Windstorm Panelists: Carriers Hesitant to Write Fla. Policies

A panel of eight insurance experts agreed unanimously that carriers are closely scrutinizing Florida and are hesitant to renew homeowners policies during a panel moderated by Bill Bailey, director of the Hurricane Insurance Information Center, at the Seventh Annual Windstorm Insurance Conference in Orlando, Fla.

The panel was such a popular event, that more than 1,000 conference attendees overflowed the main auditorium and a second room had to be set up next door with television monitors on which they could listen to the discussion.

While the panelists agreed that two tumultuous hurricane seasons play a role in carriers’ hesitancy to write policies in Florida, they said two other factors will weigh just as heavily, if not more-so on insurance companies’ decisions to continue to write policies in the state.

Panelists participating in the discussion included: Bailey, moderator; Tony McCarty, Florida Family Insurance Co.; William F. ‘Chip’ Merlin Jr., Merlin Law Group; Janet L. Brown, Esquire, Boehm, Brown, Fischer, Harwood, Kelly & Scheihing P.A.; John J. Pappas, Butler, Pappas, Weihmuller, Katz, Craig LLP; Gary A. Poliakoff, Becker & Poliakoff P.A.; James Shortley, Department of Homeland Security/FEMA; and Charles R. “Dick” Tutwiler, Charles R. Tutweiler & Assoc.

Panelists said insurers not only are raising premiums but also are limiting new policies and struggling with a “lack of certainty” about how the limitations they have in their policies will fare in protecting them, particularly in states such as Florida.

“As CEOs and actuaries, how do you determine your rates?” Pappas asked. “A Florida appeals court ruled in 2004, for example, that insurance companies can be liable for claims for “flood” damage under the legal theory of efficient proximate cause, even though the policy excludes floods and technically is for ‘wind’ coverage only.”

The Florida Legislature rewrote the law last spring to clarify that and to protect insurance companies against such claims.

“You have no idea how the judges and judiciary will interpret the [new] language,” Pappas said. “This lack of predictability is the problem.”
The two factors the panelists attributed most to concerns about Florida’s market were an unfavorable legislative and judicial climate and uncertainty about how much they will have to pay for reinsurance.

McCarthy said carriers are taking a close look at their expenses and how to minimize them. He said they expect to see major increases in reinsurance costs.

They said that ever since Florida’s Fourth Circuit Court of Appeals valued policy law decision, carriers have felt the judicial system is against them.

Brown pointed out that recent decisions that effect policy limits for wind and water and especially those made in the Mierzwa Case, are making carriers hesitant to write policies in Florida. She pointed out that the court decision in that case made it possible for policyholders to recover two policy limits for one claim.

In a ruling from the bench, Leon County Circuit Judge Kevin Davey granted the plaintiffs’ motion for summary judgment in the case, Scylla Properties LLC vs. Citizens Property Insurance Corp., effectively upholding the Mierzwa decision, which requires insurers to pay policy limits for homes with both wind and flood damage from the 2004 hurricanes, even if flood losses were excluded from coverage.

Poliakoff said that after Davey’s decision, carriers became hesitant to write new policies in Florida, or renew them, because the decision means that in case there is a claim, contracts can not be enforced and in such cases the company has no choice but to pay, with homeowners often able to collect twice for the same damage.

Merlin said that in the present legislative environment in Florida, carriers often have to rewrite their policies soon after each legislative session, every year. He predicted that appeals over Hurricane Ivan claims will go on “for years.”

“At the same time, carriers are unsure how difficult it is going to be to obtain reinsurance, and how much they will have to pay,” Bailey said. He said that new capital is flowing into reinsurance markets because they feel that the reinsuminsurance market will be profitable in coming years.

According to Tutweiler, the mediation program worked well in Mississippi and Alabama. “We had good experiences with every case,” Tutweiler explained. “Mediators are good at what they do.

McCarthy disagreed, saying that from a carrier’s point of view, he didn’t feel mediation brings closure, because even if an insurance company pays a claim, under usual mediation terms, if a policyholder finds other damages, a second claim can be made later on.

“That’s why policyholders feel comfortable with mediation,” Bailey said, “because if they find significant unreported damage after the settlement has been reached, the door is still open and they can file a claim for that damage.”

Bailey pointed out that in 1993, to the best of his recollection around 18,000 mediation claims were filed in the aftermath of Hurricane Andrew, and about 18 cases went unsettled and had to go on to court.

Condominium association claims are another category that present unique problems, according to Poliakoff. He predicted future lawsuits will result from how claims for condominium damages are paid. “Condo claims are paid as if one-size fits all,” Poliakoff said. “Legally, it doesn’t work that way.”

He said condominium associations have boards of directors and insurance trustees, but carriers often bypass them and write settlement checks to both the association and even individual condo unit owners. “It’s often unclear who is responsible for damages and under most condominium association rules, individual unit owners are responsible for making up for inadequate insurance coverage.

The panel unanimously agreed that unrealistically low property evaluations often result in the issuance of low-ball insurance policies, some of which are even as low as 50 percent below market value.

Poliakoff pointed out that due to high insurance costs the trend is for condominium associations to form their own insurance pools.