Insurance Journal Florida Supplement 2018-11-19

FOCUS ON FLORIDA Michael’s Impact on Insurers Post-Storm Fraud Awareness Florida Workers’ Comp Rates

Photo: Associated Press

Contents

November 19, 2018 • Vol. 96 No. 22 • Focus on Florida

Florida F4 Florida Picks Up the Pieces from Powerful Hurricane Michael F7 Weaker Building Codes in Florida Panhandle Scrutinized After Michael F8 Market Changes Not Expected from Hurricane Michael; Florida Insurers ‘Heavily’ Reinsured F10 Florida Fraud Strike Team Targets Unlicensed Contractors in Panhandle F13 Florida Workers’ Comp Rates to Decrease by Double-Digits in 2019

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FLORIDA PICKS UP THE PIECES FROM POWERFUL HURRICANE MICHAEL

F14 Court: Travelers Insurer Off the Hook in Florida Hotel Chain Data Breach Suit F15 Suit Filed in Florida Against Tesla Claims Autopilot Failed, Caused Crash

8

Departments

MARKET CHANGES NOT EXPECTED FROM HURRICANE MICHAEL

13 FLORIDA WORKERS’ COMP

RATES TO DECREASE BY DOUBLE-DIGITS IN 2019

F11 Florida Fraud Round-up • Florida Man Arrested for Filing

$30K in Fraudulent Hurricane Irma Claims with Citizens • Florida Woman Arrested in $50K Workers’ Comp Fraud Scheme • 20 People Arrested in Florida in ‘Operation Hot Water’ Workers’ Comp Fraud Sting F12 People

14 COURT: TRAVELERS INSURER OFF THE HOOK IN

FLORIDA HOTEL CHAIN DATA BREACH SUIT

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INSURANCEJOURNAL.COM

Florida

This photo shows debris and destruction in Mexico Beach, Fla., Friday, Oct. 12, 2018, after Hurricane Michael went through the area on Oct. 10. Mexico Beach, the ground-zero town, was nearly obliterated by the hurricane. (Bronte Wittpenn/Tampa Bay Times via AP)

Florida Picks Up the Pieces from Powerful Hurricane Michael

By Amy O’Connor

I

t has been just over a month since Hurricane Michael slammed the Florida Panhandle as a Category 4 hurricane with wind speeds reaching just shy of Category 5 status.

The devastation from the storm that killed at least 35 people in Florida is still impacting residents and insured losses continue to climb as recovery efforts are in full effect and will be for some time.

“Michael saw our worst fears realized, of rapid intensification just before landfall on a part of a coastline that has never experienced a Category 4 hurricane,” University of Miami hurricane researcher Brian

McNoldy said after the storm hit, as reported by The Associated Press.

The massive storm made landfall in Mexico Beach, Fla., on Oct. 10 with maximum sustained winds of 155 mph, according to catastrophe modeling firm AIR Worldwide. The minimum central pressure at landfall — a key measure of hurricane strength — was 919 mb, the third lowest on record for a U.S. hurricane, AIR said.

Michael is the most powerful hurricane to have come ashore in the Florida Panhandle since the first records were kept in 1851, said Dr. Peter Sousounis, vice president and director of meteorology, AIR Worldwide.

“Fueled by unseasonably high 84-degree

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sea surface temperatures in the Gulf of Mexico and unhindered by any prior landfall, Hurricane Michael rapidly intensified shortly before making landfall at close to Category 5 intensity,” Sousounis said.

Mexico Beach was “virtually obliterated” AIR said, as it was in the right eyewall of Michael where storm surge is typically the highest. In addition, the high wind speeds leveled buildings in the area, as well as took down power lines and countless trees.

Wills Re’s Hurricane Damage Survey report noted catastrophic wind damage impacted residential properties in Panama City, Lynn Haven and Mexico Beach, Fla. Catastrophic storm surge damaged buildings along the coast of Mexico Beach and INSURANCEJOURNAL.COM

treefall caused “significant” damage to properties.

Florida Panhandle building codes do not require buildings in the area to sustain such high wind speeds, Willis Re noted, compared to similar buildings located in other hurricane-prone areas of Florida such as Miami or the Florida Keys, hence the majority of homes in the area were not designed to resist the storm’s impact.

“It should not be a surprise that many buildings failed to resist Michael’s brutal hurricane force wind,” the Willis Re report said.

Losses

Insured losses were just shy of $3 billion as of Nov. 9, according to the Florida Office of Insurance Regulation, with about 45.9 percent of claims closed so far. OIR report-

ed that the number of claims had reached 119,160 across the sectors of residential property, commercial property, private flood, business interruption and other lines of business.

Florida Insurance Commissioner David Altmaier said Hurricane Michael was a very different storm compared to Hurricane Irma that impacted most of the state last year. Irma’s wind field and flooding impacts were felt over the majority of the state and in multiple major cities, resulting in nearly 1 million claims and $10.4 billion in losses with 28 counties topping 5,000 claims.

Michael targeted a specific region of the state but is noted to be the strongest storm to make landfall in Florida since Hurricane Andrew, OIR said. So far, five counties have topped 5,000 claims but Bay County

accounts for roughly 71,000 of the 119,000 claims that have been filed.

“Hurricanes Irma and Michael were two very different storms in terms of landfall and projected path, but both carried a significant impact,” Altmaier said.

Catastrophe modeling firms have estimated the total cost of Hurricane Michael claims will range from $4.5 billion to $10 billion. Those numbers include losses in Florida, as well as several other states that were impacted by the storm.

OIR also noted insurance companies’ preparation efforts are paying off from a solvency standpoint as there has not been any indication that companies will have an issue responding to claims.

Barry Gilway, CEO of Citizens Property Insurance Corp., said Hurricane Irma’s

continued on page 6

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| News & Markets

continued from page 5

total impact on Citizens’ insurance surplus statewide was about 2 percent. The losses from Michael shouldn’t reach Citizens’ first reinsurance layer, meaning they believe that they should be able to pay Hurricane Michael claims with their existing policyholder surplus.

Insurance industry experts and rating agencies have also noted that while Michael’s losses will be significant to the industry, they won’t be enough to cause any major market changes.

Florida Commissioner of Agriculture Adam Putnam said Nov. 9 that damages to the state’s agriculture industries would be nearly $1.5 billion, with the timber industry bearing the brunt of the devastation at $1.3 billion in economic losses.

Recovery

The amount of devastation to the Florida Panhandle means the rebuilding efforts will go on for some time. Power was just fully restored to the Panhandle as of Nov. 6, AP reported.

The insurance industry will play an integral part in the recovery process and got to work as soon as Michael left the area.

Insurance villages were held in several of the communities affected by Hurricane Michael, including the state capitol of Tallahassee, Marianna and Panama City with up to 44 insurance companies and FEMA participating at various points to assist residents, according to a statement from Florida CFO Jimmy Patronis.

Insurance Commissioner Altmaier said the insurance industry’s response to the storm has been strong so far, with robust participation in the insurance villages and overall efforts to mobilize resources to impacted communities executed swiftly.

“Michael’s historic landfall as a Category 4 storm disrupted the lives of many Floridians, especially those on the Panhandle. It has been remarkable to see our state, industry and communities unify throughout the recovery of this catastrophic event,” Altmaier said.

Agents in the area said they were very pleased with the insurance industry’s response in the immediate aftermath of the storm, with a lot of carriers and their

Aerial photo of Hurricane Michael’s devastation to the Florida Panhandle, captured from Geomni’s fleet of fixed-wing aircrafts on Oct. 11, 2018. Photo Courtesy of Geomni, a Verisk company.

top executives physically on the ground at the claims villages. But there are still some areas that the industry can improve on.

“There have been instances where there is a lack of communication [and] adjusters with incomplete and wrong information in some cases,” Trey Hutt, president of Hutt Insurance Agency, which has locations in Panama City and Lynn Haven, Fla., though the Lynn Haven office was destroyed by Hurricane Michael.

Hutt said with some carriers, policyholders have received initial estimates from insurers that are far below what a contractor tells them the damage will cost, which creates a sense distress for those customers.

“I hope that with future storms we can improve that piece of the communication,” Hutt said.

Hutt noted there is currently a lull in the recovery process, which is common after a catastrophe event, where people have submitted their claim and had their initial visit from an adjuster and are now waiting to hear from a desk adjuster, which can take up to 10 business days in some cases.

“People are very nervous when there is silence at the other end of the phone,” Hutt said.

A J.D. Power survey of policyholders affected by Hurricane Michael found 87

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percent of policyholders said their insurer had “met or exceeded expectations,” in their response efforts.

Altmaier emphasized that as claims remain open, OIR is continuing to communicate with the industry to ensure any unmet needs that may hinder a company’s ability to provide a seamless claims-filing process are addressed, including assignment of benefits abuse. Regulators and the insurance industry have been concerned a large-scale disaster such as Hurricane Michael could exacerbate the problem and have devoted significant resources to educating consumers about AOB abuse and the dangers of signing an AOB agreement.

The Florida Department of Financial Services has also deployed post-disaster fraud strike teams to the Florida Panhandle region and is “searching for anyone trying to prey on residents,” DFS said in a statement last month.

Florida Insurance Commissioner Altmaier and CFO Patronis have urged the industry to respond to policyholders as quickly as possible to help policyholders avoid being taken advantage of.

“A tremendous effort to ensure claims are being handled expeditiously has been made — an effort that will continue throughout the entirety of this recovery,” Altmaier said.

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FOCUS ON FLORIDA

| News & Markets

Weaker Building Codes in Florida Panhandle Scrutinized After Michael

By Gary Fineout

U

nlike in South Florida, homes in the state’s Panhandle did not have tighter building codes until just 11 years ago; it was once argued that acres of forests would provide the region with a natural barrier against the savage winds of a hurricane.

Many of those structures did not withstand the fury of Hurricane Michael, which slammed into the area Oct. 10 with winds of up to 155 mph (250 kph), leaving acres of flattened houses and other buildings in its wake before roaring across the Georgia border inland.

“We’re learning painfully that we shouldn’t be doing those kinds of exemptions,’’ said Don Brown, a former legislator from the Panhandle who now sits on the Florida Building Commission. “We are vulnerable as any other part of the state.

There was this whole notion that the trees were going to help us, take the wind out of the storm. Those trees become projectiles and flying objects.’’

Hurricane Andrew a generation ago razed Florida’s most-populated areas with winds up to 165 mph (265 kph), damaging or blowing apart more than 125,000 homes and obliterating almost all mobile homes in its path. The acres of flattened homes showed how contractors cut corners amid the patchwork of codes Florida had at the time. For example, flimsy particle board was used under roofs instead of sturdier plywood, and staples were used instead of roofing nails.

Since 2001, structures statewide must be built to withstand winds of 111 mph (178 kph) and up; the Miami area is considered a “high velocity hurricane zone’’ with much higher standards, requiring many structures to withstand hurricane winds in excess of 170 mph (273 kph).

Though Michael’s winds were particularly fierce, any boost in the level of safety requirements for builders could help homes better withstand hurricanes.

Tom Lee, a homebuilder and legislator, INSURANCEJOURNAL.COM

This aerial photo shows debris and destruction in Mexico Beach, Fla., Friday, Oct. 12, 2018, after Hurricane Michael went through the area on Oct. 10. (Bronte Wittpenn/Tampa Bay Times via AP) says past hurricanes have shown time and time again that the stricter codes help. He said after such previous storms, he could see during flyovers which homes were built before the new code.

“The structural integrity of our housing stock is leaps and bounds beyond what it was,’’ Lee said.

The codes call for shatterproof windows, fortified roofs and reinforced concrete pillars, among other specifications. But it wasn’t until 2007 that homes built in the Panhandle more than 1 mile (1.5 kilometers) from shore were required to follow the higher standards. Hurricane Michael pummeled the region with devastating winds from the sea all the way into Georgia, destroying buildings more than 70 miles from the shoreline.

Gov. Rick Scott said it may be time for Florida to boost its standards — considered the toughest in the nation — even further.

“After every event, you always go back and look what you can do better,’’ Scott said. “After Andrew, the codes changed dramatically in our state. Every time something like this happens, you have to say to yourself, ‘Is there something we can do better?’’’

Mexico Beach, the Gulf Coast town destroyed by Michael, lacked a lot of new

or retrofitted construction, said Craig Fugate, the former director of the Federal Emergency Management Agency and a former emergency management chief for the state of Florida. The community had a lot of older mobile homes and low-income year-round residents working in the commercial fishing and service industries.

“Quiet, idyllic, what I call ‘Old Florida,’’’ Fugate said. “This is not a bunch of high rises or brand new developments.’’

Bill Herrle, who owned a house near the shoreline in Mexico Beach until it was destroyed by the storm, said he wasn’t sure it made a difference when the homes there were built. He said the storm took out his house, built in the mid-’80s, as well as newer buildings put up recently.

“It wiped out both the older and newer homes. It looks like my entire street is razed,’’ said Herrle.

David Prevatt, an associate professor of civil and coastal engineering at the University of Florida, said drone footage of the devastation in Mexico Beach showed structural damage to roofs and exterior walls, and damaged rafters and trusses, “indicating the strength of the wind that caused those failures.’’

Associated Press writer Jennifer Kay in Miami contributed to this report.

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Market Changes Not Expected from Hurricane Michael; Florida Insurers ‘Heavily’ Reinsured

By Amy O’Connor

L

osses to the insurance industry from Hurricane Michael, a Category 4 storm that hit the Florida Panhandle last month before continuing a path of destruction through several other Southeast states, will be substantial but not enough to cause problems for insurers or a pullback in capacity, experts say.

Ohio-based ratings firm Demotech,

which rates 52 Florida-based insurers as well as others in surrounding states affected by Michael, said these companies are well positioned to handle losses.

“Demotech believes that each of the carriers that we review and rate that are exposed to loss and LAE from Hurricane Michael have in place a rigorous and vigorous catastrophe reinsurance program,” Demotech President Joseph L. Petrelli told Insurance Journal.

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Others agree that Florida’s heavily-reinsured domestic insurers and an overall well-capitalized insurance industry should be able to handle Michael’s losses without major disruption.

A report by A.M. Best said depending on the severity of losses, primary insurers will likely share the loss burden with traditional reinsurers and alternative capital providers. Reinsurers with an outsize concentration in Florida will be more vulINSURANCEJOURNAL.COM

nerable than those with globally diversified catastrophe exposures, Moody’s said.

“Insurers most exposed to the storm will be Florida-only insurers, which we define as insurance companies with at least 75 percent of their homeowners and commercial property premiums written in Florida,” said Bruce Ballentine, a Moody’s analyst.

Howard Mills, Global Insurance Regulatory leader of Deloitte, said that while Michael was the most powerful storm to ever hit the Florida Panhandle, “it’s not going to be a market moving storm.” He said the insurance industry and the global reinsurance industry are “very well capitalized ... there are hundreds of billions of dollars in capital and surplus and they are well positioned to handle this storm.”

Mills noted Florida is a “unique” market mostly dominated by smaller, regional carriers that carry a lot of the risk in Florida, but they are “heavily backed by reinsurance.”

“The good news from an economic perspective is that these claims will be paid by the global reinsurance market — the London market and reinsurers based in Bermuda, Europe and Japan,” Mills said.

The presence of smaller Florida-based insurers has grown since many national carriers exited the market after the active 2004/2005 hurricane season. As of 2016, Florida domestic insurers wrote most of the coverage in the Florida property insurance market, according to the Florida Office of Insurance Regulation.

Demotech’s Petrelli noted that Florida -focused property insurers rated by Demotech are reviewed six times per year and are heavily reinsured by global reinsurers, as well as the Florida Hurricane Catastrophe Fund.

“Catastrophe bonds and other insurance linked securities supplement their catastrophe programs,” Petrelli noted.

Each of the companies rated by Demotech will provide periodic reports on their claims activity to the ratings firm, Petrelli said.

A.M. Best does not anticipate a larger number of ratings actions related to INSURANCEJOURNAL.COM

Hurricane Michael as catastrophic events like it are considered in insurance companies’ current ratings and outlooks.

Insurers with the largest market shares in U.S. states hit by Hurricane Michael have considerable exposures, but these are manageable given each company’s overall policyholder surplus, Best said.

Furthermore, while nearly all A.M. Best-rated Florida property companies have substantial property catastrophe premium, some have strategically limited their exposures in the Panhandle, and therefore are not significantly exposed to this hurricane.

“However, the question of how the state’s relatively new, Florida-specific insurers might withstand the impact of substantial insurable losses caused by Hurricane Michael remains,” Best noted.

The state’s insurer of last resort, Citizens Property Insurance Corp., has seen its policyholder drop significantly due to successful depopulation efforts to domestic insurers. Barry Gilway, Citizens CEO, told Insurance Journal’s Patrick Wraight that after Hurricane Irma, the total impact on insurance surplus statewide was about 2 percent. For Citizens’ part, the losses shouldn’t reach their first reinsurance layer. That means that they believe that they should be able to pay Hurricane Michael claims with their existing policyholder surplus.

The potential for insurable losses could put some pressure on reinsurers, Best said, but the actual impact of the hurricane will depend on a number of yet undetermined factors, though “A.M. Best believes that most of the affected rated carriers have sufficient capital and appropriate reinsurance programs to withstand this event effectively.”

Best added that the vertical and horizontal reinsurance purchases for the 2018 season represent the highest dollar limit in the history of the state of Florida.

Fitch Ratings said Hurricane Michael

will push 2018 closer to a more normal catastrophe loss year, following a relatively benign first half of 2018.

Fitch also noted that Michael’s private insurers will bear a greater burden from Michael than Florence because of wind-related losses from Michael compared to Florence’s significant flooding losses. But, Fitch agrees that “insurers should be well positioned to absorb losses of this magnitude,” referring to a recent estimate from Karen Clark & Co. saying private insured losses from Michael could approach $8 billion.

Catastrophe risk modeling firm AIR Worldwide estimates that industry insured losses resulting from Hurricane Michael’s winds and storm surge will range from $6 billion to $10 billion. CoreLogic estimated losses could reach $4.5 billion.

Fitch said Florida’s domestic insurers will have considerable gross losses but that they will not exceed their reinsurance coverage limits.

Deloitte’s Mills said Hurricane Michael will not be enough to lead to a pricing shift for reinsurance.

“There may be some small impact on quarterly returns, but the global reinsurance industry is so well capitalized I do not expect this storm to impact rate and price,” he said.

Fitch’s assessment echoed Mills, saying it does not expect the storm to serve as a catalyst for reinsurance rate increases given how muted pricing increases were following the much larger 2017 second half catastrophe loss events.

Meyer Shields, an analyst with financial services firm Keefe, Bruyette & Woods, (KBW’) said that even if CoreLogic’s $2.0$4.5 billion insured Hurricane Michael loss estimate proves somewhat low, he is confident that most primary insurers can readily absorb their net losses. As for reinsurers, Shields “strongly doubts” that year-to-date industry-wide catastrophe losses will disrupt “orderly and modestly soft January reinsurance renewals.”

“Insurers most exposed to Hurricane Michael will be Florida-only insurers”

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Florida Fraud Strike Team Targets Unlicensed Contractors in Panhandle

A

s the recovery continues in the Florida Panhandle after Hurricane Michael devastated the area, Florida regulators and the insurance industry are trying to raise awareness and halt post-hurricane fraud activity.

The Florida Department of Financial Services said it has constant boots on the ground in all affected counties as it works to educate residents about post-storm fraud and is searching for anyone trying to prey on storm victims.

Just last month, three contractors conducting business in Leon, Gadsden, and Gulf counties were removed from the Panhandle by the DFS Disaster Fraud Action Strike Team for unlicensed activity following Hurricane Michael, according to a statement from Florida Chief Financial Officer and State Fire Marshal Jimmy Patronis.

The contractors have been banned from soliciting or conducting any work in Florida pending a full investigation.

The disaster fraud teams, formed last year after Hurricane Irma to stay ahead of post-storm fraud, are investigating reports of potential fraud in Bay, Gulf, Washington, and Leon counties. The Strike Team was activated before Hurricane Michael made landfall and had boots on the ground immediately following the storm.

Initial sweeps have been made in Liberty, Gadsden, Gulf, and Leon counties. First sweeps in Bay, Jackson and Washing counties are ongoing. Secondary sweeps in the impacted areas began at the end of October.

“Anyone who tries to take advantage of Florida families and businesses during this vulnerable time will be caught,” Patronis said. “I can’t stress this enough: do not hire anyone without asking for their professional license information and if they have workers’ comp insurance.”

Unlicensed activity can put homeowners and contractors at risk and opens the door to fraud, DFS said. Consumers should always verify that contractors have the appropriate licenses, including workers’ compensation coverage, before they hire a company to assist in repairs after a storm, DFS urged residents.

State officials like CFO Patronis and Insurance Commissioner David Altamier have warned that the state’s assignment of benefits (AOB) issue could become even worse in the aftermath of a large-scale disaster, such as Hurricane Michael, due to a large number of claims triggering a contractor shortage, and people who are anxious to get repairs started on their homes assigning their insurance

“Anyone who tries to take advantage of Florida families and businesses during this vulnerable time will be caught”

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policy benefits to contractors.

They have urged the insurance industry to help settle policyholder claims as quickly as possible. As of Nov. 9, almost 46 percent of Hurricane Michael claims had been closed.

Florida Insurance Commissioner David Altmaier said in a statement to Insurance Journal that as claims remain open, the Florida Office of Insurance Regulation is working to communicate with the industry to ensure “any unmet needs that may hinder a company’s ability to provide a seamless claims-filing process are addressed, including AOB abuse.”

“Under CFO Patronis’ leadership, we continue to monitor any consumer complaints that are filed through their consumer helpline and continue to spread awareness on how AOB abuse can impact consumers,” Altmaier said.

Insurance specialists are standing ready to assist consumers with the claims process, if needed. Consumers can call 1-877-MY-FL-CFO (693-5236) or visit www. myfloridacfo.com for assistance.

INSURANCEJOURNAL.COM

Fraud Round-up | FOCUS ON FLORIDA paying $51,000 in workers’ compensation premiums.

“Workers’ compensation fraud puts employees at risk and drives up insurance rates for honest businesses. Last year alone, our fraud detectives made more than 400 arrests for workers’ compensation fraud,” Patronis said.

Arreguin surrendered to insurance fraud detectives at the Palm Beach County Jail and was released on bond. If convicted on all charges, Arreguin faces up to 20 years in prison.

20 People Arrested in Florida in ‘Operation Hot Water’ Workers’ Comp Fraud Sting

Florida Man Arrested for Filing $30K in Fraudulent Hurricane Irma Claims with Citizens

A Palmetto Bay, Fla., man was arrested in September for allegedly defrauding Citizens Property Insurance Corp. of more than $30,000 relating to Hurricane Irma, according to a statement from Florida Chief Financial Officer Jimmy Patronis.

Carlos Guillermo Aponte, 44, of Palmetto Bay was arrested on three counts of insurance fraud and grand theft to defraud Citizens after an investigation by the Department of Financial Services’ Disaster Fraud Action Strike Team (DFAST).

DFAST received a tip after Aponte filed two claims alleging additional damages and loss of rent on his property as a result of Hurricane Irma. The investigation revealed Aponte submitted fraudulent invoices and false rental agreements along with fraudulent letters claiming loss of rent for four months totaling $30,580.

Aponte was arrested Sept. 14 and transported to a Miami-Dade jail. If convicted on all charges, Aponte could face up to 45 years in prison and up to $45,000 in fines.

Formed in the wake of Hurricane Irma, CFO Patronis’ Disaster Fraud Action Strike Team (DFAST) deployed boots on the INSURANCEJOURNAL.COM

ground to combat insurance fraud and educate consumers on what to look out for after a storm.

“Often times disasters bring out the best in people, but unfortunately, it also brings out the worst in some. Insurance fraud is not a victimless crime and is the main cause that drives up insurance rates. Just this summer, Citizens Property Insurance Corporation cited fraud and litigation costs as the main reason for a proposed rate increase,” Patronis said.

Florida Woman Arrested in $50K Workers’ Comp Fraud Scheme

A Florida woman was arrested in August and charged with three felony counts of concealing payroll to avoid workers’ compensation premiums and two felony counts of application fraud, according to a statement from the Florida Department of Financial Services.

Florida CFO Jimmy Patronis announced on Aug. 31 the arrest of Vanessa Arreguin, 25, owner of V&G Concrete Inc. for workers’ compensation fraud.

According to DFS, over the course of two years Arreguin is alleged to have conducted more than $7.5 million in business, but claimed she made less than $50,000. DFS said by doing so, she deliberately evaded

Twenty individuals were arrested in Florida in a workers’ compensation insurance fraud sting operation involving unlicensed contractors in Pasco County in “Operation Hot Water,” according to a statement from Florida CFO Jimmy Patronis.

The arrests came in September after a joint sting operation conducted by the Pasco County Sheriff’s Office (PSO) and the Bureau of Insurance Fraud, along with the Department of Business and Professional Regulation (DBPR) and the Pasco County Building Department.

Investigators caught contractors agreeing to perform work without a license and without workers’ compensation insurance coverage.

The 20 individuals were arrested for allegedly contracting without a license and failure to secure workers’ compensation insurance coverage.

Individuals arrested included: Raul Guidicelli, Frederick John Kloster, Gary Allen Nickell Jr., Michael Anthony Anderson, Ronald Lee Weston Sr., Kenneth Ray Rodgers, Kevin Christopher Burtis, Richard Frank Bruns Jr., James Roberts Wood II, Joseph Martin, Richard Martin, Luis Alberto Medina, Robert Bruce Trottman, Harold “Chuck” Attebery II, Neil T. Myer, Daniel George Griffin, Charbel Tannous, Moshen H. Seuod, Mauricio Chicas and Dennis Disney Garlock.

If convicted, each individual faces up to five years in prison per count.

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Anthony Searcy

Rose Connell

| People

Heritage Insurance Holdings Inc., a Florida-based property and casualty insurance holding company, has added Arash Soleimani to its management team as an executive vice president and director of Investor Relations.

Soleimani was previously a sell-side analyst for nine years at Keefe, Bruyette & Woods (KBW), a financial services specialist, and its parent company, Stifel. During his tenure at KBW, Soleimani focused on the P/C insurance industry. As an analyst, he covered all five publicly traded homeowners insurance companies in Florida. Prior to KBW, Soleimani worked in Deloitte’s Audit and Enterprise Risk Services division as a CPA. Heritage Insurance Holdings, Inc. is a property and casualty insurance holding company headquartered in Clearwater, Fla. Its insurance subsidiaries include Heritage Property & Casualty Insurance Co., Zephyr Insurance Co., and Narragansett Bay Insurance Co. Maximum, an independent excess and surplus lines wholesaler, has opened its second office in Florida under the leadership of Anthony Searcy. The new office is based in Jacksonville.

With roots of his own in the Jacksonville area, Searcy joined Maximum in June of 2017. According to Joe Messina, president and CEO, Searcy has had “tremendous success” in a short period of time.

Maximum is a national and surplus lines wholesale broker of specialty products and services.

Baldwin Risk Partners (BRP), the Tampa, Fla.based insurance distribution and consulting holding company, has appointed John Valentine as chief partnership officer.

Valentine joins BRP with more than 17 years’ experience closing mergers and acquisitions in addition to equity and debt transactions for public, private and sponsor-owned clients across various industry sectors.

Most recently, Valentine led the Investment Banking practice in the Mid-Atlantic region at Wells Fargo Securities. Prior to joining Wells Fargo Securities, Valentine served as vice president at Hyde Park Capital Partners LLC and Athena Capital Partners.

As chief partnership officer, Valentine will be responsible for partnership execution and due diligence activities in collaboration with BRP’s respective Division and Business Function leadership teams. In addition, Valentine will collaborate with BRP’s leadership team on the integration of

12 | INSURANCE JOURNAL | FOCUS ON FLORIDA NOVEMBER 19, 2018

new partner firms.

BRP is an insurance distribution holding company offering risk management, insurance and employee benefits services.

After four years as marketing manager of

Brightway Insurance, Nassau County resident Lauren Mathewson, has teamed up with her family to open

their own Brightway Agency, Brightway, The Coastal Agency in Yulee, Fla. Mathewson and her brother, Jackson Selvidge, serve as the principal agents at the new location.

The two have partnered with their mother and stepfather, Jennie and Ben Stephens. Jennie owns Red Otter Outfitters, a retail establishment in Fernandina Beach, Fla., and Ben is a mortgage originator and sales manager of more than 25 years.

Mathewson brings eight years’ experience in sales and marketing to her Brightway Agency.

Selvidge comes to Brightway after working in sales, customer service and management roles at a dental supply distributor.

Brightway, The Coastal Agency offers customized home, condo, renters, auto, flood, RV, motorcycle, boat and umbrella insurance policies from numerous insurance brands including American Colonial, Bankers, Burns and Wilcox, Cabrillo Coastal, Dairyland, Edison, Florida Peninsula, Foremost, Johnson & Johnson, Progressive, Safeco and SageSure.

Brightway is a national property/casualty insurance retailer selling through a network of franchised independent stores throughout the country.

The Villages Insurance Partners (TVIP), located in The Villages, Fla., has promoted Rose Connell to Personal Lines executive manager.

Connell’s new leadership role will have her working directly with the Personal Lines Division to ensure client satisfaction and firm profitability.

Other responsibilities include the planning and organization of operations in addition to business development within the agency’s business segment.

Connell joined the TVIP team as a client care coordinator six years ago and she has since worked in various roles at the agency including: personal lines advisor; managing advisor of the agency’s busiest office in Lake Sumter Landing; and most recently a specialty advisor in TVIP’s Private Risk Management Division.

The Villages Insurance has eight locations and provides insurance services to over 40,000 families and businesses in The Villages area.

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News & Markets | FOCUS ON FLORIDA

Florida Workers’ Comp Rates to Decrease by Double-Digits in 2019

By Amy O’Connor

F

lorida workers’ compensation rates are going down again next year, the third decrease in the two years since significant Florida Supreme Court decisions created concern and uncertainty over the future of the state’s workers’ comp system.

A revised 2019 rate filing for a 13.8 percent decrease by the National Council on Compensation Insurance (NCCI) was approved by Florida Insurance Commissioner David Altmaier. The new rates will go into effect Jan. 1, 2019 for new and renewal business.

Per an order from Altmaier, NCCI’s Nov. 7 filing for the decrease amended its original rate filing for a 13.4 percent decrease submitted in August. The extra .4 percent decrease is attributed in part to a difference in insurers’ profit and contingencies provision, the Florida Office of Insurance Regulation noted in the Nov. 2 order.

“Workers’ compensation insurance is a critical operating cost for business owners and the 13.8 percent rate decrease approval will allow employers to better support Florida’s families, visitors and labor force,” Altmaier said. “This most recent decrease marks approximately $454 million in savings for employers and can help facilitate additional cost savings for the communities they serve.”

The experienced-based filing by NCCI proposed a decrease in rate level based on data as of year-end 2017 from policy years 2015 and 2016, which show continued significant improvement in loss experience, OIR noted of NCCI’s August filing. The improved loss experience is partly attributed to a decline in claim frequency, due in part to safer workplaces, enhanced efficiencies in the workplace, and increased use of automation and innovative technologies, OIR said in its order. NCCI expects the decline to continue in the future and is not unique to Florida.

As requested by OIR, NCCI said in its initial 2019 rate filing that 50 percent of INSURANCEJOURNAL.COM

the data analyzed relates to policies that became effective after two decisions from the Florida Supreme Court – Castellanos v. Next Door Company and Westphal v.

City of St. Petersburg – and that these decisions are “now exerting upward pressure on system costs,” and “will continue to influence Florida workers’ compensation rates.”

OIR said in its order that even after considering the impact of the Castellanos and Westphal decisions, other factors in the marketplace – such as reduced assessments, increases in investment income, and the decline in claims frequency – combined to contribute to the indicated decrease.

However, OIR noted that any future rate filings must include additional quantitative analysis to determine the effect the Castellanos decision is having on the Florida workers’ compensation market.

“The analysis may include alternative data sources and should examine changes to the Florida workers’ compensation market that are attributed to or observed as a result of the recent court decisions,” the order states.

The changes should include the reopening of claims from older years, changes in reserves or payment patterns, changes to claim closure or settlement rates, changes to claim frequency and severities, increasing attorney involvement and fees paid to attorneys.

The 2016 Castellanos and Westphal decisions created panic in the workers’ compensation space because they undid a primary cost-reduction component of reforms passed by Florida lawmakers in 2003. The initial response from NCCI and regulators was a steep rate increase of 14.5 percent for 2017.

In the Castellanos decision, which has been the main driver of concern and accounted for most of the 2017 rate

increase, the state’s high court found the state’s mandatory attorney fee schedule unconstitutional as a violation of due process under both the Florida and United States Constitutions. In the Westphal decision, the court found the 104-week statutory limitation on temporary total disability benefits unconstitutional because it said it causes a statutory gap in benefits.

The court reinstated a previous 260-week limitation.

“In 2016, [the Supreme Court decisions] resulted in changes to the Florida workers’ compensation landscape,” NCCI said in its August filing. “…However, the favorable loss experience in policy years 2015 and 2016 has more than offset the combined cost increases that have emerged from those court decisions.”

The 2017 policy year will be the first full year since Castellanos, but NCCI said the full effects of that decision will not materialize for several years to come.

NCCI said the workers’ compensation reforms passed in 2003, namely the caps on attorney fees that were instituted and found unconstitutional in 2016 by the Florida Supreme Court, had led to a 60 percent reduction in rates by 2015.

Since the 2017 14.5 percent rate increase spurred by the court’s decisions, workers’ comp rates in Florida have decreased. A 9.5 percent decrease was approved for 2018 and an additional 1.8 percent rate decrease was approved in May as a result of the Federal Tax Cuts and Jobs Act.

NOVEMBER 19, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 13

FOCUS ON FLORIDA

| News & Markets

Court: Travelers Insurer Off the Hook in Florida Hotel Chain Data Breach Suit

By David R. Bear

A

U.S District Court in Florida’s ruling could have wide-reaching effects with respect to an insurer’s duty to defend commercial general liability policyholders in data breach cases resulting from the acts of third parties.

The Sept. 28 decision came in the case of St. Paul Fire & Marine Ins. Co. v. Rosen Millennium, Inc., where the Travelers Co. commercial general liability (CGL) insurer brought a declaratory judgment action against its information technology company insured and the hotel for which its insured performed IT services.

St. Paul sought a declaration from the court that it did not have a duty to defend Rosen Millennium against a data breach claim perpetrated by a third party against Rosen Hotels & Resorts Inc., for which Millennium provided datasecurity services. The St. Paul CGL policy issued to the IT service provider provided certain coverage for property damage and certain coverage for personal injury.

Case Background

In 2016, the Orlando, Fla.-based hotel chain Rosen Hotels & Resorts Inc. became aware of a potential data breach at one of its hotels that affected its customers’ credit cards that had been used at the

hotel. Following the discovery of the data breach, a forensic investigator conducted an investigation and concluded that the data breach resulted from the installation of malware on the hotel chain’s payment network by a third party.

Subsequently, Millennium sent a “Notice of Claim” to the insurer inquiring as to whether the policy provided insurance coverage for the data breach which the hotel chain alleged resulted from its negligence. In response, St. Paul sent a reservation of rights letter to the insured informing it that the policies did not provide coverage for the loss. Because of the coverage dispute, St. Paul then filed a declaratory action against Millennium to determine whether the insurer had a duty to defend it under the policies.

Millennium subsequently sent a demand letter it received from the Rosen hotel chain to the insurer alleging that Millennium was required to issue payment to the hotel chain as a result of the data breach.

Court Decision

First, the court determined that because

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it must confine its analysis to the allegations of the underlying claim when determining whether a duty to defend exists, and because the insured did not make a claim for property damage or the costs incurred for complying with notification statutes in its Notice of Claim, the issue of whether the CGL policies would cover those claims was not ripe.

With respect to the insured’s remaining claims under the personal injury provisions of the policies, the court found that as the insurer never admitted the existence of coverage, it did not waive its ability to deny coverage.

The court then looked to the language of the policies and concluded that they did not require the insurer to defend the insured because the hotel chain’s claims were not covered under the personal injury provisions of the CGL policies. Specifically, the policies provided coverage for “personal injury,” defined as an “injury, other than bodily injury or advertising injury, that’s caused by a personal injury or offense,” including “[m]aking known to any person or organization covered material that vioINSURANCEJOURNAL.COM

lates a person’s right of privacy.” Although the policies did not define the term “making known,” the parties agreed that the term meant “to publish.” The interpretation and application of the policy language “making known” is what was dispositive to the court.

The court cited to Innovak International, Inc. v. Hanover Ins. Co., 280 F. Supp. 3d 1340 (M.D. Fla. 2017) which found no coverage when third party hackers, not the insured, caused the data breach. The Innovak court interpreted similar policy language to that at issue and found that for coverage to exist, the lan-

guage required the insured to be the publisher of the private information. Because a third party published the information, not the insured, the Innovak court found the claims were not covered.

The court found the Innovak argument persuasive and ruled that because the alleged injuries resulted from the actions of third parties, not the actions of the insured, the personal injury claim was not covered under the CGL policies, and the insurer had no duty to defend the insured IT company. Because it was not the insured which “made known” the information but rather a third party, there was no coverage

under the policy.

In light of this decision, in cases involving data breaches by third parties insurers and their counsel should always carefully compare and analyze the language of the policy with the facts of the case when determining whether there is a duty to defend.

David R. Bear is an attorney in the Orlando office of Marshall Dennehey Warner Coleman & Goggin, a civil defense litigation law firm. He focuses his practice on matters involving insurance coverage, assisting insurers with disputes pertaining to coverage and bad faith matters. He may be reached at (407) 505-4675 or drbear@mdwcg.com.

Suit Filed in Florida Against Tesla Claims Autopilot Failed, Caused Crash

By Mike Schneider

A

Florida man says the autopilot feature of his Tesla vehicle failed to detect a disabled car on a highway, leading to a collision that left him with permanent injuries, according to a negligence lawsuit filed last month.

Shawn Hudson said in the lawsuit filed Oct. 30 in state court in Orlando, Fla., that Tesla made false statements about the autopilot safety on his Tesla Model S. It’s the second such lawsuit in as many months. A Utah driver filed a similar complaint in September.

Hudson and his attorney said at a news conference that Tesla lulls drivers into a false-sense of security that the cars can drive themselves when the autopilot function is used. But when there is a danger on the road, drivers have no time to react, they said.

The company says, “‘We told you, we’re going to drive you. ... Don’t worry about the road, watch it, but we’re also going to put this giant 20-inch screen right here with Web-browsing capabilities so you can be distracted the entire time ... but if you crash, that’s your fault,’’’ said attorney Mike Morgan.

Hudson said he suffers pain from fracINSURANCEJOURNAL.COM

tured vertebrae and has some cognitive problems since the accident in mid-October on the Florida Turnpike.

Hudson, who lives in Orlando but has a two-hour commute to Fort Pierce for his job as the general manager of a Nissan dealership, said the autopilot feature appealed to him because he could get some work done during his commute. Hudson had his hands on the wheel as the car traveled 80 miles per hour (125 kph) but he also was looking at his phone in the moments before his Model S slammed into the unoccupied Ford Fiesta, he said.

“I was looking up, looking down, looking up, looking down, and I look up and the car is disabled in the passing lane,’’ Hudson said. “When you’re traveling that fast, it’s like hitting a wall.’’

A Tesla spokeswoman said in an email there’s no reason to believe the autopilot feature malfunctioned and that drivers should always maintain control of the

vehicle when using the autopilot function. The spokeswoman, who didn’t want her name used, said the car was incapable of transmitting log data to Tesla, which prevented the company from reviewing what happened in the accident.

“Tesla has always been clear that Autopilot doesn’t make the car impervious to all accidents, and Tesla goes to great lengths to provide clear instructions about what Autopilot is and is not,’’ the spokeswoman said.

Hudson’s attorneys said there is a disconnect between the official company policy and what salespeople tell customers in showrooms.

“What they say to federal regulators is very different from what you hear on the Tesla lot,’’ Morgan said. “It’s very different from what Mr. Hudson was told when he was buying his car.’’

Copyright 2018 Associated Press. All rights reserved.

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