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JULY 18, 2022 • Vol. 100 No. 13
Contents
Agents & Agencies
News & Markets
Fraud & Investigations
Florida Insurance Agents Feeling the Pain from Roiling Marketplace
Sparks Fly over NFIP Reauthorization, Including Idea to Drop Coverage for Some Flood-Prone Properties
Tampa Medical Clinic Owner Charged with Staging Crashes and Submitting $970,000 in False Claims
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What Independent Agents Need to Know about Florida’s Insurance Crisis and How to Deal With It
News & Markets
8
Invasive Creature is Again Threatening Florida Crops, Buildings
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30 Years Ago, Hurricane Andrew Slammed South Florida, Changing Everything. New Tech Could Help With the Next One.
INSURANCEJOURNAL.COM
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The Market Tightens: With Soaring Reinsurance Costs, More Insurers Pull Out of Murky Florida Waters
Florida CFO Wants More Insurance Fraud Investigators
Courts & Torts
‘Well-to-Do’ Investment Firm Head Charged in $300,000 South Florida Insurance Fraud. Claimed He Threw Away the Rolex
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Nuclear Verdict: Miami Jury Orders Bar That Served Drunken Driver to Pay $96 Million in Damages
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Court Ruling Provides Ammo for Insurers in Florida AOB Cases
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Claims & Defenses
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Cast Iron Drainpipes Latest Target in Florida Claims, But They Can Be Defended
JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 3
Agents & Agencies
Florida Insurance Agents Feeling the Pain from Roiling Marketplace By William Rabb
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an Alexander has seen the worst of the Florida property insurance market inside and out – from agents who’ve quit, to carriers that have gone insolvent, to having to manage policyholders that are mad at the world over soaring premiums. “We’re working harder now than at any
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time I can remember,” said Alexander, vice president of Thompson Baker Agency in St. Augustine, one of Florida’s oldest agencies. “Anytime you have all that’s going on in Florida now, it creates a workload on staff that’s unbelievable.” In the last six months, Alexander has had three commercial lines producers and one personal lines agent resign due to the workload and the constantly shift-
ing property insurance landscape. As Florida carriers have gone out of business or have drastically curtailed the types of properties they’ll write, it’s meant a mad scramble at times. For one $80 million commercial site, for example, Alexander for years was able to secure coverage with only two carriers. “This year, it took eight carriers to cover the whole property,” said Alexander, INSURANCEJOURNAL.COM
who has been in the business Services’ licensee search for 31 years. “One would write page shows that so far one building but not the oththis year, most numbers ers and so on.” On top of that, are down: The number the property's total premium of agencies licensed from jumped by 50%. Jan. 1 to July 10 this year Alexander is not alone in the was 2,551, down from pressures he's facing. Other 2,562 for the same period Florida agency heads said that in 2021. the turbulence in the Sunshine The number of licenses Dan Alexander State, along with the nationissued in the property/ wide retirement of older staff, plus mergcasualty business dropped, from 14,672 ers and acquisitions and the challenges to 14,093. And the tally of customer representatives licensed so far this year is of having more people work from home, slightly less than the same time frame in has made for an insurance environment 2021. unlike any other. “I’m doing all I can just to keep people And it’s not just Florida that’s feeling on board now,” said Tim Castle, president the heat. Big I, the national association of indeof Mynatt Insurance in Sarasota. “The pendent agents, said its nationwide surturnover has been terrible, so I really kiss vey of employment trends, done every my people’s butts now.” two years, won’t be published until later When one new staff member complained that she couldn’t keep up this year. But anecdotally, some agencies with the increasing load, GreatFlorida around the country appear to be strugInsurance agency owner Gordon Gillespie gling to keep staffers on board. “Nearly every agency I hear from had little sympathy. “I said, ‘Yes, you can, because I’ve been tells us they need new employees, from having to do it all by myself for months,’” customer service reps to producers,” said Chris Boggs, vice president of agent he said. development, research and education at For many agencies in Florida, the Big I. challenge of keeping producers and staff The effects of the so-called Great on board has been aggravated by the Resignation, an employee exodus continued growth of Citizens Property brought on in part by the coronavirus Insurance, the state-created insurer of last resort. Thanks to Citizens’ lower rates pandemic, may not have had the impact in many parts of the state, policyholdon insurance agencies that many feared it ers have flocked there. The corporation would. Retirements, along with mergers reports that it is picking up almost 30,000 and acquisitions, seem to have had more policies per month and will top 1 million effect, paring down the workforce for policies in force in just a few months. some. And some But Citizens’ commissions paid to remaining employees don’t like being agents are usually 5.5%, compared to as owned by a large much as 10% for other property insurers. corporation, Boggs And agents have reported frustrations with Citizens, including technical glitches said. “There is an on the agent web portal. incredible need for All of that means little incentive to new talent in the keep overworked producers in the industry, agency heads said. agency market,” The Florida Association of Insurance he said. “I don’t Agents did not have data on the numcredit the Great ber of agents and staff that have left the Resignation for insurance business in the last year. But this because the the Florida Department of Financial warning about the INSURANCEJOURNAL.COM
coming ‘talent hole’ existed long before COVID and current market conditions.” All of the changes have forced agencies to focus more on recruiting and retention. “Talent recruitment has been a priority for independent agencies for many years prior to the pandemic, primarily due to retirements in the independent agent system, M&A activity, and competition for top talent from colleges, community colleges, and high schools,” said Bob Rusbuldt, president of Big I. The shortage of talent has prompted some agencies to go with the flow and hire people from out of state, Alexander said. But the virtual reality has created other headaches because it appears to have made it harder to reach some carriers’ representatives in a timely manner. “On umbrella policies, we used to get a quote back in 24 hours, every time,” said Alexander, a former chairman at FAIA. “Now, a lot of times, you can’t get a phone call returned or an email answered for a couple of days it seems like.” Relief may not come any time soon. Four Florida property carriers in 2022 have been declared insolvent and 12 have stopped writing new business in the state, forcing agents to find new carriers for thousands of customers. Other carrier insolvencies and pullbacks are expected this year and next, despite new Florida laws that aimed to reduce reinsurance costs for some carriers, curtail fraudulent roof claims and limit claims litigation. “It’s going to be a tough business for a while, I’m afraid,” Alexander said.
JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 5
Agents & Agencies What Independent Agents Need to Know about Florida’s Insurance Crisis and How to Deal With It
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lorida’s homeowners insurance industry is still in a crisis. For years, roofing contractors have been taking advantage of By Jim Bone unsuspecting homeowners to make fraudulent claims. This problem is only the latest in a cycle of insurance abuse. But compounded with existing natural disaster risks, many insurers are pulling out of Florida and those that remain are hiking premiums. Independent agents need to understand how this crisis affects the industry and their customers. They also need a plan for damage control. Here, I’ll explain the wide-ranging impact of rampant roofing fraud and offer a three-step solution to mitigate the effects.
How Rampant Roofing Fraud Hurts Everyone
Predatory roofing contractors use homeowners to engage in fraudulent claims litigation. The process usually works like this: 1. The contractor promises free roof repairs. Many contractors go door to door claiming they noticed roof damage. Others abuse digital marketing channels to target homeowners. 2. The contractor secures a signed “assignment of benefits” (AOB) agreement. When homeowners sign an AOB, they grant a third party — e.g., the contractor — the right to file claims litigation on their behalf. All resulting payouts go to that party and their attorneys. 3. An unlicensed public claims adjuster inspects the roof and handles claims filing. These claims adjusters are often tied to the contractor — illegal in the state of Florida. 4. The homeowner’s insurer issues a low payout, and the contractor sues. The insurer loses money in every case: they can either pursue expensive liti6 | INSURANCE JOURNAL | FLORIDA JULY 18, 2022
gation or settle for the full amount. 5. If the contractor wins or the insurer settles, they and their attorneys profit. The contractor receives the claims payout, and the attorneys take a guaranteed cut. This kind of predatory behavior happens frequently in Florida: As much as 79% of homeowners’ insurance lawsuits originate in the Sunshine State. That’s despite Florida representing just 8% of actual claims filed, according to data from Florida’s Office of Insurance Regulation and the National Association of Insurance Commissioners. Even worse, since 2013, barely 10% of claims payouts have gone to consumers. Instead, 70% went to attorneys, studies have found. The result? A highly litigious and increasingly fraudulent insurance landscape.
The Insurance Industry Suffers – But Consumers Suffer the Most
Florida roofing scams devastate nearly every insurance industry stakeholder: private insurers, reinsurers, and agents. But consumers bear the brunt of the impact. Private insurers face more frequent – and more expensive – claims litigation. To offset the costs, they have a choice: take on less risk or hike premiums. Some insurers mitigate risk by refusing to insure homes in fraud-heavy regions. Others tighten roof-related underwriting restrictions (e.g., only insuring houses with roofs less than 10 years old). For insurers raising premiums in 2022, most are expected to announce at least a 10% hike. But no matter their strategy, insurers will likely lose money. It’s not a new problem: In 2020, Florida’s 52 private insurers suffered a net loss of $828 million, a study by Citizens Property Insurance Corp. showed. Reinsurers are taking note of the industry turbulence. Some have refused to insure at-risk carriers. With limited
reinsurance available, carriers will likely raise premiums further. What’s more, the reinsurance landscape could affect more than just homeowners insurance carriers. The visible risk in Florida may encourage carriers with other products to pursue safer markets. Independent agents suffer too. Many existing customers may grow frustrated by rate hikes across the board. And shrinking carrier access makes it challenging to offer alternatives or sell policies to new customers. Consumers, however, suffer the most. With soaring premiums and limited carrier options, many turn to Florida’s only public option: Citizens Property Insurance. While technically the “insurer of last resort,” Citizens is now the largest insurer in Florida. But if a major natural disaster strikes, Citizens may not be able to satisfy every claim, leaving consumers holding the bag. The kicker? Consumers get nothing from the predatory claims litigation that started this problem. Ultimately, consumers end up with zero benefits. These roofing scams have put the Florida insurance industry on the brink of collapse. But independent agents can be part of the solution.
What Agents Can Do
Agents can explain the situation to customers, leverage their expansive carrier access, and promote financial literacy. In the next few sections, I’ll explain how each step can help agents maximize their value to customers and protect them from future scams.
1. Educate Existing Customers
To mitigate the impact of the crisis, agents should lead with customer education. When agents educate customers about the industry landscape, they establish their credibility as an informed and reliable partner. This step also helps prove that agents are looking out for their cusINSURANCEJOURNAL.COM
tomers’ best interests — and customers will likely take note. In customer messaging, agents should make sure to: 1. Be upfront about the problem. Predatory roofing contractors are engaging in fraud, not “social inflation.” 2. Explain the market impact. Demystify the basics: roofing scams are causing premium hikes, and insurers are pulling out of high-risk regions. 3. Include statistics. “Scam” and “fraud” are loaded terms, but statistics (like the ones I’ve mentioned) offer definitive proof. 4. Link to a personal story. Statistics may prove a point, but a real-life story makes it stick. Educated customers may empathize with the agent. If they know the full picture, they’ll recognize that the situation is out of the agent’s hands.
2. Diversify and Leverage Carrier Access
When possible, agents should avoid using one or two carriers for all policy sales. If a carrier restricts underwriting terms — or backs out of the state — agents could lose a large chunk of their customer base. Instead, agents should try to diversify INSURANCEJOURNAL.COM
their sales as much as possible. One solution: remind existing customers that they don’t have to stick with an expensive homeowners insurance carrier. Agents can help homeowners shop around for more affordable rates. Even with shrinking carrier availability, different carriers may use different risk ratings to determine their premiums. Homeowners may come away with better premiums or coverage than before. When selling policies to new customers, agents can further diversify by leveraging multiple carriers. In the long run, multi-carrier policy sales can protect agents from sudden industry shockwaves.
3. Promote Financial Literacy Among Customers
Financial and insurance language is complicated. But when consumers don’t grasp key terms and concepts, they’re more susceptible to roofing scams. Many consumers may not fully understand the telltale signs of a scam, especially via the internet or the fact that “free” isn’t always good (and often has strings attached). They may not know what an AOB actually means or whether contractors can act as claims adjusters. To help prevent future scamming, agents should provide customers with insurance-specific financial literacy
resources. For example, agents can include official, state-approved factsheets, available from the Florida Insurance Consumer Advocate, in an agency newsletter. Agents can also offer resources during every homeowner consultations. When agents promote financial literacy among their customer base, they maximize their value and help mitigate customers’ scamming risk. In the short term, this step help agents maintain or improve their customer retention. And over time, a more financially literate consumer population may improve insurers’ faith in Florida.
As Developments Emerge, Keep a Pulse on the Crisis
Let’s be clear: Florida’s insurance crisis is out of agents’ and insurers’ hands. The Florida Legislature in May passed some meaningful changes, but more is needed. As the year progresses, agents have a responsibility to stay informed and update their customers about legislative needs. With continued consumer education, agents can help restore consumer trust in private insurers. Jim Bone is general manager at We Insure, a national insurance company with franchises in Florida. We Insure is expanding rapidly across the U.S., with more than 200 retail locations. JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 7
News & Markets Invasive Creature is Again Threatening Florida Crops, Buildings, Trees and Could Soon Bring Insurance Claims
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nvasive giant African land snails that can eat building plaster and stucco, consume hundreds of varieties of plants and carry diseases that affect humans have once again been found in Florida, where officials said that work has begun to eradicate the pests. The snails, which grow as long as 8 inches (20 centimeters) and have a distinctive whirled, brown mottled shell, were confirmed by state agriculture officials in New Port Richey, Florida, on June 23. The location in Pasco County is just north of the sprawling and heavily populated Tampa Bay area on the Gulf coast. Florida has twice before eradicated the snails in other parts of the state, most recently a 10-year effort in MiamiDade County that cost $23 million and ended in 2021 after collection of about 170,000 snails. Now they are back again, most likely the result of the illegal international exotic pet trade or arriving hidden in cargo from overseas. “We will eradicate these snails. We’ve done it before and we will do it again,’’ said Nikki Fried, commissioner of the state Department of Agriculture and Consumer Services, at a news conference. The snails have been found in numerous parts of the world such as Hawaii
Nikki Fried
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Invasive giant African land snails that can eat building plaster and stucco, consume hundreds of varieties of plants, and carry diseases that affect humans have been found once again in Florida. (AP Photo/Ismael Francisco, File)
and parts of the Caribbean, including in Cuba where an effort is ongoing to rid the island of the pests. The snails are known to eat 500 different plant types, making them a major threat to agriculture including peanuts, beans, cucumbers and melons. They will also eat plaster and stucco in buildings, even tree bark, and carry a parasite called the rat lungworm that can cause meningitis in humans, according to the department. They can produce up to 1,200 eggs a year. “They are one of the most damaging snails in the world,’’ said Fried, a Democrat who is also running for governor this year. A quarantine area has been set up in Pasco County where the
snails were found, initially by a homeowner. The properties involved will be treated with a molluscicide bait and snails are being collected by state workers aided by dogs trained to sniff them out. Greg Hodges, assistant director of the state Division of Plant Industry, said it is illegal to import or possess giant African land snails in Florida without a permit. It is also illegal to move them from a quarantined area, such as the one in Pasco County, or to take away other material in the area such as soil, yard waste or building materials without an agreement with the state. About 1,000 snails have already been collected in the quarantine area, Hodges said. He said anyone who spots a snail should not touch it but instead call 888397-1517 to report the find. Fried said people should definitely shy away from the snails, which are not the type one finds in escargot. “This is not something you want to touch. It is not something you want to eat,’’ Fried said. Copyright 2022 Associated Press. All rights reserved. INSURANCEJOURNAL.COM
News & Markets 30 Years Ago, Hurricane Andrew Slammed South Florida, Changing Everything
Today, Imaging Tech Makes Insurers Better Prepared for the Next Big One
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ug. 23 marks the 30th anniversary of Hurricane Andrew, the most costly disaster in U.S. history for the insurance industry. By Guy Attar Insurers lost an estimated $15.5 billion and 11 carriers became insolvent as a result. Today, major technological advancements have been made and lessons have been learned. In the property insurance industry, companies have been using aerial imagery and artificial intelligence to increase efficiency and keep up with the need for fast-paced underwriting in the wake of and in preparation for the environmental and climate-based threats of the future. Andrew, which ripped apart much of Florida’s southern tip, exposed a variety of shortcomings, including a lack of enforcement of building codes and regulations, which resulted in construction without storm preparations in mind. Above all, the storm exposed a huge miscalculation of the damage and risk assessments. This subsequently led to a significant rise in insurance values. Prior to Hurricane Andrew, the total insured value listed with the Florida Windstorm Underwriting Association was $7.4 billion. Five years later, the combined exposure was more than $136 billion, a nearly 20-fold increase. This was largely a result of overhauling the “experience-based” estimation process, which had relied on recent experiences to project future trends, rather than accounting for major disruptive events. Given the increase in insurance values and the recognized need for more accurate underwriting, speed and efficiency is becoming a critical factor that often determines whether insurance companies are able to accurately value and assess property risks. Those that are unable to do so will likely not be able to sustain high INSURANCEJOURNAL.COM
losses from increasingly active hurricane seasons. Since speed and efficiency became critical, the application of new technologies has become a determining factor for survival and growth.
How has technology shaped the property insurance industry today?
With the rise of artificial intelligence (AI) and higher-resolution cameras, industry leaders started to realize their cost saving potential. High resolution aerial imagery could be used to determine externally visible risks, such as the condition of a roof, nearby bodies of water, trees and any debris, that would otherwise need to be identified by an in-person surveyor and ordinarily would not have been present on insurance records. Thus, having the ability to identify this information very quickly from a property imagery database saves significant costs and time, even potentially negating the need for an in-person inspection. These developments were simply not possible 20 years ago because of the limitations of camera quality and the limits of computing technologies. Today, with the use of high-res aerial imagery, combined with advanced 3D modeling of property
compiled into a vast database, insurance companies can significantly streamline their underwriting process and exponentially improve the efficiency and speed of risk assessments. The use of such cutting-edge systems even facilitate preventative measures, notifying customers of potential risks before they occur.
What will insurance technology look like in the future?
With the impacts of climate change being increasingly felt and with natural disasters such as wildfires and hurricanes becoming more frequent, it would be reasonable to predict that the margin for error in the insurance industry will narrow. Therefore, companies that rely on outdated systems and unreliable information for underwriting are becoming uncompetitive and will likely not survive in the longrun. In contrast, companies that are integrating innovative technology such as high resolution image recognition to accelerate their decision making processes are deriving a myriad of quantifiable benefits. Guy Attar is co-founder and chair at GeoX, a company that uses machine vision and AI to analyze aerial imagery to facilitate insurance underwriting.
JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 9
News & Markets
Sparks Fly over NFIP Reauthorization, Including Idea to Drop Coverage for Some Flood-Prone Properties
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n June, the U.S. Senate Banking, Housing, and Urban Affairs committee held a hearing to discuss legislative proposals to reform the By Jerry Theodorou Federal Emergency Management Agency’s National Flood Insurance Program (NFIP). There were 17 proposals included in FEMA’s 104-page document, a wide-ranging reform package for a government program that has generated $37 billion of debt since its creation in 1968. Although there are some issues in the reform package, it is the most comprehensive reform effort to date for the seriously flawed program. Several lawmakers are opposed to 10 | INSURANCE JOURNAL | FLORIDA JULY 18, 2022
change that would deprive their constituents of subsidies and discounts afforded by the NFIP. But two senators made a strong case for changes. In his opening statement, Committee Chairman Sherrod Brown, D-Ohio, underscored the importance and timeliness of improving the nation’s response to flood risk by citing a catalogue of severe flooding events in recent weeks, including extensive flooding in Wyoming and Montana at Yellowstone National Park; flash flooding in West Virginia and Alabama; ice jam flooding in Alaska; heavy rainfall flooding in Oklahoma and Arkansas; and severe flooding in North Dakota and Minnesota. Brown mentioned that flood risk has been exacerbated by climate change, and indicated that there remain many climate change deniers in the Senate.
In his oral and written testimony, Committee Ranking Member Pat Toomey, R-Pennsylvania, outlined several symptoms of the NFIP’s structural weakness. It had to borrow from the Treasury 11 times in the past 22 years; it has badly designed subsidies; and it systematically underprices business, creating a barrier preventing the private market from offering competitive flood insurance products. Toomey was especially critical of the drain on the program’s finances caused by severe, repetitive-loss properties. He was supportive of some of the reform measures in the FEMA proposal, such as elimination of subsidies that encourage people to live in flood-prone areas; prohibitions on construction of commercial properties in high-risk areas; and improvement in flood risk communication so homeowners and homebuyers know the true flood risk INSURANCEJOURNAL.COM
of their homes. The June 23 hearing had only one witness: David Maurstad, deputy associate administrator for federal insurance and mitigation and senior executive of the NFIP. The fireworks began when two of the most vocal opponents of changes to the NFIP—Sens. John Kennedy, R-Louisiana, and Bob Menendez, D-New Jersey, posed questions to Maurstad. Kennedy maintained that the details of the NFIP’s new rating methodology, Risk Rating 2.0, are being withheld from Congress. Maurstad asserted that the algorithm, or rating formula, is indeed in the public domain, and is freely available on the NFIP website. In fact, the rating factors constituting the algorithm are identified in the Risk Rating 2.0 Methodology and Data Sources. Appendix D Rating Factors are on FEMA’s website. Sen. Menendez maintained that Risk Rating 2.0 would cause flood premiums to rise. Breaking down the numbers in the senator’s state, we see that 23.1 % of New Jersey NFIP policyholders are seeing a decrease in premiums; 63.2 % are experiencing a range from no change to their premiums to a $120/year increase; 10.3 % are seeing an increase of between $120 to $240/year; and 5.3% are seeing an increase greater than $240/year to a maximum 18 % increase. The most problematic feature of the reform proposal is the annual premium equalization payment. This is the difference between the premium the NFIP charges and the amount of expected loss reimbursement the NFIP would obtain via federal appropriation. The large number of premium reductions not offset by increases means that the NFIP will lose more money with Risk Rating 2.0 than it does currently. NFIP expects to accelerate rate increases in future years, but not in the immediate future, with a fiscally questionable onestep back, two-steps forward dance step. And that does not include the forgiveness of the program’s current $20.5 billion debt to the Treasury. Maurstad maintains debt forgiveness is necessary to “clean the slate,” allowINSURANCEJOURNAL.COM
ing the NFIP to become fiscally sound. But that’s not how limited government or pro-market policy should work. It’s doubtful that reducing premiums and forgiving the NFIP’s debt will result in sound management. More likely, this government program will produce more red ink.
The R Street Blog presents the work and viewpoints of the free market think tank R Street Institute, based in Washington, D.C. Jerry Theodorou is the director of the Finance, Insurance and Trade Policy Program. He develops free-market public policy solutions to complex issues where federal and state governments have intervened.
“THE DEDUCTIBLE INSTALLMENT PLAN WAS A GODSEND!”
September 10, 2017 was a day that Edie and Marvin Hartley will never forget. Hurricane Irma was rapidly approaching. The normally placid creek behind their home was rising. They took shelter upstairs as the creek water engulfed the first floor of their beloved home. Record-breaking wind driven rain severely damaged their roof, ceilings and their detached garage.
The Deductible Installment Plan is available only from Cypress Property & Casualty Insurance Company • If homeowners use one of our preferred vendors, their repair work can begin immediately while they pay their deductible in three installments. • No payment is due for the first six months. The last two payments are billed on an annual basis thereafter. Payments can be made sooner. • No fees. • No interest. • No credit check. • No increase in premium. • Applies to up to 2% of the hurricane or catastrophic event deductible for both HO3 and HO6 policies. • Available to all HO3 and HO6 insureds at no extra charge!
“Cypress was an absolute pleasure to work with! Every Cypress customer service representative was so helpful and courteous. They were beyond generous with their time, explanations and finding us contractors to repair our home. All of the subcontractors were excellent.” – Edie Hartley, homeowner
To learn more: Call 1-877-560-5224 or visit www.cypressig.com/DIPFL A patent has been filed. Must use a Cypress approved vendor. Not applicable to HO4 policies. This document is a brief description of the DIP benefit and is not meant to be a contract, please refer to actual endorsement. Please refer to your policy for full terms and conditions.
WORKING TOGETHER. Phone: 877-560-5224 www.cypressig.com JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 11
News & Markets
The Market Tightens: With Soaring Reinsurance Costs, More Insurers Pull Out of Murky Florida Waters
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hree more property insurers, including one of the largest in the country, stopped writing some types of policies in Florida this summer and one sank into insolvency.
Progressive Insurance
Eight months after it stopped renewing homeowners and rental property policies in Florida, Progressive Insurance announced it will now stop writing new dwelling-fire business altogether in the distressed Florida market. “To ensure a long-term future in Florida, Progressive Home is temporarily curtailing agent access to writing new business in our dwelling fire (DP3) program, starting Friday, July 8,” reads a bulletin sent to insurance agents in early July. “We’ve made this difficult decision now so we can remain a stable and viable property market solution for years to come.” The withdrawal marked the 11th carrier to stop writing at least part of its book of business in Florida this year. Recently, Centauri Insurance and Bankers Insurance announced they were halting new homeowners business in the state, at least temporarily. The moves are seen as further indica12 | INSURANCE JOURNAL | FLORIDA JULY 18, 2022
tions that Florida’s property insurance market has continued to deteriorate, despite recent legislation designed to address some of the problems. “As you know, the Florida property insurance industry is facing extreme challenges,” the Progressive bulletin reads. “The hurdles are on multiple fronts: the rising cost of reinsurance, ongoing weather-related events, and a difficult litigation climate," it continues. "All Florida carriers are feeling the effects.” The memo did not say the number of potential DP-3 policies that Progressive is walking away from. The carrier has reported that it had almost 11,200 tenant policies in force in Florida at the end of 2021, according to a tabulation by the Florida Office of Insurance Regulation. Other insurers have taken steps to reduce exposure and litigation costs, such as avoiding writing homes with older roofs and adopting arbitration requirements for claims disputes. American Integrity Insurance told agents that binding arbitration is now available for DP-1 and DP-3 policies, effective June 24.
Capacity Insurance
AM Best has withdrawn its financial strength rating for Capacity Insurance, a commercial insurer with a small footprint in Florida, and the company has decided to withdraw from the Florida market. “Due to a variety of circumstances, the Florida market has undergone tremendous changes over the last year. As a result, we halted binding new business effective June 21, 2022,” the Capacity website reads. The insurer since 1989 has provided property-casualty coverage for light mercantile, offices, lessor’s risk, gas stations, houses of worship, trade contractors, funeral homes and other small-to-midsized businesses. In 2009 Capacity was acquired by Team Focus Insurance Group, which was acquired by Peak6 InsurTech and investment firm one year ago. Capacity’s affiliate and managing general agency, MacNeill Group, continues to work with other carriers, the company’s website noted. AM Best announced July 7 that it withdrawn Capacity’s financial ratings after the company said it no longer wished to participate in the rating process. The rating firm had recently downgradINSURANCEJOURNAL.COM
ed Capacity’s financial strength rating to “C++ marginal” and said the outlook for the company is negative. The downgrades reflect Capacity’s balance sheet and “an unfavorable shift” in its capitalization, as well as erosion of its surplus. “Furthermore, the company’s capital structure is dependent on a $7 million surplus note (due in 2029) that was issued in early 2022,” AM Best wrote in the news release. “The company has continued to report adverse loss reserve development stemming primarily from management’s efforts to correct current reserves and subdue future deficiencies.” Recent corrective actions taken by the company did not solve the problem, AM Best noted. A spokesman for Peak6 said that the insurer has undergone significant changes in the last 18 months. “Over the past year, the Florida market has been extremely difficult, especially in the reinsurance arena, further decreasing the profitability of Capacity Insurance,” a statement from the company said. On July 5, Capacity’s board of directors accepted the resignation of its chairman and appointed Andy McGuire to the position. It also authorized management to move ahead with the plan to voluntarily withdraw from the state. Two days later, it submitted a withdrawal plan to the Florida Office of Insurance Regulation and is awaiting review. The carrier is committed to paying all outstanding claims from its existing book of business, the company said. Capacity has only about 2,700 policies in force. In 2019, it had some $17 million in direct written premium, or less than 0.1% of the Florida market, according to a report from consultant Guy Fraker. “PEAK6 InsurTech continues to view Capacity Insurance as an asset and will retain its license to write in Florida so it may revisit opportunities to reenter the Florida market for all lines of coverage in the future,” the Peak6 statement noted. And a large insurer called it quits. INSURANCEJOURNAL.COM
Southern Fidelity
Two weeks after it lost its financial stability rating, Southern Fidelity Insurance Co. has been ordered into receivership, making it the fourth Florida property insurer this year to bite the dust. A Leon County Circuit Court judge in late June ordered the state Department of Financial Services to act as the receiver for the carrier, which was unable to complete its reinsurance program ahead of hurricane season. The petition from DFS quotes from an affidavit submitted by Virginia Christy, director of financial oversight for Southern Fidelity, noting that the firm’s “catastrophe reinsurance program expired on May 31, 2022 and respondent ‘currently has no catastrophe reinsurance to cover its existing policyholders during the 2022-2023 Atlantic hurricane season.’” Some in the industry had expressed hope that the company, which reported 98,000 policies in force at the end of 2021, may be able to avoid insolvency with some type of rehabilitation plan submitted to the OIR—especially after rate increases of 84% and 111% early this year and the infusion of $200 million in capital. But the company’s June 8 rehab plan did not satisfy regulators or provide enough protection to policyholders, the consent order petition reads. Christy’s affidavit explains that trouble had been brewing for several years. She listed the many steps company has been through: • In February 2019, Southern Fidelity merged with Capitol Preferred Insurance Co. (CPIC) and Southern’s underwriting losses became Capitol’s. For the next year, both companies continued to post poor operating results, according to Christy’s statement. • CPIC then failed to make rate filings with OIR. In February 2020, the office asked the companies to file monthly financial statements and estimates of capital needed. • In May 2020, Capitol Preferred asked to be allowed to drop 23,800 of Southern Fidelity’s policies. Three months later, CPIC and Southern asked for substantial rate increases. Company officials also
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tried merging Capitol Preferred back into Southern Fidelity. OIR approved the plan in September. That same month, Southern reported a surplus just above the minimum required, “indicating that the company was at risk of impairment or insolvency if an immediate capital infusion was not made.” In October 2020, OIR placed Southern under “confidential administrative supervision.” A month later, Southern was acquired by Gulf & Atlantic Insurance Co., which was owned by Hudson Structured Capital Management. Southern said it planned to cancel or non-renew some 40,000 policies within four months. In late 2021 and early 2022, Southern Fidelity gave notice of a rate increase of 84% for homeowners policies and 111% for dwelling fire policies. By then, Hudson Structured Capital had provided $200 million in capital infusions to the company. In May of this year, Southern Fidelity suspended new business in Florida. In early June, the Demotech rating firm withdrew the company’s rating.
Florida Property Reinsurance Premiums Rise by as Much as 50%: Gallagher Re
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roperty reinsurance rates rose by as much as 50% in Florida at July 1 renewals and by up to 40% in the United States overall, reinsurance broker Gallagher Re said, as reinsurers grappled with higher inflation and natural catastrophe risk. Some pricing in Florida was near “distress” levels for reinsurance buyers, Gallagher Re said in a report titled, Gallagher Re 1st View: Changing Environment. “The changing economic environment is starting to impact reinsurers’ balance sheets,” said James Kent, global chief executive of Gallagher Re. “Reinsurers now appear to be more sensitive to losses and wider external events than at any time since 2008.” Copyright 2022 Reuters. All rights reserved. JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 13
Courts & Torts Nuclear Verdict: Miami Jury Orders Bar That Served Drunken Driver to Pay $96 Million in Damages By William Rabb
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Miami-Dade jury has returned one of the largest verdicts ever in an automobile accident case, awarding $95 million in damages plus attorneys’ fees to a South Florida family whose daughter was killed and whose son was catastrophically injured by a drunken driver in 2015. The jury found that one of the defendants, Georgetown Partnership, owner of The Corner, a bar in Miami, was negligent in serving alcohol to the inebriated driver. The business was ordered to pay almost $59 million for the medical care of the son and $37 million in damages to the parents, Noel Criales and Elisa Diaz. The lead attorney for the defendant bistro business, David Cabellero, of Cole, Scott and Kissane, one of Florida’s largest liability and insurance defense firms, declined to comment on the verdict. He said he didn’t know the name of the bistro’s insurance carriers because they were never involved in the litigation. The insurers were not named in the suit. The driver of the car, 22-year-old Franklin Chavez, in 2017 was sentenced to seven years in prison after he was found guilty of driving under the influence and causing the accident. After hours of partying, Chavez drove more than 70 mph on the wrong side of Interstate 95 with his lights off before slamming head-on into the Criales’ vehicle, according to news reports at the time. The family was taking the daughter to the airport, on her way to medical school. The civil verdict against the drinking establishment owner ranks third in Florida only to the famous, $1 billion Florida verdict against two trucking companies in 2021, and a $120 million verdict in another truck accident case, according to news reports and TopVerdict.com. The jury in the $1 billion case found 14 | INSURANCE JOURNAL | FLORIDA JULY 18, 2022
that the driver for one company was on his cell phone, was over the allowed number of driving hours, and did not have a commercial license. After the accident caused a pileup, another truck driver failed to slow down and slammed into the cars, killing an 18-year-old. The jury granted $100 million to the parents, along with $900 million in punitive damages. In the Criales’ wrongful death and personal injury suit, the jury did not award punitive damages, which could have been capped under Florida law. Even without caps on damages, it’s unlikely that the family will collect the full $96 million or if the verdict will hold up on appeal. Florida’s “dram shop” statute, often called restrictive for plaintiffs, allows damages, but only when an establishment willfully or unlawfully sells booze to a minor or to someone who is “habitually addicted” to alcohol. A Florida appeals court earlier this year reversed a $29 million dram shop verdict against a bar in Tallahassee. And it’s possible the judge in the Criales suit could reduce the judgment amount, as happened with the $120 million verdict in the truck crash suit. It’s unclear what assets the Miami bar’s parent corporation, Georgetown Partnership, may hold that could be used to pay the judgment. The firm is listed as a limited liability corporation, meaning its principals can’t personally be held liable for most of the damages. And a nightclub or restaurant’s liquor liability insurance policy is usually limited to no more than $2 million. A move by plaintiffs to seek more than what the policy limits provide would depend on many factors, explained Fort Lauderdale attorney David Henry, chair of third-par-
ty litigation at the Kelley Kronenberg firm. Unlike some states, such as Louisiana, a defendant’s insurance company is not usually part of a direct claim for damages in an auto or negligence case. But insurers in Florida are often involved in the litigation and may have a duty to defend the insured bistro business. One way for the family to seek payment from the insurer in this case would be to pursue a bad-faith claim against the carrier. Bad-faith claims can be justified in some cases if the insurer did not offer to settle when the facts indicated, or did not pay the policy limits if warranted, Henry said. The principals of Georgetown Partnership and the lawyers for the Criales family could not be reached for comment. But attorney Aaron Davis told Law.com, a legal news website, that putting the father on the witness stand made an impression on jurors. Davis, in his closing arguments, also noted that the defendant owner of the bar did not bother to show up in court for the trial. The family reached confidential settlements with other defendants in the case, according to the news site. The plaintiffs had also named the driver and Crossfit Downtown Miami, a gym where Chavez worked, which held the fateful Christmas party in 2015. INSURANCEJOURNAL.COM
Courts & Torts Court Ruling Provides Ammo for Insurers in Florida AOB Cases
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lorida insurers may have another weapon in the war over assignments of benefits in insurance claims, thanks to an appeals court ruling that went against one of the insurance industry’s most visible and active foes. In Kidwell Group and Air Quality Assessors vs. United Property & Casualty Insurance, Florida’s 4th District Court of Appeal in June upheld a lower court’s dismissal of a breach-of-contract suit. In what may be the first appellate ruling on this aspect of the 2019 Florida statute that aimed to limit AOB claims, the appeals courts held that the assignee-contractor did not provide an itemized, per-unit cost estimate of the services to be performed in the restoration, as required by law. Insurance attorneys said that hundreds of AOB agreements have been signed since Florida lawmakers in 2019 allowed the new policy restrictions that are designed to deter AOB agreements and litigation, and many do not contain the itemized estimates. That could give insurers fertile ground to challenge the claims and to fend off breach-of-contract lawsuits. “The court is taking a strict enforcement view on policy provisions,” said attorney Patrick Carleton, of the Groelle & Salmon law firm, who has represented insurers in other cases against Kidwell. He said that he has seen other AOB agreements that do not include itemized estimates. “This will definitely be helpful in other cases we have,” Carleton added. Matt Scanlan, insurance attorney with Dunlap and Shipman in Tallahassee, said that his client insurers have denied almost all claims from Air Quality Assessors if the company did not include the itemized estimates. But the contractor has learned quickly and has added the per-unit costs to invoices in recent months, after the initial court decision went against it. “I would say they are constantly evolving, trying different things, but the courts keep holding their feet to the fire,” Scanlan said. Sloppiness by assignee contractors has become a key line of defense, attorneys said. INSURANCEJOURNAL.COM
“They often do not itemize to the extent necessary,” said Kansas Gooden, president of the Florida Defense Lawyers Association. “For instance, an AOB has scribbles in the margins that states: ‘Roof - $20,000, $4,000 – interior.’ There is no indication what is being done in the interior and it is impossible to determine.” Those types of haphazard attempts to comply do not provide the notice required by the statute, but trial courts have been somewhat inconsistent in their treatment of the issue, Gooden said. The Kidwell Group and Air Quality Assessors is headed by Winter Park contractor Richie Kidwell, who has made headlines for his involvement in a number of high-profile actions against insurance companies. In June, Kidwell and his Restoration Association of Florida filed a suit challenging the constitutionality of a law approved by the state Legislature at its special insurance session in May, which bars assignees of benefits from being awarded attorney fees in court. In the United Property & Casualty case, the Kidwell Group and Air Quality Assessors argued that they had, in fact, included an invoice as an attachment to the lawsuit complaint. But the 4th DCA judges said the invoice was unexecuted and was dated five days after the assignment agreement was signed. “As such, the trial court properly concluded the assignment did not contain a written, itemized, per-unit cost estimate of the services to be performed by Appellant as required by sections 627.7152(2)(a)1. and 627.7152(2)(a)4,” reads the 4th DCA opinion, written by Judge Burton Conner. The statutes cited were those approved by lawmakers in 2019 in an effort to curb AOB claims, which have resulted in hundreds of lawsuits per month. Kidwell testified at the legislative session, urging lawmakers to vote down the package of reform bills. He has become
well known in the Florida property insurance arena, but court rulings have not often gone his way. The United P&C decision, handed down June 15, came eight months after the same appeals court ruled against the Kidwell Group and Air Quality Assessors in a breach-of-contract suit against Geovera Specialty Insurance Co. That decision held that the suit should be dismissed because both spouses had not signed the AOB agreement, as required by the policy. The Florida Supreme Court declined to hear an appeal of that decision, said Carleton, who represented Geovera in the case. Kidwell and his attorney, Chad Barr, of Altamonte Springs, could not be reached for comment. Kidwell, the Restoration Association and Air Quality in May filed another high-profile suit, this one against Florida Insurance Commissioner David Altmaier and two insurers.
The suit argues that the commissioner exceeded his authority in allowing American Integrity Insurance Co. policies to require arbitration in claims disputes, in exchange for premium discounts for homeowners. Heritage Insurance also was approved for a policy endorsement that bars payments to anyone except the homeowner, a move that violates state law, which allows for assignments of benefits, the suit reads. Attorneys and a Florida law professor said the suit and Kidwell’s challenge to the 2022 reform law are unlikely to see much success in court. JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 15
Fraud & Investigations Tampa Medical Clinic Owner Charged with Staging Crashes and Submitting $970,000 in False Claims
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he owner of a Tampa medical clinic has been charged in a scheme that staged auto accidents then submitted more than $970,000 in falsified insurance claims, Florida authorities said. Angela Ippolito Duncan, owner of Ybor Medical and Wellness Center, was booked into the Hillsborough County jail in early July on multiple fraud and racketeering charges. Florida’s chief financial officer said an investigation found that Duncan helped orchestrate staged crashes near the clinic, then coached participants on what to say to insurance adjusters. Duncan, 72, also had crash participants sign some 30 medical forms for treatments that never happened, CFO Jimmy Patronis’ office said in a statement. She
also allegedly recruited an undercover police detective to participate in a staged accident, provided passengers for the vehicles and directed them to seek treatment at her clinic, not far from downtown Tampa. If convicted of all charges, she could face as much as 30 years in prison. The investigation into the alleged fraud ring included investigators from the Florida Department of Financial Services, Nationwide Insurance
and the National Insurance Crime Bureau. The Hillsborough County State Attorney’s Office will handle the prosecution.
Florida CFO Wants More Insurance Fraud Investigators
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lorida’s chief financial officer this year asked lawmakers for $6.5 million to fund 23 new investigative positions and to launch a public education campaign, part of his proposal to combat insurance fraud and reduce losses for insurers. CFO Jimmy Patronis, whose Department of Financial Services oversees insurance fraud investigations and public adjusters, also urged legislators to tweak state law to allow whistleblowers to recover damages in insurance fraud cases. Another part of his fivepoint plan would grant $25,000 rewards to people who provide information leading to the arrest, not the conviction, of persons engaged in alleged fraud. “Florida communities are under attack by fraudsters who are willing to try anything to game the system. They are stealing from us all!” Patronis said at a news conference. “To win this war, we need the troops, the weapons, and a full commitment to the mission.” 16 | INSURANCE JOURNAL | FLORIDA JULY 18, 2022
The funding source would be up to the Legislature but could come from the state’s Insurance Regulatory Trust Fund, which is funded partly by insurer payments, or from the state’s general fund, a spokesman for Patronis said. Some $3 million would go to the education campaign and $3.5 million would be needed for three additional anti-fraud squads, bringing the total number of DFS fraud teams to five. The new squads would include 15 detectives and three supervisors; three attorneys and an administrator to prosecute cases; and an analyst to expedite investigations, DFS explained. Some lawmakers and insurance industry leaders have questioned why DFS has not pursued insurance fraud more aggressively already, since fraudulent roof and water-damage claims have been cited as a leading cause of loss costs and loss adjustment expenses. The DFS received more
than 1,700 tips or reports on suspected insurance fraud in 2021, but just 14 people were convicted, Tampa TV station WFLA reported. “So we started at 1,700 and we held accountable 14 convictions. That concerns me a little bit,” said state Rep. David Smith, R- Seminole. At a legislative committee hearing last fall, the DFS fraud team director said that homeowner insurance fraud is difficult to prove and time-consuming to prosecute. Patronis also said that state laws don’t specifically outlaw some practices. Statutes prohibit contractors from offering to pay an insured’s deductible, but there are ways around that and proving intent can be tricky. “I can always use more help but the help that we really need is with the Florida Legislature to close the loopholes that are allowing the gaming of the system. That is what’s driving your insurance rates up,” Patronis told WFLA news. Lawmakers at Florida’s special legislative session on the property insurance crisis did not mention Patronis’ request, but it likely will come up for review at the regular session in spring 2023. INSURANCEJOURNAL.COM
Fraud & Investigations ‘Well-to-Do’ Investment Firm Head Charged in $300,000 South Florida Insurance Fraud. Claimed He Threw Away the Rolex By William Rabb
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he head of a small, South Florida investment firm has been charged with insurance fraud after he submitted a $300,000 roof-leak claim to his insurer, American International Group, along with allegedly fake photos of mold and other damage to his house. Michael DeGeorge, 38, of Palm Beach Gardens and Jupiter, Florida, was arrested after a months-long investigation by the Florida Department of Financial Services’ fraud bureau. The arrest was announced in July by Florida Chief Financial Officer Jimmy Patronis, head of DFS. “Insurance fraud has no place in the state of Florida and my fraud detectives are working hard on behalf of Floridians to ensure that fraudsters are arrested and brought to justice,” Patronis said in a statement. “Unfortunately, schemes like these cause insurance premiums to rise and make home insurance unaffordable.”
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DeGeorge, who could not be reached for comment, appears to be well connected in South Florida. The Florida Secretary of State corporations records show him as president of MDeG Investment Group, headquartered at the home in Jupiter for which the claim was made. And a jeweler that sold him a Rolex watch said DeGeorge belongs to “a very well-to-do family,” according to the arrest affidavit that details the investigation. DeGeorge also has filed a lawsuit against several contractors who built or worked on the upscale home for which he made the leak and mold insurance claim, court records indicate. The complaint alleges extensive problems with the house and mold, which may have affected the health of his child. Two defendants have asked the circuit court in Palm Beach County to dismiss the suit. The arrest record explains how DeGeorge made the insurance claim, and how AIG investigators became suspicious. In January 2020, DeGeorge reported the problems to AIG, claiming that mold was present everywhere in his home, due to a roof leak. It was so bad that he said his family had to move out of the home and he threw away many of his belongings. AIG asked him to submit photographs of the contents and mold damage, and DeGeorge provided some 300 pictures, investigators said. The items, which DeGeorge listed on a computer spreadsheet, included furniture, artwork, electronics, clothing, toys, curtains, rugs and more. But AIG representatives, including an AIG subrogation attorney, noticed that some things weren’t quite right. DeGeorge had filed a similar claim on the property a few years before, had
not allowed the contents to be inspected, claimed that he had thrown them out, and had submitted photographs of the alleged damage. AIG paid $196,413 on the earlier claim. AIG’s special investigation unit determined that the 2020 claim included some of the same items listed in the previous claim. And metadata analysis of the photographs showed that some were taken after he said he had discarded the items, while other photos of structural damage were shot as much as 18 months before the alleged date of the loss, the arrest information shows. Some of the photos were from a real estate website, some appeared to be from other properties, and others were ones that were submitted in the previous claim, investigators reported. Many images showed no water damage. “Given these facts, Mr. DeGeorge made a material misrepresentation to AIG in support of his homeowner’s claim,” reads the arrest affidavit, signed by DFS fraud detective Kassandra Grimmett. DeGeorge also claimed the Rolex watch was valued at $35,000 but was so damaged that it had to be thrown away. The investigator interviewed the Boca Raton jeweler who sold him the watch. He said that DeGeorge had brought the watch in to be appraised in 2017, and gave no explanation for why the appraisal was needed. The jeweler appraised it at $25,000. He later expressed shock that anyone would throw a Rolex away: The diamonds alone were worth a great deal. DeGeorge and his wife did not show up for an examination under oath in 2021, and AIG denied most of the claim. It had earlier paid living expenses when the family said it moved out of the home. AIG referred the case to the DFS fraud bureau in May 2021. DeGeorge was released from the Palm Beach County jail on a $3,000 cash bond. JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 17
Claims & Defenses Cast Iron Drainpipes Latest Target in Florida Claims, But They Can Be Defended
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decade ago, it was questionable website said. sinkhole damage claims that proGrindley and Hand-Gallegos said liferated in Florida. More recently, that many of those assertions are “free roof” solicitations, roof claims and exaggerated. Cast iron pipes don’t thousands of lawsuits have rattled the often need full replacement, and industry. there are ways to defeat erroneous Now comes cast iron drainpipes, comor spurious pipe claims and litigamon in homes built before 1975. tion, they argue. The pipe systems have become targets “Cast iron in many ways is superior to other types of material,” for some of Florida’s largest plaintiffs’ Grindley said. “The pipes are very law firms, according to insurance attorneys, adjusters and engineers. It’s posrigid. They’re strong, and they sible the pipes could lead to many more don’t break if you hit them with a claims and suits in coming years, after shovel when you’re digging in the Florida lawmakers took action designed back yard.” to reduce roof claims and litigation. In many homes, the pipes have “We’re seeing patterns. Patterns in been in use for more than a centuDavid Grindley ry. They can rust to some degree and property claims,” said Cassandra Handmay develop deposits on the inside that Gallegos, adjuster and CEO with CCMS whole house. can constrict the flow of drain water, & Associates in Dunedin, Florida, who For that reason, it’s important for something that a growing number of spoke at the Florida Defense Lawyers insurance adjusters to quiz homeowners, when possible, on where and when claims have attempted to capitalize on, Association claims conference in the backup was spotted. he said. Orlando in June. “Always ask: Where was the claimant Grindley said many insurance claims “The biggest issue is not what’s going at the time of the overflow? Where were start with a clogged kitchen sink. In on inside the pipes, but what’s going on they standing? In the kitchen? In the a number of cases his firm has inveswith the insurance claims industry,” said bathroom?” Grindley said. “If they say, David Grindley, a forensic structural engi- tigated, the homeowners, the public neer who also spoke at the conference. adjusters or plumbing contractors have ‘the kitchen,’ then, we’re skeptical that One recent television advertisement claimed that mold and mildew under it’s the main drain line.” from Orlando-based sinks is the result Another rule of thumb: Household of backed-up cast drain lines don’t hold that much water. If Morgan & Morgan, “The biggest issue is not which calls itself pipes. the entire house is flooded, it’s probably what’s going on inside the ironMore America’s largest likethe result of a supply line or an outside pipes, but what’s going on ly, he said, the injury law firm, for source of water—not a clogged drain growth is from example, flashes large with the insurance claims pipe. years of leaks amounts of cash that Many homeowner policies exclude industry.” in plastic sink may be available to water-pipe losses altogether. Others drains or supply homeowners whose exclude damage due to gradual leaks. lines, or from seepage around the edge dwellings are more than 45 years old Despite the use of those endorsements, of the basin. and which may have sewage drainage though, non-weather water claims and One way to tell if the blockage is in the litigation appear to be on the rise in problems. Replacing the drain pipes in a main drain pipe beneath the house or home can cost $20,000 to $100,000, the Florida and have resulted in a number underneath the sink is to see where the Morgan & Morgan website notes. of appeals court rulings in recent years overflow began. A backed-up main drain Another claimants’ law firm, Florin —some for insurers, some against. The line will force water up through the Roebig of West Palm Beach, reports exact wording of the policy endorsement lowest opening first, Grindley explained. is often at issue. that some 76 million U.S. homes have If the sink, 36 inches above the floor, is cast iron pipes, “an alarming amount” To investigate and defend cast-iron overflowing—but the floor-level shower of which are experiencing problems. pipe claims, Grindley and Hand-Gallegos drain is not—it means the sink drain This risk is high in Florida, with its high offered several other rules that insurance companies and their adjusters and is clogged, not the drain lines for the humidity and salt-rich soil, the firm’s 18 | INSURANCE JOURNAL | FLORIDA JULY 18, 2022
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experts should follow: • Inspect the home carefully. This may require a video inspection inside the drain lines to determine the condition of the pipes and to find any obstruction. Check vent and stack pipes for proper air flow. Map the location of pipes. • Request copies of building permits to help determine if plumbing installation and repairs were done correctly. Check the claims history. Report to the carrier all information that was not made available. • Determine if the blockage can be easily rectified. In most cases, clogged lines can be cleared with a water jet or with a root-cutting device or a simple auger. (But be prepared to quickly clean up any water that may overflow from the procedure.) • And if cast iron pipes are occluded,
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that doesn’t mean the entire system has to be replaced. Many times, pipes can be cleaned, then lined with polymer sleeves that will last for decades. • Be prepared to counter the “hydrostatic test” often employed by plaintiffs’ experts. The test purports to check for leaks in a drain system by stoppering outlet points and filling a pipe with water, Grindley explained. If the water level drops in a relatively short amount of time, it can indicate a leak. Grindley said the test is misleading and will almost always show “leakage” because drain lines are not normally pressurized and don’t face those conditions in everyday usage. • Beware of add-on damages or “last-resort” claims, such as “contaminated or damaged soil” around the pipes. “Soil is soil. Is it contaminated just because sewage came in contact with it?”
Grindley asked. “You can put some lime on it and 24 hours later you’re good to go.” • If it is determined that the drain pipes do, in fact, need replacing, consider rerouting them around the outside of the home, instead of undertaking the disruptive and expensive method of having to cut through the concrete slab in several rooms. And watch for claimants’ expert plumbers who report that full pipe replacement is necessary, when those plumbers have a vested interest in doing the work. Grindley quoted from one plaintiff plumber’s report that said the system would soon fail simply because it was 66 years old. “Anyone here 66 years old or greater?” he asked the crowd of insurance defense lawyers and adjusters. “Have you failed?”
JULY 18, 2022 INSURANCE JOURNAL | FLORIDA | 19
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