FORT LAUDERDALE, FL. December 18, 2015 – The Florida Association of Insurance Reform joins the Florida Justice Association, a lobbying arm for trial lawyers, and the Florida Association of Public Insurance Adjusters in opposing Citizens’ changes.
Policy changes approved by state-run Citizens Property Insurance Corp. last week would unfairly reduce coverage to repair homes damaged by broken plumbing and result in higher out-of-pocket expenses for homeowners, a statewide insurance reform group says.
Paul Handerhan, senior vice president for public policy for the Florida Association for Insurance Reform, said Citizens’ proposals are “a huge deal” and “a total departure from standard policy provisions” that require restoration of damaged homes to their pre-loss condition.
The association joins the Florida Justice Association, a lobbying arm for trial lawyers, and the Florida Association of Public Insurance Adjusters in opposing Citizens’ changes.
Citizens’ proposed changes must be approved by the state Office of Insurance Regulation. Spokeswoman Amy Bogner said this week that her office has not yet received the recommendations and will have 45 days to review them after they are submitted. They will be reviewed by the office’s property and casualty business unit, then forwarded to state Insurance Commissioner Kevin McCarty, who will have the final say.
Debra Henley, executive director of the Florida Justice Association, said her organization plans to ask the state legislature to hold public hearings “on this stealth attempt by Citizens to destroy 100 years of stability and homeowners rights.”
In an email, Nancy Dominguez, managing director of The Florida Association of Public Insurance Adjusters, warned of “far-reaching effects outside of water loss claims” that would result from the changes. “The changes being recommended by Citizens are supposed to curb alleged fraud and abuse. There are far more effective ways to do this without harming policyholders who have legitimate claims,” she said.
If approved, Citizens probably won’t be the only insurance company in Florida to adopt the changes, Handerhan said. “Historically, any policy changes Citizens made, the [commercial insurance companies] have adopted relatively quickly,” he said.
The proposed changes stem from water damage claims originating disproportionately from South Florida, and mostly from Miami-Dade County. Officials of Citizens and other insurance companies point to the high claims rates in the tri-county area over the past six years as an indication of widespread fraud by a group of water damage restoration companies, public adjusters who estimate repair costs, and attorneys who file suit on behalf of companies and homeowners.
In September, the company blamed fraudulent water damage claims and related lawsuits for raising 2016 insurance rates in the tri-county area, while reducing rates charged to most policyholders throughout the rest of the state.
Attorneys and public adjusters counter that while some fraud exists, the high rate of claims in the region stems from the accelerated failure of cast-iron drainage pipes under homes built during the area’s 1960s-’70s building boom. Some say the deterioration occurs more rapidly in Miami-Dade than other areas of Florida with older housing stock because of the way the cast iron interacts with soil in the county and the underlying oolite limestone base.
Citizens’ proposed policy changes include:
- Requiring policyholders to report losses within 72 hours of when the insured knew or should have known the loss occurred.
- Capping coverage for emergency services and temporary repairs at $2,500 to $5,000.
- Excluding coverage for permanent repairs completed before allowing Citizens to inspect the damage.
- Limiting coverage to direct physical damage and excluding “cosmetic or aesthetic differences” unless additional coverage is purchased.
- Limiting coverage for tear-out and replacement to the portion of the plumbing that caused the loss, and not necessarily the entire system.
Handerhan said the Florida Association for Insurance Reform understands Citizens’ concerns about not being notified about pending claims until after a homeowner has contracted with repair companies and assigned to the company the right to seek payment for the claim.
Citizens says it too often learns of the loss only after a repair company hired by the policyholder — or an attorney — submits a bill for the permanent repair. Too often, Citizens learns the company has replaced all of the drain pipes under the home rather than just the broken section. Instead of a bill to replace a 10-foot section of torn-out floor, Citizens gets a bill to replace the entire floor. When a dispute arises over how much Citizens is willing to pay, “those cases go to court,” says Citizens spokesman Michael Peltier.
Handerhan said his association would like to help Citizens and state regulators “figure out a mechanism to let Citizens investigate a loss from the beginning or early on so they are better engaged and can figure out what’s going on and better manage the claims process.”
But requiring the homeowner to report a claim within 72 hours can hurt the homeowner in the future, he said. That’s because the policyholder might report damages that aren’t covered or cost less than a policy’s deductible. The initial claim is stored for up to seven years on the Comprehensive Loss Underwriting Exchange, the insurance industry’s version of a credit report, and can lead to higher rates or denial of a coverage application in the future, Handerhan said.
Handerhan said the association will not support any of Citizens’ policy change proposals that reduces or erodes coverage.
Limiting reimbursement for the cost of accessing and repairing broken pipes under the home to just the broken section conflicts with the “replacement cost provision” standard in homeowner insurance policies, he said. And state law, he said, requires “matching” — meaning that repaired sections of wall, flooring, carpeting or other components must match unrepaired sections even if that means installing an entire new wall, floor or carpet.
Most insurance policies, including Citizens, don’t pay to replace or repair parts of the home, including pipes, roofs, water heaters or appliances, that fail due to normal age and deterioration. Homeowners have the responsibility to perform regular maintenance on those items.
But when a hidden pipe ruptures — usually causing water damage to the house — policies are supposed to cover not only the cost of tearing through the floor to access the broken pipe, but also the cost of repairing the floor and any other part of the house damaged by the water.
Costs escalate when a repair company tries to connect the new section of pipe to an old section of pipe. Often, the rest of the pipe is in nearly the same brittle, deteriorating condition that caused the problem with the section being replaced, Handerhan said. “If the old pipe is too brittle to accept the connection, you have to keep going to get to a good section of pipe,” he said. “Sometimes you have to replace it all.”
-Ron Hurtibise, Contact Reporter, Sun Sentinel