By Hugo V. Alvarez / Published July 2019
Florida was battered by Hurricane Irma in 2017 and Hurricane Michael in 2018. Many individuals, businesses, and associations are still trying to recover from those devastating storms.
It is common for insurance litigation to linger for years, even decades, after the storm has passed. Indeed, Hurricane Wilma-related disputes continue to make their way through South Florida’s courts, even though Hurricane Wilma hit more than 10 years ago.
Several trends have emerged since Hurricane Wilma hit South Florida in 2005 that associations should be aware of as we enter the 2019 hurricane season. One bad trend for associations is the increasingly common use of arbitration provisions in surplus lines of insurance that mandate all disputes are to be arbitrated in New York.
Mandating that disputes be arbitrated in New York was not always the case, but today such provisions in surplus lines of insurance are becoming increasingly common.
Surplus lines insurance companies have become increasingly popular in Florida since Hurricane Wilma. Part of the reason for their increase in Florida stems from the fact that after Hurricane Wilma, many standard or admitted insurance companies left the state because they deemed the threat of hurricanes as too prevalent and too risky to insure. Standard or admitted insurance companies are generally licensed by the state of Florida to do business in Florida and must adhere to Florida’s rules and regulations. Admitted or standard insurance companies also contribute to the Florida State Guaranty Association, which is used to pay a loss if an insurance company becomes insolvent.
Surplus lines of insurance, however, are not regulated by the state of Florida. So, if a surplus line of insurance goes out of business, and if that line did not contribute to the Florida State Guaranty Association, then the insured would have no way of making any recovery should that surplus line go out of business.
Perhaps most problematic for Floridians in general is the fact that many surplus lines are now requiring that any dispute be arbitrated in New York. You read that right. Surplus lines are requiring their insureds to file an arbitration, not even a lawsuit, but an arbitration in New York with New York law governing.
Such provisions are inherently problematic for Floridians, especially Floridians trying to put the pieces together after a catastrophic event such as Hurricane Irma in 2017 or Hurricane Michael in 2018.
The problems arise because many Floridians may not even realize that their insurance claim must be arbitrated in New York should they be unable to resolve their claim. This will likely require the added expense and burden of hiring New York counsel to arbitrate a Florida claim under the prism of New York law. Since it is a formal arbitration, then the client will have to hire New York counsel and all the witnesses will need to travel to New York for the arbitration. The arbitrators won’t be able to see the property since the property is located in Florida. Further, New York law tends to favor insurance companies, which creates further obstacles and hurdles for an insured.
The best way to avoid this predicament is to understand your insurance policy. It can be increasingly frustrating to try and put your life back together after a catastrophic natural disaster only to find out that your insurance policy mandates that you arbitrate your claim in a state outside of Florida with that state’s laws being applied.
As the state gets ready to face the 2019 hurricane season, association board members and managers should speak with the association’s insurance agent today to ensure that they understand the full scope of their coverages but also to address the issue of where the insurance claim will be litigated should the association need to run to court to fight for its rights.
Hugo V. Alvarez
Hugo V. Alvarez has successfully worked on a large volume of cases with significant financial exposure. Fortune 500 companies, prominent real estate developers, municipalities, insurance companies, hotels, financial institutions, condominium/homeowners associations, and general contractors have all sought his legal advice and deep local community ties to help get issues resolved. Hugo has been published in the Miami-Daily Business Review, has appeared on CNN and Spanish TV, and is often quoted in leading business periodicals such as the South Florida Business Journal on local legal topics. For more information, contact him at HALVAREZ@beckerlawyers.com or call (305) 262-4433.