Citizens ends 2016 in a loss

Insurer blames litigation costs for non-weather water claims

State-run Citizens Property Insurance Corp. finished 2016 with a net operating loss of $27 million compared to $5.7 million in profit reported in 2015, according to the company’s year-end financial report.

Increased costs stemming from litigation in South Florida over nonweather-related water losses are largely to blame for the net loss — Citizens’ first since 2005, officials said Wednesday.

“The bottom line is impact of [Assignment of Benefits] losses is starting to show up in our numbers,” Barry Gilway, Citizens president and CEO, said during a meeting of the company’s board of governors on Wednesday.

The losses were driven by cost increases resulting from a five-year increase in the number of litigated claims, Gilway said.

Financial statements released by Citizens, South Florida’s largest home insurer, showed that al-

though costs of damages and injuries decreased from $402.5 million in 2015 to $345.8 million in 2016, costs associated with investigating, settling or fighting those claims increased from $86.5 million to $167.1 million.

The percentage of claims disputed in court increased from 12 percent to just under 50 percent over five years, Gilway said.

The average loss for a non-weather water claim from the tricounty region nearly doubled, from $10,301 to $19,968, over the five years.

Losses stemming from the two hurricanes that impacted the state last year were minimal, Gilway said.

Citizens and other Florida property insurers have for several years accused water damage repair contractors and their attorneys in South Florida of driving up insurance losses through “schemes” that begin with contractors convincing policyholders to sign over the benefits of their insurance claims as a condition of beginning repairs.

The contractors submit inflated claims to the insurers and file lawsuits if insurers deny or fail to pay the full claim, insurers say. About a dozen law firms file thousands of suits each, motivated by a state law that allows them to collect legal fees if a claim settlement exceeds an initial offer, insurers say.

Attorneys and contractors counter that insurers routinely and purposefully underpay legitimate claims, delay payments and ignore industry repair standards in determining how much they are willing to pay.

Despite the net loss, Citizens increased the surplus it maintains for catastrophe recovery from $7.39 billion to $7.40 billion. The increase reflects sale by Citizens of “legacy assets,” company spokesman Michael Peltier said.

On Wednesday, Citizens officials expressed hope that the state Legislature will take action during the current session to prevent plaintiffs attorneys from collecting legal fees from insurers when representing contractors assigned to pursue claims benefits.

But with a weeklong Easter break looming, they acknowledged that the window was closing for a legislative solution this year.

If the Legislature fails to act, Citizens’ operating loss will likely reach $87 million by 2018, while Citizens customers in South Florida will likely face 10 percent annual rate increases for years to come, Gilway said.

A Senate bill crafted with input from Citizens, the Florida Office of Insurance Regulation, and insurance industry trade groups that would cut off attorneys fees in Assignment of Benefits cases has yet to undergo a necessary first step — a vote by the Senate Banking and Insurance Committee.

Four members of the nine-member committee received financial support from the Florida Justice Association, the trial attorneys’ trade group, in the last election cycle, and the committee’s chairwoman, Anitere Flores, R-Miami, has expressed skepticism about insurance industry claims that increased litigation is being driven by fraud.

In addition, one of the committee’s members, Sen. Gary Farmer, D-Fort Lauderdale, has introduced his own bill that would maintain the present attorney fee structure while requiring state licensing of water damage contractors. Farmer, a trial lawyer, is former president of the Florida Justice Association.

Farmer’s bill would also bar Citizens and other insurers from including fees paid for plaintiffs and defense attorneys in formulas used to set rates.

Enactment would be “clearly detrimental to the health of the [insurance] market by eroding companies’ profitability, said Christine Ashburn, Citizens vice president of communications, legislative and external affairs.