A ‘stacked deck’: Citizens’ alternative dispute system unfair to policyholders, attorneys say

State-owned Citizens Insurance has sharply increased the number of cases it sends to a special alternative dispute court, but plaintiffs attorneys say it’s unfair because it deprives policyholders of the right to have their cases heard by a jury.

A South Florida Sun Sentinel review of cases handled since early 2024 found that Citizens policyholders are likely to lose if their dispute is sent to this special court, which is run by the state Division of Administrative Hearings (DOAH).

And policyholders who need Citizens to insure their homes have no way of avoiding the unique policy terms that allow their cases to be transferred to DOAH.

Records show that Citizens won 47 of 51 DOAH cases that advanced to a final hearing prior to July 10.

Citizens’ board of governors has approved paying $19.3 million to fund the program through 2027 and the company is increasingly relying on DOAH to settle claims disputes. Through July 10, Citizens has sent more than 1,000 cases to the court, compared to about 350 cases sent during all of 2024.

Eventually, the company plans to send 320 cases a month, or about 3,840 a year, to DOAH judges through 2027, according to a funding proposal approved by the company’s governing board last year.

While private market insurers can, in some cases, require alternative resolution methods like mediation, arbitration or appraisal, Citizens, as a nonprofit, tax-exempt governmental entity, is the only insurer in Florida allowed by the state Legislature to require DOAH administration of disputes, if it chooses. Administrative law judges’ rulings are binding, though plaintiffs can appeal them through the state court system.

Citizens claims its use of DOAH saves time and legal costs for both sides, but some plaintiffs’ attorneys counter that the DOAH system — approved in 2022 by the Office of Insurance Regulation and in 2023 by the state Legislature — inherently leads to outcomes desired by Citizens — the source of its funding.

As a result, Citizens’ right to direct cases to the DOAH court creates an uneven playing field that deprives plaintiffs of their right to have their disputes settled by juries, says Chip Merlin, a plaintiff attorney and founder of Tampa-based Merlin Law Group.

“The fundamental question at stake is whether a dispute resolution process can be considered fair when it is effectively funded and initiated by one of the parties with a direct financial interest in the outcome,” Merlin told the Sun Sentinel. “While DOAH is formally part of Florida’s government structure, its operations in this context are contractually funded by Citizens itself. This setup raises serious concerns about the impartiality of the forum, especially when the insurer prevails in every known case, except two thus far, under this system.”

Citizens spokesman Michael Peltier declined to respond to Merlin’s assertion that DOAH hearings are not impartial. He said that, prior to DOAH hearings, “when we see evidence that supports a finding that the claim is covered, we give the policyholder the benefit of the doubt and pay the claim.”

That’s happened in 28% of cases sent to DOAH for an average payment of $30,000, Peltier said.

The company, he said, “does not go to final hearing on cases when we believe the evidence supports payment of the claim,” he said.

Plaintiffs attorneys: ‘The policyholder loses’

In the DOAH system, a chief administrative law judge is selected by the governor and the state cabinet and confirmed by the Senate. The chief judge is then responsible for managing individual judges who rule on cases.

The DOAH system was set up to enable Florida residents to challenge decisions by state agencies, and the Department of Management Services that provides administrative support for DOAH has no control over its operations or decisions.

Merlin, who called attention to the lopsided DOAH hearing results in an April blog entry on his website, Property Insurance Coverage Law, told the Sun Sentinel that DOAH judges have no business settling disputes between Citizens and its policyholders.

“The optics alone should concern policymakers and the public,” he said. “The notion that a state-created insurer can fund the tribunal that adjudicates disputes against it undermines public confidence in fairness. This is not simply a matter of appearances. This is about the real outcomes which show up in the statistics. In case after case, the policyholder loses.”

Homeowners who need coverage from Citizens, the “insurer of last resort,” currently have no choice but to accept policy terms that give Citizens authority to send their disputes to DOAH, Merlin noted. Peltier confirmed this, but said the requirement does not pertain to Citizens’ commercial policyholders.

A bill introduced in the Florida Legislature last spring would have required Citizens to allow customers to choose, when signing up for or renewing a policy, whether or not to accept policy terms authorizing either party to send potential disputes to DOAH.

But the bill died after it was approved by a single committee.

If plaintiffs withdraw their claim prior to their hearing, Citizens automatically wins and can ask the administrative judge to approve charging them thousands of dollars in attorney costs and court fees.

Anthony Lopez, CEO of a firm called Your Insurance Attorney, with offices in Miami, Orlando and four other states, said that Citizens sends his firm’s cases to DOAH “in every instance they can,” adding, “They have stacked the deck against policyholders.”

said his firm plans to file a lawsuit against Citizens challenging the constitutionality of the DOAH law.

Citizens: DOAH saves time and money

Peltier counters that disputes can be resolved much faster by DOAH — less than 90 days, on average — compared to the 620 days the average case drags on in the state court system.

The shorter case span “means lower attorney fees on both sides, which explains why some attorneys may complain about the DOAH process,” Peltier says.

“Not only does discovery happen quickly, but discovery disputes are resolved quickly,” he told the Sun Sentinel. “This is in contrast to the often months-long discovery disputes that cause cases in circuit courts to lag, attorney’s fees to increase, and payment, when applicable, to the policyholder to be delayed.”

A tally by Citizens officials showed that 50% of 796 closed cases were resolved with policyholders agreeing to accept offers of $250 or $500, while plaintiffs in 11% of the closed cases voluntarily withdrew their claims with no payment at all, Peltier said.

Citizens’ efforts to use DOAH for alternative dispute resolution dates back several years, when private insurers complained that the number of lawsuits in Florida were eroding their underwriting profit, raising reinsurance costs and threatening their ability to remain in business.

In July 2022, Citizens’ Board of Governors approved allowing the company to modify its policies with a rider that gave Citizens or its policyholders the right to request arbitration by DOAH. Citizens justified the request by saying it would save costs and expedite dispute resolutions.

Then in December, the state Legislature met in a special session that eliminated one of the insurance industry’s biggest cost headaches: the so-called “one-way attorney fees” law that allowed plaintiffs attorneys to collect hefty legal fees from insurers who settled lawsuits by agreeing to spend any amount over their original offer.

Should one-way fee repeal have eliminated need for DOAH rider?

Rene Delombard, a partner at the firm Vargas Gonzalez Delombard, headquartered in Coral Gables, says enactment of the law ending one-way attorney fees in 2022 should have eliminated Citizens’ need to later seek the Legislature’s approval to send disputes to the DOAH court.

When it was brought before the Legislature in 2023, lawmakers should have said, “We got rid of your (one-way) fees … Why should this be put into policies? How does this benefit consumers?” Delombard said.

Instead, the DOAH law was enacted and Citizens’ Board of Governors last year approved the $19.3 million contract to have DOAH’s administrative law judges settle disputes identified when policyholders file notices of intent to litigate with the Department of Financial Services.

Until recently, Citizens was undefeated in cases tried by DOAH judges.

Since June, three policyholders’ claims were found to be “partially covered” by their policies and two plaintiffs were awarded $19,114 and $17,500. A third received nothing because the judge found that the cost of his loss fell below his policy’s deductible.

Citizens lost another case outright, and the plaintiff was awarded $42,924. The plaintiff’s attorneys are seeking $103,095 in legal fees from Citizens.

Of the rulings favoring Citizens, 13 were issued by William D. Horgan, managing administrative law judge for DOAH’s property insurance claims unit. Until 2023, Horgan spent 14 years defending insurance companies for the firms Banker, Lopez, Gassler and Pennington P.A.

Horgan approved levying court fees and costs against policyholders in nine cases, including five that dropped their claims before their hearings commenced.

However, it’s not only former insurance industry defenders ruling in Citizens’ favor.

Another administrative law judge, Terry Slusher, was a former personal injury attorney before he was appointed as a general magistrate in St. Lucie County in 2010. Slusher logged the second-highest number of rulings favorable to Citizens — 10, and imposed costs and fees against six losing plaintiffs.

Slusher’s rulings were among 16 favorable to Citizens by three administrative law judges who had spent their past careers representing plaintiffs, while 31 pro-Citizens rulings were made by judges who previously worked in insurance defense, state agencies, court systems, or two of the three.

Horgan and Slusher did not respond to emails seeking comment for this story.

‘Not a home warranty’

A random sample of the 1,389 open and closed DOAH cases reviewed by the Sun Sentinel reveal that many are disputes over the types of claims that Citizens has for years looked upon with suspicion: non-weather water damage, such as pipe breaks that flood kitchens and prompt claims to replace flooring and cabinetry, and roof leaks that plaintiffs say caused water damage inside their homes.

The records show that Citizens, like other insurers, routinely denies coverage for damage caused by pipe ruptures if adjusters find evidence of slow leaks over time that homeowners knew about or should have known about.

And damage to roofs and interior contents is typically only covered if caused by high-speed winds during hurricanes, tornadoes or other severe weather. Insurers have become wary of roof claims that occur months after such events, or result from a roofing contractor’s “free inspection.”

When denying these types of claims, Citizens often argues that resulting damage was caused by age, neglect, poor design, inadequate materials or shoddy workmanship.

“These are standard insurance policy exclusions,” Peltier said. “An insurance policy is not a home warranty.”

Only about 11% of closed DOAH cases advanced to a hearing, Peltier reported.

The Sun Sentinel’s review of 71 DOAH rulings showed that 20 plaintiffs withdrew after their hearings were scheduled. Their cases went into the books with 47 others as wins for Citizens.

DOAH judges ordered losing policyholders to pay court fees and costs in 30 of the cases, including 10 that policyholders withdrew after hearings were scheduled.

Take the money or face charges

Chances for policyholders to prevail in DOAH hearings are so slim that many plaintiffs attorneys either won’t accept cases that have been sent to DOAH, Merlin said. Or, as plaintiffs attorney Michael Fischetti said, they advise their clients to go ahead and accept Citizens’ initial $250 or $500 offers.

That’s because under the law, failure to accept Citizens’ initial “offer of judgment” places them at risk of being charged court costs and attorneys fees if they withdraw their claim or lose at a DOAH hearing later, Fischetti says.

“An insured is at the mercy of Citizens as to whether they will pursue their fees or not at that point,” he says.

Lopez says his clients are served with $500 offers of judgment so they’ll be motivated to settle and avoid the potential of facing large court costs and attorneys fees later. “That’s why you see so many claims dismissed without a final hearing,” he says.

Citizens’ spokesman Peltier said the company has not taken legal steps to collect any of the fees it has been awarded.

Despite requesting — and getting — rulings from DOAH judges imposing attorney fees and court costs ranging from about $2,000 to more than $40,000 against 30 losing plaintiffs, Citizens would have to pursue collection in a state court before losing plaintiffs would be legally obligated to pay, Peltier said.

While Citizens hasn’t yet pursued collection in state court, plaintiffs facing fee judgments shouldn’t consider themselves off the hook, Peltier said.

“The DOAH award of fees is legal and valid,” he said. “The bottom line is that we expect plaintiffs to pay attorney fees if awarded by DOAH. To date, however, we have not pursued forced collection through the circuit court system, but reserve the right to do so in the future.”

He responded that just like in state court cases, “Citizens routinely seeks an award of fees and costs when it is entitled to do so” under a state law that “allows either side to recover reasonable attorney’s fees if the end result is not at least 25% better than what was offered (by Citizens) or demanded (by the policyholder).”

Citizens is among the most-sued insurers in Florida.

So far in 2025, Citizens has been named as a defendant in 2,478 lawsuits and 1,528 notices of intent to sue, according to state databases.

Peltier pointed out that the number of DOAH cases that Citizens settled with payments represents a drop in the bucket compared to the 142,000 claims the company processed last year.

He added, “If we do our job correctly, we should continue to keep those numbers low.”

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071 or by email at [email protected].

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