|Date:||December 07, 2016|
The only reason the average premium for Citizens Property Insurance Corp. customers is around $2,500 a year is a state law limiting increases to 10 percent a year.
Otherwise, increases in claims payouts over the past year would have put renewing Citizens customers on the hook for an average 65-percent rate increase, and the average renewal bill would have been about $4,000 this year, Citizens Chief Risk Officer John Rollins said at Wednesday's meeting in Maitland of the state-run company's Board of Governors.
But even with the 10 percent annual cap, Citizens' insurance bills are headed to $4,000 a year unless the state legislature finally takes action to restrict claims abuses by water damage repair contractors and their attorneys, Citizens officials warned. Those rising costs — from $367 per Citizens multi-peril homeowner policy in 2011 to a projected $2,083 in 2017 — will result in premium increases for all customers and could eat into the company's $7.5 billion surplus if left unaddressed, warned Barry Gilway, Citizens President and CEO.
Citizens unveiled a 2017 legislative wish list for new laws officials say would help staunch hemorrhaging losses from water damage claims, primarily in Miami-Dade, Broward and Palm Beach counties.
Topping the list: Preventing attorneys from collecting fees in lawsuits involving assignments of benefits.
This year, the wish list does not seek to end or restrict policyholders' ability to assign benefits to third-party contractors. Previous efforts to restrict assignments have hit dead ends in the legislature, and courts have affirmed assignment rights in numerous cases.
Yet, assignment of benefits, or AOBs, are at the heart of the claims crisis, Citizens and other insurers contend. Policyholders seeking repairs following ruptured pipes or appliances in their homes are often coerced by water damage restoration contractors into first signing over their right to seek reimbursement from the insurance companies.
Armed with assignments, contractors and their attorneys then bill the insurer for repairs and file suit if the insurer denies the claim or offers to pay less than the invoiced amount.
A handful of law firms, mostly in South Florida, routinely file hundreds of lawsuits, according to state civil court data. From January to October, 8,097 new lawsuits were filed against Citizens, a 30-percent increase from the previous year, according to Citizens documents. As a result, Citizens projects a $100 million loss from its personal lines accounts next year, Gilway said. That loss could swell to $184 million in 2018 if the trend continues, he said.
"In my opinion, it is just absurd," he said. "It is a completely out-of-control situation."
Dan Sumner, Citizens chief legal officer and general counsel, said the increase in assignments are driven by what's called the one-way attorneys fee statute which allows plaintiffs to collect attorneys fees from insurers "if there is a judgment or a decree in favor of the insured and against the insurer in any amount."
In other words, if an attorney for a water restoration company named in an assignment sues an insurance company over a claim, then negotiates a settlement of as little as $1 over the insurance company's initial offer, the insurance company must pay the attorney's bill for pursuing the claim.
The provision has been law since 1893 and is intended to provide access to competent counsel for insurance claimants, according to a 2005 Florida Senate report.
Topping Citizens' legislative wish list is a call to prohibit attorneys representing vendors working under assignments from seeking fees under the one-way attorney fee statute when lawsuits are filed.
Other items on Citizens' legislative wish list:
• Require assignments to include written itemized estimates of work to be performed by the assignee.
• Require a copy of the assignment agreement be furnished to the insurer no later than three days after executed by the policyholder.
• Limit assignments to just the work being performed and not the whole claim.
• Prohibit fees in assignments for check processing, overhead, profit or cancellations.
• Provide consumer protections, including the ability to rescind the assignment.
• Prohibit contractors from placing liens on properties for work completed under assignments and paid for by insurance proceeds.
Whether reforms are possible remains to be seen, officials said. Many Senate committee assignments have not yet been made, including for the chairmanship and memberships of the House Insurance & Banking Subcommittee.
In addition, proposals for laws restricting policyholders' ability to assign benefits of their policies to third-party providers — the trigger of skyrocketing volumes of lawsuits and legal fees — have failed over the past four years as lawmakers loyal to insurance companies and plaintiffs attorneys have locked horns.
Christine Ashburn, Citizens' vice president of communications, legislative and external affairs, called the push for legislative reforms "our number-one priority."
Ashburn warned that the claims crisis, if left unaddressed, would end up increasing the number of customers covered by the so-called state-run insurer of last resort following the shift of a million policies to private insurers since 2012.
"This is absolutely looking to unravel all of our depopulation successes," Ashburn said. That's because private insurers, whose annual rate increases aren't capped at 10 percent, are also reporting increased losses from claims abuses. Under the state's "clearinghouse" program, Citizens must sell policies to homeowners who cannot find coverage priced at or below Citizens' rates from a private clearinghouse participant.
Plus, the number of private insurers unwilling to write policies in Miami-Dade, Broward or Palm Beach counties — where most of the claims abuses originate — is increasing, Gilway said, leaving many homeowners with no choice but Citizens. Meanwhile, private companies' willingness to participate in the state-mandated takeout program has been steadily decreasing as the best risks have already been mined.
Citizens projects the number of personal residential policies will increase from around 300,416 to 352,268 if the legislature fails to act during next spring's session, which is scheduled to run during March and April. Bills can be filed anytime before that, and committees will begin convening in January to consider the bills.
Two organizations that last year campaigned unsuccessfully for AOB reforms said they stand ready to support Citizens during the 2017 legislative session.
"Clearly, assignment of benefits abuse is leading to an alarming number of lawsuits against insurers that are increasing the cost of insurance for everyone,'' said Mark Wilson, president and CEO of the Florida Chamber of Commerce, which organized the Consumer Protection Coalition, in a news release.
Logan McFaddin, regional manager of the Property Casualty Insurers Association of America, said by email that the reforms sought by Citizens would "help address the cost drivers that are putting financial strain on Florida consumers."
Lee Jacobson, spokesman for the Florida Justice Association, a lobbying group for trial lawyers, said "removing consumer protections including the attorneys fees is never a positive application of the legislature's power." But he said the association agrees with some of the items on Citizens' wish list, including the three-day notice of assignment execution "as long as the insurance company shows up to adjust the loss within the same period of time."