August 2, 2021 • Vol. 99 No. 15
Contents
News & Markets
News & Markets
News & Markets
Florida’s Citizens Insurance Seeks Rate Increase as Policy Count Skyrockets
Gulfstream Insurance Admits to Insolvency, Agrees to Liquidate
Florida Officials Consider Adopting New Condo Inspection Policies
4 6
Federal Judge Halts Part of Florida’s New Property Insurance Reform Law
8 8
Florida Litigated Claims Spiked in June
9
Bradenton, Florida Insurance Agent Pleads Guilty to Defrauding Elderly Investors
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10 12
Florida’s Event Planners Navigate New Insurance Market Reality
16
Surfside Tragedy Provides Timely Perspective on Commercial Large Loss Investigations
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News & Markets Florida’s Citizens Insurance Seeks Rate Increase as Policy Count Skyrockets By Ezra Amacher
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he Citizens Property Insurance Corporation’s Board of Governors approved rate adjustments that will raise average premiums by an additional 2.3% in February 2022. The board for the state-backed insurer unanimously voted in favor of the rate increases, which head to the Office of Insurance Regulation for final approval. If approved, renewing policies after Aug. 1 will increase by an average 5.2%, and policies renewed after February 1, 2022 will see average increases of 7.6%. Citizens is required to comply with a legislative glide path that caps individual rate increases at 10%, excluding coverage changes and surcharges. The latest rate adjustments calculate in provisions of SB 76. The law, signed by Gov. Ron DeSantis in June, raises Citizens’ cap through 2026. In 2022, Citizens’ glide path will increase from 10% to 11% under the new law. “These necessary adjustments reflect the efforts of the Florida Legislature
to return Citizens to its role as a residual insurance company,” said Citizens Chairman Carlos Beruff. “Unfortunately, we have become the first choice, or only choice, in too many regions of the state.” SB 76 also requires Citizens to factor in the reinsurance costs necessary to protect its surplus from a 1-in-100-year storm. Citizens said the law steers policyholders to private insurance carriers if a private policy premium is within 20% of the comparable Citizens policy premium. “Over the past couple of years, private market rates have increased due to fraud and increased litigation,” said Kyle Ulrich, president and CEO of Florida Association of Insurance Agents. “Because of the statutory rate cap, Citizens’ rates have become very competitive, if not lower than the private market in some areas of the state. As the market of last resort, Citizens should
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not be competing with the private market.” Citizens said that is has seen its policy count jump from 420,000 to more than 640,000 since October 2019 and is now seeing increases of more than 5,000 new policies per week. Company officials expect the policy count to exceed 750,000 by the end of 2021. “We want to get smaller, not bigger,” said Citizens spokesman Michael Peltier. “The market is in a challenging spot right now so we’re stepping up. That’s what we’re supposed to do.” Private insurers have been implementing rate increases in excess of those Citizens. If approved, the higher rates will apply to all Citizens policyholders. In April, Insurance Commissioner David Altmaier rejected a recommendation that new policyholders be charged more than existing policyholders.
‘These necessary adjustments reflect the efforts of the Florida Legislature to return Citizens to its role as a residual insurance company.’
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News & Markets Federal Judge Halts Part of Florida’s New Property Insurance Reform Law By Andrew G. Simpson
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federal judge halted enforcement of a section of Florida’s new property insurance reform (SB 76) law that restricts advertisements and solicitations by roofing contractors. U.S. District Judge Mark Walker granted the injunction in response to a complaint by a roofing contractor that the section of the law violates commercial speech rights and the First Amendment. The legislation, which passed on the last day of the legislative session and was signed into law on June 11 by Gov. Ron DeSantis, went into effect July 1. Judge Walker found that the section of the law that bans “written or electronic communication that encourages, induces, or instructs someone to contact a contractor or public adjuster for the purpose of filing an insurance claim for roof damage” violates the First Amendment of contractors. He enjoined enforcement of this section of the new law but did not declare the entire law unconstitutional. The complaint was brought by Gale Force Roofing and Restoration and heard in an expedited session. The advertisements prohibited by the section include, but are not limited to, door hangers, business cards, magnets, flyers, pamphlets and emails. The language does “not indicate that its prohibition applies only to speech that is misleading, fraudulent, or concerning illegal activity,” the judge noted. Sponsors of the legislation were looking to thwart roofing contracting firms that pressure homeowners to make unnecessary repairs and then charge insurance providers, driving up insurance costs. The state Department of Business and Professional Regulation unsuccessfully argued that the provision is a reasonable restriction on commercial speech to combat consumer exploitation and fraud, “ensuring that the line between 6 | INSURANCE JOURNAL | FLORIDA AUGUST 2, 2021
contractor and insurance adjuster is not blurred,” and protecting Florida homeowners from “skyrocketing insurance premiums, or, worse, the inability to secure homeowner’s insurance at all.” The judge agreed fraud is a serious issue for the state but said the Legislature failed to address these concerns within the bounds set by the Constitution. He found the provision goes too far in limiting advertising and solicitations by contractors and suggested that the state has other options to address fraudulent behavior without imposing such a wide ban on contractors’ speech. Judge Walker found that while the state of Florida has identified substantial state interests, none of these interests are directly implicated by contractors advertising their roofing repair services to homeowners and informing homeowners they may have storm damage that may be covered by insurance. He said the evidence suggests that there are “less restrictive, narrowly drawn means” available to the state rather than prohibiting protected speech that does not directly cause the
identified ills. “There is a difference between targeting disfavored conduct or practices (contractors acting as public adjusters, exploiting consumers, filing fraudulent claims, etc.) and targeting anything that may lead to that conduct — including truthful information that a consumer may have storm damage, and that storm damage may be covered by insurance,” the judge wrote in his 44 page decision. He said the state failed to show why this prohibition on speech is a “reasonable fit for achieving its interest in reducing insurance costs for Floridians, as opposed to other lesser restrictive means” like an economic policy of subsidy or costs regulations. He also criticized the state’s evidence as “lackluster” in claiming that the total cost of insurance fraud is $40 billion but later acknowledging that the $40 billion figure includes categories of fraud in addition to more roofing fraud. In addition to targeting roofing contractors, the new law also includes changes to the state’s one-way attorney fee statute, the eligibility and glidepath of Citizens, and the deadline to file claims. INSURANCEJOURNAL.COM
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News & Markets Gulfstream Insurance Admits to Insolvency, Agrees to Liquidate By Ezra Amacher
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decrease in surplus of more than $5.2 million as of Dec. 31, 2020, compared with the same date in 2019, including a net loss of $22.6 million and a net underwriting loss of $34.9 million. Gulfstream was in the process of securing a wellheeled investor this year until a string of severe winter storms forced higher required contributions, leading the suitor to pull out. In May, Gulfstream received OIR approval to cancel 20,311 personal residential policies. The company said it would not accept risk on any policies outside Florida past June 1. “They had to get rate increases, they had to get additional capital, and I think the reality is they were doing both,” Demotech President Joseph Petrelli told Insurance Journal. “Management had put in money. The company had filed for rate increases and received rate increases and then filed for more. They just couldn’t get enough money in fast enough.”
ersonal residential insurer Gulfstream Property and Casualty Insurance Co. has agreed to liquidate according to a July 22 order signed by the Florida Office of Insurance Regulation. The Florida Department of Financial Services must agree to receivership before the liquidation process can formally begin. Once the DFS signs off, Gulfstream customers will have 30 days to find new coverage. In the OIR’s Consent To Order Of Receivership, Commissioner David Altmaier wrote that the office has determined that “one or more grounds exist for the initiation of delinquency proceedings,” which include Gulfstream’s admission of insolvency. The liquidation process caps off a tumultuous ‘The company stretch for the Sarasotahad filed for rate based insurer. increases and Gulfstream was placed under administrative super- received rate vision in late June after it increases and then failed to maintain the minfiled for more. imum surplus necessary to They just couldn’t pay claims. Weeks earlier, Demotech Inc. withdrew its get enough money “A” designation, citing the in fast enough.’ company’s shaky finances. Gulfstream suffered significant losses in 2020. The company reported a
Remaining Gulfstream policies are expected to go to a combination of private carriers and Citizens Property Insurance Co., the state's insurer of last resort. Citizens President and CEO Barry Gilway said during a July 14 board of governors meeting that 35,000 Gulfstream policies were likely be subject to liquidation. “The bottom line is we do believe there may be opportunities for one and maybe two companies to pick up the 35,000 policies,” Gilway said. “If they do, there is very limited impact on Citizens.”
Florida Litigated Claims Spiked in June
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ew litigated claims for Florida’s largest property/casualty insurers grew to 6,398 in June, according to data compiled by litigation management software provider CaseGlide. June litigated claims were up 14% from May’s figure of 5,364. Of the 17 largest Florida insurers monitored by CaseGlide, all but one grew their litigated claims month over month. In the same period, six insurers grew by more than 20%, while an additional seven grew between 10% and 20%. 8 | INSURANCE JOURNAL | FLORIDA AUGUST 2, 2021
Miami-Dade accounted for 20% of new litigated claims, followed by Broward at 17% and Palm Beach at 9%. “New litigated claim numbers are
continuing to climb to significant levels,” said Wesley Todd, CEO of CaseGlide. “For the second month this year, we’re seeing figures at or around 6,400 newly litigated cases in a month. We haven’t experienced that level of volume since we began following the data in 2015. With Governor DeSantis recently signing SB 76, aimed at restructuring litigation rules in Florida, we intend to keep a close eye on the data to determine whether or not that bill provides meaningful relief for the state’s insurers.” INSURANCEJOURNAL.COM
News & Markets Bradenton, Florida, Insurance Agent Pleads Guilty to Defrauding Elderly Investors
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enneth Murry Rossman, a certified public accountant and licensed insurance agent, pleaded guilty to conspiracy to commit wire fraud and mail fraud and aiding and assisting in the preparation and filing of a false income tax return, according to the U.S. Attorney’s Office for the Middle District of Florida. Rossman, a Bradenton resident, faces a maximum penalty of eight years in federal prison. According to the plea agreement, Rossman conspired with Phillip Roy Wasserman, a former lawyer and licensed insurance agent, to defraud elderly victim-investors. The conspirators made false and fraudulent misrepresentations and concealed material information in order to convince elderly victim-investors to put their money into Wasserman’s new insur-
ance venture, “FastLife.” Some victim-investors were persuaded to liquidate traditional investments, such as annuities, and/or to borrow funds against existing life insurance policies to generate cash to invest in the venture. These investors were not told about surrender fees and other costs associated with the liquidations, and Rossman prepared income tax returns for victim-investors in a manner designed to conceal negative personal tax consequences that resulted from the liquidations from both the victim-investors and the Internal Revenue Service. Their money was used to perpetuate the fraud and for the conspirators’ personal
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enrichment. Wasserman paid Rossman a percentage of the money for his role in the conspiracy. Wasserman also used victim-investors’ money to make payments to earlier victims in the FastLife venture, as well to as victims in his earlier hedge fund and real estate fund ventures. Wasserman spent a significant amount of the money to finance a lavish lifestyle. The conspiracy resulted in victim-investors losing more than $6.3 million. The case was investigated by the Internal Revenue Service – Criminal Investigation and the Florida Office of Financial Regulation. It is being prosecuted by Assistant United States Attorneys.
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News & Markets
Florida Officials Consider Adopting New Condo Inspection Policies By Brendan Farrington
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cross Florida, people living in the thousands of condominiums rising above the state’s 1,350 miles of coastline wonder if the building collapse in Surfside could happen to their home as state and local officials discuss what they can do to make sure it doesn’t. Although building collapses are rare, local governments are looking at whether they need to adopt new inspection policies — the vast majority of counties don’t require reinspection of a building once it’s completed. “We inspect bridges every two years and yet a high-rise can go up right on the coast and it’s inspected at the time it’s built and never again,” said Volusia County Chair Jeff Brower, who said residents have sent photos of damaged buildings. “It’s kind of a wake-up call, and some of the pictures I have seen of our own structures are scary.” He’s in contact with the governor’s office on the issue but thinks acting locally will be quicker. One idea is reinspecting new buildings after 10 years and, depending on what’s found,
inspecting again another decade later. Miami-Dade County, where the 40-year-old Champlain Towers South partially collapsed last month, requires buildings to be recertified as safe every 40 years and every 10 years after that. “We definitely have to have inspection of the infrastructure of these buildings,” Brower said. “They’re not falling all over the place, but we don’t want even one more like the tragedy at Surfside.” The collapse prompted the county — as well as cities and towns within it — to take a closer look at the recertification rules already in place. One municipality, North Miami Beach has evacuated the nearly 50-year-old Crestview Towers and won’t allow residents back in until required repairs have been completed. The county announced late last month that the 28-story Miami-Dade County Courthouse will begin undergoing repairs immediately because of safety concerns found during a review prompted by the deadly collapse of a nearby condominium building Florida’s beachfront high-rises take a beating from storms, saltwater and sea air, which can wear down concrete and
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rust rebar. There isn’t a mile of Florida’s coastline that hasn’t been affected in one way or another by hurricanes and tropical storms in the past 40 years — with some areas taking multiple hits. Although construction standards improved when statewide building codes were strengthened in the 1980s, the quality before then was often questionable, said Brett Turner, a project manager in southwest Florida who has been in the construction industry for 45 years. “Up until the late ’80s, there virtually were no inspections. Our codes were horrible. So any building or house that was built prior to 1986 is suspect,” Turner said. “It was the Wild West — whatever you could get away with if you were making a buck.” Turner, who previously specialized in repairing older buildings, said he’s seen very dangerous damage in Florida buildings. “I’m surprised that (Surfside) is the first one that I’ve seen this happen to,” he said. “I’m not surprised it happened; I’m surprised it’s the first one.” In Boca Raton, officials are working quickly to establish a recertification process for older buildings, Councilman INSURANCEJOURNAL.COM
Andy Thomson said. “We have a number of high-rise condos on the beach, particularly. And I think that’s what causes the most heartburn for people because of the potential of corrosion due to saltwater,” Thomson said. Steven Rogers lives at the Chalfonte condominiums in Boca Raton, where neither the city nor Palm Beach County requires building recertification. But Rogers, who was elected the condominium association president, said they’re not waiting for either to set a policy. The association hired engineers two years ago to inspect the two 22-story towers built in the late 1970s on the Atlantic Ocean. Rogers said he called engineers again after the Surfside collapse and told them he wants an inspection policy that’s more stringent than Miami-Dade’s. The association is making repairs with plans to do so every year. “Do inspections that you feel are necessary, not what the city or the state feels
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is necessary,” Rogers said. “It’s going to take time for the city or the state to come out with new laws, and in that time, we have to move. We have to do the right things now.” How the state will act could depend a lot on what’s learned about the Surfside collapse, Republican Gov. Ron DeSantis said at a news conference. “We want to be able to identify, why did this happen? Is this something that was unique to this building?” DeSantis said. “Is it something that buildings of that age that would have implications beyond that, whether southern Florida or the entire state of Florida? I think we need to get those definitive answers.” Democratic state Sen. Jason Pizzo, who represents Surfside, has indicated he’ll seek legislation to address condominium inspections when lawmakers return to Tallahassee in January. “We’re going to be pushing for a few new provisions in FL condo law (like
we have for the last three years). In the interim, condo associations must comply with existing laws and serious structural deficiencies, so our residents are not uprooted and forced to sleep in shelters,” Pizzo recently tweeted. Escambia County, which includes Pensacola Beach, has no recertification program for older high-rises, and Building Services Director Tim Tolbert said the area will probably wait to see if a statewide code is enacted. “I think it will be more enforceable that way,” Tolbert said. “Even if that’s a requirement and an association refuses to do anything, what do you do? If you go to condemn the building, you’re talking about major lawsuits. It’s just going to be tough to enforce even if it’s a state requirement.” Copyright 2021 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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Special Report Starting at the end of March 2020, the governor required travelers from states including New York, New Jersey and Connecticut to self-quarantine for two weeks. After statewide restrictions were lifted, local limits remained in the hardest hit areas; The Centers for Disease Control and Prevention continued to advise caution. People from other states faced travel limits that prevented them from attending events. In places where government restrictions didn’t hinder activities, many people chose to avoid travel and large gatherings for their own safety. Research showed that consumer traffic fell 60% nationwide between March 1 and the week of April 12, 2020, according to Robert P. Hartwig, director of the Center for Risk and Uncertainty Management at the Darla Moore School of Business at the University of South Carolina. Just 7% of that drop was attributable to legal restrictions. All of this combined to force the cancellation of conventions, conferences and trade shows costing venue and event operators in Florida alone billions of dollars in lost revenue.
Florida’s Event Planners Navigate New Insurance Market Reality By Elaine Silvestrini
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OVID-19 has inflicted significant damage on Florida’s events industry, costing revenue, forcing changes in how the state’s venues operate and limiting options for how conventions, trade shows and concerts are insured. Before the pandemic, event planners in Florida and around the country could easily purchase insurance protecting them from losses if they were forced to cancel conferences, sporting events or festivals because of factors ranging from hurricanes to terrorism to communicable diseases. In most cases, industry experts say, communicable disease coverage was a relatively inexpensive add-on to event can-
cellation insurance. For policies on some smaller events, like weddings or book signings, insurers might even include the coverage as a freebie in an event cancellation policy. After all, what were the odds that an infectious illness would cause massive shutdowns? It had been 100 years since the last worldwide pandemic. Then COVID hit and for a time, every non-essential activity was shuttered around the country. Even Florida, which became known for its relative openness during the pandemic, restricted bars and restaurants and implemented a statewide stay-at-home order for residents for most of April 2020. Theme parks, including Disney World, closed for several months.
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Rethinking Event Cancellation Market
Event planners and operators with event cancellation policies turned to their insurance agents in the hopes of filing claims. Those who had added communicable disease coverage before anyone ever heard of COVID were in luck. Many others were not. Nationally, insurers paid an estimated $6 billion to $10 billion in claims for COVID-19-related losses in 2020, according to Mark Friedlander, director of corporate communications at the Insurance Information Institute. But the amount of money paid on claims was significantly below insurers’ worst-case scenarios as most venues and event organizers absorbed a substantial amount of the losses, according to Hartwig, former president of the Insurance Information Institute. Still, the experience was enough to convince insurers to rethink the event INSURANCEJOURNAL.COM
cancellation market. For starters, insurers no longer offer any kind of communicable disease coverage on event cancellation policies, industry experts say. And the coverage that remains available for things like weather disruptions is significantly more expensive. Now policies come with higher deductibles and lower coverage limits, as insurers make up for losses both from COVIDrelated claims and business revenue lost to the fact that fewer events were held and fewer policies were purchased during the pandemic. Some insurers have left the event cancellation market altogether, while some others see opportunity and are newly entering the market. Orange County, Florida, home to Orlando, lost more than $2 billion because of canceled and rescheduled events at the Orange County Convention Center, according to Nadia Vanderhoof, marketing and communications manager for the convention center. Specifically, between March and December last year, 59 events were canceled at the center, with an economic hit the county of $1.3 billion. Vanderhoof also said another 38 events were rescheduled, with an economic impact of $445 million. Since January of 2021, an additional 20 events worth $667 million have been canceled, with another 25 events rescheduled, costing more than $635 million. The Convention Center is just one venue in Orlando, which has a large hotel industry that serves as venues for conferences, trade shows and other business events. Hotels and other venues, too, faced massive cancellations. Among them was the 2020 annual conference for the Florida Association of Insurance Agents (FAIA) that had been booked at an Orlando hotel, according to the association President and CEO Kyle Ulrich. The conference planners had expected about 1,000 insurance agents and 300 vendors that would have brought an average of about five employees each, for a total of about 2,500 people. While the association did have event cancellation insurance, it did not have INSURANCEJOURNAL.COM
communicable disease coverage so, Ulrich said, it couldn’t file a claim or recover losses. But the association has a longstanding relationship with the hotel and was able to invoke the force majeure clause of its contract. So, it wound up saving what could have been more than $1 million in costs, according to Ulrich. The association was not able to make up for hundreds of thousands of dollars in anticipated revenue from vendors at the conference. If it had had communicable disease coverage sufficient to cover the losses, the association would have been able to file a claim for the lost revenue. The association had to cancel another, smaller event last September, a young agent sales and leadership conference that would have involved 150 to 200 attendees. Again, the association was able to avoid out-ofpocket losses with the hotel. And that event would not have generated vendor revenue, so there were no losses, Ulrich said.
add-on cost less than 5%. On a $10,000 policy, the coverage added maybe $500, he said. ASAE purchases its event cancellation insurance policies in September. So, coverage for most of its events in 2020 was locked in before anyone ever heard of COVID. Once COVID became a known threat in early 2020, however, insurers excluded the virus from coverage under new policies, and shortly thereafter, underwriters stopped writing new coverage for communicable diseases altogether, according to Hartwig. Mary Beth Ryan, senior vice president at Risk Strategies, a Boston-based brokerage firm, said a lot of her clients are associations and events are significant portions of their budgets. Usually, they view insurance as protection against weather-associated cancellations. “We always advise to buy as much insurance as is available,” Ryan said. “Ultimately, that is the client’s decision.” According to Ryan, before COVID, clients in Florida paid 0.2% to 0.25% of the insured amount for event cancellation coverage when it wasn’t hurricane season and 0.35% to 0.45% during hurricane season. Before the pandemic, the cost to add communicable disease coverage ranged from 0.025% to 0.15% depending on when the event was taking place, Ryan said. About half of her clients purchased communicable disease coverage with their event cancellation policies last year. Everyone who did was able to file a successful claim. Among the clients who benefitted from taking the advice, Ryan said, was a large trade show with a $15 million budget scheduled to be held in Florida in 2020. The show was canceled, but the operators managed to recoup at least $12 million through an insurance claim. Getting these claims paid took longer than usual, however, because of the volume of cancellation. Under normal times, she said, an event cancellation claim
‘We always advise to buy as much insurance as is available.’
Communicable Disease Coverage
Those event organizers who purchased event cancellation insurance with communicable disease coverage before the pandemic were in luck. In most cases, industry officials say, they were able to file successful claims to recover lost revenue and out-of-pocket expenses up to their policy limits. Bob Skelton is chief administrative officer for the association management association ASAE, also known as the Center for Association Leadership. Skelton said conferences are the organization’s “lifeblood” and where the organization makes its money. In Florida alone, ASAE had to cancel six different meetings from March 2020 to January 2021. All the events scheduled through October 2020 had communicable disease coverage, according to Skelton. If it didn’t have the coverage for those events and others around the country, Skelton said, ASAE would have lost more than $6 million. Skelton said the communicable disease
continued on page 14
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Special Report continued from page 13
takes an average of 90 days to settle. That has extended to six to 12 months during COVID. After COVID, the cost for an event cancellation policy rose from 0.35% to 0.5% when it wasn’t hurricane season and 0.8% to 1% during hurricane season, according to Ryan. Communicable disease coverage is no longer available. According to III’s Friedlander, the insurers that have left the event cancellation market altogether because of the scope of the losses in 2020 include Swiss Reinsurance Co., Munich Reinsurance Co., Chubb, Market and Talbot Underwriting. W.R. Berkeley is in the process of exiting the market, Friedlander said. “On the other hand,” Friedlander added, Cincinnati Global, a unit of Cincinnati Financial Group, and some London-based insurers have entered the market, “citing new opportunities.” He said most event cancellation policies have doubled or tripled their rates compared to before the pandemic. Also, insurers writing event cancellation have reduced their capacity from $750 million to $1 billion per risk to $300 million to $400 million per risk. Communicable disease coverage may not be gone for good; some experts foresee its return, although they expect it will look different than before. Hartwig said he expects some insurers will analyze their COVID experience, and “begin to tiptoe” back into the market for communicable disease cancellation insurance, possibly with very steep prices. They may also impose requirements like attendees being vaccinated and that operators follow basic risk management guidelines. Hartwig noted that after the Sept. 11 terrorist attacks, insurers stopped covering for terrorism-related cancellations. But they eventually were able to offer the coverage, helped in large part by passage of a federal law in 2002, the Terrorism Risk Insurance Act under which the government provides a backstop. Skelton said ASAE is lobbying for something similar for communicable disease insurance coverage. The proposal is in Congress and several legislators have
expressed an interest. But he said, “Trying to get anything through Congress right now is not fun.” Hartwig, too, is skeptical that Congress will act, given the current environment. “I think the steam has exited the initiative in Washington,” he said.
Weddings and Other Small Events
Among event cancellation offerings, wedding insurance is one of the most popular kinds of coverage purchased in the U.S., Friedlander said. Luis Gazitua, an agent with JAG Insurance Group in Coral Gables, Florida, said his company insures mostly small events like weddings, book signings and other short-duration events with budgets ranging from $350 to $3,000. Gazitua said his clients that had coverage including communicable disease filed claims for four or five events last year. Every one of the claims was denied. One of the events was a wedding; another was a small, outdoor concert. The insurers, Gazitua said, concluded that the events could have been conducted despite the pandemic, and therefore, refused to cover the losses. That may be because these events largely attract people who live within the state and don’t have to travel far. Before the pandemic, Gazitua said, these policies cost 3% to 5% of the covered amount. Now, the cost is about 20% to 30% higher. Deductibles have also increased slightly. Kaliff Insurance offers event cancellation insurance for things like festivals, fairs and carnivals or any special event across the country, according to Vice President of Sales and Marketing David Olivares. Nationally, Kaliff covers about 7,500 events a year, about 800 to 1,000 of which are in Florida. About 75% of clients didn’t purchase communicable disease add-on coverage when it was available, Olivares said. Consequently, they were out of luck when they had to cancel their events because of the pandemic. Olivares said about 20 policies in Florida wound up paying out because of COVID-
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related cancellations. These involved smaller, indoor events with maybe 200 people expected to attend. One of the covered events was a software conference that had been scheduled to take place in Orlando with about 500 attendees. Many clients without communicable disease coverage called the agency to see if they were covered when they were forced to cancel their events, Olivares said. “Some people that thought they had the coverage didn’t have the communicable disease part,” he said. “There was quite a bit of that ... hoping and praying that they would be covered.” Olivares said getting event cancellation insurance for larger events is now more challenging, even without communicable disease coverage. For example, if an event needs $7 million in coverage, Olivares said he must approach several different underwriters to purchase several policies covering part of the amount. “Before all these issues,” he said, “It wouldn’t be uncommon for them to write at 100%.”
Demand for Coverage Higher
At the same time, the coverage is more in demand than before. “It is a popular product,” Olivares said. “A lot of people are trying to navigate to make it fit within INSURANCEJOURNAL.COM
their budgets … A lot of people are disappointed that we can’t offer communicable disease because it’s not available to the market.” As event operators navigate insurance issues and the country ventures a return to life beyond the pandemic, venues are welcoming the business while taking precautions. The Orange County Convention Center is doing better business than usual, according to Vanderhoof, who said some events were conducted even during the pandemic. Over the last year, the center has hosted nearly 100 events, she said. This was aided by a “Recovery and Resiliency Plan” that incorporated safety and security guidelines. The guidelines called for 50% occupancy through June 2021 and 100% occupancy in July for ballrooms and meeting rooms. The convention center also obtained an accreditation from the Global Biorisk Advisory Council attesting that it implemented criteria for cleaning, disinfection and infectious disease prevention. Moreover, it collaborated with the local health care system to provide medical services and resources to meetings and convention groups. Vanderhoof added that the OCCC was the first convention center to host largeINSURANCEJOURNAL.COM
scale conventions and trade shows like the Surf Expo, with touchless, digital QR code registration. Other events used on-site Rapid COVID-19 testing and still others, including the Central Florida International Auto Show, used mass temperature screenings, Vanderhoof said. Moving forward, planners at the convention center have designed a touchless registration process “with a focus on self-service and pre-determined arrival times.” Attendees passing through temperature checks are given wristbands. The center is also encouraging physical distancing and has increased the number of hand washing and hand sanitizer stations. When clients request, they continue requiring masks. In addition to using high-efficiency filters on air handling units, the center uses an ultraviolet light system for disinfection in offices, meeting rooms and restrooms. For several months, a parking garage at the north side of the center was used as a drive-through vaccination site. That concluded on May 21, allowing the center to resume hosting events in that end of the center.
FAIA 2021
After last year’s cancellation, the Florida Association of Insurance Agents had its 2021 annual conference in Orlando in June. Ulrich, the association president and CEO, said attendance was about 85% of the 2019 numbers, and there was a significant drop off in the number of exhibitors — only 190 exhibitors, compared to the average of about 300. That’s because many of the vendors are from different states or work for companies that still banned employees from traveling. The association members, on the other hand, are largely small business owners in Florida who get to make their own decisions and tend to be social in nature, Ulrich said. After an extended time cooped up, many of them were eager to get together with friends and colleagues. Although the association considered having a hybrid in-person and virtual event, it ultimately offered only the
in-person option to members. About two weeks before the conference, the CDC issued guidance allowing vaccinated individuals to gather indoors without masks. And so, the association allowed members to make their own decisions about whether to cover their faces, Ulrich said. “We didn’t think we had to be the enforcement authority for any sort of rules,” Ulrich said. Although members were encouraged to wear masks, most did not. The hotel encouraged social distancing, and hand sanitizing stations were ubiquitous. The conference also hosted fewer hospitality events like cocktail receptions than it had in the past, according to Ulrich. Ulrich said he doesn’t think events in the future will be conducted differently once the pandemic is over. “I don’t think we will see any lasting changes,” he said. One exception is an annual legislative day that the association has in March for members to meet in Tallahassee with their state representatives to talk about issues. The 2021 in-person three-day event was canceled because the capitol was closed, according to Ulrich. Instead, the association had an engagement month during which virtual get-togethers featured speakers and interaction with legislators. Ulrich said the virtual event attracted members who had not traveled to Tallahassee for past legislative days. It was so successful, he said, that future political engagement events will include a virtual component. “If providing a virtual platform makes a difference,” he said, “then we’ll continue to do that.” Moving forward, Ryan said, the main concerns for insurers offering event cancellation policies are wind and hurricanes, civil commotion, blackouts and the potential that the president could die because of his age, sending the nation into mourning. The lesson from the pandemic for event operators and insurers, said Olivares of Kaliff, is, “Plan for the unexpected.” Ryan added, “Purchase all insurance that is available in the marketplace at the time.” Silvestrini is a Florida-based professional journalist.
AUGUST 2, 2021 INSURANCE JOURNAL | FLORIDA | 15
News & Markets Surfside Tragedy Provides Timely Perspective on Commercial Large Loss Investigations
I
n the few weeks since the devastating partial collapse of a Surfside condominium building on June 24, 2021, bewildered By Tiffany Rothenberg and concerned residents of Florida’s coastal communities are struggling to identify why it happened and could it happen to other condominium structures? Simultaneously, multiple lawsuits have commenced, filed on behalf of victims and grieving families, and are certain to increase as search and rescue efforts transition to a recovery mission. Judge Michael A. Hanzman, the MiamiDade Circuit Court Judge presiding over
the matters, already observed that the combined funds from the condo association’s property insurance policy, totaling $30 million in potential coverage, and the association’s liability insurance policies, totaling $18 million, are unlikely to adequately “compensate everyone fully for the extent of their losses.” No doubt, the investigation of the Surfside tragedy will lead to allegations against additional potentially responsible parties, and consequently, possible sources for further compensation. Everyone’s primary question: Why and/ or how did this happen? The answer to this question is the first layer to identifying accountability, and hopefully to determine what measures coastal condo associations can take to safeguard their
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structures and prevent such a catastrophe from recurring.
Post-Loss Duties
While the property carrier that insured the Champlain Towers South may concede the full policy limits due to the magnitude of the catastrophe (and/or be legally bound), the public nature of this investigation highlights the critical role post-loss obligations in condo association policies, and the importance of the insured’s compliance. Property and casualty policies provide a list of the insured’s contractual post-loss duties, so that the insurer can complete a thorough investigation and determine the scope of coverage, if any, owed to its insured. While condo associ-
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ation policies include most of the same post-loss duties as homeowner policies, such as the insured’s duties to promptly notify, mitigate damage, permit inspections of the loss, etc., commercial condo policies also entitle the insurer to inspect the association’s “books and records.” The “books and records” referenced are the documents that condo associations are required to keep under the Florida Condo Act, which regulates condo associations. Most condo association policies further entitle the insurer to question association representatives about the records under oath and subject to the penalties of perjury. As Florida Courts have historically recognized, condo association records “may (and typically do) contain information bearing directly on the claim … The association board and membership meeting minutes may disclose, for example, (1) decisions to undertake capital improvements affecting the damaged property, (2) expenses incurred in maintaining or repairing a roof or other common elements, and (3) the nature and dates of prior damage or repairs. Property management contracts are important for the same reason. All such records may identify individuals with pertinent knowledge so that they can be contacted during the investigation of the claim.” (Citizens v. Galeria Villas Condo Association) If the insured is contractually bound to turn over its condo association records and courts have acknowledged their importance for the insurers’ investigation, readers may be asking what’s the issue? Isn’t an insured legally obligated to provide its records to get coverage? Surprisingly, the answer is not so simple.
Loophole
An unintended loophole is being created in the aftermath of Hurricane Irma, through court-ordered enforcement of condo association policy appraisal provisions. Recent enforcement of appraisal has allowed condo associations to obviate access to all of its records and/or select which records to provide to its insurer, INSURANCEJOURNAL.COM
despite a litany of precedent requiring full compliance with post-loss obligations (in the appraisal context). In fact, the Third District Court of Appeal is currently reviewing a Miami-Dade Circuit Court Judge’s Order where the insured condo association was essentially excused from providing its association meeting minutes because the association claimed that it failed to keep the records, in violation of Florida law and the insurance policy. (Condominium Association of Gateway House Apartments Inc. v. Heritage Property & Casualty Insurance Company. Coincidentally, the same law firm that represents the Condo Association of Gateway House has recently emerged as counsel for the Champlain Towers South Board of Directors.) Currently, investigators are scouring all of the Surfside condo association’s records, including its meeting minutes, vendor contracts, annual budgets, internal and external communications, etc. These records provide vital clues in the search for answers to how and why this loss occurred. Many records have already been publicized, such as a 2018 engineering report documenting the discovery of structural deficiencies and suspected construction defects. Association meeting minutes and internal communications have further revealed current and prior efforts of board members to implement unit-owner assessments to address the damage. Indeed, on July 1, 2021, Judge Hanzman signed an Order requiring the preservation of “ALL permits, engineering surveys and reports, construction plans, site surveys, deeds, property records, internal communications, photographs, maintenance records, proposals/contracts for work on any portion of the building, board of directors meeting
agendas and minutes, and all other related documents.” (Steven Rosenberg et al vs. Champlain Towers South Condominium Association Inc et al) While the discovery of underlying facts based on condo association records may restrict and/or limit the indemnity owed by the association’s property and casualty carrier, it is crucial that such facts be uncovered so that the root of the problem can be addressed.
Wake-Up Call
The Surfside tragedy was a wake-up call to lawmakers across the country, who are beginning to take a critical look at the governance of condominium associations and questioning the wisdom of entrusting an elected board of non-expert volunteers with decisions effecting the life-safety of residents. This concern is particularly relevant in Florida, where thousands of condos associations occupy coastal high-rise structures and attract a significant retiree population, as well as seasonal residents and non-resident investors. It comes as no surprise that Florida lawmakers are considering amendments to Florida’s Condo Act. A particular concern has been expressed regarding a provision that permits condo association members to vote on whether to waive and/or limit the collection of statutorily required reserve funds on an annual basis. The annual reserve budget is otherwise required under the Condo Act and must be kept for major expenses such as roof replacements, painting, paving, and any other expenditures over $10,000. Condo associations then face the perceptible challenges to passing steep special assessments to pay for the necessary
‘The Surfside tragedy was a wake-up call to lawmakers across the country, who are beginning to take a critical look at the governance of condominium associations and questioning the wisdom of entrusting an elected board of non-expert volunteers with decisions effecting the life-safety of residents.’
continued on page 18
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News & Markets continued from page 17
and foreseeable expenditures once they become imminently necessary. The alarm bells are also ringing for condo board members and unit owners statewide. Thousands of condo owners are grappling with the realization that their own associations’ internal politics could have played out in a similar fashion, with a vast majority of unit owners entirely oblivious to the urgency of the structural deficiencies. Based on the records revealed to date, it appears that Champlain Towers South shared the 2018 engineer findings with all unit owners. However, as many condo insurance carriers have become aware, expert reports documenting damage to common elements are not always dispersed to all unit owners. Whether or not the legislature acts to address the association’s duty to report, insurance carriers might consider requiring such reports be provided to the local building
‘Thousands of condo owners are grappling with the realization that their own associations’ internal politics could have played out in a similar fashion, with a vast majority of unit owners entirely oblivious to the urgency of the structural deficiencies.’
departments. Perhaps most significant, Florida legislators and municipal government agencies are recognizing the crucial need to enhance and enforce the standards regulating building department inspections and the necessary oversight of individuals authorized to conduct them. Based on the little information known at this time, it is likely that the local building department inspections and the inspector’s communications to the Champlain Tower’s South condo board will play a significant factor in the search for accountability and future recommendations for prevention. The continued investigation of this tragedy is a matter of public concern, and will no doubt, continue in the public eye through media outlets and court records. Fortunately, majority of large losses reported to commercial proper-
ty insurers are not nearly as horrific, and do not garner nor warrant such attention. Yet the continued search for answers provides valuable insight to the detailed process of forensic investigations, and the importance of identifying causation related issues and preventing future disasters. Rothenberg is a partner at Kelley Kronenberg’s West Palm Beach, Florida, office. Rothenberg represents commercial property insurance carriers in coverage disputes and bad faith litigation.
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