Recently, the Florida Legislature passed new legislation in an effort to decrease the number of policyholders that are insured with Citizens’ Property Insurance Corporation, which is the insurer of last resort in Florida. According to the legislature, the motivation for the new law arises from concerns that the number of Citizens policyholders had previously reached an all-time high, $1.5 million,1 and that Citizens would potentially not be able to cover such exposure from a future catastrophic storm, without levying additional taxes and assessments.
On May 29, 2013, Governor Rick Scott signed SB 1770 into law,2 which is codified in Sec. 627.3518, Fla. Stat. As a result, the state-run insurance company started transferring many of its 1.2 million homeowners’ insurance policies to non-admitted private insurance carriers3 endeavoring to decrease costs to the state.4 The new law mandates that Citizens must establish a clearinghouse program5 which enables the state-run insurer to enter into contracts6 with private market insurers to facilitate the transfer of their insurance policies to the private insurance sector.7
Although well intentioned, the new law may potentially lead to an escalation in claims against insurance agents, as Citizens, the largest residential property insurer in the State of Florida, depopulates an estimated 400,000 insurance policies.8 The reason for this is that the process by which Citizens will transfer insureds to new insurers does not require the express consent (either written or verbal) of the insured to occur. Instead, the only obligation for the insured is to “opt-out,” if the insured does not want to be transferred to the carrier in the private market. This means that the process by which an agent typically explains policies to the insured and by which the insured agrees to such coverage by signing a written proposal and application will not be provided for under the new law.
Under Florida law, an insurance agent or broker has a fiduciary relationship with an insured and therefore can be sued for breach of fiduciary duty.9 Claims for breach of fiduciary duty commonly arise when a policyholder alleges that the insurance agent or broker did not inform them about specific coverage options or that the residence/business would not be covered for the subject loss. In light of the new legislation, uninformed policyholders may seek to blame the insurance agent for failing to explain the changes in the insurance coverage. Moreover, if a policyholder files a claim which is denied by the insurance company due to lack of coverage, an insured may bring an action against his/her agent whose alleged negligence caused the insured to become embroiled in litigation to secure coverage and incur attorney’s fees and costs.10
As part of the pending transfer, Citizens policyholders can anticipate receiving notification from Citizens that their homeowners’ insurance policies may be transferred to an insurance carrier in the private market. Upon receipt, the Citizens policyholder will have two options: (1) remain with Citizens; or (2) accept coverage from one of the private insurance companies to which Citizens transfers its policies. If the policyholder fails to respond to the notification, his/her homeowners’ insurance policy will be automatically transferred to the private insurer.
Policyholders who “opt-out” and remain with Citizens may face more restrictive coverage options. Further, policyholders that opt to transfer their policies to the private insurance carriers may encounter differing or reduced coverage. Either way, insurance agents may have cause for concern if policyholders are not knowledgeable regarding the differences in coverage between the policies. Often, when an insurance company denies a claim asserted by the policyholder, the policyholder blames the insurance agent for failing to procure coverage.
As a result of Citizens’ mass transfer of their insurance policies, there may be an increase in actions filed against insurance agents. Even if an insurance agent initially procured the requested insurance properly, the transfer to a new carrier may alter that coverage, which could ultimately expose the insurance agent to liability for failure to procure and/or advise the policyholder of the lack of coverage. For example, in one such case that has already been filed, an insurance agent procured homeowners’ insurance coverage with a carrier that ultimately issued mass cancellation polices for many of its insureds as the insurer eliminated its Florida client base. After the insurance policy was transferred by the insurance carrier to another insurance carrier, the new policy had differing insurance coverage. As a result, after the policyholder experienced interior water damage, the new insurance carrier denied the claim due to lack of water damage coverage under the policy. The policyholder sued the insurance carrier for breach of contract and the insurance agent for negligence in failing to procure water damage coverage, which would have been provided under the prior insurance policy. After much litigation, the matter was able to be resolved in the insureds’ favor.
Generally, in Florida, an insurance agent’s obligation to its client ends after procurement of the insurance policy;11 however, in cases where a policyholder’s insurance policies are transferred to a new carrier before the end of the policy period, there may be a debatable point of law with respect to whether the insurance agent has a duty to advise the policyholder of the differences in the policies. In order to protect themselves against potential claims relating to coverage from a transferred insurance policy, it would be advisable for insurance agents to make efforts to inform policyholders in writing that the coverage may differ from the prior insurance policy.
Given the rise in lawsuits being filed against insurance agents, there are some measures that may help protect insurance agents and brokers from potential lawsuits regarding Citizens’ transfer of insurance policies. Although there is no legal obligation to do so, insurance agents can contact all Citizens’ policyholders and inform them of the new legislation, which may affect premiums and coverage. Second, it would be preferable
for insurance agents to obtain written consent from each Citizens’ policyholder, acknowledging that the policyholder agrees to the change in insurance carrier and realizes that the coverage may not necessarily be the same as under the prior policy. This can be achieved by insurance agents inviting Citizens’ policyholders to review their new insurance policies with the insurance agent and discuss any changes or additional coverage that may be available. After discussing the changes and/or additional coverage that may be available, insurance agents can send written correspondence to the policyholder documenting that discussion. In addition, an agent should attempt to maintain a complete client file, documenting all communications with the client contemporaneously and memorializing any change in coverage or rejection of coverage. Generally, the more complete and well documented an insurance agent’s file, the easier it is to defend, should litigation occur.
While there is never a guaranty that a policyholder will still not attempt to blame an insurance agent if they are not covered for a loss following the pending transfer, prudent insurance agents can seek to minimize their potential exposure to lawsuits by following good practices, including these suggested measures.
(Endnotes)
1 Jim Turner, Citizens Property Insurance gets ‘disappointing’ transfer numbers, Miami Herald, Sept. 30, 2013, available at http://www.miamiherald.com/2013/09/28/3657525/ citizens-property-insurance-gets. html?story_link=email_msg.
2 CS/SB 1770 Property Insurance, The Florida Senate, Sept. 29, 2013, available at http://www.flsenate. gov/Session/Bill/2013/1770.
3 Another issue may arise regarding surplus lines carriers with respect to potential insolvency. For instance, if Citizens transfers insurance policies to surplus lines carriers, which are not backed by the Florida Insurance Guaranty Association, should insolvency occur, coverage to policyholders will not be provided by the State of Florida.
4 Mary Ellen Klas, As Citizens shed policies, consumes face new decisions, Miami Herald, Sept. 24, 2013, available at http://www.miamiherald.com/2013/09/08/3614736/as-citizens-sheds-policies-consumers. html?story_link=email_ms.
5 See Florida Statutes Sec. 627.3518(3) (2013).
6 See Florida Statutes Sec. 627.3518(3) (c) (2013).
7 See Florida Statutes Sec. 627.3518(2) (2013).
8 Florida’s Citizens Signs with 10 Insurers to Take Nearly 400,000 Policies, Insurance Journal, Sept. 27, 2013, available at http://www. insurancejournal.com/news/southeast/2013/09/03/303631.htm.
9 See Beckett v. Department of Financial Services, 982 So. 2d 94, 101 (Fla. 1st DCA 2008).
10 Bitz v. Ed Knox Clu & Associates, 721 So. 2d 823 (Fla. 3d DCA 1998).
11 See Cat’N Fiddle v. Century Ins. Co., 213 So. 2d 701, 704 (Fla. 1968)
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