Insurers may face class-action lawsuit

Bradenton Herald--October 2, 2008

Gov. Crist is pushing for a class-action lawsuit against the property-insurance industry, saying it is cheating Florida homeowners.

Railing against the failure of the insurance industry to pass on savings to Floridians after the state took on more of the risk, Gov. Charlie Crist has appointed three high-powered lawyers to file a class-action lawsuit against the industry on behalf of state residents.
”I’m increasingly concerned they are potentially violating the new law,” Crist said in an interview with The Miami Herald on Tuesday.

“Common sense would dictate to you that if they are not passing on the savings to the customer, they are violating the law that says they must pass on the savings to the customer.”
 
Crist said his legal office has engaged the help of Roberto Martinez, the former U.S. attorney from Miami who chaired Crist’s transition team; Dexter Douglass, the former general counsel to Gov. Lawton Chiles who worked on the state’s litigation against the tobacco industry, and Bob Hackleman, a Fort Lauderdale trial lawyer with Gunster, Yoakley & Stewart, the former firm of Crist’s chief of staff. The lawyers will work at no cost to the state, Crist said.

Martinez said his firm has been asked “to look at information relating to the rates being charged for property insurance in the state of Florida to determine whether there is the basis for legal action.”

At the core of the dispute is a law enacted last January that provided billions in additional cheap reinsurance to private insurers in return for a requirement that they pass on the savings to consumers.

Many companies have lowered their rates but ”those that have not should be accountable,” Crist said.

He said he believes companies may have tried to skirt the law by minimizing their risks and maximizing their profits illegally.

The lawyers are reviewing the financial documents the industry filed with the Florida Office of Insurance Regulation, and Crist said he hopes they will file a lawsuit against them “as soon as possible.”

”I don’t know how long that process is going to take,” the governor said. “The idea is to get the people’s money back.”

The insurance industry has already challenged the state in court and will fight this as well, said Sam Miller, spokesman for the industry-backed Florida Insurance Council.

”We don’t believe the companies are doing anything wrong,” he said. ”We believe companies are operating legally and honestly and some neutral party will have to decide.” Miller said there are 300 companies and 300 ways “to provide savings to customers.”

Crist, however, said he is especially angry that since the law was passed in January, several major national companies, such as Allstate and Nationwide, lowered their rates very little or asked for a rate increase. Meanwhile, several smaller companies, many of them Florida-based, had the largest decreases.

State Farm, one of the largest insurers in the state, agreed to a 9 percent decrease and Citizens Property Insurance, the state-run insurer, which didn’t have to reduce rates, lowered its premiums as well.

But Allstate is asking for rate increases ranging from 27.4 percent to 43.4 percent. The company has dropped at least 350,000 Florida policyholders in the past four years, and company officials said the rate increases were needed to allow it to buy more reinsurance to cover its potential losses.

”There are consequences to violating the law if we can show that they have — and I believe that they have,” Crist said, though he didn’t single out any one company.

The state Office of Insurance Regulation is working with the governor’s office but wouldn’t discuss any potential lawsuit. The agency denied Allstate’s rate hike request and subpoenaed the company’s chief executive office and chief financial officer to appear at a Jan. 15 hearing to explain their business practices.

The agency wants to ask them about their correspondence and communication with companies that create the hurricane computer models that estimate possible damages and the rating companies that advise them, said Tom Zutell, spokesman for the insurance regulation office.

The secretive computer programs form the basis of their rate decisions but the models have not been approved by the state.

After the legislation was passed, some companies began relying on a 5-year model of potential risk, rather than the 100-year model they had relied on in the past, Zutell said.
The shorter time period ”makes it look like you need a lot more re-insurance,” he said.
”It could be a confluence of events or it could be pure chance but we want to take a look,” Zutell said.