for the vertical or lateral loads of the overall structure.

(e) Primary structural system means an assemblage of primary structural members.  (pg. 60)

- Any claim, including, but not limited to, initial, supplemental, and reopened claims under an insurance policy that provides sinkhole coverage is barred unless notice of the claim was given to the insurer in accordance with the terms of the policy within 2 years after the policyholder knew or reasonably should have known about the sinkhole loss. (pg. 61).

Policyholder demand for testing:

- The policyholder’s demand for testing must be communicated to the insurer in writing within 60 days after the policyholder’s receipt of the insurer’s denial of the claim.

- The policyholder shall pay 50 percent of the actual costs of the analyses and services provided under ss. 627.7072 and 627.7073 or $2,500, whichever is less.

- The insurer shall reimburse the policyholder for the costs if the insurer’s engineer or geologist provides written certification pursuant to s. 627.7073 that there is sinkhole loss. (pg. 63)

Repairs

- If a covered building suffers a sinkhole loss or a catastrophic ground cover collapse, the insured must repair such damage or loss in accordance with the insurer’s professional engineer’s recommended repairs. However, if the insurer’s professional engineer determines that the repair cannot be completed within policy limits, the insurer must pay to complete the repairs recommended by the insurer’s professional engineer or tender the policy limits to the policyholder. (pg. 63)

- In order to prevent additional damage to the building or structure, the policyholder must enter into a contract for the performance of building stabilization and foundation repairs within 90 days after the insurance company confirms coverage for the sinkhole loss and notifies the policyholder of such confirmation. This time period is tolled if either party invokes the neutral evaluation process, and begins again 10 days after the conclusion of the neutral evaluation process. (pg. 63)

- The stabilization and all other repairs to the structure and contents must be completed within 12 months after entering into the contract for repairs described in paragraph (b) unless:

1. There is a mutual agreement between the insurer and the policyholder;

2. The claim is involved with the neutral evaluation process;

3. The claim is in litigation; or

4. The claim is under appraisal or mediation.

Upon the insurer’s obtaining the written approval any lienholder, the insurer may make payment directly to the persons selected by the policyholder to perform the land and building stabilization and foundation repairs. The decision by the insurer to make payment to such persons does not hold the insurer liable for the work performed. The policyholder may not accept a rebate from any person performing the repairs specified in this section. If a policyholder does receive a rebate, coverage is void and the policyholder must refund the amount of the rebate to the insurer. Any person making the repairs specified in this section who offers a rebate commits insurance fraud punishable as a third degree felony as provided in s. 775.082, s. 775.083, or s. 775.084. (pg. 64)

As a precondition to accepting payment for a sinkhole loss, the policyholder must file a copy of any sinkhole report regarding the insured property which was prepared on behalf or at the request of the policyholder. The policyholder shall bear the cost of filing and recording the sinkhole report. The recording of the report does not:

1.      Constitute a lien, encumbrance, or restriction on the title to the real property or constitute a defect in the title to the real property;

2.      Create any cause of action or liability against any grantor of the real property for breach of any warranty of good title or warranty against encumbrances; or

3.      Create any cause of action or liability against a title insurer that insures the title to the real property (pgs. 66-67)

Neutral Evaluation:

- Neutral evaluation is available to either party if a sinkhole report has been issued pursuant to s. 627.7073. At a minimum, neutral evaluation must determine:

(a) Causation;

(b) All methods of stabilization and repair both above and below ground;

(c) The costs for stabilization and all repairs; and

(d) Information necessary to carry out subsection (12). (pg. 68)

- Neutral evaluation supersedes the alternative dispute resolution process under s. 627.7015, but does not invalidate the appraisal clause of the insurance policy. (pg. 68)

- The neutral evaluator must be allowed reasonable access to the interior and exterior of insured structures to be evaluated or for which a claim has been made. Any reports initiated by the policyholder, or an agent of the policyholder, confirming a sinkhole loss or disputing another sinkhole report regarding insured structures must be provided to the neutral evaluator before the evaluator’s physical inspection of the insured property. (pg. 68)

- The department shall allow the parties to submit requests to disqualify evaluators on the list for cause. The department shall disqualify neutral evaluators for cause based only on any of the following grounds:

1. A familial relationship exists between the neutral evaluator and either party or a representative of either party within the third degree.

2. The proposed neutral evaluator has, in a professional capacity, previously represented either party or a representative of either party, in the same or a substantially related matter.

3. The proposed neutral evaluator has, in a professional capacity, represented another person in the same or a substantially related matter and that person’s interests are materially adverse to the interests of the parties. The term “substantially related matter” means participation by the neutral evaluator on the same claim, property, or adjacent property.

4. The proposed neutral evaluator has, within the preceding 5 years, worked as an employer or employee of any party to the case.

- The parties shall appoint a neutral evaluator from the department list and promptly inform the department. If the parties cannot agree to a neutral evaluator within 14 business days, the department shall appoint a neutral evaluator from the list of certified neutral evaluators. The department shall allow each party to disqualify two neutral evaluators without cause. Upon selection or appointment, the department shall promptly refer the request to the neutral evaluator. (pg. 69)

-Within 14 business days after the referral, the neutral evaluator shall notify the policyholder and the insurer of the date, time, and place of the neutral evaluation conference. The conference may be held by telephone, if feasible and desirable. The neutral evaluator shall make reasonable efforts to hold the conference within 90 days after the receipt of the request by the department. Failure of the neutral evaluator to hold the conference within 90 days does not invalidate either party’s right to neutral evaluation or to a neutral evaluation conference held outside this timeframe. (pg. 69)

- If, based upon his or her professional training and credentials, a neutral evaluator is qualified to determine only disputes relating to causation or method of repair, the department shall allow the neutral evaluator to enlist the assistance of another professional from the neutral evaluators list not previously stricken, who, based upon his or her professional training and credentials, is able to provide an opinion as to other disputed issues. A professional who would be disqualified for any reason listed in subsection (7) must be disqualified. The neutral evaluator may also use the services of professional engineers and professional geologists who are not certified as neutral evaluators, as well as licensed building contractors, in order to ensure that all items in dispute are addressed and the neutral evaluation can be completed. Any professional engineer, professional geologist, or licensed building contractor retained may be disqualified for any of the reasons listed in subsection (7). The neutral evaluator may request the entity that performed the investigation pursuant to s. 627.7072 perform such additional and reasonable testing as deemed necessary in the professional opinion of the neutral evaluator. (pg. 70)

- The evaluator’s report shall be sent to all parties in attendance at the neutral evaluation and to the department, within 14 days after completing the neutral evaluation conference. (pg. 70)

- Neutral evaluator’s written recommendation, oral testimony, and full report shall be admitted in any action, litigation, or proceeding relating to the claim. (pg 70)

- Neutral evaluators are deemed to be agents of the department and have immunity from suit as provided in s. 44.107. (pg. 71)

- The department shall adopt rules of procedure for the neutral evaluation process. (pg. 71)

- FIGA may not pay for attorney’s fees or public adjuster’s fees in connection with a sinkhole loss. (pg. 72)

Legal Analysis\

The following legislative finding regarding sinkholes is contained in SB 408/Chapter Law 2011-39 (p. 57-59):

The Legislature finds and declares:

(1) There is a compelling state interest in maintaining a viable and orderly private-sector market for property insurance in this state. The lack of a viable and orderly property market reduces the availability of property insurance coverage to state residents, increases the cost of property insurance, and increases the state’s reliance on a residual property insurance market and its potential for imposing assessments on policyholders throughout the state.

(2) In 2005, the Legislature revised ss. 627.706–627.7074, 2992 Florida Statutes, to adopt certain geological or technical terms; to increase reliance on objective, scientific testing requirements; and generally to reduce the number of sinkhole claims and related disputes arising under prior law. The Legislature determined that since the enactment of these statutory revisions, both private-sector insurers and Citizens Property Insurance Corporation have, nevertheless, continued to experience high claims frequency and severity for sinkhole insurance claims. In addition, many properties remain unrepaired even after loss payments, which reduces the local property tax base and adversely affects the real estate market. Therefore, the Legislature finds that losses associated with sinkhole claims adversely affect the public health, safety, and welfare of this state and its citizens.

(3) Pursuant to sections 22 through 27 of this act, technical or scientific definitions adopted in the 2005 legislation are clarified to implement and advance the Legislature’s intended reduction of sinkhole claims and disputes. Certain other revisions to ss. 627.706–627.7074, Florida Statutes, are enacted to advance legislative intent to rely on scientific or technical determinations relating to sinkholes and sinkhole claims, reduce the number and cost of disputes relating to sinkhole claims, and ensure that repairs are made commensurate with the scientific and technical determinations and insurance claims payments.

The Legislature included these “clarifications” in an attempt to make certain changes retroactive. [I]t is generally accepted that the statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.” Hassen v. State Farm Mut. Auto. Ins. Co., 674 So.2d 106, 108 (Fla. 1996) (citing Lumbermens Mut. Cas. Co. v. Ceballos, 440 So.2d 612, 613 (Fla. 3d DCA 1983)); see Esancy v. Hodges, 727 So.2d 308, 309 (Fla. 2d DCA 1999). Undoubtedly, insurers will claim that the sinkhole clarifications contained in SB 408 are merely procedural and can be applied retroactively.  In Menendez v. Progressive Express Insurance Co., 35 So.3d 873 (Fla. 2010), the supreme court outlined a two-part test to determine whether a statute that was enacted after the issuance of an insurance policy should have retroactive effect on claims arising out of that policy. First, a court must determine whether the legislature intended for the statute to apply retroactively. Second, if such an intent is clearly expressed, the court must determine whether the retroactive application would violate any constitutional principles. Id.at 877 (citing Metro. Dade Cnty. v. Chase Fed. Hous. Corp., 737 So.2d 494, 499 (Fla.1999)).  The Menendez court concluded that the Legislature intended for the statutory provision in that case to be applied retroactively but rejected the application:

In agreeing with the insureds that the statute cannot be applied retroactively, we conclude that the most problematic provisions of the statute are those which (1) impose a penalty, (2) implicate attorneys' fees, (3) grant an insurer additional time to pay benefits, and (4) delay the insured's right to institute a cause of action. We first note that this Court has generally held that statutes with provisions that impose additional penalties for noncompliance or limitations on the right to recover attorneys' fees do not apply retroactively. In Laforet, this Court held that section 627.727(10), Florida Statutes, which imposed a penalty on insurers who in bad faith failed to settle uninsured motorist claims, could not be applied retroactively “because it [was], in substance, a penalty.” Laforet, 658 So.2d at 61.

Menendez v. Progressive Exp. Ins. Co., Inc., 35 So.3d 873, 878 (Fla. 2010). A similar argument could be made regarding the sinkhole “clarifications” contained in SB 408.

Not only are surplus lines’ rates unchecked, the Florida legislature passed new laws last year that make most of the policy forms and coverages offered by these carriers not subject to regulations and consumer protections that are required of Florida's admitted insurance carriers. Many observers of Florida's insurance market may wonder why Florida legislators would give such a competitive advantage to non-admitted foreign carriers. I wonder why smaller insurers would not opt to operate as a non-admitted surplus line insurers when doing business in Florida?

Not all of Florida's legislative leaders appreciate Governor Scott's view of Citizens:

"He's clueless. The governor is clueless as to what is happening throughout the state, and the burden on homeowners and condominium owners and business owners," said Sen. Mike Fasano, a New Port Richey Republican who opposes most of the insurance legislation offered by the industry this year.

Rep. Jim Boyd, the insurance agent who filed the Citizens insurance bill largely written by the industry, said he did not share the governor's objective.

"Our goal is simply to return Citizens to the market of last resort," said Boyd, R-Bradenton. "I think there's always going to be a need for it, some property that can't be written by the private market." (emphasis added)

Making Citizens Insurance an insurer of last resort has some merit. For numerous valid reasons, many think that government should not compete with private markets except as a last resort. How to accomplish this certainly invites debate.

I imagine those working for Citizens may not have a feeling of job security given Governor Scott's views.

The "Clueless" comment by Senator Fasano sums up many of our elected leaders’ understanding of insurance law and policy. Some of the insurance laws that have been proposed will benefit only the financially strong insurance lobby. The lobby’s audience does not have the advantage of lengthy study of the industry or understand reasons why previous laws and regulations were made in the first place. The current Florida legislature has proposed laws that reverse decades of prior insurance law and regulations which were made to address valid needs and to protect consumers from companies that, time and again, proved they will not fulfill their ends of insurance contracts. For some reason, these purposes are not fully discussed by recent legislative staff reports and certainly not raised by insurance industry lobbyists.

As sad as it may be, when it comes to deep thought about the purpose and impact of insurance law, some of the rhetoric and thought found in the trailer to the comedy "Clueless" is far too similar to the thinking in Tallahassee:
 

Florida Senator Gwen Margolis from Miami stated, "I have never seen anything in the Florida Legislature that is as anti-consumer as this." Julie Patel, of the Sun-Sentinel, reported on the bill's passage in Sweeping Property Insurance Package Headed to Full Senate. She noted the apparent lack of gravity and of concern for consumer interests by Florida Senators in their actions on this bill:

Changing the name of state-backed Citizens Property Insurance to Taxpayer Funded Property Insurance. Lawmakers need to have to some fun, said Sen. J.D. Alexander, R-Lake Wales, before proposing the change. Legislators said provisions of the bill are needed in part to help shrink Citizens' costs because nearly all Floridians are on the hook to pay fees if Citizens has major deficits after hurricanes.

I was happy to read in Patel’s article that House Representative Matt Gaetz took a leadership position and stood up to the insurance industry in this debate:

The committee rejected Richter's proposed change to make Citizens exempt from a so-called bad faith law that effectively allows policyholders who win lawsuits against the insurer to collect attorneys' fees instead of subtracting the money from the claims payouts. Critics say Citizens delays or lowballs claims at times and should be subject to the same laws that hold private insurers accountable for good customer service.

"If it were proven that because of poor management or [arrogance] that Citizens had acted in a number of occasions in bad faith, I think it would affect your job because we'd look" to find other managers, said Matt Gaetz, R-Fort Walton Beach. "Why do you think the government should treat people worse than private companies?"

It should be noted that Matt Gaetz and his father, Florida Senator Don Gaetz, are from the Florida panhandle and understand the problems caused by slow paying, delaying, and denying insurance companies following Hurricnae Ivan. As I noted in Policyholder Advocate Matt Gaetz Picks Up Endorsement From Jeb Bush, Senator Don Gaetz previously proposed the following pro-policyholder insurance legislation:

1. SB 964 - Insurer has a fiduciary duty to treat those it insures in good faith
2. SB 960 - Civil Remedy against Citizens Property Insurance Corporation
3. SB 962 - Requiring insurance companies to adopt and implement standards to follow when adjusting claims to reach a proper settlement

In the same post, I noted an alarming and accurate reflection by a Citizens Insurance Company spokesperson regarding the motive of many private insurance companies to delay, deny and not pay claims:

Citizens Spokeswoman Christine Ashburn told legislators the insurer isn't pressured to produce profits or dividends like private insures so it has no incentive to deny claims unfairly. "Whether or not we pay claims doesn’t change my salary or my president's salary," she said.

The implication is that private insurers have such a motive. In a post, Is Claims Management Only Concerned About Overpaying Claims?, I commented on this motive and outcome-oriented mindset of many private insurance companies:

Nowhere in the article is there any mention of a problem caused by adjusters underpaying their customers' claims. I first came across the term "leakage" in a McKinsey and Company analysis of the USAA claims organization done in the late 1980's. The analysis focused on various changes which needed to be made so that USAA could recover "opportunities" caused by "leakage" in the claims handling process. Again, the study never discussed any problem with adjusters cheating customers by underpaying claims. In all the management metrics that I have ever read, I have never seen one where a claims manager received a bonus because the unit or group he supervised had the lower "underpayments" to customers.

Instead, claims management is for reducing claims severity or lowering the loss ratio to premiums. Indeed, has anybody seen an industry article questioning that the claims industry should be concerned about underpaying claims? The entire culture seems to be about driving down claims payments rather than getting the payment right. I am not picking only on State Farm. Most major insurance carriers have some form of re-inspection. The former re-inspector explained it to me in his videotape.

Typically, he would go out with less experienced adjusters or adjusters whose "severity payments" (the average amount paid on claims) was above levels acceptable to management. He would critique the claims handler's activities to show where claims payments could have been reduced so that new adjusters would learn and the higher paying adjusters would be brought back in line with the group. I asked him if State Farm ever returned money to a policyholder where he found a mistake that resulted in an underpayment.

He responded:

"Chip, you don't get it. My job was not to make certain that the payments were right. My job was to make certain that the problem of overpayments was stopped."

Hopefully, the anti-consumer parts of the Senate bill will be removed so that longstanding consumer protections will continue, or even be strengthened. There is an obvious need for the strongest insurance consumer protections mandated in law, as demonstrated from actual experience and from statements by those in the insurance industry.

A controversial bill that would eliminate a state tool designed to keep property insurance rates in check was written for lawmakers by the insurance industry, the Herald-Tribune has learned.

 The bill includes a number of provisions argued for by private insurers to stop Citizens Property Insurance, the state-run carrier, from competing with them for business. It aims to keep Florida homeowners from flocking to Citizens and would force them to buy policies in the private market even when rates are higher and the carriers less stable. 

Authors of the draft bill initially told the Herald-Tribune the legislation introduced by Rep. Jim Boyd, a Bradenton insurance agent, and Sen. Alan Hays, an influential member of the Senate insurance committee, is nearly identical to what was drawn up in private by industry lobbyists. 

The insurance industry is very well organized and financed, and insurance lawyers play a prominent role in drafting such legislation for the insurance industry. A memo we recently obtained establishes this fact. It was addressed to Sam Miller, of the Florida Insurance Council, and contains American Strategic Insurance General Counsel’s proposed sinkhole legislation: 

Section 4. Sinkhole Tail Claim 

(1) Essential elements of a sinkhole tail claim are: 

            a.         “Structural Damage” to the insured property; and

            b.         Evidence that Structural Damage to the insured property was caused by covered “sinkhole activity”; and

c.         Proof the loss occurred during the policy or endorsement period. 

(2) A person may not report or file a sinkhole claim in the absence of a prima facie showing that the essential elements exist and are part of the proposed claim. The prima facie showing must include all of the following: 

a.         A clear and accurate sworn proof of loss establishing that the claim was a result of structural damage to the insured property;

b.         A clear and accurate sworn proof of loss identifying the components of the structure (i.e. foundation, walls, rafters, roof, etc.) damaged as a result of loss from the covered “sinkhole activity”;

c.         A clear and accurate sworn statement by the insured attesting to the date the damage that is the subject of the proposed claim was discovered;

d.         A clear and accurate sworn statement by a professional engineer as defined in section 627.706(2)(d) certifying that the structural damage to the insured property occurred during the policy or endorsement period as a result of sinkhole activity. 

The point is that when the insurance industry is writing the bills that become law without change by those who are elected to represent the people, many start to wonder who the Representatives and Senators are representing. Insurance companies cannot vote. They do not live, eat or breathe. Yet, they can be more influential that a Legislator’s constituents; many people work for these legal entities and carry out legal activities, such a lobbying for laws that may harm the people our Legislators are supposed to represent.

The newly amended bill forces Citizens to cover sinkholes, but mandates that “the payment must be dedicated entirely to the costs of repairing of the structure or remediation of the land,” otherwise “the corporation is prohibited from making payments.” (emphasis added) Further, the bill prohibits Citizens from covering any newly permitted structure seaward of the coastal construction control line.

Of course, the bill also provides that:

The corporation shall implement a rate increase each year for each residential line of business it writes, which may not exceed 20 percent by territory and 25 percent for any single policy, excluding coverage changes and surcharges. This subparagraph expires January 1, 2015, and does not apply to rates for sinkhole coverage or costs for the purchase of private reinsurance, if any. (emphasis added)

Regarding public adjusters,

[P]olicyholders may not engage the services of a public adjuster to represent the policyholder with respect to any claim filed under a policy issued by the corporation until after the corporation has tendered an offer with respect to such claim. For any claim filed under any policy of the corporation, a public adjuster may not request payment or be paid, on a contingency basis or based in any way, directly or indirectly, on a percentage of the claim amount, and may be paid only a reasonable hourly fee based on the actual hours of work performed, subject to a maximum of 5 percent of the additional amount actually paid over the amount which was originally offered by the corporation for any one claim.

Everyone should also take a look at the deletion of lines 46-81. These were the findings of the Legislature a few years ago; it is very interesting to see that we have come full circle since then and that the legislature sees fit to depart from its position under now U.S. Senator Rubio and now CFO Jeff Atwater. As an ironic side note, those two men were the architects of the current insurance system that the Legislature is now dismantling.

Julie Patel provided the highlights of the proposed legislation in Hefty Rate Hikes Proposed for Citizens Insurance Policyholders:

Allow policyholders' premiums to rise by up to 25 percent, not including rates for sinkhole coverage or for private catastrophe backup coverage.

Prohibit policies for customers who find coverage from a private insurer that charges up to 25 percent more.

Require Citizens to drop policies covering homes that cost $500,000 or more to replace by 2016. The deadline would be a few years earlier for homes that cost $750,000 or more to rebuild.

Bar Citizens policyholders from hiring public insurance adjusters to represent them in claims disputes.

Require Citizens to consider outsourcing more of its work, similar to state-backed insurers in other states. The insurer would hire a consultant to make recommendations on the costs and benefits of outsourcing, have its board submit a plan to the Cabinet for approval, and start implementing the plan by 2013.

Some public adjusters may think this legislation will never have a chance of passing. I suggest they read Vote held by Sawgrass Mutual: Policyholders elect to bar themselves from using public insurance adjusters, but were they informed? and get in touch with the hardworking and dedicated leadership of the Florida Association of Public Insurance Adjusters to see what they can do to better inform their legislators.

The financial statistics, if accurate, show the reason for my pessimism. Despite my belief that much of the report is propaganda without policyholder input, the statistics demonstrate that something has to be done because insuring this peril because it is not financially sustainable. For example, for Citizens Property Insurance Corporation during the years 2005 through 2009, the sinkhole peril had a premium earned of approximately $211 million. The reported indemnity paid for that period was approximately $442 million. That is a huge loss for a peril that happens on a repetitive basis.

The results are a little skewed because the Florida legislature, wrongly in my opinion and as demonstrated by the statistics, allowed Floridians to opt out of sinkhole coverage or purchase inferior coverage. There are fewer risks in the pool in the years the losses were incurred because many simply opted out. The population left is more prone to sinkhole loss and fewer premium dollars are earned before losses are incurred. Yet, this is trivial compared to the large underwriting loss for the sinkhole peril. If anybody else views the statistics in a light much more favorable to the policyholder, let me know because that is extraordinarily important.

One solution may be to require Citizens Property Insurance Corporation to write the sinkhole peril to an actuarially sound sinkhole rate—so it would have a chance to break even. This one change may allow other private insurers to compete with Citizens, if they desire, without having to worry about doing away with the rate regulation laws or other changes. There will be a huge uproar because the rates will go up a lot---but that might be a fair scenario for the risky population Citizens is forced to write because our regulators have allowed private insurers a form of geographic sinkhole redlining for the last decade. Citizens Property Insurance Corporation has the worst sinkhole prone structures because Florida allowed private insurers to leave those geographic markets.

The report explains that Citizens’ sinkhole operating loss will continue unless Florida law changes and that the losses are caused by Citizens having more policies in the worst sinkhole prone areas:

The actual premium that Citizens charges its policyholders, however, is only a small part of Citizens’ actual sinkhole costs. This deficiency in premiums is worsening because Florida law prohibits Citizens from increasing the rate of any policyholder by more than approximately 10 percent, even as losses continue to rise at a much faster pace. Thus, Citizens’ already deficient sinkhole premiums will fall even further behind its sinkhole losses. As a result, Citizens’ surplus continues to be eroded by the deficiency in sinkhole premiums. The deficiency in Citizens’ sinkhole premiums can be seen graphically on the following pages. Each of the four graphs displays the difference between the average pure premium (average loss per policyholder) for a defined geographic region and the actual premium that Citizens is allowed to collect in that region.

David Beasley, President of the Florida Association of Public Insurance Adjusters, also indicated the interim report was not hopeful or helpful to Florida's policyholders in Adjusters: Legislative Proposals on Sinkhole Insurance Harm Homeowners:

Proposed legislative changes in sinkhole insurance regulations would undermine consumers and unfairly benefit the industry, an adjusters' group charged Tuesday.

"While the recommendations for changes in the Florida Building Code have merit, the report as a whole lends great weight to insurance company interests at the expense of Florida homeowners," said David Beasley, president of the Florida Association of Public Insurance Adjusters.

Beasley said the call for a single-peril repair program includes "onerous conditions" that would force consumers who dispute a claim to do so with no representation by public adjusters or attorneys sworn to protect their interests.

"Further, the concept that insured consumers must put all claim payments toward repairs flies in the face of established precedent, and would require many homeowners to remain in homes that even after repairs would have drastically lower property values," Beasley contended.

"This new requirement, not found with water, fire or windstorm losses, would have a drastic impact on individual property rights," Beasley said of the staff recommendations by the Senate Committee on Banking and Insurance.

Beasley said the staff report "appears to be based heavily on unproven allegations by some insurers that the increase in sinkhole claims is somehow fraudulent."

But a November report by the Office of Insurance Regulation actually found a drastic decrease in claims reported for investigation, and the staff report acknowledged that neutral evaluators confirmed sinkhole losses in a majority of completed cases.

"It is our hope that the Florida Legislature puts consumer interests first when considering any future changes in sinkhole coverage. Putting the interests of insurance companies ahead of those of the Florida residents they are supposed to protect is unconscionable," Beasley said. (emphasis added)

In State Panel Makes Sinkhole Recommendations, the Miami Herald listed a good summary of the recommendations:

Among the committee's proposals for lawmakers to consider this spring:

• Create a state-run sinkhole repair program. Instead of homeowners getting checks based on their insurance claims, their houses would be fixed. Insurance companies have said many homeowners who file sinkhole claims do not use the money to fix their houses.

• Define what kind of damage sinkholes could cause. Most of the claims homeowners have filed aren't because a house was swallowed up by collapsing ground but for cracks in walls and other damage that is difficult to link directly to a sinkhole. The report also suggests limiting coverage to homes, leaving driveways, pools, decks and other structures without coverage.

• Require sinkhole claims to be filed within two or three years after damage surfaces.

• Allow insurance companies to not renew policies with sinkhole coverage or after paying a sinkhole claim.

• Revise the Florida Building Code to require soil testing and foundation construction that would reduce sinkhole-related damage to buildings.

• Cap fees for public adjusters who work with homeowners on insurance claims and make it an unfair and deceptive trade practice if public adjusters make misleading statements.

Many of these proposals are not new. Most of them were noted two years ago in Late Reported Claims, Public Adjuster Fee Caps, And Sinkhole Coverage, where I noted that legislation proposed the following:

1. Place a two year limitation to report a claim.
2. Cap public adjuster fees to 10% of paid amounts.
3. Eliminate mandated sinkhole coverage.

This is the same scenario today. Change is going to have to happen because the loss ratio cannot be sustained if Citizens Property Insurance Corporation or any entity is to keep most sinkhole prone policies. The insurance industry may be entitled to higher rates for this peril. My impression is that something has to give. The question is how draconian will the change be.

As I indicated in that two year old blog post, if you are a concerned person there is a suggested course of action:

The lesson is that people do make a difference in government. The system works best when people, and I mean folks, show up, write a letter, write an email, or send in a video. Even one person can make a point which can stop the "bad guys" from their agenda. I witnessed it first hand with this Task Force. Anybody who thinks that one person cannot make a difference is far too pessimistic about our democracy. The last thing the "sneaky bad guys" want is for their customers to participate in a process to show how very bad they are.

Members of our law firm will do what we can for policyholders. We will encourage and organize others to help our leaders be educated fairly about these important insurance issues. I suggest those interested in the sinkhole and other insurance related issues likely to be raised in the Florida legislature contact Sean Shaw in our Tampa office at 813-229-1000 or sshaw@merlinlawgroup.com.

The trend is becoming the norm and is creating a litigation mess to follow an adjustment mess:

...Maytin filed suit for breach of contract against Citizens, he moved to compel appraisal. Citizens answered the complaint and asserted that Maytin failed to comply with post-loss conditions and prevented Citizens from fully inspecting his property, thereby, precluding the invocation of the appraisal clause under the insurance policy.

On the authority of Citizens Property Insurance Corp. v. Galeria Villas Condominium Association, No. 3D10-807 (Fla. 3d DCA Nov. 24, 2010), we reverse the trial court’s grant of the motion to compel appraisal and remand for an evidentiary hearing to determine if Maytin complied with the post-loss conditions under the policy... see also Sunshine State Ins. Co. v. Corridori, 34 So. 3d 129, 131 (Fla. 4th DCA 2010) (“[W]here the ‘insured cooperates to some degree or provides an explanation for its noncompliance, a fact question is presented’ regarding the necessity or sufficiency of compliance . . . . Whether appellees’ compliance with the policy terms was necessary or sufficient is a dispute of fact.”)... (emphasis added)

What are two scenarios? One is where insurance companies claim that public adjusters are demanding appraisal before adjustment is complete or any negotiations take place attempting to resolve or adjust the amount of the loss. Many claims executives tell me that their first notice of a problem or disagreement is a demand for appraisal made by a public adjuster or the policyholder naming "an appraiser" who is acting like a public adjuster. This, in part, has lead some insurers to remove the appraisal provision from the property insurance policy.

The other scenario, which is becoming the darling fee generation mechanism for many insurance defense attorneys, is to conduct never ending investigations and multiple examinations under oath. Eventually, after months of delayed interrogation and investigation, the policyholder files suit and demands appraisal. QBE Insurance Company has done this. And now, it seems, so is Citizens Property Insurance Corporation--but with arrogance and impunity.  Somebody in Florida's government needs to conduct a new claims audit of Citizens.

The rule of law works well with the former scenario because public adjusters should adjust the loss. Good public adjusters rarely let a matter go to appraisal or litigation without significant attempts at resolution because they lose control of the loss and cause delay in recovery for their client. While this will never work if the insurer will not engage in good faith negotiation and review of past positions, I appreciate a reputable insurance company's position that there should be good faith adjustment of a loss before parties seek alternative methods of resolution.

The latter scenario is becoming much more commonplace. Some insurance companies treat their customers horribly, with slow and delayed investigation, because the companies lack a sufficient number of motivated adjusters and investigators who determine losses in good faith. Requests for tens of thousands of documents are made, along with multiple examinations. The attorneys for some of these companies wrongly take months to review documents and make follow up requests for information. It is disgusting treatment  if one were to use the "golden rule" as a gauge for fairness.

Since the rule indicates that appraisal can be stalled, the new tactic in the last scenario is to never stop asking for more information and investigation. One new bit of information leads to more requests and questions. The insurer takes the position that the matter is not ripe for appraisal because of an alleged "dispute of fact." They always claim that the insured failed to comply with all conditions precedent.

Appraisal as an alternative dispute resolution procedure is not required in many states. Some states regulate the appraisal procedure. Many states have far stricter standards for the time frames and scope of insurer investigation. Many can expect that these issues will be addressed in regulation or statute in Florida during the next several months. There are claims practice problems concerning appraisal and claim investigation which need to be resolved no matter which side of the fence you may find yourself in this debate.

Newly-elected State Representative Frank Artiles, a public adjuster, appraiser and umpire by trade, held a teleconference on November 22, 2010, with the goal of introducing himself to Florida insurance industry representatives and other interested parties and discussing their concerns, such as fraud and other issues impacting the property and casualty market.

Joined by Paul Handerhan, president of a new insurance advocacy group (founded by Representative Artiles) called "Florida Association for Insurance Reform," Representative Artiles explained that, through various working groups he has facilitated, he has learned there are ways to compromise on the issues, while advocating for consumers.

"I didn't come to Tallahassee to represent public adjusters," he emphasized several times, "I came to represent my district."

After discussing his background at length, Representative Artiles touched on general Florida insurance issues, such as Citizens Property Insurance Corporation ("Citizens"), which he said puts private insurance companies at a competitive disadvantage, principally because it is immune from bad faith claims.

"I want to protect insurance companies to make sure they do make a profit, because at the end of the day, I am a Republican," he added.

Representative Artiles also said he wants to "stamp out fraud," because of its negative impact on the State, as well as on insurance policyholders.

The meeting participants quickly prompted a discussion on claims-related issues and public adjuster fraud. The subject of insurance-related Special Investigative Unit ("SIU") personnel also was touched upon.

"There are good public adjusters and bad SIU people," Representative Artiles said.

In regard to ongoing Hurricane Wilma fraud, Representative Artiles said that there is no reason insurance carriers should be getting newly reported losses from several years ago, when claimaints have had ample time and opportunity to do so earlier.

Arson, he said, is also an issue in certain parts of Florida because of the economic situation. "When someone buys a house in the foreclosure process for $40,000 and insures it for $250,000, the policy alone motivates them to burn down the house," he explained. "We are also limited by the Valued Policy Law."

Further, because of the way Florida's laws are written, he continued, many claims are not technically classified as fraud.

...

On the subject of public adjusters, he referenced Florida's requirement that each public adjuster must carry errors and omissions insurance and said that, since this mandate, nearly 1,000 public adjusters have vacated the field.

Together with Mr. Handerhan, Representative Artiles discussed the licensing of appraisers and umpires. Apparently, many of those who currently hold appraisal and umpire licenses, or "consider themselves appraisers" have been convicted of Medicare fraud and "been literally unlicensed in every aspect."

Representative Artiles alluded that SIU investigators should be licensed as stringently as public adjusters and appraisers. It was pointed out that many of these independent people are not even trained as thoroughly as their counterparts at private corporations.

He added that, in the context of a claim, the SIU representative doesn't make an ultimate decision, but has a significant impact on the process.

One meeting participant said that public adjusters canvassing neighborhoods present a danger to policyholders, who have no screening process to determine their qualifications.

Another meeting participant said he would like to see licensing standards for SIU personnel that are comparable to those applicable to public adjusters and appraisers. The large disparity in requirements sends mixed signals, he explained.

...

"Citizens is literally eating its cake and hurting the entire industry," Representative Artiles said.

...

Representative Artiles remarked that many cases of fraud don't involve public adjusters, adding that a change in Florida's replacement cost value ("RCV") statute has "turned the claims industry on its ear." He explained that, because Florida is the only state that requires insurers to pay RCV up front, the law is anti-consumer, since the costs of these payments are passed along in higher premiums.

He went on to say that Florida should adopt an "Arizona-style" law that would mandate a comprehensive inspection prior to selling a home. The information would be kept in a database and, according to Representative Artiles, would provide a long-term savings for insurers that have access to this type of information. It also would help takeout companies, he said, which he described as "flying blind" from the outset of assuming a policy.

...

 He also remarked that many general contractors are out of work and would welcome the opportunity to be employed as public adjusters.

Candidate Frank Artiles wrote a guest post on this blog, Everyone Must Participate In The Political Process. There he was quite emphatic about the number one problem regarding insurance:

Over the last few years, many voters have not been provided the truth regarding the insurance industry agenda of higher insurance rates and less regulation. This agenda fosters the biggest problem with insurance-- insurance companies that are denying, delaying and not paying claims.

Time will tell what laws Frank Artiles will support on that agenda. Privately, I will do what I can to explain fully the various issues Frank Artiles raised in the teleconference.

I absolutely disagree that the current Replacement Cost law is anti-consumer. It makes insurance companies pay for what they sell: replacement cost insurance. Most consumers will never believe that  allowing insurance companies to sell Replacement Cost Insurance and not requiring that replacement costs be paid is a pro-consumer law because it is not. Such a change in the law promotes deceptive advertising and avoids the legal problems noted in Prevention of Performance with Replacement Cost Value:

…the 11th Circuit Court of Appeals did not agree that the doctrine of prevention of performance should be applied to replacement cost value provisions in insurance contracts when an insurer fails to pay at least actual cash value. The 11th Circuit recognized that it would have been costly, inconvenient, and most certainly a hardship for the association to pay for millions of dollars in repairs without the assistance of insurance benefits, but held that the hardship would not excuse the contractual requirement to actually repair the property before replacement cost value damages could be awarded. The appeals court reversed the trial court’s award for replacement cost value, but affirmed the trial court’s award for actual cash value damages, finding that they had been sufficiently proven.

This decision leaves many unanswered questions for policyholders. For starters, where is one who suffers a large loss supposed to get money to make repairs in order to get replacement cost value? Other issues are equally unsettling in the case, including the supposed election of remedies between ACV and RCV when making an insurance claim that the 11th Circuit discusses.

The flaw in the type of law Representative Frank Artiles now proposes was explained in QBE Insurance Case Rewrites Replacement Cost Adjustment, where I said:

The practical impact of such legal reasoning is that insurers, absent consumer protection statutes requiring payment of replacement costs, can now underpay losses and get away with it.

The existing law protects Representative Artiles' constituents; the law he proposes would essentially allow insurance companies to delay paying or even fleece the difference between replacement cost and actual cash value from policyholders who are at a financial disadvantage when it is time to rebuild or repair after a loss. 

Given that Representative Artiles stated that the number one insurance problem was delayed and denied claims, I cannot imagine why he would support changes to insurance laws that encourage this wrongful behavior.

Yesterday’s post, Texas Voters Favor Homeowners Insurance Reform, by Sergio Leal, clearly indicates that people are afraid of not having full and prompt benefits paid after they have a loss. Two major points struck a cord:

1. 77% of those polled felt that consumers should be given stronger legal remedies and enhanced damages and sanctions if insurance companies unfairly deny, delay, or underpay legitimate claims.
2. 85% of those polled thought that insurance companies should be required to offer a few standard policies written in plain language that would be consistent across the industry.

These two points are related. Policies need to be written to cover losses. The trend has been towards less coverage through small but significant changes in the wording of property insurance policies. This needs to stop because it is not helpful to have prompt and full payment of benefits from an illusory policy that covers very little.

People and businesses are in fear after a loss. The insurance company is often in total control and determines the destiny of policyholders after a loss. A claims culture that is truly as prompt as possible with an attitude of payment and looking for ways to provide the benefits contemplated under the contract is no longer the norm in the industry. I noted that even a major insurer agrees with this proposition in Chubb Calls Competitors Cheap And Unfair.

I predict that the Florida legislature is going to tackle various issues of insurance claim dispute through appraisal. I noted in yesterday's blog that newly elected House Representative Frank Artiles and I share different views on appraisal. Frank has indicated that he will sponsor legislation calling for the licensure of appraisers and umpires. As far as I know Florida would be the only state in the union with such requirements.

The insurance industry is upset that many public adjusters can appoint themselves as appraisers or have appraisers retained on a contingent basis. They also claim that many appraisals are requested without much, if any, adjustment.

Florida seems unique to a system that allows an appraiser to obtain a percentage of the recovery because most Courts in other jurisdictions find that having a percentage interest in the award will make the appraiser biased or interested in the amount rather than coming to an honest conclusion.

Either through regulation or legislation, public adjuster advertising and solicitation will surely be raised. The "investigation" by the Office of Insurance Regulation into sinkhole losses closely monitored cases involving public adjusters because the insurance industry has been adamant about seeking methods to prevent policyholders from engaging public adjusters after a loss. There is a goal by the insurance industry to obtain legislation or regulation thwarting the time, place and method of how public adjusters can solicit.

The Florida Office of Insurance Regulation may become the Office of Insurance Non-Regulation. Legislation along these lines failed last year only because Governor Crist vetoed the legislation. Newly elected Governor Rick Scott ran a non-regulated medical insurance company. He knows it is a lot easier to make money as an insurer if rates are not regulated and there are few consumer protections afforded after bills are submitted for payment. I wouldn't expect any insurance industry vetoes by this governor.

Citizens Property Insurance Corporation may come under attack. Its rates are too low for many private insurers to stomach. Its claims handling has taken a very strong turn for the worse over the past six months. My impression from discussions with those representing policyholders is that Citizens' senior claims officials seem to relish that Citizens has no accountability for courteous and fair treatment to its customers. Since Citizens claims it is not subject to laws requiring good faith, this conduct is not a surprise. I expect a number of the newly elected legislators to conduct public hearings on the recurrent complaints of claims handling by Citizens.

Finally, a number of these matters could be raised and voted on in the legislature with little debate. Special sessions are being planned as this is being written. Charlie Crist will soon be out of power and last year's proposed laws that were vetoed may escape full consideration by the newly elected.

The case involved a Hurricane Ivan claim under San Perdido’s windstorm insurance policy with Citizens. The policyholder filed an initial lawsuit, alleging that Citizens failed to fully pay for the loss sustained from the hurricane damages. After a favorable ruling, San Perdido filed the bad faith complaint. Citizens filed a motion to dismiss, arguing that the statute that created Citizens (Florida Statute §627.351(6)—Citizens’ enabling statute) gave it sovereign immunity from such lawsuits. In fact, the statute grants Citizens a limited immunity related to the performance of its duties. However, the statute provides that the immunity does not apply to a willful tort or for breach of contract pertaining to insurance coverage.

San Perdido alleged that Citizens engaged in a series of bad faith practices in handling its insurance claim and that it was both a breach of contract and a willful tort. In its denial of Citizens’ motion to dismiss the bad faith lawsuit, the trial court reasoned that San Perdido’s lawsuit was within the exceptions to Citizens’ statutory immunity. Citizens filed a Petition for Writ of Prohibition or Certiorari with the First District Court of Appeal, asking the appellate court to preclude any further proceedings in the trial court. The First District Court of Appeals ruled that it did not have jurisdiction since the denial of a motion to dismiss, even in cases where immunity is asserted, is not the type of ruling that ordinarily qualifies for certiorari review by an appellate court.

The First District Court of Appeals certified conflict with the recent decisions from the Fifth District Court of Appeals in Citizens v. Garfinkel, 25 So.3d 62 (Fla. 5th DCA 2009) and Citizens v. La Mer Condo. Assoc., 37 So. 3d 988 (Fla. 5th DCA 2010), both of which overruled the trial courts’ denial of motions to dismiss bad faith lawsuits against Citizens and granted writs of prohibition precluding any further litigation against Citizens for bad faith.

Citizens’ immunity from bad faith lawsuits has been a topic of discussion for some time, given the recent rulings by the Fifth District Court of Appeals in Garfinkel and La Mer. The difference between the Fifth and First Districts involves their application of different standards for whether there is irreparable harm, which is required for certiorari jurisdiction, by allowing the case to proceed through trial before considering the sovereign immunity claim. The First District may have to consider Citizens’ sovereign immunity claim from bad faith lawsuits, it will just decide the issue after the San Perdido case proceeds through trial and final judgment is entered. This is a procedural nuance, and it should be noted that there is a strong dissenting opinion within the case. The dissenting opinion states that allowing the lawsuit to proceed all the way to trial before deciding the issue of whether Citizens is immune from such lawsuits will cause irreparable injury to Citizens.

However, a dissenting opinion has no precedential value, although it can be persuasive. The majority in San Perdido certified a question to the Florida Supreme Court: “Whether review of the denial of a motion to dismiss based on a claim of sovereign immunity should await the entry of a final judgment in the trial court?”

We will keep you posted on the outcome of the case and will also follow the certified question for the Florida Supreme Court’s response. In the meantime, it is interesting to note the different approaches between the First and Fifth District Courts of Appeal.

The Florida Constitution provides:

Right of privacy.--Every natural person has the right to be let alone and free from governmental intrusion into the person's private life except as otherwise provided herein. This section shall not be construed to limit the public's right of access to public records and meetings as provided by law.  

I do not see any authorization within the Constitution for the government to require Floridians to waive these rights if they are insured by Citizens. Citizens has deemed itself part of the government for legal purposes, and Citizens executives and attorneys use that status to its advantage every chance they get. 

Depsite this Constitutional prohibition, the Florida Legislature passed the following law in 2008:

627.35193 Consumer reporting agency request for claims data from Citizens Property Insurance Corporation.

 

Upon the request of a consumer reporting agency, as defined by the federal Fair Credit Reporting Act, 15 U.S.C. ss. 1681 et seq., which consumer reporting agency is in compliance with the confidentiality requirements of such act, the Citizens Property Insurance Corporation shall electronically report claims data and histories to such consumer reporting agency which maintains a database of similar data for use in connection with the underwriting of insurance involving a consumer.

I am not a Florida constitutional law scholar, but I do not think the Florida Legislature can direct another government entity to violate Florida's Constitution. Its directive to release otherwise private information may be subject to legal action, depending on the information released.  Patel's article indicates that Citizens is releasing all kinds of otherwise private information: 

"Beginning September 20, 2010, Citizens will send data files containing claims and other basic policy information, including policy number, insured name, and property and mailing addresses, to credit reporting agencies...approved to receive this information," Citizens officials wrote in an email to insurance agents last month. "These CRAs usually have contracts with other insurance companies and will provide this recorded information as requested."

Many private insurers already provide detailed information about policyholders' claims for ISO's A-PLUS and LexisNexis' CLUE databases, which are used by insurers to rate the risk of a potential policyholder.

"Insurers feed information about paid claims - perhaps even your inquiries about coverage that do not result in a claim - into a national database for use by insurers," according to Privacy Rights Clearinghouse, a consumer privacy protection advocacy group. "Because [the databases are] generally unknown to the public, consumers have little opportunity to prepare for an insurance review. Inaccurate or incomplete data included in a report is likely to surface only after you have been turned down for insurance or premiums for new insurance skyrocket. At this point, you, the consumer, assume the burden of proving the data wrong." 

I suppose many may ask what I am going to do about this issue. The first thing is to write about it and raise awareness that insurers release and share a wealth of private information about policyholders. The second is to talk with a few colleagues who take these issues very seriously to see what can be done to stop the practice. 

Consumer advocates and Florida policymakers need to address how much of their policyholders’ private information is exchanged between insurers and other businesses that profit from the exchange. Some of our most precious and sensitive information is released on the information highway for analysis and sale. 

The reason behind the investigation is something I cannot figure out from the story or response:

McCarty said the data will help his office learn more about the frequency, severity and location of claims to determine if any regulatory action is needed.

"We're going to try to take it out of the anecdotal realm and into the statistical realm," said Jack McDermott, a spokesman with the Florida Office of Insurance Regulation.

Can you imagine anybody admitting to doing something illegal when an official shows up to ask? That is what McDermott apparently thinks some will do or that he will get credible statistical information from simply asking:

McDermott said the state also is examining whether sinkhole damage payouts are being properly used to fix property and whether some homeowners are filing sinkhole claims for undamaged property just to get a "free and clear" bill of health from their insurer.

"Someone trying to sell a house, say, in Hernando County (could) file a claim with an insurance company, which investigates and says there is no (damage)," he said. "They could use it as a marketing piece."

I have heard this from insurance company officials for years. I suppose some policyholders are stupid enough to say, "Yep, I submitted a fraudulent insurance claim just to be able to sell my house." But, I would not count on those clever enough to do so to also admit it.

It is hard to believe this is not something of a witch hunt or outcome oriented investigation supported by innuendo from insurance companies. Since the government is now in the business of insurance and has a legislative affairs department at Citizens Property Insurance, it is not unrealistic to think the government will ask its other branches for support. Right now, except as to rates, there is a very cozy relationship between the Office of Insurance Regulation and the insurance companies it regulates.

When was the last time you saw a story about an insurance company adjuster acting wrongly and being subject to regulation?

Last Friday, Florida's Fifth District Court of Appeal reaffirmed Citizen’s immunity from first party bad faith lawsuits in Citizens Property Ins. v. La Mer Condominium Assoc., Inc., No. 5D09-3578, 35 Fla. L. Weekly D1468a (Fla. 5th DCA July 2, 2010). The opinion stated:

The petitioner, Citizens Property Insurance Corporation, seeks a writ of prohibition directed to the trial court to prevent the court from taking any further action with respect to a first-party bad faith claim brought by the respondent, La Mer Condominium Association. The identical issue was presented to this court in Citizens Property Insurance Corp. v. Garfinkel, 25 So. 3d 62 (Fla. 5th DCA 2009) (rehearing denied January 15, 2010), which was pending at the time the petition was filed in this case. That case has now been decided, holding that Citizens is immune from first-party bad faith claims pursuant to sections 627.351(6)(r)1. and 624.155(1)(b)1., Florida Statutes. Id. As such, prohibition is also granted in this case for the reasons set forth in Garfinkel. (emphasis added)

There is little reason for Citizens to adjust its policyholder’s claims timely or fairly because there are no causes of action which allow for the extra-contractual damages caused by Citizens. Until the Florida legislature allows Citizen’s to be placed on the same footing as private insurers through consumer protection laws, those insuring with Citizens should not expect that wrongful claims actions by Citizens can be addressed or that Citizens can be held accountable for breaking the laws that apply to all other insurers in Florida.

In Florida Guaranty Association, Inc. v. The Olympus Association, Inc., 34 So. 3d 791 (Fla. 4th DCA 2010), FIGA successfully argued to have a challenge to coverage following an appraisal award. Insurance coverage attorneys should read the case in its entirety because it is important. For everybody else, the holding is significant:

…we conclude that the trial court erred by entering final judgment in favor of Olympus and awarding it the amount set forth in the appraisal (less the deductibles), without first deciding the issue of coverage liability. When FIGA filed its affirmative defenses in response to Olympus's complaint, the trial court should have first decided FIGA's liability. As explained in Kennedy and supported by Fisher, FIGA could contest part of the liability without challenging coverage as a whole. The appraisal award itself indicated the amount could change as the award was made without consideration of the policy's provisions of coverage.

Accordingly, we reverse and remand for the trial court to determine FIGA's liability with regard to the contested claims, and then enter the appropriate amount based on the appraisal.

Appraisal used to be a quick and inexpensive method of resolving claims. FIGA now uses it as a first step before litigation begins in earnest to prevent, or slow, payment. Unlike other insurers that have to act in good faith, FIGA has no penalty for contesting claims. It can do so with impunity. And, based upon the number of inquiries from others, it is taking advantage of the law and doing so.

The Florida Legislature and the Office of Insurance Regulation need to address the issue of who is investigating the claims process at FIGA and how its claims operations are run. These are the same complaints that were being made about Citizens Property Insurance in the past which lead to claims reform at Citizens. It is bad enough that policyholders have their insurer go broke and have to wait for payment. They do not expect a claims catastrophe which they can do little about.

A recent Government Accounting Office (GAO) report of state sponsored catastrophe programs brought this to my attention. The report summary mentioned:

Officials from some state programs said that they limit participation in the reinsurance or ILS markets because the coverage they want is not available at a price they are willing or able to pay without significantly increasing premium rates charged to homeowners.

The result is that most state sponsored programs rely upon the luck of not having a catastrophe where they would have to call upon a state's general revenue obligations to pay for the debt. Alternatively, our state politicians hope the federal government will bail out the state's fiscal irresponsibility. The "bail out" nation mentality is alive and well in state sponsored insurance.

Claire Wilkinson's post at the Insurance Information Institute, State-Run Insurers Lack Risk-Based Pricing, brought this report to my attention. I agree with her observation and the finding of the GAO which concluded that "most state natural catastrophe programs do not charge premium rates that reflect the full risk of loss."

In Florida, I publicly commented on some of these issues while serving on the Citizens Property Insurance Mission Review Task Force, and noted some of them in Taking Tough Positions On Citizens Property Insurance Task Force. Citizen's is correcting this problem by allowing rates to rise gradually. In Texas, TWIA tries to enforce mitigation as a condition to get insurance and therefore lower severities of its expected losses.

When it comes to insurance and public policy, there are probably two concepts all should remember:

1. There is no free lunch.
2. We are all in this together.

Have a great weekend.

Before the change in Citizens’ policy, analysis of a requirement for an examination focused on the word “insured.” The insured is usually required to submit to an examination under oath when demanded. The term insured is usually defined in the policy, and this helps lawyers to determine who is required to give an EUO. A look at the case law shows that arguments have been made about how far the definition of insured can stretch with respect to commercial policies and commercial- residential policies. This debate has been going on for decades.

Recently, in Florida Gaming Corp. v. Affiliated FM Ins. Co., 502 F. Supp. 2d 1257 ( S.D. Fla. 2007), the U.S. District Court for the Southern District of Florida addressed issues regarding who is required to give an examination under oath under the Affiliated policy issued to Florida Gaming. It is important to remember that in Florida Gaming, the policy language was different than the policy considered in this blog. The facts of this case, like all cases, are unique.

In Florida Gaming, the Court considered who should be required to give an EUO. The Vice President of the company gave a lengthy EUO but could not answer all questions. He admitted that he had no personal knowledge relating to the amount of loss and relied on the public adjuster’s analysis and the contractor, who was hired by the public adjuster, to estimate the damages. The insurance company requested that the contractor be subject to an EUO. Based upon the policy and the facts, the Court declined the request, stating:

Affiliated argues that Florida Gaming must submit Al Paxton to an examination under oath because PCA performed the analysis upon which Florida Gaming has relied in its sworn proof of loss. Florida Gaming responds that the policy requires only that “the insured” submit to examinations under oath. The Court agrees with Florida Gaming, that given the language of the policy, which authorized the examination of “the insured,” an examination of the insured's adjuster (or its agents or representatives) does not appear to have been contemplated. The Court therefore applies the rule requiring that the policy be interpreted in favor of the insured, and finds as a matter of law that Al Paxton is not required to submit to an examination under oath.

The Court’s explains is important; the obligations of those involved were determined by the policy provisions and what was contemplated by the wording of the policy at the time of drafting. This is how insurance policies and other contracts are routinely interpreted, and it provides some guidance in interpreting the new Citizens policy.

Does the exact wording of the provision matter?

Yes.

In Florida Gaming, the Court also explained that when a policy of insurance is ambiguous, the ambiguity is resolved in favor of the insured. This may be an angle used to help public adjusters determine their responsibility with the Citizens policy. The language requesting the EUO does not say “public insurance adjuster,” it says “anyone you hire in connection with your claim.” Perhaps there is enough ambiguity here for a court to agree the policy is unclear and overly burdensome.

What about the policyholder?

One of the common themes in the comments and the discussion about this provision relates to the policyholder. Suppose the insured has a loss and has problems or a complicated claim. The policyholder needs help and hires a public adjuster. The public adjuster’s contract is signed and the claim is presented to Citizens. Citizens demands examinations under oath and lawyers are hired. There is a dispute concerning the obligations of all involved, and the matter ends up in court. The matter is one of many pending on a very full docket. Meanwhile, the insured has to wait just to figure out what is required under the policy. The insured’s home or business is in limbo and the public adjuster is spending more and more time attempting to figure out how to help the client.

While the purpose of this blog is to have a discussion and evaluation of this issue, I also want to remind everyone that examinations under oath must be demanded. If there is no demand, there is no issue. Until an EUO of a public adjuster is demanded and the matter litigated, we will have no definitive guidance on the issue. While no one can predict the future and changes are always happening with property insurance, everyone should understand the policy provisions and be aware of new policy language that could affect your job and your clients’ claims. In the meantime, taking extra care to be prompt in communications and forthcoming with the claim presentation may save unnecessary headaches later.

The provision reads:

As often as we reasonably require:
1. Show us the damaged property
2. Provide us with records and documents we request and permit us to make copies
3. You or any "insured" under this policy MUST:
a. Submit to examinations under oath and recorded statements, while not in the presence of any other "insured"; and
b. Sign the same;
4. If you are an association, corporation, or other entity; any members, officers, directors, partners or similar representatives of the association must:
a. Submit to examinations under oath and recorded statements, while not in the presence of any other "insured"; and
b. Sign the same;
5. Anyone you hire in connection with your claim and anyone insured under this policy other than an "insured" in (3) or (4) above, must:
a. Submit to examinations under oath and recorded statements, while not in the presence of any other "insured"; and
b. Sign the same;

Keeping the discussion limited to public adjusters for this post, these are the questions I have received most frequently:

1. What happens if the PA refuses?
2. Is the PA always required to give an EUO?
3. Can the PA fill the shoes of the policyholder and give the only EUO?
4. How can the statements given by the PA during an EUO change a claim decision?

The answer is the same for each question. It depends. The first thing to consider is the policy. At this time, the Citizens form seems to be unique. The entire policy should be reviewed by a qualified lawyer to determine the obligations of the parties.

Generally, the parties to an insurance contract are the insurer and the insured. The public adjuster is not a party to the contract, however, the PA is paid based upon the claim and has an interest. In fact, the first thing most public adjusters do is notify the insurance company of their involvement and request to be listed as payee on the settlement proceeds. The assignment of the claim payments and actual payment afforded to the PA is done pursuant to another contract; the contract entered into between the policyholder and the public adjusting firm. The contract with the public adjuster may say something like this…

In consideration of the services rendered by XYZ Public Adjusters, we hereby assign and agree to pay XYZ Public Adjusters a certain percentage___ of the funds when recovered in connection with this claim.

The insurance policy will likely have three more important sections to consider. The first is the definition section. Under the definitions, the term “you” should be defined. Typically, the “you” in an insurance policy is the insured and those who are bound to perform the obligations under the policy. The “loss payment” clause should be considered too. Does the insurance policy state what has to happen for the payment to be made? This section may outline what each party needs to do for payment to be issued. Also, the concealment and fraud provisions should be considered to determine if and how the testimony of a PA might affect a policyholder’s claim.

After looking at the policy, the claim needs to be evaluated. The status of a claim can make all the difference in how an EUO demand is handled. One thing to look for is whether the demand for the EUO is timely. Did the insurance company waive the right to take the EUO? Has the claim been denied or has there been a material breach of the contract by the carrier? While each claim is different and providing claim information to the insurance company is necessary, these questions should be answered by a trained lawyer. Depending on the case, sometimes providing an EUO (even if there was waiver) may help a claim to be resolved more quickly and leave the insurance company one less defense to the payment. However, an EUO should not be given by anyone without a lawyer. The insurance company has hired a lawyer to represent it at the EUO and a policyholder should always retain counsel too. An EUO is not an opportunity for a policyholder to try out his or her Matlock skills. Remember, even lawyers hire lawyers and doctors see doctors.

When the policy is originally issued, the average policyholder did not consider provisions that may affect non-parties to the contract, nor did they consider who would end up being paid insurance benefits from a claim for damage. Thus, who is the PA in connection with the contract? Is the PA a third party beneficiary or a non-party? A public adjuster involved in a claim typically should not be considered an intended third-party beneficiary. However, the public adjuster receives a benefit only if obligations of the contract are carried out by both parties. If the policy in total supports such a requirement, the public adjuster may have an obligation to sit for an examination under oath. Again, this will depend on the specific policy language regarding EUO and the contract with the policyholder. Remember, looking at one portion of a policy without considering the whole contract is similar to applying sunscreen to just one arm and assuming you won’t get burned after a day at the beach.

This post will continue on Monday. In the meantime, if you have given an EUO and having been dealing with similar issues and would like to share your experience, please send me an email at nvinson@merlinlawgroup.com, call directly at 813-415-8758, or post your comment here.

This is the Examination Under Oath (EUO) requirement in the Citizens’ policy. The highlighted portion, lines 5 a-b, are new and controversial part:

FORM CIT HO-01 10

As often as we reasonably require:

1. Show us the damaged property

2. Provide us with records and documents we request and permit us to make copies

3. You or any "insured" under this policy MUST:

a. Submit to examinations under oath and recorded statements, while not in the presence of any other "insured"; and
b. Sign the same;

4. If you are an association, corporation, or other entity; any members, officers, directors, partners or similar representatives of the association must:

a. Submit to examinations under oath and recorded statements, while not in the presence of any other "insured"; and
b. Sign the same;

5. Anyone you hire in connection with your claim and anyone insured under this policy other than an "insured" in (3) or (4) above, must:

a. Submit to examinations under oath and recorded statements, while not in the presence of any other "insured;"and
b. Sign the same;

Generally, insurance policies contain a requirement that the insured must give both a recorded statement and an Examination Under Oath (EUO) in the “Conditions” section of a policy. A recorded statement may be used to gather information by insurance company at the onset of the claim. An EUO is a more in-depth interrogation by a lawyer for the insurance company. The requirements of policyholders in connection with an EUO depend on the policy language. Many policies require insureds to sit for an EUO, sign the recorded transcription, and give the EUO while not in the presence of any other insured. Essentially, an attorney for the insurance company asks a long series of questions while a court reporter records the whole thing. An EUO is more similar to a deposition than a simple recorded statement, except that the EUO is governed by the rules explained in the policy and not the Rules of Civil Procedure. EUOs are adversarial. Now, at least for Citizens claims, it seems public adjusters are subject to the same requirements.

The insurance company has many other ways to learn about a claim and the public adjuster’s involvement and evaluation of it. This series of posts will consider the implications of Citizens’ new policy language and will discuss what is happening now on the front lines.

-Nicole Vinson

Appraisals generated as part of a loan application process are not appropriate for insurance purposes. The “cost approach” section of a market value appraisal is based on a “new construction” rather than a “reconstruction” basis. While not appropriate for insurance, the “cost approach” is what you’ll commonly get from a real estate appraiser if you simply ask for the “replacement cost;” it’s what they’re most familiar with, and they don’t need to spend money on an additional software packages to do the job. If you see the term “replacement cost new,” or “RCN,” it’s not the right kind of estimate. When ordering an appraisal, you probably need to take the extra step to tell the appraiser: “This is for insurance purposes; an estimate based on replacement cost new will not be acceptable.” If the appraiser seems baffled by such a request, you need to find a different appraiser.

Any estimating software can be manipulated to generate an artificially low number. Citizens’ has identified a few of the variables commonly manipulated: area, construction type, and subjective quality adjustments. There are many other variables that can be manipulated; it is important for the insured to carefully review the detailed report to make sure the entries are valid.

The agent/broker working with the insured also needs to check the appraisal to make sure that additions and deductions are aligned with the policy coverages. If foundations are covered (recommended) then they shouldn’t be deducted from the appraisal; if driveways and sidewalks are excluded, then they shouldn’t be included in the estimate. It would be difficult for the insured to recognize if an appraiser has manipulated the standard factors for quality, architects fees, overhead & profit, and others; but the agents/brokers see enough of these that they should be able to identify these adjustments.

The reason Citizens’ memo specifies that the detailed report be submitted, rather than a summary report, is so that the underwriters can spot the adjustments. Most of the “creative” adjustments would not appear on a summary report.

The Citizens’ memo mentions two vendors of software appropriate for generating insurable value estimates (Marshall & Swift/Boeckh [MSB], and e2Value). This list is not complete, there are a few others. MSB’s RCT, RCT HV, BVS are used by the insurance industry, but be careful, the books published by Marshal & Swift (same company) and commonly referenced by real estate and tax appraisers are not appropriate for insurance purposes. Before hiring an appraiser, you should check with the agent/broker to see what software the insurers use and request that the appraiser use the same software, this should help in reducing the potential for co-insurance.

In closing, please be wary of any appraisal firm that promotes its services on the basis that they can generate a lower estimate than the insurance company. Likewise, be wary of any agent/broker that has a “friendly” appraiser who is willing to provide a favorable estimate. Neither the “friendly” appraiser nor the agent/broker will likely suffer any consequences of under-reporting the exposure values.

-John Nixon
President, Asperta, Ltd.

For those of us in the trenches of working for fair and efficient resolutions of disputes, the following comment published early this morning to my post, Impressions Following the Alternative Dispute Resolution Roundtable, should provide serious consideration about how mediation can be easily abused:

Chip:

I am writing this to express my experiences with alternative claims resolution processes using both the Florida Mediation Program and the appraisal provisions of the insurance policy.

Let me start by saying that I have a somewhat unique perspective on claims handling. I have spent my entire 35 year professional career in the claims handling industry in one form or another. The first 24 years of my career I worked on the insurer side in various positions including a 5 year stint as a regional claims manager for a property casualty insurance carrier and 13 years as an equity partner in a regional independent adjusting company. For the past 11 years I have owned my own public adjusting company. So I have had extensive experience in both mediation and appraisal advocating for both the insurer and the insured.

First let me address the Florida Mediation program. To put it bluntly it is, in my opinion, an abject failure. Perhaps the first and foremost reason that it is a failure is that my experience has shown that the insurer’s representative almost always goes into the mediation without having full settlement authority. Without having that authority the insurer’s representative is unwilling or unable to offer a fair settlement to the insured simply because they either do not have the dollar authority to do so and/or are unwilling to go back to their supervisor for my authority. I have also experienced cases where the insurer agreed to go to mediation with an insured but at mediation they did not move one dollar from the original position that drove the claim to mediation in the first place. I have had an impasse declared within 10 minutes of the start of mediation with the insurer never making an offer above the original adjuster’s offer.

However, perhaps the most insidious aspect of mediation is the way the insurance industry advocates to the insured to use the mediation process without the insured having any professional assistance with their presentation. The insurer’s representative at the mediation is a professional claims person who has been trained in the mediation process and negotiation tactics. An unrepresented insured almost never understands the process and certainly does not have the training of the insurer’s representative. In the words of one insurer representative that I know when an insured goes into mediation without professional help, 'it is like leading the lambs to slaughter.' It has reached a point now that I see no redeeming reason to recommend to my clients, even with my help, that they avail themselves to the mediation program as it currently exists.

Next, let me relate my experiences with the appraisal process. In my career, I have appraised claims on behalf of both insurers and insureds. I have also served as an umpire on over 50 appraisals. I appreciate the appraisal process because it does give some finality to a claim. It is quicker and less costly than litigation and absent any coverage issues a properly crafted appraisal award is almost always binding on both the insurer and insured. The appraisal also gives the insured a professional advocate in the decision making process. That cannot be said for many mediation hearings. I also like appraisals because there is no such thing as an impasse in appraisal. I have yet to see an appraisal I was involved with that did not have an ending where at least two of the three appraisal panel members were able to reach an agreement.

Now, let me speak to the appraisal process. I believe the appraisal process would be very well served if it had some guidelines on how the process was to be conducted, such as having utilizing the Florida Arbitration Code as a guide. I have issues with the conduct of insurers and their appraisers. I believe insurers have far too much influence on their appraisers when it comes to the selection of an umpire.

As indicated by Umpires at the Roundtable, it is a very poorly kept secret that insurers have lists of umpires that they instruct their appraisers to never use, even if their own appraiser feels the person on that list is qualified and would make a good umpire on their appraisal. I have run across another problem in my capacity as umpire. I have had appraisals where the appraisers advise me they are at an impasse and need my umpire services to settle their differences. When I meet with the 2 appraisers they inform me that they really do agree on an amount of loss but the insurer’s appraiser informs me that he doesn’t want to sign the award. He won’t sign the award, even though he agrees with it, because he is afraid if he does sign it the insurer will stop using him on their appraisals. As an umpire I should be happy with this situation because it means more business for me. However that is not the case. I can’t help but think about the poor insured who has had his claim settlement delayed and now that an agreement has finally been reached he has to pay 50% of an umpire’s bill when in reality the umpire was not really needed. That is just wrong.

As a former claims manager and a person very familiar with the industry, it is naive to think that insurers, including Citizens, do not keep statistics and track which umpires and appraisers provide lower awards and then deselect those that give awards higher than what those insurers think is acceptable.

Does the appraisal process have warts? Certainly it does. However, I believe any problems with the appraisal process are repairable. I do not feel the same way about the Florida Mediation program.

Thanks for all your efforts on behalf of the policyholder.

Sincerely,
Don
Donald A. Phillips

Insurers, or any party to a dispute, can abuse the mediation process by having people that do not have the complete authority settle after considering everything presented at the mediation. I have heard of insurers that intentionally provide limited dollar authority to the adjuster at mediation, no matter how compelling the evidence presented, at a state sponsored mediation, knowing that many policyholders will simply give up. Many policyholders are afraid of litigation or appraisal. Nobody buys an insurance policy thinking they will have to become professional negotiators or litigators. Insurance companies have professional litigators and train their adjusters how to negotiate with unrepresented policyholders and how to hold their own in negotiations with attorneys. Honestly, what chance does a lone policyholder have against an insurer that has a claims attitude to pay as little as possible? Why do you think insurance company executives and their lobbyists are pushing for a mediation system in Florida where policyholders come all by themselves? "Lambs to slaughter" sounds about right to me.

A public adjuster’s involvement also frequently increases the dollar amount of a policyholder’s final settlement. By some accounts, the average settlement rises by as much as 20 to 50 percent. See, Peter C. Beller, In the Wake of Disaster, Help for Hire, New York Times (Feb. 2, 2006); and Brian D. Mockenhaupt, For Public Adjusters, Disaster Means Business, Providence (R.I.) Journal-Bulletin (Jan. 18, 1998). The Florida Legislature’ own program policy analysis office has found that, in claims related to the 2005 hurricanes filed by policyholders of the state-run Citizens Property Insurance Corporation, settlements averaged 747 percent higher ...The same legislative report found a smaller but still significant increase – 574 percent -- in settlements when public adjusters represented Citizens policyholders in non-catastrophe claims.

I was amazed at the statistics found and published by Citizens. I think it is far overstated and policyholders should not expect that type of percentage increase unless they have a smaller claim. While I may criticize Citizens' claim handling, there is no way it is that bad and it underpays to that extent that often. If I were a public adjuster, I would advertise this statistic every time I talked with a prospective client. 

This lawsuit seems to be moving along quite a bit faster than a similar public adjuster lawsuit in Dade County which I noted in two earlier posts, Florida Public Adjusters File Lawsuit to Overturn 48 Hour Solicitation Ban and Fee Caps, and Public Adjuster Lawsuit Challenging State's Cap on Fees and Solicitation Ban Survives Venue Change. I expect that the summary judgment will be heard within the next sixty days. Pre-trial hearings are set and the judge seems to be moving this matter along pretty quickly.

A good example of this is found in a recent article, "Georgia Software Company Sues Citizens Property Insurance Over No-bid Deal." It was reported that:

A Georgia software company has sued Citizens Property Insurance Corp. saying it broke the law when it awarded a $60 million contract in late October without soliciting competitive bids.

SagoTec Group is challenging Citizens' agreement with Inspection Depot to reinspect policyholders' homes that have wind mitigation credits.

Citizens says there is an emergency need to verify such credits because they account for $700 million in premium discounts annually for the state-run insurer. If a re-inspection shows the credit is undeserved, Citizens, the state's largest insurer, could recoup substantial revenues.

The issue of wind mitigation credits and how it impacts rates was never a secret or an "emergency." It was a normal operational issue that should have been developed and bid upon. Successful or not, I applaud the lawsuit because it will force Citizens management to act as a governmental entity and comply with the law. The Citizens Board of Directors should make its own determination of this issue as well, regardless of whether it means there is accountability for breaking the law.

The issue of accountability is fundamental to most of us. Why have rules if they can be broken without consequence or accountability? Currently, Citizens has no financial accountability for delayed and intentionally wrong claim handling as private insurance companies do. See my earlier post, Citizens Property Insurance Corporation is Shielded by Sovereign Immunity from Bad Faith Claims.

Our legislature should follow the lead of State Senator Don Gaetz and correct this. It is simply wrong for Citizens claims managers to have no accountability. It already has an unfair advantage in the marketplace with private insurers on the rate structures, it should not have an economic incentive to break the law and promote abusive claims practices against its own customers.
 

The most significant reasoning for this finding is in the following legal discussion:

The reason why first-party bad faith claims are not considered to be willful torts is best explained by examining the history of this cause of action. A third-party bad faith action (that is, a claim against one's own insurer for failing in good faith to settle a third-party's claim, thus exposing the insured to liability in excess of the available insurance coverage), was recognized in Florida as part of the common law as early as 1938. The foundation for this claim is found in the fiduciary nature of the insurance carrier's relationship with the insured. The carrier was required to act in good faith to negotiate a settlement for the benefit of its insured, and not to protect its own interest alone. Opperman v. Nationwide Mut. Fire Ins. Co., 515 So. 2d 263, 265 (Fla. 5th DCA 1987), review denied, 523 So. 2d 579 (Fla. 1988). Because of the perceived absence of the fiduciary relationship, however, there was no first-party bad faith action by an insured against the insurer recognized at common law. See Allstate Indem. Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005); State Farm Mut. Auto. Ins. Co. v. Laforet, 658 So. 2d 55, 58-59 (Fla. 1995); Baxter v. Royal Indem. Co., 285 So. 2d 652 (Fla. 1st DCA 1973); cert. discharged, 317 So. 2d 725 (Fla. 1975). Thus, unless the insured could allege an independent tort such as fraud, the only relief available on a first-party claim was a cause of action for breach of contract. Butchikas v. Travelers Indem. Co., 343 So. 2d 816 (Fla. 1976); Rubio v. State Farm Fire & Cas. Co., 662 So. 2d 956, 957 (Fla. 3d DCA 1995), review denied, 669 So. 2d 252 (Fla. 1996); Opperman; Allstate Ins. Co. v. Kelley, 481 So. 2d 989 (Fla. 5th DCA 1986).

The Legislature addressed this issue in 1982 by the adoption of section 624.155, Florida Statutes. As our Supreme Court has indicated, “[t]hrough this statute, the Legislature created a first-party bad faith cause of action. . . .” Laforet, 658 So. 2d at 59. Thus, first-party bad faith causes of action now exist in Florida not because they are torts, but because they are a statutory cause of action. Accordingly, a first-party bad faith claim cannot be wedged into the statutory exception for willful torts because it is not a tort of any variety. (emphasis added)

Most treatises will be amended to reflect that Florida’s current first party wrongful claim practice scheme is not a tort, but strictly a statutory action. Of course, that may change because of the a case pending before the Florida Supreme Court as I posted in A Common Law Remedy For Lack Of Good Faith And Fair Dealing Is Before The Florida Supreme Court. Stayed tuned- the law is a creature subject to change depending on the facts and issues brought before the Courts.

I was amazed. I expected all rates to go up somewhat and did not expect any to drop. I also expected the overall Statewide rate to go up approximately 10% based on the legislation and my work with the Citizens Mission Review Task Force.

Instead, the overall statewide rate will go up only 5.4%. I imagine the private carriers are not happy the rates are rasing so slow by Citizens. But, they must really be miffed that a governmental entity is lowering rates on average 9.3% in St. Petersburg and 8.6% in Hillsborough.

In Associated Industries and Private Insurers Want Florida Policyholders to Pay as Much as Possible for Property Insurance,  I gave Barney Bishop a lot of grief for suggesting that each policy would have its rate raised by 10%. Still, I thought the overall average rate on a statewide basis would have increased by an amount much closer to 10%.

I do not think that it should be Florida's public policy to allow Citizens to compete with private insurers unless it is truly an insurer of last resort. When rates drop and Citizens is an active seller of insurance at prices that are competitive with private insurance rather than an insurer of last resort, it kind of smacks of socialism.

There are also all kinds of problems with Citizens executives lobbying our elected representatives to derail consumer protections. When a governmental entity is in a private business, as is Citizens, there are many activites that the government will undertake which are not in the consumer's or private enterprise's long term interest. Manipulation of rates for various purposes, especially political, could be one of the interests not helpful in the long-term to consumers or private insurers.

The article quoted Barney Bishop, the Executive Director for Associated Industries of Florida as advocating the following:

Florida insurance regulators are failing in their duties if they don't make the state-backed Citizens Property Insurance Corp. raise property insurance rates by 10 percent across the board, a business group lobbyist said Tuesday.

Barney Bishop III, president of Associated Industries of Florida, said it's ''astonishing'' that the state-backed insurer would not increase rates on all policies by 10 percent.

''It is our position that every rate should go up,'' Bishop told representatives from the Office of Insurance Regulation. ''The rates haven't been actuarially sound for the last five years.'

In response, Belinda Miller of the Florida Office of Insurance Regulation disagreed:

Miller argued the 10 percent was a cap set by lawmakers and not intended to be applied equally to all Citizens' policy holders.

''We don't want to increase rates too quickly because people would have a hard time paying for it.'' Miller said. ''Nor do we want to have a rate that is not adequate to pay their claims. Our concern is to make sure that this strikes the appropriate balance.''

This is a topic that Belinda Miller knows very well. She served with me on the Citizens Property Insurance Mission Review Task Force. I wrote about this issue last January in Headlines And Reality. There, I wrote:

The Citizens Mission Review Task Force made a significant recommendation at its meeting on Tuesday. Prior testimony was that the average Florida rate hike, which would be approved by the Office of Insurance Regulation, would almost certainly be higher than 30%. We recommended to the Florida Legislature that they to pass a statute to cap that rate increase at 10%. Without this law, the rate would probably go up over 30% on a statewide basis.

So, what do you think a proper headline would be in a newspaper article reporting on this outcome? Panel Votes to Cap Rates. 10% Maximum Rate Increase Proposed. How about, Panel Says No to Unlimited Rate Increases?

By Jingo, no way! Newspaper editors must think they need headlines full of sensationalism and fear to catch a reader’s attention. These were some of the headlines I found on a Google search Wednesday morning:

• Citizens Property Insurance Plans to Increase Rates
• State Panel Backs Rate Hike of up to 20 Percent for Citizens Insurance
• Citizens Should Hike Insurance Rates, Task Force Says
• Hike Citizens Property Insurance Corp's Premiums, Florida Panel Urges

We never found that the rates should be hiked. Instead, a bunch of experts explained why they thought a "fair" rate was going to result in a huge increase because Citizens has been charging an amount of premium that is not "sound." Even the Florida Office of Insurance Regulation indicated that a fair rate for Citizens was one that could have an increase above 30%.

In 2006, the Florida Legislature froze Citizens rates to combat skyrocketing premiums. The Legislature then passed a law mandating that Citizens had to charge "actuarial sound rates" by January 1, 2010.

I never voted to raise rates. I advocated and then argued for the cap because I felt it was going to make insurance unaffordable for many if the rates jumped overnight.

It is obvious that Belinda Miller is correct and Barney Bishop is spewing the propaganda of the insurance industry that is a big supporter of Associated Industries. The entire debate and method contemplated that overall rates would go up, but it would vary.

What is happening is that lobbying organizations supporting the insurance industry have already paid significant monies to the leaders in the Florida legislature. Now, they have to start raising the issues important to them for the next legislative session. Those lobbyists cannot come out and say, “hey, we paid you all this money to have dinner with you, go to golf and raise money for your next campaign, so vote our way.” That would be stupid because those legislators would be any “easy mark” for being in the pocket of those lobbyists. Then, what would they say to their electorate?

The smart way to do it is to have people like Barney Bishop say that the problem is Citizens not charging enough. Public relations experts have people like Barney Bishop also change the debate to one of “free choice” so that State Farm and others will no longer have to worry about getting approval for a fair rate. It is all part of the charade to allow many bought and paid for legislators to vote in a demanded manner by the insurance industry.

It is fortunate that some leaders in Florida, like Governor Crist, remember the public promises they make to the people are far more important than privately taking excessive amounts of campaign money from huge insurance corporations knowing that clandestine public relations campaigns will be run by those corporations to mask the private “deal” made with the devil.

I am going to propose to United Policyholders or other consumer groups that we try to find out who is taking the money and disclose which politicians have switched their votes since 2006 to allow rates to go up. They might as well be honest about it the next time election time rolls around.

State Farm Florida Withdrawal Hearing Moved to December
Chad Hemenway
TALLAHASSEE, Fla., Sep 29, 2009 (A. M. Best via COMTEX)

In a joint filing with the Florida Division of Administrative Hearings, the Office of Insurance Regulation and State Farm Florida again moved to push a hearing to address the insurer's desire to leave the property insurance market back another 30 days.

 

The order from DOAH states, "the parties are hopeful that their continued discussions will allow them to arrive at an acceptable resolution. Such a resolution would obviate the need for a final hearing in this matter."

 

The new date for the hearing is Dec. 17. A hearing was rescheduled recently from October to Nov. 17. The DOAH order says the OIR and State Farm Florida each said they would need to begin the discovery process of the proceeding now in order to meet the Nov. 17 date and that "the expense, distraction and adversary nature of such discovery would interfere with the parties' settlement efforts."

 

Recently, Florida Insurance Commissioner Kevin McCarty told members of the Florida Cabinet that it was possible State Farm Florida could remain part of the property insurance market in some capacity. The insurer and regulators each say they continue to talk about all possibilities.

 

State Farm Florida filed a withdrawal plan at the end of January that called for its last nonrenewal at the end of 2011. Under current conditions, the insurer said it would be insolvent around the same time. State Farm Florida plans to continue to write automobile insurance. McCarty approved State Farm Florida's two-year plan but he wants to bar State Farm from penalizing policyholders for terminating their contracts early and from preventing its agents from working with other companies. McCarty also had concerns that the company had no plan to transfer its policies to the private market instead of state-run Citizens Property Insurance Corp. Furthermore, the OIR immediately wants State Farm's certificate to write insurance, but the company wants to hold it during the course of its exit from the market (BestWire, Feb. 13, 2009).

 

A.M. Best Co. in June downgraded the financial strength rating to B (Fair) from B+ (Good) and issuer credit rating to bb from bbb- of State Farm Florida Insurance Co. The outlook was revised to negative from stable. This was based on State Farm Florida's recent "significant deterioration in earnings and risk-adjusted capitalization and the expectation that this deterioration will continue over the near to intermediate term," A.M. Best said (BestWire, June 18, 2009).

 

The top five writers of homeowners multiperil in Florida, according to 2008 A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 17.7% market share; Citizens Property Insurance Corp., with 16.2%; Universal P&C Insurance Co., with 7.2%; USAA Group, with 5.1%; and Tower Hill Group, with 4.5%.

 

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)

You can read the article as it was posted by clicking here.

I have recently noted the concern that some insurance restoration contractors are acting as surrogate public adjusters and not in the best interests of the policyholder in my posts, Are Insurance Restoration Contractors Ripping Off Insurers and Policyholders? and Former Restoration Insider Comes Out Swinging Against Florida's Limitation of Public Adjuster Solicitation.

The 48 hour solicitation ban was a coup of the insurance companies and Citizens Property Insurance Corporation. I attended the Citizen’s Claims Review Task Force meetings. It was obvious that Citizens claims managers and executives blamed many of their controversial claims delays and underpayments on the involvement of public insurance adjusters. The insurance industry used the Task Force as a vehicle to place before legislators a few examples of how public adjusters solicit for business following a disaster. Door hangers and the lining up of a dozen public insurance adjusters were suggested as being “unsavory’ by many. I guess the connotation is that those that get paid for professional help following a catastrophe must be taking advantage of victims. From the insurance industry’s perspective, it was a “perfect storm” to reduce the retention of pubic adjusters.

The 48 hour solicitation ban states:

A public adjuster may not directly or indirectly though any other person or entity initiate contact or engage in face-to-face or telephonic solicitation or enter into a contract with any insured or claimant under an insurance policy until at least 48 hours after the occurrence of an event that may be the subject of a claim under the insurance policy unless contact is initiated by the insured or claimant.

The lawsuit emphasizes the constitutional aspect of one’s freedom to speak and to contract.

8. By prohibiting the Plaintiffs from directly or indirectly initiating contact or engaging in face-to-face or telephonic solicitation with any insured or claimant, or entering into a contract with an insured or claimant in the first 48 hours after an event that has not been declared an emergency, subsection 626.854(6) constitutes a prior restraint on protected speech in violation of the First Amendment to the United States Constitutions and Article 1, Section 4 of the Florida Constitution.

It also points out some of the practical reasons why the laws are objectionable:

39. Subsection 626.854(6) is not narrowly tailored to further a significant government interest, and other less intrusive means are available to control or prevent any practices of public adjusters which might be needed to adequately protect the public

40. Subsection 626.854(6) is overbroad, in that it restricts the speech of all public adjusters, including Plaintiffs, who are competent, scrupulous, honest, and professional in their dealings with the public

41. Subsection 626.854(6) denies significant business opportunities for Plaintiffs and other public adjusters by denying property owners the services of a licensed public adjuster at the time they are in most distress and have the greatest need.

42. By preventing public adjusters from contacting property owners immediately following a natural disaster, subsection 626.854(6) prevents public adjusters from having any contact with the most severely damaged property owners at the only time they can be located before moving to an unknown address.

43. Section 626.854(6) amounts to an impermissible restriction on the time, place, and manner of conducting the business of public adjusting, and unduly restricts Plaintiffs' freedom of speech.

Pat Catania has done an excellent job assembling a great legal team and getting a case stated clearly. Using a Shakespearean phrase, he told me yesterday that “if they [the insurance industry] want a war, I’ll show them the war.” Pat is not a part of FAPIA or NAPIA. He is creative, bright, energetic, and I find him fun. I believe the lawsuit has a good chance of success. He asked me to let other public adjusters know that he would like to include others as plaintiffs in the lawsuit.

Catania is also a fantastic marketer and entrepreneur. He started two web sites, MySmartClaims.com and SmartClaimsPro.com which help policyholders and professionals regarding the estimating and submittal of property insurance claims. He is a passionate consumer advocate and tireless opponent. I predict he will prevail and many public adjusters will be thanking him for his efforts.

Catania also told me that his dream is to submit the final proof of loss State Farm will pay on before it leaves Florida. He considers State Farm completely unworthy to be in the insurance business because he asserts that most State Farm policyholders are not treated properly regarding claims. He has some inside information on that issue--his wife worked as a property insurance claims adjuster for State Farm.

My longstanding view is that “hardening” of structures is important public policy for coastal states. It should be encouraged and reflected in rate regulation, building codes, and taxation policy. The best loss is one that does not happen. The second best loss is one which is less severe as a result of preventative measures.

On Thursday, the Florida Office of Insurance Regulation issued a letter responding to State Farm’s requests for the elimination of certain discounts. It approved many, but also called for State Farm to provide greater information regarding the issue of eliminating or reducing rates for those who “hardened” buildings in return for lower premiums:

“The changes to State Farm Florida’s mitigation credits contained in this file are not approved. As discussed on prior occasions, an alternate mitigation credit is allowable under Florida regulations; however, such credits must be supported by a “detailed study” pursuant to Section 69O-170.017, Florida Administrative Code and other pertinent regulations. If State Farm Florida chooses to file alternate mitigation credits in accordance with the rule, the study of the alternate credits may best be performed by the proprietor of the model to ensure explicit documentation as provided in the current approved ARA study. Some items of significance that should be addressed in the study, if one is conducted, include but are not limited to:

1. Explicit documentation with respect to the reflection of all code wind speeds.

2. Explicit support for the selected base structure. This should include an explanation of how it complies with Section 627.0629, Florida Statutes and the following data:

a. The expected hurricane losses in total
b. The expected hurricane losses for each group of discount features
c. The expected hurricane losses for policyholders receiving no discount

3. Discounts must reflect all features that reduce windstorm loss. Further, areas with a higher resistance to wind speed must reflect higher discounts.

4. Include detailed support to show base rates are consistent with the base risk that is not receiving mitigation discounts.”

The important thing for everybody to notice in the Miami Herald article is that State Farm is not the only insurance company behind this. A number of elected officials who cater to the insurance industry and Citizens Property Insurance Corporation (which is part of the Florida Government) obviously conspired with others to break the promises made to Floridians:

“…more than 700,000 other Florida consumers who spent big money to fortify their homes -- could see their ``wind mitigation'' discounts dramatically reduced.

Insurers, led by State Farm Florida, are complaining that the discounts for installing shutters and other protections have become so popular that they are undercutting the industry's bottom line.

Last year, citing the cost of the discounts, State Farm asked for a 47.1 percent rate increase. The state said no, but the Legislature agreed to review how the discounts are tallied. The first public hearing is Wednesday in Tallahassee.

Bressner thinks it is ``counter-intuitive'' for insurers to want to strip away incentives that encourage policyholders to make their homes better able to withstand a windstorm.

State Sen. Mike Fasano, R-New Port Richey, who serves on the Senate's banking and insurance committee, recalled State Farm's president testifying on behalf of the discounts.

``This is what they wanted and this is what they got,'' Fasano said. ``Now they want to take away [the discounts] from homeowners. That's a promise they've broken.''

Still, lawmakers are willing to listen to the industry.

``We want to be sure that the discounts we're offering are right,'' said State Rep. Bryan Nelson, the Apopka Republican who sponsored the law mandating the review.

``We're reducing premiums every year,'' said Carol Everhart, a member of the governing board with Citizens Property Insurance, the state's largest insurer. ``But what we're doing isn't based on a valid study.''

If our elected officials and those regulating our insurance industry in Florida want to know what the insurance industry hopes to gain from this new maneuver, now and in the future, they should request records from Citizens Property Insurance Corporation, which is a governmental-not private-entity. They should ask for Citizens’ officers and managerial employees to explain all their discourse with other insurers, legislators and lobbyists regarding this topic for the past several years.

We should also applaud all the elected representatives that stand up to the insurance companies. Before the next election cycle, I plan to draft a detailed outline for everyone to review that delineates which elected officials in Tallahassee are really for policyholders versus those who work for the insurance industry. The advertisements by some politicians were completely fraudulent on this last year. It’s about time that the local electorates understand who really works for them and who works for Big Insurance.

After yesterday's post, I received a number of private questions as well as a public comment from Eric Hyman, an experienced public adjuster. I replied to his comment:

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.

Given that public adjusters are obtaining more money for policyholders through appraisal and that so many others, such as appraisers and umpires, have made careers in the appraisal process, you can bet those individuals with such significant financial interests oppose Citizens’ move. This is a normal reaction to the possibility significant change.

My opinion of appraisal has not changed much over the past fifteen years since I chaired a sub-committee of the American Bar Association's Property Loss Insurance Committee involving a study of the fairness and procedures of the appraisal clause. The procedures vary by state. Many states have noted the due process concerns and have required the process to be more of an arbitration. Florida's procedure for appraisal is what I call the wild west method. There are no rules. Shoot 'em out, and you better be standing when the smoke clears because there are no second chances for the dead.

I essentially said this when I was asked to be on a Keynote Panel regarding the appraisal process at the Windstorm Conference. While various attorneys, umpires, appraisers, and insurers have tried to set rules through a "Memorandum of Appraisal," that is not required under the terms in insurance policies, statute, or common law.

As an attorney, I always point out that the United States has long held many informal methods unconstitutional. One of the great protections to individuals is a right to have a jury decide controversies. This is a fundamental right with a longstanding history. Alternative methods to resolve controversies must satisfy due process safeguards. I have questioned how a system with no rules does this. Some States, like Florida, allow the informality without addressing constitutional concerns.

Dan Luby, of Precision Adivisors, sent me a private follow-up. It is pertinent to this issue:

"I read your blog today concerning the changes to the Citizens Appraisal clause. I appreciate the attribution.

As a follow up, attached is an excerpt from a recent Citizens filing with the OIR that details the proposed changes to the Appraisal clause in the ‘Homeowners 4 Contents Wind Only Form.’

Appraisal will now be an option available to either party provided that both parties agree to the “terms of a written agreement” to be determined at a later date.

I read this to mean a negotiated ‘Memorandum of Appraisal’ detailing what would be submitted to appraisal, how the appraisal would be conducted and the form of the award. Either party is not obligated to accept a “request” for appraisal.

Scroll down to page 10 of 12 in the policy form. While this filing deals with only one policy form, I would speculate that all of the Citizens policies will be similarly amended.

The complete filing (No. 09-11984) is available at http://www.floir.com/edms/temp1/SessionsPDFs/OnlyOrig09-11984.PDF

Additionally, this new form would require that “any one you hire in connection with your claim” must submit to an EUO if requested. I assume this is targeted towards public adjusters."

This is an important issue and will likely significantly change the way many claims are handled and resolved. I will try to keep everyone informed of these changes.

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:

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 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.

"The first question presented is whether an insured may prosecute a common law claim for breach of the covenant of good faith and fair dealing by an insurer based on the alleged failure of the insurer to investigate and assess the insured's claim within a reasonable time. Such a claim is alleged by the homeowners to be an independent basis for recovery, one distinguishable from a statutory bad faith claim under Section 624.155(1)(b), Florida Statutes (2008). Citizens maintains that the “breach of the covenant of good faith and fair dealing” claim is merely a “disguised” statutory bad faith claim and that no such common law claim is recognized in Florida."

Later in the opinion, the Court noted the issues raised are currently before the Florida Supreme Court in another matter:

"[T]he United States Court of Appeals for the Eleventh Circuit has certified these questions to the Supreme Court of Florida pursuant to Florida Rule of Appellate Procedure 9.150(a). See Chalfonte Condo. Apartment Ass'n. v. QBE Ins. Corp., No. 08-10009, 2009 WL 580775, at *7 (11th Cir. Mar. 9, 2009) [21 Fla. L. Weekly Fed. C1627a]. The Supreme Court has docketed the certified questions as QBE Insurance Corp. v. Chalfonte Condominium Apartment Ass'n., Case No. SC09-441."

QBE Insurance Corp. v. Chalfonte Condominium Apartment Ass'n., will be a landmark case in Florida. Mary Fortson and I have been working on an amicus brief on behalf of United Policyholders. My opinion is that it would not make sense for Florida law to not recognize the duty of good faith when every adjuster is trained from day one that insurers have such a duty. The duty of good faith and fair dealing is accepted as the most basic principal of an insurance company's primary obligation in the insurance industry.

Why in the world would a judge say that a good faith duty does not exist? To do so would not only be legally wrong, it would be factually wrong as well.

We will file our amicus brief and post in here in a couple of weeks. The decision in this case and the Corban case in Mississsippi are going to be very significant to the rights of policyholders.

To put this in proper context, my roots are in the entertainment industry which I thought was as far away from insurance as the East is from the West. Little did I know that the stories I would hear and the characters I would meet would rival even the most gripping Grisham novel or a Steven King thriller. My opinion may also have a little to do with my perception that the insurance industry was filled with unexciting, low-energy people and was a rather boring subject. This isn’t a far-fetched conclusion for people like me who tend to view life like a golden retriever in a world full of tennis balls.

On December sixth and seventh, 2008, everything changed! Merlin Law Group held a “Meet ‘N Greet” event that was targeted toward the Hispanic community. As a company we were growing more and more annoyed with the rumors we were hearing regarding abusive treatment dished out by the insurance companies to a particular demographic. We decided to see first hand what was really going on. I can tell you with absolute conviction that the stories I heard from this fantastic community made me appreciate and become interested in insurance… almost immediately!

The massive impact that insurance has on individuals, communities, economies and world governments should not be underestimated. With companies like AIG dominating headlines, we have learned how far and wide insurance companies’ tentacles reach. And this is where insurance becomes exciting. I am drawn to the human-interest stories that are plentiful in this dramatic theatre of property and casualty loss. Stories like the 92 years young woman that has paid her homeowner’s insurance for more than 60 years and lost almost everything. She is now living in a one room dwelling and cooking on a hot plate. The non-English speaking family with a total value policy of $30K that lost their roof and received a check for $46.00. These stories move me!

I find it mind boggling how legislators and states are controlling organizations like Texas Windstorm Insurance Association (TWIA) and Citizens Property Insurance Corporation. It’s intriguing how some of these individuals manage political careers while the people who elected them sift through their rubble, hoping to salvage a photograph. It’s dramatic to meet with people that are hurting and hear the lip service offered by the very insurance company that excitedly sold them a promise and now goes to great lengths to avoid honoring that commitment.

I suggest that insurance isn’t a boring subject at all. When you peel back the layers, it is based on all the elements of great theatre- deceit, destruction, conflict, good guys, bad guys, winners and losers. I’m confident that policyholders will ultimately prevail and even more hopeful that the opinion leaders and politicians will recognize their responsibility toward their constituents and get engaged in the fight for people’s rights. I admire the public insurance adjusters and attorneys who play a recurring role.

Insurance is about people, promises and profits and frankly, I think that’s very interesting!

- Frank Chimento

In a reply to State Farm Has Agents Spread Propaganda and Bullies North Carolina, I wrote in part:

“State Farm has many bright and dedicated managers running its operation. It is reflected in the extensive training and operations of the organization. It hires very effective outside consultants, lobbyists, and attorneys.

So, it comes as no surprise to me that they have set up a "decision tree" with alternatives which generally end up as a win-win for State Farm.

It can play the game of business as a "bully" or provide the appearance of being a long time supporter of Obama and a Good Corporate Citizen like it did with a full page ad in BusinessWeek just before the inauguration. It is now trying to show that it can be friends and supporters of the new federal government which it is lobbying.

State Farm is very, very good at getting what it wants in the long term. Just ask its competitors.”

State Farm executives certainly knew their announcement of its intent to leave Florida could have several different results. It would be hard to imagine that such bright business games players would not try to time the departure announcement for maximum effect and gain. Certainly, these executives contemplated the current scenario where Florida officials would not stop it from leaving. Whether they thought that Commissioner Kevin McCarty would prevent them from allowing their policies to be dumped into Citizens and having other restrictions mandated in the public interest is debatable. It will be interesting to see how this battle will play out over the coming weeks and months.

Nevertheless, shopping for homeowners insurance in Florida is not as easy as shopping for automobile insurance. State Farm may be hoping its spurned policyholders listen to its version of reality and complain to their elected officials. State Farm may be using its large customer base as leverage to cut a better deal.

State Farm's management may applaud and support articles similar to the Tampa Tribune’s. They can use such stories to show regulators in other states what happens when State Farm’s demands are not met. The hysteria and media exposure can help promote an alleged need for federal legislation and regulation that will be more favorable towards State Farm.

State Farm’s stated reason for leaving is a “sham,” according to the administrative law judge who presided over the rate request case. Its decision to leave is problematic only because it still carries so many policies. Possibly, State Farm knew that the timing of the announcement would carry more weight and cause more hysteria while it still held a large market share. If it left slowly and over a longer period of time, the impact of the announcement would not have caused as much of an uproar.

Exactly what the executives at State Farm want to achieve from all this and how they want the insurance market to operate is known by those at State Farm headquarters in Bloomington, Illinois. Floridians can only deal with the reality of State Farm’s hardball tactics and learn that they should never be vulnerable to this type of breach of the public trust.

In the long term, if we can encourage competitors to gain sufficient capacity, many of these problems will go away. The crisis State Farm is causing is one of timing---what are we going to do in the short term? So long as McCarty can mandate that State Farm disposes of its customers’ policies over several years and not force them to Citizens, Florida will get by this current crisis. However, if a massive hurricane or several moderate ones strike while this current financial crisis continues, an insurance crisis caused by an unfunded Catastrophe Fund will be upon us. Possibly, that is why State Farm executives decided to leave Florida---they do not want to be stuck holding the bag in the event the big one hits and the Catastrophe Fund has no money to reimburse it and other carriers. If the "big one" hits this hurricane season, Governor Crist will have many, including State Farm, in Washington asking for the Catastrophe Fund to access the Stimulus monies.

As we are getting closer to the summer months, I feel Floridians are on a runaway train and nobody has a plan to safely stop it. The only thing left to do is pray for a very long and clear track.

The number of building policies affected is estimated to be between 800,000 and 950,000. Only Citizens Property Insurance Corporation insures more structures in Florida. Approximately 1.2 million total policies will be phased out by State Farm over two years. Under Florida law, State Farm has to file a plan to remove itself from Florida. Kevin McCarty, of the Office of Insurance Regulation, will then step into the picture to evaluate and investigate State Farm's actions.

McCarty has taken a very calm 'wait and see' attitude. Very smart. He knows that State Farm does not just announce leaving a market without a strategic plan in place to help its overall position throughout the country and in Florida.

State Farm is an extremely effective propagandist. State Farm's internal manuals make clear that it uses employees and agents to influence politicians and media representatives. It places snippets of information, some truthful facts and quotes with the media, trying to influence what it wants to be read and heard. It uses lobbyists and politicians favorable towards it to influence other leaders.

State Farm's business plan involves government action. It seeks regulations and laws favorable to it and which often support common interests with other insurers (Allstate and Nationwide) in the property and casualty business.

The people at State Farm in Bloomington -- not Florida -- that made this decision think about the ramifications of these important decisions in a very global context. They want State Farm to remain the dominant player in the personal lines insurance market, and use propagandists and lobbyists to make it so.   When subtle propaganda does not work, it can also be a bully. It uses shock and threatening actions against those not in agreement.

McCarty should thoroughly investigate State Farm's true agenda and strategic desires through his ability to analyze the removal plan. A detailed investigation by his office may reveal the truth of State Farm's long term goals and uncover how it orchestrated this last action in the press and in Tallahassee. If State Farm truly has honest information in its internal memos and plans for its latest actions which suggest that it is in peril, it should have no problem allowing Florida to scan its computers verifying those facts.

Until then, we will hear sob stories about the Sate Farm agents and employees who are being hurt. We will hear stories about the poor policyholders (I am one of them) that will be forced to look for insurance. We will hear cries that Florida regulators forced this decision because they are unfair. We will hear every excuse in the world through a stream of public relations media ploys that are simply propaganda intended to convince us to accept the power of State Farm.

It has a lot of power because it has an army of people it financially supports to carry out this mission.

Corporations only exist because humans allow them to. These fictitious entities, by law, are generally under state charters requiring them to promote social welfare as well as profit. Because they never die, these fictitious entities can accumulate vast wealth which can then be used to influence how government and society should be run.

Power is vested in State Farm because laws exist which allow fictitious, non-voting entities to contribute to politicians and lobby human leaders. State Farm is openly challenging our leaders at this very moment through its announcement. It will use all its power and propaganda to get what it wants regardless of whether it is in the best interests of policyholders, agents, employees and people in general.

God bless Kevin McCarty and other strong leaders caring for us. State Farm does not worry about God because, unlike the rest of us, it is never going to heaven or hell.

Last week, the Citizens Property Insurance Corporation's General and Assistant General Counsel met with me regarding a number of claims topics. At the time, I knew my blog regarding recent complaints about Citizens and TWIA was about to be published. I told them about the complaints. They seemed bewildered. They explained their belief that the recent change in claims management had been very positive and a good move towards improving Citizens. I promised to send them examples of our findings so we could determine if what I was hearing from others is accurate.

The point is that my views are largely shaped by an upset or wronged policyholder's view. My livelihood is made representing them. My most significant daily activities are trying to figure out how to prove that insurance companies act in bad faith and why our firm's clients are entitled to more money.

Comments to this blog, are often "atta boy" cheers from policyholders and colleagues when I write about or expose instances of insurance company misconduct. Sometimes, my colleagues criticize my comments regarding the good business of insurers or when I empathize with an insurer point of view. I am certain that these cheers and jeers have some impact upon my view.

I am writing this at the 2009 Windstorm Insurance Conference. It is the most diverse claims conference in the country because the 1,300 plus attendees represent both sides of the claims process. The debates and viewpoints regarding claims handling and insurance coverage interpretation are fascinating because the panelists and attendees are policyholder representatives and the insurance industry. To the extent possible, the ability to share different views makes the Windstorm Conference a fair and balanced opportunity to learn and share information about windstorm coverage and claims.

My viewpoint is not so balanced. If you make your living from insurance companies, you probably will never admit it is fair--at least not publicly. I receive plenty of private "atta boy" praise from insurance adjusters and attorneys for writing and saying what some are afraid to say. Many insurance company adjusters, attorneys and vendors will not be seen with me or acting friendly towards me because they fear retribution by their insurance company clients. Some insurance executives view the claims world as an "us versus them" scenario; the customer with a claim problem and the customer's attorney is "them."

So, similar to Bill O'Reilly, I am making a fair and balanced report on the world of insurance. If the insurance industry would show more instances of good faith claims conduct for me to write about, I am certain it would seem more balanced. Perhaps the executives running the insurance companies should adopt my view and see things from the view of their customers. What a novel approach to running an insurance enterprise that would be.

Citizens was investigated in 2007 regarding its claims handling. The Citizens claims management explained how they went from an inept claims organization to one which maintained standards at least as good as any in Florida. While that was debatable, I agreed that Citizens responded better to the 2007 storms than it did in 2004.

Five months ago, there was a major change in the Citizens claims organization. Within the last month, we have received complaints regarding hardball, deceitful, and bad faith claims handling by Citizens with the full support of the new Citizens claims management. While Citizens publicizes that its intent is to provide "fast, fair, honest and accurate claims service," recent examples provided to me indicate that mission statement is false.

Insurance adjusters have to investigate coverage and evaluate damages. They are ethically bound to do this promptly, honestly, and in good faith. This is required of every adjuster as part of their license with the state of Florida. Today, Citizens adjusters are being told by its managers not to provide Citizens' estimate of damage to the policyholder or policyholders representatives. At the Florida Association of Public Insurance Adjusters Winter Conference last week, many public adjusters told me that Citizens refuses to provide its estimate of damage, claiming that it is "work product."

How a policyholder knows whether Citizens' payment is accurate without an estimate of how Citizens evaluates the damage is beyond me. It would be like getting an IRS refund and the IRS refusing to tell you how it figured the number. Or, imagine a scenario where a butcher takes the steak you select, tells you to give $20, weighs the steak, and then gives you back $2.02 in change, but refuses to tell you how much the steak cost per pound and its weight. Some may consider this a possible theft, yet this is what Citizens is doing to Floridians every day.

What is worse is that TWIA has been doing the same to its policyholders with a slight twist. It paid most slab claimants approximately 10% of the face value of the policy. It generally provided no estimate for this, but has indicated it was investigating. We have received dozens of calls from potential clients asking how long TWIA can take to investigate and not provide an estimate. Texas public adjusters are calling in furious because TWIA adjusters make up excuses for not providing any of its estimates.

The worst example is a Citizens policyholder now represented by Nancy Dominguez of Florida Adjusting Services Team, Inc. The policyholder was sent a check and complete release without an estimate. Citizens sent these, obviously hoping the client would take the check and sign the release. Nancy learned of this  and demanded an appraisal to resolve the amount of the loss because the check amount was far lower than the amount she estimated. In the appraisal proceeding, the Citizens estimate was finally turned over, and it was for an amount higher than the payment check it sent to the policyholder. The appraisal resulted in an award almost double Citizens' "hidden" estimate and about three times the amount of the fraudulent check.

Insurance adjusters should be prosecuted for this conduct. It is an attempt at insurance fraud.

Maybe our law firm should not complain. Our phones are ringing off the hook. Yet, while insurer bad faith is good for business, it is terrible when it is obvious these practices harm those who are already in desperate need of fair and honest treatment.

Senator Mike Fasano reportedly is drafting a bill that will prevent Citizens from raising rates. Given that his constituents are from an area along the coast and plagued with sinkholes so that Citizens insures many of them, I appreciate his desire to be seen as a "rate champion" for those policyholders--even if it is unfair to his other constituents not insured by Citizens.

Barney Bishop, of Associated Industries of Florida, has a special letter on his web site calling for no caps on rates. Since the insurance industry is heavily involved with the propaganda of that lobbying organization, I can understand his position as well. I am also curious as to what he tells  businessmen who are members of his group regarding the increased cost of rates if there were no cap on increases,contrary to the Task Force's reccomendation.

Is there ever a common middle ground? Or, is the middle just a place to get shot at by zealots from either side of a controversy?

The January edition of the Florida Underwriter has an editorial by Joan Collier entitled, "The SEC, Secrets, and Citizens." She notes that the SEC started an investigation of Citizens in June. Curiously, nobody reported this to its Board of Governors or the public until December 12. So much for Government in the Sunshine.

And nobody has explained where the claims money is going to come from if another Hurricane Andrew, Katrina, or Ike strike Dade, Broward, or Tampa Bay. While we can argue about rates, the role of Citizens, and whether or not the public should be informed of a federal government investigation of its operations, we surely cannot play a child's game of make believe when we face a possible catastrophic financial situation if such a hurricane struck.

Floridians have a right to know where they stand. Most of my clients want to know how I objectively see their case rather than a best case scenario. One of the hardest, but most important, actions a leader can take is to provide disappointing information in a calm and accurate manner.

Americans can accept bad news. We can understand why sacrifice is necessary. What we cannot afford is political grandstanding which implies action is not needed when the risk our State will be devestated is so dire.

Right now, the Texas Windstorm Insurance Association (TWIA) is nearly bankrupt. Many of our Hurricane Ike clients are speculating that payments are delayed or partial because TWIA is running out of cash. 

The TWIA financial problem will be nothing compared to Florida's if a major hurricane strikes later this year and our financial situation remains the same as today.

Krugman makes the case that health insurance is becoming so expensive that common folks simply cannot afford it or have to go to the "Wal-Mart" version of health insurance with very limited coverage. Thus, a National Health Plan is all but inevitable because only the wealthy are going to be insured in the future.

Similarly, affordability and availability of property insurance is becoming an ever more significant topic. The larger and mature insurance oligopoly is leaving any geographic area where catastrophes occur on a repeat basis. They want to avoid the peaks and valley of profitability--unless they can get a rate which is simply too good to refuse.

The response to this is no surprise because it is just like the health insurance crisis---let the government sponsor a program because the free market is not working. In Florida and Louisiana, the public insurance companies are named Citizens. In Mississippi, it is the Mississippi Windstorm Underwriting Association (usually referred to as Mississippi Windpool). In Texas, it is the Texas Windstorm Insurance Association (TWIA). Congress is now sponsoring bills which call for a national program for property insurance. What will happen is anybody's guess, but there is a definite trend towards government involvement in insurance where the basic needs (demand) cannot be met by private industry at an affordable price.

In the long term, I am not certain that it is in anybody's best interest to let the government run a business so important. As we are currently witnessing in the economy, government cannot even regulate the shenanigans that go on in private business, much less be expected to run it. I thought we learned those lessons through Russia's experiment with socialism. Yet, if there is no alternative....