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

In Essex Insurance v. Zota, 985 So.2d 1036 (Fla. 2008), the Florida Supreme Court held that surplus lines insurers must comply with all of the insurance code (Florida Statute Chapter 627) applicable to admitted carriers with the exception of Part I only. Part I of Chapter 627 deals with rates, and the Florida Supreme Court exempted surplus carriers from the requirement that they file their rates for approval with the Office of Insurance Regulation (“OIR”). In CNL Hotels & Resorts, Inc. v. Twin City Fire Insurance Company, 2008 WL 3823898 (11th Cir. 2008), the Eleventh Circuit Court of Appeals held that the portion of Chapter 627 requiring filing and approval of insurance forms applied to surplus carriers.

The stability of the surplus market was threatened by these cases since it left uncertainty about the applicability of Chapter 627 to surplus insurers. Policyholder and insurance representatives debated the applicability of value policy law, replacement cost coverage and the “insurer accountability act,” (627.70131) requiring payment or denial within ninety days, to the surplus lines insurers.

The response was the Florida Legislature’s passage of House Bill 853. Part of that bill, enacted into law as Florida Statute 626.913(4), states that Chapter 627 does not apply to Florida Surplus Lines Insurers unless Chapter 627 contains a specific provision stating it is intended to apply to Surplus Insurers.

One tenet that was commonly understood and seems to have carried through this time of uncertainty regarding surplus carriers is the fact that they are not required to file their rates with the OIR for approval. Florida Statute 626.924(2) states:

Surplus lines policies issued on or after October 1, 2009, shall have stamped or printed on the face of the policy in at least 14-point, boldface type, the following statement: SURPLUS LINES INSURERS’ POLICY RATES AND FORMS ARE NOT APPROVED BY ANY FLORIDA REGULATORY AGENCY.

The Florida Legislature has required the surplus carriers to stamp this on the face of their policies so the policyholder is aware. Consequently, surplus carriers’ forms may be quite different from those in the admitted market, which are approved by the OIR and regulated by Chapter 627. Additionally, Florida Statute 626.924(1) requires surplus carriers to contain a statement on the face of their policy that policyholders insured by surplus carriers in Florida do not have the protection of the Florida Insurance Guaranty Act (“FIGA”). The FIGA Act gives policyholders the benefit of claims payments from the state government -- under certain eligibility requirements -- should an admitted insurer become insolvent and be unable to pay claims.

These are a few more of the distinctions between the Florida Surplus Lines Law and Chapter 627 of the Florida Statutes.  If you have questions or would like more discussion on this topic, please leave a comment or contact me directly.

The Florida Surplus Lines Law has its own attorneys’ fee provision, which was also part of House Bill 853, and it is Section 626.9373 of the Florida Statutes. The Florida Surplus Lines attorney's fee provision states:

(1) Upon the rendition of a judgment or decree by any court of this state against a surplus lines insurer in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer on or after the effective date of this act, the trial court or, if the insured or beneficiary prevails on appeal, the appellate court, shall adjudge or decree against the insurer in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured's or beneficiary's attorney prosecuting the lawsuit for which recovery is awarded.

(2) If awarded, attorney's fees or compensation shall be included in the judgment or decree rendered in the case.

This is essentially the same as Florida Statute 627.428 regarding attorneys’ fees. There is the prevailing party requirement, which means that once the policyholder obtains a judgment in his or her favor, or a payment of money for the claim after the lawsuit is filed, then the surplus insurer shall be responsible for paying a reasonable amount of the policyholder’s attorney’s fee.

Another part of House Bill 853 that was signed into law was Florida Statute 626.9374, which deals with large hurricane or wind deductibles. It states:

Any surplus lines, personal lines residential property insurance policy issued on or after October 1, 2009, containing a separate hurricane or wind deductible must on its face include in at least 14-point, boldface type the following statement: THIS POLICY CONTAINS A SEPARATE DEDUCTIBLE FOR HURRICANE OR WIND LOSSES, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU.

This statutory provision regarding a surplus insurer’s wind or hurricane deductibles differs from its Chapter 627 counterpart in Section 627.701(4)(a). First it states that it applies to personal lines residential property policies. Second, it only applies to those personal lines residential policies issued on or after October 1, 2009. Lastly, and this may be a minor distinction between its Chapter 627 counterpart, the statement on the face of the policy advising the policyholder of the large wind or hurricane deductible needs to be in 14 point font, whereas Chapter 627 requires insurers to place it in 18 point font. So the surplus insurers can write the required statement in smaller font on the face of the policy. Another one of the advantages the Florida legislature offered the surplus lines market.

These are just a few similarities and distinctions between the Surplus Lines Law and Chapter 627 of Florida Statutes. We will continue this discussion in the upcoming weeks.

In Florida, the FSLSO reported that when comparing the first six months of 2010 to the same time period in 2009, Florida actually saw a 2.5 percent increase in surplus lines insurance premiums. Florida Statute §626.918 (within the Surplus Lines Statute) imposes certain eligibility requirements for an insurer in Florida.

These requirements include the following. The insurer must be an authorized insurer in the state or country of its domicile as to the kind or kinds of insurance proposed to be placed and must have been such an insurer for three years or more. However, the three year requirement may be waived if the insurer provides a product or service not readily available to the Florida consumers or has operated successfully for a period of at least one year and has capital and surplus of $25 million or more. The insurer must furnish the FSLSO office with a copy of its current annual financial statement. The insurer must have and maintain surplus as to policyholders of not less than $15 million, and a foreign insurer must also have and maintain in the United States a trust fund for the protection of all its policyholders in the United States, in an amount not less than $5.4 million.
Additionally, the insurer must be of good reputation of service to its policyholders and payment of losses and claims. The insurer must be eligible to transact insurance in this state, under Florida Statute § 624.404(3).

After the Florida Legislature excepted surplus insurers from Chapter 627 of the Florida Insurance Statutes, there were some protections afforded to policyholders within the Surplus Lines Statute similar those provided in Chapter 627. Yet, there are still some provisions in Chapter 627 with no counter-parts within the Florida Surplus Lines Statute. In the upcoming weeks, we will address some of these similarities and differences between Chapter 627 and the Surplus Lines Statute.

The Report that McCollum was referring to is the Emerging Florida Homeowners Property Marketplace. The report is full of operational information regarding many insurers. It also suggests that the surplus lines industry is participating much more than anticipated. Possibly, the Surplus Lines Legislation just passed is having a positive impact with new and increased surplus lines capacity coming into Florida.

Gary Fine outlined the nature of the antagonism between the two consumer advocates:

“McCarty made the presentation at the request of Sink, who was following up on complaints from lawmakers who pushed the insurance deregulation or a.k.a the "State Farm" bill. These lawmakers have contended that McCarty misled Crist before he vetoed the legislation and there remains a quiet effort to get the Legislature to pass a new version of the bill if there is a special session later this year. The bill in essence would allow large capitalized carriers to have unregulated rates. (Sink refused to say Tuesday whether Crist should have signed or vetoed this bill - saying that was "the governor's decision" to make.)

"McCarty for his part has refuted the suggestion he misled anyone, saying he and members of his office have been "candid" that a big chunk of new capital in Florida has come from unregulated surplus lines carriers which do not usually cover those in the residential homeowners market.

Sink on Tuesday morning chided McCarty for failing to get her the information she requested earlier, saying "it still stuns me" that his office was unable to get the information to her sooner.”

Hopefully, they will be able to get this behind them. I agree with Alex Sink that everybody has to have their performance reviewed. Contrary to the belief of those in the insurance industry and some in the Florida legislature listening to the industry rather than their constituents, Kevin McCarty has been doing a fantastic job for Florida policyholders.

"Legislation intended to clarify the regulation of the surplus lines insurance industry in Florida has beeen signed into law by Gov. Charlie Crist.

The legislation (HB 853) removes an ambiguity caused by two Florida Supreme Court rulings last year that suggested that surplus lines insurers are subject to state regulations that never before applied to them. If the court decisions had been allowed to stand, surplus lines insurers could have been required to get state approval for their policies in Florida, something that would alter the nature of their business enough that some in the industry fear carriers could leave the state rather than comply.

The industry, a market of last resort and high risk insurance, enjoys relative freedom from rate and form regulation in all states.

Under the legislation that officially passed on May 1, the industry's regulatory exemption is restored in Florida retroactive to surplus insurance business written on or after Oct. 1, 1988.

Florida ranks as the fourth largest state in terms of surplus lines business, behind only California, Texas and New York. In 2008, it generated more than $4 billion in surplus lines premium, according to the Florida Surplus Lines Service Office.

This industry handles more than 700,000 excess and surplus lines policies a year; about 40 percent of them personal lines contracts for homes, condos, mobile homes and boats. The rest cover commercial entities, big and small, that could not obtain insurance they need in the standard markets.

HB 853 was sponsored by Rep. Pat Patterson (R-DeLand) and Sen. Mike Bennett (R-Bradenton) and supported by the insurance industry, including the Florida Surplus Lines Association."

As indicated in a prior post, I predict that this bill will be amended in the next session. The surplus lines industry will find soon enough that even it has lost some protections as a result of this law it crafted.

Last week, I had several posts warning of language buried in the omnibus TWIA senate bill which took away policyholder rights. The house version did not have this anti-consumer language. We will keep you posted, but I am asking all Texas policyholders to contact your representatives to express concern about any language that takes away policyholder rights at the time of making a claim.

Charlie Crist must make veto decisions this week. As indicated in an article, Charlie's Big Week Ahead, it is anybody's guess as to what the governor is going to do with the insurance bills.

On the federal front, a bill was introduced authorizing insurance agents to obtain a national insurance license to sell policies. Another bill by Florida Congressman Ron Klein would allow for a pool of catastrophe money. The National Underwriter has indicated there will be opposition to this:

"It drew an immediate reaction of measured support from the Independent Insurance Agents and Brokers of America. However, the bill is expected to generate the same opposition from carriers and reinsurers that doomed it in the last Congress. And, even the IIABA said it would seek changes in the reinsurance component of the legislation."

Finally, a national surplus lines insurance bill was introduced. I do not know how it will impact most consumers, but it would certainly change the landscape of insurance since many large insurance companies own surplus lines carriers. They will sell policies through this market if they can avoid state regulation. The National Underwriter reported:

"It would create a uniform system of surplus lines premium tax allocation and remittance, one-state compliance on multistate surplus lines risks, and direct access to the surplus lines market for sophisticated commercial purchasers.

“These are concepts long endorsed by NAPSLO and promoted with members of Congress during meetings over the past few years,” Mr. Wood said.

Richard Bouhan, NAPSLO executive director, added, “We believe that this legislation will bring efficiency and reduce the cost of regulatory compliance in surplus lines placements with multistate exposures.”

He added that consumers will also benefit because the costs related to the inefficiencies and redundancies, which they bear, will be eliminated.”

“This important legislation will provide much needed reform in the nonadmitted and reinsurance markets,” said Deborah Luthi, a member of the RIMS board of directors and director of enterprise risk management services at Matheson.

“RIMS believes the bill would reduce the regulatory costs for insurers that are passed on to consumers and would make insurance more available and affordable,” Ms. Luthi said. “RIMS urges the House of Representatives to once again pass this legislation and for the U.S. Senate to take it up as soon as possible,” she added."

It is important to keep up with pending legislation that will affect insurance and consumer protection rights and to realize that insurance companies are spending a significant amount of money proposing laws that will "game" the situation to their advantage.

Would the insurance companies and their lobbyists ever be honest and completely transparent regarding their legislative agendas, motives, and goals? Could you imagine if our elected representatives demanded honesty as a prerequisite to legislation? Given that some are mutual insurance companies and owned by the policyholders (like State Farm), you would think they would never have a legislative agenda that would harm consumers by raising rates or avoiding consumer protection statutes.

So, why not require insurance companies to show their internal records regarding their motives in influencing legislation? After all, insurance is a business involving the "public trust."

After some reflection on these matters, I owe an apology and correction to some in my prior Blogs. My typical experience with most elected officials on a personal basis is that they want to help the people they represent.

I probably slammed many well meaning public servants too harshly. That deserves correction.

Insurance seems simple, but is very complex. I can appreciate some legislators simply not understanding the full impact of proposed bills and voting for laws they think are good but in reality, harm their constituents.

For obvious reasons, the insurance industry does not fully explain the impact of their proposed laws. Sometimes, I can tell in discussions that insurance lobbyists do not understand the full implications of what they do and say. They are just trying to make a living selling the company line.

It is hard for a person like me to keep up with legislation as it is being made. I have a full time job helping customers of insurance companies get paid what they deserve. I help run a very busy law practice. My expertise and understanding of these issues goes far beyond most legislators because I am involved with insurance consumers and these issues on a daily basis. It is my life’s work.

I feel for those trying to be a good representative and making decisions without fully appreciating the legal subtleties before them. I should cut them some leeway.

Insurance is one of the most important social products mankind has developed. There are thousands of knowledgeable agents peddling these valuable products which provide us with financial security and the peace of mind that if something catastrophic happens, a financial safety blanket is there. Businesses and people want to or are obligated to purchase insurance. While I know that many joke about avoiding their insurance agents, their services and products are significant investments all of us should make.

This Florida legislative session still leaves me troubled. I have difficulty understanding what so many of these hardworking, well-meaning representatives were thinking when voting for unregulated rates. Unregulated rates will result in rates higher than what the regulators would permit-even though the regulated rates give insurers a fair profit on their investment.

It sounds so stupid. Can you imagine this scenario:

Edna, I am really excited about this new law. The old fair rate approved by the Office of Insurance Regulation has been wiped off the books by our genius Florida legislators. Next year, we will get the same insurance, and it will cost as much as our carrier wants to charge us. This is because our insurance carrier no longer has to worry about applying for a fair rate.

The Palm Beach Post hit the nail on the head with Monday's editorial calling on Governor Crist to veto this awful legislation.

Additionally, I am going to represent a number of very disgruntled surplus lines policyholders. Many of them are business owners, and I will point to the political guys that damned them this session. I predict the new surplus lines law is so poorly conceived that even the surplus lines carriers and admitted carriers will be joining policyholders asking for it to be modified.

It is not fair that surplus lines carriers are free from all Chapter 627 consumer protections while admitted carriers have to comply. This law gives the surplus lines carriers a market advantage over the admitted carriers in Florida. Agents are going to find ways to get clients looking for "cheap" insurance into the surplus lines market. Less coverage will be offered, but at less price. Why the admitted carriers with approved forms and rates allowed that to happen is beyond me.

So, with the prospect of more legislative bargaining next year, maybe these insurance lobbyists were just creating job security. But, at what cost to the public?

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.

Our Firm produces a newsletter for Florida public adjusters that contains information and updates on topics of interest, including case law updates. The current issue contains a section by Kristin Demers-Crowell, an attorney in our Tampa office, explaining surplus lines carriers and bills in the Florida House and Senate that are specifically aimed at legislatively overturning the Essex decision.

In the waning days of the legislative session, items change quickly, and I would like to provide an update. After the newsletter was published yesterday, the House voted on and passed an amended version of HB 853. That bill will now go back to the Senate, where it and the corresponding Senate bill would need to be reconciled. With two days left in the regular legislative session, it is time to cross our fingers and hope the Senate decides they need more time to reconcile the bills, and holds the issue until the next legislative session. This would be wise, especially given the critical budget issues that require immediate resolution.

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.