LMA Newsletter March 21, 2016

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March 21, 2016

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It’s A Wrap…Again

As we take a few moments to look back over the 2016 Legislative Session, we are reminded that this session makes almost 30 years of legislative sessions we have been very, very involved in.  What a walk down memory lane it is when we think about the myriad topics we’ve been privileged to fight for (or against) in those many years.  It’s great to be in the mix of making good laws for our amazing Florida citizens and we’ve never, ever experienced the feeling of “I just can’t fight the fight any more”.  In fact, we become more energized each year and even now are looking forward to what is to come in 2017 and beyond.  Going forward we are speculating lots of action in the world of all things flood insurance, transportation, cyber security, international markets and of course, everything political that touches all those areas.  And with the presidential election very near, what a different place the world could be by 2017.
Looking back at the 2016 session, we certainly didn’t see the drama that we all experienced in 2015, but believe me, there was much to do and my Capitol walking shoes were as worn as they usually are after a session ends.  We were there addressing the many topics that are important to our citizens, and were very successful in quite a few.  A few others, well…we’ll be back with those next year!
As we promised last week, we’re using today’s publication to highlight what happened to some important issues that were brought before our 2016 legislative body.  We call it a recap and invite you to read the highlights and our commentary regarding them.

Legislative Highlights

The Florida Legislature is coming off of the 2016 session on many high notes, but not so for insurance.  Lawmakers passed an $82.3 billion budget with nearly unanimous support, containing record education funding, modest tax cuts, and a wide-ranging water policy for the state, including ongoing Everglades restoration.  The other shoe dropped this week in Tallahassee, post-session, as both the Florida Property & Casualty Association and the Personal Insurance Federation of Florida blamed Senator Miguel Diaz de la Portilla (R-Miami-Dade) for failure to pass needed Assignment of Benefits (AOB) reform, and predicted property insurance rates will rise as a result.
As we explained in this newsletter going into the final weeks of session, there were no bills moving at all that addressed bad faith, civil remedy, or other issues where frivolous or outright fraudulent lawsuits are filed simply to net big attorney’s fees.  AOB reform was, sadly, no exception.  With the original bill (SB 596 – Hukill) going nowhere, Senator Diaz de la Portilla revived his previous bill (SB 1248) that had provisions to prevent illegal kickbacks, require written estimates, and limit referral fees to contractors involved in an insurance claim.  What it lacked was an outright elimination of AOB.  Although it made it through three committees, it died on the Senate’s Special Order Calendar “because of lobbyists”, said the Senator in published reports.  Citizens Insurance is among several companies planning to increase premiums next year as a result, citing higher AOB claims costs and lawsuits (see article ” Citizens Water Product Changes ” below).
Senator Diaz de la Portilla is also being very publicly criticized from other quarters for letting bills die without a hearing.  He chairs the Judiciary Committee and didn’t take up either of the two gun bills this session (“Open Carry” and “Campus Carry”) effectively killing them.  The Senator likewise refused to hear bills that would have created tougher deportation penalties for undocumented aliens and prevented “sanctuary cities” in Florida, saying in published reports the bills were “anti-immigrant”.  The Senator is term-limited out in 2018.
Speaking of Citizens Insurance, the legislature did pass along to the governor HB 931 (Passidomo) that requires Citizens policyholders be told how much their new policy would cost if they switch to a takeout company.  An original rate protection cap of 10% was stripped from the bill (the governor had vetoed a rate cap in a similar bill last year).
Also on the governor’s desk is a bill (SB 1274 – Latvala) that gives Florida homeowners a new option for sinkhole insurance.  It allows insurance carriers with reduced surplus ($7.5 million v. the current $15 million required for multi-line P&C insurers) to underwrite personal residential property policies that cover sinkhole losses only.  The policies would be exempt from OIR rate review until October 2019 and from form review indefinitely.

In addition to last week’s newsletter recap (posted here) of insurance and related bills, here are other bills of Interest awaiting Governor Scott’s signature:


Balance Billing:  Although this gets the monkey off the consumer’s back and forces insurers and providers to resolve excess out-of-network billing issues amongst themselves, with 30-minutes left in the session the Senate added an amendment requiring insurance companies add Down Syndrome to the list of covered autism spectrum disorders.  Such a provision was stripped from a House bill eight years ago prior to its final passage, despite the plea of then Rep. Andy Gardiner, now Senate President, whose son has Down Syndrome.

Disaster Response: Out of state companies coming to Florida to conduct business assisting with emergency response during a disaster situation would not be subject to normal taxes and regulations.

Public Corruption: The legislature made it easier to prosecute public officials that accept bribes and private companies that offer them and other kickbacks involving public contracts.

Digital Assets: Lawmakers made it easier for someone you choose to have access and control of your financial accounts and anything else you have online after your death.

And one final note.  Although efforts failed this session to extend informational filing of private insurance rates and provide a matching $50 million annual to local governments for flood risk reduction, federal efforts up in Washington D.C. to expand private flood insurance are going remarkably well. The U.S. House Financial Services Committee approved a bill reducing regulatory impediments to a competitive private flood insurance market nationwide.  The measure clarifies that private insurance can satisfy the NFIP mandatory purchase requirements for those with mortgages.  The bill now goes to the full U.S. House for consideration.  With the start of hurricane season just 70 days away, now is the time to consider purchasing flood insurance if you don’t have it!

Citizens Water Product Changes

With the Florida Legislature failing to pass any AOB reform this session, Citizens Insurance had to take matters into its own hands last week, with its Board approving a new Managed Repair Policy Endorsement program.  Policyholders who agree to enroll in the program will enjoy either a premium credit or avoid a $10,000 sublimit for water losses.


It’s an either/or proposition at this time, as OIR is still reviewing Citizens’ current filings.  The company’s Chief Risk Officer John Rollins says the company would prefer to use the ‘carrot’ of a premium credit but that’s only if OIR approves Citizens’ filings.  If OIR doesn’t, Citizens will use the ‘stick’ of the water loss sublimit to encourage enrollment.Under the program, select Citizens’ vendors would provide repairs to help control the increased frequency and average cost of water damage claims.  Citizens reports a 200% increase in its monthly average of new AOB lawsuits in the last 12 months (through Feb 2016) – most from water losses.  Citizens now averages about 620 new lawsuits per month, a trend being reflected in the private sector says company president Barry Gilway.


“Competitive intelligence done recently shows there were 9,000, 8,000, and 7,500 policy cancellations made respectively by each of 3 private companies in the last month.  This is the tip of the iceberg,” Gilway told his board during last week’s meeting.  “The combined ratio of those composite companies in 2014 was 76.02.  It’s now 91.6.  That’s a 16-point deterioration in one year and that’s in a non-storm year. The breakeven point is between 75 and 85.  So the industry is already 11 points in the red.  That will continue given these flow of losses.”


 Gilway is urging OIR to take a serious look at the issue, predicting private companies will need to increase rates in the near future. “There’s no doubt the depopulation progress we’ve made will be halted due to this issue,” he said.

To fight back against the fraud that it believes is driving these increases, Citizens has restructured its water claims process to include a “Claims Water Loss Triage Team” of lawyers and non-lawyers that responds at first notice of loss.  It’s also launched a “Call Citizens First” customer education campaign.


Citizens’ current filings before OIR include two other key anti-fraud components:

+ A requirement that a loss be reported within 72 hours and must be reported immediately if the claim is first reported to any third party claims expert.  There is an exception for extenuating circumstances.
+ A $3,000 limit on coverage for temporary repairs and emergency measures, with additional coverage available only upon prior approval by Citizens.
The Citizens Board also approved restoring the company’s Increased Cost of Construction coverage for commercial lines and recognizing Lender Placed insurance as proof of prior coverage for new applicants.

Trial Bar Attorneys Naming Insurance Defense Counsel in Bad Faith Suit

We’ve learned through a recent article published in the Insurance Claims Journal about a developing trend wherein coverage counsel are being sued by third parties for allegedly aiding and abetting insurer clients’ bad faith. Such lawsuits are now occurring,according to a panel session on the subject hosted by the American Bar Association’s (ABA) annual Tort Trial & Insurance Practice Section’s Insurance Coverage Litigation Committee.  According to the article, suits allege that a lawyer who assists in a bad faith breach may be held liable. One member of the ABA committee stated lawyers have no special privilege against torts. In this situation, coverage attorneys can only be held liable for acting in concert with client insurers when:

1.    A client owed a duty to a third party;

2.    The attorney knows a duty is owed;

3.    The insured breached that duty;

4.    The attorney is aware of the breach.


The article goes on to highlight auto insurance claim litigation in Arizona involving Reliance Insurance Company, one of the company’s commercial P&C insureds and a California- based attorney the carrier hired to find evidence to support a “no coverage” stance in Reliance’s claims dispute with its insured. Another committee member commented that Reliance breached its duty by failing to settle the claim with available limits and the insurer’s coverage counsel was aware of the breach. Legal experts say that coverage counsel in this case facilitated/assisted Reliance by filing a declaratory judgment against the insureds, even though he opined that the claim was covered.  The attorney supposedly recommended the suit against the company’s insured in order to push for settlement in the litigation. Click here if you would like to read the entire Claims Journal article.  It’s very interesting reading!

Insurance Resilience

With natural disasters capturing headlines, together with the increasing collision of natural and manmade disasters, comes renewed calls to focus on improving resilience.
Last fall, Lloyd’s of London launched the City Risk Index, the first ever analysis of economic output at risk (GDP at risk) in 301 major cities from 18 manmade and natural threats over a ten-year period. The index includes: cyber-attack; terrorism; flood, freeze, heat, and other climate security risks; and market crash, among others. You can read the executive summary  here.
The Index aims to help build understanding and shape the world’s response to the shifting risk landscape by stimulating discussions between insurers, governments and businesses on the need to improve resilience to these threats.
“Resiliency is a journey that will never end,” said Tom Ridge, former Secretary of Homeland Security, in kicking off a summit up in Washington D.C. last month titled “Pathways to City Resilience”, which reviewed the Lloyd’s report findings.   “Doing business in the 21st century requires building a culture of resilience that has to begin in the C-suite.  Everyone has a role to play, from the boardroom to the loading dock,” Ridge said.
One of the recurring themes at the summit was on how governmental entities can inadvertently interfere in promoting resilience.  “Government misprices risk,” said Dante Disparte, CEO of Risk Cooperative, a risk and capital management firm.  Simply rebuilding structures to their pre-disaster condition “can preclude innovation in building more resilient structures” going forward, he pointed out.
Some panelists said they believe we’re seeing the confluence of manmade risks with natural risks.  Daniel Wagner, CEO of Country Risk Solutions, said we’ve become accustomed to thinking of risks as being in silos, when examples such as climate change are changing that dynamic.  “It’s important for every risk manager to become a decision-maker, and for every decision-maker to become a risk manager,” he said.
Others outside this particular group agree.  Louis Gritzo, VP of Research at insurer FM Global, says there’s a need for focus in four priority areas:
– Understanding disaster risk
– Strengthening disaster risk governance to better manage disaster risk
– Investing in disaster risk reduction for resilience
– Enhancing disaster preparedness for effective response and to “build back better” in recovery, rehabilitation, and reconstruction.
Gritzo says resilience needs to focus not on bouncing back from adversity, but on civic durability.  It’s something we all need to think abo

Corporate Wrongdoing

In the case of corporate wrongdoing, it’s starting to get personal.  If you’re an officer or sit on the board of a company, it’s going to get more costly, too.  For an insurance company providing liability coverage for that company, it’s going to get more complicated.
The U.S. Justice Department has begun implementing a new series of directives that focus prosecution of alleged corporate wrongdoing directly on officers and board members who may share responsibility.    Last fall, all U.S. Attorneys and federal investigators were instructed in a memo by Justice to focus on the liabilities of individuals within a company during investigations.
The six directives in the memo:
–  Prosecutors are to focus their probe from the beginning on corporate officers and board members;
–  Criminal and civil prosecutors are to work closely together, to maximize the availability and effectiveness of any/all remedies to the wrongdoing;
– Companies under investigation must identify all relevant facts about potentially responsible officers and directors in order to receive “cooperation credit” at time of prosecution;
–  Settlements for individual liability are prohibited without written approval from the US Attorney or their supervising assistant and then only in cases of extraordinary circumstances;
– Cases against companies cannot be resolved without a plan to pursue potential individual claims and charges; and
–  An officer’s or board member’s ability to pay fines or penalties is no longer considered relevant in the decision to pursue the same.
This new policy is forcing insurance companies to get more creative in their Directors and Officers liability policies.  New levels of personal risk for officers and board members means increased costs for companies and their insurers.  Adaptive insurance policies are being developed to respond to this new world.  These policies would allow insurers, underwriters, and the insured to consider correspondingly new thresholds for potential liability and cost drivers in such areas as scope of conduct exclusions, conflicts of interest, use of independent counsels, greater in-depth discovery, higher defense costs, and potential larger judgments against individual officers and directors.
Conduct exclusions are the primary area of concern for insurers – and for potential board members.  While D&O policies may still provide appropriate defense, individual officers and directors may now be vulnerable for acts that have traditionally been attributed to the corporate entity and now leave them without adequate coverage.  The new directives are expected to put companies and their directors in conflict of interest much sooner than before.

Court Fees

Is an insurance company always responsible for paying court fees when the dispute is resolved in favor of the policyholder?  That’s the question now before Florida’s Supreme Court.
The case involves Kathy Johnson of Marion County, whose home suffered damage from a sinkhole in 2011.  After initially denying her claim, her insurance company, Omega Insurance, eventually agreed to pay the claim in full after a third party opinion during discovery at the trial court level confirmed the damage was indeed caused by a sinkhole.  Johnson’s home has since been repaired.
The lingering issue is whether Omega is responsible for paying Johnson’s $100,000 in court fees.  The general rule is that when a judgment is rendered against a company, it must pay fees.  The Supreme Court last week heard arguments from both sides with different interpretations of the Florida statute that outlines when an insurance company is responsible for paying an insured’s attorney’s fees.
A Marion County judge first ruled in Johnson’s favor, but the 5th District Court of Appeal later sided with Omega, saying the insurer was reasonable to assume that its initial evaluation of the home damage had been accurate.
Omega’s attorney argued before the Supreme Court that Johnson could have established grounds for Omega to pay her fees by simply disputing the initial evaluation with Omega.  The justices during discussion made references to another case, Universal Insurance Co. of North America v. Warfel, from 2012.  The Court addressed a similar question in that case and took Johnson’s case on grounds the 5th DCA may have misapplied it in its ruling siding with Omega. Stay tuned.

U.S. Senate Measure Would Further Toughen Drone Laws

According to industry news sources, a bill was filed on March 9th in the United States Senate that would require all drone operators to substantiate that they are knowledgeable about U.S. aviation regulations. In order to verify drone operators’ understanding of applicable regulations, the proposed measure would require unmanned aircraft (drone) operators to pass an on-line test, this according to recent information released by the Senate Commerce, Science and Transportation Committee. As far back as late 2014 some officials with the Federal Aviation Administration (FAA) began publically expressing concerns that some unmanned aircraft operators were using their drones in a dangerous manner, greatly increasing the chance of collisions that might result in airplane crashes or serious injury to people from falling debris. In 2014, the FAA received on average 25 complaints per month where witnesses observed drones flying near private and commercial aircraft while in-flight. According to Margaret Gilligan, FAA’s associate administrator for safety, many of the drone operators in question had no aviation history, background or knowledge. Gilligan went on to note during her address before the Air Line Pilots Association that many drone operators never stop to think that they are entering the national airspace system when they launch their unmanned aircraft skyward. In fact, one FAA regulation strictly prohibits the operation of a drone within five miles of an airport.
In 2015, the FAA received a record number of reports regarding drones flying too close to private and commercial aircraft, as well as, helicopters. This latest proposed federal legislation would further strengthen the FAA’s interdiction of drone violations, require manufacturers to incorporate safety features on drones for the first time and provide funding for programs to corral drones flying too close to U.S. airports. As we reported in an earlier newsletter, the FAA began this year requiring the vast majority of drone operators to officially register with the federal agency. Additionally, there is a web site available where drone operators can learn about the most current FAA regulations and other safety information. You may access that web site by clicking here. We will continue keeping a close eye on congressional legislative activity impacting the operation of drones and keep you up to date on developments.

So, What’s Next on Our Agenda?

Let’s call this week OUR spring break.  Not really, but we may take a little time and just chill.  With the kids out enjoying the sun and sand, and the streets of Tallahassee (sans the legislators and students) a bit quieter than normal, we will enjoy the lack of hustle-bustle that has been the case for several months.  Then, back to it we go.  As always, our traveling increases now as conferences, conventions and opportunities to visit face-to-face with friends and clients increase.  The upcoming months are getting packed with activities.  We will be at the Flood Insurance Market Summit in Orlando next week, where we will honor outgoing Commissioner McCarthy, then on to the NAIC conference in New Orleans, the first Flood PCA Flood conference in Tampa in early April, followed by the P&C Insurance Fraud Task Force meeting, and the FAIR Conference closes out the month.  The Insurance Summit 2016 hosted by Demotech and WaterStreet Company starts the month of May off, and mid-May brings the National Flood Conference in DC, followed by the FHCF Workshop and Rytech’s annual Sunshine Conference.  Of course there is the FAIA in Orlando in June.    We love seeing lots of folks around the state and hope to see many of our readers during the next few months.  If you don’t hear from us and want to arrange a visit, please give us a call.  We want to see you and hear about what’s happening in your lives.
See you real soon –
Lisa and the Team

Upcoming Events

30th Annual Governor’s Hurricane Conference
May 8-13, 2016
Rosen Shingle Creek
Orlando, Florida


National Flood Conference
May 17-20, 2015
Washington, DC

May 18-19, 2016
Disney’s Coronado Springs Resort
Lake Buena Vista, Florida