Citizens Task Force on Property Insurance Claims Handling Committee Meeting

The Task Force on Citizens Property Insurance Corporation (“Citizens”) Claims Handling and Resolution (“Task Force”) held a meeting on Tuesday, February 26, 2008. Discussion included Citizens’ policy administration, its customer service call center, non-claim concerns, daily claims handling, hurricane claims, and proposed appraisal umpire legislation issues. To view a copy of the agenda, click here.

The meeting was called to order by Senator Mike Fasano, Chairman. Task Force members, State Representative Julio Robaina and representatives from Citizens and the Florida Department of Financial Services (“DFS”) were in attendance.

Paul Palumbo, Citizens’ Senior Vice President of Underwriting, gave a report detailing Citizens’ policy application process, underwriting, inspection criteria, Coverage A replacement cost estimating, policy issuance, premium collection and processing, policy renewal, the schedule of improvements to the claims process, and an update on high-risk multi-peril policies.

Citizens will be implementing the following underwriting changes as of January 1, 2009:

• Excluding coverage for homes with a value over $1 million located in wind-borne debris areas unless the homeowner cannot find coverage through standard or surplus lines carriers. It is estimated that this policy change will affect approximately 7,500 current Citizens policyholders.
• Properties constructed on or after January 1, 2009 that are located within 2,500 feet of the coastal control line will not be eligible for Citizens coverage unless they meet code-plus building standards.
• Single-family homes insured for $750,000 or more located in wind-borne debris regions will not be eligible for coverage unless they have hurricane shutters. At this time, approximately 9,000 Citizens policyholders will be affected by this change.

To view a copy of Mr. Palumbo’s report, click here.

In response to rumors he has heard regarding condominium owners not receiving mitigation credits for which they are eligible, Representative Robaina asked Mr. Palumbo about Citizens’ mitigation inspection policy for condominiums. Mr. Palumbo clarified that as long as there are no reasons a condominium didn’t qualify for the mitigation credits, it will receive them.

Steve Bitar, Citizens’ Director of Consumer Service, and Robert Gofourth, Citizens’ Vice President of Operations, gave a presentation on Citizens’ consumer services call centers detailing activities at the various call centers. To view a copy of this presentation, click here.

Florida Division of Consumer Services Deputy Director Tom Terfinko gave a report on consumers’ non-claim concerns and the recent Citizens’ policyholder forum held in Bradenton.

Mr. Terfinko’s report provided the following suggestions to Citizens:

• Continue improvement of agent performance regarding cancellations and routine servicing
• Continue evaluation of cancellation, underwriting and compliance relationships
• Possible creation of a premium assistance and servicing unit to deal with continuing service issues such as rate verification, misquotes, mitigation credits, insured value concerns, and duplicate coverage.
• Review of the Department of Financial Services compliance data to determine which servicing issues continue to be a problem.

To view a copy of the presentation, click here.

Citizens’ Senior Vice President of Claims, Eduardo Mareovich, gave a presentation on daily claims handling and the provision of additional living expenses for policyholders when their residence is made uninhabitable by a covered peril. To view a copy of Mr. Mareovich’s presentation, click here.

Mr. Mareovich along with Citizens’ General Counsel reported on the status of Citizens’ 2004/2005 hurricane claims. The presentation detailed the number of claims still open, the number of claims in mediation, an overview of re-opened claims and Citizens’ overall preparedness for the 2008 hurricane season. To view a copy of the presentation, click here.

Senator Fasano detailed other areas of interest for the Task Force, which include:

• The statute of limitations for claims filing–The Task Force decided to monitor any developments with this issue.
• Consolidation of accounts in compliance with Section 627.351 (6)2.b. of the Florida Statues–Senator Fasano expressed the Task Force’s support in encouraging Citizens to look into this matter.
• Monitoring wind/flood and permit fee court cases—the Task Force voted to close this matter.
• Tax revenue funding for catastrophic events—the Task Force voted to take no action in this matter.
• A review of standards relating to Sarbanes-Oxley, a federal law which addresses issues regarding financial accountability and corporate governance, was closed.
• Systematic review and evaluation of services levels and operations—The Task Force voted to close this matter since they have already received a report issued by KPMG.
• Citizens’ agent training and continuing education credits—the Task Force voted to postpone taking any action on this matter.
• Valued policy law—the Task Force voted to close any further review on this matter.
• Wind-driven rain exclusion—It was expressed that if there is no exterior damage done to a policyholders’ home due to a hurricane, but concurrent interior water damage occurred due to water coming in through cracks around a window, faucets, or soffits, Citizens’ policies do not currently covered that wind-driven water damage. Concern was expressed that if it wasn’t for the covered event battering the home with wind and rain, there would have been no damage done to the inside of the home.

It is the position of some Task Force members that wind-driven rain should be covered. Concern was raised about the possible impact to Citizens’ rates, the scope of requirements and coverage and the possibility of fraudulent claims if this coverage is added.

The Task Force voted to recommend that the Legislature evaluate whether insurance companies could offer an optional coverage for an additional charge that would cover wind-driven rain. To view a copy of Senator Fasano’s area of concern outline, click here.

Richard Benrubi from the Florida Justice Association (“FJA”) provided a list of proposed amendments to the property insurance umpire legislation. The Florida Justice Association feels that the independence of appraisers is the primary problem with the current appraisal umpire system. Umpires are checking back with insurance companies too often in rendering their assessment judgment, rendering the judgment un-impartial.

The following proposed amendments provided by the FJA were rejected by the Task Force:

• Amendment 1—would eliminate from the proposed requirements that retired judges and Circuit Court civil certified mediators be licensed before being able to serve as appraisal umpires. It is the FJA’s position that retired judges and mediators are already qualified to resolve disputes and would be highly unlikely to subject themselves to the requirements of a separate application process. The FJA is concerned that a large pool of objective and qualified umpires would be lost if they are required to undergo licensing procedures.

The Task Force voted to reject this amendment. Senator Fasano said that there should be no exemptions for appraisal umpire training, and that since an appraisal umpire is paid to perform a service, he or she should be licensed. He expressed concern that appraisal umpires are seemingly not currently responsible to anyone. Should they become licensed, umpires would have to take responsibility for the outcome of their appraisal, or risk losing their license and subsequent income that such license provides.

• Amendment 8—would require the appraiser to be impartial. This amendment was withdrawn because that requirement is stated elsewhere in the bill.
• Amendment 9—would allow a retired judge or certified civil court appointed mediator to serve as an umpire. This amendment was rejected because nothing was stated about certification or licensing of the appraiser.
• Amendment 10—would require that appraisals be completed within 60 days; arbitration between appraisers to try to reach an agreement completed within 30 days; and failing that, the differences to be submitted to an umpire within five days. This amendment was rejected because of the concern that this timeline was too strict, and that a one-size-fits-all approach is unfair to the insured. Senator Fasano suggested that interested parties meet to come up with a new timeline that takes catastrophic and non-catastrophic events into account.
• Amendment 13—would require that costs for appraisal be shared equally between insured and insurer with the exception that the insurer pay costs tied to its original estimate. The Task Force voted to reject this amendment in order for a compromise to be reached.
• Amendment 14—this amendment was rejected inasmuch as it was not included in the original amendment packet and adequate copies were not supplied to Task Force members.

The following proposed amendments were accepted by the Task Force:

• Amendment 2—would impose some requirements and ethical standards on appraisers, as well as certain timeframes.
• Amendment 3—would provide definitions of “competent” and “independent.”
• Amendment 4—would change the classroom course work for all-lines property and casualty adjusters to be equivalent to other professionals qualified to become umpires.
• Amendment 5—would delete licensing qualifications tied to the number of appraisals completed by the date of demand.
• Amendment 6—would add ethical standards for property insurance loss appraisers derived from the American Arbitration Association and American Bar Association Code of Ethics for Arbitrators in Commercial Disputes.
• Amendment 7—would require the insurer to invoke the appraisal process, if desired, within 30 days of the insured submitting proof of loss.
• Amendment 11—would specify the rights that the insurer retains if provided in the policy.
• Amendment 12—would clarify that nothing stated in the bill addresses who pays the cost of appraisal.

To view a complete copy of the FJA’s proposed amendments, click here.

Wes Baldwin from the National Association of Public Insurance Adjusters (“NAPIA”) delivered the organizations’ concerns about the proposed umpire legislation. Mr. Baldwin stated that NAPIA is hesitant to support new state bureaucracy for the regulation of appraisal umpires. Under the proposed bill, even the most competent and experienced retired trial judge would not be authorized to serve as an umpire without additional classroom training.

NAPIA believes that such additional barriers to entry would decrease the number of available umpires, particularly in small property claims.

Mr. Baldwin stated that his organization agrees with the FJA on this issue. NAIPA is afraid that licensure of umpires would translate to additional costs to the insured, and that the quality of umpires, especially in rural areas would be greatly affected.

In response to a question from Representative Robaina, Mr. Baldwin replied that any type of retired judge can currently serve; civil, criminal, federal, etc. Representative Robaina stated that this is “ridiculous” inasmuch as a criminal court judge would have almost no qualification to serve as a property appraisal umpire and that “just because the person is a retired judge does not mean he or she automatically has the qualification to serve as a neutral and informed party in this matter.” Representative Robaina also questioned why there is opposition to requiring licensing in light of recent horror stories that have been heard about unqualified appraisal umpires, to which Mr. Baldwin responded that civil and county judges undergo training to become judges, and that almost all civil cases come down to a property dispute of some form at the core of the matter. To view the NAPIA presentation, click here.

Daniel Montgomery, a licensed independent property adjuster from Catastrophe Insurance Specialists, detailed his suggestions for the property appraisal umpire bills. Mr. Montgomery agrees with the proposal to regulate umpires rather than appraisers, but recommends that the regulation be done through certification rather than licensing. Senator Fasano disagreed with his suggestion that an Appraisal Umpire Commission be established, and explained his sentiment that all parties have already been heard in development of the bill during numerous meetings, so there is no need for a separate commission to be established.

Mr. Montgomery recommended 40 hours of training for umpires, instead of the four hours currently listed in the proposed umpire legislation. He stated that 24 hours of training would make a good compromise, and that certified umpires should be required to complete a minimum of eight hours of continuing education biennially in order to maintain certification status. Mr. Montgomery believes everyone should take the course work, even retired judges. To view a copy of Mr. Montgomery’s suggestions, click here.

Public testimony was then heard by the Task Force. Increased expense to the insured due to the regulation of insurance umpires was the main concern raised from interested parties. This additional expense might cause some people with small claims to drop the claim because the cost to proceed would become prohibitive.

The meeting was adjourned.

Should you have any questions or comments, please do not hesitate to contact this office.