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

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.