|Monday, November 16, 2015|
|How about those Pilgrims!|
|“The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark. I am still learning!” Michelangelo
So what does Michelangelo have to do with pilgrims you ask. Well, maybe nothing except that they, as he, certainly aimed very, very high when they dared to brave the many dangers and fears of traveling to a new land. This tiny band of just over one hundred plain English men and women, seeking a better life, crossed the storm-tossed Atlantic in the tiny Mayflower and arrived at the coast of present-day Massachusetts in late 1620. They bound themselves to one another as a self-governing political community, then went ashore to build a home in a strange and frightening new world. Having arrived on the eve of an unexpectedly cruel winter, they endured unimaginable hardships over the next few months, death claiming half of them by spring. Yet through the mercy of God and the assistance of their new Indian neighbors, the remainder survived to reap a bountiful harvest in the fall of 1621, at which time they paused to celebrate the goodness of God with a special feast-the First Thanksgiving. We Americans have so often cast a romantic tone to the first Thanksgiving, but in reality life was cruel and fraught with every danger imaginable. Can you think of a time when you were frightened by the sight of a snake or anything that comes from the woods? And heaven forbid a time we have traveled to a new city and sensed a little bit of being lost in traffic; or were in a medical situation where we felt helpless. How much more these brave souls faced in a new world, with danger at every turn. These truly brave men and women had set their aim for a new life, daring to brave all that came with their lofty goals. Let’s all take a moment to not only be thankful for the risks they took that gave us our beautiful country, but also the example of how we, too, can meet the challenges of life with determination, setting our aim high, and reaching for greatness.
|HO Insurance Assignments of Benefits May Have Finally Met Their Match|
|By: Cristina P. Cambo, Esq. Rumberger, Kirk & Caldwell, Orlando Office. Reprinted with permission. Ms. Cambo can be reached by calling (407) 872-7300 or by email at firstname.lastname@example.org. References for the citations noted herein can be reviewed HERE.
Few issues have been so hotly disputed in recent years as the issue of what constitutes a proper “assignment” of homeowner’s insurance benefits. Historically, the rule of assignment creation in Florida is that any instruction, document, or act that vests in one party the right to receive funds that would be due to another party operates as an assignment.[i] Recently, assignments of benefits (“AOB”) have been accepted by some courts as a valid way for a homeowner to confer homeowner’s insurance policy benefits to a third party, such as a water remediation company or a roofing company.
On the other hand, homestead protection is a fundamental right that is enshrined in Florida’s Constitution. While homestead principles do not typically arise in the insurance context, recent cases in which insurers have applied homestead law to fight AOB lawsuits involving the transfer of homeowner’s insurance benefits may have a profound effect on homeowner’s insurance law.
In Florida, a residential property is inherently instilled with homestead protection when a person acquires property and makes it his or her home. No action of the Legislature, declaration, or other act on the owner’s part is required to make it the owner’s homestead.[ii] The purpose of the homestead protection is to promote the stability and welfare of the state by securing a householder a home in which the owner and his or her heirs could live beyond the reach of financial misfortune and the demands of creditors.[iii] Article X, § 4 of Florida’s Constitution specifically provides that homestead protection may only be devised by one of three ways: mortgage, sale, or gift. If the homeowner is married, then the alienation of homestead property requires the joinder of both spouses.
The Florida Supreme Court has held that “a waiver of the homestead exemption in an unsecured agreement is unenforceable.”[iv] In fact, the Court noted that while an exemption can be waived by mortgage, “for over a hundred years we have held that it cannot be waived in an unsecured agreement.”[v] Further, Florida employs a strong public policy in favor of protecting homestead property, such that “an individual cannot waive a right designed to protect both the individual and the public.”[vi]
In recognizing this strong public policy, it is well-settled in Florida that the homestead protection extends not just to the property itself, but also to insurance proceeds obtained as a result of damage to the property.[vii] More recently, the Third District in Quiroga v. Citizens Prop. Ins. Co., 34 So. 3d 101 (Fla. 3d DCA 2010) held a homeowner cannot be divested of constitutionally protected insurance proceeds through an unsecured agreement. In Quiroga, the issue concerned whether a contingent fee arrangement entered between a homeowner and his attorney was valid where it sought to divest the homeowner of homestead-protected insurance proceeds secured by his attorney. [viii] In affirming the trial court, the Third District held that because the homeowner “did not, and as a matter of public policy, cannot through an unsecured agreement such as a contingent fee agreement in this case, enter into an enforceable contract to divest himself from the exemptions afforded him through Article X, section 4(a),” the contingency fee agreement was unenforceable.[ix] Consequently, homeowner’s insurers have begun successfully relying on Quiroga to argue that an AOB is invalid to the extent it seeks to divest the homeowners of constitutionally protected insurance proceeds through an unsecured agreement. Specifically, in the matter of One Call Property Services, Inc. a/a/o Carl & June Schlanger v. St. Johns Ins. Co. the Circuit Court of the Nineteenth Judicial District in Martin County, Florida recently granted summary judgment in favor of an insurer based on Quiroga, and expressly held that that the AOB was invalid as it was an unsecured agreement.[x]In Schlanger, the Plaintiff, a water remediation company, filed suit against St. Johns Insurance Company for breach of contract.[xi] As is typical in these situations, the insureds discovered water damage to their property and called Plaintiff to perform mitigation services. Plaintiff presented the AOB to the insureds for execution, which sought the assignment of all insurance rights, benefits, proceeds, and causes of action to the Plaintiff. The AOB was signed only by Carl Schlanger. The claim was ultimately denied following an inspection by an engineer. Following the claim denial, Plaintiff filed suit against the insurer based on the AOB. The trial court granted summary judgment in favor of the insurer, finding that the AOB impermissibly sought to divest the homeowners of constitutionally protected proceeds, and therefore, the AOB was invalid.[xii] The trial court held that this was particularly true where the AOB was not also executed by June Schlanger. Therefore, the trial court found that the AOB was invalid and void as a matter of law, such that the Plaintiff lacked standing to file suit.[xiii] Plaintiff appealed the trial court decision, and on December 15, 2015, the Fourth District Court of Appeal will hear oral arguments in this matter. This case is important because it could invalidate AOBs seeking the transfer of homeowner’s insurance policies, benefits, and proceeds on constitutional grounds. If the Fourth District affirms the trial court, then the effect of this decision may be profound, far-reaching, and potentially applicable in thousands of pending cases throughout South Florida and the rest of the state.
|Florida Chamber of Commerce Insurance Summit
Regulators Address Key Issues for 2016 Session
|LMA attends the Florida Chamber of Commerce Insurance Summit annually and this year’s program was packed with speakers on topics such as how the federal government’s actions affect the insurance industry, the state of the Florida’s property and casualty market, cyber security, assignment of benefits reform, bad faith/attorney’s fees. (For article, click HERE.) The most powerful was a conversation with Commissioner McCarty and his Chief of Staff, Belinda Miller. For newsletter purposes, we wanted to focus on Commissioner McCarty’s and Ms. Miller’s remarks which were candid and enlightening. On the topic of assignment of benefits (AOB), the regulators asked the audience: “What can we do to address the AOB problem”? “A lot of the problems have been masked by the lowering of reinsurance costs and once these reinsurance costs have reached equilibrium, then we will see rates creep up,” said Belinda Miller. At the recent Citizens Property Insurance Corporation rate hearing, President and CEO Barry Gilway said South Floridians would have had a dramatic rate reduction had it not been for water losses. A fascinating observation was the fact that Citizens didn’t see the same rate need in the dwelling fire policy and regulators are hopeful the recent OIR data call, due December 7, will show what the future trajectory will be of rate increases, and what about the honest folks who are paying this activity. “First and foremost is to get the data to be responsive,” according to Ms. Miller, and she went on to say, “we spent some time putting it (the data call) together, consulting with a number of stakeholders to develop the most useful data collection tool possible.”
The regulators said that recent consumer complaints involve powers of attorney (POA) and not an AOB, and it concerns them that the extraction company “…could empty one’s bank account” with these broad POA documents. Commissioner McCarty talked about the “cinch bug effect” where when neighbors spray their grass, the bugs move to another yard–paralleling how bad actors in one area move to other areas and perpetrate the same bad behavior. Lisa Miller, CEO at Lisa Miller & Associates, asked the regulators their thoughts on the recent proposed language fining a plumber $10,000 if found guilty of taking a kickback from a water extraction company. The regulators said, “We don’t want folks to not get a legitimate claim repaired and don’t want them to be at risk,” if a plumber legitimately is receiving a fee. In response, LMA is looking at ways to limit the fine if the kickback is incurred in the course of an insurance claim. The current assignment of benefits bill filed is House Bill 79. This 4 page bill is packed with great reforms to AOB abuse. See http://www.myfloridahouse.gov/Sections/Bills/billsdetail.aspx?BillId=54899.
Commissioner McCarty spent time on the NAIC’s Own Risk and Solvency Assessment (ORSA), which is an internal process undertaken by an insurer or insurance group to assess the adequacy of its risk management as well as current and prospective solvency positions under normal and severe stress scenarios. The state’s top insurance regulator said, “The realization has set in that whatever happens in Basel, Switzerland will leach into the US domestic system. Insurance has been outside federal capital standards. With the impact of Dodd-Frank, 30% of companies are now regulated federally and the Fed looks at top down and a consolidated supervisory approach. State regulators are used to looking at each subsidiary and appropriately making sure each one is walled off.” Only time will tell how this different approach affects international insurers. On January 1, 2016 Solvency II comes into existence. The Solvency II Directive (2009/138/EC) is an EU Directive that codifies and harmonizes this EU insurance regulation. Primarily Solvency II addresses the amount of capital that EU insurance companies must hold to reduce the risk of insolvency, but Commissioner McCarty said insurers are asking themselves, “Do I have to divert holding capital to Europe”? He went on to say that capital moving outside of the US will obviously adversely affect Florida. “It’s interesting how something so remote will have a huge impact in a very short time on Florida,” noted the Commissioner. OIR will be proposing to adopt the corporate governance act and ORSA in the 2016 Legislature.
For those of you who were unable to attend the Chamber Insurance Summit, we are happy to go through each presentation and share the highlights and will be reporting on all these issues in future newsletters.
|Florida Adds Another International Jewel To Its Worldwide Presence|
|Many of you may not know the international presence that Florida’s insurance commissioner has with the International Association of Insurance Supervisors (IAIS). Often criticized by the press for his international travel, Commissioner Kevin McCarty has remained steadfast that Florida can’t be on a figurative island and we must embrace and be aware of what is going on in the literal insurance world. Therefore, he has had a prominent seat at the table at both NAIC (McCarty was the former president of that organization) and a vocal member of the IAIS. Commissioner McCarty announced on November 10 that Florida is now an official member of the IAIS’ Multilateral Memorandum of Understanding (MMoU). The MMoU is an international supervisory and information exchange agreement throughout the world with regulators so as to facilitate and expedite the sharing of insurance regulatory information between member jurisdictions such as the Bermuda Monetary Authority, Germany’s BaFin and the Chinese Taipei’s Financial Supervisory Commission, as well as states like California and Pennsylvania.
It’s obvious that regulators are heightening the scrutiny of insurance companies’ operations, solvency, and overall market conduct when one considers organizations like IAIA, NAIC and happenings in Basel, Switzerland. LMA does our best to give our readers a broad overview of these sweeping oversight regulatory trends. Refer to the press release issued by the OIR at http://floir.com/PressReleases/index.aspx
|Beware Of Unregulated Property Insurance Companies|
|As a followup to our recent edition where we reported the Department of Financial Services’ (DFS) recent action against an insurance agency that removed a commercial residential policy mid-term to a surplus lines market, the Sun Sentinel published an Opinion on November 4, 2015 written by Paul Handerhan, founder, board member and vice president of public policy for Florida Association for Insurance Reform (www.floridainsurancereform.org).
In essence the opinion did an excellent job of raising the awareness among policyholders who may unsuspectingly agree to have their coverage placed in a surplus lines market without fully having the benefit of knowing what is available in the admitted market. The opinion is a great read and can be found at:
|Guy Carpenter Reports that Public Sector Use Of Reinsurance, Collateralized & Cat Bonds Growing|
|“Insurers and public sector buyers are benefiting from the increased supply of catastrophe capacity from reinsurers and are also turning to capital markets and convergence capital solutions to supplement their traditional reinsurance placements,” explains reinsurance broker Guy Carpenter in the recently published report, ‘Partnerships: The Way to Public Sector Risk Financing.’ Guy Carpenter, a highly respected reinsurance broker and client of LMA, provides a wealth of information in the report, detailing that between 1970 and 2014, $2.7 trillion of global natural catastrophe losses, or roughly 73% were uninsured, leading private and public sector risk leaders to seek a reform of the roles and responsibilities “through which societies can better manage these complicated risks.” This $2.7 trillion figure represents a huge protection gap, and as public sector entities seek to better manage their financial and economic exposure to natural disasters, the use of alternative risk transfer tools and capital market capacity has increased. The capital base in the global reinsurance market has witnessed impressive growth in recent times, aided by the persistent influx of alternative reinsurance capital from institutional investors, such as pension funds and family offices. The use of risk transfer solutions, including reinsurance, collateralized reinsurance arrangements and ILS or catastrophe bond issuance, is rising among the public sector, as entities look to better manage and mitigate their loss exposures, according to Guy Carpenter. In addition, 30% of the currently $22 billion that GC counts in outstanding catastrophe bonds were issued by public sector entities, such as the Texas Windstorm Insurance Association (TWIA), Florida Citizens, and the California Earthquake Authority (CEA). The report underlines the fact that many public entity cat bond sponsors have returned to the market for a repeat sponsor, and a wave of potential new entrants are in the pipeline, implying satisfaction of the benefits and workings of alternative risk transfer solutions to protect against catastrophe exposures as a supplement or addition to their traditional reinsurance programs. LMA is proud of the relationship we have with Guy Carpenter, and applaud their work to shift the cost burden of insurance from taxpayers to diversified markets.
|A Refresher: Lawful Fees and Reimbursements – MGA, General Lines and Surplus Lines Agents|
|One of the most frequently asked questions by licensees is whether they can charge fees in addition to the premium established by insurer filings through the Florida Office of Insurance Regulation. Following are the only lawful fees a licensee can charge under the Florida Insurance Code:
A general lines agent may:
A Managing General Agent (MGA) may charge:
A Surplus Lines Agent may charge:
Any agent or agency accepting premium payments by credit card may seek reimbursement up to the exact amount charged for premium payments made by credit card transaction under s.626.9541(1)(o)2., F.S.
|Taking a Little Break to Say Thanks
And Give/Get Some Thanksgiving Love and Grace
|With Thanksgiving just around the corner, we are planning to take a little break from the hustle and bustle of business and spend some precious hours with our family and friends. Like you, we savor each and every moment of good food, family and football during this time of year, and we count each of you among our blessings. So, we will skip the November 30 newsletter publication, but will be back with you on December 7 with a brand new edition. Meanwhile, we are wishing you and yours a wonderful Thanksgiving celebration!
Lisa and the LMA Team