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

You can read a complete copy of the Order by clicking the image below:

Jean Niven successfully argued that the sinkhole neutral evaluation process is unconstitutional. The Court's ruling is clear:

Article II, section 3, of the Florida Constitution divides our state government into three branches and expressly prohibits one branch from exercising the powers of the other two branches. No branch may encroach upon the powers of another, and no branch may delegate its constitutionally assigned power to another branch....As such, it would be an invasion of the authority of the Judicial Branch for the Legislature to pass a law that allows the Executive Branch to interfere with the final judicial determination in a case....

In cases involving sinkhole litigation, the Legislature has delegated to the Department of Financial Services, a part of the Executive Branch of government, the authority to act as (1) the judge by requiring the automatic admission of the Neutral Evaluator's report into evidence without considering its relevancy, credibility, authentication, or other evidentiary concerns and (2) trier of fact in determining whether or not sinkhole activity exists beneath a structure and determining the proper remediation. Only the Florida Supreme Court has the power to adopt rules for the practice and procedure in all the courts of the state....While the statute indicates that the Neutral Evaluation is non-binding, the statute still violates Plaintiffs' due process rights because the statute allows the Department of Financial Services to adopt its own procedural rules....Permitting a Neutral Evaluator to give an opinion which is admissible in court without any formal evidentiary rules or procedures, particularly with no right to cross-examination, constitutes a violation of the Plaintiffs' due process, under Article I, section 9 of the Florida Constitution.

A complete copy of the Order is here.

In my experience, when sinkhole claims are litigated, the most common issues raised by insurance companies seem to be the following:

• proper protocol to repair sinkhole damaged properties;
• whether a sinkhole is the reason for the damage;
• whether the claim for damages was promptly reported; and
• whether the cause of the damage manifested during insurance company X’s period of coverage.

According to the article, the conference discussed recent problems in a residential area of Port Richey where claims for sinkholes are on the rise.

One suggestion for insurers which might be helpful is to make sure the proper testing is performed to determine if sinkhole indicators are present. A simple guideline is to evaluate the subsurface conditions near the areas of damage. For example, if the majority of the damage is showing along a garage wall with stair step cracks, test the soils near this particular wall. I know the complexities of subsurface drilling can make testing in some areas of the property more difficult than others, but the locations of the tests should at least attempt to correlate with the areas of the property showing signs of damage.

Public insurance adjusters are often helpful in sinkhole claims. They know the right questions to ask of the insurance company to learn more about how the claim is being evaluated. Public adjusters are licensed, trained, and bonded professionals. Many of the public adjusters I know have a resume which includes insurance expertise. That’s right, company adjusters, agents, preferred contractor vendors, claims handlers, supervisors, and special investigators are the former occupations of many public insurance adjusters who now work for policyholders.

It is helpful to have a professional public adjuster helping with a sinkhole claim because the investigation process is more complex than many other property damages claims and the repair protocols are unique with this kind of loss.

An OPPAGA Report recently evaluated the growth, discipline and helpfulness of public insurance adjusters. Here is a direct link to this report titled “Public Adjuster Representation in Citizens Property Insurance Corporation Claims Extends the Time to Reach a Settlement and Also Increases Payments to Citizens’ Policyholders” http://www.oppaga.state.fl.us/MonitorDocs/Reports/pdf/1006rpt.pdf

A quick summary from the report reads:

The number of licensed public adjusters in Florida has grown significantly in the last six years, and the incidence of complaints, regulatory actions, and allegations of fraud involving public adjusters is generally low. Florida’s public adjuster laws are comparable to and in some cases more restrictive than those of other similar states.

Our analysis of Citizens Property Insurance Corporation claims data found that cases took longer to reach a settlement but received higher payments when claimants used public adjusters for claims filed in 2008 and 2009. Public adjusters represented policyholders in 26% of non-catastrophe and 39% of catastrophe claims filed during this period.

With respect to claim amounts and the need for policyholders to hire help, it states:

Policyholders with public adjuster representation typically received higher settlements than those without public adjusters. Policyholders that filed catastrophe claims in 2008 and 2009 generally received larger insurance settlements than policyholders that did not hire these persons. The typical payment to a policyholder represented by a public adjuster was $22,266 for claims filed in 2008 and 2009 related to the 2004 hurricanes (see Exhibit 6). In contrast, policyholders who did not use a public adjuster received typical payments of $18,659. The difference in payments was larger for claims related to 2005 hurricanes, with public adjuster claims resulting in payments that were 747% higher. However, as policyholders pay public adjuster fees as a percentage of their settlement, their net settlement would be lower than this amount.

 

Orth’s article highlights the Department of Financial Services Neutral Evaluation Program and urges consumers to use this process:

The state has approved 43 experts as neutral evaluators with no connections to builders or insurance companies. Insurers typically pick up any expenses for the evaluations.

Many people still don't realize they have this option, though, Giordano said.

The “neutral” evaluation program however, should not be used in lieu of hiring a policyholder advocate. Many of our prior posts have explained how this program works and the pitfalls associated with the process. Neutral evaluation was discussed in “How Neutral are “Neutral Evaluators Certified by the DFS,” “Something is Rotten in the State of Denmark, I mean, Florida - Problems with the Proposed Sinkhole Legislation,” and “Neutral Evaluation of Sinkhole Claims: A Three-Ring Circus.”

Specifically in the post “Down and Dirty with Neutral Evaluation,” the neutrality of the evaluators was discussed. To become a neutral evaluator an applicant needs to fill out an application with the Florida Department of Financial Services and be either a geologist or a geotechnical engineer. To qualify as neutral, the applicant can receive up to 90% of his or her gross income or revenue in the past calendar year from property insurance companies. Also, since the cost for the neutral evaluation process is paid for by insurance companies, the neutral evaluators are in effect working “for” the carriers.

As policyholders are required by statute to go to neutral evaluation if requested by the insurance company, I have attended many neutral evaluations. Before the actual evaluation, I provide the expert reports which support my client’s claim for damage. This is information many unrepresented policyholders would not even be aware they need or something they might not be able to afford. Unless the policyholder hires a trained advocate or has the knowledge and resources to handle the matter without help, the neutral evaluator only receives the reports commissioned by the insurance company. This can make it difficult to truly evaluate what is happening at the property.

First, gather basic information about each neutral evaluator on the list so that you are prepared to evaluate prospective neutral evaluators. The DFS maintains a file on each of the neutral evaluators. Request contact information and any other information the DFS has on each of the evaluators. If the DFS does not have a current CV or other information about the neutral evaluator, call or write to the neutral evaluator directly and request a CV.

Second, gather specific information related to the neutral evaluator’s experience with sinkhole claims, potential affiliations with insurance carriers, and neutral evaluation history. I suggest that you write directly to the neutral evaluator and ask about their experience with sinkhole claims, ask them to disclose to you which carriers they have worked for in the past, ask them to disclose what percentage of their business or revenue is generated from insurance companies, and ask them how many neutral evaluations they have handled and how many times they rendered an opinion in favor of the insured and how many times in favor of the carrier. Evaluate the information in light of your case – has this neutral evaluator always ruled in favor of the carrier? Has he worked primarily for insurance companies? If so, then these are likely not good candidates to conduct a “neutral” evaluation for you or your client.

The neutral evaluators may not want to provide you with this information, but the policyholder has the right to explore whether the neutral evaluator is truly “neutral.” It would be wise to gather this information for each evaluator now – not in the face of an impending neutral evaluation – so that you have the information at the ready and so that you don’t frustrate or irritate your potential neutral evaluator on the eve of a claim that he or she will be deciding.

Third, once you have a prospective neutral evaluator selected by the DFS, check the evaluator out with others in the industry – adjusters, attorneys, engineers, geologists– who may have valuable information to share with you. Often, the evaluator’s file information won’t tell the whole story. There is one neutral evaluator, for example, who has notified the DFS that he can no longer be neutral on Merlin Law Group files. This is useful information to know up front if your claim is one that could eventually wind up at our office. You can continue to supplement your “stock” file on each neutral evaluator as you have experiences or information to add.

You will have the opportunity to strike 3 of the DFS selections and the carrier will have the same opportunity. It is probably better to agree to someone selected by the DFS than to expend your three strikes and allow the carrier to do the same and be stuck with whoever the 7th selection is. You have more control of the process by evaluating and agreeing to someone early on.

There are qualified and fair neutral evaluators on the list. Unfortunately, there are many who really can’t be called “neutral.” The key is to prepare so you will not wind up with one of these not-so-neutral “neutral” evaluators.

It is evident why neutral evaluation might have been appealing to lawmakers. It is designed to be an alternative dispute resolution procedure to encourage settlement of sinkhole insurance claims—on its face, a good thing for insureds. However, problems have arisen in the application of the law. Here are a few:

Dirty Problem Number One: How to get a truly “neutral” evaluator

The statute requires the “neutral evaluator” to be a professional engineer or professional geologist who has completed a course of study in alternative dispute resolution designed or approved by the Department of Financial Services (“DFS”) for use in the neutral evaluation process, who is determined to be fair and impartial. The statute does not provide a procedure by which a neutral evaluator is determined to be fair and impartial. However, the DFS Neutral Evaluator Application asks if the candidate, or a business entity with which the candidate is affiliated, receives more than 90% of its gross income or revenue in the past calendar year from either property insurers or from property insurance claimants. Thus, so long as the candidate’s income from insurance companies or policyholders in the last year is only 90% or less, it appears they are determined to be fair and impartial. The vast majority of neutral evaluators on the DFS list are known insurance company expert witnesses, with a couple known to have served as property owner experts. Either way, it must be extremely difficult to be neutral when you have performed studies for your own clients in the very neighborhood where the neutral evaluation is pending.

Dirty Problem Number Two: How to ensure evidentiary protections when the Neutral Evaluator’s Written Recommendation is automatically admissible

According to the statute, neutral evaluation is “an informal process in which the formal rules of evidence and procedure need not be observed.” In spite of this, the neutral evaluator’s written recommendation “is admissible in any subsequent action or proceeding relating to the claim or cause of action giving rise to the claim.” This circumvents a number of Rules of Evidence, which are designed to protect all parties to a dispute and prevent the trier-of-fact (a jury or judge) from deciding cases on an improper basis.

For example, the Florida Evidence Code sets forth a number of tests regarding the qualifications of experts and the basis of expert opinions before they can be presented to a jury. Fla. Stat. 90.702, 90.704, 90.705. These are meant to ensure that witnesses have sufficient knowledge, skill, experience, training or education before they are presented to a jury as “experts,” and that the basis of their opinions is scientifically reliable. It is unclear how these rules will “jive” with the neutral evaluation statute which appears to automatically admit the evaluator’s written expert opinion into evidence without meeting these criteria. And this is just the tip of the iceberg. There are also problems with the unfair prejudice rule (Fla. Stat. 90.403), hearsay (Fla. Stat. 90.801) and substantive due process under the Florida Constitution.

Dirty Problem Number Three: How to keep insurance companies from wrongfully denying coverage for sinkhole claims

If a neutral evaluator opines there is no sinkhole, and a policyholder declines to drop the claim, the statute excuses an insurance company from liability for extracontractual damages. Does this mean there can be no bad faith liability even if a jury finds an insurer wrongfully denied coverage for a sinkhole claim? How does this square with Florida’s Unfair Claims Practice Statute Section 624.155?

Recently, regarding a burden of proof issue with the new sinkhole statute, Florida’s Second District Court of Appeal stated:

“We recognize the legislature’s desire to stem the tide of sinkhole-related insurance claims. . . . But we are hesitant to conclude that this . . . extends to the micromanagement of trial proceedings between private parties.

Warfel v. Universal Ins. Co. of N. Am., No. 2D08-3134, 34 Fla. L. Weekly D 2527, 2009 Fla. App. LEXIS 19070 (Fla. 2d DCA  December 9, 2009) at *11-12, n. 7.

We shall see if the appellate courts feel similarly with regard to whether Florida’s sinkhole neutral evaluation statute is on solid ground.

Ask yourself:

Is it fair to force insureds to submit their sinkhole claims to a “neutral” evaluator who earns her living primarily as an insurance company expert witness?

Is it right to present the evaluator’s written report, cloaked with the designation “neutral” and the apparent legitimacy of the Florida Department of Financial Services, to a jury charged with deciding if there is a covered sinkhole loss?

Is it proper for an insurer to be excused from liability for bad faith damages, even if a jury finds the company wrongfully denied coverage?

These are just a few of the highlights of §627.7074. It is a lion’s den of evidentiary problems and opens a whole new arena of discovery for lawyers to argue over: Do I get to depose the neutral evaluator? Who pays his witness fee? May I subpoena all of his nearby sinkhole investigations for insurers? Rest assured, insurers will fight to prevent this information from emerging for fear of losing the advantage the statute gives the companies over their customers.

Seems the legislature’s neutral evaluation hoop has become a full-blown three-ring circus. In the wise words of School House Rock:

Gonna have a three-ring circus someday,
People will say it’s a fine one, son.
Gonna have a three-ring circus someday,
People will come from miles around.
Lions, tigers, acrobats, and jugglers and clowns galore,
Tightrope walkers, pony riders, elephants, and so much more...

Guess I got the idea right here at school.
Felt like a fool when they called my name,
Talkin’ about the government and how it’s arranged,
Divided in three like a circus.
Ring one, Executive,
Two is Legislative, that’s Congress.
Ring three, Judiciary.
See it’s kind of like my circus, circus.

Ladies and gentlemen, boys and girls, please draw your attention to Ring Three, where the judiciary branch will attempt to tame a law gone wild.