April-FoolNormally, April 1st is known for being the one day when you can pull pranks on friends and co-workers and still escape the beating that would normally follow on any other day.  By merely yelling, “April Fools!”, you can escape judgment for all sorts of sins and misdeeds – all in the name of “good fun”.

Unfortunately, this April Fools Day will hold special meaning to property insurance policy holders in Florida because, as of April 1, 2015, the Homeowner Flood Insurance Affordability Act of 2014 goes into effect.  As history has shown, anytime the Federal government passes a law with the word “Affordability” in the title, you know you are going to have to reach for your pocketbook.  The Homeowner Flood Insurance Affordability Act was passed last year to kick the can down the road with regard to sky rocketing flood insurance premiums under the Biggert-Waters Act, but it looks like “down the road” is now staring Floridians in the face.  Although the new premium increases won’t be as draconian as the $30,000 residential flood insurance premiums homeowners were facing under the Biggert-Waters Act, Floridians can still expect to see increases of approximately 18% annually until the premium charged for flood insurance coverage is “actuarially sound” (i.e., never).

But not to worry!   A local congressman just introduced a bill entitled the Flood Insurance Premium Parity Act of 2015.  Based on this lofty sounding title, the bill is sure to solve any and all problems and make flood insurance affordable for all in perpetuity.  See – nothing to worry about.

 Sadly, although we knew that Citizens Property Insurance Corporation is overrun with corruption, recent news reflects that even we did not know how bad the situation has gotten.  Although the formation of Citizens Property Insurance may have initially been a good idea, it has since morphed into merely a “cash grab” for cronies of Governor Rick Scott and others who know how to work the “system”.

Charles Elmore of the Palm Beach Post recently wrote an excellent article regarding Citizens’ hiring of a West Palm Beach Lawyer and agreeing to pay him $6.5 million dollars – despite the fact that he has no property insurance experience, has by far the highest billable rate, and came in third in all objective rankings.  We have provided the article, in its entirety, below and recommend you read to the end in order to fully appreciate how “insiders” laugh as they bilk the policyholders of Florida:

West Palm lawyer’s fees soar above Citizens rivals

Critics say ties to state officials, costs don’t pass ‘smell test’

By Charles Elmore – Palm Beach Post Staff Writer 

No competitor came close to the $525 per hour fees of a West Palm Beach lawyer whose firm won a contract for more than $6 million from state-run insurer Citizens in December, bidding records examined by The Palm Beach Post show.

The next highest hourly fee, among nine firms bidding from as far away as California: $360.

Citizens executives say the money is well spent if Scott Link and colleagues help the company settle or fight 13,000 claims lawsuits more efficiently without necessarily setting foot in a courtroom, by directing strategy for other lawyers the company already pays. In an interview with Citizens, Link said his role is like “the mover of the chess pieces.”

Not everyone thinks Citizens has check-mated wasteful spending with this deal.

“It doesn’t pass the smell test,” said Jay Neal, president and CEO of the Florida Association for Insurance Reform, a Fort Lauderdale-based advocacy group that includes industry and consumer representatives. “You could bring this in-house and save a lot of money. One of the most important things this company has to do is retain public trust.”

Ackerman, Link & Sartory cited no particular expertise in property insurance before applying in 2012 for the first of two contracts that together stand to pay the firm more than $8 million. In its applications, the firm saw no need to disclose ties to former Citizens President Tom Grady, an ally of Gov. Rick Scott, and Florida Chief Financial Officer Jeff Atwater as potential conflicts.

Records show it finished third of nine bidders in initial scoring by a Citizens evaluation panel for the first contract based on written applications, barely making the cut for interviews. Then it soared to the top after an interview lasting less than 30 minutes.

The compensation stands out at a company criticized for weak oversight on spending by, among others, Gov. Scott’s own inspector general.

Scott Link’s projected billing of more than $1 million a year under the contract is more than triple the $300,000 pay of Citizens president and CEO Barry Gilway, who oversees the entire company. Citizens is Florida’s largest property insurer serving more than 1 million customers.

A draft contract, not yet signed, provides for additional billing at $262.50 per hour for Link’s travel time. That is on top of any travel reimbursements such as hotels or meals, a Citizens spokesman said.

The firm’s job is to serve as “coordinating counsel,” overseeing strategy on lawsuits involving claims from sinkholes to water damage, cases in which Citizens already pays other attorneys.

No ethical concerns

In its application, Ackerman, Link & Sartory said it had no ethics conflicts to disclose concerning Citizens. Not mentioned: former Citizens president Tom Grady had a business relationship with the West Palm Beach law firm, which paid him as recently as 2010, according to Grady’s state financial disclosures.

Grady, a friend and Naples neighbor of Gov. Scott, was interim Citizens president in 2012 when solicitation began for the first of two contracts Link’s firm ultimately won. Those contracts were for a high-paying role that had not existed before at Citizens, and they were handled as “expedited” bids in a speeded-up process.

“This is an emergency contract there was no need for,” said state Rep. Frank Artiles, R-Miami, a public adjuster who has been an outspoken critic of the deal. “This was an inside job.”

Citizens executives dispute that, saying the arrangement was properly bid and stands to benefit the company by helping it handle cases better. That can mean settling some cases quickly, fighting more effectively on others or working with front-line employees to avoid future problems, they say.

Benefit to Citizens argued

Information presented in support of the firm’s work coordinating sinkhole claims said the average amount paid per lawsuit dropped to about $120,000 during the firm’s tenure, compared with more than $140,000 in 2011. Citizens General Counsel Dan Sumner said if a third of the 10,000 pending non-sinkhole cases were resolved on terms the company considers favorable, it could save $97 million in litigation costs over the life of the contract.

Artiles scoffed at such claims at a board meeting last month, saying the company was still losing about half of the very small percentage of sinkhole cases that go to trial and estimating it could save $50 million in litigation costs simply by paying the full claims policyholders submit.

Gilway said plaintiff attorneys would love that, but the company has an obligation to other policyholders not to pay for unwarranted claims. The Citizens president spoke out forcefully for Link in company meetings, saying in November, “We need the talents Scott Link is bringing to the table.”

Another partner in the firm, Wendy Link, is projected to bill $50,000 a year under the deal. She serves on the Florida Atlantic University search committee considering candidates for FAU president including Atwater, who interviewed for the university job Friday but was not named one of three finalists. Atwater appoints Citizens board members and, along with Scott and other top state officials, oversees the company’s management.

Wendy Link listed Grady and Atwater as her first two references for an appointment to the Florida Board of Governors in 2011, records provided by the governor’s office show.

Link told The Post last week she disclosed potential conflicts including the reference and the Citizens contract to FAU and state officials, who “encouraged me to continue my service to the Search Committee.”

As for other questions, she said, “Our firm has always had a commitment to our clients not to discuss any issues regarding our clients with the media unless the client specifically requests that we do so.”

Meeting with Atwater

Two days before Citizens approved the contract Dec. 13, Atwater organized a meeting in his office that included Scott Link, records show. The participants included a homeowner advocate and the only discussion was “to make sure Floridians are getting the claims assistance they deserve,” an Atwater spokesman said.

Despite protests from Rep. Artiles, Citizens board member John Wortman, appointed by Scott, made a motion to approve the contract last month, and it passed 4-1 with two abstaining.

Any business relationship with the West Palm Beach firm had ended by the time Grady assumed his role at Citizens, so it wasn’t an issue, Citizens officials maintained. Officials said they were assured Grady received no residual compensation from the firm, and both the 2102 contract and the one now pending forbid paying fees to others firms or lawyers — including, specifically, an “of counsel” attorney.

Grady is listed in records as having served “of counsel” to the Ackerman firm. That term typically means he received compensation for services without being a partner or full-time employee.

Total payments of $6.5 million over four years to the law firm have been approved, though a final contract has not been signed, a company spokesman said.

If the justification for the contract is to save money over the long haul, is the firm’s pay tied to any specific dollar figures to be saved, or number of cases to be resolved? A draft contract provided by Citizens mentions no particular figures but says, in part, “Anticipated cost efficiencies including demonstrated savings in fees and defense costs will be measured and related to the implementation of specific strategies in order to determine the effectiveness and efficiency of the specific strategies and/or the overall claims litigation strategy in achieving the state objectives.”

‘Hope and a prayer’

Former state insurance consumer advocate Sean Shaw, a Tampa attorney who sues insurers, said, “There’s no evidence this is going to save any money. It’s a hope and a prayer.”

A spokesman for Gov. Scott said before the Dec. 13 vote, “This will be entirely up to the Citizens board and we have every expectation that they will do the right thing to protect Florida taxpayers.”

In an explanation of its ethics policy on its website, Citizens explicitly forbids senior managers from, for example, working for or entering a contractual agreement with a private insurer that receives a bonus to take Citizens customers within two years.

Neither Citizens nor the law firm saw anything in Grady’s situation they regarded as a particular ethics problem, though the company website says determining whether a course of action is ethical involves questions including “How will it look to others?” and “How will it affect Citizens’ status as a trusted decision-making entity?”

Link’s firm claimed no expertise, or even any significant experience, in property insurance or sinkholes when it applied in 2012 to win a newly created $1.5 million contract to become coordinating counsel for sinkhole claims. Instead, it emphasized experience with complex civil litigation involving brokerage and financial firms, auto insurers and phone companies.

The firm was not the initial top choice of a Citizens evaluation committee including Sumner, assistant general counsel Elaina Paskalakis and vice president of claims Lance Malcolm, records show. Based on written applications, the committee scored it No. 3.

No. 1 was Gray Robinson of Tallahassee, followed by Colodny, Fass, Talenfeld, Karlinsky, Abate of Fort Lauderdale. Those firms declined to comment for this story.

“There were others ranked higher for less money per hour?” Artiles said. “Are you kidding?”

But the Ackerman firm rocketed to the top in the interview round. In an interview lasting less than 30 minutes, Sumner told Link he had done a “good job” in the written application distinguishing between the role of coordinating counsel and that of a regular defense lawyer working on a particular case, an audiotape shows. Sumner asked him to elaborate and add “color.”

Sumner asked about fees, saying “you get what you pay for,” but the firm’s fees were high compared to other bidders. Scott Link said he would hesitate to lower fees, which he considered already “discounted” compared to other firms that charge more than $600 an hour doing similar work. That would not be fair to other clients, he said.

Malcolm asked about how the law firm could help the company’s front-line workers process sales and claims. Paskalakis had no questions.

In March, Link’s firm said it reached the limit of its previous $1.5 million contract and Citizens granted it another $100,000 per month.

Citizens emphasized experience as coordinating counsel for the broader contract awarded in late 2013, and by that time the West Palm Beach firm was bidding as an incumbent expanding its prior role.

In his 2013 interview for the bigger contract, Link was again asked if he would consider renegotiating his fees.

“I would certainly increase them if you insisted on it, but I would do it reluctantly,” he said.

People laughed. The moment of levity over, Link then repeated his position the fees were already discounted and lowering them would be unfair to other clients.

 

 

As part of an ongoing effort to give the shaft to Florida consumers, a bill was recently filed with the Florida Legislature which would greatly restrict – or even eliminate – the rights of property owners attempting to properly repair damage caused to their homes by sinkhole activity.  Senate Bill 416 (blandly titled, “Sinkhole Coverage”) is a blatant attempt to not only force property owners to repair their property in the manner chosen by Citizens Property Insurance Company, but to also relieve Citizens of any further liability if its mandate repairs fail to repair the home.

In order to understand the true malevolent nature this proposed bill, it is necessary to understand the manner by which sinkhole damaged properties are normally repaired.  If a property is deemed to have been damaged by sinkhole activity, the insurance company must then provide coverage for the cost to repair the property.  Usually, the engineering firm which initially found the sinkhole activity would set forth a recommended repair method, but then, per the Florida Statutes, the homeowner would also have a say in the manner by which the property was to be repaired.  Through this statutorily mandated consultation between the insurance company and the property owner, it was hoped that an agreeable resolution could be reached and the property repaired to the satisfaction of all.  Furthermore, the law mandates that, if the homeowner was forced to used the insurance company’s repair method, the insurance company must stand behind these repairs and if any further damage resulted or the mandated plan was not sufficient, the insurance company must come back and provide any additional  repairs necessary.

Citizens Property Insurance is now attempting to “legislate” its way out of this deal – but in an amazingly brazen way.  Per SB 416, Citizens would be able to legislatively mandate that property owners not only repair the property pursuant to Citizens’ method, but that the property owners MUST use one of Citizens’ “chosen” repair companies.  But here comes the real kicker – these repair companies must fix the property on a “fixed price” contract.  In essence, whatever cost estimate Citizens’ engineer thinks up, the third party repair company will only be paid that amount per the contract and, if the cost estimate is not accurate or the job runs over, the third party repair company must continue to repair the property and eat the difference in cost!    But wait, it gets better.  Not only does the repair company have to eat any overages in the repair costs (which almost always occur), the repair company would be legislatively mandated to “guarantee” the repairs down the road!  (Remember, it was Citizens’ engineer who made the cost/repair estimate, not the repair company.)  If the shoddy repairs set forth by Citizens fail and further damage is caused to the home – the third party repair company is stuck with having to pay for the damage – and Citizens gets to walk away with no exposure!   Under the new proposal, despite Citizens being able to force its version of the repairs upon the property owner, Citizens’ only exposure for these repairs – even if the repairs catastropically fail (think Dunedin) – is paying the initial cost estimate set forth by its own engineer.

Now, let’s take this one logical step further.  If Citizens knows that its only exposure is paying the repair cost estimated by its engineer, and Citizens is the entity that pays the engineer….how long will it be before this engineer starts getting pressure to “under-estimate” the repair protocols?  It would be a great deal for Citizens – if its engineer can look at a repair job that should cost $50,000, but instead the engineer gives the opinion that the repair cost should only be $30,000 – that would be all Citizens would have to pay!  And hey, when the expenses hit their true value during the repair of the property, it is the third party repair company that has to pick up the tab – no matter what the cost!  What a deal!  Heck – why not just estimate the cost of repair at a dollar – by law, that is all Citizens would then have to pay!

Clearly, Senate Bill 416 is not good for Florida consumers – or even repair companies for that matter!  During the upcoming legislative session, it is important that all Florida property owners make sure that their elected officials fight for the rights of their constituents and not allow insurance company lobbyists to have their way in Tallahassee.

By now, most Floridians have heard about – or even experienced – the incredible spike in flood insurance premiums that are coming their way due to the Biggert-Waters Flood Insurance Reform Act.  In short, the Biggert-Waters act is a new federal law which attempts to address a $24 billion dollar deficit in the coffers of the National Flood Insurance Program by raising flood insurance rates across the board.

Unfortunately, the slipshod manner by which this law was enacted is going to have a catastrophic affect on the economy of Florida and the financial future of many Floridians.  The Tampa Bay Times wrote just the other day about a Seminole couple who was looking down the barrel at a 900 percent increase in their flood insurance premium.  Contrary to the initial thoughts of many, Florida is not known for incurring large amounts of flood losses.  In fact, many studies have shown that Floridians have only received about $1 in claim payouts for every $4 that Floridians have paid into the federal flood insurance program.  Despite not having a large amount of historical claims, Florida does stand out as having the most overall flood policies issued – over 2 million policies and counting.  Because of the sheer number of these policies, Florida must bear the brunt of the steep rise in premiums.

But – even if the Feds have thrown Florida under the bus, help may be on the way from our Florida legislature.   State Senator Jeff Brandes of St. Petersburg has said that he is close to filing a bill that would encourage private insurance companies to offer flood insurance in Florida.  Normally, flood insurance is not provided under your normal homeowner’s insurance policy and must be purchased separately through the federal flood insurance program.  This new proposed legislation would encourage private insurance companies to offer an alternative to the federal flood coverage by making changes in the residential “surplus lines” insurance market.  In general, surplus lines insurance carriers are not as regulated as “normal” insurance carriers and are not subject to many of Florida’s laws and requirements (including rate regulation).  Lloyds of London, for instance, is a surplus lines carrier, as opposed to State Farm Florida Insurance Company, which is a “non-surplus lines” insurance company and therefore subject to the laws and regulations of Florida.

It has become clear that any relief for Florida property owners will have to come from reforms at the State level as opposed to waiting for the Federal government to take action.  Considering the large available market for the issuance of private flood insurance policies and the relatively low occurrence of flood claims, Florida may well turn out to be quite a profitable endeavor for a private insurance carrier willing to take on the risk.

 

Despite no major storms or hurricanes hitting Florida since 2005, Florida property insurance rates have continue to skyrocket over the past few years – with no end in sight.  Shockingly, a recent AP report showed that Florida’s Office of Insurance Regulation has approved more than 100 rate hikes per year since 2009.  Where is the money going – surely not for claims!

The biggest “expense” an insurance company faces is the cost of reinsurance.  Simply stated, reinsurance is an insurance product that an insurance company buys for itself to offset any claims it must pay.  If an insurance company has a large number of claims in a given year, the insurance company submits a claim to its reinsurance company for reimbursement of the amount paid in claims.  The only difference between a policy holder’s relationship with his insurance company and the relationship an insurance company has with its reinsurer is…..the insurance company most likely owns the reinsurance company as well!!!  With this cozy relationship, an insurance company can jack up the rates that it must pay itself – er, I mean, its reinsurer – and thereby create an artificial “hardship”.  The insurance company then squeals to the media and to the legislature that it can’t make any money in Florida unless they are allowed to further increase rates.  Clearly, since an insurance company can set its own expenses (due to the fact that it can manipulate the money it pays to itself as a “cost”), it will never show a profit from its Florida operations!  The Sarasota Herald Tribune wrote a Pulitzer Prize winning article on this concept in 2010.

Where does this leave the individual homeowner who is struggling to pay his ever-increasing property insurance premiums?  Until our representatives in Tallahassee are willing to stand up to the insurance companies and their lobbyists, all Floridians will have to just wait and see what this year’s hurricane season has in store for Florida.  Unfortunately, history has shown us that – whether a storm comes this year or not – we will be facing higher insurance premiums either way.  You know – because of those “reinsurance premiums”….  

 

Back in 2007, the insurance industry lobbied for the passage of an alternative dispute resolution mechanism for disputed sinkhole claims – a process which they cleverly entitled “Neutral Evaluation”.  The concept was that if there was a disagreement between a property owner and an insurance company as to any issue related to a sinkhole claim, either party could request that the matter be submitted to the neutral evaluation process.  Upon submission to neutral evaluation, a “neutral” third party expert would review all available reports and estimates and render an opinion as to the cause of the loss and/or the cost to repair.  (Please refer to my previous post re: Neutral Evaluators for a further explanation as to why I place the word “neutral” in quotation marks.)

The new wrinkle in this process is that Citizens is now electing to ignore the recommendations of the neutral evaluator – even when Citizens demanded that the property owner submit to the process!  The scenario we are seeing is that as soon as Citizens senses a dispute between its experts and the property owner, Citizens will immediately file for neutral evaluation in order to prohibit the property owner from filing a law suit.  BUT – if the neutral evaluator then decides that Citizens’ position on the claim is incorrect and that either coverage should be found or a better repair method is warranted, Citizens will then refuse to honor such decision and will mandate that the property owner agree to Citizens original position.

Clearly, Citizens’ current tactics are in direct contravention of the purpose of the neutral evaluation statute.  Citizens new stance on this process is especially shocking in light of the fact that the neutral evaluation process was a product of the insurance industry’s efforts to limit property owners rights with regard to sinkhole claims.  Clearly, it is now more important than ever to seek the advice of a qualified lawyer who specializes in sinkhole claims in order to best protect your rights against the insurance company.

Back in the good old days of yore (which, at this point, was approximately 4 years ago), whenever an insurance company provided you with a policy of homeowner’s insurance, it automatically included coverage for any damage caused by sinkhole activity.  In 2007, as part of the insurance industry’s never ending attempt to limit coverage to its clients, insurance company lobbyists convinced the legislators in Tallahassee to change this law and to make sinkhole coverage “optional”. 

In fact, after that initial revision to the law, if you lived in Pasco or Hernando counties specifically, sinkhole coverage was automatically excluded from your insurance policy, and if you wanted this coverage, you had to specifically request such coverage and pay an initial premium for it.  For the rest of the state, sinkhole coverage was still included in your policy, but you could opt out of such coverage – if you were feeling lucky!

As part of the insurance industry’s “bait and switch”, the Legislature allowed insurance companies to completely remove full sinkhole coverage from their policies in Florida and to provide Catastrophic Ground Cover Collapse Coverage instead.  In order to qualify for coverage under this new provision, property owners must meet a four prong test – the last of which states that coverage will only be allowed if the property is both “Condemned” and ordered “Vacated” by a “governmental entity”.  What? 

Needless to say, it is vitally important to thoroughly review your policy of insurance.  Should you find that the coverage provided by your policy provides insufficient protection, you should give a lot of thought to obtaining more complete coverage – preferably long before the need to place a claim arises!

If you’ve filed an insurance claim for sinkhole related damage in the past few years in Florida, you’ve most likely seen the term “neutral evaluation” in various correspondence or heard the term mentioned by an insurance adjuster.  A few years ago, the Florida Legislature enacted a law whereby if there is a disagreement as to whether sinkhole activity is present on the property or as to the appropriate method to repair the damage, either party to the claim can elect to submit the claim to the neutral evaluation process.  During the neutral evaluation process, a third-party expert chosen from a list maintained by the Department of Financial Services reviews all the investigative reports, inspects the property, and then renders a non-binding “third-party” opinion as to the issue in dispute.  Although the report issued by the neutral evaluator is non-binding, the law states that his report is automatically admissible in any legal proceeding relating to the claim.

Sounds pretty straight forward, right?  Perhaps not.  Exactly what standard does a neutral evaluator have meet in order to be considered “neutral”?  When the neutral evaluation process first began, the Florida Legislature (or perhaps, the insurance company lobbyists?) set forth that an expert would be deemed “neutral” if that expert received 90% or less of their income from insurance companies.  So, in light of this definition, an expert who received 89% of his livelihood from an insurance company would not be seen as being biased in favor of insurance companies.  Hmm – how odd.

Recently, the insurance company lobbyists – er, I mean, the Florida Legislature – further refined the definition as to what would be deemed “neutral”.  Currently, the only “neutral” qualification they must meet is that the expert be, “determined by the department (of financial services) to be impartial”.  Apparently, the Legislature believed that the 90% cut-off requirement was too restrictive and that experts who received in excess of  90% of their income from insurance companies should still be considered “neutral” for this process.  Who are we to question that logic!

Clearly, the use of the word “neutral” in the neutral evaluation process is subject to scrutiny.  Although this process may have been sold to the general public as a way to have sinkhole claim disputes resolved by an “impartial” third party, the reality may be that the “independent” expert may be very beholden to the insurance industry.