Robin Smith Westcott in a letter to Florida Insurance Commissioner Kevin McCarty
called it "an abusive practice" and "a troubling new trend."
"This activity threatens not only homeowners' financial stability but also the
state's economic recovery," Westcott wrote.
A spokeswoman for McCarty declined comment Wednesday.
Sam Miller, spokesman for the Florida Insurance Council, an industry group, said
Westcott's letter was the first he'd heard about the practice. Westcott said she
heard about it from insurance agents and then from lawyers who handle insurance
Her letter cites three cases, all involving Universal Property and Casualty
Insurance Co., but Westcott said her office has received about 10 complaints
total. She was unsure how widespread the practice is but said it could be
extensive because Universal is one of the state's largest insurers and has
acknowledged it uses the procedure as a matter of routine.
She wrote that it should be considered an unfair trade practice to obtain a
credit report after a customer files a claim and then cite previous instances of
financial difficulty such as bankruptcy, foreclosure and liens to cancel a
policy even though the consumer may have paid premiums for years.
"With Florida leading the nation in bankruptcies and foreclosures, many
homeowners are finding themselves in these types of financial situations,"
Westcott wrote. She urged McCarty to work with insurers to adopt standards "that
recognize Florida's unique circumstances with regard to the foreclosure crisis."
A Universal spokeswoman did not immediately respond to a telephone message
seeking comment Wednesday.
Westcott also wrote that homeowners often are then unable to obtain or afford
other coverage because their policies have been canceled on grounds they
misrepresented their credit backgrounds.
They could be driven to the state-backed Citizens Property Insurance Corp.,
which is trying to spin off policies to private companies to reduce its risk,
However, not even Citizens, created as Florida's insurer of last resort but now
the state's biggest property insurance company, will write coverage for a
customer who has had a policy canceled for misrepresentation, she noted.
Those who are required to have coverage under the terms of their mortgages then
must resort to high-priced lender-placed policies. If they cannot afford such
coverage, they may lose their homes, Westcott wrote.
The letter cites three complaints involving Fort Lauderdale-based Universal that
Westcott's office received. In each case, policies were canceled due to
financial issues such as bankruptcy that occurred up to four years before the
customers applied for coverage.
Westcott said the company should have checked their credit reports immediately
after writing the policies instead of waiting until they filed claims months or
years later. State law permits an insurer to cancel coverage for material
misrepresentation after 90 days.
Many consumer advocates also question the legitimacy of using credit reports at
any time as a reliable risk predictor, Westcott noted. She also pointed out the
Florida Legislature has "strictly regulated the use of credit reports and credit
scores for underwriting purposes."
In one case involving a condominium unit policy, Universal reinstated the
coverage and paid the claim after Westcott's office pointed out the insurer's
guidelines for past financial problems apply only to policies for single-family
homes. In a similar case, though, Universal has stuck with its decision to void
the policy, Westcott wrote.
Westcott said one policy was canceled due to a $400 small claims court judgment.
She doesn't believe the consumers intentionally misrepresented their financial
background, noting insurance agents filled out their applications in some cases.