Status Update: Florida Hurricane Catastrophe Fund Reimbursement of Direct Incurred Losses, Adjusted Living Expenses
Dec 20, 2010
With substantial commentary and confusion resulting from the Florida Hurricane Catastrophe Fund’s recent treatment of reimbursements that included certain fees incurred during the 2004 commutation process, Colodny Fass representatives met with Florida Hurricane Catastrophe Fund (“FHCF”) officials during the week of December 13, 2010 to discuss their position and learn the FHCF plan of action to address the issue in the future. Below is a synopsis of this conversation:
FHCF officials do not believe that the FHCF is authorized by Florida law to reimburse insurers for anything other than “direct incurred losses” or adjusted living expenses (“ALE”) up to a certain amount.
Although the term “direct incurred losses” is not further defined in Florida statutes, it is defined by the National Association of Insurance Commissioners (“NAIC”) to state that “direct incurred losses” means:
” . . . the property loss in which the insured peril is the proximate cause of damage or destruction.”
Therefore, it is the position of FHCF officials that, based on this definition, certain fees, including attorneys’ fees or public adjuster fees, are not included as reimbursable costs if they are paid above what was paid to reimburse for the damages or ALE. (It should be noted that the FHCF believes that the facts surrounding the Sunshine State-related commutation are specific to Sunshine State and not generally applicable to all companies for 2004).
Going forward, FHCF officials would like to clarify these definitions and have stated that they are willing to work with the insurance industry on proposed legislation to do so.
As part of accomplishing this, FHCF officials plan to conduct the appropriate analysis on the whether a corresponding legislative change would impact the FHCF’s IRS tax exemption and private letter ruling, as well as whether such legislation would produce public policy implications, unintended consequences and other moral hazards associated with legislation specifically authorizing the FHCF to reimburse these losses. Should the FHCF decide to support a legislative proposal, it will then evaluate whether the inclusion of a retroactivity provision could be supported.
Due to the ambiguity on this issue, the FHCF has taken the position that, during loss reporting, it needs to capture attorneys’ fees and related data regardless of how the question of fee reimbursement is resolved, hence the Rule development.
The Florida Property Casualty Association has requested a hearing on proposed Rules 19-8.010 Reimbursement Contract, 19-8.029 Insurer Reporting Requirements and Rule 19-8.030 Insurer Responsibilities. The hearing will take place on January 25, 2011 at 9:00 a.m.
It is worth noting that, during the most recent Special Session, the Florida Legislature overrode a veto of HB 1565. The bill requires a regulatory agency to develop a statement of estimated regulatory costs during rule development that includes and economic analysis showing whether the Rule-directly or indirectly-is likely to increase regulatory costs, including transactional costs, in excess of $1 million in the aggregate within five years after implementation of the Rule.
If the Rule that is under development would exceed this threshold, then it must be submitted to the Senate President and Speaker of the House, after which it may not take effect until it is ratified by the Legislature. HB 1565 was effective upon becoming law, but it is worth noting that the Rule development process on the FHCF forms had begun before this law was effective.
Colodny Fass will research how this law may impact the impending Rule development.
Should you have any comments or questions, please contact Katie Webb (kwebb@cftlaw.com) at Colodny Fass.
