Being a customer of Citizens Property Insurance Corp. is not easy. Annual rate increases are routine even as the state-run insurance company cuts back available coverage. Policyholders have to deal with Citizens' attempts to shrink by handing them over to small, untested private insurers, whether they like it or not. Now the company is forcing people with damage claims to sue to get their losses fully compensated. Citizens needs to explain why the company would rather pay lawyers than claims.
Florida homeowners have to dig deeper into their pockets every year for their Citizens coverage. Yet an increasing amount of that premium dollar is covers Citizens' litigation losses. The state's largest insurer now pays attorneys fees averaging an estimated $2 million a month to lawyers who successfully sued the company on behalf of policyholders. And that cost is on top of what the company spends for its own legal defense. Why is Citizens choosing to lowball or deny so many legitimate claims?
Citizens CEO Barry Gilway excuses the litigation spike. He says most of the litigation involves people who have water losses that are not covered. Their policies cover only sudden and accidental water damage, not long-term leaks. The company also blames the surge in lawsuits on sinkhole disputes.
But that is not what the lawyers who sue Citizens say are the reasons for such high legal bills. They point to a 2010 change in Citizens policies in which the company gave itself the authority to determine what damage gets appraised. Before that change, when there was a dispute, the homeowners would hire a third-party appraiser.
It appears that Citizens is using this contractual power to pay claims for less than what is fair, and that leads to avoidable litigation. State Rep. Carlos Trujillo, R-Miami, an attorney at a firm that specializes in insurance law, says one client's property was badly damaged when a burglar broke in while she was in the hospital. On a $5,000 claim that Citizens refused to pay, he has so far racked up $20,000 in attorney fees. He estimates that Citizens has been billed at least $35,000 from their own attorneys. That is not cost-effective.
Citizens also is not subject to the so-called "bad faith" laws. Insurance is a highly regulated industry because companies have a financial incentive to take premiums and avoid paying out claims. To build in opposing financial pressures, Florida law makes insurers subject to an action for damages if a policyholder can show they intentionally refused to fairly negotiate a claim. Citizens doesn't face this control.
Gilway says his company is doing an internal review to determine how to bring down legal costs. One way would be to go back to a fairer system in which an objective appraiser is involved in damage claims. The playing field is tilted too far in favor of the insurer, even if the policyholder ultimately wins in court. Homeowners who pay more for less Citizens coverage every year should not have to also worry about filing lawsuits to get their legitimate claims paid.