Category Archives: Homeowners Insurance Litigation Innovation

Florida Sinkhole Homeowners Insurance Update re Eleventh Circuit Rules that 2011 Structural Damage Statutory Definition Applies to Policies Issued After Senate Bill 408’s Effective Date

Florida Homeowners Insurance Claims and Litigation Handbook

Overview

Another hundred million dollar sinkhole insurance question has finally been answered: to deny a sinkhole claim, homeowners insurers can apply the 2011 statutory definition of “structural damage” to a policy issued after May 17, 2011 even if the insurance policy did not include the statutory definition.


(For a full copy of the order, scroll to the end of this post.)

In Shelton v. Liberty Mutual, the Eleventh Circuit issued a ruling that is extremely important for sinkhole claims reported for insurance policies that were issued after May 17, 2011, the effective date of Senate Bill 408.  Although Liberty Mutual’s policy did not have the statutory definition for “structural damage” written in the policy, the Eleventh Circuit held that Liberty Mutual properly denied a sinkhole claim by relying on the “structural damage” definition in the statute – Fla. Stat. 627.706(2)(k).

Liberty Mutual’s Arguments

Liberty Mutual argued that the statutory definition controlled, even though it was not in their policy.  Liberty Mutual argued that the statutory definition is incorporated into the insurance policy, regardless of whether it is an extreme departure from the simple definition in its policy.  As you know, this is the 2011 statutory definition of “structural damage;”

(k) “Structural damage” means a covered building, regardless of the date of its construction, has experienced the following:

1. Interior floor displacement or deflection in excess of acceptable variances as defined in ACI 117-90 or the Florida Building Code, which results in settlement-related damage to the interior such that the interior building structure or members become unfit for service or represents a safety hazard as defined within the Florida Building Code;

2. Foundation displacement or deflection in excess of acceptable variances as defined in ACI 318-95 or the Florida Building Code, which results in settlement-related damage to the primary structural members or primary structural systems that prevents those members or systems from supporting the loads and forces they were designed to support to the extent that stresses in those primary structural members or primary structural systems exceeds one and one-third the nominal strength allowed under the Florida Building Code for new buildings of similar structure, purpose, or location;

3. Damage that results in listing, leaning, or buckling of the exterior load-bearing walls or other vertical primary structural members to such an extent that a plumb line passing through the center of gravity does not fall inside the middle one-third of the base as defined within the Florida Building Code;

4. Damage that results in the building, or any portion of the building containing primary structural members or primary structural systems, being significantly likely to imminently collapse because of the movement or instability of the ground within the influence zone of the supporting ground within the sheer plane necessary for the purpose of supporting such building as defined within the Florida Building Code; or

5. Damage occurring on or after October 15, 2005, that qualifies as “substantial structural damage” as defined in the Florida Building Code.

The Homeowner’s Counterarguments

The homeowner made at least two arguments:

  • because Liberty Mutual’s policy did not include the statutory definition, Liberty Mutual could not rely on the statutory definition and, therefore, had to cover sinkhole claims if there was any damage to the structure.
  • this change in the “structural definition” was a change that required heightened notice to the policyholder.

The Eleventh Circuit’s Opinion

The Eleventh Circuit rejected both arguments.

The Definition is Incorporated

The court held that the statute is a part of the insurance policy and Liberty Mutual’s policy and should be read as if it were part of it. Unfortunately for the homeowner, the court does not go into great detail regarding why this can’t be considered a situation where the insurer offers more coverage than the statute allows. This argument – that the statute provides a baseline for the coverage required but not necessarily all of it – is usually homeowners’ attorneys’ favorite argument in situations like these. Interestingly, although the Court rejected the argument, the court did not go into great detail regarding why this did not apply here.

This Change in Policy Terms Did Not Require Heightened Notice

Second, there is an entire body of case law that can make insurers’ new policy provisions invalid if they failed to provide proper notice of material changes to the policy.  In other words, if an insurer drastically changes an insurance policy, it can’t call it a renewal because the homeowner might not ever notice the change.  Usually, if that happens, the insurer will be forced to apply the old parts of the policy if it failed to provide notice of the new terms.

  • Here, in Shelton, we had what most could consider to be a material change – a change in coverage from all sinkhole damage to only the worst forms of sinkhole damage.
  • However, the court used Fla. Stat. 627.43121 to state that this was a change in policy terms that was mandated by the legislature; therefore, it was not a “change in policy terms” as defined by the law, and it did not require heightened notice procedures.

Conclusion

So … all of those sinkhole claims may not be covered … and we are just finding this out now?

Of course, the Eleventh Circuit does not bind Florida state courts, and Florida’s appellate courts could take a completely different position. However, like yesterday’s post about the contract for repairs ruling, we are finding out this information a little late.

Unlike with the contract for repairs decision we discussed yesterday, this delay was outside of everyone’s control.  The statutory definition came into effect in 2011, yet the contract for repairs requirement arose years and years before that. For homeowners insurers to get a ruling on the statutory definition issue, they had to wait this long for it to go up the ladder to the Eleventh Circuit.

The vast majority of these claims – hundreds of millions of dollars worth of claims – are resolved. Thus, the impact is very limited.

Nevertheless, thousands of claims and lawsuits remain pending, and this case should give homeowners insurers and their attorneys a big boost in their arguments to resolve these cases.

Takeaway

Like the opinion in yesterday’s post, homeowners insurers would have been much better served if they had this opinion a couple of years ago. Unfortunately, homeowners insurers and attorneys had no choice but to let this issue linger in the federal system until now.

It will be interesting to see if Florida courts side with the Eleventh Circuit, or if they focus more on the argument that insurers are free to provide more coverage than the statutes.  For the good of the industry, hopefully that Florida appellate opinion comes out soon.


For More Information on Sinkhole Claims Updates …

For more information on some of the extremely important sinkhole claim updates, please read these articles:


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And here is the complete copy of the order:

Download (PDF, 56KB)

What Hurricane Wilma Insurance Claims Taught Us for the 2014 Florida Hurricane Season

Florida Homeowners Insurance Claims and Litigation Handbook

If you are looking for Hurricane Irma Florida insurance claims resources, click here.


Any questions? 

Please contact us.


Overview:

Although it has been eight full hurricane seasons since Hurricane Wilma, we can still learn lessons about how the next Florida hurricane could impact Florida’s homeowners insurance industry.

Hurricane Wilma was one of the most powerful storms ever.  Within 24 hours of becoming a hurricane, Wilma intensified to winds of 185 mph. By the time it reached Florida, its wind speed dropped to 120 mph; however, that drop in windspeed did not correlate to a drop in damages.

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By the time Hurricane Wilma passed, Florida suffered approximately $20.6 billion dollars in damages. Hurricane Wilma left 98% of South Florida without power.  These approximately 6,000,000 people would go on for 8-15 days without any power. Ultimately, this 2005 storm was the fifth costliest storm in United States history.

Florida’s homeowners insurers responded to record claim numbers.  In response to the more than 1 million property insurance claims, Florida homeowners insurers paid out more than $9.2 billion dollars.

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Hurricane Wilma made landfall one year after the famous 2004 hurricane season, when three powerful storms ravaged Florida.  Unlike the 2004 hurricane claims, though, Hurricane Wilma claims would continue punish Florida’s homeowners insurers for years to come.

The Biggest Surprise

From the insurance claims perspective, Hurricane Wilma’s biggest surprise was that it kept generating claims for several years. Unlike any prior hurricane, Hurricane Wilma produced tens of thousands of supplemental, reopened, and late hurricane damage claims.

In these claims, which lasted through 2010, homeowners or public adjusters would notify homeowners insurers that there was damage or that more damage had occurred.  In other words, despite Hurricane Wilma making landfall almost nine years ago, homeowners insurers have only gone a few years without handling hurricane insurance claims. Some insurers claimed that homeowners requested the reopening of 25% of the claims they previously believed were resolved.

As a statistical example, in the year of 2010, Citizens received approximately 600 Hurricane Wilma lawsuits and another 645 Hurricane Wilma claims.  In the homeowners insurance industry, this lag time is what Hurricane Wilma will be remembered for.

Late Notice of Hurricane Claims

In the process of dealing with these very complex insurance coverage issues, Florida courts issued libraries of rulings that carved out new homeowners insurance law.  As you know, First Party Property Insurance Law Blog previously discussed several Hurricane Wilma cases from 2012 and 2013.  In those cases, courts were faced with determining whether a homeowner, in 2008 or 2009, could report a homeowners insurance claim for Hurricane Wilma.

As you also know, the courts never provided a hard line on how late is too late for insurance coverage.  Although there was a statute of limitations, the vast majority of the cases involved claims that did not violate the statute of limitations. Instead, they were cases where the homeowners insurers were concerned that they could not tell whether the reported damage was from Hurricane Wilma, another storm, or wear and tear.  Instead of saying something to the effect of “notice is late when it is received three years after the hurricane,” Florida courts addressed each case’s expert testimony and other evidence. Ultimately, this issue led to the legislative changes discussed below.

Preparing for the Next Florida Hurricane

For those of you getting ready to handle claims this 2014 hurricane season, you need to know how the law has changed.  The most important statutory amendment is:

  • homeowners now have only three years from the date of the Hurricane’s landfall or damage to report the claim to their homeowners insurers.  Fla. Stat. § 627.70132.

So instead of eight or nine years of claims and litigation, Florida homeowners and homeowners insurers can expect the next major hurricane to generate perhaps four or five years.  If the next Florida hurricane makes landfall in a populated area like Miami, Fort Lauderdale, West Palm Beach, or Tampa Bay, then homeowners insurers can expect at least 1 million claims, as we saw with Hurricane Wilma.

Armed with the case law and statistics from Hurricane Wilma, adjusters and attorneys should be ready to apply what they learned for the next hurricane. Homeowners insurers will undoubtedly take more precautions during the initial inspections to try to limit the need for supplemental and reopened claims.  Public adjusters and homeowners’ attorneys will expedite their reinspections to ensure their clients don’t miss out on additional available coverage by failing to report it within three years. Lastly, everyone now knows it will take several years, not months, to put the next hurricane behind us.

Takeaway:

Unless insurers have new systems in place, the next hurricane will be just as tough on insurers as the last one.  My fear is that insurers still handle claims just like they did in 2005 – manually.  For those insurers that understand that technology has changed in the past nine years, we legal technology innovators are here to help with automated legal documents, data analytics to predict settlement, and structured project management software to reduce costs.  For those insurers still doing things the old fashioned way, call us when you need power and control over escalating legal fees and poor outcomes.

If you want more information on legal checklists and guides to prepare for hurricane season, please message me.


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A Rare Win Win in Property Insurance as Citizens Settles Portion of Confirmed Sinkhole Claims

Citizens Property Insurance Corporation

What happens when Florida’s Citizens Property Insurance Corporation and a group of Plaintiffs’/Policyholders’ attorneys decide that the litigation just doesn’t make business sense anymore? Read this first of a series on Citizens’s multimillion dollar settlements with plaintiffs’ attorneys to resolve hundreds of sinkhole cases.


Quick Update:

After this article was posted, Citizens settled an additional 300 cases with Thompson Trial Group and 600 cases with Marshall Thomas Burnett.  Make sure to read those articles after you finish this one.

Correction: The Tampa Bay Times is reporting that Citizens may have reported the settlement without having confirmed that the policyholders agreed to it.  For more information on this and other issues relating to Citizens’s legal defenses, see this March 18, 2013 article.

Nevertheless, because it appears the policyholders’ attorneys in this settlement agree this is a good outcome for their clients, there is a good chance that many of these cases will get resolved.  If new information arises, I will update this article.

On March 12, 2014, Citizens announced it will settle 300 policyholders’ confirmed sinkhole claims.  The terms of the settlement include:

  • Citizens agrees to pay for the repairs and stand by the repairs
  • Citizens agrees to allow policyholders to choose their contractors from a pre-approved list
  • Citizens will pay the policyholders’ law firms $2M – $5,000.00 per nonlitigated cases, $10,000.00 per litigated cases

Here is the press release:

Download (PDF, 66KB)

Citizens’ press release applauded coordinating counsel for the settlement.  In the press release, Citizens states that this settlement will save it $30M in legal fees.

contract 4

In my opinion, this appears to be a win-win for both parties.  No one can be sure without reviewing the terms of the releases; however, what is clear is that (1) the policyholders will obtain repaired homes and (2) Citizens will be spending its money repairing homes, instead of litigating these issues.  That means the parties achieved what they set out to do.

Although you might argue that this result could have happened sooner, both sides had significant victories over the past year or so, and this allowed each side to modify their position towards the middle.  This settlement shows that both sides had a mutual respect for each other and put Florida’s and the policyholders’ interests ahead of their own. Congratulations to all involved.

This is also a win for litigation project management. Innovative services like THIS are the only way to effectively handle property insurance litigation.  These cases were not that complicated when you approach them categorically.  For insurers with more than 5-10 law firms handling their cases, panel counsel need a coordinating counsel or a software tool that performs the same tasks and oversight. Panel counsel simply do not have the tools or the incentives to make these types of decisions.

Applying litigation project management principles, coordinating counsel and/or equivalent software needs to direct panel counsel by (1) identifying the insurers’ goals with the client, (2) breaking down each stage of litigation, and (3) determining how to optimize the process at each stage (and not waste money).

Coordinating counsel must also identify and automate the routine tasks, and insurers can purchase customized software for litigating property insurance claims in Florida to automate the routine tasks. Otherwise, all the time and money goes towards attorneys and adjuster laboring over routine tasks all day, and there is no time for critical thinking.

As you can see from the Citizens example, when insurers set up the structure to make intelligent results happen, intelligent results happen. Companies that make these tough, innovative decisions will be rewarded.  Companies that punt these tasks to their attorneys without a top-down strategy will waste millions of dollar and hours to achieve less favorable results.

Takeaway:

Citizens did a phenomenal job of embracing litigation project management.  If they would have added the key component of software to the mix, they could have really gained power and control over these cases from the lawyers.  If you want checklists and guides to help you reach results even better than this without spending a fraction of what Citizens spent, please message me.


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