Florida Hurricane Catastrophe Fund Emergency Rule 19ER11-1 Specifies Eligibility for Participating Insurer Alternative Methods of Finalizing 2005 Losses; Requests Must Be Made by May 31, 2011

 

Following State Board of Administration (“SBA”) approval at the May 17, 2011 Cabinet meeting, the Florida Hurricane Catastrophe Fund (“FHCF”) filed Emergency Rule 19ER11-1, F.A.C. on May 27, 2011, entitled “Extraordinary Circumstances for Alternative Method of Finalizing 2005 Losses” (“Emergency Rule”) relating to 2005 FHCF losses.

The Emergency Rule was approved after the FHCF reported receiving large quantities of new and reopened claims on 2005 FHCF policies during the first quarter of 2011.

The process of finalizing FHCF participating insurers’ 2005 losses, which must begin no later than June 1, 2011, involves a valuation of claims that an insurer has received but has not yet paid and claims that an insurer anticipates, but has not yet received.  The FHCF has indicated its concern that some participating insurers may have very large amounts of outstanding losses and incurred, but not reported losses, as a result of 2005 claims that were filed or reopened long after the hurricanes covered by the 2005 FHCF Reimbursement Contract.

The FHCF has determined that alternative methods of finalizing these losses may significantly reduce the likelihood of either overpayment or underpayment of claims.

Florida law provides that, in unusual situations, FHCF Rules may be applied with “reasonable flexibility.”  Thus, to address the long tail of the 2005 losses and concentration of the exposure, the Emergency Rule establishes specific parameters for alternative methods of finalizing an insurer’s losses, notwithstanding the FHCF’s Reimbursement Contract commutation process.

Participating insurer requests to finalize 2005 losses must be made no later than May 31, 2011.

According to the Emergency Rule, a participating insurer is eligible to make this request if:

• The “Estimated Recoverable from the FHCF on Incurred Basis” (Section II, Incurred Basis, G. on Form FHCF-L1B, Proof of Loss Report) is more than 200 percent of the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report), or the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report) is zero; and
• The difference between The “Estimated Recoverable from the FHCF on Incurred Basis” (Section II, Incurred Basis, G. on Form FHCF-L1B, Proof of Loss Report) and the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report) exceeds $50 million; or
• The participating insurer is in receivership, in which case the request may be made on behalf of the participating insurer by either the receiver or the Florida Insurance Guaranty Association.
•  If the participating insurer and the SBA do not reach agreement on the alternative method of finalizing the participating insurer’s losses within 60 calendar days after the date of the request, the provisions of Paragraph (3)(d) of Article X of the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract apply.

The complete text of Emergency Rule 19ER11-1 is reprinted below. 

 

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

 

19ER11-1 Extraordinary Circumstances for Alternative Method of Finalizing 2005 Losses

(1) Section 215.555(3), F.S., provides that in situations of an unusual nature, Florida Hurricane Catastrophe Fund rules may be applied with reasonable flexibility if such flexibility is in accord with sound insurance practices and is not contrary to the public purpose of the Florida Hurricane Catastrophe Fund.

(2) Applying such statutorily-authorized flexibility, this rule specifies circumstances under which an alternative method of finalizing an insurer’s losses may be used notwithstanding the commutation process as described in paragraph (3)(d) of Article X of the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract, which was adopted as Rule 19-8.010, F.A.C.

(3) Upon the request of a participating insurer that is a party to the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract, the State Board of Administration of Florida (“SBA”) and the participating insurer may agree to an alternative method of finalizing the participating insurer’s losses notwithstanding the commutation process as described in paragraph (3)(d) of Article X of the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract. The request must be made no later than May 31, 2011.

(4) A participating insurer is eligible to make the request described in subsection (3) if:

(a)1. The “Estimated Recoverable from the FHCF on Incurred Basis” (Section II, Incurred Basis, G. on Form FHCF-L1B, Proof of Loss Report) is more than 200 percent of the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report), or the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report) is zero; and

2. The difference between The “Estimated Recoverable from the FHCF on Incurred Basis” (Section II, Incurred Basis, G. on Form FHCF-L1B, Proof of Loss Report) and the Total Estimated Recoverable (Section II, Paid Basis, G. on Form FHCF-L1B, Proof of Loss Report) exceeds $50 million; or

(b) The participating insurer is in receivership, in which case the request may be made on behalf of the participating insurer by either the receiver or the Florida Insurance Guaranty Association.

(5) If the participating insurer and the SBA do not reach agreement on the alternative method of finalizing the participating insurer’s losses within 60 calendar days after the date of the request, the provisions of paragraph (3)(d) of Article X of the 2005 Florida Hurricane Catastrophe Fund Reimbursement Contract apply.

Rulemaking Authority 215.555(3) FS. Law Implemented 215.555, FS. History-New 5-17-11.

THIS RULE TAKES EFFECT UPON BEING FILED WITH THE DEPARTMENT OF STATE UNLESS A LATER TIME AND DATE IS SPECIFIED IN THE RULE.
EFFECTIVE DATE: May 17, 2011

 

 

To unsubscribe from this newsletter, please send an email to Brooke Ellis (bellis@cftlaw.com).