Bad Faith Reform Citizens
Property Insurance Corp. Regular Assessments Citizens HO-8 vs. HO-3 “True" Consumer Choice Public Adjusters Replacement Const
Insurance Coverage Sinkholes
Commercial Insurance Rate Regulation Modernization
BACKGROUND—Under the current provisions of §624.155, F.S., any
person, not just the insured , can bring a civil action against an insurer for failure
of that insurer to, in good faith, settle the claim within policy limits.
There is also a similar “common law” cause of action and the plaintiff is free to
choose which course of action to pursue. Plaintiffs’ attorneys routinely demand
policy limits in almost every case, even those where the liability of the insurer
is doubtful, and the insurer usually has only 60 days in which to investigate the
claim and make a decision on whether or not to pay. This is compounded by some courts
granting a “multiplier” or enhancement when granting attorneys’ fees. This threat
of almost unlimited damages far in excess of policy limits, coupled with extravagant
attorneys’ fees, often forces insurers to pay policy limits even in cases where
liability is truly in doubt. This is especially true given the trend in case law
that merely losing a court case is often equated with bad faith. Those forced settlements
lead to increases in the overall cost of insurance for everyone.
DISCUSSION—Senate Bill 1592 by Sen. Thrasher and HB 1187 by Rep.
Baxley address the problem in a number of ways.
Taken together, these reasonable changes will take the bad faith laws back to where
they were first intended: to punish egregious behavior; not to force unfair settlements.
SOLUTION—Support passage of SB 1592 by Sen. Thrasher and HB 1187
by Rep. Baxley.
BACKGROUND—Passed during a special session of the Legislature
in January 2007, HB 1A removed any reasonable barriers to Florida's state insurer.
Those who apply to Citizens Property Insurance Corporation (Citizens) are now allowed
to stay as long as they want and return if they ever leave. Those seeking Citizens’
superior coverage and overly-subsidized rates easily hurdle a meaningless entry
barrier requiring a private market quote more than 15 percent higher than Citizens’
PROBLEM—The result has been devastating for three reasons. One:
already the most overexposed property insurer in America, Citizens now receives
over 40,000 new applications every thirty days. Its policy count has catapulted
to 1.3 million and its board just budgeted for 1,300 employees this year. Two: private
market solvency is jeopardized. Because Citizens’ premiums are often 50 percent
less for the same coverage and it is guaranteed to pay its claims, it always wins
the business. How can anyone compete against that? And finally: Citizens’ exposure
and the legislativelymandated 10 percent rate cap not only make it the first option
(instead of the last resort), but with nearly a half-trillion in growing exposure,
its assessment burden threatens everyone, including those who don't even own property.
This is true even though Citizens insures only 17 percent of Florida's homeowners.
SOLUTION—SB 1714 and HB 1243 return Citizens to the where it was
before HB 1A passed...almost. These companion bills make Citizens less competitive
but without creating sticker shock. This is accomplished by increasing the rate
cap to a 20 percent average per territory, with a 25 percent per policy cap, without
averaging in decreases; by requiring it to sell a less competitive policy form (one
already approved by the Office of Insurance Regulation (OIR) and Fannie Mae and
widely sold by numerous carriers); and finally, by fixing glitches that allowed
Citizens’ policyholders to avoid paying their first tier assessment liability. In
addition, some of the other equally necessary Citizens reforms in SB 1714 and HB
CONCLUSION—Eighty three percent of Floridians, including a majority
of residents in all but Monroe County, are asking for freedom from Citizens’ assessments
brought on by its suppressed rates and inflated coverage forms. They deserve the
return of a competitive and solvent private property insurance market. Support the
Citizens reform bills: SB 1714 by Sen. Hays and HB 1243 by Rep. Boyd.
BACKGROUND—Florida's subsidized state insurer (Citizens) is so
competitive it impacts the solvency of private carriers unable to win the business.
Result...it is one of the largest property insurers in America (over 1.3 million
policyholders) and it receives approximately 40,000 new applications every thirty
PROBLEM—Citizens’ rates are too low, but...a prime reason it is
so attractive is its upscale coverages that are often better than private carriers
and more than lenders require. Did you know Citizens covers luxury items like jewelry,
watches, furs, and guns...for theft? It covers gold bullion, watercraft, car trailers,
and even grave markers. For those with swimming pools, it covers the screens and
porches and other high-risk property of wealthy homeowners. Though statutes require
Citizens to file an HO-8, a less attractive yet adequate coverage form, it does
not offer it for sale. Citizens should begin only selling an HO-8 instead of the
more attractive HO-3 coverage form offered by private carriers.
The HO-8 was developed decades ago, in part, for residual market type dwellings
and FAIR plans. Modest coverage is for high fraud areas with moral hazards. Leakage
of pipes is excluded in the basic HO-8 coverage form and glass breakage is limited
to $100 per window.
CONCLUSION— It is wrong for a majority of consumers (80 percent)
to subsidize Cadillac coverage from a state run insurer of last resort. Why can't
Citizens’ subsidized policyholders get what thousands of private consumers who pay
the subsidy are willing to buy?
SOLUTION—Require Citizens to sell an HO-8 as provided in SB 1714
BY Sen. Hays and HB 1243 by Rep. Boyd.
PROBLEM—To use the words of Insurance Commissioner Kevin McCarty,
reports on Florida's property insurance market are..."dire." Over the last two years,
Choice bills deregulating residential property insurance rates have tried to solve
In 2009, for example, 85 percent of lawmakers voted for HB 1171, but, because it
by Charlie Crist, the "dire" reports have only gotten worse.
SOLUTION—HB 885 by Rep. Wood and SB 1330 by Sen. Hays offer consumers
a choice—pay a deregulated rate to a company that can meet its 100-year storm PML
OR buy from a company that offers a rate regulated by the Office of Insurance Regulation
(OIR). Failing that, those who qualify can still buy a policy from Citizens. Bill
SUMMARY—This year's Consumer Choice bills, HB 885 by Rep. Wood
and SB 1330 by Sen. Hays, regulate for discriminatory pricing and insolvency and
require complete consumer disclosure regarding private and public options. This
allows rate adjustments (with a cap), including decreases, while giving consumers
a "real" choice for a change. Instead of financially struggling private carriers,
consumers can choose between solvent private carriers, a discounted state-owned
company, or regulated private rates for substantially the same coverage. Over time,
this approach will decrease the level of assessments on non-Citizens policyholders,
attract new capital to Florida, increase competition, and provide homeowners with
true Consumer Choice!
ACTION—Vote “YES” on SB 1330 by Sen. Hays and HB 885 by Rep. Wood.
PROBLEM— Residential property insurance losses in Florida continue
to rise, despite not having a hurricane hit our shores in the last five years. Many
believe that a large part of this increase is due to the actions of some public
BACKGROUND— Public adjusters (PA) are persons, other than attorneys,
who, for compensation, file insurance claims on behalf of an insured. They are paid
by the insured on a contingency basis out of the proceeds of the claim settlement.
They are licensed by the state and, by statute, they are restricted on how much
they can charge and are prohibited from contacting the insured until 48 hours after
the event that triggered a claim. However, after the First DCA struck down the 48-hour
requirement, and fueled by aggressive marketing with some PAs filing claims many
years after the event, the actions of public adjusters are becoming a major cost
driver in both hurricane claims and those relating to sinkholes. Last year, legislation
was passed addressing public adjusters, as well as other major cost drivers. Unfortunately,
it was vetoed by then-Governor Charlie Crist. Senate Bill 408 by Sen. Richter and
HB 803 by Rep. Wood address the problem in a comprehensive manner.
DISCUSSION—Senate Bill 408 and HB 803 are 100-plus page comprehensive reform packages. They address the problems relating to public adjusters in several ways:
Taken together, these should help eliminate the potential for cost-driving abuse by public adjusters.
SOLUTION—Support the public adjuster reforms contained in SB 408
by Sen. Richter and HB 803 by Rep. Wood.
PROBLEM—Over the years, there has been a great deal of debate on
the subject of actual cash value insurance coverage versus replacement cost insurance
coverage. That debate has led to a great deal of litigation, driving up the cost
of residential property insurance in Florida.
BACKGROUND—There are two basic ways that property insurance losses
can be adjusted: replacement cost value (RCV) or actual cash value (ACV). Actual
cash value is the depreciated value of the property being replaced or repaired.
Under Florida law, insurers writing residential property coverage must offer the
policyholder the option of purchasing replacement cost coverage. If the homeowner
chooses RCV and there is a loss, the insurer must pay replacement costs without
any holdback for depreciation. Prior to 2005, an RCV option would result in a payment
of the actual depreciated cost of the dwelling or property, with the remainder being
paid when the property was actually replaced or repaired. After the 2005 legislative
change, the insurer must now pay replacement cost, even if the homeowner doesn’t
actually replace or repair. Many experts contend that this leads to inflated or
even fraudulent claims. Additionally, long after the hurricanes in 2004 and 2005,
policyholders were reopening claims that insurers believed to be settled. This was
driven in part by public adjusters convincing the insured that they could get additional
money from the insurance company at no risk to themselves. Most of those claims
were difficult to disprove due to the passage of time and, in some cases, were outright
DISCUSSION—Senate Bill 408 and HB 803 address the replacement cost
coverage problem in three ways.
These reasonable changes should go a long way in settling the RCV abuses of current
law, without being unfair to those with legitimate claims
CONCLUSION—Support the replacement cost provisions of SB 408 by
Sen. Richter and HB 803 by Rep. Wood.
PROBLEM—Florida’s residential property insurance system is in crisis.
Losses are increasing at an alarming rate, but political pressures in the past have
kept rates suppressed. In order to address the problem, Florida needs to address
the underlying factors driving those increases. Sinkhole losses are one of the major
BACKGROUND—Legislation was passed last year specifically addressing
increased cost drivers—among them, sinkhole losses. Unfortunately, it was vetoed
by then-Governor Crist. Similar legislation has been introduced this year in the
form of SB 408 by Sen. Richter and HB 803 by Rep. Wood.
DISCUSSION—Senate Bill 408 and HB 803 are 100-plus page comprehensive
reform packages. While they address a host of issues designed to strengthen the
property insurance market, their reform of the sinkhole insurance system is among
the most important. Because of Florida’s geological make-up, sinkholes and their
related property damage occur on occasion. However, in the last few years, a combination
of statutory changes and aggressive marketing practices by a few public adjusters
and attorneys appears to have created a significant problem. According to a report
released by the Office of Insurance Regulation (OIR), total sinkhole claims increased
from 2,360 in 2006 to 7,245 in 2009. During that same time period, total sinkhole
losses for both open and closed claims increased from $209 million in 2006 to $406
million in 2009, with total losses exceeding $1.4 billion in that four-year period.
Senate Bill 408 and HB 803 address the problem in a number of ways.
Coupled with changes in the practices of public adjusters, these and other changes
will go a long way towards bringing equity back into this area of insurance.
SOLUTION— Support the sinkhole insurance reforms contained in SB
408 by Sen. Richter and HB 803 by Rep. Wood.
PROBLEM—Over-regulation of rates for commercial insurance stifles
competition and leads to a dysfunctional marketplace.
BACKGROUND—Florida has one of the most comprehensive systems of
rate regulation in the entire nation. The Office of Insurance Regulation (OIR) regulates
for solvency by stating rates cannot be inadequate. The OIR regulates to prohibit
any insurer from having a rating system that unfairly discriminates on the basis
of such criteria as race, religion, and age. Finally, to protect small, unsophisticated
policyholders against unwarranted rate increases, the OIR also regulates against
“excessive” rates. However, the argument for rate regulation, review, and approval
breaks down when dealing with competitive markets, unique insurance products, and
sophisticated “commercial” insureds. That is why during the 2010 session, the Florida
Legislature passed a bill which excludes certain categories of commercial insurance
from the OIR’s rate filing and approval process. The rates for these categories
continue to be subject to the standards set forth in §627.062(1), F.S., which prohibits
insurers from utilizing rates that are excessive, inadequate, and unfairly discriminatory,
and to the provisions in §627.062(2), F.S., which define these standards. The insurers
that develop rates for these categories must do so in accordance with the statutory
rate standards, must notify the OIR of these rates, and must maintain supporting
data for these rates subject to audit by the OIR. But the rates do not have to be
filed with and approved by OIR. The following categories are exempted from the rate
filing and review requirements under the current law:
SOLUTION—in an attempt to expand the commercial lines products
that would be exempt from the OIR’s rate filing and review requirements. The rates
for these categories would continue to be subject to the standards set forth in
§627.062(1), F.S., which prohibits insurers from utilizing rates that are excessive,
inadequate, and unfairly discriminatory, and to the provisions in §627.062(2), F.S.,
which define these standards.
The bills add fiduciary liability, general liability, nonresidential property, nonresidential
multiperil, excess property, and all commercial auto to the exempt categories.
All of the designated categories are highly competitive, not subject to the violent
market swings caused by catastrophic events such as hurricanes, and are purchased
by sophisticated customers. The bills’ “free market” approach for these sophisticated
risks will allow carriers to lower rates in order to compete or increase market
share, without fear that they can’t ever increase rates in the future.
CONCLUSION—Support SB 178 by Sen. Oelrich and HB 99 by Rep. Drake.
2011 Legislative Summary