LMA Newsletter Dec. 19, 2016

 www.LisaMillerAssociates.com

Interim Committee Meeting Schedule

You can see photos and details on our website at http://lisamillerassociates.com/the-conference-room.  For more information, contact Roberta Courtney-Bailey at 850-222-1041, or via email at [email protected].  And feel free to come by and take a look!

• Ramadan (Muslim)
• Eid al-Fitr (Muslim)
• Saint Nicholas Day (Christian)
• Eid’ul-Adha (Muslim)
• Fiesta of Our Lady of Guadalupe (Mexican)
• St. Lucia Day (Swedish)
• Hanukkah (Jewish)
• Christmas Day (Christian)
• Three Kings Day/Epiphany (Christian)
• Boxing Day (Australian, Canadian, English, Irish)
• Kwanzaa (African American)
• Omisoka (Japanese)
• Yule (Pagan)
• Saturnalia (Pagan)

We are happy to hear your comments about this topic, so please don’t hesitate to reach out to us!

While Citizens has reduced its policy count by 26% in the past two years, the number of new lawsuits has climbed 30% – just in the first 11 months of this year.  That’s 8,097 new lawsuits (an average of 736 per month)!   Nearly half of all water claims now result in litigation, “an absurd, out of control situation,” Citizens President Barry Gilway told the Board.  In 2011, that number was less than 15%

Citizens says each litigated case raises the average claim cost by at least $20,000, which must be passed on to Citizens policyholders.  If not for state law limiting annual rate increases to 10%, the average Citizens premium this year would have increased 65% to $4,000, rather than the $2,500 it is.

Gilway cited the two all-too familiar reasons:  Assignment of Benefits (AOB) and losses being reported well after the damage, when a policyholder has already hired an attorney or public adjuster or already made the repairs.  Although Citizens is tightening its procedures governing these scenarios, the claims are impacting reserves and “pose a serious threat to the financial position of Citizens,” said Chris Gardner, Board Chairman. “This is not a sustainable situation.”

For 2017, Citizens has estimated net operating losses of $100 million in its inland residential policy lines, with losses concentrated in Miami-Dade and Broward Counties, where the bulk of litigated and AOB claims originate.

So what to do?  After several consecutive legislative sessions where efforts to eliminate AOB failed, Citizens is setting its sights in the 2017 session on eliminating instead so-called “one-way attorney fees” that are fueling AOBs.  Current Florida law allows plaintiffs to collect these attorney fees “if there is a judgment or a decree in favor of the insured and against the insurer in any amount,” including in settlements.  Citizens is also pursuing AOB reforms that include limiting AOB to just the work performed rather than the entire claim, requiring AOB to include a written itemized estimate of work, and requiring that insurers receive a copy of the AOB within three days of execution.

In other action, the board approved tightening coverage eligibility for commercial buildings and requiring use of new roofing and electrical inspection forms, after learning that current rules for building conditions are outdated and inadequate in reflecting true risk.

The Supreme Court rulings struck a cap on attorney fees in place since the 2003 reform and ruled that payments to injured workers should be extended from their current two years to five years.   Senate President Joe Negron (R-Stuart) has said he wants to take a broader look at the system to determine how rates are set in Florida and whether the 14.5% increase is justified.  Florida went from having the highest rates in the country in 2000 to 40th highest in 2010, but has since lost ground, and is currently ranked 23rd.

Appearing before a Senate Banking and Insurance Committee workshop last week, business groups argued the need to limit attorney fees to check rising costs, while claimants’ attorneys blamed the higher rates on the insurance industry.  NCCI, which filed the rate increase on behalf of workers’ comp insurers, said the court decision striking attorney fee caps drove the increase, and also represents an estimated $1 billion in unfunded liability applied retroactively to past cases.

Claimant attorney Kim Syfrett questioned why attorney fees should even be part of rate consideration.  “There are certain insurance companies that routinely automatically deny claims, forcing us to re-file…while other companies have a good business model and settle their claims appropriately,” she said.

The Florida Bar stated that two-thirds of fees are paid to attorneys for employers and insurance companies and one-third to claimant attorneys.  “It’s not that attorney fees alone are increasing but that increased costs result when workers have an attorney involved, because the payout is larger,” said Paul Anderson of the Bar’s workers’ comp section.  “We can work this out together, like we did a few years ago with the nursing homes issue,” he told the committee.

Several speakers representing various business groups testified that the rate increase will be reflected in higher prices for goods and services, wage reductions, and possible layoffs.

The very ratemaking system used in Florida was questioned at one point.  Florida is one of seven states solely using a “Full Rate” or administered system that takes into account an insurer’s extraneous expenses and profit.  Thirty-eight states instead use a “Loss Cost” or competitive system which limits insurers to a rate necessary to cover losses and benefit costs and only expenses directly related to claims settlement.

Meanwhile in the Florida House, Rep. Cord Byrd (R-Neptune Beach) has released a proposal that would allow businesses to opt-out of providing coverage, based on a similar system in Texas.

For now, the 14.5% rate increase remains in effect, while both NCCI and the state Office of Insurance Regulation file briefs over the next 45 days as part of their expedited appeal to a circuit court ruling that both entities violated the state’s Sunshine Law by setting rates in secret and not providing full documentation involved in that decision.  LMA will follow the action in the courts and legislature for you every step of the way.

A law passed by the Florida Legislature in 2013 designed to improve the efficiency of the civil court system in medical malpractice cases, in part by catching frivolous lawsuits earlier, is now being reviewed by the state Supreme Court.  At issue is the fairness of “ex-parte communications” which allow a doctor’s attorney to talk with other doctors who treated the patient – whether related to the alleged malpractice or not – and without the patient’s attorney being present during the questioning.

The case was brought by an Escambia County woman suing for medical malpractice in the death of her husband.  She claims the law violates the constitutional right to privacy, stifles access to justice and intrudes on the Florida Supreme Court’s rulemaking authority. A trial court and the 1st DCA ruled against her.

But the attorney representing the doctor in the case told the Supreme Court earlier this month that similar laws exist in other states and help resolve malpractice cases both in favor and against doctors. “The purpose of it is to have a full and free exchange of all information relating to a claim prior to entering the courthouse doors in order to weed out frivolous cases and settle meritorious cases,” said Erik Bartenhagen.

Supporters of the law at the time said it was a fairness issue, as ex-parte communications would simply give a doctor’s attorney access to the same information that a patient’s attorney already had.

Bartenhagen told the seven justices that while most patient information could come by other means during discovery and deposition, that ex-parte makes it available sooner, saving time and effort for all involved.  “I think there’s a feeling that the treating physicians aren’t as free to discuss the case as freely as they might otherwise with the presence of the plaintiff (and) the plaintiff’s attorneys,” he said.

But the justices expressed skepticism of the law during their questioning.  Chief Justice Jorge Labarga asked why this law exists in medical malpractice cases and not for other torts.

“I can’t imagine a corporation suing another corporation for breach of contract and being told by law that before you can sue, you have to give an authorization form allowing the defendant, who’s about to be sued for breach of contract, to talk to everybody,” Labarga said. “It doesn’t happen anywhere else.”

Justice Barbara Pariente expressed her opinion early, saying “It helps the affordability by chilling medical malpractice cases.”

Bartenhagen argued that patient privacy is protected, as any irrelevant or otherwise private information that doctors reveal during the interviews would not be admissible in court. The Supreme Court is expected to make its decision in this case in the next few months and we’ll keep you apprised.

The timing of this first-edition report is stunning, coming out two weeks after the election in the waning days of the current administration, and following President-elect Trump’s stated desire to curtail the Dodd-Frank Wall Street Reform and Consumer Protection Act, which include the Federal Insurance Office.

Given the McCarran-Ferguson Act passed by Congress in 1945 exempted the insurance business from most federal regulation, it still amazes me that the Federal Insurance Office was even created, let alone its subsequent mission creep.  Here are highlights, that center around the report’s themes of technology, the environment, fairness, and the role of insurance as an investment tool.

• Technology:  FIO is critical of the lack of state regulation over insurance companies’ use of data in pricing policies (specifically price optimization) and says state regulators should “verify that the criteria and methodologies used by insurers and third-party vendors do not violate well-established standards against unlawful discrimination.”

• Environment:  FIO says state regulators should require that insurers provide more earthquake coverage and that should include “human-caused earthquakes” from fracking. Per the President’s 2013 Climate Action Plan, FIO calls for insurers to take into account the increasing “severity and frequency” of weather events in every region of the U.S.  It calls for mandatory premium discounts for mitigation.

• Fairness:  FIO questions the appropriateness of using marital status, sex, and gender in the underwriting of non-health insurance policies, the growing use of non-standardized coverage forms, and the popularity of arbitration clauses.  It also notes a “disparity in state insurance standards can give rise to a variety of consumer protection issues”, including the state insurance guaranty association system.  Also noted is that workers’ comp costs are shifting to federal taxpayers.

• Insurance as an Investment Tool:  FIO says lack of uniformity in state regulation of secondary life insurance markets and structured settlements creates gaps in consumer protections.  It recommends states consider requiring that consumers entering into such arrangements appear in court so that a judge can properly determine whether the consumer’s best interest is being served.  It also warns of pending failures in the Long-Term Care market.

John Sebo of Naples had an $8 million policy covering his four year-old house, which he discovered shortly after purchase was leaking in many rooms and months later was made even worse by Hurricane Wilma in 2005.  His insurance company denied the claim twice, paying only $50,000 for mold damage.  The damage was so extensive that the house was eventually demolished.

A trial court had ruled in Sebo’s favor, finding that rainwater and hurricane wind combined with defective construction to cause the damage.  But the 2nd DCA disagreed with the trial court’s application of a previous case (Wallach) and with a previous 3rd DCA determination to use the concurrent cause doctrine in such cases.  Instead, it ruled that the loss be examined under the Efficient Proximate Cause doctrine and ordered a new trial.  The doctrine provides that where there are concurrent perils that the one that set the other in motion is the cause to which to attribute loss.

The Supreme Court ruled earlier this month in Sebo v. American Home Assurance that the 2nd DCA was wrong and the 3rd DCA correct in its previous rationale in these cases and ordered a new trial for Mr. Sebo.

The court found there was no dispute that there was more than one cause of the loss, including defective construction, rain, and wind.  The court stated that although an “all-risk” policy is not an “all-loss” policy, it is afforded a broad, comprehensive meaning.  If the plain language has more than one reasonable interpretation, said the court, the policy will be construed in favor of the insured.

The court had to tackle which recovery method to apply when two or more perils converge to cause a loss and at least one of the perils is excluded from the policy.   “We conclude that when independent perils converge and no single cause can be considered the sole or proximate cause, it is appropriate to apply the concurring cause doctrine,” wrote the 6-1 majority.

Court observers say that policies using anti-concurrent cause language for specific exclusions, such as flood, should continue to be enforceable.  But other exclusions, such as construction defects, may be vulnerable in an appeal.

Lisa and the LMA Team