The News Service of Florida: Citizens Hurricane Mitigation Program Draws Suit

Dec 23, 2009


THE CAPITAL, TALLAHASSEE, Dec. 23, 2009….An “emergency” contract to a private vendor by Citizens Property Insurance to determine whether homeowners getting discounts for hurricane upgrades actually made the upgrades has drawn a lawsuit from a Georgia company that wants the business.

Citizens gives out more than $700 million in mitigation discounts, property insurance breaks to homeowners for hardening their homes against storm damage.

But the company said that a recent report from the private insurance industry found that 80 percent of the forms turned in by homeowners spelling out what work was done to upgrade the home were inaccurate on some level. If that held true for Citizens, it could mean the loss of hundreds of millions of dollars a year, the state-backed insurer says.

So the company issued a no-bid contract to a company called Inspection Depot to create a system for reviewing the applications for mitigation discounts. Citizens said it essentially didn’t have time to do a lengthy bid process for the service or design the review system in house. So it hired the private contractor.

“The services provided by Inspection Depot simply enable Citizens to immediately move forward with the project without having to hire internal staff and incur expenses creating processes already available in the private market, or lose premiums that could easily exceed the overall cost of the program while a competitive procurement takes place,” Citizens spokesman John Kuczwanski said Wednesday.

But Georgia-based SagoTec claims there was no such emergency and Citizens should have bid the project out. SagoTec is a software firm that says it makes a product that could help Citizens do the reviews.

“Inspection Depot’s got nothing better; we don’t think it’s as good as ours,” said Tallahassee attorney Rick Bateman, who is representing SagoTec in the lawsuit, filed in circuit court this month in Tallahassee. But ultimately, the company’s claim is primarily that no emergency existed requiring the state-backed insurer to forgo the open bid process in awarding the contract.

“Is an emergency not giving somebody a credit on their homeowners policy?” asked Bateman. “This is politics as usual.”

But Citizens’ Kuczwanski said the company did think it urgent to move quickly.

“Private insurers who have begun to root out fraud have found that homeowners who do not qualify for discounts simply decide to obtain insurance with Citizens,” Kuczwanski said. “This ultimately places a greater burden on all Floridians and further supports Citizens’ decision to move forward quickly and the need to take the lead among property insurers.”

Citizens also says SagoTec didn’t avail itself of proprer administrative remedies, such as constesting the award of the contract to the company’s Board of Governors.

The amount of the contract depends on how many actual inspections of homes are actually done based on what is turned up in the review. Citizens has set out $60 million for the project, but most of that will go to inspectors who will do physical inspections of property eventually, Kuczwanski said. Inspection Depot will get $25 per inspection.

For now, the contract has Inspection Depot gathering data and setting up a process for about 500 inspections, which Citizens will use to determine whether it needs to investigate further.

“While Citizens’ actions may be setting a new standard in the industry, the program will utilize all qualified inspectors who will be required to complete the mitigation inspection using Citizens’ requirements and standards,” Kuczwanski said. The full $60 million would only be spent if a decision is made based on the preliminary review to reinspect the company’s 400,000 policies with mitigation credits.