FOCUS ON FLORIDA McCarty Talks Mitigation Citizens Update Court Clarifies Medical Negligence
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Contents
June 4, 2018 • Vol. 96 No. 11 • Focus on Florida
Florida 8 What the Florida Industry Needs to Know for the 2018 Hurricane Season 10 Florida’s Ex-Commissioner McCarty Says Banks ‘Need Skin In’ Mitigation Game 13 Citizens Update: • Citizens Welcomes 4 New Members to Board of Governors • Florida CFO Wants Lobbyist Requirement for Citizens 14 Negligence or Medical Negligence? Florida Supreme Court Offers Clarity
8
WHAT THE FLORIDA INDUSTRY NEEDS TO KNOW FOR THE 2018 HURRICANE SEASON
16 Deciphering ‘Good Faith’ for Insurers Defending Coblentz Agreements in Florida
Departments 12 People
10 MCCARTY SAYS BANKS
13 FLORIDA CFO WANTS
‘NEED SKIN IN’ MITIGATION GAME
LOBBYIST REGISTRATION REQUIREMENT FOR CITIZENS
18 Florida Fraud Round-Up • Florida Agency Owner Arrested Over $62K Fraud Scheme • Florida Lawyer Gets Prison for $23M Auto Insurance Fraud Scheme
14 NEGLIGENCE OR MEDICAL NEGLIGENCE? 4 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 4, 2018
16 DECIPHERING ‘GOOD FAITH’ FOR
INSURERS DEFENDING COBLENTZ AGREEMENTS IN FLORIDA INSURANCEJOURNAL.COM
&
PRIMARY FLOOD EXCESS FLOOD
COMMERCIAL/RESIDENTIAL PROPERTY, GENERAL LIABILITY, PROFESSIONAL LIABILITY
Private Primary Flood Program for Dwelling, General Property & RCBAP: • No distance to water restrictions
• Up to $5,000,000 limit on primary
• Pre-FIRM
• Up to $20,000,000 excess limit (in-house authority)
• A Zones & V Zones
• Policy wording similar to all three NFIP forms
• No EC or waiting period
• Multi-locations on a single policy
Phone: 800.741.4873 Nate Gorham | ngorham@cuifla.com | ext.164 Melissa Waters | mwaters@cuifla.com | ext.100
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Advertorial
Primary Flood the New Hot Product among Insurers Written by Guy Waters, Co-owner of Clearwater Underwriters, Inc.
P
rimary Flood has been an ever-growing topic among insurers, lenders, and the community as a whole. Super storms Harvey, Irma, & Maria hitting the US in 2017 caused a lot of discussion about FEMA and other private primary flood insurance providers. FEMA has continued to increases premiums and apply additional surcharges to comply with the Biggert-Waters Flood Insurance Reform Act requirements. The Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) reauthorized the NFIP to make the program more sustainable and actuarially sound including removal of long standing subsidies. Roughly 20% of all NFIP policies are calculated using subsidized rates and most of these policies are Pre-Firm. Many policyholders who own homes built before the community adopted its first Flood Insurance Rate Map (FIRM) will see rate increases, for Pre-Firm as high as 25% per year until they reach full risk rates. Premium increases effective April 1, 2018, comply with all the requirements of BW-12 and the Homeowners Flood Insurance Affordability Act of 2014 (HFIAA). Increases will be in four categories of Pre-Firm policies: non-primary residential properties, business properties, Severe Repetitive (SRL) properties (which includes cumulatively damaged properties) and substantially damaged/substantially improved properties.
The average annual premium rate increases for all other classes (Condominium and multifamily) are limited to 15% while individual premium rate increases for any individual policy is simultaneously limited to 18%. The average annual premium rate increase for Primary Residence of Pre-Firm policies will be at least 5%. The consumer is the unfortunate victim to these unexpected large rate increases at renewal. Luckily, private primary flood is now being accepted by lenders, and is the new hot product among insurers. The private marketplace is already undercutting FEMA rates for identical coverage. It was recently reported that the NFIP paid out between $8.5 and $9.5 billion dollars in flood insurance claims related to 2017 disasters. For the first time last year, FEMA entered into a reinsurance agreement with 25 reinsurance companies, transferring over $1 Billion of their risk to the private market. This year, the deal calls for them to transfer up to $1.5 billion. With each big flood catastrophe, short-term re-authorization of the NFIP, and growing NFIP debt, more and more interest grows in a private market for flood insurance. Private market flood insurance makes sense because insurers like Lloyds of London already understand the needs of consumers and the market as a whole and can make the necessary adjustments in their
programs as needed. Clearwater Underwriters (CUI) is a Managing General Agent for Lloyds of London and is part of this private market solution. With over 25 years of experience in excess flood, they are now offering a private flood product as an alternative to the NFIP. CUI is highly competitive on these pre-firm properties and unlike the NFIP, is offering full Replacement Cost on building coverage and contents, including secondary and tenant occupied residences. Another advantage to CUI’s flood product is their maximum coverage limits. Where the NFIP will only offer a max of $250k per building and $100k in contents, CUI can write up to $5M per risk. CUI can write a Pre-firm, “A” zone, primary or non-primary residence. Example: Dwelling built in 1972, used as a rental property with $175,000 dwelling limits. NFIP quote - $3,168 for non-primary / Our quote - $1,940 for non-primary residence or $1,378 for primary residence. Finally, CUI’s flood product is able to combine multi-location, multi-building risks onto one policy, unlike the NFIP, which would have to write separate policies. Broader coverages, more competitive premiums, and higher limits, paired with the exceptional service and flood expertise that CUI is already known for, makes for a winning combination. It is expected by mid-May on-line rating will be in place.
The author – Guy Waters is co-owner of Clearwater Underwriters, Inc. He began his career as a retail agent in 1978. Clearwater Underwriters was established in 1991 and is Coverholder to several Lloyds programs including Commercial, Residential Property and Liability. Specialties also include Professional Liability. Also contributing to the article is Nate Gorham, Senior underwriter of Primary and Excess Flood. Also Melissa Waters, Primary and Excess Flood underwriter and coverholder liaison for various Lloyds Flood contracts.
Florida
What the Florida Industry Needs to Know for the 2018 Hurricane Season By Amy O’Connor
T
he 2018 hurricane season is officially underway, even as the dust continues to settle on the 2017 hurricane season — one of the costliest hurricane years on record — that brought devastation to Florida from Hurricane Irma. Meanwhiele, the Gulf Coast has already received a stark reminder to be prepared from a Memorial Day storm — Tropical Storm Alberto. Irma first hit the Florida Keys as a category 4 storm on Sunday, Sept. 10, with 130-mile per hour winds. It then worked its way north passing over the east and west coasts. Loss estimates from Hurricane Irma ranged between $25 billion to $65 billion by catastrophe modelers. According to the Florida Office of Insurance Regulation, 90 percent of the 770,658 reported residential property claims had been closed as of April 6, 2018. Total estimated insured losses as of April
12 had reached $8.6 billion. The Florida Hurricane Catastrophe Fund is expected to pay out $2 billion in claims associated with Irma. Citizens, the state-run insurer of last resort, said in March it had reopened about 37 percent of Hurricane Irma claims as part of ongoing efforts to assist policyholders affected by the storm. As of March 28, more than 24,500 of 66,400 Irma claims, about 37 percent, were reopened for supplemental payment and to allow policyholders or their representatives to provide additional information. Overall, Citizens has closed nearly 90 percent of its Hurricane Irma-related claims. Open claims include extensively damaged properties, disputes and those waiting for a contractor to provide a repair estimate. The National Hurricane Center updated the death toll from Irma in April to 44 fatalities directly caused by strong winds and heavy rains, plus 85 fatalities indirect-
8 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 4, 2018
ly linked to the storm. Still, Irma could have been worse, a fact the Florida insurance industry is aware and mindful of as it heads into the 2018 season. “Last year was a reminder that every hurricane season has the potential to produce powerful and devastating storms,” said Chris Hackett, senior director of PCI.
Forecast for 2018
Mother Nature wasted no time starting off the 2018 hurricane season, kicking the Atlantic — and more specifically the Gulf Coast — into high gear several days ahead of the official June 1 start date. Tropical Storm Alberto hit the Florida Panhandle on May 28, bringing winds, rains, and even the possibility of tornadoes. The National Hurricane Center in Miami said winds from the tropical storm reached up to 65 miles per hour. There is undoubtedly more to come as the season progresses. The National Oceanic and Atmospheric (NOAA) released INSURANCEJOURNAL.COM
its forecast for the 2018 Atlantic hurricane season in May, estimating a total of 10 to 16 named storms, of which five to nine could become hurricanes and one to four expected to become major hurricanes with winds of 111 miles per hour or more. It noted a 75 percent chance that this year will be a near or above normal hurricane season. “The possibility of a weak El Nino developing, along with near-average sea surface temperatures across the tropical Atlantic Ocean and Caribbean Sea, are two of the factors driving this outlook. These factors are set upon a backdrop of atmospheric and oceanic conditions that are conducive to hurricane development and have been producing stronger Atlantic hurricane seasons since 1995,” NOAA said.
Preparations
Irma served as a reminder to those in Florida of the widespread devastation a large hurricane can have on the state, particularly since it had been more than a decade since a storm of Irma’s magnitude had come through. State officials, emergency management teams and the insurance industry have since used Irma as an opportunity to educate residents on the importance of preparation, mitigation and having proper insurance, and have spent the “offseason” getting that message out there. Flood insurance, in particular, remains a key part of the discussion. Florida Insurance Commissioner David Altmaier and CFO Jimmy Patronis urged consumers to consider flood insurance this year. “Hurricane Irma last year resulted in 1,778 private flood insurance claims ... Taking steps now can help prevent major losses,” said Patronis. “Flooding can happen any time of year, but the chances increase significantly with hurricanes and tropical storms. As we know from last year’s hurricane season, these systems can bring storm surge and increased rainfall amounts to our state. Having flood insurance in place is critical for homeowners and businesses, and helps INSURANCEJOURNAL.COM
Tips for Agencies to Prepare for the 2018 Hurricane Season • Have a business continuation plan in place in the event your office is not accessible following the storm. • Assure off site storage and access to paper and electronic records. • Communicate with your various carriers regarding your agency’s hurricane response plans and claims processes. • Communicate with customers ahead of a storm with instructions on how to file a claim. Should a customer file a claim with your agency or directly with the
insurance carrier? • Make sure your employees are safe and offices are secured against potential damage. • Considering hiring additional temporary support staff to provide customer service following the storm, keeping in mind that some agency employees may not be able to return to work immediately following a storm. Source: American Modern Insurance Group
our state’s response and recovery efforts,” said Altmaier. OIR noted that 29 insurers now offer private primary or excess flood insurance in the state, usually at prices similar to or lower than those of the NFIP. Florida’s Citizens has taken its own steps to prepare for potential storm claims. It’s board of governors approved the purchase of a $1.4 billion reinsurance program for 2018 — almost $100 million more than the $1.3 billion risk transfer program the insurer purchased last year. The cost for the reinsurance program is not to exceed $92 million, Citizens reported on May 8. “Last year’s Hurricane Irma reminded everyone of the importance of risk transfer to protect surplus and reduce potential tax payer assessments,” Citizens’ Board of Governors Chairman Christopher B. Gardner said on a conference call. The Florida Hurricane Catastrophe Fund reported that despite losses from Hurricane Irma, it will have $17.3 billion available to pay claims in 2018. This means that the fund has more money than it would need to pay out if storms wracked the state.
reportedly leading to higher insurance rates statewide. In the aftermath of a catastrophe, the opportunity for fraud significantly increases. During the 2017 hurricane season, the Department of Financial Services formed the Disaster Fraud Action Strike Team (DFAST) that consisted of three teams of insurance fraud investigators deployed to areas heavily impacted by Hurricane Irma. “The unfortunate truth is that some individuals will attempt to take advantage of consumers during this high-stress time,” Patronis said at the time. “To combat fraudsters attempts to swindle Floridians, we’re putting boots on the ground to ward off fraud and swiftly address any scams that may arise.” Patronis said in a statement last month the DFAST investigations stemming from the 2017 season resulted in the arrest of 22 alleged insurance fraud criminals with nearly 100 investigations currently still open and ongoing. The insurance industry will play a key role in ensuring AOB abuse doesn’t worsen by educating policyholders and responding to claims quickly. “Consumer awareness is critical to prevent AOB abuse and control costs. Florida’s policyholders need to understand that when they sign on the dotted line of an AOB contract, they relinquish rights under their policy to a third party,” said Logan McFaddin, PCI regional manager.
Post-Storm Fraud Awareness
Florida officials and the insurance industry will be on high alert for any instances of fraud during the 2018 storm season as regulators and insurers try to curb the escalating abuse of assignment of benefits
JUNE 4, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 9
FOCUS ON FLORIDA
| News & Markets
Florida’s Ex-Commissioner McCarty Says Banks ‘Need Skin In’ Mitigation Game By Amy O’Connor
P
olicymakers need to find a way to get banks involved in property mitigation if Florida is to improve its hurricane resiliency, according to a former state insurance commissioner. Banks are currently unmotivated to protect mortgages through mitigation because the government steps in and bails them out when there is a crisis, Kevin McCarty, who was insurance commissioner of the state for 13 years, told the audience of the Florida Association of Insurance Reform (FAIR) Foundation’s conference in Tampa on May 2. McCarty spoke about resiliency and mitigation, emphasizing the need for both in the catastrophe prone state. “We know we are going to have more storms; we also know there is a lot of uninsured property,” McCarty said. “We also know somebody is mysteriously not at the table.” He was referring to banks, which he said continue to be bailed out by the government and therefore will continue to make money no matter what. He referenced the financial crisis as an example of how banks are not motivated to protect their financial assets. “Until banks actually have skin in the game, they are not going to be at the table,” he said. McCarty said it’s important to think about what strategies could work to hold banks accountable and bring them to the table. “If I as a taxpayer have to pay for it, it should be part of the law that if you have a federally backed mortgage you have to have an all-perils policy – and that means all perils,” McCarty told the audience, which responded with big applause. McCarty told attendees that all stakeholders, including realtors, insurers, banks, and regulators, need to come together with a single voice to get through to those
Former Florida Insurance Commissioner Kevin McCarty at the Florida Association for Insurance Reform (FAIR) Conference in Tampa on May 2, 2018. Photo Courtesy of FAIR. in power and change the dynamic in Washington. He said that voice needs to call for mitigation, for providing insurance to the uninsured and providing that insurance in a way that is affordable for consumers. He added that even then, unless coverage is mandatory, consumers won’t buy it. So it will be key to put banks on the hook for the loss, he stated. “That’s going to be a critical mission going forward, because without that, it’s going to be virtually impossible to force people to buy coverage if they are not really required to do so,” he said. McCarty may not be the Florida insurance commissioner anymore, but he intends to continue working as an advocate
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for Florida consumers and for a resilient Florida insurance market. “Educating people about resiliency and hardening homes is, to me, elementary – we should harden our homes. We know in Florida, in particular, you can’t move 18 million people out of harm’s way; we watched that nightmare unfold several times when a hurricane came through,” he said. McCarty left his post as head of the Florida Office of Insurance Regulation in May 2016 and is now the CEO of his own consulting firm, Celtic Global Consulting, based in Tallahassee. He was recently elected to the board of the FAIR Foundation, a nonprofit organization focused on creating resilient communities, educating consumINSURANCEJOURNAL.COM
ers and reducing uninsured risks. McCarty said retirement from public service has its perks. “I’m 45 pounds lighter, and I can finally sleep during hurricane season,” he joked to the audience. It was clear, however, the passion McCarty displayed in his former life as insurance commissioner is still there. He urged attendees to come together to find ways to tackle the high rate of uninsured and the cost burden this creates for communities. He said mitigation is essential not only to the safety of Florida residents, but also to maintaining a healthy insurance market. “Hardening homes means more than just making sure the home is built to resist a storm, but it’s often times where you have to be when a storm happens. You can’t fit everyone in a shelter. So creating and mitigating a safe environment is a critical part of your surviving a storm but also in reducing the loss after the storm,” he said. He added, “running in Florida is not a solution — we only have a few roads that run north. It’s not like you can escape by running away from a storm, it simply isn’t practical.” McCarty recalled when he served under Gov. Jeb Bush during the tumultuous 2004 and 2005 hurricane seasons and the “malaise” he described that ensued from residents. The way the people of Florida acted at that time was the opposite of the culture of hurricane “amnesia” they displayed before Hurricane Matthew broke the state’s 11-year hurricane drought in 2016. “Every weekend, it seemed like we were boarding up our homes and hardening our homes for the next storm,” he said. Back then, he said, people left their shutters up for the entire hurricane season because they were sick of taking them down and putting them back up. He said he learned from Gov. Bush that resiliency means getting things back to normal quickly – getting the roads cleared, getting kids back to school and people back to work. “It is incumbent for us to have a strategy to go forward to do that,” he said. “It seems to me that is one of the cornerstones of any
successful strategy going forward.” He said it isn’t easy to develop solutions in today’s adversarial climate because people have to agree as to what the problem is. While many in government and the insurance industry may disagree on a lot, they should agree that Florida will continue
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to face catastrophes, and the state needs cost-effective ways to deal with them. “Let’s find the things that we can agree on and that are achievable…I think Step 1 is to find common ground – try not to overstate what your problem is and what you can achieve,” he said.
4/16/18 12:50 PM
JUNE 4, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 11
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Michele Seymour
Thea Campbell
| People
Maximum, an independent, Chicago-based excess and surplus lines wholesaler, has expanded its professional lines practice with the addition of a Tampa, Fla. office. Gary Smid was hired to fill a production role, tasked with building a stronger Maximum presence in Florida’s professional lines market. As a transplant to Florida from the Chicago area, Smid began his insurance career in surety underwriting. According to Joe Messina, Maximum president and CEO, Smid will focus on expanding the company’s professional lines reach to the Southeast. In business since 1998 and headquartered in Chicago, Maximum is a national and surplus lines wholesale broker of specialty products and services specializing in property, casualty, transportation, DIC, builders risk and professional lines coverage. Brightway Insurance continues to expand across the country with the opening of new stores in Florida. Dave Lego became the new owner of Brightway, Julington Creek in St. Johns, Fla. Ryan Loucks also opened Brightway, The Ryan Loucks Agency in Boca Raton, Fla. Brightway offers its agency owners support, including customer service, carrier relationships, marketing, accounting and technology. Brightway Insurance is a national property and casualty insurance retailer selling through a network of franchised independent stores throughout the country. The Main Street America Group has promoted Michele Seymour from director of compensation and benefits to assistant vice president. The company has also appointed Thea Campbell to assistant secretary of the super-regional property and casualty insurance carrier. Seymour oversees Main Street America’s compensation and benefits function. She is responsible for planning, directing and managing the analysis, development and implementation of the company’s compensation, benefits and human resources information systems programs. Additionally, Seymour oversees the administration of several departmental functions, including payroll, compensation and benefits. Seymour reports to Dave Medvidofsky, Main Street America’s vice president of human resources, and is based at the company’s corporate headquarters in Jacksonville, Fla. Seymour joined Main Street America in 2002 as manager of compensation and
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benefits. She held this role until being promoted to director of compensation and benefits in 2012. In 2013, she was appointed as assistant secretary. Prior to joining Main Street America, Seymour was a project consultant at Blue Cross and Blue Shield of Florida (now known as Florida Blue). Her professional experience also includes compensation analyst roles at American National Bank and Oak Tree Savings Bank. Campbell is responsible for overseeing the company’s IT program office. This involves providing strategic direction to the unit to ensure projects are properly managed, controlled and budgeted. In addition, Campbell is responsible for Main Street America’s quality assurance function and IT support services team. Campbell, who reports to Amy Frederick, chief information officer, is based at the company’s corporate headquarters in Jacksonville, Fla. Campbell joined Main Street America in 2013 as an IT project manager. In 2015, she was promoted to director of its IT program office. Campbell was promoted into her current role in 2016. Campbell has experience leading an IT project management function, including her role as director of professional services of the project management office at Availity. She also held change management and service request processing roles at Bank of America for more than a decade. The Main Street America Group is a mutual insurance holding company that writes business through its eight property and casualty insurance carriers. Based in Jacksonville, Fla., Main Street America offers a range of commercial and personal insurance, as well as fidelity and surety bond products. Appalachian Underwriters Inc. has added Workers’ Compensation Underwriter Lilyana ‘Lili’ Saunders to the Sanford, Fla., office. In this role, she will be writing small comp accounts, as well as building relationships with agents and growing AUI’s book of business. Saunders has been in the insurance industry for 10 years, starting out with a special investigative unit company. She then transitioned into the workers’ compensation side, working in the field for more than six years. Saunders is one of a handful of new hires Appalachian Underwriters has recently added to the Sanford office. Appalachian Underwriters Inc. is a full-service MGA and wholesale insurance brokerage. INSURANCEJOURNAL.COM
News & Markets |
FOCUS ON FLORIDA
Citizens Welcomes 4 New Members to Board of Governors
C
itizens Property Insurance Corporation, the Florida state-run insurer of last resort, has made several additions to its Board of Governors over the last year. Four new board members were appointed to fill vacancies on the nine-member board: John McKay, president of The Riverside Real Estate Co. McKay served in the Florida Senate from 1990 to 2002. He was Senate president from 2000 to 2002. McKay, a Bradenton resident, was appointed by Florida’s Chief Financial Officer Jimmy Patronis last August. He succeeded Juan Cocuy for a three-year term ending July 31, 2020. Blake Capps, founding partner at Capps and Huff Roofing Inc. (now Capps Roofing Inc.). A graduate of the University of Florida and Mercer University Law School, Capps, of Hobe Sound, was appointed to
the Citizens Board of Governors by Senate President Joe Negron. He replaced Jim Henderson. Capps was welcomed to the board in Dec. 2017. John Wortman, a resident of Ponte John McKay Vedra, returned to Citizens Board of Governors, where he previously served as a board member from 2011 to 2016. The former CEO of Louisiana Citizens Property Insurance from 2007 to 2010, Wortman was appointed by House Speaker Richard Corcoran. He replaced Don Glisson and was welcomed to the board in Dec. 2017. Attorney Marc Dunbar was appointed by CFO Patronis in April. A resident of
Blake Capps
John Wortman
Tallahassee, Dunbar has nearly 20 years of experience working with Florida businesses and consumers. He recently served on the Northwest Florida Water Management District, appointed by Governor Rick Scott, from 2015 to 2018. Dunbar is a partner at national law firm Jones Walker LLP. He also serves as an adjunct professor for the Florida State University College of Law. Dunbar’s term expires on July 31, 2019.
Florida CFO Wants Lobbyist Registration Requirement for Citizens
F
lorida Chief Financial Officer Jimmy Patronis wants to see requirements put in place for those lobbying the state-run insurer of last resort, Citizens Property Insurance Corp. In an open letter on May 2 to Barry Gilway, Citizens’ president, CEO and executive director, Patronis said the state-backed insurer should be subject to the same rules as state agencies and organizations when it comes to requiring lobbyists be registered. As of now, that isn’t the case. “Currently, lobbyists and private insurers are not statutorily required to disclose their efforts on behalf of clients and private interest they represent before Citizens Property Insurance Corporation,” Patronis wrote. Citizens’ Legislative Affairs staff currently register as lobbyists. Patronis’ letter says INSURANCEJOURNAL.COM
his request targets those who represent third parties and private interests, such as businesses, and lobby Citizens. Patronis wrote that transparency is “one of the best ways we can ensure accountability,” and that it should be “crystal clear who is interested in influencing Citizens’ policy changes or securing contracts with [Citizens].” To address the matter and the lack of a statutory requirement, Patronis requested Citizens attend a meeting of the Florida Cabinet, which in addition to Patronis, consists of Gov. Rick Scott, Attorney General Pam Bondi and Commissioner of Agriculture Adam Putnam. “Citizens should examine its internal Code of Ethics and consider options such as publicly documenting entities that lobby
Citizens,” Patronis wrote. “These options would be a proactive approach while awaiting the next legislative session to address this statutorily.” He concluded by saying, “A public entity that provides insurance to more than 444,000 policyholders in Florida, and the potential financial impact that Citizens has for all Floridians’ insurance policies, should ensure all lobbying activities are conducted in the sunshine.” In a statement to Insurance Journal, Citizens Chairman of the Board Chris Gardner said, “Citizens is looking forward to working with CFO Patronis and Cabinet on this issue and will come with specific proposals on how to accomplish the goals outlined in his letter to ensure transparency.” The CFO’s office wrote in an email to Insurance Journal that the letter to Citizens “is part of the CFO’s focus on transparency, and his goal is to ensure transparency is a priority at state-backed organizations.”
JUNE 4, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 13
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| News & Markets
Negligence or Medical Negligence? Florida Supreme Court Offers Clarity
By Janice L. Merrill
W
hether a claim arises out of medical negligence and is subject to the presuit screening requirements of Chapter 766 of the Florida Statutes is a question legal practitioners and courts alike have struggled with for years. In April 2018, the Florida Supreme Court issued an opinion which provides clarity and guidance in making this determination. Historically, to bring a medical negligence claim in Florida, potential plaintiffs have had to incur the expense of securing an affidavit from a qualified medical professional attesting to a deviation from the standard of care, under a two-year statute of limitations. Healthcare providers largely viewed this presuit screening requirement as an important safeguard in preventing non-meritorious claims. However, because this process requires a significant expenditure, which can far exceed that of an ordinary negligence claim, many attorneys representing plaintiffs have been reluctant to classify a claim as a medical negligence claim. This allows them to avoid compliance with the presuit screening requirements and affords a four-year statute of limitations. Moreover, conflicting appellate court decisions as to when a claim arises out of
the rendering or failure to render medical care and services has only muddied the waters. The Florida Supreme Court was called on to determine when a negligence claim arises out of the “rendering of, or the failure to render, medical care or services” in the case of National Deaf Academy, LLC v. Townes. In this case, a resident was injured during a restraint. The court said while the restraint was included as an intervention in the resident’s care plan, the restraint could be performed by any member of the staff. Although the resident was injured when a registered nurse performed the restraint, any member of the staff, including unlicensed staff such as a sign language interpreter trained on the restraint process, could have performed the restraint. The court held that simply because a registered nurse performed the restraint, it did not turn the claim from an ordinary negligence claim into a medical negligence claim. The court contrasted these claims with one where an injury arose out of the application of excessive pressure while using mammographic equipment, which caused one of the claimant’s breast implants to rupture, and where a
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patient was injured while connected to physical therapy equipment. In each of those instances, the injury was sustained as a direct result of medical care, which required the use of professional judgment or skill. The court held that for a claim to sound in medical malpractice, the act from which the claim arises must be directly related to medical care or services, which require the use of professional judgment or skill. The key is whether the act is one which will require expert testimony as to the standard of care as opposed to the jurors determining through common experience whether the actor breached relevant standard of care. The inquiry for determining whether a claim sounds in medical negligence is two-fold and requires the court to determine (1) whether the action arose out of “medical…diagnosis, treatment, or care,” and (2) whether such diagnosis, treatment, or care was rendered by a healthcare provider (Silva v Southwest Florida Blood Bank, Inc.). The injury must be a direct result of receiving medical care or treatment by a healthcare provider. As the Florida Supreme Court appropriately noted, merely because a wrongful act occurs in
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a medical setting does not mean that it involves medical malpractice. Examples of acts which constitute ordinary negligence as opposed to medical negligence include: • A nurse practitioner spilling scalding hot tea on a patient who arrived at the hospital complaining of a cough, shortness of breath, bronchitis and nasal congestion. This is an ordinary negligence claim, as the act of serving hot tea did not amount to a medical service. There was no medical standard for the serving of hot tea, and thus the claimant was not required to comply with the presuit screening requirements. • A claim arising out of an injury sustained by a dialysis patient when a hospital employee inadvertently kicked the patient’s foot in an attempt to return the foot rest of the patient’s chair to the upright position. This is also an example of an ordinary negligence claim. The testimony of a medical expert as to how to return a chair to an upright position would not be required. • A further example of this is a psychiatric hospital employee’s decision not to separate patients resulting in a patient being punched in the face. As a result of the Florida Supreme Court’s opinion in National Deaf Academy, LLC v. Townes, claims that do not arise out of the act of providing medical services and do not involve the use of professional judgment and skill will be treated as ordinary negligence claims. These claims are subject to a four-year statute of limitations and do not require the claimant to incur the expense of obtaining an affidavit from a qualified medical expert attesting to a deviation from the standard of care and causation. We can expect to see more plaintiff attorneys attempting to characterize claims which arise in a healthcare setting as ordinary negligence opposed to medical malpractice. This will require the defense team to scrutinize the claim INSURANCEJOURNAL.COM
carefully to determine whether the act giving rise to the claim truly sounds in ordinary negligence or whether it arises out of the rendering of, or the failure to render, medical care and services and involved the use of professional judgment or skill.
Janice L. Merrill is a shareholder in the Orlando, Fla., office of Marshall Dennehey Warner Coleman & Goggin. As a member of the firm’s Casualty and Health Care departments, she focuses her practice in the areas of medical negligence, product liability, premises liability, motor vehicle negligence, and long-term care. She may be reached at (407) 420-4411 or jlmerrill@mdwcg.com.
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The Deductible Installment Plan, available only from Cypress Property & Casualty Insurance Company makes delaying repairs a thing of the past.
D.I.P. and Done!
NO OTHER INSURANCE COMPANY CAN OFFER THIS BENEFIT! Our patented Deductible Installment Plan is now available to all HO3 and HO6 insureds at no extra charge! Now, if homeowners incur property losses from a hurricane or another catastrophe peril, they no longer have to delay their repairs until they can pay their deductible. • If homeowners use one of our preferred vendors, their repair work can begin immediately while they pay their deductible in three installments. • No payment is due for the first six months. The last two payments are billed on an annual basis thereafter. Payments can be made sooner. • No fees. • No interest. • No credit check. • No increase in premium. • We will offer to provide a deductible advance to cover up to 2% of the coverage A limit for a covered loss.
Cypress Property & Casualty
Working Together. To learn more, call us at 1-877-560-5224. A patent has been filed. Must use a Cypress approved vendor. Not applicable to HO4 policies. This document is a brief description of the DIP benefit and is not meant to be a contract, please refer to actual endorsement. Please refer to your policy for full terms and conditions. Only offered in Florida.
PROPERTY & CASUALTY INSURANCE COMPANY
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Phone: (877) 560-5224 www.cypressig.com
5/22/18 11:04 AM
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| News & Markets
Deciphering ‘Good Faith’ for Insurers Defending Coblentz Agreements in Florida
By Michel A. Morgan
S
ince the 1969 seminal case of Coblentz v. Am Surety Co. out of the Fifth Circuit Court of Appeals that found an insurer that breaches its duty to defend must pay the amount of damages stipulated to between the claimant and insured unless there is “fraud or collusion,” courts have mandated that an enforceable Coblentz agreement must be reasonable in amount and entered in “good faith.” However, there is no comprehensive definition of “good faith” in Florida as stated in the 2006 case of Chomat v. N. Ins. Co. Therefore, the full extent of the meaning of “good faith” remains unresolved as courts analyze varying degrees of conduct that amount to a showing of “good faith” — or lack thereof. The Eleventh Circuit has provided the most comprehensive definition of “good faith” in the 2016 case of Jimenez v. Gov’t Employees Ins. Comp. where it required that an enforceable Coblentz agreement must be free from: bad faith; fraud; collusion; and entered with efforts to minimize liability. Nonetheless, recent court decisions like Beaubrun v. GEICO Gen. Ins. Co. out of the Southern District of Florida create more ambiguity than clarity around the meaning of “good faith.” This leaves practitioners and insurers to question what
type of evidence suffices to demonstrate that a Coblentz agreement should not be enforced for lack of “good faith.” While practitioners often disagree about who carries the burden of proof in these cases, the courts unequivocally confirm that the party seeking to recover under a Coblentz agreement must prove that it was entered into in “good faith.” The Beaubrun decision was entered in the context of an order on an insurer’s motion for summary judgment — meaning, a request by the insurer for the court to rule that the Coblentz agreement was unenforceable as a matter of law. The claimant brought a wrongful death action as the personal representative of the decedent who was involved in a car accident with the insured, in which they both died. The claimant also filed under oath a statement of claim in the deceased-insured’s probate action, liquidating the value of the wrongful death action to $1 million. Ultimately, the claimant and the administrator ad Litem for the deceased insured’s estate entered a Coblentz agreement for a quadrupled amount of $4 million. This figure was to represent the value of the wrongful death action. However, the contradiction between that quadrupled figure and the previous $1 million dollar statement of claim figure triggered the insurer’s argument that the Coblentz agreement was not entered in “good faith” based on the requirements in Jimenez. The insurer also argued that the settlement figure was not negotiated, nor did the administrator ad Litem verify the legitimacy of the figure by engaging in at least some rudimentary inquiry about the value of the decedent’s estate. The portions of the administrator ad Litem’s deposition quoted by the court show that the administrator could not recall what, if any, negotiation took place about the settlement figure,
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and admitted that he did not know anything about the decedent, despite agreeing to a settlement figure that should represent the value of the decedent’s wrongful death. This testimony tends to show that the agreement was not entered in “good faith” and that no effort was made to minimize liability, similar to conduct that the Middle District and Eleventh Circuit courts recognize bar enforceability. However, the Beaubrun court found that there was a question of fact on this issue because the administrator testified that he entered the settlement to cap the damages against a potential larger jury award, and that he considered whether the amount would be fair to the heirs of the decedent’s estate. This is curious, in light of the administrator ad Litem’s admission that he did not know anything about the decedent. However, it is apparent that at least in the Southern District the degree of conduct surrounding the attorney ad Litem’s admissions do not demonstrate lack of “good faith” as a matter of law. Further, because the court did not specifically analyze the “effort to minimize liability” requirement, we are left to guess what bearing this had — or is to have in the future — on the “good faith” analysis for enforceability. Prior to the Beaubrun opinion, courts have found Coblentz agreements unenforceable at the summary judgment stage when there is evidence that the agreement was entered with disregard for any one of the “good faith” requirements. For example, the Jimenez court, and courts in the Middle District of Florida in the cases of Travelers Indem. Co. of Conn. v. Attorneys Title Ins. Co. and Bradfield v. Mid-Continent Cas. Co., have found lack of “good faith” in the form of collusion and absence of effort to minimize liability in
Nonetheless, recent court decisions ... create more ambiguity than clarity around the meaning of ‘good faith.’
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the following types of scenarios: • No exchange of any information between the parties to a Coblentz agreement regarding a decedent’s work-life expectancy or the financial situation of a decedent • The insured chose not to engage in even the most rudimentary discovery • The record was void of any evidence of how and when an insured negotiated for any reduction in a settlement proposal to minimize liability • Where the claim involved both covered and non-covered damages the claimant failed to meet their burden of showing that only covered damages were allocated to the settlement. Nonetheless, as Beaubrun shows, discrepancies still arise in practice due to the loose analysis of the enforceability terms established in Jimenez. Specifically, Beaubrun leaves in question what type of evidence is enough to rise to the level of proving that a Coblentz agreement is unenforceable for lack of “good faith,” and whether the court’s analysis of some enforceability terms, to the exclusion of others, mean that the excluded term is no longer a requirement of “good faith.” Perhaps the Beaubrun decision comes as no surprise, based on a previous Southern District of Florida decision in Chicken Kitchen USA LLC v. Maiden Specialty Ins. Co., in which the insureds each provided an affidavit confirming that the claimant presented a single settlement figure that they “simply accepted” without “give and take negotiations” or an “evaluation of reasonableness of the settlement amount.” It is hard to imagine any clearer evidence that could exist to show that a Coblentz agreement was not entered in “good faith,” than an insured’s own sworn stipulation amounting to an admission that they did not do so. However, the court disagreed in Chicken Kitchen USA LLC and found that the plaintiff’s “self-serving” statements about the reasonableness of the agreement was sufficient to deny summary judgment. Although the Southern District tends to take a claimant-friendly posture to INSURANCEJOURNAL.COM
Cobletnz agreements in the summary judgment context, it took an insurer-friendly position in the discovery context in December 2017 in Kehle v. USAA Cas. Ins. Co. Kehle was a case of first impression because it involved issues not previously decided. In that case, the claimant objected to the insurer obtaining discovery on whether a Coblentz agreement for over $8 million was reasonable and entered in “good faith,” because a third-party arbitrator was used to determine the damages. The court did not agree that the use of an arbitrator to determine damages conclusively established that the Coblentz agreement was reasonable and entered in “good faith,” and relied on Jimenez as authority for why the insurer should be entitled to broad discovery in the settlement agreement. In sum, although the claimant carries the burden of proof to enforce a Coblentz agreement, the extent of conduct that an
insurer is required to show in its lack of “good faith” defense, remains unclear. In particular, there does not appear to be any ceiling or floor to conduct bearing on the “efforts to minimize liability” requirement of the “good faith” analysis. Nonetheless, the trend in the Southern District of Florida is requiring insurers to bring their Coblentz agreement defenses before a jury, instead of ruling on the issue as a matter of law. In the context of discovery, however, given that even an arbitration-reached settlement figure is not presumed to be reached in “good faith,” insurers can still expect broad latitude to obtain the discovery needed to defend against the enforceability of a Coblentz agreement. Michel A. Morgan is an attorney in the Florida offices of Kaufman Dolowich & Voluck LLP where she concentrates her practice in insurance coverage and bad faith insurance defense litigation. She can be reached at mmorgan@kdvlaw.com
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Florida Agency Owner Arrested Over $62K Fraud Scheme
| Fraud Round-up
An insurance agency owner in Florida was arrested in April after he admitted to stealing more than $60,000 in insurance premiums, according to a statement from the Florida Department of Financial Services (DFS). Michael Christopher Hensley, owner BOSC Insurance Co. and Hensley Insurance Co., admitted to stealing $61,954 in insurance premiums between 2011 and 2018 in Orange County, Fla. The theft was discovered after an investigation by the DFS Disaster Fraud Action Strike Team (DFAST) revealed that Hensley had solicited various commercial businesses to procure property and casualty insurance under both of his companies BOSC and Hensley Insurance. Hensley has had no active appointments on his license since 2010, making his licensed expired as of 2014 and unlicensed as of March 9, 2015. After the impacts of Hurricane Irma, a commercial business property sustained extensive damage caused from the storm. The business owner attempted to contact his insurance agent, Hensley, for guidance on the claim process. After multiple calls and no response from Hensley, the owner contacted the listed insurance
carrier on the Certificates of Insurance that Hensley had been providing the business with annually since 2012. An insurance representative with the listed company informed that the business was not insured with them nor had he ever been insured with the insurance company. Upon this revelation, the owner of the business contacted the CFO’s Orlando Field Office for assistance. As a result of the DFS investigation, Hensley admitted to collecting monthly insurance premiums payments from nine different commercial businesses and providing them with false Certificates of Insurance coverage. Hensley went to various insurance company websites and made copies of their general liability policies. He would then take a company’s information and transfer it to Certificates of Insurance and provide the fraudulent documents to the unsuspecting businesses as proof of insurance. Hensley further admitted to using the money that he obtained from the victim businesses for his own personal benefits. Hensley was arrested April 6, 2018, by the Lake Mary Police Department and was booked into the Seminole County Jail on the counts of organized scheme to defraud and communications fraud, grand theft, misappropriation of insur-
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ance premium funds, unlicensed activity-MSB. This case will be prosecuted by the Office of the State Attorney, 9th Judicial Circuit. Hensley could face up to 30 years in prison. DFS said its investigators believe Hensley may have defrauded additional victims and encourage members of the community who have purchased property and casualty insurance from Michael Christopher Hensley, BOSC Insurance Co. or Hensley Insurance Co. to contact the Department of Financial Services’ Insurance Fraud Hotline by calling 1-800378-0445. The Department’s anti-fraud strike team consists of three teams that are working in areas heavily impacted by Hurricane Irma including South Florida, Miami-Dade and Monroe counties; Southwest Florida, including Lee and Collier counties; and Central Florida, including Polk and Orange counties. They are trained insurance fraud investigators with specialized knowledge of property/casualty fraud and workers’ compensation fraud.
Florida Lawyer Gets Prison for $23M Auto Insurance Fraud Scheme
A Florida man was sentenced to more than a year in prison for his role in a $23 million auto insurance fraud scheme involving chiropractors’ clinics. The SunSentinel reports 55-year-old Jason Dalley wept in court April 16 as a judge sentenced him to spend a year and nine months in prison and pay more than $1.8 million in restitution. Dalley admitted he was part of a group of clinic owners, chiropractors and attorneys involved in the scheme. Court records show the fraud involving clinics in Broward, Palm Beach and Miami-Dade counties brought in at least $23 million from 10 insurance companies between 2010 and 2017. Dalley ran a personal injury and criminal defense law firm in Boca Raton. He pleaded guilty to conspiring to commit health care, mail and wire fraud. Copyright 2018 Associated Press. All rights reserved.
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