House Insurance and Banking Subcommittee Report: March 30, 2011

 

On Wednesday, March 30, 2011, the House Insurance & Banking Subcommittee considered several insurance-related bills during its meeting. 

HB 1087 Relating to Persons Designated to Receive Insurer Notifications, sponsored by Representative Doug Holder (R-Sarasota), passed favorably following questions and debate on the bill. 

HB 1087 changes the designated recipient of certain insurance policy notices from the “named insured,” including all persons named on a policy, to the “first named insured” as the primary contact for administrative matters on the policy.   Under current law, multiple copies of each notice must be delivered to the “named insureds” on the policy, even if the insureds all live at the same address, resulting in waste and excess cost.

Following introduction of the bill, several questions were raised including concerns regarding how additional named insureds would ultimately receive the noticed-information, if only the first named insured was required to receive such information, the concern being that parties with an interest in the property would be uninformed and their rights negatively implicated.  Rep. Holder responded by explaining that the purpose of the bill is to send out one copy of a notice to members of a group at the same address.  He further explained that a “first named insured” is generally the first named insured included in the policy declaration and is the person who assumes the legal authority to act on the policy with regard to cancellation, policy changes, reporting losses, and other administrative functions; the same would be the case under HB 1087.  In other words, under HB 1087, the “first named insured” would receive notice and it would be that insured’s obligation to inform the other named insureds.  Rep. Holder clarified Florida’s current law, which is to send the notice to everyone named on the policy; he emphasized, however, that many other states send the notice only to the first named insured.

During debate on the bill, similar concerns were raised relating to ensuring that parties with an interest in the property ultimately receive notice. Rep. Holder then closed on the bill by clarifying that HB 1087 also contains a provision that allows lending institutions to qualify as the “first named insured.”  A vote was taken and HB 1087 favorably passed.

HB 885 was filed on February 21, 2011, and is sponsored by Representative John Wood (R-Haines City).  SB 1330 is the Senate companion bill and prior to today’s hearing, was identical to HB 885.  On March 28, 2011, the Insurance & Banking Subcommittee filed Amendment 1, PCS for HB 885, (hereinafter “CS/HB 885”), which completely changed the overall purpose and effect of the bill. 

CS/HB 885 was heard and favorably adopted during today’s meeting following questions and debate.  Rep. Woods initially explained that the amendment was an improvement to § 627.062, F.S., governing rate standards, to permit a favorable rate increase to recover the cost of financing products used as a replacement for reinsurance for residential property insurers.

As part of the question portion of the hearing, Rep. Woods was asked if the Florida Office of Insurance Regulation (“OIR”) had reviewed CS/HB 885’s language.  Rep. Woods answered yes, and introduced OIR representative Monte Stevens, who provided testimony that the OIR was in full support of CS/HB 885.  Mr. Stevens emphasized that nothing in CS/HB 885 circumvents the OIR’s full review and approval authority of the rate filing but rather, permits companies to get products to market faster. 

Rep. Woods also confirmed that CS/HB 885 substantially changed the original provisions of HB 885 and SB 1330, which were both designed to deregulate residential insurance rates.  However, CS/HB 885 now provides an expedited filing process for reinsurance costs and does not contain any rate deregulation provisions for residential property insurers.  Rep. Woods also confirmed that the bill did not address sinkholes and that there was a limitation on the percentage of increase in policy premium to 15%. 

Rep. Thurston then asked OIR representative Monte Stevens whether the OIR maintains the authority to regulate rates in reinsurance contracts for “excessiveness,” which Mr. Stevens assured him that it did.  During debate, additional testimony was provided, including some opposition to CS/HB 885.  A vote was taken and CS/HB 885 passed favorably. 

HB 1243 Relating to Citizens Property Insurance Corporation, sponsored by Representative Jim Boyd (R-Bradenton) and cosponsored by Representative Charles E. Van Zant (R-Palatka), passed favorably as amended after the adoption of several amendments today. 

Rep. Boyd opened by discussing a few key provisions of the bill, which included but was not limited to the following:

• Requires Citizens policyholders to obtain flood insurance in an adequate amount corresponding to coverage amount;
• Changes the eligibility threshold by providing that an application for coverage having an effective date before January 1, 2015, is eligible for coverage by the corporation if the premium for coverage from an authorized insurer exceeds the premium for comparable coverage from the corporation by more than 25%;
• Provides that effective January 1, 2012, a structure that has a dwelling replacement cost of $1 million or more, or a condominium unit that has a combined dwelling and contents replacement cost of $1 million or more, is not eligible for Citizens coverage. Such dwellings insured by the corporation on December 31, 2011, may continue coverage until the end of the policy term;
• Effective January 1, 2014, a structure that has a dwelling replacement cost of $750,000 or more, or a single condominium unit that has a combined dwelling and contents replacement cost of $750,000 or more, is not eligible for Citizens coverage. Such dwellings insured by the corporation on December 31, 2013, may continue coverage until the end of the policy term;
• Effective January 1, 2016, a structure that has a dwelling replacement cost of $500,000 or more, or a single condominium unit that has a combined dwelling and contents replacement cost of $500,000 or more, for Citizens coverage. Such dwellings insured by the corporation on December 31, 2015, may continue coverage until the end of the policy term;
• Provides that agents appointed by Citizens must also be an agent of a private insurer;
• Provides that new or renewal policies issued by the corporation on or after January 1, 2012, do not include coverage for attached or detached screen enclosures;
• Provides legislative intent that rates be actuarially sound and not competitive with the private market;
• Provides that OIR must set rates each year for Citizens based upon recommended rates by Citizens;
• Implements a rate increase cap from 10 to 20% per rating territory, and no more than 25% per policy and specifies that rate caps do not apply to reinsurance or sinkholes;
• Clarifies that Citizens is not subject to bad faith claims;
• Provides that new or renewal Citizens policies issued by on or after January 1, 2012, which cover sinkhole loss do not include coverage for any loss to appurtenant structures, driveways, sidewalks, decks, or patios which is caused directly or indirectly by sinkhole activity. The corporation is not required to issue a notice of nonrenewal to exclude this coverage upon the renewal of current policies, but shall exclude such coverage using a notice of coverage change which may be included with the policy renewal.

Rep. Boyd then pointed out two significant changes to the bill per the Subcommittee’s prior concerns as set forth in Amendment 1, (“CS/HB 1243”), further discussed below, including moving towards the use of standard HO-3 residential homeowners policy and allowing Citizens policyholders to use public adjusters.

The Subcommittee then took up the following 4 amendments:

• Filed by Rep. Wood, Amendment 1, CS/HB 1243, was favorably adopted after no questions or debate. The amendment provides that eligible surplus lines insurers may participate in a depopulation, take-out, or keep-out program similar to that as an authorized insurer, except as otherwise provided.
• Filed by Rep. Wood, Amendment 2 was favorably adopted after no questions or debate and inserts “surplus lines insurer” language consistent with Amendment 1.
• Filed by Rep. Wood, Amendment 3 was favorably adopted after no questions or debate relating to the confidentiality of Citizens records.
• Filed by Rep. Bernard, Amendment 4 was not adopted following questions and debate. Amendment 4 provided that policies removed from Citizens within 1 year after the date of entry or an order of liquidation shall be reassigned to Citizens and continue in force until the normal expiration date of the policy. OIR representative Monte Stevens testified that this provision went against efforts to depopulate Citizens and expressed that the goals of the amendment could be accomplished in other ways. Debate ensued, and Reps. Hager, Wood, and Boyd all testified that despite valid public policies reasons and good intentions on behalf of Rep. Bernard in filing the amendment, there were better ways to address concerns. A voice vote was then taken and Amendment 4 failed.

The Subcommittee returned back on the bill as amended and significant debate and testimony followed. Rep. Bernard proposed a series of questions, including why language was stricken requiring Citizens to provide any additional information regarding its rates to the OIR as required.  Christine Ashburn, Director of Legislative and External Affairs for Citizens, responded that it was not necessary language given that Citizens and the OIR already work “hand in hand.”

Questions and concerns were also raised at various points regarding the necessity of language concerning the exclusion of property of $1 Million or more from Citizens coverage.  Rep. Boyd responded that because one of the primary goals is to depopulate Citizens and decrease its overall liability, continuing to insure properties over $1 Million is counterintuitive to reaching such goals.  Rep. Boyd further explained that of the 1.3 Million Citizens policies, approximately 6,500 are in the $1 Million+ range; therefore, the exclusion does not impact a substantial percentage of Citizens overall book of business.  He noted $2 Million is the current exclusion point.

Ms. Ashburn was then asked why Citizens should not be subject to bad faith.  She responded that Citizens does not act in bad faith, nor has ever acted in bad faith.  Moreover, pursuant to an immunity statute, Ms. Ashburn stated that Citizens already believes that it is not subject to bad faith and that this provision is merely intended to clarify its ongoing legal position. However, she did emphasize that Citizens spends thousands of dollars defending its immunity each year and clarification of this position would cut down on legal defense costs. Ms. Ashburn further explained that there are no financial incentives for Citizens to act in bad faith given that it is a non-profit company, no bonuses are given, and salaries are unaffected by claims paying. 

In response, public testimony against the bill on behalf of policyholders was given, citing that bad faith law is an integral part of the claims-paying process for consumers because it “levels the playing field” and that Citizens should be forced to adhere to bad faith standards similar to private insurers. However, this statement was somewhat criticized by the Subcommittee for seemingly suggesting that there is not a valid public policy supporting the unique circumstances of Citizens’ creation as a government insurer of last resort to be shielded from bad faith claims.  Moreover, Ms. Ashburn responded that there are many other alternatives for unsatisfied Citizens policyholders during the claims handling process, such as an escalation process to ensure management’s review of claims, as well as arbitration, filing a complaint with the Department of Financial Services (“DFS”), filing a complaint with the Consumer Advocate, and access to courts as a last resort.

Ms. Ashburn further testified that Citizens has been very involved in the drafting of the bill, and that the bill helps to ensure that only people who truly need Citizens is insured by Citizens.  Moreover, she explained that it significantly helps reduce exposure and coverage for cost drivers like screens/closures and helps ensure adequate funding of Citizens.  Mr. Stevens for the OIR likewise echoed the bill effectiveness in achieving Citizens’ goals.

Testimony was also given by the Mayor of Monroe County (and president of “Fair Insurance Rates in Monroe”), Mayor Heather Carruthers.  She testified that 95% of insured properties in Monroe County are insured by Citizens and although policyholders would love to have alternative choices to Citizens, there has been no such alternatives for windstorm coverage since the 1970’s.  Mayor Carruthers suggested that Monroe County Citizens policyholders have been subsidizing other Citizens policyholders, and further claimed that the models do not accurately reflect the wind risk in the Keys as opposed to the flood risk. 

Rep. Boyd closed, a vote was taken, and CS/HB 1243 passed favorably.

 

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

 

 

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