Thanks to Karlee for the kind words and thank YOU for reading. Our journalists take pride in serving the industry. If this publication is valuable to you, please consider upgrading your subscription at www.insurancejournal.com/pro “Thankful for the communication,reliablenews,andproducts.” Commercial Account Manager at Oseman Insurance Agency, Inc. & Satisfied Insurance Journal Subscriber Karlee Wakeley
From RMS: Can the Florida Market Withstand Another Hurricane Andrew, with $100 Billion in Losses?
SEPTEMBER 5, 2022 INSURANCE JOURNAL | FLORIDA | 3INSURANCEJOURNAL.COM Contents News Markets& 4 30 Years Ago Hurricane Andrew Upended Florida, But Current Storm of Litigation May Be Almost as Costly 6 UPC Gives up the Ghost: Now in Orderly Run-Off, But More Trouble Soon? 7 Weston FloridaBecomesInsuranceFifthInsolventInsurerThisYear 8 Citizens Tops 1 Million Policies, Making it Largest in State by a Third 8 Florida Claims Litigation Dropped in July, but AOB Share Continues to Rise 9 Catch 2022: Law Requires Florida Insurers to Report Plaintiff Legal Fees, But How? Agents Agencies& 10 With State Requiring Return of BeCarriers,CommissionsUnearnedonBrokeAgentsHavetoCareful 11 Selling the Agency? Tampa Agent Has a Book for That 12 FIGA to Extend Assessment on Policies to Fund Southern Fidelity, Weston Insolvencies CompWorkers' 13 NCCI Recommends 8.4% Cut in Florida Workers’ Comp Rates for 2023 14 Sting Operations Bust 21 Unlicensed Contractors Without Workers’ Comp Insurance Markets Coverage& 15 As Hurricane Season Heats Up, Don’t Forget About Insuring the Artwork (If Coverage Can be Found) Courts & Torts 16 Appeals Court Can’t Block Lower Court Action, Florida Supreme Court Says in Insurance Claim Mediation Case Storm Front 18
September 5, 2022 • Vol. 100 No. 16
Three decades later, insurance industry leaders agree that the pain of Andrew led to some positive developments, including innovative new companies and new capi tal entering the Florida market, improved hurricane modeling and beefed-up con struction materials and building codes.
This Aug. 25, 1992 photo shows Florida City after it was hit by Hurricane Andrew. Two decades later, Homestead and Florida City have doubled in size. (AP Photo)
Within a year, seven Florida-domiciled property insurers went broke and some of the largest U.S. carriers decided to pull out of Florida altogether. Remaining com panies were forced to rely heavily on the reinsurance market.
30 Years Ago Hurricane Andrew Upended Florida, But Current Storm of Litigation May Be Almost as Costly
But many Floridians are now caught in a new cyclone, a man-made storm of epic proportions, as damaging in its own way as Andrew was physically.
It was 30 years ago in August that Hurricane Andrew, the strongest storm to make U.S. landfall in more than two decades, gouged its way across south Florida, destroying more than 25,000 homes, by some estimates, and causing more than $15 billion in insured losses.
The threat of another Andrew-sized storm, or even two major storms in one
In part, Andrew was seen by some as a wake-up call for Florida, a chance to reshape the state’s property insurance market in ways that could protect insureds and insurers alike, for years to come.
In addition to the threat of hurricane wind and waves, insurers and agents today say they are now facing a conflu ence of exaggerated roof claims, a seem ingly relentless amount of claims litigation from insureds and assignees of benefits, soaring reinsurance costs, troublesome financial ratings, and a state-backed insur er of last resort that has become the larg est—and in many areas the lowest-priced— carrier in the state.
By William Rabb
News & Markets
Add to that the impact from rising seas, increased tidal flooding, and many more — and more expensive — structures in some of the same areas that were pounded by Hurricane Andrew in 1992.
The 165-mph winds also exposed weaknesses in building practices in one of America’s most densely populated and vulnerable areas, and led to new building codes and wind-mitigation efforts.
“I’ve never seen it this bad,” said David Thompson, a former insurance agent in Vero Beach, active for 36 years in the business in Florida. “If you talk to retail agents, I think everyone would tell you it’s never been as bad as it is now.”
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He was referring to Florida statutes that were modified somewhat this year but continue to require insurers to pay most of the plaintiffs’ attorneys fees if the insured prevails in court.
Orlando Somante sits with his sons amid the rubble of their home in Miami-Dade County on Aug. 27, 1992, after Hurricane Andrew. (AP Photo/Gaston de Cardenas)
“We’re better prepared than we were in ‘92, but we have significant challenges right now,” he added.
The attorney-fee statute, he said, has really put insurers in a tough position: “They really can’t fight when there are these inflated and fraudulent claims without the risk of harm to them being even worse.”Others in the industry agreed, pointing out that regulators have said that insurers’ litigation defense costs in Florida reached $3 billion in 2021 —double what they were five years earlier.
Florida plaintiffs’ attorneys have dis agreed that they’re to blame, arguing that some Florida insurance companies have long found ways to drag their feet on pay ing claims, leaving homeowners with little choice but to sue. Regardless of the legal costs, the insured losses from another Category 5 storm like Andrew would be exponentially greater than they were 30 years ago, thanks to south Florida’s relentless building of glit tering high rises, condominiums, luxury homes and congested suburbs.
“While Florida’s gov ernor and reformsimplemenLegislaturetedpositiveduringaspecial session earli er this year that are a step in the right direction, it will take time and additional reforms to stabilize Florida’s volatile property insurance market,” Frank Nutter, president of the Reinsurance Association of America (RAA), said in a statement. National and international groups said the 30th anniversary of Andrew puts a stark spotlight on the latest stormfront, and not just in Florida. “Now, 30 years later, we are experi encing a new major catastrophe in states such as Florida, California, and Louisiana, except this one is man-made,” said David Sampson, president of APCIA, the American Property Casualty Insurance Association. “Unchecked plaintiff bar tactics, legal system abuse, fraud, and misguided government policies are having a significant impact on the availability and affordability of insurance…”
SEPTEMBER 5, 2022 INSURANCE JOURNAL | FLORIDA | 5INSURANCEJOURNAL.COM year, now hangs like a sword of Damocles over regulators and insurers. Citizens Property Insurance Corp., this year took on a potentially new level of exposure with a plan to act as reinsurer for some struggling insurance companies.
“Hurricane Andrew was the catalyst for the advent of what we now call enterprise risk manage ment and risk-based capital requirements in the reinsurance industry today,” AM Best Director Steve Chirico said in a recent report from the financial rating and ana lyticsThefirm.chief lesson from Andrew and its long tail, Karlinsky said, is that Floridians are living in paradise, but they’re also in hurricane alley, an expensive risk to bear.
A just-released report from CoreLogic, a property analytics firm, estimated that 3.7 million residences would be in the path of an Andrew-like storm if it hit today, with a total replacement value of more than $900 billion. Insured losses would top $72 billion, from wind damage and flooding. South Florida’s population now stands at about 6.1 million, 50% greater than in 1992.And while the 2022 hurricane season has been eerily quite so far, more hurri canes are expected in coming years. An increase in the annual number of named storms is the “new nor mal,” which will further challenge the risk manage ment and surplus positions of property insurers in Florida, the KBRA insur ance and bond rating firm said in a report posted last week.The good news may be that Hurricane Andrew spurred insurers and their actuaries to utilize new and more reliable storm model ing and property data.
And despite three years of legislative reform bills, several industry activists say Florida lawmakers next spring need to take another major step to close the gap on costly claims litigation and put Florida on equal footing with most other states. “They need to tackle the one-way attor ney fee statute, there’s no question about it,” said Fred Karlinsky, an attorney and insurance lobbyist with the Greenberg Traurig law firm.
A report from APCIA, RAA and the Bermuda Insurers & Reinsurers, released this month, noted that thanks in large part to the one-way fee statute, lawsuit abuse has long been incentivized in Florida, with greater opportunities than in any other state to recover settlements in excess of policy limits. The promise of fee recov ery has likely led to a 61% increase in the number of legal and claims soliciting advertisements in the state, from 2016 to 2020.Florida carriers have attempted to adjust, with some drastically limiting the age of homes they’ll insure and imposing arbitration requirements for claims dis putes, while raising premiums. Agents have reported that for some expensive homes, the annual premiums quotes are higher than what the policy will cover, Thompson said.
Mark Friedlander Dan Peed
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“ That sounds to me like they’re not going to accept the Citizens back-stop plan,” he said. Fannie and Freddie officials have not returned phone calls and emails from the Insurance Journal about the issue. In late August, Demotech announced it had withdrawn United’s rating alto gether. Without a rating, and without a Citizens back-stop plan, UPC policyhold ers and Florida insurance agents may now find themselves in an urgent situ ation. An orderly run-off usually means that policies will be dis continued over a one-year period.Butwithout a financial rating for UPC, Fannie and Freddie may now insist that homeowners with UPC policies find new coverage much sooner or be force-placed, Friedlander said. The situation also could mean that UPC won’t be able to stay above water much longer, won’t be able to pay claims, and will be forced into insolvency and receivership within days, Friedlander predicted.
UP C has filed plans of withdrawal in Florida, Louisiana and Texas and will soon file a withdrawal plan in New York.
News & Markets
The company said renewal rights for its policies in Georgia, South Carolina, and North Carolina have been sold and all premiums and losses have been ceded. The orderly run-off may not be so orderly, though, and UPC’s announcement raises questions about Florida’s recent plan to pro tect homeowners who are covered by unrated or downgraded carriers, said Mark Friedlander, communi cations director for the Insurance Information Institute.
By William Rabb Facing heavy losses for the past two years, United Property & Casualty Insurance Co., in July put out feelers for a potential sale or merger with another carrier, after a ratings downgrade and a substantial reorganization plan. But the firm’s holding company announced in late August that it’s now pulling out of the market altogether in several states.
“It clicked with me that this isn’t going to work,” he said. After Demotech in July told more than a dozen insurers that they would soon see a downgrade or rating withdrawal, it set off alarm bells for insurers, agents and Florida regu lators: Fannie Mae and Freddie Mac, the arrangementbackstop,Insurancercy,becantotheyofficialsnotthelenders,mortgagescorporationsquasi-governmentalthatpurchasefromprimarywon’tbackloansifhomeowners’insureristoprated.Togetaroundthat,FloridasaidinJulythathadfoundanexceptiontherules:Ifaninsurershowthatallclaimswillpaidincaseofinsolvenafinancialratingisnotequired.Thestate-createdCitizensPropertyCorp.wouldserveastheutilizingatypeofreinsuranceknownasacut-through endorsement, Florida regulators announced. The Florida Insurance Guaranty Association would pay an insolvent insurer’s claims up to a stat utory limit of $500,000, and Citizens would step in after that, at least for a year, according to the plan. But Friedlander said that sources with Fannie Mae have told him that, a month after the plan was announced, the mort gage-buying company is still analyzing the proposal.
UPC Gives up the Ghost: Now in Orderly Run-Off, But More Trouble Could Be Looming
The company, which until this year held 180,000 poli cies in Florida, will reinsuranceavailabilityaricantinrun-off,intohasthosepersonalnon-renewlinesinstatesandplaceditselfanorderlyUPCsaidanewsrelease.“Duetosignifuncertaintyoundthefutureofforour personal lines busi ness, I believe placing United P&C into an orderly run-off is prudent and nec essary to protect the company and its policyholders,” UPC Chairman and CEO Dan Peed said in a statement. “The com pany is actively pursuing opportunities to leverage our people, technology, and other capabilities.” UP C was founded in 1999 and is headquartered in St. Petersburg. Late last year, the company suspended new homeowners business in Florida. This year, parent company United Insurance Holdings went through a major restruc turing, consolidating four subsidiaries intoThetwo.moves came after heavy under writing losses in 2021 and early this year. In July, the Demotech financial rating firm downgraded UPC’s finan cial strength rating. About that time, UPC said it was exploring a range of options, including a poten tial sale or merger with another insurer. That apparently did not happen. UPC did not address a sale in its news release and an investor relations official could not be reached for comment.
“The premium payments owed by Weston, but not recorded as a liability, would, when added to the liabilities reported on its … May 31, 2022 financial statement, exceed the amount Weston reported as assets,” Christy’s affida vitDurinsaid.g the July 27 conference call, Weston officials admitted the firm was insolvent. The insurer had stopped writing new business July 15 and had stopped renewals three daysThelater.Weston insolvency is the latest blow to the beleaguered Florida market — and to agents who have had to work over time this year to find new coverage when insurers go bust. “It’s become the new normal right now,” said Jarett Coleman, vice president and personal lines manager at Zarahn Insurance Agency in Pensacola, in north west Florida. “It’s really created a mad havoc in residential.”
• In June of this year, Weston said it could not complete its reinsurance program due to the cost and unavailability of a lower-layer plan. The company par ticipated in the Reinsurance to Assist Policyholders, or RAP program, a $2 billion fund created by the Florida Legislature in May as a type of hurri cane reinsurance program for Florida carriers. That apparently made little Alsodifference.inJune, Weston floated the idea of using a captive program known as the Weston Cell, through an affiliate. The insurer did not fully commit to that plan “but instead proposed the siphon ing off of funds from Weston Insurance Management,” to be repaid later with higher fees to the MGA. The OIR said ‘no’ to the idea. OIR then discovered that Weston for months had been accounting for the cap tive cell funds as if the move had been approved. Without those funds, Weston’s surplus would dip below the $15 million minimum required by Florida law, the affi davit explained.
On July 27, OIR held a conference call with Weston leadership to discuss unwinding the captive arrangement. Company officials then revealed that the carrier also owed about $50 million in pre mium payments to reinsurers, which had not been included on its list of liabilities in its financial statement.
Many of Weston’s jilted policyholders will likely end up with Citizens Property Insurance, which keeps business out of the books of private insurers and means lower commissions for agents.
Becomes Fifth Insolvent Florida Insurer This Year
He said that this year alone, his agency has had to find new coverage for about 520 homeowners, all in less than 45 days, as four carriers slid into receivership. And most policyholders don’t understand that agents are now swamped and that placing new coverage can take time.
The Florida Office of Insurance Regulation in early August filed notice with the Department of Financial Services that the 10-year-old Weston, with about 22,000 policies in the state, “is insolvent or about to become insolvent,” and DFS should initiate delinquency proceedings.
SEPTEMBER 5, 2022 INSURANCE JOURNAL | FLORIDA | 7INSURANCEJOURNAL.COMWestonInsurance
• In December 2021, West Insurance Co. merged with Weston Specialty Insurance, a Texas-domiciled compa ny. The merged firm redomesticated to Florida and was renamed Weston Property & Casualty. Its combined surplus was reported as $28 million, which included capital infusions of almost $50 million. “Despite the actions taken by Weston to reduce its unprofit able policies in force, revise its tinuedcapital,andreinsurancestructure,corporatemodifyitsprogram,increasepaid-insurplus…contodeteriorate,” the affidavit said.
The filing was made one day after the Demotech financial rating firm announced that it had withdrawn the financial sta bility rating for the Coral Gables-based Weston. But the company’s board of direc tors on July 29 had already agreed to the receivership after more than $94 million net losses in the last two years and a spike in reinsurance costs, the OIR information showed.Thecarrier also had shown on its books that it was including funds from an affil iate captive firm, a move that was never approved by OIR. Without the captive arrangement, Weston did not have enough surplus, the OIR’s referral letter to DFS explained.Weston’s CEO is Deanne Nixon, who succeeded Michael Lyons in early 2021, according to company information. Company official could not be reached for comment.TheOIR referral letter included an affi davit from Virginia Christy, the office’s director of property and casualty financial oversight, which detailed the financial ups and downs that Weston has been through:
Deanne Nixon
One issue is that many carriers that remain in Florida require home inspec tions before picking up an HO policy. But with all the new demand, home inspectors are slammed and could take weeks to get to a new property, Coleman said.
• In summer 2020, the OIR required Weston to file a capital management plan to improve its liquidity and reduce the millions of dollars in loans it owed to its managing general agent, Weston Insurance Management. About the same time, in July 2020, Hudson Structured Capital Management took a 50% stake in the company, Christy’s affidavit explained.
Weston Property & Casualty Insurance Co. was deemed insolvent and will soon be placed into receivership, making it the fifth Florida property insurer this year to be dissolved.
• In December 2020, Weston requested that it be allowed to start cancelling more than 1,500 wind-only policies. The OIR approved a smaller number of early cancelations.
News & Markets
Citizens’ website posted only a small notice on its web site, that policies in force had reached 1,000,624 as of Aug. 5. The insurer has indicated it contin ues to grow at a rate of about 30,000 polic ies per month, despite a depopula tion program and a ramped-up property inspection plan.
Citizens Tops 1 Million Policies, Making it Largest in State by a Third
Stakeholders did not celebrate the milestone in August and some are urging the state Legislature to take further steps to salvage Florida’s distressed insurance market.“Citizens Insurance topping the 1 mil lion policy mark signals a market that is teetering, putting millions of Floridians and local businesses at risk of even high er costs in the form of hurricane taxes,” Mark Wilson, president of the Florida Chamber of Commerce, said in a state ment. “Under the governor’s leadership, the Legislature took important steps earlier this summer to tackle runaway litigation and the root causes driving up property insurance rates, but it is clear more must be done.” Some lawmakers have expressed concern that carrying so many policies —more than 10% of the Florida market —could lead to assessments on Citizens’ and then on all Florida policyhold ers if hurricanes pro duce heavy losses ac ross the state.
Florida’s Citizens Property Insurance Corp., created by lawmakers as a last-resort option, has become the largest property insurer in the state with more than 1 million policies in force—and growing.
Until recently, Universal Property & Casualty Insurance Co. had remained the largest carrier in the state. But Universal has taken major steps to shed policies and reduce exposure this year.
Citizens’ June 30 numbers show that 92% of its policies were residential multi-peril. Citizens held $318 billion in total exposure and $2.5 billion in premi um and surcharges at the end of June.
Florida Claims Litigation Dropped in July, but AOB Share Continues to Rise
Mark Wilson
Universal’s parent company reported in financial statements that it had more than 723,000 policies in force in Florida in mid-2021 and was down to 654,276 at the end of June this year. For all states it writes in, Universal has reported 977,251 policies.
News & Markets
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The volume of claims litigation in Florida rose in June then declined in July by almost the same amount. But the share of cases that are assign ment-of-benefits claims rose to the highest level since early 2021, a litigation management software firm reported. For Florida’s 16 largest property and casualty insurers, the number of claims dis putes that resulted in lawsuits rose 5% from May to June, from 4,047 to 4,261. Notices of intent to file lawsuits, required by 2021 legislation, remained flat, said CaseGlide, which reg ularly tracks and reports claims litigation data.From June to July, litigated claims dropped by 4%, to 4,091. NOIs also dropped, by 2%. The numbers reflect a relatively flat pattern of new claims lit igation since January, the firm said in a news release. The news was not good for all insurers. One carrier reported a 29% increase in FideliingTwo,litigation.includSouthernty,whichwasdeclared insolvent in June, reported no new liti gated claims, CaseGlide noted. MiamiDade County continues to lead the state in percentage of new litigation at 25%, followed by Broward at 16%, Orange at 7%, Palm Beach at 7% and Hillsborough at And6%. the share of litigated claims that were from assignment-of-benefit agree ments rose again in July, to 41%, the highest level of anytime in the last 18 months. That comes despite 2019 and 2021 Florida legislation that aimed to reduce AOB claims and solicitation by roofing contractors who reportedly have encouraged homeowners to assign bene fits.Insurers have argued for years that many AOB cases are the result of fraud ulent or exaggerated claims, and that the assignment practice leads to unnec essary litigation. Laws approved in the Florida Legislature’s 2022 special session in May, were expected to further reduce AOB claims, by eliminating plaintiff attorney fee awards in some cases. The legislation also seeks to curb roof claims by allowing insurers to cover repairs, not full replacement, in many claims.
By William Rabb
Citizens, born in 2002, previously topped 1 million policies in 2005, after seven named storms hit the state, and again in 2012, 2013 and 2014, according to company information and news reports. Other insurers and agents have argued that because Citizens’ premiums are lower than other carriers in much of the state, it will continue to attract policy holders, particularly as others suspend writing in Florida or become insolvent.
“I guess then we’ll have to write an even nicer letter to the plaintiffs’ attorneys,” Roddenberry said. The whole data-gathering exercise now seems like a huge investment of employee time, for insurers and for OIR, but for little or no gain, carrier representatives said. The proposed reporting form asks insurers to list information for hundreds of claims, even when no legal fee data is available.
Roddenberry doesn’t blame OIR officials for the delay or for the dilemma insurers find themselves in. “OIR is in a difficult position,” he said. The law requires the office to collect the data, but it’s proving trickier than many may have expected.
“The value is zero,” he said. “The industry already has a lot on its plate, and you’re creating more work for everyone.”
Law Requires Florida Insurers to Report Plaintiff Legal Fees, But How, if Data Isn't There?
workshop.saidtheRonsenseIt’shavewhereclaimwedidn’tvendor.notmakingtome,”Walker,withHartford,intheOIROIR’sdeputycommissioner, Susanne Murphy, said at the online meeting that the reporting form will be revised so that if the information is not available the form will still “go through,” perhaps even if the field is left blank. “There is some functionality I think that needs to be—we need to make certain it is there,” Murphy said. A survey question naire will also be provided to give further information on why the data is not avail able.
News & Markets
The OIR form also asks insurers to explain what they plan to do to get the fee data if it’s not immediately available.
At a recent workshop held by the Florida Office of Insurance Regulation, a claims specialist for USAA summed up the conundrum that property insurers are about to face when asked to report the other side’s legal fees in claims disputes.
Travis Miller, attorney for Universal Property & Casualty Insurance, one of Florida’s largest insurers, agreed. He cit ed an often-quoted statistic, that 71% of awards in claims disputes in Florida end up in the pockets of plaintiffs’ lawyers with just 8% going to the insured plain tiffs.“We’re doing all of this to learn some thing, but we’re learning nothing about the 71% and that’s just weird to me,” Miller said at the OIR workshop in July. “This is a massive, massive undertaking for the sys tem. And the 71% is going to be blank.”
By William Rabb
“So, you’re going to have a lot of blanks where there’s no vendor, but we have to explain there’s no vendor on each
An early version of SB 76 would have asked the Florida Supreme Court to require attorneys on both sides to submit closing statements on fees. But that lan guage did not make it into the final bill.
Insurers like USAA, along with the OIR, are now in a nearly impossible situ ation, thanks to continued concerns over Florida’s overheated claims litigation environment. In an attempt to discern just how much attorney fees are costing Florida property insurance carriers and to measure the effectiveness of reform legislation, Florida Senate Bill 76 in 2021 required all residential property insurers to annually report detailed information about litigated claims, including the amount paid for claimants’ attorney fees, costs, and fee multipliers. Regulators are now in the process of finalizing rules and electronic forms that insurers will use to report the information required by the legislation. In its current version, the form asks for a dollar figure on fees, but leaves no clear alternative if the amount is unknown.
“We’re not privileged to know what the attorney fees are for plaintiff’s coun sel. We’re the defendant,” said Marie Benedetto Ferrito, auto injury manager for USAA, the national insurance and finan cial services company.
And while policyholder legal fees are reported when a court awards them in a judgment, the share of settlement amounts that go to insureds’ lawyers are rarely made public, attorneys and consul tants said. And the vast majority of litigat ed claims disputes are settled, not decided in a courtroom. Some insurance attorneys have said that only about 1% of cases produce details on how much claimants’ lawyers are actually paid from a settlement. Many times, a plaintiff’s counsel simply refuses to pro vide the information, according to Lisa Miller, a former Florida deputy insurance commissioner.SteveRoddenberry, another former dep uty commissioner, now an insurance con sultant with the Pennington law firm in Tallahassee, said SB 76 and the proposed OIR reporting requirements leave insurers with only one, ridiculous choice: “We could write a real nice letter to the plaintiff’s attorney, asking ‘Would you please tell us how much you charged in fees so we can report it to the state?’”
The length of time it has taken OIR to devise the reporting form and to start gathering the data became something of an issue in the Florida Legislature’s special insurance session in May. State Sen. Jason Pizzo, D-Miami, argued that SB 76 had required the data by early 2022. didmeanpretedofficerespondedDavidCommissionerInsuranceAltmaierthathishadinterthelawtothatthedatanothavetobe reported to OIR until 2023.
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Even if that fix is made, Roddenberry said the SB 76 reporting requirements, without access to complete and accurate info on legal fees, won’t accomplish much.
I saw one do that recently, though. And then of course, the DOI may want you to repay your unearned commis sions.
Maintain Accounts Correctly The second lesson is to maintain your accounts correctly so that if something like this happens, you have the current numbers so you can manage your cash properly. I have written extensively about the magnitude to which agents and advi sors misunderstand trust laws.
The net result is the industry has lost acieshasbecomeknowledgeinstitutionalandhascomplacent.Thiscombinationresultedinagennotpayingasmuchttentiontowhetherornot
Two sets of laws exist. The set most familiar to agents and some advisors is the commingling of funds laws and reg ulations. These rules prohibit agencies from commingling their operating mon ies and their trust monies. Only about 14 states have commingling laws. Agents and advisors in the other states then proclaim, “We’re not a trust state so we don’t have to worry about trust mon ies!”That conclusion is seriously wrong.
I currently find that many people have zero knowledge of what happens when an insurance carrier insolvency occurs and they do not even know that state guaranty funds exist, much less what they cover or how they process claims.
Agents & Agencies
The first lesson is to not do business with weak carriers. The property/casualty industry has become more robust over the last 25 years, and a substantial por tion of the people in the industry today have no working knowledge of insolven cies and weak carriers.
With State Requiring Return of Unearned Commissions on Broke Carriers, Agents Have to Be More Careful Than Ever
By Chris Burand
the carriers they write with are unstable, even if they have a decent rating. (By stable, I am not suggesting they do not have the correct financial wherewithal per the regulatory and rating parameters relative to claims paying abilities—but for so many carriers to go out of business recently in short order, one should look a little closer).
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Many people trust the government agencies to take care of it.
I would also be cautious about assum ing the state DOI can simply assess enough money and collect enough mon ey to quickly solve the shortfall.
Let me make some simple assump tions.Let’s say there is a fairly successful personal lines agency with 1,000 custom ers who are insured by a specific carrier. Homeowners premiums in Florida tend to be remarkably high and let’s further assume the homes that are insured are middle class homes with around $500,000 in Coverage A. A decent guess for coastal Florida would be calculated by averaging the home values of the northern and south ern parts of the state. The average pre mium is $5,000 for a basic HO-3 home owners policy. A 12% commission, which is $600, multiplied by 1,000 customers equals $600,000 in commissions.
Keep your fingers crossed so that you can continue to not think through the problems that an insufficiently staffed, much less insufficiently funded guaran tee fund can cause an agency.
They do not remember the fiascos from the ‘90s where some sizeable P/C car riers went insolvent overnight. Insurance companies, regula tors and rating companies all became more serious at that point relative to carrier financials. The unbeliev ably low interest rates and hot stock market have enabled carriers that would likely have failed to be sold early.
Let’s further assume the policies have expiration dates that fall equally around the calendar. Also, let’s assume this is all direct-bill business and the carrier pays upfront, a quite common reality. That means $300,000 of the commissions are unearned and must be returned. Would you have $300,000 in the bank to return to the state?
Don’t Do Business With Weak Carriers
commissionsalltorequiringofFloridanewssomewasrecentthattheDepartmentInsurance(DOI)isallagenciesreturntothestateoftheirunearnediftheydid
I am not sure how the DOI can assess carriers that are already broke or nearly broke and actually claim receipts.
There business with a particular carrier that the DOI had to take over. This order to return all unearned commissions for that carrier is a great reminder about how to run an agency.
Doug Levi
If the situation is more extreme and the agency truly has no choice, be sure you are effectually notifying your clients of the carriers’ ratings, do your accounting correctly, and LEAVE EXTRA CASH in the agency. Do not take all the cash out even if your accountant advises differently. The accountant needs a better under standing of the situation and should not be making recommendations purely on the basis of taxes. You will not have to worry about taxes if you go out of busi ness.Protect your agency and leave a little extra cash in it, especially if you are writ ing with carriers that might be weak.
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of the book proceeds to Life Water, a non-profit organization dedicated to providing access to safe water and improved sanitation, one village at a time. Since Strategic Insurance Services, an independent agency, was started in 2006, it has grown to an IIABA Best Practicesrecognized agency, with a team of 14 and over $20 million in-force premium. It provides business insurance, personal insurance, and group benefits. Levi is married to his wife Amy and has three chil dren, Abby, Asher, and Avery. In 2015, Levi wrote his first book, “Surviving the Insurance Jungle: Where 11% of your budget goes,” providing tips and suggestions that individuals and families can put into practice when managing their personal insurance.
Chris Burand is the founder and owner of Burand & Associates LLC, an insurance consultancy based in Pueblo, Colorado. Phone: E-mail: chris@burand-associates.com.719-485-3868.
All 50 states and the federal govern ment have trust laws. A trust law is not the same thing as a commingling law. A trust law stipulates that an agency cannot spend money it is holding on a fiduciary basis. Agency bill business is a good example whereby the agency col lects money upfront but does not imme diately submit that money to the carrier. While it is holding the money, it is acting in a fiduciary capacity and is responsible for not spending that money. An agency that is “out of trust” is an agency that has spent fiduciary monies. This is why the trust ratio is THE MOST IMPORTANT balance sheet ratio applica ble to insurance distributors. Failure to be in trust may automatically trigger a clause contained in most carrier contracts that stipulates that if the agen cy is out of trust, the carrier immediately gains ownership of the agency’s expira tions. No notification. The fact that you paid your premiums on time is a moot point.Fiduciary monies also include money held on behalf of carriers, audit returns, and sometimes commissions that are unearned. A relatively new accounting rule, ASC 606, applies to insurance agen cies and brokers. Agencies and brokers are now supposed to account for all com missions on an accrual basis. While the purpose of the rule was not to support proper trust accounting, it does so any way.Your accountant needs to understand the importance of insurance distribution accounting and how it differs materially from other types of businesses’ account ingUnearnedrequirements.commissions are a form of fiduciary monies. The carrier has paid a commission upfront in the expectation that the agency will perform its duties throughout the year. In an insolvency, that carrier is often taken over by the state.The state may demand, as Florida recently did, the return of those unearned commissions. Failure to return the unearned commissions may then result in the loss of ownership of the agency’s expirations.
What do you do if you have no choice but to represent weaker carriers? First, truly assess whether you have no choice.
I have clients writing in the same cities where one declares they have no choice and the other determines they do have a choice. The former is usually only inter ested in making sales, sales and more sales. In their minds, they have no choice because to continue to make order-tak er-level sales, they need any and every carrier available because order takers and peddlers sell price.
Selling the Agency? Tampa Agent Has a Book for That Doug Levi, known as the chief encouragement officer at Strategic Insurance Services in Tampa, has written a second book, “Your Winning Move: An Agency Owner’s Guide to Selling or Merging your Business,” now available onAsAmazon.aresult of Levi’s first-hand expe rience in partnering with the Liberty Company, a brokerage, the book details lessons learned and tips and recommen dations to help agency owners prepare for what could be the biggest transaction of their lives. “As a local agency owner, you’ve put your blood, sweat and tears into your business, and every one of us will exit our business someday. My goal is to help you be prepared,” Levi said in a news release. Many agency owners may not under stand the basics of mergers and acquisi tions. Levi said his book offers insights into due diligence, legal documents and deal structure. The book also explains the importance of culture in the tionvidetheirofunderstandagencysaid:authoredgoodandprocess,decision-makingthefinancials,howtoassembleateamofadvisors.Whenaskedwhyhethebook,Levi“Tohelpotherownersbettertheprocesssellingormergingbusinessandprovaluableinformathatisn’treadilyavailable.”Levisaidheisdonatingaportion
The Liberty Company Insurance Brokers is considered a fast-growing, privately held insurance brokerage. Liberty provides entrepreneurial producers and agency leaders a platform to serve clients and cre ate equity.
Florida Politics news site reported in August that Weston Insurance in 2013 received some $74 million in premium from Citizens Property Insurance Corp., part of an incentive program to entice pri vate carriers to assume some of Citizens’ burgeoning book of business. The program was discontinued that same year. But now that Weston is insolvent, hundreds of Weston policies will likely flow right back into Citizens, Kyle Ulrich, president of the Florida Association of Insurance Agents told the news outlet.
FIGA to Extend Assessment on Policies to Fund
FIGA member carriers were able to start recouping the 1.3% assessment from policyholders starting July 1, 2022 and until June 30, 2023, FIGA’s website explains. That surcharge was expected to generate about $190 million. Another insurer, Avatar Property Insurance, was declared insolvent this year, and Lighthouse Property Insurance was ordered into rehabilitation. Neal said the Lighthouse claims will likely be covered by revenue from the 1.3% assess ment. But it’s possible that the FIGA board will have to consider anoth er small assessment again next year to cover some outstanding claims from Southern Fidelity, Neal said. The idea of more charges on policy holders, after millions of dollars in premi ums have gone to carriers, is irksome and ironic to some Floridians.
Agents & Agencies
The FIGA Board of Directors voted late this summer to borrow the money and ask state regulators to extend the 0.7% assessment on Florida policyhold ers. The assessment was added in 2021 to help cover the legacy costs of failed property insurers Gulfstream Insurance and American Capital, officials said. It was due to expire but now it’s needed to help cover claims from Southern Fidelity Insurance Co., which was deemed insol vent in June, and from Weston Property & Casualty Insurance, which became insolvent in early August.
“We realize this is the Florida policy holders’ money we are spending, and we don’t take that lightly,” Corey Neal, executive director of FIGA, said during a board meeting, according to The Free Press, a Tampa-based news site.
12 | INSURANCE JOURNAL | FLORIDA SEPTEMBER 5, 2022 INSURANCEJOURNAL.COM
Thanks to the mounting number of insolvencies of Florida property insurers in the last two years, the Florida Insurance Guaranty Association will have to borrow $150 million and extend a surcharge on policies through 2023.
Southern Fidelity, Weston Insolvencies
FIGA has received about 4,750 claims from Southern Fidelity policyholders, and could see as many as 6,000, accord ing to information provide to the board.
The Weston liquida tion has resulted in 183 claims. Without the additional fund ing, FIGA’s account for paying claims would drop from a current level of $118 million to about $32 million by the end of the year, FIGA staff said.The assessment is on top of a 1.3% charge needed to cover costs left by St. Johns Insurance Co., which was put into liquidation in February. The insurer had some 147,000 policies. FIGA has received 4,706 claims, with another 300 expected, a memo to the board said.
NCCI Recommends 8.4% Cut in Florida Workers’ Comp Rates for 2023
If approved, the latest rate decrease will take effect Jan. 1, 2023.
The NCCI Florida analysis found that wage inflation in recent years has had an impact on payroll, particularly in the leisure and hospitality classifications. Medical inflation has been moderate, about 1.5% per year.
“NCCI’s most recent countrywide data shows that drug costs are declining, physi cian costs are up slightly, and facility costs are rising in the workers' compensation system,” the organization said. Medical costs could increase for 2022 then drop by as much as 3% in com ing years, the Centers for Medicare & Medicaid Services has projected, the NCCI explanatory memo noted.
The state Division of Workers’ Compensation reports that the number of COVID claims have remained relatively flat since January. After highs in 2020, claims peaked at 7,150 in August of 2021 and again in January of this year, but have stayed in the hundreds per month since then. Florida has seen a total of 73,734 COVID-related claims since the pandemic began.“COVID-19 has been a manageable event for the system,” NCCI President Bill Donnell said at the group’s Annual Issues Symposium in May.
SEPTEMBER 5, 2022 INSURANCE JOURNAL | FLORIDA | 13INSURANCEJOURNAL.COM Workers' Comp
The National Council on Compensation Insurance is rec ommending an average 8.4% cut in workers’ compensation rates for the Florida voluntary market – the seventh straight reduction and double the size of the decrease for this year. The recommendation, which will be reviewed by the Florida Office of Insurance Regulation, was based on Florida insurers’ favorable experience and trends in 2019 and 2020, as of the end of 2021, the NCCI said in a summary of its filing. The analysis found that lost-time claims have declined over the last eight years and indemnity costs have remained relatively consistent, although medical costs have been slightly more volatile.
It remains to be seen what the Florida OIR will think of the 8.4% decrease. In four of the last five years, Insurance Commissioner David Altmaier has demanded a larger reduction than the NCCI has recommended. For 2021, the NCCI proposed a 5.7% cut but Altmaier asked for more, and ultimately approved a 6.6% decrease.
“Overall, the workers' compensation system is faring well,” NCCI said. For most states, private carrier and state funds’ net written premium increased about 1%, to $43 billion in 2021. And private carriers posted a combined ratio of 87% on $38 billion in premium for the 2021 calendar year.“This was the fifth consecutive year that the private workers' compensation insur ance market posted a profitable combined ratio below 90% and the eighth consecu tive year of underwriting profitability,” the NCCI summary noted.
As in the last two years, the filing did not include COVID-19 claims. But the “uncertainty” seen in the pandemic and possible pandemic-related effects of the virus were considered, the rating organiza tion said. Nationwide, COVID claims have been many, but most are small – less than $1,500 on average.
The news release did not explain how the operation worked, but in previous stings, authorities have advertised for bids on construction work, posing as property owners. When contractors showed up to look at the job, their contractor licenses and workers’ comp were checked—and found to be lacking.
The National Insurance Crime Bureau also was involved.
Hospital Facing Hundreds of Lawsuits over Surgeon’s Allegedly Botched Operations
The Manatee County Sheriff’s Office and the Florida Department of Financial Services did not provide details about the sting“Poperation.erforming construction work without workers’ compensation insurance and the required con tractors licenses is not only ille gal, but dangerous,” Patronis said in a news release.
The lawsuits note that patients suffered ruptured tendons, broken femurs, dislo cated bones, misplaced prosthetic knees and a death. A 70-year-old woman died in 2018 when a hip replacement that lasted longer than normal after Heekin allegedly fractured her femur during surgery, NBC has reported. The reports did not indicate if Heekin had recently treated workers’ compensation patients, but court records show he had performed knee surgeries on injured workers in the past.
One patient described her ordeal.
As early as 2016, patients said they noticed Heekin’s hands shaking, slurred speech, unsteady walking, involuntary body movements, mood swings, and impaired judgment, according to the law suits, the news sites reported. Palsy is a neurological disorder that can cause those symptoms and other impairments.
14 | INSURANCE JOURNAL | FLORIDA SEPTEMBER 5, 2022 INSURANCEJOURNAL.COM
Two sting operations by Florida law enforcement agencies this year resulted in the arrests of 21 contractors who failed to obtain workers’ compensation insurance for their workers, officials said.
St. Vincent’s Medical Center “not only should have known, but in fact had actu al knowledge of Heekin’s condition and his impairment, as several physicians, nurses and patients voiced their concerns to SVMC on numerous occasions,” one lawsuit reads. “SVMC continued to allow Heekin to perform surgery, re-credentialed and retained Heekin.”
Without Workers’ Comp Insurance
The lawsuit complaints claim that the hospital ignored alarm bells from staff members and patients that Heekin was experiencing symptoms from the worsen ing condition.
The physician retired in 2020 and agreed to surrender his medical license the next year in order to end a Florida Department of Health investigation, the news outlets reported.
“After that surgery, I continued to fall, which was the reason I had gone to see Dr. Heekin in the first place,” Sandra Coburn, 64, told the Times-Union. She said she had to go back to Heekin for a second sur gery in April 2019.
Also this year, eight Florida men in Manatee County were charged with contracting without a license and failing to obtain workers’ compensation insurance, after a separate sting operation.
The state’s chief financial officer and the Pasco County Sheriff’s office announced in late August that 13 people were arrested after a sting in Tarpon Springs in April.
The revision surgery caused a length ened left lower extremity, according to her lawsuit.
Sting Operations Bust 21 Unlicensed Contractors
The sting operations are conducted every few months and appear to be done most often in southwest Florida. The CFO's office did not indicate why these arrests were not announced sooner.
“Taking advantage of hard-working Floridians just to save a few bucks is despicable and puts cus tomers and employees at risk.”The operation was done in conjunction with the DFS’ Division of Investigative and Forensic Services, the National Insurance Crime Bureau and the Florida Department of Business and Professional Regulation. Patronis said his office’s detectives have made more than 1,500 arrests for workers’ comp fraud since he took office in 2017.
AJacksonville hospital is facing hundreds of lawsuits alleging that a surgeon who reportedly had pal sy caused serious injuries and corrective surgeries from 2016 to 2020.
Workers' Comp
The Florida Times-Union newspaper and NBC News recently reported that at least 348 suits have been filed, many more are expected, and more than $6 million has already been paid on claims over problems allegedly caused by Dr. Richard Heekin, an orthopedist who retired in 2020. The suits have also named Heekin’s clinic and Ascension St. Vincent’s Riverside Hospital in Jacksonville.
“Workers’ compensation fraud places employees, customers, and businesses at unnecessary risk. Fraud also affects everyone’s rates and increases costs,” said Florida CFO Jimmy Patronis, whose office’s Division of Investigative and Forensic Services participat ed in the operation.
While schedules and floaters have been available for quite some time, recently, some insurers have begun to extend types of coverage developed for museums to individuals who own valuable collections. Such “museum” policies typically insure collectibles against “all risks” of physical loss or damage, much like per sonal articles floaters. But instead of insur ing specified items, they insure the whole collection without naming each item. This may provide collectors with great er flexibility to divest and acquire items without needing to adjust insurance schedules. Because museum policies for personal collections are somewhat new, it is essential to scrutinize terms to under stand how actions taken while managing, growing, enjoying, and sharing items in a collection may affect the availability of coverage.
But just as we enter the worst of the East Coast hurricane and the West Coast wildfire seasons, art collectors now face a diminishing pool of insurers willing to take on risks, especially in locations where those objects concentrate, like New York, Miami, and Los Angeles. Below are some pointers that insurers and agents can use to make sure clients are maximizing insurance for their art col lections in the current climate. Get the Right Product Although standard first-party proper ty insurance policies may provide some coverage for personal property, those who own valuable objects often procure addi tional insurance in the form of “personal articles floaters” and “scheduled property floaters.” Such policy enhancements typ ically list each valuable item and assign a value to it in the event of loss.
By Nathan Davis Global interest in collectible objects seems somehow in step with rising global temperatures. According to Art Basel and UBS, worldwide art commerce increased by nearly 30% in 2021 alone, to more than $65 billion. More than 40% of that commerce was attributable to transactions in the United States, includ ing south Florida.
The rapid growth of the art market indicates that any one item’s value may change dramatically over time. Thus, it likely is wise to obtain a “baseline” appraisal of individual objects, or a col lection as a whole, to make sure that the works are adequately covered. Periodic appraisals every few years and adjust ments to coverage also will help guarantee that artworks are protected over the long term.
INSURANCEJOURNAL.COMAsHurricane
Season Heats Up, Don’t Forget About Insuring the Artwork (If Coverage Can be Found)
Nathan Davis is a partner in the Pasich law firm’s insurance recovery practice. He has represented clients from notable personalities in the entertainment industry to Fortune 500 companies. He can be reached at NDavis@PasichLLP.com.
Markets & Coverage
In addition to maintaining current inventories and appraisals, documenting the collection as it is normally displayed on the walls of homes can help prove losses by establishing “comparators” in the event of a loss. Close-up shots of objects and wide-angle shots of entire rooms can help meet stringent requirements of proving loss that often are found in policies covering valuable objects. Move Quickly to Document Loss Policies covering artworks often require insureds to file proofs of loss quickly—a common requirement is within 90 days. In the aftermath of a storm or fire, these conditions often are not at the forefront of people’s minds. Nevertheless, it is import ant to document any damage carefully and expeditiously and to notify an insurer of a potential claim sooner rather than later. Policies often contain time limita tions within which an insured must file a lawsuit if coverage is denied. In many jurisdictions (like New York) it is essential to adhere to those conditions to protect rights to coverage.
Location, Location, Location That well-worn real estate mantra also is important to insuring collectibles. Just as in property policies, collectible policies now often contain different limits and conditions based on where valuables are located. Unsurprisingly, policies often reduce available coverage for losses sus tained in locations at greater risk of envi ronmental catastrophe. Collectors should take care to understand those limits and consider where their artworks are stored or displayed at any given time to avoid ending up with too small a payout in the aftermath of a calamity.
Take steps to Maximize Coverage
SEPTEMBER 5, 2022 INSURANCE JOURNAL | FLORIDA | 15
16 | INSURANCE JOURNAL | FLORIDA SEPTEMBER 5, 2022 INSURANCEJOURNAL.COM
An appeals court cannot be used to prohibit a lower court’s decisions, except through the normal appeal process, the Florida Supreme Court decided in a case that involves some of the best-known insurance law firms in the state and more than $800,000 in plaintiff’s attorney fees.
The Mintz Truppman vs. Cozen O’Connor and Lexington Insurance Co. case began as a claim dispute in Miami but turned into a suit over the confidentiality of mediation proceedings. The matter has wound its way through federal and state courts for eight years, despite a settlement on the original claim that was reached in 2016.And it’s far from being resolved: The high court remanded the case to Florida’s 3rd District Court of Appeals, with instruc tions to send it back down to the circuit court in Miami-Dade County.
The insurance attorneys could not be reached for comment. But in court filings they have said the latest legal wrangling is mostly about the plaintiff’s lawyer look ing for a way to boost his fees. Timothy Crutchfield, with the Mintz Truppman plaintiffs’ firm, said he’s not asking for more money, but that his secondary suit is crucial to help prevent parties from reveal ing sensitive information that’s discussed in confidential mediation proceedings. “It’s extremely important that lawyers do not ignore the confidentiality of medi ation,” Crutchfield said. Otherwise, attor ney fee information can be taken out of context, publicized and distorted, he said. And with more Florida property insur ers moving to resolve claims disputes through mediation and arbitration, the issue could take on new gravity in coming years.“This has never been addressed by the appellate courts on this issue,” Crutchfield said.The case began in 2014, when a broken pipe caused substantial water damage to the home of Daphne Query in Miami. She hired Mintz Truppman and filed suit against her insurer, Lexington Insurance Co.Lexington retained Cozen O’Connor, one of the larger insurance defense firms in Florida, and Cole, Scott & Kissane, another well-known defense firm. The case was removed to federal court in south Florida.In2016, after mediation, the parties reached a settlement agreement on the amount of the damage — $125,000, court records show. But they couldn’t agree on the amount of the plaintiff’s attorney fees. Mintz’ lawyers argued that $828,000 was the proper amount, considering the lodestar factor and a fee multiplier of 2.0, reflecting the reported difficulty of the case and other factors.
Appeals Court Can’t Block Lower Court Action, Florida Supreme Court Says in Insurance Claim Mediation Case
By William Rabb
Courts & Torts
Cozen balked, saying the fees should be more like $75,000. Eventually, it was left to a federal judge to decide, who land ed on $240,000. The magistrate did not include the multiplier. Query’s lawyers did not object and did not appeal the decision. In 2017, Lexington paid the attorney fees and the $125,000 claim.
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.
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To learn more: Call 1-877-560-5224 or visit www.cypressig.com/DIPFL
“Were we to permit litigants to seek prohibition in every case in which a trial judge denies a motion to dismiss based on collateral estoppel, res judicata, or any other affirmative defense, the writ could be used to end-run our rules on appeals generally and interlocutory appeals in par ticular,” Justice John Couriel wrote for the court. No justice dissented in the opinion.
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.
•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.
Cozen’s lawyers asked the Miami-Dade Circuit Court to dismiss Crutchfield’s law suit. The judge declined. Cozen then asked the 3rd District Court of Appeals to step in and issue an exceedingly rare writ of pro hibition, blocking the Miami judge from siding with Crutchfield on the motion to dismiss his mediation-confidentiality suit.
•No fees. •No interest. •No credit check. •No increase in premium.
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The 3rd DCA agreed with the Cozen attorneys and prohibited the lower court’s ruling, noting the trial court lacked juris diction.Crutchfield said that the DCA judges had misconstrued the nature of his suit. He appealed to the state’s highest court. The Florida Supreme Court ruled that the DCA had misconstrued the nature of a writ of prohibition. The instrument may only be utilized to prevent a lower court’s action, not to correct it.
The Deductible Installment Plan is available only from Cypress Property & Casualty Insurance Company
That was the end of the claim dispute but not the end of the litigation. Before the settlement payment was finalized, Crutchfield objected to what he called a mediation confidentiality breach. He filed suit in Miami-Dade Circuit Court, charging that Lexington and Cozen had violated a 2004 Florida statute by reveal ing to the federal court the homeowner’s initial claim amount, something that was discussed only in mediation proceedings. Lexington attorneys said they had filed the initial claim amount as a way to show that the insured had, in fact, asked for a different amount early on. They also argued that the revelation was kosher since it was part of the larger litigation proceedings. And anyway, the federal court had approved the settlement and the fees, effectively barring the state court from interfering in the matter.
The court quashed the DCA deci sion and remanded the case to the Third District with instructions to deny Lexington’s and Cozen’s claims for a writ of prohibition and to adjudicate the argu ments for certiorari that it had previously declared moot. “This is good. It shows that a writ of prohibition should have a very limited use,” Crutchfield said. On the underlying mediation confiden tiality suit, it could be another year or two before it is finally resolved. “It needs to go back to the trial court and be fully litigated,” he said. “There are still a lot of questions that need to be answered.”Cozenlawyers and Cole, Scott, Kissane attorneys could not be reached for com ment on the decision.
18 | INSURANCE JOURNAL | FLORIDA SEPTEMBER 5, 2022 INSURANCEJOURNAL.COM From RMS: Can the Florida Market Withstand Another Hurricane Andrew, with $100 Billion in Losses?
Storm Front
"Let’s not sleepwalk into another Andrew-type scenario," Rahnama said. "The insights are there, and the warning signs have flashed. We just need to learn from history.” Gavin Bradshaw is a London-based freelance journalist. A longer version of this article was first published by RMS, a catastrophe modeling firmed owned by Moody’s Analytics, and it appeared in Claims Journal.
But a new law passed by the Florida Legislature in May 2022 changed the 25% roof replacement rule to exempt roofs “built, repaired, or replaced in compliance with the 2007 Florida Building Code, or any subsequent editions of the Florida Building Code.”
“This means that only the damaged por tion of the roof on newly built or upgraded roofs needs to be repaired after a dam aging wind event instead of the entire roof or roofing system. Most importantly for insurers, the right of the contractor or assignee to obtain compensation for attorney fees has been removed,” Datin explained.
The wide-ranging impact of Hurricane Andrew on the Florida insurance market is a familiar story within the risk management world. However, 30 years on from August 24, 1992, when Andrew made landfall in Dade County, Florida, memories appear to be getting shorter, as the insurance industry once more seems to be in danger of underestimating its exposure to a Category 5 storm. RMS, a Moody’s Analytics company, predicts that a repeat of Andrew would see the insured loss for wind and storm surge in the range of $80 billion to $90 billion. Other non-mod eled losses and social inflation could push the tab to $100 bil lion.“Our prediction that a repeat of Andrew today could cause as much as $100 billion in insured losses is based in large part on changes in exposure and population since 1992, coupled with updated predictions of the impact of wind and storm surge, with significant antici pated post-event loss amplifi cation,” said Mohsen Rahnama, chief risk modeling officer at RMS. The population of Florida is estimated at more than 22 million a 61% increase from 1992. Building counts in Andrew’s wind and surge footprints have increased by 40%, to 1.9 million, and by 32% to 55,000, respectively. Economic exposure has also increased by 77% in the wind footprint and 67% in the surge footprint. And in Miami-Dade County, the number of high-rise buildings that are over 15 stories has tripled since 1992.“While the wind was the main driver of loss in 1992, the number of new, high-val ued buildings near the coast suggests that storm surge losses may play an increas ing role in a repeat of this event,” said Rahnama.
By Gavin Bradshaw
Should another Category 5 hurricane make landfall in southeast Florida today, not only will the insured loss be more con siderable, but the insurance industry will face major challenges that could severely impact its ability to withstand the event. What can the risk management industry do to mitigate losses? “Insurers need to collect detailed data on their exposures and values and then employ high-resolution modeling along side all those factors that can affect the ultimate loss, whether from post-event loss amplification or from more resilient construction standards,” said Robert MuirWood, chief research offi cer at TheRMS.spirit of the indus try working together with regulators, similar to post-Andrew, also needs to be andfromtoworkinglegislapetitive,carriersresurrected.“Tohelpinsurancetoremaincomregulatorsandtorshavebeenwiththeindustrypreventclaimslitigationgettingoutofcontrolpotentiallythreaten ing the viability of hurricane insurance in Florida,” said Auguste Boissonnade, vice president for storm model development at RMS.Inaddition, said Rahnama, it’s crucial that modeling for hurricane risk takes greater account of the effects of climate change on global warming and sea level rise, and the impact those will ultimately have on wind and storm surge.
One key uncertainty is the impact of claims litigation. “Irma in 2017 was the first significant hurricane to make landfall since the 25% roof replacement rule was expanded in 2017 to all buildings across Florida, and it contributed to a significant increase in claims frequency and severity, as roof damage sustained during the storm attracted many roofing contractors, who handed over their exaggerated claims to be pursued by attorneys,” said Peter Datin, senior director of modeling at RMS.
In constant-dollar terms, economic exposure has grown substantially, based on an analysis of the total-built floor area. On top of this, replacement costs in Florida have increased as much as 2.5 times since 1992, based on historical con struction cost indices.
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