November 15, 2021 • Vol. 99 No. 22
Contents
News & Markets
News & Markets
News & Markets
Activists in Florida Keys Dispute FEMA’s ‘Soft Landing’ on New Flood Insurance Rates
Insurance Agents Caught by Surprise on Boom in Solar Power
E&S: Protection for the Sunshine State
4 6
Comment: Washington Continues to Miss the Big Picture on Flood Insurance
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8
10 Lawyers, Engineers Call
for Major Changes in Repairs, Inspections, Reserve Funding After Surfside Condo Collapse
12 14
Insurers on Winning Streak in Florida Courts?
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News & Markets
Activists in Florida Keys Dispute FEMA’s ‘Soft Landing’ on New Flood Insurance Rates By William Rabb
F
ew places in the United States may be more vulnerable to rising seas and flooding than the Florida Keys, the chain of coral-reef islands that lie just a few feet above sea level and have almost $7 billion in insured value. And despite promises from the Federal Emergency Management Agency that a new flood risk rating system will be more equitable, more logical, and have relatively minor consequences for Key property owners, a local analysis contends that FEMA has it wrong, at least in some areas. The plight of the Keys is an example of how FEMA has under-reported the cost effects of its Risk Rating 2.0 on flood insurance premiums, said Mel Montagne, president of FIRM, or Fair Insurance Rates in Monroe, the county that encompasses the Keys and Florida’s southern tip. FEMA’s own analysis has shown that Risk Rating 2.0, which took effect Oct. 1, would increase flood insurance premiums by more than $20 a month for just 15% of Monroe County policyholders. But FIRM’s analysis found that 92% of property owners would see significant spikes, right away. The average annual increase will be about $3,200, said FIRM, “Rate increases of this size will be devastating to the economies of coastal communities, like Monroe County, and the increases could force homeowners to drop coverage, an action that would then
compel the lender to force-place flood coverage, or even worse, lose their homes,” Montagne said recently. FIRM, which started in 2006 as a group of property owners and community activists alarmed by rising insurance costs, analyzed the FEMA database and found that the federal agency made some questionable assumptions. The National Flood Insurance Program’s glidepath limits renewal policies to no more than 18% annual increases in premiums, starting in April. But new policies must pay the full risk rate, which kicked in last month, said Montagne, who also is an insurance agent. “We believe that FEMA used the 18% premium cap to get their estimates, which are truly not applicable until the flood policies start renewing on April 1, 2022,” he said. “All new business comes in at the full risk rate (effective 10-1-2021) and that is what we used.” Some analysts have said significantly higher premiums, especially for more expensive homes, are good things and will discourage more building in low-lying areas. While Risk Rating 2.0 is a step in the right direction, the National Flood Insurance Program is still full of problems, said Craig Poulton, whose firm administers a private flood insurance program. For one thing, the NFIP provides discounts to communities that agree to standards, such as disallowing flood zone buildings that aren’t elevated. But no one
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is bothering to enforce those elevations, Poulton said. Florida Tax Watch, a watchdog group for taxpayers’ interests, also was highly critical of the National Flood Insurance program in a recent report. The group said that the program continues to encourage building in low areas and subsidizes waterfront flood insurance rates. FIRM argues that there is a way to reduce flood insurance premiums under Risk Rating 2.0 and ensure that property owners build back higher, out of harm’s way. The solution is elevation certificates, Montagne said. FEMA has said that elevation certificates will no longer be needed to rate new flood policies, but policyholders have the option of submitting one. Is it worth it? The answer is a resounding “yes,” FIRM’s research shows. A certificate from an engineer or surveyor can cost about $400 but can produce an average of $883 in annual premium savings, Montagne said. FIRM compared 44 parcels and found that with certificates, 36 saw a decrease in insurance costs. “It will be to a homeowner’s advantage in most cases to have ratings set using their elevation certificate,” explained Montagne. “The individual savings range from $120 to $3,113. In most cases, that means getting an elevation certificate more than pays for itself that first year, and the savings continue every year.” INSURANCEJOURNAL.COM
Idea Exchange: Flood Insurance
FAIR: Washington Continues to Miss the Big Picture on Flood Insurance
I
f you've been following the news coming out of Washington, D.C., over the past few months, you know that Speaker By Jay Neal, executive Pelosi and Majority chairman, Federal Association for Leader Schumer Insurance Reform (FAIR) have their hands full. Negotiations over infrastructure, the debt limit and spending have been unending. Unfortunately, these issues have stretched the Congressional bandwidth to its limit. The critical issue of flood insurance is once again slipping through the cracks. The National Flood Insurance Program (NFIP) was created by Congress more than 50 years ago to provide flood insurance to vulnerable properties, build national resilience, and reduce the cost to taxpayers after a disaster. Today, the program continues to provide flood mapping and valuable floodplain management, and remains a lifeline for its five million policyholders. The NFIP was set to expire Sept. 30 and that provided an opportunity for Congress to pass a long-term reauthorization package with much-needed reforms to improve and stabilize the program. Instead, Congress, consumed by other debates, passed yet another short-term reauthorization bill. This was at least the 17th short-term reauthorization since 2017. The program is now set to
expire on Dec. 3, 2021. In addition, the NFIP’s new rating methodology, Risk Rating 2.0, went into effect for new policyholders on Oct. 1. These two factors have led to a flurry of press releases and new bills introduced. While this has highlighted some needed reforms (continuous coverage provisions, flood disclosure), the conversation continues to miss the big picture. The truth is that not enough property owners purchase flood insurance, leaving our country and millions of families in a growing state of risk. Flooding is the most common and costly natural disaster in the United States. Even a few inches of water can cause thousands of dollars’ worth of damage that is not covered under a standard homeowner’s insurance policy. The cost of flood damage in the U.S. was estimated to be $17 billion annually, from 2010 to 2018. Moreover, a property does not need to be in a high-risk flood zone to be at risk of flooding. Some 98% of counties in the U.S. have experienced a flood event. Despite these facts, less than 15% of homeowners have flood insurance. This problem is made even more urgent as the frequency and severity of flood-related events is predicted to grow over the next decade. The exact reason why so few people purchase flood insurance has been debated and researched. There are many theories, ranging from human psychology, poor communication about flood risk, a lack of understanding of insurance,
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affordability, and more. It is likely a combination of all these factors. Regardless, it is imperative that we find a solution to this problem. Over half of Americans have a life insurance policy even though it is not required. They do so because it is considered a prudent financial safety net to protect their families. Similarly, there must be a way to change the culture of preparedness in the United States and create a community of property owners who purchase flood insurance because it is the smart financial choice. Some argue that the real problem at hand is that the federal government is the largest provider of flood insurance in the United States and it is not up to this task. These critics highlight the inefficiencies with government programs, arguing that the private sector yields better innovations and social benefits. There are many advantages to private flood insurance coverage, including shorter waiting periods and increased coverage options. However, the size of the flood insurance protection gap in the United States is so extensive that this argument is immaterial. Both public and private flood insurance options are necessary to grow the number of policies from the current several million to the tens of millions that are actually needed. In short, Congress continues to kick flood insurance down the road. While I sincerely hope otherwise, it is likely to happen again as the December NFIP reauthorization deadline coincides with the debt ceiling crisis and a possible government shutdown. While Congress is occupied with these other matters, flooding will continue. Conversations must be had about how to reach the point at which consumers understand they need flood insurance. Finding a solution to this systemic problem and closing the flood insurance protection gap is the only way we can begin to build a more flood-resilient nation. FAIR is a trade association comprising insurers, businesses, attorneys, and other stakeholders focused on ensuring that consumers have access to affordable and quality insurance coverage through balanced public policy. INSURANCEJOURNAL.COM
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News & Markets
Insurance Agents Caught by Surprise on Boom in Solar Power By William Rabb
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lorida may be known as the Sunshine State, but some insurance agents say they’ve been unprepared for the recent boom in rooftop solar power installations across the state, installations that can affect coverage, premiums and even home sales. “We kind of got blindsided, to tell you the truth,” said Christy Wolfe, sales development manager with Florida Peninsula Insurance and Edison Insurance. The number of solar panels and solar installation companies have exploded in Florida in the last few years. Solar companies in Florida now top 700, by some estimates, and solar capacity jumped by 57% in 2020 alone, the U.S. Energy Information Administration reported. Experts say the boom appears to be the result of lower technology prices, rock-bottom interest rates on financing, federal tax rebates, and a new interpretation of public policy. The Florida Public Service Commission in 2018 declared that its rules fully allow leasing of the solar equipment to
the homeowner. That has significantly reduced upfront costs for homeowners. More than 71,500 Florida properties had some type of solar installation by the first quarter of this year, according to Florida Public Service Commission. Other estimates put the figure as high as 90,000. That’s almost an eight-fold increase since 2017. But homeowners and some insurance agents may not be aware of the extra insurance requirements and costs involved or where to find coverage, agents said at a gathering of real estate agents in Pensacola recently. “There’s not a lot of history on solar panels. There’s not a lot of data, so a lot of carriers won’t cover homes with solar,” Wolfe said. “And when you start drilling holes in a roof, it’s problematic.” Only a limited number of carriers in the troubled Florida market, already facing soaring roof replacement costs, hurricane losses and what they say is excessive litigation over claims, will cover homes with solar, agents said. Some have no exclusions and will cover panels under the Coverage A section of homeowners’
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policies. Others exclude the photovoltaic panels from damage caused by wind or hail. Others avoid it altogether, said B.G. Murphy, director of Government Affairs for the Florida Association of Insurance Agents. Citizens Property Insurance Corp. the state-backed insurer of last resort and the largest carrier in the state, will write some homes with solar, a spokesman said. And Universal Property & Casualty, the largest private property insurer in Florida, will provide coverage in most cases. Older roofs must be in good condition, said John Lykins, the Alabama and Florida marketing manager for Universal. But the company is also discussing potential changes in coverage restrictions. “The tricky part is the liability associated with it,” including who may be responsible if electrical utility systems are damaged or if a utility worker is injured from power generated by the residential solar panels, Lykins said. For that reason, Frontline Insurance won’t write any policies for homes that utilize what’s known as “net metering,” or selling excess power back to the grid. That INSURANCEJOURNAL.COM
includes almost all solar-powered homes, except those that use small solar systems only for heating swimming pools or for making hot water, said Scott Kremkau, sales representative for Frontline in the Florida Panhandle. Florida, unlike some states, requires solar systems above a certain generating capacity to carry a $1 million liability policy to protect the grid, electricians and line workers. The Florida Public Service Commission rules note the cutoff is 10 kilowatts of generated power. That is about the size of many residential systems, although output does not always equal rated capacity. And many carriers won’t cover that much liability with a homeowners’ policy or umbrella policy. “That’s something we absolutely won’t cover,” Kremkau said. To complicate matters, some utilities require that they be named in the policy. Others don’t. Tampa Electric Co., one of the larger power companies in the state, recommends liability insurance for its customers with systems up to 10 kilowatts, but requires it for those with larger systems. A number of insurers have taken the position that a home that sells power back to the utility is actually a business and is excluded from standard homeowners’ insurance. But the question has generated much debate across the state. FAIA’s Murphy said that some agents have wondered: Wouldn’t a policyholder who spends money for hurricane shutters and hurricane clips – in exchange for a discount on premiums – also be considered a “business?” The FAIA has asked the state Public Service Commission for clarity on the matter. It will probably take litigation and appeals court decisions to ultimately resolve what exactly is covered or should be covered, Murphy said. “I don’t understand that some carriers consider it a business. I disagree with that,” said Amber Bradford, a We Insure agent/owner in Navarre, Florida. Bradford has become known as something of an authority on solar panel coverage, partly because she had a system INSURANCEJOURNAL.COM
installed on her own home. She explained that for some customers to be covered for the liability, she’s had to max out their homeowner’s policy, then write an excess liability policy. All of which adds significant cost for the energy-conscious homeowner. A residential solar system can cost $30,000 to $50,000, much more than the cost of a roof, and the insurance policy would need to cover all of that. So, a $3,000 annual premium on a $250,000 home, for example, could increase by as much as $500. Add liability coverage and it’s Amber Bradford another $350 to $1,400 a year, depending on the carrier, Bradford said. “Homeowners don’t realize all that,” said Mary Jordan, owner of Gulf Coast Insurance, an agency. And solar companies, perhaps fearing higher premiums could negate potential savings and scare away homeowners, don’t often explain the insurance side of the equation, homeowners and agents have said. “There’s a little bit of deception going on when they sell these systems,” Kremkau said. “They’re not telling the whole story.” Some of the insurers’ concerns, however, may be overblown, a solar power expert said. “A lot of data shows that solar panels help hold a roof down. They’re beneficial, not detrimental,” said Philip Fairey, director of the Florida Solar Energy Center, a research organization based at the University of Central Florida. The center was created by the Florida Legislature in 1975 to research all aspects of solar energy. Installers often warranty their solar panels for 25 years and bolt or screw the equipment into the roof rafters, using sealants to prevent leaks, Fairey explained. Systems across the state have survived multiple hurricanes with minimal damage. One solar company gave examples of roof shingles that were damaged in a hurricane, except for where the solar panels were.
But even if the equipment is securely fastened, replacing a roof means removing the photovoltaic panels and support structures, then reinstalling after the roof is finished. Some solar companies will agree to cover the cost, others won’t, insurers said. That’s a particularly sticky point in Florida. State law requires that if just 25% of shingles are damaged in a storm, the entire roof should be replaced. It’s a law that insurers are hoping to change. Full replacement costs for roofs have added significantly to loss costs and premiums, insurance companies have said. On the liability question and inadvertently sending current back to the grid, that fear also is misplaced, Fairey said. “That’s a very old concern. The inverter issue was resolved 20 years ago,” he said. “There’s virtually no chance of that occurring.” Insurers’ apparent hesitancy about solar power has caused problems in the housing market, agents said. Many solar installations are financed with 10-year to 20-year loans. But a prospective buyer may not want to assume the note — along with the higher insurance premiums, Jordan said. “Some buyers are all about solar, but only if it’s paid off,” said Lavada McIntyre, a real estate agent in Pensacola. Another issue: Many property appraisers won’t consider solar panels as added value for the property, but the insurer must contemplate the full replacement cost, agents said. Bradford, the owner/agent and solar customer, had this advice for homeowners considering a rooftop photovoltaic system: With many insurers in Florida now requiring a new roof every 10 years anyway, go ahead and put a new roof on before having the solar panels installed. She also noted that some insurance agents are not as well informed as they should be about solar power. “It is kind of a mess right now,” she said.
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News & Markets Lawyers, Engineers Call for Major Changes in Repairs, Inspections, Reserve Funding After Surfside Condo Collapse By William Rabb
A
ings with more than 10 occupants and which are 2,000 square feet and larger should be inspected, except for one- or two-family dwellings. The inspections should be made 30 years after first occupancy, with re-inspections every 10 years. Current rules require inspections every 40 years and only in some parts of the state. For buildings within three miles of saltwater environments, inspections should be made 20 years after occupancy and every 7 years after that, the engineer group said. The group also called for whole-building safety inspections. Those would go beyond structural deficiencies and check electrical systems, fire protection, and the exterior envelope of the building. “The recommendations in this report are focused on preserving the longterm health of buildings by assessing environmental and other degradation of structures and their systems over the life of the building,” the engineers’ report concluded. “Whatever milestone is used for conducting a building inspection, building owners should not wait for damage to become evident to conduct periodic maintenance inspections.” The costs of inspections and repairs should remain with the building owner, the engineers wrote. “While budgets for these costs are outside of the scope of this group’s review, we do recommend that all building owners should have a budget and a plan for continued building inspections and maintenance after occupancy.”
fter the 12-story condominium building collapsed in Surfside, in June, Florida lawyers and engineers have called for major changes in how condo structures are inspected, managed and repaired. In separate reports posted in October, four months after the collapse killed 98 people, the Florida Bar and a coalition of structural engineers outlined numerous improvements that should be made, including more frequent inspections and putting an end to the practice of letting condo owners veto needed repairs. Although experts have yet to make a determination on the exact cause of the structural failure of the Champlain Tower South near Miami Beach, critics have said for years that many high-rise residential structures in Florida have not been inspected carefully enough and maintenance has often been ignored. South Florida is especially susceptible to structure damage, thanks to rising seas, seawater infiltration into foundations and hurricanes. Lawsuits have sometimes prevented "Condominium associaneeded but costly repairs, and munic- tions and boards must have ipal inspectors the financial tools to fund have signed off on deferred maintenance and substandard proprepairs which will be neceserties, residents and engineers have sary as buildings and other charged. improvements age."
Engineers Want More Inspections
The Surfside Working Group, which includes members from the Florida Engineering Society and the American Council of Engineering Companies of Florida, issued a report with two major recommendations: Establishment of statewide mandatory minimum structural inspections; and more-frequent inspections and re-certifications. On mandatory minimum inspections, the group recommended that all build-
Florida Bar Report Calls for Better Funding Plans for Repairs
The Florida Bar task force recommended major changes in how con-
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do associations operate, including a requirement to maintain larger cash reserves for repairs and to limit owners’ ability to block repairs. “The task force finds that the lack of uniform maintenance standards or protocols, and the broad discretion given to boards to determine when, how and if life-safety inspections and necessary repairs should be performed, requires legislative intervention,” the group said in its 179-page reported, submitted to the governor. The Florida Bar appointed the task force in June, just two days after the Champlain Tower collapsed. News outlets have reported that residents of the towers had complained for years about needed repairs, but that cash reserves were not available, or that repair funding had been delayed. Florida has more than 910,000 condo units that are more than 30 years old, many of which may be vulnerable to structural problems, the task force said. The task force, chaired by West Palm Beach attorney William Sklar, met with engineers, insurance experts, condo associations and attorneys. It has now recommended some significant statutory changes ahead of the 2022 legislative session, including these:
On needed repairs
• Require timely maintenance and repairs, and making waterproofing part of the required maintenance plans. Current law has no specific maintenance standards for condo boards to follow. Boards also have no statutory obligation to inform unit owners about a building’s condition. • Codify that needed maintenance should not be considered “a material alteration” that may trigger a vote by unit owners. • Abolish limits on condo boards’ authority to assess a fee on owners or to borrow money for repairs, and voiding requirements that unit ownINSURANCEJOURNAL.COM
ers must vote on some upgrades. The change should apply retroactively to existing condo associations.
On building inspections
• Require that some inspection reports, required now when developers turn over control of the building to the condo association, include detailed maintenance protocols, and that the association must comply with the protocols. • Require that any Florida condo building over three stories tall be inspected by a licensed engineer or architect, starting in 2024 and every five years after that. Currently, only condo towers in Miami-Dade and Broward counties must be inspected, starting 40 years after they were built. This requirement would be unnecessary if the association receives a turnover
report and regular inspection reports every five years. • Authorize that municipal inspection reports on condos be sent to unit owners and posted on associations’ websites.
On legal remedy
• Establishing a statutory private cause of action for unit owners if associations fail to perform work required in an inspection report. The legal action could not be subject to arbitration or pre-suit mediation.
On funding reserves
• Require that associations maintain capital reserves for critical building systems equal to at least 50% of the replacement costs, starting in 2026. If an association does not achieve the
required funding level, it must secure alternative funding mechanisms, and disclose those to the unit owners. • Repeal a section of current law that allows developers to waive statutorily mandated reserves. The task force made other recommendations and included reports from building officials, attorneys, insurance officials and others. “Condominium associations and cooperative boards must have the financial tools to fund deferred maintenance and structural repairs which will be necessary as buildings and other improvements age,” the task force report concluded. “Such tools must not be hindered or impaired by the unwillingness of some owners to invest in their condominium property.”
Scene of the Champlain Tower collapse near Miami Beach in June. Associated Press photo.
INSURANCEJOURNAL.COM
NOVEMBER 15, 2021 INSURANCE JOURNAL | FLORIDA | 11
News & Markets
By Lori Widmer
T
he pressure is on for surplus line professionals to ramp up efforts in a troubled Florida insurance market as admitted insurance markets continue to struggle with deteriorating results and have reconsidered underwriting appetites in the state. The surplus lines industry serves as a safety valve for the property/ casualty industry, often covering the emerging and/or complex risks that admit-
ted markets are not able to insure. Florida is a unique marketplace due to its large exposure to hurricanes and coastal wind risks, according to Dave DeMott, president of GridIron Insurance Underwriters and a Florida Surplus Lines Association (FSLA) board member. “This leads to Florida consistently being in the top three states in the country for excess and surplus lines market share,” Demott said. But market conditions are tough —
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tougher than most years, experts say. In early June 2021, Amwins, the global insurance distributor, sent out an update on the Florida condominium market. Since its report in March 2021, which examined an ever-tightening market, with insurance carriers decreasing their presence or exiting the space, most of the remaining carriers had increased their prices. Some had added more restrictive size requirements, while still others were tightening their underwriting guidelines. INSURANCEJOURNAL.COM
Then the Surfside building collapse occurred in late June 2021, further tightening the market. Even without factoring in the new questions regarding building safety in coastal areas, the market was already restricting. The latest Amwins State of the Market report for Q2/Q3 2021 shows that more carriers are placing new restrictions on condominium accounts and “tightening terms and/or reducing capacity in the Florida condominium space.” Requirements include more proof of maintenance on condominium accounts, and an increase in or new deductibles for water damage. That has put additional pressure on the property side of the E&S market, which was already feeling plenty of pain, says Brent Winans, vice president of Clear Advantage Risk Management. “Here in Florida, we have a property insurance market that is in great distress,” Winans said. “As a result, you have admitted carriers being more and more restrictive in their writing — in both writing anything and in what they will write when they do write. Things get pushed to the E&S market, and you hope you can find a market even then.”
Where Opportunity Lies
Yet, in a tough insurance landscape, the E&S market nationally still provides plenty of opportunity. “It’s an exciting time for excess and surplus lines,” says Al Geraci, area president for Risk Placement Services. “The market is still innovating, and there are a lot of new exposures out there, and a lot of new products.” There’s also a lot of premium written in surplus lines today. The Florida Surplus Lines Service Office (FSLSO) reports a total of $7.6 billion in total premium in the state for 2020. That’s almost $1 billion more than in 2019, and about $2 billion greater than 2018’s total. Policy issuance also was up 10% over 2019. The average policy price was $6,518, or 28% higher than 2019. So far, 2021 has shown the same kind of year-over-year growth. “For the first six months of the year, INSURANCEJOURNAL.COM
a total of $5.2 billion were submitted to our office, which was a 25% increase from last year,” says Bryan Young, assistant director for FSLSO. “In June, we saw record numbers for one month — $1.2 billion submitted, which is the first time we have ever eclipsed the billion-dollar market for a month on our policy.” Policy count is up — a substantial 7% over 2020. That, Young said, seems to be a trend among other states reporting surplus lines data to the Wholesale Specialty Insurance Association (WSIA) “The excess and surplus lines market is extremely well positioned and well capitalized,” said GridIron's DeMott. “Even through all of the different events that have happened in the last decade, industry solvency and strength to tackle new, emerging risk is fairly exceptional at this juncture.”
this year, including a change in Florida’s law that had allowed one-way attorneys’ fees for the plaintiffs in claims disputes, along with new regulations on public adjusters. But much more needs to be addressed, DeMott said. Another area that is being watched closely: jury awards. “We’ve also had social inflation and nuclear verdicts on the casualty side,” says Geraci. A jury award in August 2021 set what many are calling a new record — $100 million to the family of a crash victim and $900 million in punitive damages against a trucking company whose driver was alleged to have crashed into stopped traffic.
"The excess and surplus lines market is extremely well positioned and well capitalized."
Pockets of Distress
That market resiliency is necessary. Despite the appetite, Winans said some areas are proving “extremely difficult.” He said that while the market is still open to insuring builders’ risk programs for apartment complexes on or near the coast, older properties are now facing a lot more scrutiny. “The terms that you’re going to get are going to be dramatically worse than they have been in the past,” he says. One of the toughest pockets in the E&S market is undoubtedly the residential property side, said DeMott. While the commercial side is doing a good job managing CAT exposures, the residential side is being hit hard by litigation. Insurers have repeatedly pointed to data from the National Association of Insurance Commissioners showing that from 2016 to 2019, Florida homeowners accounted for just about 8% of all homeowner claims filed with U.S. insurers — but made up about three-fourths of all homeowner claims litigation in the United States. Some reform passed the Legislature
Continued Strength
Should more tort reform be enacted, what is already a viable, strong market could become even more so. Growth has certainly not been hampered, says Young. July and August were up 18% in premium over last year, he said. “We’re still seeing growth, albeit the growth dropped a little bit from 25% the first six months to 18%. So, we’re still seeing growth, and we expect to see growth into next year.” Whether it stays on that same pace remains to be seen. Geraci said there has been positive movement in the Legislature these last couple of years to pass reforms to help curb abusive litigation against insurers. “We’re hoping that trend continues to make Florida an attractive place for carriers,” Geraci said. The Florida Bar also has recommended extensive statutory changes that, if enacted, could make it easier for condominium associations to make repairs — and find the funding for them. That could help prevent future structural problems and losses. By most accounts, the E&S market is solid. “My view on the state is absolutely optimistic,” said DeMott. “Overall, the industry continues to meet those [market] changes in what is an evolving and challenging market.”
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News & Markets
Insurers on Winning Streak in Florida Courts? By William Rabb
B
y most measures, Florida insurers have been on a winning streak in state and federal courts in recent months. From hurricane claims that were filed too late, to assignment-of-benefits property claims that didn’t follow the rules, to excessive attorneys’ fees, judges have seen things the insurance companies’ way in a number of cases. Here’s a look at some of the highlights.
Attorney Fees
Few things enrage insurers more than what appear to be exorbitant attorney fees, and Florida may be ground-zero on that issue, thanks in part to the state’s fee-multiplier statute. So, industry advocates were heartened to see the Oct. 27 ruling by Florida’s 3rd District Court of Appeal, which held that fees that were four times the amount of the settlement were too much.
In Citizens Property Insurance Corp. vs. Casanas and Cervantes, the appeals court found that the Miami trial court had erred in allowing a $150,600 fee on a $35,000 settlement for a roof that was damaged in Hurricane Irma in 2017. The fee included $9,360 in litigation costs and $13,800 for the plaintiffs’ fee experts. “We approve the trial court’s findings, based on the evidence in the record, that the hourly rates billed for each attorney were reasonable,” Appeals Court Judge Monica Gordo wrote for the majority. “We cannot, however, affirm the Lodestar amount because the record does not contain competent, substantial evidence that the number of hours billed were reasonable.” Lodestar. That was the name of a federal court case that set out a formula for determining reasonable attorney fees for the prevailing litigant, in some types of cases. The Florida Supreme Court modeled its own formula on Lodestar in a 1985 decision. The method considers a number
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of factors, including the likelihood that the attorney would have to give up other work to focus on the case at hand, and the number of hours “reasonably expended” on the litigation. Florida law also allows a multiplier for fees. Its original intent, decades ago, was to assist small businesses and rural litigants in finding a lawyer, who may have had to travel for hours to handle the case, attorneys have explained. Insurance industry advocates have said the multiplier has added unnecessary loss cost expenses, driving up rates for homeowners. They are urging lawmakers to again consider limits when the Legislature convenes in January. In the Citizens vs. Casanas case, the trial court allowed a Lodestar fee amount of $70,800, then added a multiplier of 1.8, to reach a total attorney award of $127,440 in a case that was minimally litigated. Citizens argued that the Lodestar amount and the multiplier were unwarranted because the relevant market did INSURANCEJOURNAL.COM
not require it. The 3rd District Court of Appeals agreed, noting that a similar, 2020 case, Universal Property & Casualty vs. Deshpande, reached the same conclusions. “Accordingly, we reverse the Lodestar amount with instruction for the court to reduce the number of hours billed to 81.1 hours—the only number for which there is competent, substantial evidence adduced by the defendant’s fee expert following a line-by-line accounting of the compensable hours,” Judge Judge Monica Gordo Gordo wrote. The plaintiffs’ counsel did not establish that there was a risk of nonpayment, or that there was difficulty finding an attorney in the Miami market, the court said. On the litigation costs, the plaintiffs submitted two invoices for experts, but no evidence on the reasonableness of the costs or if they planned to call the experts as witnesses at trial. “We agree with the ruling,” said Michael Peltier, a spokesman for Citizens. “The multiplier was created to address especially difficult or complex cases. As the ruling notes, this case did not meet any of those criteria.” The plaintiffs’ counsel, Paul Feltman of Alvarez, Feltman, Da Silva and Costa, in Miami, said he will ask the 3rd DCA to reconsider, partly because the trial court may have made an error. The Miami-Dade Circuit Judge, Martin Zilber, adopted a blanket 10% reduction in the expert’s hours. But Feltman said the judge, after an unusual closed-door conference with another judge, actually reduced the expert hours by 17%. Yet, the DCA went further. And while recent court decisions may appear to some to be swinging in the insurers’ favor, Feltman pointed out that in Universal Property & Casualty vs. Celestrin, handed down in March, the same appeals court awarded his firm almost the full Lodestar amount on attorney fees, as well as the maximum multiplier – 2.5. INSURANCEJOURNAL.COM
“Is it a trend toward insurance defense victories? I don’t know,” Feltman said.
Late Claims
If the insurance policy calls for “prompt notice” of property damage after a storm, the policyholder cannot wait two years to file a claim, a federal court in Miami ruled. In LMP Holdings vs. Scottsdale Insurance Co., the U.S. District Court for the Southern District of Florida found that the all-risk commercial property policy spelled out that the insured had a duty to promptly report damages and pertinent information. The case stemmed from Hurricane Irma, which struck Florida in September 2017 and left widespread damage — and thousands of insurance claims — in its wake. The litigation has been watched by insurers, many of whom have complained for years about “Johnny-come-lately” or “door knocker” hurricane claims, certified by public adjusters, that insurers may have difficulty examining or rebutting. The Scottsdale policy did not specify a time frame for reporting claims. But the court found that the insurer was prejudiced by the policyholder waiting 27 months to file. The opinion by U.S. District Judge Jose Martinez recounted that one day after Irma blew through the Miami area, the insured’s handyman found holes in the roof of the building. The site housed architectural offices and a daycare center. The insured also found water damage in a storage room and reception area. A few months later, the plaintiff also found issues with the air conditioner unit, along with water stains on the ceiling tile. Later, the owners, Adrian and Laura Perez, said they found damage to windows and an exterior sign. They made some repairs, then filed a claim in December 2019. A public adjuster inspected the property. Scottsdale’s engineer failed to find significant wind damage and the carrier denied the claim. The property owners sued for breach of contract. The federal judge quoted from previous court decisions, noting that under Florida law, “a failure to provide timely notice of
loss in contravention of a policy provision is a legal basis for the denial of recovery under the policy.” Late notice also creates a rebuttable presumption of prejudice to the insurer, and courts have held that a delay of even six months or less is considered less-than-prompt notice, the judge said. The judge granted Scottsdale’s motion for summary judgment. Late claims had become such an issue in Florida that the Legislature in 2011 approved a three-year limit on hurricane claims. Claims can be reopened or supplemental claims related to the original claim can still be filed as long as the insurer received the first notice of loss ahead of the corresponding storm’s deadline. The judge in the Scottsdale case did not specifically address the three-year statute of limitations on hurricane claims.
Assignment of Benefits
Several appeals in assignment-of-benefits cases have gone in favor of Florida property insurers. Florida’s 3rd and 4th District Courts of Appeal handed down opinions in October that upheld lower courts and found that three carriers do not owe payment to restoration contractors because insurance policy requirements were not strictly adhered to. “Finding no error in the trial court’s determination that the assignment … is invalid because it was not signed by one of the insureds and the mortgagee, as required by the underlying property insurance policy, we affirm,” the 3rd District appeal court wrote. The decision affirmed a Miami court’s dismissal of a suit brought by Union Restoration against Heritage Property & Casualty Insurance Co. The contractor had argued that it had been assigned benefits for work it had done in 2019 for Ella and Lloyd Fields of Miami. When Heritage refused to pay, the restoration company filed suit, claiming breach of contract by Heritage. Heritage argued that the AOB agreement was signed by only one spouse and was not signed by the mortgage lender, Wells Fargo, as required by the insur-
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ance policy. Miami-Dade County Judge Natalie Moore agreed with the insurance company. On appeal, the 3rd DCA affirmed. The ruling comes two weeks after the same appeal court upheld the state-created Citizens Property Insurance Co. in a similar AOB lawsuit brought by Union Restoration. In that decision, the appeals court found that a questionable document did not divert insurance payments to the construction firm. The court affirmed a Miami-Dade Circuit Court decision and noted that a Union principal had “altered the written assignment by changing the date of the claimed loss, changing the number of the claim several times, and adding the insured’s initials to the alterations.” Miami-Dade County Court records show that Union Restoration has filed at least 36 lawsuits against property insurers since 2015. Florida insurance industry advocates have said that assignments of benefits have driven up homeowner premiums by leading to unnecessary work by contractors, then excessive litigation by those contractors when insurers won’t pay. Florida’s Legislature revised the assignments-of-benefits law in 2019 and made
further statutory changes this year in an effort to reduce fraud and litigation. But at a Florida Office of Insurance Regulation rate hearing in September, the actuarial manager for Southern Fidelity Insurance Co. said that some contractors now avoid AOB agreements, but their attorneys have encouraged policyholders to file suits against insurers or have assigned insurance payment through “directive to pay” documents. Insurance defense attorneys have said they continue to see many claims-related lawsuits. In a case nearly identical to the Citizens appeal, the 4th DCA also upheld the dismissal of a suit brought by a restoration company in Palm Beach County. The appeal court found, in The Kidwell Group (Air Quality Assessors) vs. Geovera Specialty Insurance Co., that both spouses had not signed the AOB agreement. “It’s a win for our client and it’s a win for consumers, who have seen rates skyrocketing and lawsuits that have gone crazy,” said Patrick Carleton, one of the attorneys who represented Geovera. The court relied on precedent that had been set in 2018 in Restoration 1 vs. Ark Royal. But the judges declined to answer the lower court’s burning question about the broader effect of the 2019 AOB reform bill. The county court, at the contractor’s request, had asked whether an assignment of benefits executed prior to the 2019 reform law requires both signatures. The 2019 law, now statute 627.7153, allows insurers to place new restrictions and requirements in policies regarding AOB. The contractor in this case and the county court wondered if that meant policies written before the 2019 law was passed were prohibited from restricting homeowners’ rights to assign benefits. Writing for the 4th DCA, Judge Jonathan Gerber declined to answer that question. But he not-
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ed that the decision is in conflict with a 2017 ruling by the 5th District Court of Appeal. In that case, Security First Insurance Co. vs. Florida Office of Insurance Regulation, the 5th DCA found that any restrictions on a benefits assignment were unenforceable. Carleton said he expects Kidwell to appeal to the Florida Supreme Court. “They’ve been trying to split this hair for a while, so I would be surprised if they don’t,” he said. He said it’s possible that the insured homeowners may now be able to pursue payment from the carrier, if they haven’t settled already. In another AOB decision, the 4th DCA underscored the thinking that policy requirements should be strictly adhered to. In Damage Services Inc. vs. Citizens Property Insurance, the appeal court upheld a Broward County court ruling. The appeal court judges found that the restoration company, known as DSI, had been assigned benefits by a realty company. When Citizens would not pay the full amount for emergency repairs, DSI sued. The trial court and the appeal court said that the insurance policy states clearly that it would pay no more than $3,000 for emergency measures to protect the property unless a request was made to exceed that limit. “Because DSI did not make a request to exceed the policy limit prior to exceeding the limit for the work performed, we affirm,” the 4th DCA judges wrote in the per curiam opinion. Alternatively, DSI argued that it should be paid under another clause in the policy, one that insures direct losses. The contractor said that crews had performed more than just water extraction and had provided remediation and improvement work. “We conclude that the court did not err in rejecting DSI’s claim,” the appeal court wrote. “DSI’s complaint described its work as ‘water extraction’ and not as any type of repair. No affidavit was filed by DSI to show that it had performed work other than water extraction.” Most importantly, the court added, “in INSURANCEJOURNAL.COM
the assignment-of-benefits contract, the insured assigned to DSI only its right to payment ‘in regards to water extraction and dry-out services, mold remediation, and/or smoke damage.’ To the extent that DSI performed other services, it was not assigned the right to collect payments from Citizens for that work, including any work done under Coverage A. Repayment for the damage to the property under Coverage A, if any, would be made to the insured, not DSI.” The case appears to be an example of the type of AOB problems that insurers have complained about for years. As an assignee, some contractors feel empowered to perform unnecessary work, then bill the insurer for much more than what was originally quoted to the property owner, then sue when the carrier won’t pay, insurers have said.
sure before another major hurricane hits, officials have said.
On the Other Hand…
Insurers have lost a couple of recent cases as well, but ones they hope will be addressed again by the courts. In October, the Florida Supreme Court found that insurance companies and their lawyers must disclose their financial arrangements with expert witnesses when asked to do so in litigation. In two decisions, the high court appeared to underscore previous court decisions that require insurers and defense law firms, when asked during the discovery process in lawsuits, to show their payments to physician witnesses. Insurance defense attorneys, though, said the court sidestepped long-simmering questions about disparity between what information plaintiffs and defense teams can request in discovery, and said the court’s action could potentially embolden plaintiffs’ lawyers to demand more financial information from insurers. “It’s kind of a game changer. Plaintiffs get some types of discovery that the defense does not,” said Miami attorney Elaine Walter, a member of the Florida Defense Lawyers Association. In Brent Dodgen vs. Kaitlyn Grijalva, an automobile accident negligence case, the court found that an insurer’s payments to an expert witness, unlike a plaintiff’s attorney’s relationship with a treating physician, are discoverable under Florida law and case law. The court acknowledged — but declined to rule on — concerns raised by the state’s 4th District Court of Appeal about the “uneven playing field skewed in favor of plaintiffs when it comes to the discovery of financial-bias relationships between the parties’ medical experts and nonparty representatives.” One of the plaintiff’s attorneys in the case said the concerns are overblown: The high court was simply following its own precedent in allowing discovery of insurers’ payments.
“It’s a win for our client and it’s a win for consumers, who have seen rates skyrocketing and lawsuits that have gone crazy."
Other Appeals Court Decisions in Favor of Insurers
As Citizens Property Insurance works to reduce its exposure, officials there should take heart from three court rulings handed down last month. In Maria Muguercia v. Citizens, Florida’s 3rd District Court of Appeal affirmed a Miami-Dade County Circuit Court decision. The court held that the insurer had produced sufficient evidence to show that certain types of property damage were excluded from the policy, and the policyholder did not prove otherwise. In another ruling, the appeal court affirmed the lower court ruling in favor of Citizens, in Danay Rivero vs. Citizens. The court’s per curiam decision did not go into detail about the case. Citizens, created by the Florida Legislature in 2002, has seen the number of policyholders balloon in recent years, as private carriers have abandoned the state or have raised premiums. With policyholders expected to top one million next year, up from 487,000 a year ago, the corporation has been trying to depopulate its rolls, reduce claims and reduce expoINSURANCEJOURNAL.COM
“The court is just continuing on the same path it’s been on for 20 years,” said Grijalva’s attorney, Brett Rosen, of Miami. The case stems from a 2015 accident in Southwest Ranches, Florida, not far from Fort Lauderdale. Grijalva was seriously injured and sued Dodgen for recklessly driving his pickup truck and causing the collision. After the defense hired three physicians as expert witnesses, Grijalva’s attorney moved to discover the financial relationship between the doctors and Dodgen’s insurer, Allstate Fire and Casualty. Dodgen’s attorney, Marc Shechter, argued at the trial court that such information would have a prejudicial impact on the jury, would “improperly imply the litigious nature of the defendant” and would “impermissibly implicate insurance.” He contended that case law, established in a 2017 court ruling, overruled a 1999 decision and barred the disclosure of the insurer-expert relationship. The Broward County Circuit Court held in favor of Grijalva and ordered the information to be divulged. Dodgen’s attorney then asked the 4th District Court of Appeal to block the trial court’s order. The 4th DCA ruled against Dodgen, but also asked the state Supreme Court to weigh in on the discovery question. The Supreme Court’s per curiam opinion examined more than two decades of court rulings. In the 1999 decision known as Allstate vs. Boecher, the high court established that the relationship between a party to a lawsuit and that party’s expert witness was discoverable. A number of appeal courts have since held that the Boecher ruling also applied to law firms’ agreements with plaintiffs’ treating physicians. In 2017, in Worley vs. Central Florida YMCA, the state Supreme Court moved to clarify that, and emphasized that a plaintiff’s lawyer’s financial arrangement with treating physicians could never be divulged in the discovery process, thanks in part to the doctrine of attorney-client privilege. Lawyers are not parties to a lawsuit and treating physicians are different from expert witnesses, the Worley deci-
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sion found. The 4th DCA noted that Worley did not apply in the Dodgen case, but the court also said it “has resulted in the disparate treatment of plaintiffs and defendants.” The Florida Supreme Court gave a nod to that concern but said that this was not the place to rehash the Worley decision. The justices said that another court ruling, known as Springer, penned in 2000, backs up the notion that an insurer’s relationship with expert witnesses can be disclosed. “The circuit court here did not depart from the essential requirements of law in permitting discovery related to the financial relationship between Dodgen’s insurer and defense experts,” the court wrote. Justice Ricky Polston dissented, saying that he would recede from the Worley decision “and require disclosures equally from plaintiffs and defendants.” Walter, who is chair of the appellate practice group at the Miami-based Boyd Richards Parker & Colonelli firm, said it is “startling” that the court did not review the discovery-disparity question. Despite that, there is a bright spot, she said. Some Florida courts have begun to scrutinize discovery requests more carefully in recent cases. She hopes that the Supreme Court will now address the disparity issue by amending the rules of civil procedure. In another decision posted the same day, Steven Younkin vs. Nathan Blackwelder, the Supreme Court held that the Worley precedent does not extend to defense lawyers. The appeal from the 5th DCA had raised concerns that “that the law in this area is not being applied in an even-handed manner to all litigants.” The president of the Florida Justice Reform Institute, which filed an amicus brief in both cases on behalf of the U.S. Chamber of Commerce, said that the Worley decision had created “an untenable situation in which lower courts are treating plaintiffs and defendants differently when it comes to who may engage in financial bias discovery, undermining the fundamental fairness of the civil justice system.” Unfortunately, said Institute President
William Large, the state Supreme Court declined to rectify the disparity. Doug Eaton, of Miami, who represented Grijalva in the appeal, said the concerns that plaintiffs’ lawyers may now be emboldened to use the disparity to their advantage, or to pursue more discovery, are unfounded. “All these two cases did was to re-affirm the status quo,” Eaton said. “All Dodgen did was re-affirm the law that has been in place since Boecher was issued in 1999. It does not expand the plaintiff’s ability to obtain discovery in any way. Also, defendants are able to obtain the same discovery of plaintiff’s attorney’s relationships with expert witnesses that they frequently hire.” On the original question of how much an insurance carrier pays its expert doctors, Walter agreed that such information may not be so eye-opening or beneficial to a plaintiff. Most expert witnesses, for plaintiffs and defense, are known to charge hefty fees when asked to write a report or testify. “No, there’s no reason to think that insurance companies pay any more to their experts than any other party does,” Walter said. In a leaky pipe case, the 3rd District Court of Appeal did not see things Citizens’ way in a $112,000 claim. The case examined the simmering issue of insurance adjuster versus public adjuster. In 2015, the Miami-area homeowners, Odalys Alvarez and Jorge Garcia, found a leak in a water supply line and filed a claim with Citizens, the court’s opinion explained. The Citizens’ adjuster maintained that the damage was limited to little more than a few floor tiles and paid the insureds about $7,100. The homeowners hired a public adjuster and engineer, who performed a “tapping test” on floor tile throughout the house. Based on the hollow sound, he concluded that many tiles had debonded or loosened from the concrete slab and needed replac-
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ing. The homeowners filed a subsequent claim for $111,600. Citizens denied the claim and the insureds filed suit for breach of contract. Citizens challenged some of the engineer’s conclusions, and the trial court in MiamiDade County granted summary judgment in Citizens’ favor. The court of appeal noted that the engineer in the case was the same one whose reports had been largely discredited in a 2019 case in Miami. In Gonzalez vs. Citizens, concerning a roof leak, it was shown that the engineer, Alfredo Brizuela, had made the “bald assertion” that the roof damage was from a windstorm, but he had never inspected the property, appeal court Judge Edwin Scales wrote. “While we recognize in the instant case that there might be inconsistencies in Brizuela’s affidavit and deposition testimony that undermine his conclusions, we also recognize that, unlike in Gonzalez, there is a fact-based rationale to Brizuela’s opinion: the hollow sound from a tapping test that might indicate tile porousness and debondment,” Scales wrote. Citizens argued that most of the floor tiles did not show other signs of being loose or damaged. Citizens had not addressed the debondment issue at the trial court level but raised other questions that placed the parties’ evidence in conflict. The trial court weighed the evidence but did not determine whether a genuine issue of material fact existed, the DCA found. The appeal court reversed and remanded to Miami-Dade Circuit Court for further proceedings. INSURANCEJOURNAL.COM
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