Florida House Insurance Subcommittee Passes Three Insurance-Related Bills, Holds Sinkhole Issues Workshop

 

The Florida House of Representatives Insurance and Banking Subcommittee (“Subcommittee”) met today, February 9, 2011, during which it considered three insurance-related bills and held a workshop on sinkhole coverage.  To view the meeting packet, click here.

The following is a brief review of the discussions that took place during the meeting:

House Bill 99 relating to Commercial Insurance Rates by State Representative Brad Drake passed unanimously.  The bill allows new types of commercial insurance to be exempt from the rate filing and approval process set forth by current law.  Property Casualty Insurers Association of America Assistant Vice President and Regional Manager William Stander was among the insurance trade association representatives who testified in support of the bill, along with others from business associations and insurance agent trade groups.

House Bill 4081 relating to the Repeal of Obsolete Insurance Provisions by State Representative Mike Horner passed unanimously.  This non-controversial bill repeals outdated insurance statutes.

House Bill 4083 relating to Workers’ Compensation by State Representative Ben Albritton passed unanimously with limited discussion.  This non-controversial bill also deletes obsolete and outdated statutes.

 

Sinkhole Workshop

Following the passage of the aforementioned bills on the agenda, the Subcommittee held a workshop on sinkhole issues.  Florida Office of Insurance Regulation (“OIR”) Legislative Affairs Director Monte Stevens updated the legislators on the Agency’s recent Sinkhole Data Call.

During his presentation, Mr. Stevens reviewed the history of Florida’s sinkhole laws.  In 1970, a Sinkhole Facility was established, but then eliminated three years later because very few policies existed within it.

Since 2006, sinkhole claims began to increase and continue to increase to the point that $1.4 billion in claims have been paid.  Data collected by the OIR shows that sinkhole-related issues are growing beyond “sinkhole alley” (Hernando, Pasco, Hillsborogh and Pinellas Counties).

Meanwhile, related public adjuster and attorney fees also have increased significantly.  State Representative Mack Bernard asked why there was drop in the percentage of sinkhole claims from 2007 to 2008, to which it was suggested that making sinkhole coverage optional for policyholders in 2007 contributed to the decline.  

State Representative Jim Boyd asked about the portion of claims that are filed as “catastrophic ground cover collapse.”  The response estimated this metric at about one percent. 

Mr. Stevens suggested that the Legislature should consider making the requirement for insurers to offer sinkhole coverage optional, while ensuring that individuals sustaining non-catastrophic losses that are more than cosmetic should be able to get coverage.

Citizens Property Insurance Corporation (“Citizens”) Chief Administration Officer Suzanne Murphy testified about the impact sinkhole coverage is having on the State-run insurer.  She noted that Citizens writes a large number of sinkhole policies and has experienced a rise in the number of claims since 2005.  While claims frequency decreased from 2007 to 2008, it increased again in 2009. 

Ashley Mayer, Director of Legislative Affairs for Florida Chief Financial Officer Jeff Atwater, provided an update on the neutral evaluation process.  A neutral evaluation is mandatory if requested by a party, but is non-binding.  Ms. Mayer echoed the sinkhole concerns previously raised. 

Pasco County Chief Deputy Property Appraiser Wade Barber discussed the sinkhole problems in Pasco County, noting there has been a big upswing in sinkhole claims that is negatively impacting the County’s tax roll.   Fueled by profits, demand is driving the increase in sinkhole claims, leading to a significant abuse of the system, he said.   Mr. Barber noted that 75 of the houses in Pasco County that are deemed as “sinkhole homes” are both homesteaded and inhabited.  He also suggested that most of the sinkhole claims do not result in the homes being repaired.  Rather, the claims are serving as a massive windfall for those making the claims. 

A real estate broker testified about sinkhole claim abuse impact on the real estate market and provided examples of multiple claims and payments on a home that was never repaired.  Further, the payments were well beyond the value of the home.  Among the solutions he recommended was to eliminate the requirement that an insurer must prove a negative (that there is not a sinkhole); allow the tear-down of a house if the homeowner will not fix it after making a sinkhole claim; allow insurers to stop repairs; and to report sinkhole claims to the appropriate clerk of the courts.

Florida Property and Casualty Association members Locke Burt of Security First Insurance Company and Tom Jerger of American Traditions and Modern USA Insurance Companies testified before the Subcommittee on sinkhole-related problems faced by insurers. 

Mr. Jerger recommended sub-limits as a solution to address concern over actual non-catastrophic sinkhole losses.  A major problem, he noted, is that the Legislature has forced insurers to write a coverage that is uninsurable. 

Mr. Burt stressed the importance of repairing homes on which sinkhole claims have been made.  Insurers’ responsibility to prove a negative, bad faith issues and exposure to attorneys’ fees are all problematic, he said.

To alleviate the sinkhole issues, Mr. Burt explained, claims should be paid first on actual cash value and then replacement cost would be paid as repairs are made.  The private market is capable of providing coverages for sinkhole claims that are not catastrophic.  He also suggested shortening the time in which an insured can file a claim to one year and limiting the time to file a civil action to three years from the date of a loss.

Other insurance industry representatives who testified cited ambiguities in the law as contributory to Florida’s sinkhole claims crisis.

A representative of the Florida Sinkhole Association Specialists raised concerns on behalf of those who investigate sinkhole claims, such as engineers.  He also expressed particular concern with changing the definition of “structural damage.”  As an alternative, he suggested offering coverage for “functional damage.” 

Following the public testimony, Subcommittee Chairman Bryan Nelson concluded the meeting. 

 

 

Should you have any questions or comments, please contact Colodny Fass.