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

Prior to May 17, 2011, courts applied the ordinary and plain meaning of the term “structural damage,” because the term was usually not specifically defined within policies of insurance. Post May 17, 2011, the Legislature’s five highly technical definitions of the terms “structural damage” adversely affect all policyholders’ sinkhole claims.

After the law went into effect, insurance companies began arguing the definitional change should apply retroactively to all sinkhole claims, not just to those claims occurring after May 17, 2011.

On December 7, 2011, the Middle District Court of Florida issued a significant opinion regarding the retroactivity of the phrase “structural damage.”

In Bay Farms Corporation v. Great American Alliance Insurance Company, the issue before the Court was “whether a 2011 Amendment to the Florida statutory scheme governing sinkhole insurance that for the first time added a statutory definition of “structural damage” should be applied retroactively to the insurance policy at issue or, in the alternative, whether the term “structural damage” in the policy should be treated as an undefined term.”

Specifically, the Court stated,

Bay Farms’ [the insured] vested contractual right to coverage under the Policy would be substantially impaired by a retroactive application of the 2011 Amendment. That is, if applied retroactively, the 2011 Amendment would severely restrict the degree of sinkhole coverage that Bay Farms contemplated and contracted for in 2008 when it purchased the Policy. In addition, Great American’s [insurer] contention that this Court should apply the 2011 Amendment to preclude Bay Farms from recovering on a claim (and potential cause of action) that accrued prior to the effective date of the 2011 Amendment is contrary to the general rule that once a cause of action has accrued, the right to pursue that cause of action is generally considered a vested right.

The Middle District concluded that because the insured had a vested contractual right to coverage for “sinkhole loss” as that term was understood when the policy was issued and any retroactive application of the 2011 Amendment would impair this right, the Amendment could not be applied retroactively.

This video, shown on the local ABC newscast, reveals incredible stories, including that of Dwayne Glover.

Mr. Glover discovered the sinkhole. He went to his basement to find out why they had no water pressure and saw water.

Mr. Glover explains that he was searching for the source of the leak and suddenly fell about two feet through the concrete floor.

After he crawled out, Mr. Glover could see a river of water rushing by under the concrete. He called the water department and then tried to leave the house with his family. As ABC explains, Mr. Glover’s structure shifted, jamming his front door. He forced open the door and took his family to safety. Mr. Glover is fortunate that he and his family were not harmed.

It is important for policyholders to contact their insurance representatives to verify if they have sinkhole coverage. If you live a non-sinkhole prone area, the coverage is likely inexpensive, if coverage is available. If you live in an area with a greater propensity for sinkholes, it is imperative to obtain coverage to protect your property, if it is available.

In Canales v. American Security Insurance Company, the insured discovered sinkhole damage to his property and filed a claim with his insurer, American Security Insurance Company ("ASIC"). When the claim was not resolved, the insured filed a Civil Remedy Notice ("CRN") with Florida's Department of Financial Services ("DFS") and later sued ASIC, including a claim for bad faith. ASIC filed a motion, asking the Court to dismiss the various allegations that Mr. Canales asserted against ASIC, including the count for bad faith.

Regarding the bad faith claim, the insured alleged that ASIC inspected his property, investigated the claim, and was aware that the cost of repair exceeded the policy limits, but:

ASIC pursued dilatory litigation tactics in order to delay proper payment and subject its policyholder to ongoing and potentially dangerous property damage. In short, ASIC acted in bad faith.

The United District Court for the Middle District of Florida began its analysis with this principle:

In order to successfully plead a cause of action pursuant to Fla. Stat. Sec. 624.155(1)(b), an insured must: (1) file a written Civil Remedy Notice; (2) obtain the favorable resolution of an underlying civil action for insurance benefits against the insurer; and (3) allege both that there has been a determination of the existence of liability on the part of the insurer and the extent of plaintiff's damages.

In its motion to dismiss the insured’s complaint, ASIC argued that the complaint didn’t identify the basis of the bad faith claim. Because the bad faith claim did not satisfy the pleading requirements set forth in the applicable Federal Rules of Civil Procedure, ASIC argued that it should be dismissed. In response, the insured argued that between his Amended Complaint and the CRN, there were sufficient factual allegations that established ASIC's bad faith.

With regard to the CRN, the Court explained the following: 

The Florida DFS' acceptance of a CRN serves as evidence that the CRN has sufficient specificity to provide the insurer with notice of the violation and start the 60-day clock...Because the DFS accepted Canales' CRN, the Court finds that the CRN provides a factual basis for the claims against ASIC sufficient to survive the Motion to Dismiss.

Based on this evaluation, the United States District Court for the Middle District of Florida denied ASIC’s motion to dismiss the bad faith claim on these grounds.

ASIC also argued the CRN undermined and contradicted the allegations underlying the bad faith claim. In his Complaint, the insured alleged that ASIC failed to pay the claim in good faith in a timely fashion after investigating the claim and determining that the cost to repair exceeded the policy limits. The Court determined that these allegations were sufficient under Florida law to support the bad faith claim.

ASIC's last argument in support of its position that the bad faith claim should be dismissed was the following:

Canales's bad faith claim must fail because it is predicated on the Policy's Loss Settlement provision, which is superseded by the Loss Settlement provision of the Sinkhole Endorsement ...The Sinkhole Endorsement states that ASIC will settle a sinkhole loss once the insured enters into a contract for repairs ...ASIC argues that it was not required to pay Canales the policy limits because he did not execute a contract for the repair work.

The Court evaluated the insured’s argument that portions of the Loss Settlement provision in the Sinkhole Endorsement not quoted by ASIC suggest circumstances in which ASIC might pay claims if ASIC's own estimates suggested that payment above policy limits is necessary to restore the premises to its pre-loss condition. The Court also considered the insured’s assertion that he had a contract for the repair work and that ASIC ultimately paid policy limits after the CRN expired. Although the insured apparently referred to the wrong policy language, the Court decided that this did not void the bad faith claim:

[A]n action for bad faith is extra contractual in nature and relates to the duties of an insurer as defined by statute, not the express terms of the contract…Furthermore, the statute specifies that CRNs ‘shall [refer] to specific policy language that is relevant to the violation, if any’ ...Thus, Canales was not required to reference specific, relevant language from the Policy. ..It therefore makes little sense to dismiss Canales's claim simply because he refers to the wrong policy language.

For these reasons, the Court denied ASIC's motion to dismiss the bad faith claim pursuant to Florida Statute 624.155(b)(1).

Please consider that this is an unreported federal trial court decision. Both unreported and reported decisions in other jurisdictions may rule differently on these same issues.

In Spiewak, the plaintiffs (“appellees”) sued the defendant (“appellant”) for injuries resulting from exposure to asbestos. After the exposure, but prior to litigation, the Florida Legislature passed the Florida Asbestos and Silica Compensation Fairness Act (“the Act”). Prior to the Act, an injured person had the burden to prove they suffered an injury from an asbestos released disease. After the Act was passed, an injured person’s burden was heightened to proving malignancy or actual physical impairment for which asbestos exposure was a substantial contributing factor. The appellant argued the Act’s changes, including the burden of proof, applied retroactively, barring the appellees’ claims. The Fourth District Court found in favor of the appellees, finding the Act could not be applied retroactively. The issue was then brought before the Florida Supreme Court.

Fortunately, the Florida Supreme Court has been consistent in finding substantive changes to laws cannot be applied retroactively, and Spiewak continued this precedent.

The Supreme Court held:

Retroactive application of the Act here would operate to completely abolish the Appellees’ vested rights in accrued causes of action for asbestos-related injury. For this reason, we conclude that the Act cannot be constitutionally applied to them.

Many policyholders are currently involved in litigation over their sinkhole claims and we can anticipate insurers arguing the new definition of “structural damage” applies retroactively. The Property Insurance Coverage Law Blog will post updates on related legislation and litigation.

Together we proved that individuals can make a difference. Sure, the powerful insurance lobby has nearly unlimited resources -- we can't control that.

But we have something they don't -- power in numbers.

When we stand together in numbers, there isn't anything we can't accomplish. In that spirit Policyholders of Florida put together this video. I hope you enjoy it:

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:

The consumers I spoke with that day voiced many of the same concerns I have with this proposed rate filing. They are afraid they won’t be able to afford their living expenses and will have to default on any mortgage that requires this coverage, further depressing the housing market in the most affected areas and further devaluing their homes, which for many is their largest and only personal investment.

As one of the first people to call on Westcott to stand up for policyholders threatened by these untenable rates, I applaud her willingness to engage with homeowners. I am also hopeful that her voice will be as loud and clear during the rate hearing in Tampa later this month. After all, that is her job as the Insurance Consumer Advocate.

You can read the press release by clicking the image below:

There has been quite a bit of media attention regarding the protest over Florida’s recent insurance legislation:

• Sinkhole rate hike spurs rally

• Pasco, Hernando residents' sinkhole coverage outrage on display

• Tampa Bay residents rally against proposed Citizens Insurance rate hike

• Insurance customers protest new sinkhole rates

• Pasco Residents, Fasano Protest Proposed Sinkhole Insurance Rate Hike

• Outrage in Pasco over proposed insurance hikes

• Tampa Bay residents protest sinkhole rate increases

Florida Senator Mike Fasano had some very enlightening comments about our politicians' lack of concern for their policyholder constituents:

Is there no common sense left in Tallahassee? Why would they even imagine or even consider suggesting these types of rate increases when people, look at them here. There are senior citizens, working families who can barely take care of the bills they have today. They're going to lose their homes

…

That bill was signed into law by our Governor. It has barely gone into effect and we already see the consequences the people of this area will pay.

…

 There are very few people in Tallahassee looking out for the little people.

Sean Shaw helped organize the event. He noted in Property Insurance Bill is presented to the Governor that these new insurance laws will harm policyholder interests:

I would argue that the majority of changes contained in SB 408 are anti-consumer -- the sinkhole and claims payment provisions in particular.

…

Lastly, although this bill is bad, the Legislative Session could have been a lot worse for insurance consumers of Florida. Thankfully, there were a lot of groups representing consumers in Tallahassee and the concerted effort to halt other anti-consumer legislation was successful. Hopefully, we can maintain the momentum.

While Shaw has maintained momentum through this protest, some politicians still parrot the insurance industry's propaganda that these laws were needed to curb fraud. State Representative Robert Schenck, a Republican representing the 44th district, voted for the original House bill. He explained his rationale doing so--"So if you guys want to know why we have so much trouble with sinkhole coverage in Hernando County, that's why. It's the rampant fraud."

Robert Schenck’s explanation is fraudulent, and he should apologize to his constituents for calling them insurance cheats. In Newspaper Questions Whether Politicians Favor the Insurance Industry Over Voters, I noted that politicians who are caught in bed with insurance industry lobbyists often resort to the “fraud” bogeyman as their excuse for voting for insurance industry interests to the detriment of their constituents:

I am amazed that after consumer advocates, including myself and Florida’s previous Insurance Consumer Advocate Sean Shaw, noted the lack of any concrete evidence that insurance fraud is forcing insurers to charge higher rates, lawmakers continue to parrot the insurance industry’s mantra. In essence, lawmakers are calling many of their own constituents who make insurance claims crooks, even though there is no evidence to suggest this is true.

…

Do you think Representative John Legg’s unfortunate constituents who suffered a sinkhole loss would appreciate his intimating that they committed a fraud? Do you think Legg would want those unfortunate constituents to be made aware of his statement? Why should anybody make such a charge, a felony crime, against people with absolutely no proof? Many of these people have seen their largest investments-their homes-significantly damaged or effectively destroyed through no fault of their own. And, how does one create or fraudulently convince insurers of a sinkhole loss?

The truth is that there is a little, if any, evidence of insurance fraud. Premiums should have gone down because the laws Legg and other Legislators voted for took away benefits, and those Legislators changed the laws to make it much more difficult for their constituents to collect if they have a loss. As a result, all Floridians with legitimate losses will receive fewer benefits.

The truth will set you free.

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. 

While this is an insurance coverage blog, my firm is actively trying to help policyholders keep their benefits under law. That law is under attack by the insurance industry. It feeds propaganda to legislators and gives them millions of dollars in campaign contributions as an incentive to support the industry’s agenda. Over the past few years, many in the Florida Legislature and government have listened to the insurance propaganda, giving very short consideration to the people that they are supposed to serve. It has been terribly frustrating for me in Tallahassee as a consumer advocate.

I predicted the current state of affairs in Florida Legislators' New Campaign Slogan: "I Worked Hard to Raise Your Insurance Rates and Give You Less Coverage!" I quoted the St. Petersburg Times noting that Florida’s lawmakers are in bed with the insurance industry:

The [insurance] industry wastes no opportunity to bemoan its inadequate rate increases and the next coming threat, five weeks before the start of Florida's hurricane season. This, insurers insist, will surely be the year of the Big One, the Mother of Category 5's.

It's great theater. We've been watching the same play for decades. The show has an admiring audience in many of our lawmakers who swallow pretty much what a rich and connected insurance industry feeds them.

There's just one problem. Insurers that cover people's homes and property in the United States are doing quite well financially.

The industry's own number crunchers - ISO and the Property Casualty Insurers Association of America - this month report that private U.S. property/casualty insurers netted $34.7 billion in 2010, up from $28.7 billion the year before. And that's after paying taxes.

****

Let's recap. Insurance industry profits rose by double digits last year. Does that sound like the sky is falling?

"Property/casualty insurers' positive results for 2010 show that insurers are well positioned to meet the needs of consumers and business owners as the economy recovers from the Great Recession." That's what David Sampson, Property Casualty Insurers Association CEO, said when announcing his industry's strong 2010 showing.

It is true that many insurers in Florida are small, weakly capitalized and in poor shape to sustain a major storm compared to those in other states. But that's a result, in many cases, of big insurers applying corporate tourniquets to their businesses in Florida, all but severing the parents from little state subsidiaries. That way, if a big storm hits Florida, a parent company would be legally distant from huge claims.

Which brings us full circle to Tallahassee's keen obsession today to let the insurance industry have its way here.

State leaders are supposed to operate for the benefit of Floridians. So it's a bizarre argument from Tallahassee that Floridians will be saved by dissolving Citizens Property and letting rates soar.

That won't aid struggling residents. It won't help revive the state housing market. It might create jobs, but at the cost of others. It will make employers considering expanding here think twice if their work force faces sky-high insurance rates.

One thing for sure, it will empower insurers to keep asking for more.

I am amazed that after consumer advocates, including myself and Florida’s previous Insurance Consumer Advocate Sean Shaw, noted the lack of any concrete evidence that insurance fraud is forcing insurers to charge higher rates, lawmakers continue to parrot the insurance industry’s mantra. In essence, lawmakers are calling many of their own constituents who make insurance claims crooks, even though there is no evidence to suggest this is true.

For example, in Lawmaker: Citizens' request for sinkhole rate increase premature, Representative John Legg was quoted as saying:

"Citizens needs to wait to see what impact these provisions have on the market, as it relates to sinkhole claims," said Legg, R-Port Richey. "I believe the legislation we passed will dramatically curtail fraudulent claims."

Do you think Representative John Legg’s unfortunate constituents who suffered a sinkhole loss would appreciate his intimating that they committed a fraud? Do you think Legg would want those unfortunate constituents to be made aware of his statement? Why should anybody make such a charge, a felony crime, against people with absolutely no proof? Many of these people have seen their largest investments-their homes-significantly damaged or effectively destroyed through no fault of their own. And, how does one create or fraudulently convince insurers of a sinkhole loss?

The truth is that there is a little, if any, evidence of insurance fraud. Premiums should have gone down because the laws Legg and other Legislators voted for took away benefits, and those Legislators changed the laws to make it much more difficult for their constituents to collect if they have a loss. As a result, all Floridians with legitimate losses will receive fewer benefits.

Legg also voted to allow Citizens to raise rates. Legg and his insurance industry friendly colleagues who voted for the anti-consumer insurance legislation that passed last session should not be surprised when voters and the media react now and next year at election time. Legg’s reasoning, that stopping fraudulent claims will reduce premiums, is essentially fraudulent.

I have visited with and supported John Legg. I plan to do so in the future because he is a dedicated public servant. I know he cares about his community. But I disagree with his view on this issue and hope he can learn from this mistake in the future.

Perhaps John Legg and his colleagues will learn not to trust the insurance industry and its lobbyists next year. Representative Robert Schenck, from Spring Hill, may be catching on. The Tampa Tribune noted in Sinkhole Coverage Bills to Soar:

But Robert Schenck, R-Spring Hill, voted for SB 408 because it was designed to cut down on fraudulent sinkhole claims, which is driving up everyone's premium.

The bill did not authorize Citizens to seek these huge rate hikes and Schenck said he is "completely and utterly opposed" to them.

"So what Citizens is doing is trying to make sinkhole insurance unaffordable," he said. "If nobody buys it, there will be no more claims. That's their strategy, not the Legislature's."

Senator Mike Fasano was very critical of his colleagues on this issue:

Sen. Mike Fasano, who fought SB 408 in vain this spring, scoffed at Legg's use of it to argue against the rate hike.

Fasano, R-New Port Richey, said his fellow lawmakers "should have realized … that the anti-consumer bill they voted for took away the (rate) cap. They should have known this was going to happen."

If lawmakers like Legg truly were focused on combating fraud, Fasano said, "they should have never taken away the cap until they knew whether the bill was going to work or not."

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.

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

A recent law passed by the 2011 Florida Legislature seems to limit when Florida insurance companies have to pay for sinkhole damage. The new law requires the damage to be "structural damage," which is defined in Florida Statute 627.706. The law took effect on May 17, 2011:

(k) “Structural damage” means a covered building, regardless of the date of its construction, 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.

Most insurance policies cover physical damage of any sort. Cosmetic damage has always been considered "physical" damage.” This is significant change for those who suffer a sinkhole loss.

The insurance industry wants to make these legislative changes to apply retroactively and limit what they have to pay to their customers for losses that occurred before the new law took effect. A circuit court presented with the issue has rejected the insurers’ position:

ORDER DENYING DEFENDANT'S MOTION FOR APPLICATION OF A TECHNICAL DEFINITION OF "STRUCURAL DAMAGE"

This cause came before the Court on June 2, 2011, on Defendant's Motion for Application of a Technical Definition of "Structural Damage." The Court being fully advised in the premises, and after hearing the arguments of counsel of record states that it is hereby:

ORDERED AND ADJUDGED as follows:

Defendant's Motion is DENIED. The Court finds that, notwithstanding recent amendments to Fla. Stat. §627. 706, et. seq., effective as of May 17, 2011, the phrase "structural damage" as it relates to the subject insurance policy in effect as of September 17, 2008 and as set forth in Fla. Stat. §627.706 (2008), is undefined, and that the Florida Legislature did not intend for a technical definition to apply. The phrase "structural damage" shall mean damage to the structure in question; in this case Plaintiffs' house. (emphasis added)

This decision calls for a celebration among my fellow insurance coverage nerds. And to that end, I would ask you to Raise Your Glass:
 

Plaintiffs' objection that the original version of Fla. Stat. 627.7074 (enacted in 2006) is unconstitutional is GRANTED for the following reasons:

a) The Court finds that the statute is unconstitutional because it permits the Florida Department of Financial Services, an agency of the Executive Branch, to select and determine who will serve as a Neutral Evaluator for claims in litigation regardless of whether the Neutral Evaluator is qualified to render an opinion on the issues presented as part of the neutral evaluation.

b) Further, the Neutral Evaluator's opinions and written recommendations shall be admissible at a later civil trial as to insurance coverage issues without first permitting the Court to determine whether the designated Neutral Evaluator is qualified to render such opinions under Section 90.702 of the Florida Evidence Code or that the report and opinions are admissible in the first instance.

This reasoning is very similar to Pasco County Circuit Court Judge Judge Stanley Mills’ ruling last week which concluded:

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.

These rulings demonstrate a trend in sinkhole insurance litigation. The legal reasoning is sound.

In recognition of these two Orders hot off the press and the hot summertime weather, how about this song to start your Fourth of July weekend:

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.

- 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.

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.

Paige St. John noted many of the illogical reasons for the proposed sinkhole bill in Momemtum to Pare Sinkhole Coverage:

But a Herald-Tribune analysis of records the insurance industry wants lawmakers to keep hidden suggests a legitimate basis for most sinkhole claims.

The analysis showed more than 75 percent of claims reported by insurers since 2005 are within one mile of sinkholes and other forms of ground movement reported over the past three decades to the Florida Geological Survey. The analysis found only 25 of 1,400 claims that fell farther than five miles from reports of sinkhole-related activity.

Sinkhole repair is difficult and costly. The most ridiculous and anti-consumer comment about that issue came from the Senator in whose District State Farm's Florida headquarters is located:

The vast majority with some caulking, with some repairs, could be taken care of," said Sen. J.D. Alexander, R-Lake Wales, a supporter of the industry bill.

Cheers to those opposing this bill.

There may be another factor for the rise in sinkhole claims, according to a Sun-Sentinel analysis of claims and interviews with geologists. The ground in Florida has shifted more quickly in the past few decades as development accommodated the state's growing population. That has triggered damage in homes across the state.

* * * *

"You moved people into an area, change it drastically … and you will increase the whole occurrence [of sinkholes]. We've shown that," said Ann Tihansky, a physical scientist with the U.S. Geological Survey.

Geologists have warned for decades that Florida's development, and pumping groundwater in particular, accelerates the development of sinkholes.

One shining example: When strawberry farmers in Plant City pumped groundwater to save their crops from cold temperatures in early 2010, they triggered dozens of sinkholes.

The growth in the number of sinkholes can't just be blamed on phony claims, said Bill Sinclair, a retired geologist who researched Florida sinkholes for the Geological Survey. "The impact of the population growth has a lot to do with that. There's more well pumping, more unbalance in the system," he said.

As Corey Harris and I were flying back to Tampa on Monday from a hearing in Ft. Myers, I pointed out to him all the obvious sinkholes on farms, ranches and undeveloped lands. They could easily be seen from the air. I remember throwing trash and burning debris on a couple of large sinkholes on my grandfather's ranch in Brandon, Florida, when I was a child. That ranch now has a housing community on it. Everybody knows that similar lands have been developed throughout Florida.

It is amazing how little discussion there has been regarding the underlying reason for Florida’s many sinkhole claims. The primary reason is that Florida geology has extreme karst topography. 

State Senator Mike Fasano made an impassioned argument for the proposition that insurance companies must offer sinkhole coverage. Florida public policy and law has long mandated that sinkhole coverage is offered. Senator Fasano's district is plagued by this peril. In Senate Bill 408, proposed by Naples Senator Richter, the insurance industry successfully lobbied to make sinkhole coverage optional. Significantly, the law allows Citizens Property Insurance Corporation to decline to offer this coverage.

Senator Joseph Negron showed a remarkable understanding of the subtle nuances of coverage and why public policy requires mandated insurance coverage. Historically, many insurance companies refused to offer insurance coverage for perils associated with earth sinking or movement. This obviously caused problems in areas where sinkholes are common.

Senator Fasano pointed out that the banking industry requires coverage be provided for such common perils. He read a letter from a banking executive concerned that Florida regulations were slowly changing to allow insurance which does not cover the perils commonly faced in Florida. It suggested that the proposed law makes Florida a less desirable location to provide inexpensive mortgages because the collateral could be damaged without a financial backstop provided by insurance.

My impression from the questioning is the Florida Senate has bought, hook, line, and sinker, into the insurance industry's view of the world. Senator Alexander made a statement that reflected the insurance company view of how insurance should be bought, sold and operated. His view is not consumer friendly, and is widely shared in the leadership of the Florida Senate. Under this view, policyholders making claims for sinkhole losses are, without a shred of evidence, essentially viewed as frauds or bad people. Further, this view supports little or no insurance regulation. It believes that a free market will solve the insurance issues.

Historically, this view has met with catastrophe for policyholders and society. Free markets are far from perfect in some industries. We witnessed this in the banking industry just two years ago. Insurance regulation has long been allowed and required because the private insurance free market has proven it cannot work and has resulted in numerous insurer bankruptcies and illusory protections for consumers.

On the other side of the coin, Florida legislators are faced with a difficult insurance issue to which there is no easy answer. The statistics seem to indicate that many insurers have been losing significant money to the sinkhole peril. Some change seems needed. In the Florida Senate Banking and Insurance Committee, it has been pretty obvious that the insurance industry has successfully won the debate over how to accomplish that change.

A number of policyholders were given a very limited time to explain their plight. A firefighter whose home was damaged and whose insurer denied coverage, explained how the hairline crack grew and grew until he could see outside through the crack. He cannot get the $210,000 loan necessary to fix the problem. Senator Alexander left the room before his testimony.

One policyholder expressed outrage that elected officials were more interested with taking care of the insurance companies than the people who elected them. She explained that her mortgage company required her to keep sinkhole coverage. She noted that her front door would not open and her ceiling was falling, and the damage would not be classified as a sinkhole under the proposed law.

As predicted in Are Florida Policyholders With Sinkhole Losses Doomed Without Coverage?, SB 408 passed the committee. There was only ten to fifteen minutes of public testimony at each of the three committee meetings. Some policyholders drove from as far away as Key West and never had a chance to speak. The Senators gave about 15 minutes to State Farm's lobbyist and limited time to the remaining speakers.

Florida HB 803, filed by Representative John Wood, has the same language. If the insurance industry is permitted to exclude sinkhole loss as it did before the coverage was mandated, Florida homeowners will have no coverage for this peril. The proposed change in the law leaves every Florida family one tragedy away from financial ruin.

Following the interview, I contemplated the issue of courage and whether our elected leaders and politicians have enough courage to stand up to the insurance industry and its political lobby. The insurance industry has essentially taken over the determination of insurance policy within the Florida Chamber of Commerce and Associated Industries. Its "soft money" campaign contributions are unsurpassed. Those of us with the ability and knowledge to challenge the powerful interests have a responsibility to help educate our elected officials and raise the prospect of intentionally misleading debate by these entities.

Standing up to illogical demands from those that support you financially can be difficult. When I write that the actuarial losses of sinkhole claims cannot be sustained in the long-term without changes to rates and/or changes in sinkhole coverage, I am certain some are not happy with that viewpoint. Yet, it is the truth and something must be done to change the current unsustainable situation.

What is not acceptable and seems to be the cowardly trend is the acceptance of untruthful and illogical reasoning for change of law or policy. "Fraud" is spewed from the mouths of insurance lobbyists and insurance propagandists as a basis for change. Few valid statistics ever support such charges. But using the word "fraud" as a false basis for insurance reform is as common as using the word "communist" was during the McCarthy era of the 1950's.

I was amazed that nobody in the Florida Senate Banking and Insurance Committee challenged the derogatory comment made by one insurance executive testifying that sinkhole losses are a form of "blue collar lottery." Such defamatory rhetoric is used to cast unfair suspicion and impugn the integrity of anybody making such a claim and those that provide help doing so. Senator Mike Fasano was a noted exception to the acceptance of such rhetoric. Other senators were not taking a stand nor did they have the courage to challenge the statement. The media simply repeated the pithy, but false charge. A problem with outcome oriented public policy agendas is that many have no logical basis for implementation. They can be quite destructive. McCarthyism and the absolute proof of Iraq having weapons of mass destruction are examples what a delusional basis can do to influence politicians.

Similarly, "fraud" and "lottery mentality" are the false codewords used by the insurance industry and its lobbyists to support its outcome oriented agenda. Whenever they are mentioned, elected officials and regulators should question whether there is a truthful and legitimate reason for the insurance industry's request for alleged "reform." The courage to demand a honest debate rather than support of a position and vote pre-determined is needed if we are to improve the insurance marketplace.

Senate Bill 408 is lengthy and covers many topics. Here is a summary of some key provisions:

PUBLIC ADJUSTERS:

amending s. 626.854, F.S.;

·        providing limitations on the amount of compensation that may be received by a public adjuster for a reopened or supplemental claim; (20% of the reopened or supplemental claim payment) p. 13

·        providing statements that may be considered deceptive or misleading if made in any public adjuster’s advertisement or solicitation;

·        providing a definition for the term “written advertisement”;

·        requiring that a disclaimer be included in any public adjuster’s written advertisement;

·        providing requirements for such disclaimer;

·        requiring certain persons who act on behalf of an insurer to provide notice to the insurer, claimant, public adjuster, or legal representative for an onsite inspection of the insured property;

·        authorizing the insured or claimant to deny access to the property if notice is not provided;

·        requiring the public adjuster to ensure prompt notice of certain property loss claims; p.19 (& give a copy of PA contract to ins. co. including % of PA compensation)

·        providing that an insurer be allowed to interview the insured directly about the loss claim;

·        prohibiting the insurer from obstructing or preventing the public adjuster from communicating with the insured;

·        requiring that the insurer communicate with the public adjuster in an effort to reach an agreement as to the scope of the covered loss under the insurance policy;

·        prohibiting a public adjuster from restricting or preventing persons acting on behalf of the insured from having reasonable access to the insured or the insured’s property;

·        prohibiting a public adjuster from restricting or preventing the insured’s adjuster from having reasonable access to or inspecting the insured’s property;

·        authorizing the insured’s adjuster to be present for the inspection; prohibiting a licensed contractor or subcontractor from adjusting a claim on behalf of an insured if such contractor or subcontractor is not a licensed public adjuster;

·        providing an exception;

amending s. 626.8651, F.S.; requiring that a public adjuster apprentice complete a minimum number of hours of continuing education to qualify for licensure; 

amending s. 626.8796, F.S.; providing requirements for a public adjuster contract; (Must include percentage of compensation)

SUPPLEMENTAL CLAIM:

creating s. 626.70132, F.S.;

·        requiring that notice of a claim, supplemental claim, or reopened claim be given to the insurer within a specified period after a windstorm or hurricane occurs; (3 year)

·        providing a definition for the terms “supplemental claim” or “reopened claim”; providing applicability;

amending s. 627.351, F.S.; providing that members of the Citizens Property Insurance Corporation Board of Governors are not prohibited from practicing in a certain profession if not prohibited by law or ordinance;

CHANGE IN POLICY: (p. 83)

creating s. 627.43141, F.S.;

·        providing definitions; requiring the delivery of a “Notice of Change in Policy Terms” under certain circumstances;

·        specifying requirements for such notice; (must be sent with renewal) specifying actions constituting proof of notice; (placing it in the U.S. mail is proof of notice) authorizing policy renewals to contain a change in policy terms;

·        providing that receipt of payment by an insurer is deemed acceptance of new policy terms by an insured;

ACTUAL CASH VALUE: (p.87)

amending s. 627.7011, F.S.;

·        requiring that an insurer pay the actual cash value of an insured loss for a dwelling, less any applicable deductible, under certain circumstances;

·        requiring that a policyholder enter into a contract for the performance of building and structural repairs;

·        requiring that an insurer pay certain remaining amounts; (as repairs are made)

·        restricting insurers and contractors from requiring advance payments for certain repairs and expenses;

·        authorizing an insured to make a claim for replacement costs within a certain period after the insurer pays actual cash value to make a claim for replacement costs; (1 year)

·        requiring an insurer to pay the replacement costs if a total loss occurs;

·        allowing an insurer to limit its initial payment for losses to personal property; (ACV or 50% of RCV, whichever is greater, and pay holdback with receipt of purchase)

SINKHOLE: (p. 91)

amending s. 627.70131, F.S.;

·        specifying application of certain time periods to initial or supplemental property insurance claim notices and payments; (90 days)

·        providing legislative findings with respect to 2005 statutory changes relating to sinkhole insurance coverage and statutory changes in this act;

amending s. 627.706, F.S.;

·        authorizing an insurer to limit coverage for catastrophic ground cover collapse to the principal building (so no outlying buildings, sheds, etc.) and to have discretion to provide additional coverage;

·        allowing the deductible to include costs relating to an investigation of whether sinkhole activity is present;

·        revising definitions; (“covered building” – seems to exclude driveways, pools, etc.)

·        defining the term “structural damage”; p.94 (1. foundation movement outside of acceptable variance of applicable building code; 2. damage which “prevents the primary structural members or primary structural systems from supporting the loads and forces they were designed to support”)

·        placing a 2-year statute of repose on claims for sinkhole coverage; (from the time insured “knew or reasonably should have known about sinkhole loss”)

amending s. 627.707, F.S.;

·        revising provisions relating to the investigation of sinkholes by insurers;

·        deleting a requirement that the insurer provide a policyholder with a statement regarding testing for sinkhole activity;

·        providing a time limitation for demanding sinkhole testing by a policyholder (60 days from denial of claim) and entering into a contract for repairs (within 90 days);

·        requiring all repairs to be completed within a certain time; (within 12 months)

·        providing exceptions to the time to complete repairs; (mutual agreement between policyholder and insurance company or the claim is in litigation, appraisal or neutral evaluation)

·        providing a criminal penalty on a policyholder for accepting rebates from persons performing repairs;

amending s. 627.7073, F.S.;

·        revising provisions relating to inspection reports;

·        providing that the presumption that the report is correct shifts the burden of proof;

·        requiring the policyholder to file certain reports as a precondition to accepting payment;

·        requiring a seller of real property to provide a buyer with a copy of any inspection reports and certifications;

amending s. 627.7074, F.S.;

·        revising provisions relating to neutral evaluation;

·        requiring evaluation in order to make certain determinations;

·        requiring that the neutral evaluator be allowed access to structures being evaluated;

·        providing grounds for disqualifying an evaluator;

·        allowing the Department of Financial Services to appoint an evaluator if the parties cannot come to agreement;

·        revising the timeframes for scheduling a neutral evaluation conference; authorizing an evaluator to enlist another evaluator or other professionals;

·        providing a time certain for issuing a report;

·        providing that certain information is confidential; p. 110 (oral, written statements or non-verbal conduct, other than “expressly required to be admitted by this subsection, are confidential” and can be disclosed only to the parties – i.e., can’t be admitted in court)

·        revising provisions relating to compliance with the evaluator’s recommendations;

·        providing that the evaluator is an agent of the department for the purposes of immunity from suit;

·        requiring the department to adopt rules;

Changes regarding insurance law seem much more frequent than they were a decade ago. The financially endowed insurance corporations have professional lobbyists that are peddling their economic desires on a full time basis to our elected officials and insurance regulators. These same insurance corporations often are behind the propaganda to vote against judges who don’t rule for the insurance industry’s agenda or position in cases. Florida Senate Bill 408 is substantially law that only helps insurance companies and does little for policyholders. It does not take a genius to figure out who first drafted the proposed bill.

Many of Florida’s elected leaders were financially supported by this very strong insurance lobby. As a result, many of the changes proposed in the legislation may become law. In a very perverse and counterintuitive way of thinking, this law will probably result in more business for me because insurers have more reasons not to timely pay property insurance claims.

Here’s hoping that future insurance law changes will eventually help policyholders rather than increase insurance company executives’ salaries and woe to those suffering catastrophe. Since we are speaking of changes, one singer personifies how much change can happen over a period of time and the music may help those reading through this bill:
 

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.

• Represented claimants recover higher sums from HomeWise Preferred.

HomeWise Preferred Insurance Company provided details from a sample of 110 sinkhole claims for the data call. One half of the sample, “non-represented claimants,” had claim payments totaling $8, 415,667.30. The other fifty-five represented claimants had claim payments totaling $10,306,136.86.

The report does not specify how the 110 claim sample was selected or whether the represented claimants were represented by a public adjuster, attorney, or both. Likewise, the report did not reveal whether any of the represented claimants were forced to litigate to achieve a fair result.

• No site inspections were performed in about 8% of the cases reported in the Data Call.

The report reads, “While some of the claims without site inspection were still open, for most, damage was determined by another procedure; others were denied, cancelled or withdrawn.”

What other procedures are being used by insurance companies that do not require a site inspection? How can a sinkhole claim be adjusted or denied without inspecting the site?

• Claim expenses paid by the carriers decreased

The report explains, “The change is partially attributable to the decrease in per claim Inspection Fees, Other Damage Loss, Other Loss Adjustment Expense, and Inspection Costs. Attorney and mediation fees showed a decrease per claim, however many of the insurers did not report the full amount of attorney and mediation fees, as they were included and paid as part of the indemnity payment of disputed claims.”

If this is only a partial explanation, what are the other reasons for the expenses to decrease per claim? Why are the inspection fees dropping in cost?

• What was missing from the report? Public Insurance Adjusters were not linked to the rise in sinkhole claims or even mentioned in the report.

The results of the data call have spurred a lot of discussion among those involved with insurance claims. Charles R. "Dick" Tutwiler discussed the findings of the report in the article, Florida Public Adjuster Reacts to Insurance Commissioner’s Report on Rising Sinkhole Claims. Dick Tutwiler is the president and CEO of Tutwiler and Associates, a highly respected public adjusting firm with its executive office in Tampa, Florida. “While the commissioner’s report reflected a rise in sinkhole claims, the root cause of why more claims are being reported is not identified. Clearly people are more aware about sinkhole damages given all the publicity from insurance company officials and media reports of sinkhole losses and this fact alone may account for the increased number of sinkhole claims.” In addition, Tutwiler & Associates explained that a combination of other factors may have led to an increase in claims, including “weather events, greater public awareness, policyholder fear of losing coverage, and urban growth in sinkhole prone areas.” Dick Tutwiler is more than qualified to chime in on what is happening in the industry because he and his firm adjust the claims on behalf of the policyholders of Florida and have a clear perspective of the claims from the frontlines.

I have known and worked with, and against, many fine lobbyists who are highly ethical and honest. The majority fall into that category. However, for years I have had to listen to some insurance lobbyists lie about the amount of fraud involved with sinkhole claims. They took a lesson from the McCarthy era tactics and simply made up information and presented it to legislators as the truth, even though they had no factual basis. Any fraud is wrong. Lobbyists who present false information as fact to influence legislation in their clients’ favor are, in my opinion, committing the same kind of fraud that they often wrongly accuse insurance customers of. Our regulators and legislators should remember this study every time an insurance industry lobbyist is spinning information concerning insurance claims.

How about a song acknowledging what everybody should think of when insurance industry lobbyists speak about insurance claims:

The sinkhole issue was noted as follows:

The idea of creating a state sinkhole "facility" was floated Thursday at an Office of Insurance Regulation symposium in Orlando on the state’s property insurance crisis.

Insurance Commissioner Kevin McCarty said the event, featuring mostly insurance industry officials, will help his office draft recommendations for state leaders on improving the affordability and availability of property insurance.

McCarty and insurance company executives said premiums aren’t keeping pace with expenses for many insurers because of backup coverage costs and a dramatic increase in claims costs, including expenses for sinkhole claims. Citizens collected $19.6 million in premiums specifically for sinkhole coverage in 2009 but paid out $97 million in sinkhole claims and expenses. Most of the sinkhole claims were for minor cracks in walls and driveways, according to the state-backed insurer.

John Auer, president of American Strategic Insurance in St. Petersburg, said a government program covering sinkholes is “by far the best way to go.”

“I know a lot of other companies feel similarly,” Auer said, adding that sinkholes are hard for insurers to cover because of the disagreement among architects and engineers about what is a sinkhole or not.

Auer also said that sinkhole costs are so high that they “could take some companies down before the rate can catch up with it."

This sounds an awful lot like the debate regarding coverage of mold related losses which took place nearly a decade ago. First party coverage for mold related losses is extremely limited or excluded under most property insurance policies. As Jason McCaul noted in
Plain Meaning or Fuzzy Interpretation? The Future of First-Party Property Coverage for Mold:

[B]etween 2001 and 2005, insurance companies quietly amended homeowner’s policies by adding endorsements that exclude coverage for mold damage. According to David Dybdahl, a noted expert in the field of insurance and risk management, insurance companies “blasted through more policies than anything in history -- faster than terrorism, asbestos or pollution. They quietly excluded [mold damage coverage] from everyone's policies, and they got away with it.

McCaul provided some background into the financial reasons mold losses are now often not covered:

The new millennium ushered in many unanticipated events: high speed Internet access, a Boston Red Sox World Series Championship, and an unprecedented rise in mold litigation. The statistics are staggering: in 1998, only 129 mold-related insurance claims were filed nationally. By 2001, this number had skyrocketed to 9,563. Despite this rapid surge in mold claims, the financial impact on insurers was minimal at first. In 2000, Texas insurers were settling most mold claims for a few thousand dollars. However, as attention to what some were calling “the next asbestos” grew, the potential dangers of mold spread across headlines and into the national consciousness. “Lurking, Choking, Toxic Mold” was the cover story in the August 2001 edition of the New York Times magazine. And for readers of the Washington Post, the attitude toward mold was no less threatening: the attention-grabbing headline “Exorcizing a Mold Monster” surely had homeowners thinking about whether their property or health was at risk.

As concern over mold swept across the nation, the eye of the inevitable legal storm that would pit homeowners against insurers over coverage for mold damage was forming in the most appropriate of places – Dripping Springs, Texas. There, homeowner Melinda Ballard had sued Farmers Insurance Group (“Farmers Insurance”) for failing to adequately reimburse her for the extensive mold damage to her eleven thousand square-foot home. Ballard accused Farmers Insurance of intentionally delaying its investigation of her claim in an effort to avoid payment. While Farmers Insurance stalled, toxic mold multiplied in Ballard’s home to the point where virtually nothing in the house was salvageable and the house itself was no longer habitable. Although Ballard was partially a dispute over coverage, the central issue was whether Farmers Insurance acted in bad faith in its handling of the claim. The jury’s verdict in June 2001 not only found that Ballard had been covered, it also heavily penalized Farmers Insurance for bad faith: Ballard was awarded $6.2 million for her property damage claims, $17 million for her bad faith claim, and $8.9 million in legal fees. While a Texas appellate court later reduced the
$32 million award considerably, the jury’s decision sent property insurers scrambling to look for ways to lawfully deny coverage for future mold claims. Thus, from the ashes of Ballard, the mold exclusion was born. (emphasis added and citations deleted)

Regardless of other reasons, severe and frequently encountered perils will not be covered unless the rates accurately reflect the risks of loss.  Sinkhole losses are expensive to properly repair. The frequency is primarily concentrated in a very small geographic area. I predict that, similar to mold coverage, only those willing to pay significant premiums with high deductibles or those with very large financial interests in property will have sinkhole coverage in the future. Just like mold, the insurance industry seems bent on either leaving markets with mandatory sinkhole coverage in areas where they often occur or simply not covering the risk.

This scenario is often repeated just after destructive hurricane seasons as insurers try to increase premiums to make up for the catastrophe losses. As I noted several years ago in, Do we build or flee in the face of catastrophic frequency and severity?:

Frequency and severity of loss have everything to do with our current insurance situation. The catastrophic frequency and severity of hurricanes from 2004 to 2006 was off the charts. And, the severity of loss (the average amount paid per claim) was extraordinary as well. Combined, these lead to historic losses in a relatively small catastrophe prone area. Like bookies looking for the sure bet, insurance companies are simply looking to place bets where fewer losses occur. As these private insurers flee the coasts, state insurers of last resort are left to fill the void, in some instances with less than satisfactory results. The long term answer is not easy and will not be cheap. People are determined to continue living close to beaches and water. Recognizing and accepting this fact, we must start to deal with the upfront cost of building more structurally sound and "hurricane resistant" structures.

Unlike hurricanes, sinkholes losses, similar to mold losses, occur on a fairly regular basis. Many trades and businesses depend on sinkhole claims because the losses are so prolific. Similar to mold coverage, those in the business will probably be blamed as the entities killing the goose with the golden sinkhole egg. The insurance industry seems to have made up its mind. From what I have read about the methodology regulators are using in their investigation on this issue, you don't need to be a weatherman to know which way the wind is blowing.

For example, Florida's insurance commissioner, Kevin McCarty, analogized public adjusters who are looking to sign up sinkhole claims as playing the game "Whac-A- Mole." In response, Tim Zeak, of Florida Public Adjusting, blamed the increase of claims on development in known sinkhole prone areas.

The ability of the insurance industry to get this story into the mainstream media certainly raises the spector of significant change at the regulatory and legislative level. Those changes remain to be seen. It is certain, however, that we cannot continue to incur such frequent and severe losses without changes in coverage, if sinkhole coverage is to remain at all.

The Ocala Star Banner ran a story last week, "Insurers Say Sinkholes Impact Marion Market." The introduction in the first paragraph of the following exerpt is an exaggeration of our practice:

William “Chip” Merlin, president of Tampa-based Merlin Law Group, which specializes in sinkhole claims, said population growth and development is more to blame for rising sinkhole claims.

“Number one is population growth,” Merlin said. “We're seeing more structures in rural areas that are prone to sinkhole activity. Number two, we're seeing more in farm areas because of irrigation. With more development we're not going to see a decrease, we will continue to see an increase.

Another factor, Merlin said, is how difficult it is to deal with insurance companies when it comes to sinkhole claims. “Yes, we are seeing more claims,” Merlin said. “It's much more difficult to collect payment so more people are going to attorneys.”

The Merlin Law Group does not specialize in sinkhole claims. We represent policyholders with insurance disputes. A small portion of those claims involve sinkhole claims. Since most of our practice involves disputes with property insurance at issue, we represent many policyholders with sinkhole claims. Indeed, as I wrote this, two attorneys in our firm are in the third day of trial regarding a sinkhole loss that the insurance company has denied.

Floridians have a much more difficult burden to prove and collect for their sinkhole damaged properties than in the past. Several changes to the statutory laws limiting how, what and when the insurance companies pay their customers for sinkhole losses have passed the Florida legislature. The insurance industry wants even more burdens and restrictions for policyholders, even limiting representation. To justify this, they have lobbied the Florida Office of Insurance Regulation to find "data" to limit policyholder choices and opportunities when faced with a sinkhole claim.

I am writing this while embroiled in a two day mediation for a large Texas school district involving a Hurricane Ike loss. Some may consider a school district with dedicated legal counsel, architects and building construction employees to be a sophisticated client. The truth is that if these policyholders are having trouble collecting and are having to retain professionals such as us, policyholders with sinkhole damage need professional help even more, given the current complex state of the law.

In the interim, Hurricane Earl has a windspeed map that must be concerning to those living on the Eastern seaboard.
 

If Earl wobbles just a little to the west, you don't have to be a NASA rocket scientist to figure out somebody is going to be welcomed as a new member of the slabbed storm surge association.

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?

The Tampa Tribune recently ran a story on this in Other Side in Sinkhole Controversy Responds. Some of my views were quoted in the article:

"The insurance industry does not like for sinkholes to happen because they hurt profits," William "Chip" Merlin, Jr., president and the founder of Merlin Law Group based in Tampa, remarked. The resident suffers a big drop in a home's value.

"The problem is that people in Pinellas, Pasco, Hernando and Hillsborough counties are in the sinkhole capital of the United States," Merlin continued. "Now that so many more people live here, it is only natural that more sinkhole losses show up. It is a tragedy. For anybody to suggest that attorneys cause this is insurance company propaganda.

"The way it works now is that the insurance industry has passed laws that create fights where the rules are in favor of the insurance company before the claim was ever submitted.”

A past President of the Florida Association of Public Insurance Adjusters (FAPIA), Dick Tutwiler, was also quoted:

"There were sinkholes back then," said Charles R. "Dick" Tutwiler of Tampa, who began his insurance career 37 years ago. He is now a licensed public adjuster who handles sinkhole cases in nine states.

"This is not a new phenomenon in Florida by any means," Tutwiler added in a phone interview. "Mother Nature has given us this (sinkhole-prone) geology out here and all of a sudden we've built on top of it."

A lot of people try to downplay the severity of the sinkhole, Tutwiler added. The more common type of sinkholes might make it so doors and windows don't open, not cause a house-swallowing catastrophic sinkhole.

"Sinkholes are the worse thing that could happen to your house," Tutwiler commented. The cause is underground and difficult at times to detect, unlike clues left behind after a fire.

Tutwiler believes residents with sinkhole problems need good advice. "If the policyholder doesn't have an advocate, they have to do it on their own. They're going to be handicapped."

I agree with his comments.

The way the current sinkhole laws work in Florida, policyholders need legal representation. Thanks to the insurance industry lobby, our Legislature passed laws making it much more difficult to prove the existence of a sinkhole loss. And when a sinkhole is found, the recent legislative changes make it much more difficult for policyholders to fully collect for the loss sustained. A good example of how the insurance industry is trying to make laws even worse for policyholders suffering from sinkhole losses is explained in my post, Sinkhole Proposed Law Only Pays Policyholder 25% of Available Coverage--Lessons of How the Insurance Lobby Spins a Message.

Florida Senator Mike Fasano has a constituency geographically located in the middle of sinkhole central. It is a no win proposition for him, and I bet he wishes I could waive a magic wand and make this insurance nightmare go away. He is rightly concerned that people cannot afford to purchase property insurance because the sinkhole peril is driving up rates. At the same time, when a sinkhole occurs, it is the worst predicament a homeowner can face. My views and respect for Senator Fasano are noted in Senator Fasano Defends His View Regarding Opting Out of Sinkhole Coverages:

I wonder how our clients, the Leeds, would feel if they had purchased only catastrophic sinkhole coverage or no sinkhole coverage, rather than the normal sinkhole coverage required when they purchased their "all-risk" insurance policy. Their home slowly but surely cracked, drooped, and sank over several years before it was condemned. If they "saved" money on their premium as Florida Senator Mike Fasano successfully pushed for in legislation, they would have lost the entire investment on their home. They would also still owe money on the mortgage, possibly causing bankruptcy.

I like and respect Senator Mike Fasano. He worries about the people without a lot of financial means. He is a good public servant who is not trying to use his office for personal financial gain.

While we see eye to eye on many issues, I respectfully disagree on the issue of allowing policyholders to "opt out" of sinkhole coverage. It is a very risky proposition--like opting out of "cancer treatment" to save on health insurance premiums. Chances are you won't get it. But, if you do.....

I believe that if you cannot afford homeowners insurance which would fully protect you from probable losses, you cannot afford the home. Insurance is merely a mechanism to spread the cost losses you cannot afford. If the frequency and severity of those risks mean higher rates to account for the probable losses, they will have to be paid one way or another. In sinkhole prone areas, there is no “free lunch” in the long term.

We need to address building codes which harden structures to protect them from sinkhole damage. While we are addressing hurricane mitigation efforts, there should be a greater emphasis placed upon structures built in areas of known sinkhole occurrence.

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.

Insurance adjusters are sometimes unsympathetic when an insured is fearful of living in a sinkhole home. After seeing this event, it gives one a new perspective of the pops and cracks residents often hear as they lie in bed at night.

Yesterday I was defending an examination under oath for a sinkhole claim in Spring Hill. Afterwards, as I ate lunch at Applebee’s, I overheard a lady lamenting at how an insurance company had confirmed sinkhole activity at her home five months ago, but had still not made a payment for the repairs. She was scared. People living in these conditions deserve to have their claims handled professionally and expeditiously. For insureds who are not receiving that level of service, we can help.

Here is the relevant language that has been added to Fla. Stat. 627.706:

627.706 Sinkhole insurance; catastrophic ground cover collapse; definitions.—
 

(5) An insurer offering sinkhole coverage to policyholders before or after
the adoption of s. 30, chapter 2007-1, Laws of Florida, may nonrenew the
policies of policyholders maintaining sinkhole coverage in Pasco County or
Hernando County, at the option of the insurer, and provide an offer of
coverage to such policyholders which includes catastrophic ground cover
collapse and excludes sinkhole coverage. Insurers acting in accordance with
this subsection are subject to the following requirements:

(a) Policyholders must be notified that a nonrenewal is for purposes of
removing sinkhole coverage, and that the policyholder is still being offered
a policy that provides coverage for catastrophic ground cover collapse.
(b) Policyholders must be provided an actuarially reasonable premium
credit or discount for the removal of sinkhole coverage and provision of only
catastrophic ground cover collapse.
(c) Subject to the provisions of this subsection and the insurer’s approved
underwriting or insurability guidelines, the insurer shall provide each policyholder with the opportunity to purchase an endorsement to his or her
policy providing sinkhole coverage and may require an inspection of the
property before issuance of a sinkhole coverage endorsement.
(d) Section 624.4305 does not apply to nonrenewal notices issued pursuant
to this subsection.

Prior to this amendment, and still in counties other than Pasco and Hernando, an insurer was required to offer a renewal policy that contained sinkhole coverage, but the insured could opt-out of the coverage if he/she elected to do so. Without any action on behalf of the insured, sinkhole coverage would remain in the policy. That has now changed in Pasco and Hernando counties. For residents of those counties, I suggest you review your policy to see if sinkhole coverage has been removed. If your policy has not yet come up for renewal this year, please pay close attention to the new policy that is issued and any notices your insurer sends. This new law does give insureds in Pasco and Hernando counties the ability to purchase sinkhole coverage by way of endorsement for an added premium. If you have property in Pasco or Hernando county and you have a policy where sinkhole coverage has been removed by the insurer, you should consider paying the additional premium to have the coverage added back into the policy. Sinkhole losses are most often total losses. Without sinkhole insurance, a sinkhole can be financially devastating.

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.

The St. Petersburg Times published an article this week explaining some of the benefits insurance companies will reap if the law is enacted. Sinkhole claims would be significantly affected. Here are some of the major points of concern:

● Insurer payments for covered sinkhole claims need only be done with “notice to the policyholder” rather than “in consultation with the policyholder.”

● Policyholders must enter into a contract to complete repairs within 90 days of coverage being approved.

● All repair work must be completed within 12 months after the contract for repair is entered into, unless there is an agreement otherwise, the claim is in litigation or neutral evaluation, or other factors outside the policyholders control prevent completion.

● Insurers can non-renew property policies due to a sinkhole claim being filed for a partial loss if the partial loss claim payment or payments exceed the policy limits of the policy in effect on the date of loss, rather than the policy limits of the current policy.

● The engineer or geologist doing the testing must issue the sinkhole report only to the insurer, instead of the insurer and policyholder, as provided under current law. However, the insurer must forward a copy to the policyholder.

● The insurance company’s engineering report is presumed correct, and the jury is to be advised of this. This is intended to shift the burden of proof at trial to the policyholder who must prove sinkhole activity is the cause of the damage. (For more discussion on burdens of proof in sinkhole cases see Amy’s April 7th blog, Donna’s blog last week, and my blog where I cited the recent 2nd District opinion,Warfel v. Universal Ins. Co.).

● Limits grounds for disqualifying a neutral evaluator to situations involving a familial relationship, prior representation of either party by the proposed evaluator or his/her firm, prior representation on substantially the same matter (meaning the same claim, property or any adjacent property). (For more discussion on problems with the current neutral evaluation process see my two prior blogs).

I would encourage our legislators to ask themselves:

Why wouldn’t an insurance company want to adjust a sinkhole claim in consultation with the policyholder?

Why would an insurer want to keep an engineering company from providing a report directly to a homeowner and, instead, require it to come through the insurance company’s office first?

Insurance companies claim these measures are necessary due to the incredibly high risk exposure in Florida. While this might be true for some aspects of the bill, there comes a point when the legislation is counter to the obligations insurance companies have to adjust claims in good faith. To paraphrase William Shakespeare, something is rotten in the state of Florida.

In the event of a sinkhole, insurance companies typically rely on the "settlement of loose, sandy soils" and "concrete shrinkage and bulging" exclusions in denying coverage. In order to prevail, the insurance company must prove that the excluded event; i.e. the settlement of loose, sandy soils and/or the shrinking or bulging of materials caused ALL of the damage to a residence.

Even if sinkhole activity is not affirmatively found in the SPT borings that are done on the property, if sinkhole activity cannot be ruled out as a cause OR contributing cause of all OR part of the damage, there is coverage for the loss. Simply stated, if sinkhole cannot be ruled out as one of the possible causes contributing to some of the damage to the house, there is coverage.

All a homeowner has to prove at trial is that there was a loss to the property during the policy period and that there was resulting damage. The homeowner does not have to prove that there is coverage; i.e. prove that there is a sinkhole on the property. Rather, the carrier has to prove that sinkhole can be ruled out completely even as a possible contributing cause to some of the damage. If the carrier cannot meet it's burden, there is coverage under the policy for the loss.

Here are sample jury instructions (click on the image to view):

Despite the numerous indicators of sinkhole activity and the widespread damage, an engineer hired by the insurance company signed his name to a report stating that there was no sinkhole activity. On April 3, 2010, the Florida Legislature introduced proposed legislation that would make the engineering report in a case like this the gospel truth. Specifically, the new legislation provides a strengthened presumption that the carrier’s engineer or geologist is always right. Yes, that’s what I said – the carrier’s engineer is ALWAYS presumed to be right, even in the face of overwhelming evidence that he is wrong!

Florida Statute section 627.7073 has always included a presumption that the findings of the carrier’s engineer or geologist are correct. That presumption, however, was merely a presumption that could easily be rebutted by a competent counter-opinion. The new proposed legislation, however, goes far beyond a mere presumption, it elevates the presumption and actually shifts the burden of proof to policyholders on sinkhole claims! Nowhere in the long history of Florida insurance law has the legislature ever singled out a specific kind of loss and, year after year, eroded the policyholders’ rights to recover under their policy (a policy that they pay good money for year after year, by the way) for that type of loss. The previous changes to sinkhole claims that provided for neutral evaluation, gave carriers the right to force clients to sign contracts before paying for repairs, etc., were bad enough for policyholders to endure. But now, this? We must put a stop to this type of legislative favoritism to insurance carriers.

The intent of the Legislature in shifting the burden of proof in sinkhole claims shows the Legislature’s allegiance. Legislators state that they are shifting the burden of proof to address “public policy concerns related to the availability and affordability of sinkhole coverage to provide consistency in claims handling and reduce the number of disputed sinkhole claims.” WHAT?? Do you know how many “disputed” sinkhole claims are real, actual, viable sinkhole claims where the carrier’s engineer has stretched the outer limits of creativity in denying sinkhole activity?

In the case above, for example, the home was built in 1972. In 2003, the home was still in pristine condition. Then, in 2006, something happened and the home shifted and twisted and huge gashes and cracks appeared in the house. The carrier’s engineer said that this was caused by shrink-swell clay activity. Note that any clay under the home would have been there since the home was built in 1972. The explanation was laughable and the carrier is actively working on resolving this claim now that they have considered how the engineer’s opinion will fare in front of a jury. Under the new legislation, my client would have a much tougher road to hoe to prove that the insurer’s paid engineer is wrong. I can only surmise from the proposed legislation, that the Legislature wants people like my clients to just go gently into that good night and not question or challenge the carrier’s opinion or stick up for their rights. Is that fair?

Policyholders have a right to free access to the courts and a right to a trial by jury. The proposed legislation throws these rights out the window. It is time that our elected Legislators remember who they are supposed to represent and who they are supposed to protect.

Here is a copy and comments will come later.

I am in Tallahassee today talking about these matters with our representatives.

F.S. 627.706 states in part:

627.706 Sinkhole insurance; catastrophic ground cover collapse; definitions.--  

.....

(c) "Sinkhole loss" means structural damage to the building, including the foundation, caused by sinkhole activity. Contents coverage shall apply only if there is structural damage to the building caused by sinkhole activity.  

The meaning of the word "structural" was recently brought before Judge Barton in Hillsborough County and he ruled against the insurance company, holding that "structural" damage means damage to the "structure," which includes purely cosmetic damages. See Judge Barton’s order below:

While this is not an appellate decision, it is persuasive authority and insurance companies who take this position should be challenged every time.
 

Boggs noted the following:

We are seeing an increasing number of cases involving the ineffective repair of sinkholes. I had a recent case where the homeowner repaired the property pursuant to the carrier’s recommended repair method, which called for grouting only. When the grouting failed to correct the problem, the carrier re-tested the property at our request. After drilling 65 feet below the surface, they found no evidence of the 270 cubic yards (27 truck-loads) of grout that they had previously pumped under the house. The homeowner and I were left asking: Where’s the grout? After the testing, the carrier re-thought its initial position that the repairs had been effective.

As recently noted in Sinkhole Proposed Law Only Pays Policyholder 25% of Available Coverage--Lessons of How the Insurance Lobby Spins a Message, the Florida legislature has a proposed law that would effectively prevent any type of sinkhole repair except for "grout only" repairs. Insurance companies should not lobby for insurance payments that do not fully repair homes and structures. I urge our elected representatives to vote against this type of legislation.

I suppose our Floridian clients have more in common with their neighbors from New Orleans than a legion of denied insurance claims. They also have homes and businesses that are gradually sinking into the great abyss. Perhaps a few of you remember a song from The Tragically Hip -- New Orleans Is Sinking:
 

Cases involving ineffective repairs usually take two forms. First, we see many cases where the unsuspecting policyholder agrees to do the repairs per the carrier’s recommendation and often chooses one of the carrier’s “preferred” vendors to do the work. The second are those cases where the carrier has invoked the right to repair and the repairs have failed. In these cases, the carrier has an obligation to expend the funds to restore the property to its pre-loss condition, regardless of the policy limits. That means that if the repairs fail and the cost to re-repair the property exceeds the policy limits, the carrier must still complete the repair.

In both cases, the carriers usually recommend grouting only and will not consider underpinning the property. When the repairs fail, the carriers often blame it on “normal” settlement following the grouting. It is a rare instance that the carrier will voluntarily agree to fix or reconsider the inadequate repair. How should you proceed if you suspect that the repairs were ineffective? First, notify the carrier immediately and give them an opportunity to inspect the new damage. Second, document the damage through photographs and notes. If the carrier fails to acknowledge that the repairs were ineffective, then you can ask them to re-test the property – if they insist that the repairs were effective and the property is continuing to experience damage, then possibly a new sinkhole has formed at the property. Alternatively, re-testing the property may show that the repairs were, indeed, ineffective – like in the case of the missing grout. It’s hard to argue with the scientific evidence that re-testing the property may reveal.

Note that each claim is different and must be evaluated on its merits. The key to protecting the policyholder’s rights in the case of ineffective repairs, though, is to notify the carrier immediately and to document all damage.

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.

Florida House Bill 1447 Provides:

Section 10. Subsection (1) of section 627.706, Florida 288 Statutes, is amended to read:

627.706 Sinkhole insurance; catastrophic ground cover collapse; definitions.—

(1) .... In order to reduce the impact of sinkhole-related insurance fraud, the insurer making sinkhole coverage available under this subsection shall specify a sinkhole coverage limit equal to no more than 25 percent of the structure ("Coverage A") limit under the policy. The sinkhole coverage limit does not affect the coverage limit for catastrophic ground cover collapse. The coverage limit for sinkhole losses includes payments for both indemnification and expenses.

The full amount of the limits are available for "catastrophic" sinkholes. But, catastrophic collapse is extraordinarily rare compared to the typical sinkhole collapses that afflict most homeowners. Most sinkhole catastrophes result in a slow death of a structure-- losing its soil support over months and years. Fixing those sinkhole problems in an inexpensive manner has proven difficult and this is where many battles exist between insurer and policyholder.

Insurance companies that have these losses want to pay as little as possible. Policyholders want a repair that will work and not subject them to concern that the home will start sinking again.

The cheap sinkhole fix that insurers want, and many bought and paid for insurance company experts support, is through the use of grout. Grouting a sinkhole loss as a repair method does not work in the long term and often does not work in the short term. I have had policyholders come to me after their home was destroyed during grouting. Neighborhood homes and roads can be impacted by grouting. I had a condominium retain me after the insurer poured so much grout into the sinkhole that no more policy limits remained. Many "grout only" sinkhole clients become repeat clients just a few years later.

Homeowners who repair a sinkhole with grout alone will lose significant market value of their home. It is bad enough that a homeowner loses value just by having a fully repaired home that has the stigma of being inflicted with a sinkhole. Losing additional value because potential buyers know that a "grout only" repair was performed is another reason why this legislation is so bad. The only repair homeowners will be able to afford is to repair with "grout" and in many, if not the majority, of instances, even a "grout only" cheap fix will exceed 25% of the available coverage.

Yesterday, I noted how insurance industry lobbyists used "spin" to sell their agenda to our well-meaning legislators. In this instance, the insurance lobby is using "insurance fraud" and "insurance abuse" as the "spin" to package an idea and agenda that will appeal to our well-meaning officials.

Who is against "insurance fraud?" Everybody is. Even if not fraud, who is against "insurance abuse?" Everybody is.

When insurance industry lawyers and lobbyists start using these terms to justify the reasons to limit coverages and benefits to policyholders, conservative legislators should understand that those lobbyists are "playing" them. Anytime an insurance company claims adjuster wrongly underpays a claim to a customer, the excuse and fall back is that the otherwise innocent and good insurance customer is deviously getting something they do not deserve and "inflating" the claim. The insurance industry would have your legislators believe that their own constituents are evil wrongdoers by requesting and claiming full f benefits when the insurer under-estimates and under-pays. If this were true, insurance would be the most defective product ever devised by mankind because it makes otherwise innocent citizens into crooks whenever they want more than the insurer thinks is owed.

The new mantra of insurance propaganda and the insurance lobby "spin" is:

"It is not only fraudulent claims that are wrong. All "inflated" claims are wrong and we have to do something about it."

Sounds good. And, it is "spin." From the insurance company perspective, "inflated" means more than what the insurance company calculates a claim should be paid. The insurance propaganda suggests that innocent policyholders are manipulating the system to get something they do not deserve, rather than the reality: the sophisticated claims adjusters and insurance company claims technicians have devised methods and arguments of repair, after thousands of similar claims, that are routinely under paying the full benefits owed to a policyholder.

It is extraordinarily profitable and provides a competitive advantage to devise methods to underpay claims and get away with it.

There was a reason why Allstate lied about the existence of and failed to fully turn over secret and internal property insurance claims documents to the Florida Senate and the Office of Insurance Regulation several years ago. Those documents evidenced a homeowners claims methodology that applied Allstate's carefully studied ways to make its property claims department a "profit center" by paying less on homeowners claims than other insurance companies. Allstate was so afraid to turn over these documents that it was sanctioned to not sell policies until it provided the Florida Senate and Office of Insurance Regulation with them.

I sometimes wonder whether our legislators have forgotten about these lessons and problems of underpaid and delayed claims in just a few years. I wonder whether they remember Allstate lawyers refusing to frankly and honestly answer questions. I wonder why they would be so inclined to now listen to insurance industry lobbyists and lawyers today, after they were so discredited just a few years ago.

These experiences and knowledge are sometimes overlooked today because legislators are our representatives for a relatively short time. Many were not present when these issues were raised just a few short years ago. The insurance industry has time on its side and the resources to develop and implement effective strategies to influence legislators.. I can now appreciate how our elected officials can be swayed by the clever insurance lobby.

In contrast, there are not so many insurance consumer advocates. Policyholders are working at their jobs, hoping that their elected officials will protect them. At the same time, full time insurance lobbyists are trying to provide the needed "political protection" to legislators that support the insurance industry proposed laws by providing the "spin" that will be placed into newspapers, magazines, and television so that otherwise anti-consumer legislation falsely appears as good public policy.

Insurance issues are generally not new. Problems that occur generally have arisen in the past or for reasons that are difficult to solve. The current debate about health insurance is an example of how difficult it can be to find a simple answer to these tough questions.

However, having a insurance product that leaves people with only a portion of the money needed to fully and properly repair an unfortunate calamity is a defective insurance product. Laws should not encourage such underpayment. HB 1447 may be grounded upon legitimate concerns which should be addressed, but it is the wrong solution to the problem for the unfortunate policyholder that has suffered sinkhole damage.

Most applications require the applicant to state whether there is any damage or disrepair to the property and whether there are any known sinkholes in the area. This information is important to insurance companies so they can decide whether they want to take the risk and underwrite the policy. I have seen it on far too many occasions where insureds have suffered a confirmed sinkhole loss at their home or business, but their claim is denied because of a misrepresentation on the application.

While most everyone relies on their insurance agent to fill out the application and signs the application without reading it, it is a very bad idea to do so. Everyone who signs an insurance application should read it thoroughly and make sure all information is correct at the time the application is submitted. If there is damage or disrepair at the property (i.e. cracks, etc.) or if there are any known sinkholes in the area at the time the application is filled out, this information must be disclosed. Even if you follow the advice in my last post and purchase sinkhole coverage, if you do not disclose all information on the application, the insurance company may nonetheless deny your covered claim. Don’t let that happen to you.

Be familiar with the condition of your property at the time you fill out the application and disclose all known conditions that are responsive to questions presented in the application. If you don’t, you may be buying a very big headache down the line.

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.

Florida Statute section 627.707 allows a carrier to withhold payment for the cost of building stabilization (sub-surface repairs) until the insured has entered into a contract to perform the work. Florida Statute section 627.7073(1)(c) declares that the “findings, opinions, and recommendations” of the carrier’s engineer or geologist as to the cause of distress to the property and as to the remediation protocol are “presumed correct.” Stacked together, these statutes have created a host of problems for policyholders seeking payment for proper repairs to their property. We have seen a trend in the last few years whereby carriers, armed with these new “rights,” have repeatedly recommended inadequate stabilization techniques and then withheld payment until the policyholders get under contract to do the repairs in the way forced by the carriers. The “my way or the highway” attitude surely can’t be what the legislature contemplated in reforming sinkhole legislation.

A closer inspection of the provisions of Florida Statue section 627.707 and a recent court decision give policyholders some much needed leverage in dealing with their carriers.

First, Florida Statute section 627.707 requires that the carriers “consult” with policyholders about the repair protocol. This “consultation” involves more than the carrier simply sending a repair protocol and saying “do it.” A meaningful consultation should include a dialogue about the proper repair method. Practically speaking, a policyholder will need to have a second opinion from its own engineer to present to the carrier. The relatively small investment in retaining an engineer will be well worth it if it results in the carrier agreeing to pay for the proper repairs.

Second, a carrier’s breach of its obligation to consult with the policyholder to develop a proper repair method could preclude the carrier from invoking Florida Statute section 627.707 to withhold payment for the stabilization until the insured is under contract. In certain cases, one party’s breach of a contract can preclude it from seeking protection under related portions of the contract. Here, Florida Statute 627.707 is part of the contract, and a carrier’s breach of one provision of the statute could affect its rights under other provisions of the statute.

Third, although Florida Statute section 627.7073 creates a presumption that the carrier’s engineering opinions and recommendations are correct, that presumption is rebuttable and it does not shift the burden of proof at trial. Recently, the Second District Court of Appeals held in Warfel v. Universal Insurance Co. of North America, that the presumption created in Florida Statute section 627.7073 does not shift the burden of proof to the policyholder at trial. In plain language – the carrier still has an obligation to prove by the greater weight of the evidence (i.e., the more persuasive and convincing) that the claim is excluded under an all-risk policy. This is a significant ruling that will help policyholders get fair treatment and adequate repairs for their sinkhole claims.

Here's the difference between sinkhole coverage and catastrophic ground cover collapse coverage in a nutshell:

Sinkhole coverage covers the circumstance where soils ravels into fractures created in the underground limestone. That raveling of the soil causes a home's foundation to settle unevenly. This uneven settlement (called differential settlement) causes damage to the home and its foundation. A sinkhole is not normally a hole or depression that you can see. Instead, it is something that occurs deep below the home or other structure that is not visibly apparent until damage to the home or other structure begins to manifest. The only way to determine if there is sinkhole activity on a property is to do geological testing deep underground.

Catastrophic ground cover collapse coverage, on the other hand, is far more narrow and restrictive. Most policies are written that in order for a catastrophic ground cover collapse to be covered, the insured must show that:

1. There is a visible depression;
2. There is structural damage to the home or other insured structure; and
3. The home or other insured structure must be condemned. If an insured cannot show all three, there is no coverage. It's at that time the insured wished they paid the additional premium to keep sinkhole coverage.

The best advice is to never opt-out of sinkhole coverage. Catastrophic ground cover collapse is very unusual. That is usually not how sinkholes present themselves. Therefore, the policy providing only catastrophic ground cover collapse coverage effectively offers no coverage at all.

Usually, a person’s home is their most important investment. With the frequency of sinkhole activity in this state, protect your investment and do not opt-out of sinkhole coverage.

While insurers typically cover sinkhole losses, other earth movement is excluded. Often, geotechnical engineering firms hired by insurers blame damage on decaying buried organics or expansive clays. These claims are worth a second look.

Two experts widely used by insurance companies to investigate sinkhole claims, Anthony Randazzo of GeoHazards, Inc., and Sam Upchurch of SDII Global Corporation, say in their treatise, The Geology of Florida: The Environmental Geology of Florida:

Shrinking/swelling clays and organic materials are commonly associated with alluvial sinkholes and may be concentrated within sinkholes.

So, if you have been denied coverage for cracking damage, dig deeper and get a second opinion. Those organics or clays could be associated with sinkhole activity.

For insurance adjusters, I recommend that you also follow Dimechimes. It has training information, news, and career information for those in the company and independent adjusting business. For example, in one of yesterday's posts, Texas full of claims news! TWIA Adjuster 2010 classes, TX Appraisal update, TWIA Class Action lawsuit from January 2010, there was useful information about the Texas adjustment scene. The comments about me were "dead on."

In August 2005, Mr. Warfel noticed damaged walls and floors in his home. He filed a sinkhole claim under his all-risk policy with Universal, and Universal retained experts to conduct the investigation required by Florida Statute section 627.707. Universal denied the claim after the experts it retained concluded that damage was caused by shrinkage, thermal stress, and differential settlement, all of which were excluded from coverage under the policy. Mr. Warfel then filed suit.

Universal asked the trial court to determine that Florida Statute section 90.304 allowed a jury instruction based on section 627.7073(1)(c) as a rebuttable presumption affecting the burden of proof. Florida Statute section 90.304 provided:

In civil actions, all rebuttable presumptions which are not defined in s. 90.303 are presumptions affecting the burden of proof.

Section 627.7073(1)(c) provided:

The respective findings, opinions, and recommendations of the professional engineer or professional geologist as to the cause of distress to the property and the findings, opinions, and recommendations of the professional engineer as to land and building stabilization and foundation repair shall be presumed correct.

Universal argued that its expert report findings were presumptively correct, and the presumption shifted the burden of proof to Mr. Warfel to prove that the damage was caused by a sinkhole. Mr. Warfel argued that the section 627.7073(1)(c) presumption was a “vanishing” presumption, which affected the burden of producing evidence but did not shift the burden of proof to him. The trial court agreed with Universal and instructed the jury:

You must presume that the opinions, findings, and conclusion in the SD II report as to the cause of damage and whether or not a sinkhole loss has occurred are correct. This presumption is rebuttable. The Plaintiff has the burden of proving by a preponderance of the evidence that the findings, opinions, and conclusions of the report are not correct.

Florida’s Second District Court of Appeal, however, sided with Warfel. The Court explained that in enacting the statutes relating to the expert reports, the Legislature did not clearly state that public policy requires a homeowner to bear the burden to disprove the findings and recommendations of the insurer's engineers and geologists. The Court also noted that all-risk policies traditionally give the insurer the burden to prove that a claimed loss is not covered. The Court then noted, it “must assume that the legislature was aware of this fact when it enacted section 627.7073(1)(c),” and that the Legislature “knows how to create burden-shifting presumptions under section 90.304.” Warfel v. Universal, 2009 WL 4640882 at *2 (Fla. 2d DCA 2009). In the absence of clear Legislative intent otherwise, the Court concluded the presumption under section 627.7073(1)(c) was a “vanishing” or “bursting bubble” presumption that affected only Mr. Warfel's burden of producing evidence. As Mr. Warfel produced credible evidence contradicting the presumption, the presumption vanished and the issue should have been determined on the evidence as though no presumption ever existed.

Because the trial court misapplied the presumption and gave the jury an instruction that improperly shifted the burden of proof, the Court awarded Mr. Warfel a new trial.

Justice Villanti dissented, writing that Florida Statute section 90.303 and the public policy behind Florida Statute sections 627.7065, 627 .7072, and 627.7073 support a burden shifting instruction.

You can read the entire court slip opinion here.

The portion of the statute upon which State Farm relied stated:

The insurer may limit its payment to the actual cash value of the sinkhole loss, not including underpinning or grouting or any other repair technique performed below the existing foundation of the building, until the policyholder enters into a contract for the performance of building stabilization or foundation repairs. After the policyholder enters into the contract, the insurer shall pay the amounts necessary to begin and perform such repairs as the work is performed and the expenses are incurred. The insurer may not require the policyholder to advance payment for such repairs.

The insureds argued that that the language in their homeowners’ policies, which required payment within sixty days after the amount of the loss is settled by appraisal, controlled.

Finding that the language of Florida Statute 627.707(5)(b) was permissive and not mandatory, Florida’s Fifth District Court of Appeal agreed with the insureds and held State Farm to the terms of the policy it wrote.

We construe this language as permissive, not mandatory. Because it is permissive, the policy language that requires payment of subsurface repairs within sixty days after the appraisal award is not in conflict with the statute and is binding on the parties to the insurance contract.

You can read the slip opinion here.

I like and respect Senator Mike Fasano. He worries about the people without a lot of financial means. He is a good public servant who is not trying to use his office for personal financial gain.

While we see eye to eye on many issues, I respectfully disagree on the issue of allowing policyholders to "opt out" of sinkhole coverage. It is a very risky proposition--like opting out of "cancer treatment" to save on health insurance premiums. Chances are you won't get it. But, if you do.....

I also think the legislation leads many Floridians into violating most mortgage agreements. Sinkhole coverage is available and most mortgages require broad all-risk coverage to be purchased. I have heard some claim that the banks will purchase sinkhole coverage as "forced placed" and charge a significant amount back to the policyholder anyway. So where's the savings in that scenario?

And, aren't we just begging for people that get stuck with slow moving sinkholes and no coverage to walk from their properties? The properties will not get fixed. Lower property values and blighted neighborhoods will also result from legislation. In this scenario, even the people who did not purchase sinkhole coverage lose. Neighbors are financially harmed when others are allowed to be cheap.

The sinkholes will continue. Many are tempted into a significant gamble of not paying some money today in return for an unlikely financial disaster tomorrow. Fasano's legislation makes many policyholders into gamblers with the financial bet of their lifetimes.

Still, I understand Fasano's concern. If people are driven from their homes because of escalating insurance costs and from other non-discretionary expenses, there is another real social problem. This is especially so for the fixed income retirees in his district. He made a choice and felt this was his best, possibly only, option to combat that issue. I suggest he keep working on other alternatives.

I disagree because he equates "savings" of premiums without also taking away the total impact of policyholders not having insurance when the "big one" starts destroying their nest egg investment. He should also factor the total impact the legislation has on all our property values when people walk away from or cannot fix their sinkhole damaged homes. My guess is that if he made such a calculation, the positive number he cites in the following discourse with the Tampa Tribune would be a large negative loss for individuals and our community at large.

Choice in sinkhole coverage

The Tampa Tribune
Published: October 24, 2009

Regarding "A sinking feeling in Pasco and Hernando" (Our Opinion, Sept. 28):

I disagree with your claim that "property owners in sinkhole-prone Pasco and Hernando counties are getting shafted by the governor and the Legislature." Allowing residents in these two counties to choose for themselves whether they want full sinkhole coverage or catastrophic ground cover collapse coverage gives them economic freedom that was previously prohibited by law.

When I sponsored legislation in 2007 to allow Citizens Property Insurance Corp. customers the option of choosing to drop full sinkhole coverage, it was because insurance rates were extremely high in these two counties due to the number of sinkhole-related claims.

Residents who live in areas that were not sinkhole prone were stuck paying the same rates as those who were more likely to experience sinkhole activity. This was not a "stunt" as you proclaim but an opportunity to give people more choice and control over the decisions they make based on their budget situations and geographic location.

At my request, Citizens supplied some information to demonstrate just how successful the sinkhole option has been. As of June 30 of this year Citizens had a total of 43,881 policies written in Pasco. Of those policies 80.5 percent of homeowners chose to exclude sinkhole coverage. This resulted in a total premium savings of $38,792,481.

During the same period, a total of 22,014 homeowners were covered by Citizens in Hernando County. Of that number, 65.5 percent of residents chose to not purchase full sinkhole coverage. This translates into a savings of $12,417,368.

Combined, homeowners in both counties saved $51,209,849 in premiums.

The $51 million saved in premiums are dollars that remained in the pockets and bank accounts of everyday people. Many of these individuals are seniors living on fixed incomes, families struggling through tough economic times and those trying to make ends meet week after week.

This past spring the Legislature passed a bill that allows private companies in Pasco and Hernando counties to do what Citizens was given the opportunity to do in 2007. With the possibility of premium savings being in the millions of dollars, the "stench" and "scheme" you call this legislation is totally unfounded. I doubt any resident who chooses to have their premiums nearly halved would argue in favor of being forced to keep full sinkhole coverage.

Mike Fasano of New Port Richey represents District 11 in the Florida Senate

His article concerning the Loss Payment Clause is about a fairly standard provision found in all commercial and residential insurance policies. It usually provides:

Loss Payment. We will adjust all losses with you. . . . Loss will be payable:

a. 20 days after we receive your proof of loss and reach agreement with you; or

b. 60 days after we receive your proof of loss and

(1) there is an entry of a final judgment; or

(2) there is a filing of an appraisal award with us.

David argues that the clause should be interpreted to mandate payment of the undisputed or agreed to amounts of the loss:

The loss payment provision must be interpreted to mean that once an insured has submitted a properly executed sworn proof of loss (POL) statement, the insurer has a certain number of days to tender the undisputed amount of benefits. Insurers argue that the provision implies an obligation to pay benefits only after there is an "agreement" between it and the policyholder.

Taking this argument to its extreme, the insurer would never be obligated to pay benefits as long as it disagreed with the POL's claimed amount, in part or whole. Under such a contract, the insurer could collect premiums from the policyholder but never have a contractual obligation to perform any duties, unless it expressly agreed to them.

A more reasonable interpretation of the loss payment provision is that on submission of the POL, if the claimed amount exceeds the insurer's damage estimate, the insurer is obligated to tender undisputed benefits in agreement with the policyholder, leaving the balance as disputed.

Certainly, insurance companies acting in good faith should pay all amounts undisputed as promptly as possible and most do. I cannot imagine an equitable reason which would allow a debtor to hold onto monies agreed to as owed. The inequitable reason to do so is for leverage of the disputed amount. Replacement cost policies certainly contemplate prompt payment of undisputed amounts because most have time requirements for actual replacement. Some states now have penalties for insurers that do not promptly pay agreed amounts of loss.

The Merlin Law Group is very proud of what David has accomplished and for his continued development as a policyholder leader. Here is the article in full.

I am thrilled as well. Our firm spent over sixty thousand dollars in costs for experts, deposition costs of USAA’s experts, deposition transcripts, and trial exhibits. All of it plus our time was on the line pending the outcome of the trial. Without spending the money to properly prepare and present the case, we certainly would have lost. I am fairly certain that USAA spent a considerable sum above that for its able attorneys and their costs. Its pockets are a lot deeper than ours because it can use its own customers’ premiums to finance litigation against them.

Craig Kubiak has tried approximately ninety cases to a jury verdict. I asked him what he felt was a significant deciding factor in the case. He claimed it was the credibility of the insurance company experts at trial. Sinkholes involve very complex geological concepts. Unfortunately in Florida, they are not rare. However, the distress sinkholes place on structures mimics a number of other geologic and subsurface activities which manifest in cracks or downward subsidence. Without precise and thorough investigation, much sinkhole damage to structures can improperly be attributed to a number of causes excluded under most property insurance policies. Indeed, except for Florida statutes mandating the sinkhole coverage, insurance policies generally exclude this cause of loss.

Craig felt that the pre-trial depositions taken by his wife Kelly lead to a number of flaws and admissions by the insurance company experts. Apparently, some of the soil borings taken by USAA sinkhole experts were discarded before we could have our experts review them. We felt this was improper and tried to exclude the experts’ opinions, but the trial court did not rule with us on the spoliation of evidence issue. We were surprised by this trial ruling. Indeed, the destruction of evidence certainly prevented us from fully questioning the basis for their findings. In the future and as a result of this case, it is my understanding that USAA will require its experts to retain the physical evidence gathered to support their experts’ opinions.

Craig also said the opposing counsel was one of the finest and most effective trial attorneys he has faced. Most insurance counsel are pretty good at trial or they would not be hired by insurance companies on a repetitive basis. Craig and I discussed how it must feel to represent insurance companies on such a basis and if there is joy in a sense of winning for an insurance company. The biggest litigation machines in America are insurance companies and they are savvy at legal representation. We are aware of a number of insurance defense counsel who pour their hearts out, win at trial, and then get rewarded with a fight about the amount of the legal bill or having other less skilled competitors ready to take over an account for cheaper fees.

Under Florida law, we are now allowed to request interest on the amount owed since the time of the denial. We will also ask for taxable costs and an award of reasonable attorneys fees. Had we not prevailed, USAA had filed an Offer of Judgment against its policyholder which it threatened to enforce. Such an action by USAA would have effectively bankrupted its customer merely for filing an insurance claim with USAA and challenging USAA in court. I mention this because, while many USAA customers think USAA is such a nice and good company typically catering to the military, it has a litigation history which can only be described as quite harsh with their member policyholders. The Mississippi Katrina litigation is such an example where USAA has tried nearly as many cases as State Farm, despite having a much smaller market share. Slabbed reported on one such a case in Judge Bridges: the negligence was not “gross.” Still, there are many insurers with a much more “difficult” claims culture than USAA and I feel the Katrina litigation was an aberration for the typical claims decision making for USAA.

Trials are important for society. Lessons are learned from them. Future litigation and controversies can be avoided from the lessons, if applied. I am certain that our mid-fifty year old single mother of two is relieved that she is not facing bankruptcy. Whatever USAA pays in judgment of the verdict and ancillary amounts owed has no such impact upon it. USAA executives and claims managers probably are not worried about any accountability for their wrong decision. I doubt they regret anything.

I fought against this new option. I felt people would opt out of coverage mandated by their mortgages as well as avoid the exposure to the most probable loss in areas close to Tampa. I thought "cheap" versus "safe" was bad public policy. I lost.

Well, complaints about the new law are starting to filter in as indicated in this letter to the editor:

"Sinkhole plan didn't work out

Did our elected officials really think mortgage companies would not catch on about the automatic dropping of sinkhole coverage? The if-they-don't-ask, don't-tell-them suggestion that Sen. Mike Fasano made at a meeting at the Spartan Manor was not going to work for long.

While I was president of HAC (Having Affordable Coverage) I strongly warned people the new legislation to automatically drop sinkhole coverage was risky and that when the mortgage companies figured it out the coverage would be required. We already knew of local banks that were requiring it, but it is only a matter of time before they all will require it. It is after all a peril that can destroy your home and cost tens of thousands of dollars to repair.

Well the proof just came in the form of a letter from U.S. Bank Mortgage Co. to a mortgage holder. The letter reads in short that the homeowner who had his sinkhole insurance automatically dropped from his insurance company is required to maintain his coverage or it will be forced.

The letter states:

"We understand from speaking with many insurance agents located in Florida that catastrophic ground collapse has been added to these policies in lieu of sinkhole coverage. However, our research has indicated major differences between these two perils. A sinkhole is the systematic weakening of the land supporting your home. If damage attributed to a sinkhole were to occur to your home, your property could still be deemed livable by your local authorities.

"A catastrophic collapse is a geological activity that results in all of the following conditions: 1) an abrupt collapse of the ground cover, 2) a depression in the ground cover visible to the naked eye, 3) structural damage to the building, including the foundation, and 4) the insured structure must be condemned and ordered vacated by a government agency. While we understand the financial burden caused by the current insurance situation in the state of Florida, we are required to ensure your home is covered in the event of damage. Sinkhole damage not only causes significant damage, but the repair costs are very high. Without sinkhole coverage, a homeowner would have to bear the burden of the cost to repair the property while maintaining their monthly mortgage payment.''

Now, what shall I tell this man who has Citizens Insurance, lives in Pasco County where no other insurance companies are writing and cannot afford to add the sinkhole policy back? Not to mention now to add the insurance back you will have to have a sinkhole evaluation at your cost. So much for our elected officials working to help lower our insurance!

Virginia Stevans, New Port Richey"

It will get worse as people incur uninsured losses and everybody asks why the risk of such loss was not spread across Florida. Eventually, these losses will result in lowered property values, lowered tax base, lowered appeal to live in the community, lowered expectation of property appreciation and a lowered economic opportunity in the Pasco community. In my view, Pasco County has doomed itself in the long run by passage of a law that lowers their insurance premiums in the short run versus building recovery in the long run. This letter is just the start.

"[A] bill awaiting Governor Charlie Crist's signature would allow for cancellation of private sinkhole coverage in Pasco and Hernando Counties -- including hers. Under Senate Bill 742, private insurers could "non-renew" sinkhole policies beginning next year. In the same notice, insurers would offer sinkhole coverage as an add-on at a higher rate and require an inspection at the owner's expense.

"It's not a good idea, especially in Pasco and Hernando since it's a very sinkhole prone area," said Bill Newton of the Florida Consumer Action Network. Newton fears insurers will raise rate so high that many homeowners will balk at the premium and inspection, choosing to go without sinkhole coverage.

"And sinkholes happen," Newton said.

New Port Richey Senate [sic] Mike Fasano, who helped write the bill, said it is modeled after a pilot program being tested by government-run Citizens Property Insurance and is intended to benefit homeowners.

"It's worked very well," Fasano said, noting that Citizens' overall property insurance premiums decline 45 to 50 percent when sinkhole coverage is dropped.

Fasano said sinkhole coverage is often just "bells and whistles" and that catastrophic collapses, such as those that swallow homes, are covered under homeowner's policies even if there is no specific sinkhole coverage.

"If you want to have the cracks in your driveway, cracks in your drywall type coverage, that's what we call the bells and whistles. And you're going to have to pay extra for that," he said.

Florida Insurance Council Spokesman Sam Miller said on Wednesday afternoon that he was unable to immediately say whether insurers expect the bill to reduce their overall risk in Florida, which is often been described by the industry as a losing venture."

The bill arrived at Governor Crist's desk and he now has until June 18 to act on the bill. If he does not veto the bill, it will become effective on January 1, 2010.

In my post last Sunday, Sinkhole Coverage and Losses are Extraordinarily Complex, I noted that Jean appeared to do a fantastic job at the appellate argument. This week, while in the Advanced Trial Advocacy Course, we received notice that the Florida Second District Court of Appeal affirmed our trial win. I wrote a note to our firm that I felt Jean won the trial and appeal because the insurance company alleged that I created error in the trial of the case. Jean did the trial preparation and presented the first part of the case. I came on towards the end to take on the experts and bring home the verdict in summation. Jean justified our positions and affirmed the win for our clients, the Leeds.

Eventually, every policyholder attorney must present a client’s case to a jury. This week's program revitalized my belief in what we do and the importance of improving skills of advocacy--becoming better advocates for our clients' position.

Litigation is not like television. The typical insurance company hires only good attorneys, experienced in creating significant obstacles to recovery. Those bright, tenacious, rascally, and well paid insurance company attorneys will find something to argue against recovery. Often, trying to predict the outcome of a trial and what proof will be necessary helps us get a better and quicker recovery for our client without ever having to take the case to trial in the first place.

I feel lucky to have an accomplished advocate, Jean Niven, working with me day to day, for the policyholders who place their trust with us. I am thrilled for the Leeds.

Florida follows the nearly unanimous view that all-risk insurance policies provide very broad coverage and all that needs to be shown is a physical loss during the policy period. Indeed, some may suggest that the Florida cases only require a "physical loss" and, to deny coverage, the insurer must also prove the loss occurred outside the policy period. Florida sinkhole cases and broken pipe under structure cases highlight these causation issues.

Sinkholes can appear overnight or move slower than we would appreciate during our lifetime. Was a small "settlement" crack in the driveway noticed ten years ago the result of a sinkhole or was it just an isolated crack caused by concrete settlement or even a heavy car? Some insurance adjusters in Florida will do everything they can to try to link those minor cracks to the possibility that the sinkhole or pipe loss occurred at some time when the insurance company was not on the hook. And, since the pipe that broke under the structure cannot be seen, how does the policyholder really know that the pipe was not installed that way by the contractor? Without creative insurance company adjusters looking to raise these factual questions to deny coverage, policyholders would not need legal counsel, like me, writing how their cases end up getting denied and warning them to be careful and accurate about facts said to an adjuster.

The language found in Hudson v. Prudential Property & Casualty Ins. Co., 450 So. 2d 565, 568 (Fla. Dist. Ct. App. 2d Dist. 1984), is pretty standard of these type of cases: 

"To determine the burden of proof on the parties, we must examine the policy...the policy is not a specific peril policy, such as a policy of fire and lightning insurance, where the policy insures only against certain named risks. Rather, the policy insured against "all risks" except as otherwise excluded. Recovery under such an "all risks" policy generally extends to all losses not resulting from misconduct or fraud unless the policy contains a specific provision expressly excluding the loss from coverage. Phoenix Insurance Co. v. Branch, 234 So.2d 396 (Fla. 4th DCA 1970); 13A G. Couch, Cyclopedia of Insurance Law 2d § 48:141 (rev. ed. 1982).

As already noted, sinkhole coverage was provided for the Hudsons by virtue of the mandatory endorsement to the policy. That endorsement did not change the "all risks" nature of the underlying policy; it merely narrowed the earth sinking exclusion. See Strubble v. United Services Automobile Ass'n, 35 Cal.App.3d 498, 505 n. 6, 110 Cal.Rptr. 828, 832 n. 6 (1973). This harmonizes with the law in Florida that insurance coverage must be construed broadly and its exclusions narrowly. Demshar v. AAACon Auto Transport, Inc., 337 So.2d 963, 965 (Fla. 1976); National Merchandise Co. v. United Service Automobile Ass'n, 400 So.2d 526, 532 (Fla. 1st DCA 1981).

Applying these principles...the general rule of evidence is that a plaintiff seeking to recover under an "all risks" policy has the burden of proving that, while the policy was in force, a loss occurred to the insured's property. Egan v. Washington General Insurance Corp., 240 So.2d 875 (Fla. 4th DCA 1970); Phoenix Insurance. Once the insured establishes a loss apparently within the terms of an "all risks" policy, the burden shifts to the insurer to prove that the loss arose from a cause which is excepted. Phoenix Insurance; Jewelers Mutual Insurance Co. v. Balogh, 272 F.2d 889 (5th Cir. 1959). The plaintiff is not required to disprove any excepted causes. Stonewall Insurance Co. v. Emerald Fisheries, Inc., 388 So.2d 1089 (Fla. 3d DCA 1980).

As the parties point out, there was a direct conflict in the evidence as to the cause of the damage to the Hudsons' home. Thus, the trial court's allocation of the burden of proof on the issue of Prudential's liability became of critical importance. Since Prudential's defense was based on an exclusion to the policy, the court's instructions had the effect of improperly placing the burden on the Hudsons to prove that their home was damaged by a sinkhole. Consequently, the jury was apparently under the mistaken impression that the Hudsons, as plaintiffs, had to "tip the scales" to prove that sinkhole activity caused the damage." (emphasis added to highlight the general principals of causation proof in Florida) 

The following damaged pipe case, Widdows v. State Farm Fla. Ins. Co., 920 So. 2d 149, 150-151 (Fla. Dist. Ct. App. 5th Dist. 2006), is an amusing example of how little proof of damage is needed under an all risk insurance policy by the policyholder and how the insurer has the burden to prove that the loss is entirely excluded. I know the attorneys on either side of the case and a little about the facts of the case not recited in the court's opinion. The facts in dispute and language of the court should be read closely:

"The issue in this case is whether Appellee has an obligation to repair a plumbing abnormality under a provision in the insurance policy that covers "accidental direct physical loss" to the property. The evidence established that Appellant called a plumber to repair a backed-up toilet. During his investigation of the cause of the problem, the plumber discovered that the drain pipe connecting the toilet to the sewer pipe had become "backpitched," thereby impeding the flow of water. Because the pipe was beneath the slab and had not been excavated at the time of trial, the plumber could not determine the exact cause of the abnormality. Among the possible causes advanced by the plumber, however, were settlement under the pipe, erosion or a sinkhole. The plumber concluded that the condition was neither a construction defect nor the result of erosion caused by a leak in the plumbing system.

At the conclusion of Plaintiff's case, the trial judge granted an involuntary dismissal for two reasons: First, because there was no evidence of damage from the obstructed toilet, the court concluded that there was not a "physical loss" to the property. Second, the court concluded that, even if a "physical loss" were sufficiently proven, the policy exclusion for earth movement applied. We disagree with both conclusions.

As to the issue of whether evidence was adduced of a "physical loss," we conclude that the abnormality in the pipe itself was such a "loss." Under the language of the policy, it was not necessary for Appellant to establish any resulting damage from this condition. n1

The second basis for the involuntary dismissal, the earth movement exclusion, was likewise erroneous at this juncture of the trial because the burden of proof was on Appellee to establish that the exclusion applied. State Farm Mut. Auto Ins. Co. v. Pridgen, 498 So. 2d 1245 (Fla. 1986). The evidence adduced by Appellant offered several possible causes for the backpitched pipe, not all of which would have been excluded under the earth movement provision. Because the burden was on Appellee to establish that the exclusion applied, the dismissal was premature.

FOOTNOTES

n1 On appeal, Appellee argues that insufficient proof was adduced to show that the loss was "accidental," in that no testimony was offered to show that the condition was sudden and unexpected. See Braley v. American Home Assurance Co., 354 So. 2d 904, 905 (Fla. 2d DCA 1978) ("accident" is "[a]n event which takes place without one's foresight or expectation; an undesigned, sudden and unexpected event"). Although not the basis on which the trial court ruled, Appellee did briefly advance this argument below. Nevertheless, we decline to affirm the trial court on this basis. We think that the reasonable inferences from the evidence on this point are sufficient to overcome involuntary dismissal." (emphasis added)

Importantly, the policyholders only had to prove a "backpitched" pipe with some explanation of a "possible cause" which was not excluded. The pipe had not even been examined by the policyholder's causation expert--a plumber--at the time of trial.

This minimal proof burden on the policyholder in Florida is not the same as found in Texas caselaw. These two Florida cases emphasize what adjusters are taught in their training manuals and in basic adjusting courses. It is the majority rule followed in the United States. Indeed, the vast majority of insurance companies have a requirement that the policyholder get the benefit of the doubt in these causation cases. In cases where we are retained before the coverage decision, we see instances where supervisors apply that standard, pay the policyholder, close the file and move on.

Unfortunately, that has not been happening too often in the Lone Star state since last September. Tomorrow, I'll explore reasons why some case decisions may be causing this and offer suggestions as to what Texas policyholders need to do about it.

To appreciate the complexity of the legal coverage involved with the science and repair of sinkholes, I will quote part of the appellate decision from a case David Pettinato of our firm won in Nationwide Mut. Ins. Co. v. Chillura, 952 So. 2d 547, 550-551 (Fla. Dist. Ct. App. 2d Dist. 2007):

"...the trial court had for consideration estimates prepared by Certified Foundations, Inc. (CFI), a contractor retained by the Chilluras to estimate the cost of the repair plan prepared by their experts. However, neither party argued that the trial court should consider the merits of the grout injection separately from the insertion of the pins. Similarly, neither side argued that the cost of one repair should be separated from the cost of the other repair. Rather, the focus of the argument at the summary judgment hearing was whether the "subsurface foundation stabilization and/or foundation modification repairs" as a whole were covered under Coverage A.

Nationwide argued that the cost of injecting grout under the foundations and inserting pins through the foundation slabs did not fall under Coverage A of the policy, but rather was covered under other policy provisions that provided for reimbursement of such costs once the repairs were actually performed. Accordingly, Nationwide argued that it was not liable for the costs because the Chilluras had not made the repairs and that, therefore, there could be no finding of a breach of the insurance contract. Nationwide premised its argument on several theories.

First, Nationwide argued that the grout and pinning were repairs to the soil and not to the structure. Since Coverage A of the policy specifically excluded damage to the soil, Nationwide maintained that these repair costs were excluded. Second, counsel argued that the pins and grout were not related to repairing the damage caused by the sinkhole, but rather were needed to prevent future damage. Counsel maintained that while the cost of repairs to prevent future damage was recoverable under other policy provisions, but not under Coverage A, those other policy provisions required that the repairs actually be performed, which the Chilluras had not done. Additionally, Nationwide argued that, in any event, the measure of damages was actual cash value and that there could be no determination of such. Because the determination of actual cash value would involve reducing the repair or replacement cost by a factor to recognize depreciation, such a method could not be applied to the grout and pins, which were not a part of the original covered structures and were not susceptible to repair or replacement. As such, Nationwide argued that actual cash value could not be determined and that Coverage A of the policy could not apply.

Finally, in a related argument, Nationwide contended that the pins were not a repair to the foundation slabs, but rather were the creation of new structures. Unlike the original structures, in which the foundations were supported by soil, the foundations of the new structures would be supported by pins resting on rock beneath the surface of the soil. Since Coverage A was intended to provide coverage for damage to existing property and not to provide for the construction of a new structure different from the original structure, Nationwide argued that these costs were not included in Coverage A."

There are so many legal issues involved that it would be hard to count them all. Eventually, David Pettinato followed the trial and appellate win with a claims practice lawsuit (known as a bad faith lawsuit in other jurisdictions) which was resolved on a confidential basis. Today, he is mired in a significant eight figure sinkhole loss with Citizens Insurance Corporation—it has so many legal issues that we keep them listed on an Excel spreadsheet.

The Florida Legislature has not helped policyholders suffering with sinkhole losses over the past several years. The investigatory and remediation process has components of administrative law. In many cases, insurers invoke statutory repair processes, which often leaves policyholders with poor remediation of the sinkholes and significant lost value because of inferior repairs. As a result, for most policyholders not wanting to take a financial beating during the sinkhole adjustment process, the legislature has almost required policyholders to seek legal assistance.

A sinkhole case that I previously posted about in Settlements and Litigation finally went to appellate argument last week. Citizens Property Insurance Corporation appealed a trial I won for our clients, Mr. and Mrs. Leeds. Jean Niven, of our firm, argued the appeal and did a fantastic job--at least it appeared that way, because the judges were hammering Citizens counsel with tough questions. In my prior post, I noted:

"The press reported the Leeds trial win. The Leeds' neighbors were ecstatic because our theory of loss was that the Leeds' home was on the ridge of an ancient relic sinkhole which caused the entire community to have homes damaged by earth movement covered under their policies. As a result of that trial, the neighbors also have hope for a recovery. We have more clients as a result of the publicity. But instead of acknowledging the loss and paying the Leeds' claim, Citizens Property Insurance has fought us every step of the way, seeking to overturn the jury verdict. It has now been 18 months since the trial, and we have put no money in the Leeds' hands. While we have publicly won so far and have not "kissed our sister" through a settlement, I am certain that our clients wished we could have obtained their recovery, which will be very large compared to the initial claim, through a much quicker private resolution rather than the public loss we are putting Citizens through."

While virtually all of our cases resolve far quicker than this particular matter, I was thinking that the Leeds are making about 10.5% in legal interest on the value of the loss starting on the date the claim was reported. Assuming we prevail, Citizens will also pay our attorneys fees and costs, and the Leeds will probably end up far ahead of where they would have been had they not fought. While property has been losing value, they are still getting that interest. It's a fine day when the good guys win, and the bad guys are held accountable for their wrongs.

Happy Mother's Day!

Unfortunately, the legislation passed without further changes to the wording and now will be sent to Governor Crist, who will sign or veto the bill.

The bill is sweeping in its scope, excluding surplus lines carriers from all of Chapter 627 of the Insurance Code. Items in Chapter 627 which will not apply to surplus lines carriers include:
 

• The Valued Policy Law
• Required availability of Replacement Cost and Law and Ordinance Coverage
• Florida’s prompt payment statute -- 627.70131(5)(a)
• Sinkhole coverage

An attorney in our office, Amy Boggs, noticed a sentence in the bill which is of immediate concern to anybody who has a claim pending with a surplus lines carrier:

“The amendments to s. 626.913, Florida Statutes, in this act….operate retroactively…except with respect to lawsuits that are filed on or before May 15, 2009.”

If you have a Florida claim pending that involves any coverage issues contained in Chapter 627, you should consult legal counsel to discuss whether filing suit no later than May 15th is appropriate in your case.

I should have just agreed and told him to hire the Merlin Law Group. Instead, I wrote:

"Experience certainly helps do a better job for the client. But, it is no guarantee.

When I was a younger attorney, I hated to admit that experiences as a lawyer, and in life, made a difference in the quality of my representation. Now that I am older, there are so many reasons why I know that I am a much better attorney than 25 years ago. Much of it has to do with learning subtle aspects of human communication and interaction.

Still, I sometimes have the opportunity to get brought into a case with less experienced attorneys that look at matters with a fresh viewpoint. There are many very bright and hardworking attorneys, with little prior insurance experience, that do a very fine job helping policyholders. I try to learn from them as well, and take from them the best of their ideas..."

Nowdoucit was right, and I was wrong.

I thought about this on Saturday morning while eight of our attorneys were in deep discussion with an expert claims consultant about the presentation of insurance cases to juries. It was a beautiful day outside; I could see people milling about and enjoying a free concert. I wondered how many other law firms were working on such a beautiful day, flying in attorneys from other offices to teach how to do a better job for their clients -- specifically on insurance cases where they represent policyholders. I'll bet that the answer to that is zero.

The discussion among us was pretty brutal at times. You do not help others get better at something by just letting them slide by when they do the wrong technique. Eventually, the trial presentation topic changed to reaching settlement after a heated battle with an insurance company. Kelly Kubiak has been quite successful for her clients over the past year and she was trying to articulate her perception of what was working for her. I interrupted and said, "Kelly, you are passionate about your clients and you have experience and maturity. You are a better attorney than you were five years ago because you now have a deeper feeling and anticipation for what works and does not work in a given situation."

Practice makes virtually everything better. Golfers, tennis players, piano players, and poker players get better through practice, study, and experience. The practice of law is no different. And when it comes to representing clients with serious issues, the practice part should have been done long ago.

Generally, surplus lines carriers are free from the rate approval process admitted carriers have to go through. In many states, they do not have to file policy forms for regulatory approval and are not subject to financial audits for solvency. In short, surplus lines carriers are free from many laws and regulations that admitted carriers have to follow.

Invariably, questions arise regarding how much freedom surplus lines carriers should have from the insurance laws where they underwrite risks. Typically, the surplus lines carrier, following a loss, does not want to comply with claim regulations because doing so would provide coverage or more benefits to the policyholder. The attorneys for the surplus lines carriers argue that their clients do not have to follow claims laws because the legislatures have exempted them from such state rules and regulations.

More than one judge has heard me say in response:

"Your honor, if it does not have to follow this state's law, what law does it have to follow? The law of Mars?"

Donna DeVaney beat a surplus lines carrier on this very issue. She represented a client with sinkhole loss. Scottsdale Insurance Company, a surplus lines carrier, hired Rimkus Engineering to conduct a test. Rimkus confirmed the loss was caused by a sinkhole. Scottsdale then denied the claim, saying that sinkhole loss was not covered under the policy. (How much do you want to bet that Rimkus would have found a different cause of loss if Scottsdale admitted sinkhole loss was covered?)

Donna filed a Motion for Partial Summary Judgment and a Memorandum on this issue. Interestingly, she did some investigation and showed the trial Court that Scottsdale had paid at least two other policyholders for sinkhole loss with the same policy. The Court, citing the recent Florida Supreme Court case of Essex v. Zota, 985 So. 2d 1036 (Fla. 2008) issued an Order ruling in our client's favor. 

Surplus lines insurance policies can be complex because it is never clear which laws apply, and do not apply, to their contracts. Policyholders and adjusters have to be vigilant to understand the legal framework of these contracts to make certain all benefits are claimed and received.

The last meeting of the Citizens Mission Review Task Force had some insurance company lobbyists in the audience. I do not know if they were behind this or not, but three proposals that are clearly designed to hurt consumers were thrown into the discussion and the three proposals were:

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.

The first two topics were analyzed and debated for six months when the Citizens Claims Review Task Force met in 2007. Public adjuster fees were capped in a fairly complicated manner with consumer protections added to legislation regarding the training and licensing of public adjusters. No further legislation was needed. I pointed this out, and no vote was taken this session regarding public adjuster fees.

The two year time limitation was in response to claimants waiting to report a loss. Every policyholder has a duty to report a loss promptly. In Florida, the rule is that a late reported claim can void valid coverage unless the policyholder can show that the insurance company was not prejudiced by the late reporting of the loss and damage.

I pointed out that a late reported claim happens quite innocently and more frequently than one may anticipate. Sometimes, damage is hidden behind walls or in attics where many do not investigate after a loss. Can you imagine your 80 year old mother climbing into an attic to see whether her insulation got wet during a storm? What happens when the wet wiring behind walls from a covered leak eventually rusts, three years after the storm that caused the leak, and requires complete rewiring?

We represented an apartment complex in South Carolina for an apparent Hurricane Hugo loss involving broken brick walls. In litigation, our expert engineer pointed out that some of the damage probably was the result of an earthquake which occurred just after Hurricane Hugo. Who ever knew that South Carolina has earthquakes? We reported the claim late to the Difference In Conditions (a special insurance policy covering flood and earthquake) insurance company, proved a small earthquake did occur, and eventually recovered for earthquake loss.

After pointing these examples to the Task Force, another task force member said she reported a loss late because her appliance which was damaged by a storm took several years to stop working. Again, the forces of good prevailed and no vote was taken. I am not so certain that would have been the case, had the other task force member not related her experience in late reporting.

If you own property with a sinkhole underneath it, you are financially screwed. Even if it can be repaired, the market value loss is extreme. Since sinkholes are more prevalent in Florida than anywhere in the country and because they cost a lot of money to fix, insurance companies do not want to insure sinkhole loss. I exclaimed to one task force member that operates an insurance company, "if I were you, I would not want to insure sinkholes either. The best thing for an insurance company is to insure something that never has a loss because you will always make money. If you could, you would insure me for a loss to the Brooklyn Bridge because you would never have to legally pay me for a loss!" I guess the point was made and no vote was taken on the sinkhole proposal.

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.