Oct. 01--It's South Florida's fault.
So say officials of state-run Citizens Property Insurance Corp. who continue to blame the tricounty region for what they describe as a flood of water damage claims and lawsuits that shows no sign of receding.
And the company vows to continue its fight in the Legislature next spring to stop water damage repair contractors and their attorneys in the region from eroding the company's ability to save for a catastrophic day.
Citizens, along with allies in the insurance field and other areas of business, wants the Legislature to restrict the ability of repair contractors to require that policyholders sign over the benefit of their insurance policies as a condition of commencing repairs after breached plumbing lines and other non-weather flooding emergencies.
Insurers say contractors armed with "assignment of benefits" agreements pad their bills by doing unnecessary work, submit inflated claims to the insurance companies, and then use the insurers' denial or underpayment of the claims to clog the court system with lawsuits against the insurers.
The suits are often filed in the policyholders' names, without the policyholders' knowledge, insurers say.
Contractors and trial attorneys counter that insurance companies too often underpay claims, are slow to pay claims, or deny claims altogether.
However, Citizens says not only does the problem threaten to jack up insurance rates for years to come for customers in Broward, Palm Beach and Miami-Dade counties, it could reverse progress the company has made persuading private-market insurers to take over Citizens policies.
After five years in which Citizens' tricounty personal-residential policy count declined from 603,090 to 233,241, the company is forecasting renewed growth in the region, Citizens President and CEO Barry Gilway said at the company's Board of Governors meeting on Sept. 28.
Gilway projected Citizens will grow by up to 30,000 policies next year, with the bulk coming from the tricounty area.
"Markets are shutting down in South Florida," he said, referring to private-market insurers refusing to write new business in the region because of increased water claims. "New business has no place to go but us. We're only seeing initial movement at this point, but trust me, in six to nine months, all of the models are showing the same thing. That's going to be growing."
Citizens blamed the assignment of benefits crisis for seeking and securing state approval for rate increases of between 8.9 percent and 10 percent for all but a few sections of Broward, Palm Beach and Miami-Dade counties in 2017. Higher claims costs projected for 2017 justified the higher rates, officials said.
According to its annual financial statements, Citizens showed a net underwriting profit of $363 million in 2014 and a loss of $7.1 million in 2015.
Many companies doing business in the region are raising rates.
Heritage Property & Casualty Insurance Co., which obtained roughly 75 percent of its 257,135 policies count through state-sanctioned efforts to depopulate Citizens, is seeking 15 percent rate increases for most South Florida customers beginning Dec. 1. In mid-September, its president, Rich Widdicombe, acknowledged the company stopped writing new policies in the tricounty region earlier in the year and only recently resumed offering new policies to "very select" homeowners through a small number of agents.
Gilway said he wouldn't write new business in South Florida if he ran a private-market insurance company. "It would not be a smart decision on the part of the CEO to pick up South Florida business until we've got legislative remedies for [assignment of benefits]," he said.
The company was targeted with an average 650 lawsuits a month in 2015 and 790 a month this year through July, said Jay Adams, Citizens' chief of claims. "And that number continues to grow," Adams said. "In August, we received 1,153 suits" and 826 in September through Sept. 27.
In July, 65 percent of suits filed against the company originated in Miami-Dade and 24 percent came from Broward. Six percent were from Palm Beach County, and just 5 percent came from outside the tricounty region, Citizens data shows.
Also in July, 41 percent of all suits filed against insurers in Florida were filed against Citizens, even though just 7.8 percent of all residential policies were written by Citizens.
"Why are they picking on us?" board of governors member Juan Cocuy asked Gilway.
"Let me comment on that: It's South Florida," Gilway responded, noting Citizens is the top carrier in Miami-Dade and Broward. In addition, rules of the depopulation process allow private-market companies to cherry-pick "the best policies" -- policies with no claims.
"We get to keep the policies with [a history of] one or two claims," Gilway said.
During the meeting, Citizens also presented fresh rankings of water damage restoration companies and attorneys by number of lawsuits against the company. The data showed that 52 percent of assignment-of-benefits lawsuits against Citizens were filed by 10 law firms. Adams said Citizens' fraud investigators are looking for "relationships" among the most litigious contractors. The company is also studying state laws "to make sure our teams are trained to understand when [Bureau of Insurance Fraud] referrals are warranted on these particular contractors," Adams said.
The number of suspected criminal cases referred to the bureau involving homeowner insurance has been low -- less than 5 percent -- between 2007 and 2014, according to the most recent statistics available from the Chief Financial Officer Jeff Atwater.
Don Glisson Jr., vice chairman of Citizens' board of governors, said, "I think I have a simpler answer," for why Citizens is targeted. "It's $7.5 billion in surplus. They see that and, you know, it's deep pockets. It's easy money."
However, consumers need to be made aware that Citizens will continue to raise their rates to protect its surplus for when it will be needed to pay claims after future catastrophes, Glisson said. "They're paying for it. [Citizens] is not paying for it. They are."
Citizens can absorb only another two years of claims costs and lawsuits with no reforms before it has to start dipping into its surplus, Gilway said.
Gilway said he was surprised when he spoke with Sean Shaw, a Tampa trial attorney who was state Insurance Consumer Advocate from 2008 to 2010. Gilway expected he and Shaw would disagree about the need to reform how assignment of benefits can be used in insurance claims.
Shaw works for Merlin Law Group, which represents plaintiffs in disputes with insurers. He was also elected in August to serve in the state House of Representatives.
Assignments have a place, Shaw said, for policyholders who don't have cash to pay contractors to begin repairs right away.
"But they're not appropriate if someone signs an AOB and no work gets done," he said. Shaw said he has represented homeowners who were coerced into signing over not only the right to be compensated for repair work but also for any content replacement or alternative living expense money owed. "In most cases, that's wholly inappropriate."
Shaw said he is looking forward during the upcoming Legislative session to working out a compromise that has eluded lawmakers loyal to the insurance industry and trial lawyers over the past four years. How that compromise will take shape, Shaw said he isn't yet sure about.
Insurance companies aren't blameless in the problem, he said. "I always tell insurance companies, 'If you acted fairly up front and paid claims fairly up front, I'd never get the call to come and help.'"
And while he might agree with Gilway and Citizens' officials that reforms are needed, Shaw said he doesn't agree with insurers who assert that South Florida is the epicenter of insurance fraud because it has more independent adjusters, contractors and trial attorneys, or because more policyholders seek professional help when they have a claim.
"I always say, 'Insurance fraud is illegal. Turn it in. Go prosecute it.' But the numbers [of prosecutions] don't bear out that it's the epicenter of insurance fraud.
"Insurance companies use the word 'fraud' differently. To them, when you ask for more money than they think a claim is worth, it's 'fraud.' I say that that's not fraud. It's a difference of opinion."
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