W.J. Kennedy May 9, 2016, 9:32am


TALLAHASSEE - Property carriers in Florida are appealing to state regulators to curb a recent explosion in home water loss claims, many unrelated to the cause of the damage or far beyond the extent of it. 

Claims have jumped 46 percent since 2010 in a period with no major storms or hurricanes. The carriers are being hit by a storm of another kind: some contractors and attorneys are getting homeowners to assign policy benefits (AOB) to them, and then trumping up the claims. 

“I can’t tell you the number of times that the first we hear of a claim is from a lawyer or contractor demanding payment for a job already completed,” said Michael Peltier, spokesman for Citizens Property Insurance Corp. “A lot of times the homeowner isn’t even aware of what’s going on because they assigned the benefits.” 

In late March, Florida’s Office of Insurance Regulation (OIR) okayed a request from Citizens to alter its policies to require notification of damage before a job begins. The policy changes hold immediately for new insureds, and for existing insureds when their polices are renewed. 

OIR says that other, voluntary insurers have requested the same changes, which also include limiting emergency repairs in most cases to $3,000. 

Still, the industry says that rates will have to be increased significantly to accommodate all the past claims. 

Created by the Legislature in 2002, Citizens is limited to a 10 percent increase in rates per year. But the company says that in some areas of the state rates should increase by as much as 189 percent if actuarial standards were followed.

Private carriers are permitted to raise rates as high as 15 percent, or even abandon an area with an excessive number of claims.

A good portion of the water loss claims are centered in southern Florida, but Peltier says the practice is rapidly expanding to other parts of the state.

Claims from water damage are easy to exaggerate and payment of a claim is nearly a sure thing without outside inspection.

“Water loss is very fact-based,” said Peltier. “And we don’t cover damage from lack of maintenance. So in a hypothetical case there is some damage from an old pipe and the next thing you know a floor or even entire kitchen has been replaced. Then we get the bill for it.”

The industry calls AOB the “accelerant” in water loss claims. More fuel on the fire comes from the way attorneys fees are structured in insurance disputes. They are called one-way fees because the claimant’s fees are covered by the insurer in any settlement of a claim. The carrier covers its attorneys fees even in cases it wins.

“It was set up so that if David takes on Goliath, David gets his fees covered,” said William W. Large, President of the Florida Justice Reform Institute (FJRI). “But it was clearly never designed to lead to this. We even have cases in the Orlando area where roofers have offered to replace undamaged roofs for free.”

Research by FJRI, and published in a white paper, “Restoring Balance in Insurance Litigation”, found that:

“Assignee plaintiffs—often those service providers repairing the insured damage—are increasingly becoming the plaintiffs in lawsuits filed against insurers; a third of all lawsuits filed against insurers are brought by apparent assignee-plaintiffs; lawyers filing cases on behalf of these litigants are concentrated in a relatively small subset of all lawyers, yet represent an overwhelming majority of the counsel in these cases; more qualitative data obtained from insurers suggests that insurers are reacting by settling these service provider-AOB claims out of court, often paying less than what the assignee originally demanded but paying comparatively high assignee’s attorney’s fees.”

The carriers began appealing to OIR when the 2016 state legislative session ended in early March with no action on AOB reform legislation. 

Legislation sponsored by Sen. Dorothy Hukill and Rep. Matt Caldwell would have restricted the ability of some contractors and lawyers from gaining control of homeowners’ insurance policy rights.

Another bill was introduced as “compromise” legislation but no negotiations to reconcile the differences in the bills ever took place.

For their part, the courts have said AOB reform is an issue for the Legislature. Last October a three-judge panel of the 1st District Court of Appeal refused an insurer's request to rehear a June case where homeowners signed over policy benefits to contractors. In the June decision, the appeals court backed a decision by OIR that rejected a request from Security First Insurance Co. to restrict the ability of policyholders to assign policy rights without the insurer's approval. 

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