A Tale of Two Class Actions—Part Two

BY Suzanne Ganier / Published July 2023

     Editor’s Note: Part One—the beginning of this tale—was previously published in the FLCAJ June issue of “The Claims Bond Files” on page 80, or it can be read online at www.fcapgroup.com. Louisiana Citizens and Florida’s Citizens Insurance are both legislatively owned and taxpayer funded, and Florida policyholders would face very similar challenges to this Louisiana case study if the perfect storm hit the Sunshine State.

This whole thing was utterly insane. And for what? It certainly was not about taking care of policyholders or ensuring that Louisiana Citizens lived up to its obligations. Would throwing me in jail for simultaneously obeying and disobeying a court order do anything for those policyholders who suffered catastrophic damage to their homes from Hurricane Katrina? Short answer: it wouldn’t. 

     These policyholders would still be struggling to rebuild their lives whether they received $2,000 to $3,500 (after attorneys’ fees) or not. Nothing about this fight benefited the policyholders for which these attorneys were fighting. In fact, these suits could have hurt  the same policyholders that these suits were supposedly helping.

     Hurricane Katrina is the most expensive storm on record. As the insurer of last resort in Louisiana, Louisiana Citizens insured properties that were at the most significant risk of hurricane damage. Consequently, Louisiana Citizens paid massive amounts of money in claims. But unlike other insurance companies, Louisiana Citizens is limited in how it can raise money; Louisiana Citizens is a creation of the state. If the company becomes insolvent, all other insurance companies can be charged an “assessment” to keep Louisiana Citizens solvent and operational.      These assessments are passed through to every policyholder, including Louisiana Citizens’ policyholders. If any of these class actions resulted in payments that rendered Louisiana Citizens insolvent, every state policyholder, including those who received money from these class actions, would be charged an assessment, thereby raising their policy premiums. Essentially, money would go into one pocket while money was taken out of the other. Part of these assessments would have been paid to cover millions in attorney’s fees.

     Did any of the thousands of class members that were a part of these two class actions know any of this? Did they know they could end up paying back the penalties Louisiana Citizens was supposed to be paying? Did they know that they would be paying back millions in attorney’s fees?

     They didn’t know any of this. How could they? This information is trapped within the black box of insurance that the vast majority of policyholders never get to open. Without understanding the Louisiana Citizens’ assessment process, the policyholders, who were the parties to the two class actions, were unable to make an informed decision about if they wanted to participate in these suits. That was a problem for these policyholders, and that is a problem for many policyholders who are parties to a lawsuit.

     But policyholders can protect themselves before they become parties to a suit and while the suit is ongoing. Here are three recommendations.

Understand the Why and the Why Not

     When considering participating in a lawsuit, ask yourself why you feel a lawsuit is necessary. What are you hoping to achieve? There are several potential goals. If the claim was denied entirely, are you trying to get the insurance company to cover the claim? Should the insurance company have paid more than it paid to return the property to its pre-damage condition? Did the insurance company take too long to inspect the property after you made a claim? Did the insurance company take too long to decide if it would pay you for your damage? Or did the insurance company take too long to send you the payment once it decided that your claim should be paid? These are all common reasons you might sue your insurance company.

     But understanding “why” includes more than just having a reason to sue. When considering why, it’s just as important (and sometimes more important) to think, “why not?” When considering “why not,” the most critical question is, “Is it worth it?”

     Even if you have a valid reason for going forward with a lawsuit, having a good reason isn’t enough to prevail. You must be able to present evidence to support your suit. You may believe that the insurance company didn’t do the right thing, but you will have to be able to prove it with such things as estimates, statements, opinions from contractors or engineers, or photographs. If you don’t have or cannot obtain valid evidence to support your case, you will not prevail.

     Lawsuits are also stressful. You may have the “smoking gun” to prove your case, but nothing is guaranteed in the legal world. There are no guarantees, no matter how strong the case may seem. I have lost cases that I would have won 9 out of 10 times, and I have won cases that I would have lost 9 out of 10 times. That type of uncertainty is stressful and is something to consider when considering if a lawsuit is worthwhile.

     A huge “why not” is cost. Spoiler alert: lawsuits are expensive. Even if you don’t have to pay your attorney up front, there are costs to a lawsuit. Usually, the party to the suit must pay costs, i.e., court filing fees, transcripts of interviews or depositions, or the cost to hire experts. Often these costs need to be paid upfront, i.e., as they are incurred. Some attorneys may agree to take these costs out of any money recovered due to the suit (assuming there is a recovery; if not, see the prior paragraph about stress). Either way, you are going to have to pay these costs. And there are frequently situations in which, after the attorney’s fees and costs are paid, there is little left over, making it truly not worth it to go forward with a suit.

     When we talk about cost, it’s not just about dollars and cents. There is also a cost in terms of time. The legal system moves slowly. Even in so-called “rocket dockets,” it’s at least a year before the matter is resolved. However, civil litigation takes two to three years to reach a resolution in most areas. If the case is appealed, the matter could take four or more years to resolve. This means that if your future actions are partially dependent on the outcome of the lawsuit, you could be waiting anywhere from a year to five years or more for a resolution.

     In summary, know your “why,” but be sure you have weighed the “why nots.”

Ask Questions

     Before agreeing to go forward with a suit, ask questions—lots and lots of questions. Ask questions like you would if you were speaking with a surgeon about a medical procedure for you or a loved one. The following are some suggestions:

• What are the next steps after the suit is filed?
• What do you need from me?
• What is your strategy for resolving this case?
• What actions can help move the case toward resolution more quickly?
• What are the critical pieces of evidence needed to prevail?
• Is an early mediation possible?
• What costs do you anticipate I will need to pay (or repay at the end of the suit)?
• What is your evaluation of the case?
• Tell me about the jurisdiction where the case is filed. Tell me about the judge presiding over the case. How have cases like mine been resolved, i.e., trial or settlement?
• How will your fees be paid? How are the fees applied to any recovery, i.e., are the attorney’s fees and costs paid off the top?

     The answers to these questions will help you continue evaluating your “why” and “why not.” 

     After receiving the answers to these questions, you may decide that it’s not worth proceeding with the lawsuit even though you believe you have a good reason for going forward. Do you think that the members of the Louisiana Citizens’ class actions would have wanted to be a part of those suits if they had the opportunity to ask these questions and had learned that there was a potential that their premiums would increase if they “won”? Would it have been worth it to them if they had known that they would be paying for their “win” for years while the attorneys walked away with a hefty fee award?

Stay Involved

     Even if you are satisfied with the answers to your questions and are confident that you have made the right decision to go forward, your job isn’t over. You must keep asking questions. You must keep pushing your attorney to move the case forward. Attorneys are very busy. They are pulled in many different directions. A case may languish until there is a court-imposed deadline looming. This isn’t an attack on attorneys (I am a recovering attorney) but just reality.

     We all know that the squeaky wheel gets the grease. You must be the squeaky wheel. But don’t stop when you get the grease the first time. You must continue to squeak. Keep asking questions. Keep pushing your attorney to move the case forward. Ask if there are opportunities to resolve the case. Ensure your attorneys consistently re-evaluate the case after every significant event.

     Take the information your attorney provides and continue to do your own evaluation. Continue to look at your “why” and “why not.” If the cons outweigh the pros, let your attorney know so you can seek an acceptable resolution. Your reasons for proceeding with the suit may be less intense three years and thousands in fees and costs later.

     Our legal system allows people to obtain redress when they are wronged. This legal system helps to keep insurance companies honest in their dealings with their policyholders, but the system isn’t perfect. Policyholders are often parties to lawsuits but don’t always understand what that means. As “A Tale of Two Class Actions” shows, sometimes a win is really a loss. To avoid these situations, it’s essential that policyholders be their own advocates when considering legal action. The time to find out your “why” was really a “why not” isn’t when the bill comes due.

     Oh, in case you were wondering, I didn’t need my toothbrush that memorable day; thankfully, I didn’t go to jail. If I had, would it have improved the situation of the policyholders whose attorneys put me there? I think not.*

*The title of this piece is attributed to my late close friend and attorney who first coined this term and who convinced two judges to keep me out of jail.

Suzanne Ganier

Recovering Attorney, Claims GPS

     Suzanne Ganier is a recovering attorney who has been working in the insurance industry for over 25 years. She provides expert and consulting services nationwide and is a licensed independent adjuster in over a dozen states, including Florida. She lives in Rosemary Beach, Florida. She can be reached at GanierEnterprises@outlook.com.

Citizens Insurance: Hard Market Alternative or Truly Market of Last Resort in Florida as Advertised

By Jay Hancock / Published July 2023

     Citizens Insurance has always been identified by those in the insurance business, legislators, and by Citizens itself as a “market of last resort” for properties in Florida that cannot find coverage elsewhere. However, in an ever-tightening insurance marketplace where property insurance premiums are escalating by 40–400 percent, depending on the type of risk, location, and other risk factors, many insureds are now turning to Citizens for property insurance solutions. In addition, there are many agents looking to them for solutions since their clients’ premiums are escalating so quickly, and some are even using Citizens to compete with other agents that are delivering exorbitant private market premiums.

     So, what is the truth? Is Citizens an alternative to the private market or not? Well, let’s start with why Citizens is called a market of last resort by those who are most familiar with its establishment and formation. Citizens was originally created in 2002 as a not-for-profit alternative insurer to provide a market of last resort for those property owners who could not find insurance in the private insurance market. By design, if there was an alternative in the private market, then Citizens was not to be utilized. However, through prior hard-market cycles Citizens became an alternative to the private market, and with the State of Florida going through one of the most difficult hard-market cycles on record, some policyholders are finding that Citizens can provide them an alternative insuring mechanism that is more competitively priced than the private market.

     What are the drawbacks of insuring with Citizens instead of the private market? Let’s look at some of the following coverage drawbacks:

• There is no Ordinance & Law Coverage available through Citizens. Ordinance & Law Coverage provides the insured with three important coverages:

       Coverage A—Provides coverage for the undamaged portion of the building if the property is condemned by local building authorities after a catastrophic loss. So, if you are a condominium association and purchase coverage without Ordinance & Law Coverage, you run the risk of not being paid your full policy limit if the local building authority states your building is over 50 percent damaged and must be demolished and rebuilt to current code. There would be no coverage for the undamaged portion of the building with Citizens, and yet it still would have to be demolished and rebuilt. This could mean that the “undamaged portion of the building” could be worth millions of dollars, and there would be no coverage to pay for it. Remember a basic insurance policy only pays for damage due to an insured peril and nothing else. So, an insurer that does not provide Ordinance & Law Coverage, Citizens in this case, would not owe anything for the “undamaged portion of the building.” That would lead to a lot of unhappy owners if a private market alternative could have provided Ordinance & Law Coverage and yet was not purchased. Board members should also bear in mind that there is no coverage under their Directors’ and Officers’ Liability for “insurance decisions.”

       Coverage B—Provides coverage for demolition of the undamaged portion of the building. In the scenario shared above, the undamaged portion of the building would have to be demolished, and this coverage provides a separate amount of insurance for that demolition. With Citizens this doesn’t exist.

       Coverage C—Provides coverage, in addition to the covered total policy limit, to rebuild the structure up to current code. The primary policy pays to replace with “like kind or quality,” but this coverage option provides additional coverage, over and above the limit of insurance carried, to pay the increased cost to replace to current code.

     As you can see, these are extremely important coverage options for any insured, especially condominiums, to have included in their property insurance. I would not want to be a director or officer at any association that did not provide this coverage to protect all the owners against such a scenario unless it was not available anywhere else. In addition, many lenders will not loan on a property that does not have Ordinance & Law Coverage.

• Citizens will never include any wind-driven rain coverage. While this coverage is becoming harder and harder to obtain, it is a valuable coverage, especially for condominiums. This coverage provides a separate limit of coverage for wind-driven water intrusion into a building for which there is no physical opening created on the exterior that allowed the water to enter. In other words, during a hurricane if wind-driven water enters the building around or through doors, windows, walls, the roof, or by any other means and must be mitigated, this coverage would pay for that subject to any appropriate deductible. However, “rising water” is considered a flood, and this coverage would not apply to rising water.
• Citizens also does not provide Water & Sewer Backup Coverage. Most private market policies have a separate limit for this coverage, but Citizens provides none.
• Citizens is subject to a 45 percent assessment of its policyholders in the event it has a shortfall of funds to pay claims after any catastrophic loss. So, if your association is paying $100,000 annually for its premium with Citizens, there could be a loss anywhere in the state and your association and its owners could be assessed an additional $45,000 to pay claims after a loss for properties insured elsewhere around the state by Citizens. We hear this is likely to occur because of Hurricane Ian. Try explaining to owners why they are being assessed when there has been no loss at their association.

     Exploring underwriting criteria for Citizens and how difficult their condominium eligibility requirements are to comply with.

• Citizens will not allow more than 50 percent or more of the total number of units to be rented more than eight times in a calendar year for less than 30 days in order to be eligible for its commercial residential wind-only program, which if you are a coastally located condominium is where you would most likely be eligible.
• Citizens will not allow more than 25 percent of the total number of units to be rented to guests more than three times in a calendar year for periods of less than 30 days in order to be eligible for its commercial residential multi-peril program, which if you are a non-coastally located condominium is where you would most likely be eligible.
• Citizens requires its own uniform mitigation verification inspection form (Form OIR-B1-1802 01/12) be completed by a roofing or general contractor for properties three stories or less. It requires its own mitigation inspection form (Form MIT-BT II & III 06/01/18) be completed for properties four stories or more.
• Citizens requires its own commercial roof condition inspection form (CL-RCF-1 07 17) be completed by a roofing or general contractor to determine condition and eligibility. Citizens will not write properties which have a flat roof system if the roof is over 15 years of age, nor will they write a hip, gable, mansard, or other type of roof system with fiberglass shingles over 20 years of age. They will not write a metal roof system over 30 years of age. Lastly, they will not write clay, concrete, or slate roofs over 50 years of age. The only exception to these guidelines is if they are provided “acceptable documentation to establish the remaining life expectancy of the roof covering to function as intended based upon an inspection of the wear and tear, decay, deterioration, decline, or defect, present from natural, climatic, construction, or other local conditions. Acceptable documentation includes a completed Citizens’ commercial roof condition inspection form or equivalent document providing similar information from a Florida-licensed roofing or general contractor.”
• Citizens requires that you have an appraisal within the last 36 months to be eligible for any program with Citizens if you are a residential condominium.
• These are just a portion of the most important general underwriting guidelines with Citizens to determine eligibility. They also have additional specific guidelines as it relates to prior losses, adjacent property occupancies, buildings under construction, buildings under renovation, physical condition of property, housekeeping, length of prior policy term, and other underwriting considerations.

Citizens Insurance Special Investigations Unit

     Lastly, Citizens has denied claims for claimants at claims time citing fraud for policyholders and agents that misrepresented any of this information at the time the policy was underwritten and originally put in force. NOT ONLY did they deny the claim, but they subsequently, through their Special Investigations Unit, referred the matter to the Florida Division of Investigative and Forensic Services (DIFS) for criminal charges due to fraud. Below are real-world examples of SIU Investigation’s in 2022…

     Miami-Dade—After the insured submitted two pipe break claims occurring 28 days apart at their condominium association, an SIU investigation found that the property was being used as a “short-term rental” and that the insured misrepresented material facts on the application of insurance. Citizens voided the policy to inception and no payments were issued on the claims. A DIFS referral was submitted.

     Brevard County—An SIU investigation determined the insured intentionally submitted a materially false application for a personal lines policy by failing to disclose that the risk was actively operating as a licensed assisted-living facility for infirm elderly. As a result, the policy was voided and risk exposure of more than $360,000 was removed. As the result of an investigation from the DIFS, the insured was arrested and charged with one felony count of presenting a false or fraudulent application to Citizens.

     Miami-Dade—An SIU investigation established a pattern of altered/fabricated documents submitted to Citizens to induce approval of the risks. A review of the agency submissions found eight policies with documents that were confirmed to be altered or fabricated. In addition, the agency was responsible for a lapse in coverage for three consumers. As a result of the SIU findings, the agency was terminated for cause and will be ineligible for reappointment for a period of two years. A DIFS referral was submitted and resulted in the arrest of the agent and his employee, and both were charged with multiple counts of forgery, organized scheme to defraud, and grand theft.

     So, while Citizens may provide a “market of last resort” for many condominium associations throughout the State of Florida, please be aware of what you are purchasing, how limited the coverage is that you are being provided, the fact that they are an assessing entity, and lastly that they are a quasi-governmental organization that has a prosecutorial arm that aggressively enforces their underwriting and claims management. When there is no alternative, they may have to be used; but if they can be avoided, then they certainly should be avoided.

     Jay Hancock is an account executive condominium specialist / HERT claims supervisor in Panama City, Florida . For more information call 850-896-5740 or email Jay.Hancock@acentria.com.