Fewer are suing Citizens

Actions against state insurer down 23%

State-run Citizens Property Insurance Corp. appears to have made significant progress last year in its long-running fight to reduce costly lawsuits.

The number of lawsuits filed against the “insurer of last resort” declined from 10,056 in 2016 to 7,744 in 2017 — a 23 percent decrease — while the company’s policy count declined just 6 percent.

Citizens policyholders are anxious to see the number of lawsuits and its accompanying costs reduced in hopes it would herald a stabilization or even a reduction of their insurance rates.

And that could happen, following two years of near-10 percent rate increases in South Florida, if the decline is projected to continue into 2018 and beyond, Citizens spokesman Michael Peltier said in response to emailed questions. Citizens has 223,464 policies in the tricounty region, according to the most recently available figures from the state.

“We are currently in the process of evaluating year-end 2017 loss and loss adjustment expense results,” he said. “The expected litigation rate for claims occurring in 2017 will be directly related to expected future loss and loss adjustment payments in 2018 and beyond. … Any lowering of the litigation rate would lead to lower future rate need.”

Not yet known is whether the reduction in lawsuits will save

money for Citizens and its customers. But if that’s the case, the company needs to be upfront about it, said Jimmy Farach, president of the Florida Association of Public Insurance Adjusters.

“If it turns out that litigation expenses have actually been decreasing, we hope that Citizens will let their Board of Governors, the public, lawmakers and regulators know. They have been espousing alleged increases for many years,” he said.

In fact, even while the number of new lawsuits has decreased, Citizens is fighting cases longer and taking more cases to trial, which could mean the company is spending more per case on defense costs. Because of the strategy, open cases have been piling up and, through most of the year, totaled more than 10,000 — far exceeding the number of new cases filed in 2017.

On April 30, Citizens was a defendant in 10,424 open cases, a 41 percent increase over the previous year. Many of those open suits were left over from previous years, and the rising number reflects decisions by the company to fight rather than quickly settle, a CItizens official said in June.

The increase in open claims is due to “refined litigation strategies” and “positions that are highly defensible,” Citizens’ vice president of claims Elaina Paskalakis told Citizens’ Claims Committee in July.

In December, Paskalakis told the Claims Committee the increase “is due to our early evaluation of the lawsuits as they come in, and as we apply our defense strategies and take more cases to trial, standing on the reasonable adjustment of the claim.”

The idea is that fighting more suits signals to plaintiffs that Citizens won’t roll over so easily and automatically throw money at suits to make them go away, Peltier said.

Although the decrease in the number of new lawsuits became apparent throughout 2017, Citizens officials said little about it at their public meetings during the year.

Instead, discussion about litigation has emphasized the continuing threat of what company officials call fraud — contractors operating under an “assignment of benefits” submitting inflated repair claims while their attorneys file suit to take advantage of the state’s “one-way attorney fee” law. As conceived, the one-way attorney fee law was meant to protect consumers by allowing them to sue their insurers and collect their legal fees if they win, while protecting them from having to pay insurers’ legal fees if they lose. Contractors and attorneys have teamed up to exploit the law by filing thousands of suits with virtually no financial risk of their own, insurers say. According to the Department of Financial Services, AOB-related lawsuits in Florida increased from 405 in 2006 to more than 28,000 in 2016.

On Dec. 7, Citizens’ Claims Committee — consisting of four members of its appointed Board of Governors and two staff members — was presented a report with a slide correctly stating that the monthly average number of lawsuits filed against the company declined from 846 in the first 10 months of 2016 to 652 in 2017. However, the report garnered little attention as it incorrectly stated that the decrease was 12 percent instead of the actual 22 percent.

Meanwhile, at the company’s full Board of Governors meeting on Dec. 13, a report distributed with CEO Barry Gilway’s President’s Message said Citizens would need another $17.7 million in 2018 for additional personnel to deal with “assignment of benefits” lawsuits, while another page of that report incorrectly stated: “An increasing number of claims are entering litigation.”

The Sun Sentinel asked Citizens why it appeared to misrepresent the extent of the decline in lawsuits while contending in other reports that more claims are entering litigation and millions of dollars more would be needed to fight litigation.

Peltier said the incorrect percentage given for the decrease in lawsuits appeared to be “human error” by a new employee. The statement that more claims are entering litigation referred not to the current year but to the span between 2011 and 2017, he said. And the need for $17.7 million more to fight lawsuits stems from the increase in pending cases, from about 9,500 in January 2017 to about 10,400 in December, he said.

Peltier called it “unfortunate” that the percentage error wasn’t caught, adding, “It was unintentional. The raw numbers in the slides were correct, which I hope dispels [any] notion that we were not trying to be forthcoming.”

Paul Handerhan, senior vice president of public policy for the Florida Association for Insurance Reform, an industry watchdog based in Fort Lauderdale, said an opportunity by the Citizens board and the public to discuss the 23 percent decrease could have been useful. “I believe that would have been an important statistic to discuss with the hope of determining which drivers caused the 23 percent decrease,” he said.

Discussing a reduction in lawsuits might not have been useful to lawmakers and industry lobbyists seeking to prevent paydays for contractors and trial lawyers.

Over the past three years, Citizens and Gilway have waged a public relations battle over increases in lawsuits stemming from policyholders assigning claims benefits to third-party contractors. Gilway has led an industry-wide campaign to lobby the state Legislature to restrict rights of repair contractors to secure third-party claims assignments and — when that failed — to bar contractors working under assignments from collecting so-called, one-way attorneys fees. That failed as well, but efforts to enact legislative solutions aren’t dead. Competing bills with terms favorable to insurers and trial attorneys remain alive in the current session and the subject of intense lobbying by the two sides.

Meanwhile, Citizens wasn’t the only insurer that faced fewer suits in 2017. Of the tricounty region’s 21 largest insurers, 11 faced fewer suits in the second half of 2017 compared with the same period in 2016, the DFS database shows. Bucking the trend was Fort Lauderdale-based Universal Property & Casualty, which in early 2017 supplanted Citizens as South Florida’s largest property insurer. Universal was sued 2,854 times in the second half of 2017, compared with 1,617 times a year earlier.

Possible reasons for the decline in lawsuits against Citizens could include a 2016 policy change that prevents permanent repairs before the company can inspect damages, Peltier said.

Joe Ligman, a Miami-based plaintiff’s attorney, noted that Citizens has resumed invoking its right to send disputes to an independent appraiser before they can be filed in court. Citizens had stopped invoking that right about a decade ago in favor of a provision requiring both sides to agree to use an appraiser.

But it was rarely requested by both parties, which likely helped spawn more lawsuits, Handerhan said. That change took effect in February 2016, Peltier said.

“If it turns out that litigation expenses have actually been decreasing, we hope that Citizens will let their Board of Governors, the public, lawmakers and regulators know.” Jimmy Farach, president of the Florida Association of Public Insurance Adjusters