Consumer eViews

Volume 3, Number 6, February 6, 2006 

On Saturday, I hosted a town hall meeting in Hialeah and had the opportunity to meet and talk with more than 300 homeowners on a variety of insurance issues, from delays in hurricane claims payments to problems with public adjusters.  Their frustration and feedback echoes what I have heard from Floridians all over the state, and is the reason I am pushing for federal and state solutions that will strengthen Florida’s homeowners insurance market and improve coverage options and protections for our citizens.  

My thanks go to Mayor Julio Robaina, who graciously invited me to host the meeting at City Hall, as well as to State Representative David Rivera and Senator Rudy Garcia for their commitment to helping their constituents through difficult times.  

With the help of our team of consumer specialists, we worked one-on-one with 114 policyholders to expedite the claims settlement process or to resolve outstanding issues and concerns on storm claims.  We had representatives from several insurance companies on hand to talk to their policyholders in person and mutually work towards resolving claims.

Another issue that emerged in my conversations with homeowners is that many did not realize that they may qualify for lower premiums because they have already taken steps to retrofit and strengthen their homes. I encourage all homeowners to call their agents to find out if they qualify for mitigation credits which translate into premium savings.   And as part of my comprehensive package of insurance reforms, I am recommending that state lawmakers allocate a portion of existing mitigation dollars from the Florida Hurricane Catastrophe Fund to retrofit older homes, especially those trapped in Citizens.

We are well on our way to recovering from two catastrophic hurricane seasons, and will be stronger because of it.  Now we must focus our attention on implementing federal and state policies that will ensure Floridians have more options for property coverage and can better prepare financially for a catastrophic storm.

-- Tom Gallagher


Tom Gallagher, Florida’s chief financial officer, called for new legislation to help expedite the rebuilding process for hurricane victims.  The measure would ensure homeowners immediately receive insurance money for additional living expenses and lost personal contents, as well as 20 percent of the insurance proceeds to repair structural damage, without the need for an endorsement from their financial institution.             

“This legislation will ensure faster payment for storm victims following a major catastrophe,” said Chief Financial Officer Gallagher. “It will make it easier for families to get the money they deserve.”

Gallagher said he is recommending the measure as part of a comprehensive package of reforms he has put forward to strengthen Florida’s homeowners insurance market and improve coverage options and protections for homeowners. 

During town hall meetings held throughout the state, CFO Gallagher heard from too many consumers who had to wait weeks for their payments for temporary housing or to secure a contractor to start storm repairs. The Department of Financial Services, which Gallagher oversees, heard from more than 350,000 consumers following the 2004 and 2005 hurricane seasons and a majority complained about the delays in receiving insurance payments.

Gallagher’s proposal would cut down on the obstacles to consumers to receive payments. Added Gallagher, “Storm victims should not have to chase after money that is theirs to begin with, and there is no reason why these funds should not be released directly to the homeowner, especially in the aftermath of a catastrophic storm.”

Gallagher said insurance companies should issue checks for living expenses and personal contents only to the homeowner because the financial institution does not have a vested interest.  He said that a portion of the money to repair property should also go directly to the homeowner so they could make an initial payment to a contractor, rather than having to resort to high-interest credit cards and loans to start repairs. Land values, which are not insured, in addition to private mortgage insurance and equity would ensure that the lender’s interest in a property is adequately covered.  The remaining insurance proceeds would still be subject to present dual endorsement requirements by lenders.

Gallagher said the rules now in place present hurricane victims with even more challenges, because the mortgage they obtained in Florida often has been sold to a new company based in another state.  Gallagher believes storm victims should not have to jump through additional hoops to get money that is rightly theirs.

This latest legislative proposal offered by Gallagher is another component of his comprehensive insurance reform package to be considered by the Legislature.

Gallagher’s reform package includes calling on Congress to establish a national catastrophe fund and to create Catastrophic Savings Accounts to help Floridians save money tax-free to cover hurricane deductibles or expenses.  On the state level, Gallagher is lobbying state lawmakers to earmark surplus sales tax revenue collected in the wake of hurricanes to offset hurricane assessments against homeowners. He is also pushing for standardizing Florida’s building code statewide and capping coverage of homes in excess of $1 million by Citizens Property Insurance Corp., the state’s insurer of last resort.  


Tom Gallagher, Florida’s chief financial officer, announced today that a new resource for fighting insurance fraud, coupled with legislative remedies he is pursuing, will strengthen efforts to combat auto insurance fraud, including tougher criminal penalties for “paper” and “phantom” automobile accidents, and revoking the licenses of drivers who commit auto insurance fraud. 

The new resource, Miami-Dade County Assistant State Attorney Erika Isidron, will be the second prosecutor in Florida dedicated to putting criminals who commit auto insurance fraud behind bars.  Isidron, a prosecutor for the last six years, most recently served as a chief of one of the felony trial divisions in the Miami-Dade State Attorney’s Office, overseeing prosecution of serious felony offenses such as sexual battery, armed robbery and homicide. 

“Increasing our investigative force and pursuing tougher laws will strengthen our ability to put scam artists behind bars and enforce our message that we intend to put the brakes on this costly crime,” said Gallagher, who oversees the state’s Division of Insurance Fraud (DIF). CONTINUED

Many auto insurance fraud cases involve unscrupulous lawyers, doctors and clinic owners who illegally bill for services covered by personal injury protection (PIP) coverage, which provides up to $10,000 for medical bills from an auto accident, regardless of who is at fault.  Florida law requires drivers to carry a minimum of $10,000 in PIP coverage and $10,000 in property damage liability coverage.

Isidron joins Nina Vivenzio, another Miami-Dade assistant state attorney, who has been dedicated to prosecuting PIP fraud for almost two years. Gallagher said that having a dedicated prosecutor like Vivenzio on insurance fraud cases has resulted in at least a 20-percent increase in prosecutions.

Building on hard-hitting legislation passed in 2001 and 2003, Gallagher this year will ask the Legislature to approve additional reforms including:

  • Make it a second-degree felony to do “paper” or “phantom” automobile accidents, with a minimum mandatory two-year prison sentence.  “Paper” or “phantom” accidents occur when a driver files a fraudulent accident report on a crash that never happened and then bills the insurance company for medical services never rendered.

  • Make it a third-degree felony for any service provider, such as a clinic or body shop, to waive insurance deductibles as a general business practice.  Waiving deductibles makes it easier for individuals to profit from PIP fraud schemes.

  • Revoke a person’s driver license if they use a vehicle to commit auto insurance fraud.

  • Re-enact the crash reports exemption to restrict the release of police accident reports, which are often used for illegal solicitation.

  • Require medical clinics to post the state’s Fraud Buster reward program hotline and reward program information.  

Gallagher said that fraud detectives have made more than 1,000 PIP fraud-related arrests since 2001.  In Miami-Dade County, PIP fraud arrests have steadily increased, last year by 25 percent when 254 arrests were made.  PIP fraud arrests in 2005 included 185 “patients” of which 159 were involved in staged accidents, 17 clinic owners, 18 clinic employees, 1 doctor and 31 runners.

“I commend our investigators and prosecutors for their tenacity in making our state a national leader in combating insurance fraud,” Gallagher said.  “We will not give up the fight to protect Floridians from the danger and cost inflicted by insurance fraud schemes.”


Independent review reveals Citizens is using questionable factors to raise rates

Tom Gallagher, Florida’s chief financial officer, said today that Citizens Property Insurance Corporation should not be allowed to arbitrarily raise rates without justifying them.

 “Citizens should be transparent and accountable for its financial and ethical performance, and that includes the rates that it charges,” Gallagher said.  “Nearly 800,000 Floridians are counting on Citizens for property protection and deserve options.  That is why I am calling for federal and state solutions that will strengthen our property insurance market and expand coverage options for Florida homeowners.” CONTINUED

According to Gallagher, the first flaw in Citizens’ rate filing is what is termed an administrative factor.  Citizens is asking for higher rates using the industry’s expense experience, which is significantly higher than the expenses that Citizens actually incurs.

The second weakness was Citizens’ use of an “assessment factor,” which would allow the insurer to build up cash to reduce the likelihood of a future assessment. However, Citizens does not have the statutory authority to use this factor.

Since October 2005, Gallagher has been advocating stricter ethical standards, and greater financial oversight and accountability at Citizens.  He has also proposed other needed reforms, including using the surplus in sales tax revenue to offset the burden of a Citizens assessment on homeowners, capping Citizens’ coverage of homes at $1 million or less, reallocating a portion of mitigation dollars to retrofit older homes now trapped in Citizens, and requiring the Office of Insurance Regulation to evaluate the success of Citizens’ Market Assistance Program and take-out programs.

Other solutions being advocated by Gallagher to improve the affordability and availability of homeowners’ coverage include:   creating a national catastrophe fund, allowing tax-deferred catastrophe reserves for insurance companies, standardizing Florida’s building codes statewide, and creating federal tax-free Catastrophic Savings Accounts.

The independent review of Citizens’ rate request is one of eight reviews of insurance companies’ rate filings conducted by Gallagher’s insurance consumer advocate in the last eight months.


Tom Gallagher, Florida’s chief financial officer, applauded a new rule that will require insurance companies to demonstrate how they use credit scores when writing or pricing insurance coverage and that the practice is not unfairly discriminatory. 

“There should be a zero tolerance policy for any information used by insurance companies that impacts your ability to obtain or maintain coverage based on your race, religion, income level, or other discriminatory factors,” Gallagher said. 

Gallagher led the charge on this issue starting in 2001, when he appointed a task force to examine the insurance industry’s use of credit reports and credit scores when writing and pricing homeowners and auto insurance coverage.  At that time, half of the top ten writers of homeowners insurance admitted to using credit information or credit scores, and nine of the top ten writers of auto insurance use one or both. 

After several public hearings around the state, Gallagher’s task force made a series of recommendations, many of which were included in legislation passed by state lawmakers in 2003.

Gallagher, who serves on the Cabinet, said the rule approved today was long overdue because the 2003 legislation, Senate Bill 40-A, called for the Office of Insurance Regulation to develop rules to ensure that premiums charged based on credit reports or credit scores were not unfairly discriminatory.

The law, which went into effect on January 1, 2004, prohibits insurers from using a person’s credit history against them if they are dealing with unexpected medical bills or the death of a spouse.  It also prohibits insurers from denying coverage or raising rates based solely on a credit report or score.  Insurance companies are also prohibited from denying coverage or raising an insured’s rates based, in whole or in part, on any of the following factors:  the absence of or insufficient credit history, past due medical bills, or place of residence.


Warrants issued for three others in connection with December motel fire

A woman suspected of operating a methamphetamine lab that sparked an explosion and fire in a Destin motel room in December was arrested in the parking lot of a Niceville motel.  Niceville Police Department officers reportedly seized a mini-meth lab and chemicals for processing meth from her gray Dodge truck.

Tom Gallagher, Florida’s state fire marshal, said detectives with the Bureau of Fire and Arson Investigations received warrants on Friday for Aprele Renee Lail, 35, and three others wanted in connection with the December fire at a Motel 6 in Destin.   Adrian L Hormuth, 28, Diana Knight Denmon, 48, and Steven Todd Bullard, 38, are also being sought on charges in connection with the December 6, 2005, fire at the 405 Harbor Blvd. motel. The early morning fire caused an estimated $100,000 in damages.

“That fire put numerous motel guests at risk of injury,” said Gallagher, who is pushing for legislation this year that would toughen criminal penalties for convicted meth manufacturers.  “In Florida, meth labs have been found in suburban and rural neighborhoods, state parks, hotels and motels, and in automobiles traveling on our highways.  This drug is tearing apart families and destroying lives and poses a significant threat to our communities.”

Lail and the three others still being sought in the motel fire are each charged with drug manufacturing, arson, culpable negligence and failure to control or report a dangerous fire.  Detectives said the four started the fire while operating an illegal methamphetamine drug laboratory in the motel room.  As the fire burned out of control, all four subjects fled the motel without alerting the motel guests, the front desk employee or calling 911. The fire quickly spread throughout the room, destroying its contents.

Hormuth, who is still being sought on the charges, last week was accused of fleeing law enforcement officers who had spotted a large box in the front passenger seat of his Firebird.  Reportedly officers saw that the box contained chemicals and elements used to make meth. 

After hearing that state arson investigators were responding to increasing numbers of meth lab fires and explosions – more than 50 in less than two years – Gallagher prompted the State Fire Marshal’s Office early last year to put together a comprehensive training program on meth labs for Florida’s emergency responders.  Six three-day-long classes have been held in various locations throughout Florida for several hundred emergency officers, free of charge. 

Gallagher also is pushing for laws that would allow for the immediate removal of children from a home being used as a meth lab and enhance penalties for methamphetamine makers, particularly those whose labs injure emergency responders.  The proposed legislation also would make the manufacture of meth a serious crime, allowing bond to be denied, and establish trust funds from proceeds of forfeitures in meth cases to help children of meth addicts and help local communities clean up meth labs.

The Bureau of Fire and Arson Investigations is the law enforcement branch of the Division of State Fire Marshal that assists other state and local fire and law enforcement agencies in the investigation of fires of suspicious origin.  Anyone with information about this case or any incident of fire is asked to call 1-877-662-7766 (1-877-NOARSON). Information may also be mailed to The Bureau of Fire and Arson Investigations, 105A Lewis Street, Suite 103, Ft. Walton Beach, Florida 32547.

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