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Home / Insurance / Florida’s new property insurance reform addresses fraud, but only one side | Property Insurance Law Team Blog

Florida’s new property insurance reform addresses fraud, but only one side | Property Insurance Law Team Blog



Earlier this year, I wrote about the ongoing saga of efforts to reform Florida real estate insurance law in a blog post entitled: Florida insurance companies continued to use “fraud” as a red herring in their legislative agenda.

Throughout the article, I explained that the efforts to reform the legislation, as foreshadowed by the insurance companies and their lobbyists, were driven behind the “F” word vehicle: fraud. Insurers and supporters of the legislative reform argued that fraud committed by unscrupulous contractors, roofers, policyholders and their attorneys was one of the main reasons for increased premiums for Florida homeowners. In support of their one-sided argument, these proponents cited the recent collapse of two insurance companies, Avatar Property and Casualty Insurance Company and St. John̵

7;s Insurance Company, as those affected by this alleged abusive behavior of policyholders and their attorneys.

When discussing “fraud” and why would be smart to implement systems to counter the behavior of bad players in the real estate insurance industry, I explained:

However, the word “F” is not a one-way street. Contrary to many people’s beliefs, insurance companies continue to evade their contractual and statutory obligations despite their relentless concern to defend “rampant” lawsuits.

Actually dealing with the really frivolous litigation is step one in starting to solve the problem of our real estate insurance market, but why stop there? If legislative efforts are to focus on holding the bad policyholders accountable for “fraud”, the same efforts must be made to combat the unspoken immunity that is insurance company fraud: The ongoing plans for the Managed Repair Program under the guise of a “Right to Repair,” 2 blackmail lawsuits against insurance companies that waive their liability to “independent” third-party adjusters who are anything but independent; shocking return that I never even thought could continue to appear in bad faith acts.

Recently, on May 26, 2022, Governor Ron DeSantis signed Senate Bill 2B, which adopted many measures in an effort to alleviate rising insurance costs for homeowners. Among the various measures to be implemented in the real estate insurance industry, the recently signed bill included specific sections aimed at combating “insurance fraud” – although such measures as expected appeared to be significantly unilateral, allowing insurance companies to continue to avoid debt. for similar behavior.

In conjunction with the new property insurance legislative reform, Florida Chief Financial Officer (CFO) Jimmy Patronis held a press conference announcing new “anti-fraud initiatives,” in which he said:

“As the area’s policyholders know, Florida’s insurance market is in trouble. We are seeing more private operators leave the market, and we are seeing Citizens’ insurance policies grow. Governor DeSantis has rightly called for a special session to reform insurance, and lawmakers will have an opportunity Florida societies are under attack by fraudsters who are willing to try anything to play the system. They are stealing from all of us! To win this war, we need the troops, the weapons, and a full commitment to the mission. So in this special session, I will present five initiatives aimed at cracking down on the type of fraud that increases all our prices. “1

Patronis identified five separate proposals as part of this initiative:

1) The first proposal for the upcoming session is to set up three Anti-Fraud Homeowner Squads. These three teams will be an addition to the two I-4 Corridor teams that were lined up last year. To stand up for the troops, the Department of Financial Services (DFS) will request 23 new positions, including: Fifteen detectives and three supervisors to work on cases; Three lawyers and an administrator to prosecute cases; and an analyst to expedite investigations.

2) The second initiative would create a $ 3 million campaign against fraud and public education. In many cases, policyholders do not understand that they are signing their rights or that litigation will only slow down their claims and may result in mortgages on their property.

3) The CFO’s third initiative proposes an amendment to Florida’s False Claims Act so that whistleblowers can reclaim damages in Qui-Tam cases. Qui-Tam cases are where the public can file whistleblowers’ reports of fraud, without necessarily being a victim, or as part of the fraud that is taking place. This reporting mechanism will encourage the public, financially, to come forward and report fraud.

4) Qui-Tam’s proposal is in line with the CFO’s fourth proposal to award calls for the “Florida Fraud Fighter Reward” tip line. The current law only issues judgments when there is a conviction. The proposal lowers the standard, from conviction to arrest, for tipsters to qualify for the $ 25,000 anti-fraud program to get more participation.

5) The fifth proposal would make changes to the Benefit Allocation Act (AOBs), including a ban on the packaging of AOBs.2

While all of these are fantastic initiatives and proposals that are truly welcome in our industry, not a single insurance company or insurance company scam is mentioned through all five of these proposals. Not only were real estate insurance companies not included in any of these law reform efforts to curb bad actors, but the new legislation implemented a new law that made it even more difficult to sue insurance companies for unfair claims handling. The following was included in the Senate’s Bill 2B, which was recently signed into law:

Bad faith – Determines that a policyholder may not win in a property insurance in bad faith, unless he or she finds that the property insurer has violated the insurance contract.

By the way, remember how the legislative reform efforts used Avatar and St. John’s case as a reason why such a legislative reform was necessary? When the credibility and details of the position were examined during the special session, the proponents of the theory could not point out where or what data showed that Avatar and St. John’s faced his death due to frivolous litigation and fraud with policyholders.

Interestingly, however, Florida, through the Department of Financial Services, must review, analyze and maintain “financial autopsies” of insurance companies that fail. Unfortunately, in recent years, these reports have been completed and effectively “shot down in a box” as Miami Herald states.3

Since 2018, there have been a total of 7 different property insurers that have gone bankrupt; and four of them went bankrupt in the last 13 months alone. The Miami Herald/Times dived deeper into the data and requested insolvency reports from five of the seven property insurance companies that recently went bankrupt. They were provided with only one insolvency report, and the data showed that it was the insurer’s own behavior that caused its failure:

The Herald / Times requested insolvency reports from the Department of Financial Services on five real estate insurance companies that have collapsed since 2014. The department has just completed a report, on the 2014 failure of the Jacksonville-based Sunshine State Insurance Company, according to Galetta. The 73-page report found that the company’s demise was due in part to the fact that it sent millions of dollars in fees to its affiliates, which were not approved by the Office of Insurance Regulation.

Sunshine State Insurance had about 37,000 insurances when it was found insolvent by the Office of Insurance Regulation in 2014. Earlier that year, it told regulators it had discovered an accounting error that cost the company the ability to meet Florida’s excess requirements, according to a report at the time by Insurance Journal. Consultants hired by the state dug into the company’s officials, finances, emails and board minutes – and accusations against the company were raised by a whistle-blower.

They found that Sunshine State Insurance’s parent and sister company withdrew millions of dollars from the company through written and “oral” agreements. In the 10 months prior to the liquidation of the company, Sunshine State Insurance paid its parent company $ 708,830 in two separate “corporate charges” based on oral, not written, agreements.

Florida law requires such payments in writing and pre-approval by the Office of Insurance Regulation, but company executives never sought such approval, the report states. Sunshine State had another agreement, also not approved by the Office of Insurance Regulation, with a sister company to pay “surcharges” of more than $ 1.5 million between 2009 and 2014, the report said.

And in 2013, the year before the company was liquidated, Sunshine State paid another sister company $ 13 million in fees, salaries and expenses. Sunshine State’s CEO and president received bonuses based on how much the insurer paid his sister company, which the report says “may be an inherent conflict of interest in his position of trust.”

Nine months before the company was liquidated, Sunshine State’s CEO told the sister company’s board that he felt he deserved a $ 600,000 bonus for the amount of money the insurer paid. He received a $ 200,000 bonus that year.

The authors of the report concluded that accounting errors and millions of dollars in unauthorized fees lowered the company, and it was already insolvent in 2005. None of the sister companies mentioned in the report are active in Florida. Last year, at the request of the Office of Insurance Regulation, lawmakers passed a law that allowed the office to seek more information about insurers’ relationships with affiliated companies.4

Of the seven insurance companies that have gone bankrupt since 2018, we only have one insolvency report to go from, and the information revealed that it was the insurance company itself that caused its demise, rather than “junk litigation” or behavior from policyholders and their agents. Yet, when the time comes in the spring when legislators are set to address current laws, the finger is always pointed at policyholders’ advocates as the reason why such an area requires reform.

As I said in my latest blog on this issue: The word “F” is not a one-way street: we will soon see if the efforts to reform the legislation in Florida’s property insurance laws create meaningful changes even though it was one-sided in nature and only targeted bad actors on one side of the field.
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1 https://www.myfloridacfo.com/sitePages/newsroom/pressRelease.aspx?ID=6172
2 Id.
3 https://www.miamiherald.com/news/politics-government/state-politics/article261495072.html
4 Id.


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