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

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. 

Sometimes, the best course of action is to take simple steps to solve a problem rather than a radical departure. Tweaking a process may be the best course of action rather than setting in motion an entire new process that creates additional and often unforeseen adverse consequences. If I had to suggest one thing to Sean Shaw regarding his recommendations, it would be: “keep it simple.” There were so many new ideas being espoused at the roundtable without thorough thought as to all the consequences, that I am afraid he and others at the Office of Insurance Regulation could promote a new policy which could end up being more harmful than good.

Assuming that appraisal is a mandatory requirement in all property insurance policies, I still like what I proposed in my post, A Method for Keeping the Appraisal Clause in Property Insurance Policies Which Will Satisfy All Concerns. I have no problem saying that I may be persuaded with a better idea, but I heard none yesterday that provided a simple solution. After listening to others, I have changed my opinion regarding the licensing of appraisers. I think that there should be licensing of appraisers to help protect consumers from unregulated individuals giving legal and claim advice.

Policy should be reflected in law and regulation that promotes quick and full payment of property insurance claims. The implied performance duties of an insurer to adjust the claim are found nowhere in the insurance contract. Regulators and judges must understand that law and regulation are the only methods of placing adjusting performance claims duties contractually upon insurers. I agree with the insurance executive that spoke during the public comment portion of the session who said there needs to be accountability when those duties applied to the contract are violated. The Prompt Payment requirements championed by Senator Jeff Atwater should have greater teeth and the obligations of good faith claim handling should always have an aspect of accountability when breached.

The California law which requires disclosure of the insurer’s claims file to the insured upon request should be adopted in Florida. I raised this point in the session and nobody seemed to disagree. The first party claims file is the most relevant evidence of how the insurer is evaluating the claim. It seems to work in California and there should be no reason why it would not work here. Why shouldn’t an insurer be honest with its customer and honestly share how the claim is being handled? Only cheating adjusters would be afraid of honesty and transparency.

The individual largely responsible for this California law is Amy Bach, the executive director of United Policyholders. The California law provides:

The insurer shall notify every claimant that they may obtain, upon request, copies of claim-related documents. For purposes of this section, "claim-related documents" means all documents that relate to the evaluation of damages, including, but not limited to, repair and replacement estimates and bids, appraisals, scopes of loss,
drawings, plans, reports, third-party findings on the amount of loss, covered damages, and cost of repairs, and all other valuation, measurement, and loss adjustment calculations of the amount of loss, covered damage, and cost of repairs. However, attorney work product and attorney-client privileged documents, and documents that indicate fraud by the insured or that contain medically privileged
information, are excluded from the documents an insurer is required to provide pursuant to this section to a claimant. Within 15 calendar days after receiving a request from an insured for claim-related documents, the insurer shall provide the insured with copies of all claim-related documents, except those excluded by this section. Nothing in this section shall be construed to affect existing litigation discovery rights.

When I was speaking with Amy Bach about the Roundtable, she reminded me that California has optional appraisal where there has been a disaster. Either party may opt out. There, the insurers were abusing the process by outspending the policyholders and making the process so expensive for the consumer that it significantly lengthened the time to recovery and reduced the net payout because of the expense. Insurers leverage this fact with policyholders by threatening appraisal when negotiating settlements. As I pointed out yesterday, absent the obligations of good faith claims handling, the insurer often has no time pressure to pay claims quickly. Raising time and expense as a negative aspect to a consumer can provide insurers with enough leverage to achieve an underpaid claim result to the customer. Here is that portion of the California law:

Appraisal

In case the insured and this company shall fail to agree as to the actual cash value or the amount of loss, then, on the written request of either, each shall select a competent and disinterested appraiser and notify the other of the appraiser selected within 20 days of the request. Where the request is accepted, the appraisers shall first select a competent and disinterested umpire; and failing for 15 days to agree upon the umpire, then, on request of the insured or this company, the umpire shall be selected by a judge of a court of record in the state in which the property covered is located. Appraisal proceedings are informal unless the insured and this company mutually agree otherwise. For purposes of this section, "informal" means that no formal discovery shall be conducted, including depositions, interrogatories, requests for admission, or other forms of formal civil discovery, no formal rules of evidence shall be applied, and no court reporter shall be used for the proceedings. The appraisers shall then appraise the loss, stating separately actual cash value and loss to each item; and, failing to agree, shall submit their differences, only, to the umpire. An award in writing, so itemized, of any two when filed with this company
shall determine the amount of actual cash value and loss. Each appraiser shall be paid by the party selecting him or her and the expenses of appraisal and umpire shall be paid by the parties equally. In the event of a government-declared disaster, as defined in the Government Code, appraisal may be requested by either the
insured or this company but shall not be compelled.

Making the appraisal optional by law is an option which may be considered. Under this view, the inexpensive informal mechanism can stay in place by agreement. A negative aspect of my proposal is that policyholders may be better off simply litigating the matter rather than going through a full blown arbitration.

The insurance industry wants to push mediation. It wants to do this to avoid the perceived negative results of appraisal and still provide an alternative to litigation. My impression is that the insurer’s financial desire to achieve a reduction in the amount of claims severity (the average amount an insurer pays out for claims) can be achieved through a negotiation process where the insured can be leveraged by the prospect of delay and expense. Insurers train adjusters how to negotiate and even a voluntary mediation process can be abused. A Biloxi television station ran a feature of clients we represented that twice went through the Mississippi Department of Insurance mediation program following Katrina:
 

The real issue is how to get these disputes prevented in the first place. And, when they arise, how to get them resolved quickly and fairly. While it is easy for me to say that, coming up with an alternative dispute resolution process that is fair, quick and inexpensive, in a one size fits all format, is a puzzle that nobody has a perfect answer for. The prevention of the dispute and fair treatment can be accomplished as I have suggested with strong laws, transparency and good faith claims practice obligations.

But what about good faith disputes between parties? I still strongly feel that the insurer’s request for fair process of binding claim resolution with transparency is inherently sound. Indeed, that is what consumer’s want. And, what is often not said is that the result for the consumer once the dispute arises is often the skill of the appraiser or if litigated, the attorney selected by the policyholder. For example, our clients in the above video were advised by the first attorneys they hired to accept less in settlement than what the insurer twice offered in mediation. The skill of the right appraiser is something I noted in, Appraisers, Umpires and Appraisals as Valid Substitutions for the Right to a Jury Trial Depend on Viewpoint.

Insurance Veteran made a point that everybody in the insurance business knows. There are certain policyholders who want much more than what is fairly owed, and they unrealistically believe they are entitled to the money. Some of these people go over the top and commit fraud. Others just want magic to happen, and the claims money to be paid regardless of any justification.

While I can certainly appreciate his comment, he may have missed part of the point of my post. Many policyholder appraisers do not fully understand how to win the appraisal for the policyholder. They do not comprehend that the appraisal is truly an alternative dispute process that binds the policyholder.

Some may suggest that I am wrong, and that the goal of appraisal is a fair number for both sides. But, my policyholder clients may have a very different view of what fair is. So, if the insurer wants to dispute the amount in an appraisal, I want as much as I can get for my clients. After all, if there were no appraisal, my client would be asking a jury of peers for justice. But the insurance companies were historically so afraid of juries and costs, that a hybrid dispute process became standard in form insurance policies. Guess who benefitted most from that process?

Accordingly, my warning to all policyholders and those working with them in appraisals is that it is binding and should be taken as seriously as a public trial. I want the mindset of policyholders faced with an appraisal to be:

There is no second chance.

I started writing a reply that I feel better explains my impressions on this topic. Some suggest that I am opposed to appraisals for a number of reasons, including the possible loss of litigation revenue. These people do not fully understand the consequences of appraisal. I have a hard time explaining the historical importance of a jury as a core concept of American democracy, but I believe that giving up the right to a jury trial is the most important consequence of appraisal. Justice comes from the values of one’s peers in the community, not experts or government deciding what is fair and just. This is a fundamental concept of American democracy and protected by our Constitution.

My impression is that the skills of consumers’ appraisers have become much better. There are now numerous seminars that provide knowledge to public adjusters which result in an understanding of how to obtain a fair settlement for the policyholder through the appraisal process. Indeed, there now seems to be a certain segment of public adjuster that cannot reach voluntary resolution and thus use appraisal as the actual adjustment of the claim. The response is that some insurers are now removing the clause. From their view, there is not first a good faith adjustment which is then subject to a process that has no rules and enough transparency for them to think it is fair. And, the most important reason insurers are removing the clause is that they losing.

Finally, I applaud Sean Shaw. I would love to participate and listen to the views of the insurance industry. I have a warning about the comment from the lobbyist from the insurance trade association. But, that is for another day.

Again, keep it simple.

One of the sad realities about elected legislators is that some are simply not able to understand issues. Like deer in headlights, some have agendas but little ability to logically comprehend competing issues and analyze the crucial impact laws will have if not drafted precisely. Happily, Mike Fasano is not one of those legislators.

You should never pre-judge a person's ability to reason by the lack of formal education. Mike Fasano did not graduate from a traditional high school, due to problems after the death of his father. His very humble background is apparent in his concern for those that are less affluent. Many of his constituents are retired and on fixed incomes. When you consider his background and the demographics of his electorate, it is no wonder his primary insurance concern is that it is affordable and not a sham—meaningful insurance is necessary for the elderly and disenfranchised.

Fasano told me of a couple that had worked hard to pay off their mortgage. Unfortunately, they let their insurance lapse and their house suffered a severe uninsured loss. I told him that I have seen that scenario many times and that there is some value to the mortgage escrow requirements which require property owners to pay for insurance and property taxes. Some simply lose the premium or tax notices or forget to pay bills. It happens a lot more after some reach that goal of paying off the mortgage.

My impression is Senator Fasano could have been a priest or involved in some other charitable endeavor for his fellow brother and sister. He never mentioned any concern other than for the working class, the elderly, the retired, and how others in business or government could help protect them. While I have seen his contempt for others in some public hearings, in my interview with him, he expressed only interest in helping our State and its citizens and without a harsh word.

After meeting and spending time with Senator Fasano, I can appreciate why his constituents vote for him. He is dedicated to helping them and experienced enough to understand how he can help them. In the future, I expect Mike Fasano will find some other noble means to help people rather than use his talents for personal financial fortune or fame.

As am I, he is a strong supporter of Governor Charlie Crist, Senate President Jeff Atwater, and Insurance Commissioner Kevin McCarty. It would not surprise me to find him working in Washington, D.C. someday. Until then, I will try to provide him my understanding of insurance as he battles through those various complex issues. At least he appreciates and understands the difficulty of these issues which some of his elected colleagues simply do not.