The Summer Bug

It’s the summer – maybe not officially according to the June 21 calendar start, but judging by the outdoor thermometer temperatures and volume (and size of) mosquitoes, yes, it’s summer!  Florida’s elected leaders are sounding the alarm bell about the mosquito-born Zika virus and you may be wondering, why do some people get bitten more than others?  We did some research and found some fascinating, documented evidence of what promotes the appetite of mosquitoes!

Several factors make us tasty morsels for these pesky bugs, not the least of which is our blood type.  Mosquitoes bite us to harvest proteins from our blood—research shows that those with Type O get bitten twice as much as those with Type A.  In addition, mosquitoes love carbon dioxide so people who simply exhale more of the gas over time—generally, larger people—have been shown to attract more mosquitoes than others. This is one of the reasons why children get bitten less often than adults, on the whole. Those that exercise and sweat attract attention from mosquitoes and just a single 12-ounce bottle of beer can make you more attractive to the insects.  Pregnant women, because they exhale more and have warmer body temperatures are a target.  Wearing black or dark blue make folks stand out against a sunny day sky and causes mosquitoes to find the person standing out!

So what’s the point?  It will be tough to be a Type O, exercising, pregnant woman in a black shirt to avoid being a delicious dish for mosquitoes and all the annoyance they bring to outdoor fun!

Now on to our tidbits and tales that are happening all around us – beginning with the Florida Legislature.

Special Session Adjourns

The 2017A Special Session lasted less than 72 hours and there was a flurry of activity leading to Sine Die this past Friday afternoon.  Topics on the docket for the special session included Florida’s $83 billion budget where public school/per student funding was a source of hot debate, along with money devoted to continue repairs on Florida’s Herbert Hoover Dike on Lake Okeechobee, and University infrastructure funding (issues added to the Special Session topic list on Friday June 9 and agreed to by close of business the same day).

The most followed topic was the passage of Florida’s medical marijuana law. The 80+ page law (SB 8A) by Senator Bradley, implements provisions in Amendment 2, passed by voters last November, allowing the use of medical marijuana for debilitating conditions.  The law, expected to be signed by the Governor, allows for 10 new “grower” licenses in addition to the 7 current “growers” and sets out parameters for retail dispensaries, capping the number of them to 25 per grower.  ‎You can read a comprehensive summary of the bill here.

For those who want to know how their tax dollars were spent (it costs $60,000 a day to have all 160 legislators in town) the following gives you a glimpse of what transpired:

3 proclamations issued which spelled out the issue/topic to be addressed
12 press availabilities held
13 bills filed
13 committee votes taken
19 bill texts filed
40 floor votes taken
55 statutes referenced
56 hours elapsed
71 amendments filed

Whether it’s a regular or a special session, it’s a privilege to serve as your legislative voice and source!

NFIP Reform Making Headway

With less than 90 days remaining until the beleaguered National Flood Insurance Program (NFIP) expires, the U.S. House is making progress toward a series of reforms designed to tackle the programs $24.6 billion in debt and improve access and affordability for homeowners.  Draft legislation in the Flood Insurance Affordability & Sustainability Act of 2017 includes expanding the role of private insurers, mandating the program purchase reinsurance, and offering voluntary buyouts of properties that repeatedly flood for eventual federal demolition.

Sticking points include how to ease current regulation on private insurers to encourage their participation and how to deal with chronic flood properties that refuse to sell, especially in vulnerable coastal areas. The bill would also lift the mystic curtain on NFIP rate making and loss information.  Mitigation is included, too, with proposed funding for putting homes on pilings to raise them above future floodwaters.  The bill would reauthorize NFIP through 2027 with approval of the U.S. Senate and the President.

A recent Government Accountability Office report suggests consideration of a full bailout and forgiveness of the debt to the Treasury and expanding mandatory flood insurance purchases to most homeowners to help subsidize the program.

The House Financial Services Committee held a public hearing last week and many of the comments were supportive of the bill’s provisions.  Several speakers noted the current rate structure is unsustainable and that it’s important to clarify that private insurance meets current NFIP requirements so that Fannie Mae and others will back those home mortgages that have private insurance.  You can visit the Committee’s webpage to watch an archived webcast here.

Our own champion of a robust private flood market in Florida, state Senator Jeff Brandes, says that with ever increasing NFIP rates, it’s only natural that a private market can relieve some of NFIP’s lower-risk portfolio.   He supports a Citizens Insurance type model for the feds:  allow private insurances to bundle properties currently within the NFIP and take them out, just as we do with Citizens.  Great idea!  Florida is about 40% of the NFIP market and our policyholders only receive back $1 for every $4 they pay into the program.

We were reminded just this past week what’s at stake here in Florida.  Heavy rains dumped more than 10-inches within 24 hours on some South Florida communities, causing flash flooding.  A new report out last week by CoreLogic shows that the Tampa Bay area is the third most at-risk area in the country for flood, with almost 460,000 homes at risk from tidal storm surge from the Gulf of Mexico and Tampa and Hillsborough Bays.   The cost to rebuild those homes is estimated at nearly $81 billion.

OIR Revises Rules on Loss Reserve Discounts

The Florida Joint Administrative Procedures Committee’s determination this spring that the Florida Office of Insurance Regulation’s (OIR) Loss Reserve Discounts rule is vague and thus invalid is prompting a revised set of rules scheduled for final approval this Wednesday by the Florida Cabinet, sitting as the Financial Services Commission.  The Committee declared OIR’s failure to set forth standards it uses in evaluating applications for loss reserve discounts as the reason for its order.

Specifically, the Committee took issue with the current rule that states that certain insurers may not apply a discount to their loss reserves “without special permission from the Office” and questioned by what standards OIR evaluates applications for discounts.  Read the back-and-forth correspondence here.

Read the proposed rule revisions here that the Florida Cabinet will consider for final approval this week.

Wanna Go In On a House Together?

It used to be that just about every co-borrower on a loan to purchase a house was a spouse, but not in Miami, where data shows that non-married co-borrowers now account for 40% of single family home loans.  But that doesn’t mean it’s just unmarried couples going in on a house together.  It also includes parents helping their sons and daughters and investors buying a property together.

First quarter 2017 data from property database powerhouse ATTOM Data Solutions points to a greater significance for the single family market in the U.S.:  More people than ever before need help buying a home.  Nationwide, an average of almost 22% of all such home loan originations had multiple, non-married co-borrows on the ticket, up from 20% from a year ago.

“Rising mortgage rates made qualifying for a home purchase more difficult and refinancing an existing home loan less attractive in the first quarter,” said Daren Blomquist, senior vice president at ATTOM Data Solutions, in a company release.  “Refinance originations in particular fell off a cliff in the first quarter to the lowest level in more than 10 years after posting double-digit percentage increases in the third and fourth quarters of 2016, indicating that some refinance demand was pulled forward late last year in anticipation of rising interest rates.”

While Miami leads the nation, other top cities with non-married co-borrowers are Seattle (37.4%), San Diego (28.9%), Los Angeles (28.2%), and Portland (27.7%).

Miami single-family average home prices went up 3.7% in April and are up 11% year to year.  Existing condo prices are up 6.5% year to year.   Another troubling sign: The homeownership rate for those under age 35 hasn’t moved at 34%, below the 43% rate when we entered the last recession.

Help with a down payment:  Read the Fine Print

How to help people afford a home has prompted some innovative ideas from startup companies who offer homebuyers help with a down payment in exchange for a home’s future equity. According to MarketWatch, companies with names like Unison and OWN Home Finance will give buyers up to 50% of down payments or 10% of a home’s total cost with the buyer committing to pay these companies 35%+ of any profit earned when the home is sold.

Unison partnered with Freddie Mac to begin automating the process of underwriting mortgages with an equity stake. OWN, which will launch soon with a similar business model, plans to target buyers with median incomes of about $55,000 to $60,000 who want to purchase a home around $400,000 to $500,000.

Researchers at the Urban Institute think it’s a good experiment in help for prospective homeowners, citing that the payment assistance can make the difference between renting and owning. Unison and OWN make money only when the home is sold and selling the home prematurely can invoke the fine print in their contract: “special provisions” penalizing homeowners for not holding onto properties long enough for home prices to appreciate.  In fact, if home prices start dropping, the market demand for this trend may diminish.

Unison officials indicated they were not too worried about falling prices because they believe their services are for those who don’t want to invest all of their own money in a home for fear they may not get a solid return on investment, i.e. a repeat of what happened a decade ago.

Zillow v. Redfin: Race for Real Estate Appraisal Accuracy

For the readers who follow the residential appraisal process as it relates to insured value replacement costs, there is a fierce rivalry between the two top real estate appraisal leaders: Zillow and Redfin.

Zillow announced a $1 million prize on its website recently with a news release proclaiming the company has launched, “Zillow Prize, a contest that allows data scientists from around the world to work alongside us to improve Zestimate accuracy and have the chance to win $1 million. This is the first time we’ve ever invited data scientists outside of Zillow to work on the algorithm.”

The apparent impetus behind the contest appears to be the multiple lawsuits facing Zillow from home sellers, claiming that its inaccuracy was costing them money.  Zillow’s competition, Redfin, when asked their opinion of the Zillow competition, was reported as saying, “There’s no reason for homeowners to wait for a more accurate estimate. The Redfin estimate is already here.”  Redfin officials cited a recent SQL Server Reporting Services (SSRS) study that found out of over 5,000 home sales evaluated, 64 percent sold within 3 percent of the price predicated by Redfin, compared to 29 percent for Zillow. Read the study here.

Which company will have the last word?  It looks like Zillow, who stated that there are far more home values available on their platform – over 110 million Zestimates compared to nearly 70 million on Redfin.

“Typically, when you’re looking at accuracy for a computer generated home estimate, you are looking for two metrics. Hit rate – How often does a home have a valuation on it. The second is how accurate is the estimate – the concerns we expressed were on both fronts,” said Zillow’s Chief Analytics Officer.  Zillow went on to explain that their evaluation is independent from the buyer or seller and takes into account the time before the home is listed and after the listing is complete.

Editor’s note:  There are several different metrics that go into determining which is the best tool to properly appraise home values, just like insurers that might use multiple replacement cost calculators. As technology improves, so will real estate estimates, so it is wise to use as many tools as possible when determining a home’s value.

U.S. Supreme Court: No More Venue Shopping

State courts cannot hear claims against companies when they are not based in the state or the alleged injuries did not occur there, according to a recent ruling from the U S Supreme Court.

‎This landmark decision, as reported in the Insurance Journal, “tightened rules on where injury lawsuits may be filed,” to eliminate venue shopping, a common practice among plaintiff’s lawyers filing suits in “friendly” states vs states who have conservative judicial benches. ‎ Plaintiffs contend that corporations are trying to limit an injured party’s access to compensation.

The case, involving Texas-based BNSF Railway Co. (affiliated with Berkshire Hathaway) threw out a lower Montana court ruling allowing out-of-state residents to sue there over injuries that occurred anywhere in BNSF’s nationwide network. ‎

BNSF fuel truck driver Robert Nelson sued in 2011 over a slip-and-fall knee injury. Kelli Tyrrell, the widow of railroad employee Brent Tyrrell, sued in 2014 alleging her husband was exposed to chemicals that caused him to die of kidney cancer. The suit was filed in Montana but neither the accident nor the Tyrrell’s lived in Montana.

The Montana Supreme Court in May, however, ruled that state courts there can hear cases against BNSF because the company does business in the state. The US Supreme Court decision cited that “claims like Nelson’s and Tyrrell’s are unrelated to any activity occurring in Montana.”  Justice Neil Gorsuch joined the majority on Tuesday, the first ruling he has participated in since joining the court in April.

While the U.S. Supreme Court sent a clear message to the plaintiff’s bar that “venue shopping” is no longer in vogue, the Florida Supreme Court issued an opinion last week that was a “win” for the trial bar.  The court reversed an almost 15 year law barring caps on non-economic damages in medical malpractice lawsuits.  In the 4-3 decision, the justices said a 2003 state law limiting such damages was unconstitutional because it violated equal-protection rights.  Med Mal insurers expect this decision to increase the cost and frequency of litigation.  We will keep you apprised.

Small Businesses Win Favorable Patent Decision

Insurance companies in the patent infringement liability business are breathing a sigh of relief with another recent US Supreme Court ruling in the Impression Products v. Lexmark International case.  Impression Products, a small West Virginia business was embroiled in a patent dispute with Lexmark International, a Fortune 1000 company.

The court decision settled whether a person or company such as Impression Products can purchase for resale an item that’s already been sold once by a company like Lexmark that holds the patent on the item.  If Lexmark had prevailed, large and small manufacturers, wholesalers, and retail merchants of new and used goods who trade in patented items would have had tremendous challenges with continued operations in the patented arena.

Specifically, the case revolved around Lexmark’s efforts to block Impression Products from remanufacturing used toner cartridges and selling them at prices that undercut Lexmark’s new ones. Lexmark tried to do this by offering consumers a 20% discount for agreeing in advance not to reuse or resell the cartridge. Lexmark used a “shrink-wrap license” with terms appearing on the cartridge box itself, and the customer accepts these terms by opening the box. And yet, many Lexmark customers, both in the US and abroad, cheerfully took the discount but ignored the terms, and the cartridges found their way, via wholesalers, to remanufacturers like Impression Products.

Lexmark had two choices:  Sue the ultimate consumer user for breach of contract or sue several remanufacturers for patent infringement. Lexmark litigated against the latter and most ended up settling except for Charleston-based Impression Products that has 25 employees and about $15 million in sales.   Impression Products’ lawyers’ arguments included an age-old legal principle known as “patent exhaustion,” also called “first-sale doctrine.”  The principle holds that the patentee makes his or her money on the first sale of the article, and after that, the buyer is free to do as he or she wishes with it. A federal appeals court disagreed, and proposed instead that patent holders retain those rights after a US sale so long as these restrictions on use are “clearly communicated” and not otherwise illegal. And in foreign sales, the appeals court ruled that patent exhaustion does apply at all.

But on Tuesday, the Supreme Court rejected the appellate court’s thinking in the strongest possible terms. Writing for seven of the eight justices who heard the oral argument (Neil Gorsuch had yet to be confirmed), Chief Justice John Roberts declared of the toner cartridges originally marketed in the U.S., “Lexmark exhausted its patent rights in these cartridges the moment it sold them. The single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.”

– Source: Forbes

Leave the Driving to Us – Who is Us?

Look for an update on self-driving guidelines to be released from the U.S. Transportation Department in the coming months.  Automakers are clamoring for reasonable regulations that allow the technological advances which will eliminate human driver skills, in essence.  It will be interesting to see what the updated guidelines will be and the changes made to the ones released by the Obama Administration last year.

Those previous guidelines required automakers to release testing data and urged a federal regulatory framework versus one each state could adopt.  The competition is fierce among automated vehicle technology organizations, with companies such as Alphabet Inc’s self-driving car Waymo, General Motors, Ford, Uber Technologies, Tesla, and others aggressively pursuing the future.  Bill Ford Jr., presenting at a recent forum, said he felt confident that the autonomous hardware and software would be ready to go by 2021 but there is debate on how to program driver ethics…such as should the vehicle opt to save 10 pedestrians or the driver when a split second decision must be made?   Others at the forum said they believed that fleet operations in the commercial space would be the first to roll out the use of driverless vehicles.

And Congress is, of course, in on the action with the House Energy and Commerce Committee working on a package of legislation to make it easier to get self-driving cars on the road.  LMA will be following a Senate Hearing later this month on the issue.

Happy Trails

We will be publishing again in our summer cycle every two weeks and would love to hear from you if you want to be published or have a topic of interest to suggest.  We heard from many readers recently who wanted to understand trends in the federal judicial environment and as we have seen, the Supreme Court has been issuing many decisions that directly affect not only our insurance company readers but those who own their own businesses or are employed by the private sector.  We are also watching many of the environmental issues facing our nation as well as the healthcare debate that is shaping up.  Thanks for all you do and for inspiring us!

My best and see you on the trail!