By Susan C. Odess / Published September 2018
About a month prior to the start of this year’s hurricane season, fewer than 57 percent of the more than 942,000 Hurricane Irma-related insurance claims worth $8.6 billion had been closed with payments from insurers, according to state records. Industry officials acknowledged the possibility that the carriers underpaid on tens of thousands of claims that had been declared closed, and state-run Citizens Property Insurance had reopened more than 24,000 of its Irma claims, which amounted to one out of every three.
The issue of underpaid and reopened claims is also prevalent with the state’s largest private insurers. Many of these companies initially responded to thousands of claims by alleging that the damage was not caused by the storm, should be paid by a separate flood policy, or did not meet the policy deductibles. Policyholders are taking action to force the carriers to pay with the help of public adjusters and insurance attorneys, and it appears that the books on the 2017 storm are still far from being closed.
For condominium associations, Irma exposed many flaws in their approach toward the handling of storm-related insurance claims. These shortcomings led to thousands of claims going underpaid or remaining open and unresolved a year after the storm, and associations are belatedly turning to litigation.
One of the most common mistakes that condominium associations made with their Irma claims has been their reliance on the guidance and counsel of their insurance brokers. These insurance professionals rely on maintaining strong and mutually beneficial relationships with the carriers in order to be able to offer their clients the very best possible rates and premiums. Their job is to help condominium associations acquire the coverage that best suits their community’s particular needs at the most competitive rates available. As such, they offer an invaluable service to associations, but not when it comes to filing a claim with the carrier underwriting the policy that they helped the association to select and acquire.
Oftentimes, after being initially consulted by a condominium client after a loss, insurance brokers will respond by indicating that they believe the property damage will not rise to the level of the policy deductible. Once a claim has been filed, they will sometimes counsel their condominium clients to wait patiently for a coverage decision and avoid the use of a public adjuster or attorney to represent their interests in order to keep things from becoming adversarial with the carrier.
Associations need to understand that there is no reason whatsoever for them to consult with their insurance broker regarding a property claim. Even though these trusted professionals have offered helpful guidance for all of the association’s questions in the past about different carriers and coverage levels, claims are completely outside of their comfort zone given that their goal is to maintain the strongest possible business relationships with the carriers.
Instead, once it becomes evident that an insurance claim will need to be filed, association board members and property management should first consult with a highly qualified, experienced, and licensed public adjuster. These professionals understand all of the nuances of the entire claims process, and for storm-related claims their charges are limited to only 10 percent of the total insurance payout as opposed to the customary 20 percent.
Public adjusters earn their fees by helping their clients to avoid settling for less than a claim is actually worth. Because they work on a contingency fee basis, meaning they are paid from a percentage of the proceeds paid under the claim, there are no upfront, out-of-pocket costs for the detailed property inspections and loss reports that they will retain professionals to conduct. Should litigation become necessary in order to reach a settlement on a claim payout amount with the carrier, these initial inspections and reports completed at the behest of public adjusters will also be put to good use by the insurance attorney representing the association.
One of the other typical mistakes made by condominium associations is waiting beyond the 90-day deadline for an insurer to make a coverage decision. Under Florida law, insurers must respond to claims within 90 days. If there are no further actions pending on behalf of the policyholder, and the carrier has not yet made a final decision on a claim 90 days after it was filed, the claimant has then instantly gained the upper hand and should immediately file a lawsuit.
Waiting at this point will only provide an insurer with more time to make demands for association maintenance records and examinations under oath, which essentially amount to sworn depositions of board members and property managers. Once these demands are made by a carrier, it can take months or even years for a claim to be resolved, and the insurance company is no longer in noncompliance with the 90-day statute.
Filing suit once the 90-day window has elapsed enables a policyholder to initiate litigation from a position of strength, and it can open the door to the possibility of a much faster and more favorable resolution. It puts the insurance carrier on the defensive from the very inception of the court proceedings, and that initial loss of standing together with the potential bad faith exposure are often enough to force insurers into expediting the final settlement offer.
For association claimants that receive an unfavorable response from their insurance carrier within the 90-day claim adjustment period, including either denials of coverage or notices that the loss does not meet the threshold of the deductible, we would encourage them to consult immediately with an experienced insurance attorney to see if their claim is ripe for litigation. Our firm and I have considerable firsthand experience in handling claims that were initially denied or determined to be below a policy’s deductible but end up resulting in multi-million dollar payouts. In one recent example, an association client with a $1.5 million deductible received an initial reply from its insurer that the property loss amounted to less than $50,000. After filing suit and the ensuing litigation, the association ended up receiving a $3.5 million payout from the insurer above its deductible, meaning that the total claim amount was determined to be approximately $5 million.
Cases with such divergent figures from an insurer’s initial adjustment amount to the final payout are not so uncommon in property insurance claim litigation. Insurers and their adjusters are almost always going to initially put forth the lowest possible estimates of the property damage that has occurred, and it is incumbent upon the policyholders to work closely with highly qualified and experienced insurance attorneys in order to achieve the most favorable settlements and payouts possible.
Susan C. Odess
Partner, Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel PA
Susan C. Odess is a partner with the South Florida law firm Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel P.A. who focuses on insurance law and represents community associations as well as residential and commercial property owners in insurance matters. She is based at the firm’s Coral Gables office. The firm also maintains offices in Broward and Palm Beach counties and represents more than 800 Florida community associations. For more information, call (305) 442-3334, or visit www.srhl-law.com or www.FloridaHOALawyerBlog.com.