Insurance Journal Florida Supplement 2016-06-06

FOCUS ON FLORIDA Workers’ Comp Market Destabilizing?

Injured Worker Claims Trend Strength of Florida Cat Fund

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Contents

June 6, 2016 • Vol. 94 No. 11 • Focus on Florida

Florida 6 SPECIAL REPORT: Florida Property Market Drowning in Benefit Abuse

ALSO INCLUDED:

8 What Consumer/Business Advocates Are Saying

10 Citizens’ Policy Changes

10 How Agents Can Help

6 FLORIDA PROPERTY

MARKET DROWNING IN BENEFIT ABUSE

12 Florida Braces for Workers’ Comp Rate Hikes, Litigation 16 Hurricane Fund Financially Sound, Ready for Storm Season 18 $2.46B Citizens Risk Transfer Program Approved for 2016 Storm Season 20 Florida Business Owner Faces Felony Charges in $1.8M Workers’ Comp Fraud Scheme

12 FLORIDA BRACES FOR

WORKERS’ COMP RATE HIKES, LITIGATION

F22 How Florida Statute Encourages Injured Workers to Bypass the Workers’ Comp Act

16 HURRICANE FUND

FINANCIALLY SOUND

18 CITIZENS RISK TRANSFER

4 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

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| Special Report

By Amy O’Connor

A

buse of assignment of benefits (AOB) from water loss claims has become a full-blown Florida insurance crisis that will mean higher insurance rates next year and for the foreseeable future for every Florida policyholder, according to Citizens Property Insurance Corp. CEO Barry Gilway and Chief Risk Officer John Rollins.

“We are going to have a round of rate increases from private carriers,” said Rollins. “South Florida will definitely have a rate increase. The question is more open in the rest of the state, but the trends are very disturbing.”

Private insurer executives have echoed the warning — and say hikes of as much as

$1 billion will be needed.

The issue now most commonly referred to as just “AOB” took center stage at the Florida Association for Insurance Reform’s conference on April 28. Several industry experts said AOB is no longer just a problem for Citizens, the state-backed property insurer, and maintained the impact will go far beyond rates if the “crisis” isn’t addressed. The overall Florida market will also suffer, especially if the state is hit by a serious catastrophe. “[AOB] is also trickling into the reinsurance pricing,” Bruce Lucas, chairman & CEO of Heritage Insurance, said at the FAIR event. “The number one question asked of us by reinsurers is, ‘What are you doing about AOB?’ because after a storm, it could be a big issue.”

6 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

Citizens, which has seen AOB claims skyrocket, was the first to highlight the issue in its rate filing last summer. Now the insurer is retooling its efforts to combat the AOB abuse in light of Florida lawmakers’ failure to enact a legislative solution.

By law, Citizens can only raise rates by up to 10 percent per year. But in parts of the state where AOB abuse has been rampant — namely the tri-county area of Miami-Dade, Broward and Palm Beach counties — Citizens said “actuarially sound” rate increases should be as high as 189 percent. In other parts of the state Citizens had expected to decrease rates by about 10 percent, but that is no longer the case.

Gilway said private carriers that are also experiencing a significant rise in AOB INSURANCEJOURNAL.COM

claims have more options than Citizens has. Private insurers’ options include raising rates by as much as 15 percent without Office of Insurance Regulation (OIR) approval, or withdrawing from or eliminating zip codes where the abuse is rampant – such as in the tri-county region.

If that happens, Gilway and Rollins said the result would be a market availability crisis, and the depopulation efforts that have brought down Citizens’ policy count in the last several years will be completely reversed.

“The implications of that for us are huge. We are statutorily required to write business in tri-county, so if no one else is writing it, those policies come to us,” Gilway said.

Carrier executives on a panel at FAIR’s recent conference echoed the sentiments that this is no longer just a Citizens’ problem.

“We will be raising rates by about 5 percent this year because of AOB,” said Locke Burt, chairman and president of Security First Insurance.

“This is a $1 billion issue – a billion dollars in rate increases this year to the consumer. We can write against it, we can shut down zip codes, we can take action.

Citizens can’t do that,” said Lucas of Heritage Insurance.

Education efforts by Citizens, as well as industry and consumer groups, are helping to raise awareness of the issue but may be having a negative impact in the short term. Severity of claims and AOB lawsuits are still increasing, Gilway said. In fact, Citizens had 1,000 suits in March alone – the highest monthly number over the last two years.

“It appears to be a ‘run on the bank’ scenario with the attorneys saying, ‘I need to get my suit in now’,” Gilway said. “We were seeing about 620 suits a month in the last two years. During that same period our policy count dropped by two-thirds, so you would expect to see a decrease in the number of suits.”

Gilway said private insurers are having similar results – with some reporting 12 to 14 new suits a day. “As of right now the INSURANCEJOURNAL.COM

problem is getting worse and not better,” he said.

Results of a data call performed by OIR earlier this year found that frequency of water loss claims has increased by 46 percent and severity has increased by 28 percent since 2010. OIR’s report concluded that “water loss claims, exacerFormer Florida Insurance Consumer Advocate Sean Shaw; bated by assignment of benefits, Former Florida Insurance Commissioner Kevin McCarty; Florida are driving higher rates in South State Senator Jeff Brandes; and CEO Of Citizens Property Insurance Corp. Barry Gilway discuss the state’s assignment of Florida and increasingly across benefits “crisis” at FAIR’s Conference on April 28. the state.”

Photography by: Knight Light Imagery; photo courtesy of FAIR Former Florida Insurance Commissioner Kevin McCarty age litigation. emphasized the effects the AOB issue is Because it’s a one-way fee shift, if an having on the Florida insurance market, insurer wins a claim suit it cannot collect and ultimately on consumers. its legal fees from policyholders. In other “This is a true victimization of homeowners – now everyone else is going to words, claimants have nothing to lose by have increased costs. That’s exactly where filing suit. Gilway says State Farm didn’t we don’t want to be,” McCarty said. “We want the Legislature to pass a bill unless it have to have a broad public policy converwas a comprehensive reform measure that sation on what can be done.” addressed the statute.

“As long as you have a statute in place Legislative Response that basically says any contractor on behalf Rollins and Gilway agree a legislative of the insured can sue the insurance company, and when that happens if we pay $1 solution is the only way to really stop the dollar more than the original estimate the abuse. However, the effort put forth in the insurance company is responsible for all of just-ended Florida session fell apart for the fourth year in a row. the attorney fees, it’s a no-lose proposition for the trial bar,” Gilway said.

Gilway said the reason for that was twofold: lobbying efforts by water remediation There may be hope for next year. State companies and contractors, as well as law Senator Jeff Brandes said his colleagues are firms currently benefitting from the AOB finally recognizing AOB abuse as a crisis. provision; and the insurance industry’s What started as water claims in one part of inability to reach a consensus on what the state is now spreading to roofing claims needs to be done to combat the problem. in other areas, and what is meant to be a “We got out-lobbied, there is no quesconsumer protection is now having the tion. But the other issue is the industry opposite effect. itself – we are not on the same page,” “What you’ve seen is a situation where Gilway said. “There is a lot of work to be a flu in South Florida is turning into a pandemic for the rest of the state,” Brandes done to pull the industry together.” said. “It’s risen to the level now where law Specifically, Gilway said, State Farm makers are starting to hear that policies are walked away because the insurer said going back into Citizens and that compaFlorida’s one-way attorney fee shifting nies are simply not writing in the tri-counstatute blamed for the AOB abuse was not ty area. You are going to see a substantial being corrected. Florida’s statute allows policyholders, or in the case of an AOB by a shift now in policymakers’ thinking.”

Brandes said ideas that have generated policyholder, to recover their attorney fees continued on page 8 upon the successful completion of coverJUNE 6, 2016 INSURANCE JOURNAL | FOCUS ON FLORIDA | 7

FOCUS ON FLORIDA continued from page 7

| Special Report

some support involve “moving towards a managed repair model,” that would be similar to the health insurance market where consumers can choose between an HMO or PPO. In this case, policyholders would have a contractor list to choose from for a water loss claim to get a lower rate on their policy.

“It might be a solution that drives down costs and allows consumers to have a choice,” Brandes said. “At the end of the day, this is really a contract between insurance companies and the consumer, so to have a lower rate you would have a defined list of contractors to choose from, and that’s a choice the consumer is making. As long as it is well-disclosed and people are upfront about it, it’s a fair way to do it.”

“The AOB issue really highlights the need for a discussion of what the future of Florida insurance looks like and I think the HMO/PPO model really creates an interesting discussion,” he added.

Brandes said he doesn’t know yet if he will sponsor legislation around the issue in the next session, but before anything can happen the industry needs to come together on a solution.

“They need to sing it as a chorus, but [so far] there’s been a lot of solo acts,” Brandes said. “At the end of the day, we are hearing the coalescing around a number of ideas that we can begin to support.”

Whether that will translate into action next session, however, remains to be seen.

What Consumer/Business Advocates Are Saying About AOB… “[OIR]’s data call analysis showed that the frequency and severity of water loss claims in Florida has increased over the last six years with all regions of the state experiencing a substantial increase in these types of claims. Recently, we worked proactively with Citizens Property Insurance Corporation on changes to the policy language in its forms. More than a dozen other insurance companies have followed suit and are duplicating these efforts by adopting the same language in their forms. These changes are seen as a good first step in providing better solutions for policyholders and helping to address this growing problem.”

Florida Insurance Commissioner David Altmaier “I agree with the industry that the AOB situation is a problem. I am not in favor of the unilateral banning of AOBs, giving the carriers the ability to prohibit AOBs in their policies, or the elimination of attorney fees with regard to AOBS. However, I would favor regulations around giving notice to the carrier about the AOB and allowing the insured to cancel the AOB within a certain amount of time. I just want solutions that are fair to the carrier AND consumer.”

Sean Shaw, former Florida Consumer Advocate, Attorney, Merlin Law Group “Assignment of benefits fraud and abuse is real, and it’s driving up the cost of claims for insurers, and those increased cost are in turn driving up the cost of homeowners insurance for Floridians. The Florida Chamber of Commerce and its Consumer Protection Coalition are leading the charge toward solutions, but in the meantime, homeowners should be aware of what they are signing and call their insurance company before any permanent repairs are made to a pipe burst, a leaky roof or water damage from a broken appliance.”

Mark Wilson, President and CEO, Florida Chamber of Commerce

tion campaign earlier this year called “Call Citizens First” to encourage policyholders to reach out to the insurer or their agent when water loss first occurs. Gilway said In the Meantime… that today, the average claim comes in Citizens launched a policyholder educa- 33 days after the event, making it very difficult for the insurer to adequately assess the claim and leading to increased costs. He said by the time Citizens is made aware of a water loss claim in those cases, 90 percent of them already have representation.

Rollins said the severity of the cost of the claim at least doubles when it is litigated.

“If you are on the other side of this process as a plumber, water remediator or attorney, you are potentially generating four times the marketplace for yourself by taking a natural “Call Citizens First” magnets were sent to Florida poli- claim that is maybe $8,000 and makcyholders as part of Citizens’ efforts to fight abuse. ing it a $35,000 claim,” Rollins said.

8 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

The insurer recently implemented other changes in an attempt to curb the problem. OIR has approved form filings

by Citizens that includes new policy language as related to water loss reporting (see box on page 10).

In his last interview with Insurance Journal as the Florida Insurance Commissioner, McCarty said OIR worked with Citizens to refine the language in its policies so what has always been intended is spelled out in the contract. “It is important to note that this is not a cutting of benefits,” he said.

McCarty said OIR has been encouraging other insurers in the state to look at the Citizens filings and submit their own changes. As of the end of April, 13 other companies had done “me too” filings.

McCarty said OIR is not requiring insurers to make a rate filing to accomplish this

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continued from page 8

form change. “We don’t see this as a rate change,” he said. “We are making sure the insurance company has the ability to do what its responsibility is to do under the contract, which is to inspect the claim.”

Communication between the policyholder, insurer and agent is key, Gilway and Rollins said, and they say Citizens has to do a better job ensuring that happens.

Its focus now is making policyholders

aware of the form changes and the importance of contacting the insurer when a claim occurs, but Gilway said the company needs help from the more than 8,000 agents it has in the state. He said right now most agents are not involved when a policyholder has a water loss and AOB, and are as surprised as Citizens when a suit is filed.

Agents, he said, have to “play a much

more significant role in getting the word out.”

Rollins said the involvement of the agent community will be the difference between success and failure with Citizens’ current efforts.

“They are the ones policyholders turn to,” he said. “We need a ground game to succeed and that’s where the agents come in. We all have to get on the same page.”

a covered loss.

• Discuss with policyholders new policy limitations on emergency measures and the need to let Citizens inspect damage before permanent repairs are made.

• Explain the process and potential risks of assigning benefits to a third party following a loss.

• Warn policyholders to be cautious of unsolicited vendor service offers.

Advise the policyholders to understand the contract provisions before

signing.

• Use approved brochures and materials on Citizens 24/7 claim service.

• Learn how to report a claim via Citizens PolicyCenter or set up 3-way calling to get customers directly to Citizens if they call the agency directly.

• Share Citizens’ tips and resources through social media networks.

• Appointed agents can submit questions to Citizens by logging in to the “Agents” website and choosing the “Contact Us” link on the top of the website. Citizens should respond within three business days.

How Agents Can Help

A

gents will play a critical role in combating the AOB problem and helping customers understand Citizens’ new policy changes. Discuss Citizens contract changes (see below) with customers.

Citizens has also offered the following tips to agents on how they can work with clients to reduce the potential for AOB abuse:

• Encourage policyholders to call Citizens or their agent first when reporting a claim.

• Guide policyholders through the traditional claims process and the advantages of calling Citizens first following

Citizens Contract Changes for HO-3, HO-6 and DP-3 Type Policies* • Effective: July 1, 2016 • To ensure that Citizens has the opportunity to confirm coverage and inspect damage, additional permanent repairs can only begin after the earliest of: 72 hours after Citizens is notified, after Citizens inspects the damage, or after Citizens approves (either verbally or in writing) the repairs. Note that these policy contract changes DO NOT require that a loss be reported within 72 hours.

• Permanent repairs performed earlier than 72-hours after Citizens is notified of the loss, earlier than the time of loss inspection by Citizens, or earlier than the time of other approval by Citizens will not be covered, except in the case for “reasonable emergency measures.”

• Reasonable emergency measures are defined as measures policyholders must take to prevent further damage to

their property.

• Emergency measures can include permanent repairs if necessary to prevent further damage or prevent unwanted entry to the property.

• To the degree it is reasonably possible, the damaged property must be retained for Citizens to inspect.

• If Citizens does not make a reasonable attempt to conduct an inspection or provide approval within 72 hours of the loss notification, the policyholder can authorize or begin permanent repairs covered under the policy. So one of these options must occur before permanent repairs can be made.

• Reasonable emergency measures may not exceed the greater of $3,000 or 1 percent of the Coverage A limit, unless the policyholder receives approval from Citizens first.

10 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

• Under Coverage C – Personal Property, the personal property of water or steam is not covered. Replacement of water in a swimming pool is covered when there is covered loss or damage to the swimming pool.

• Collapse coverage more explicitly states that coverage for collapse of a building does not include coverage for collapse of plumbing that results from age, deterioration or maintenance.

• Clarifies that coverage is provided for necessary access to repair only the portion or part of the plumbing system that caused a covered loss in the event of accidental discharge of water or steam. *The summaries of changes provided are for informational purposes only and subject to relevant Citizens policy contract language.

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Florida Braces for Workers’ Comp Rate Hikes, Litigation

By Amy O’Connor

T

he Florida Supreme Court’s recent ruling that the state’s current attorney fee limits are unconstitutional will have serious ramifications on the workers’ compensation market in the state, according to workers’ compensation experts.

Florida’s former Insurance Commissioner Kevin McCarty, who was still the state’s insurance chief at the time of the ruling on April 28, predicted a significant rate increase would come as a result of the ruling.

The National Council of Compensation Insurance (NCCI), which files on behalf of approximately 260 workers’ compensation insurance companies with Florida policyholders, estimated that the first year impact of the ruling will increase workers’ comp system costs by at least 15 percent. The organization filed for an overall rate increase of 17.1 percent.

But rate increases are not

the only outcome of the ruling. The ramifications will also include new litigation with old workers’ comp cases.

“Limiting attorneys’ fees was an important part of the cost containment reforms that were passed [in 2003].

This decision will have a destabilizing effect on the workers’ comp market,” McCarty said.

Court Ruling

The state’s high court ruled that the fee schedule passed in 2009 is unconstitutional under both the Florida and the U.S. Constitution as a violation of due process. It ruled in the case of Marvin Castellanos, an injured employee who sued his employer Next Door Co. and its insurer, Amerisure.

The Castellanos court ruling said the current schedule eliminates a claimants right to get a reasonable attorney’s fees. The court said the statute violates due process by installing an “irrebuttable presumption” that whatever

12 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

fee the schedule decides with is reasonable and by not providing a way for claimants to refute the fee.

McCarty and the Florida Office of Insurance Regulation (OIR) started working immediately after the ruling with NCCI to evaluate the impact this decision could have on policyholders, with higher rates being the major concern.

NCCI submitted its rate filing on May 27 with proposed rate increases of 17.1 percent, equaling $623 million. The statewide average increase of 15 percent was proposed to cover the first year impact to workers’ comp costs in Florida from the Castellano decision and a 1.8 percent increase related to the adoption of the 2015 Edition of the HCPR Manual, that goes into effect July 1, 2016.

And the higher rates are coming sooner than expected. NCCI proposed an effective date of August 1, 2016 for new and renewal workers’ compensation policies and that the 17.1 percent rate increase apply to all workers’ compensation policies in effect as of August 1 on a pro-rata basis for the remainder of each policy’s term.

McCarty said rate increases are just the beginning.

“This ruling could lead to more cases of litigation,” McCarty said. “It could also affect a critical part of the economy as businesses look at the cost of workers’ comp in the state.”

He also said he expected Florida lawmakers to call an emergency session to develop a legislative remedy to counteract the court’s decision

and its repercussions, but as of the end of May lawmakers had yet to do so.

McCarty said OIR, now under the leadership of David Altmaier, would work on finding a solution in light of the court’s decision.

“We need to look at what specifically the court felt was flawed about attorneys’ fees and see if there is any reasonable way to address that, or what we can do to address injured workers seeking attorneys in the first place,” McCarty said. “If the burden to assist them lies on the judiciary system, that will be prohibitively expensive for businesses and prohibitively expensive for the system.”

New Litigation

Allison Hartnett, senior partner with Walton Lantaff Schroeder & Carson in Miami, said the ruling will open the floodgates to new litigation.

She said the court did emphasize that a claimant’s attorney will be entitled to a fee that deviates from the statutory fee schedule only in cases where a claimant can demonstrate that the fee schedule results in an unreasonable fee. But, “any claim with any date of accident will be subject to this ruling.”

Kimberly Fernandes, partner in the Tallahassee office of the law firm Kelley Kronenberg, said the decision takes the workers’ comp market full circle back to 2008 when the Court opened up attorneys’ fees to an hourly option in the Murray v.

Mariner Health case.

In that instance, she said, the Legislature quickly

continued on Page 14

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reversed the decision by amending the statute to require a statutory calculation dependent only upon the amount of benefits obtained.

Regardless of if they do so again, Fernandes said, “We are sure to see a revival of attorney fee litigation right now, as claimants’ attorneys dust off their old but viable claims and start seeking hourly fees instead of the statutorily calculated fees on benefits that were obtained for their clients ages ago.”

In its proposed rate filing, NCCI did not consider the retroactive impact as part of the proposed rate increase, but said the Castellanos decision is expected to increase overall system costs in the state for accidents prior to when the new rates could take effect on August 1, 2016.

“Because workers’ compensation ratemaking is prospective only, insurers are not afforded the opportunity to recoup premium to cover such unforeseen

increases in system costs.” Therefore, NCCI said, significant unfunded liability will be created from the retroactive impact of the court decision.

NCCI is estimating the unfunded liability and plans to provide further information at a later date.

McCarty said.

According to the OIR, until the legislature addresses this decision, attorney fees will be evaluated under the “reasonable” award standard articulated in the Murray v. Mariner Health decision.

Pre-2003 Reform

On the same day that the attorneys’ fee schedule was struck down, the court declined to rule in another closely-watched case that challenged the constitutionality of the state’s entire workers’ compensation system.

In the case of Stahl v. Hialeah Hospital, the Supreme Court said, “We have determined that we should exercise our discretion and discharge jurisdiction.

Accordingly, we dismiss review.”

There is still another case in the court system that challenges the constitutionality of the 104-week limitation on injured workers’ temporary benefits.

McCarty said before workers’ comp reforms were passed in 2003, Florida was among the highest for litigated workers’ comp cases in the country.

Addressing attorneys’ fees was just one of the changes that was made to enhance the workers’ comp system overall. The ruling could derail all of those efforts by undermining the current system and driving costs back up.

“When you have a system where your administrative system’s working, then you aren’t as reliant on a judicial system and attorneys to administer benefits,”

MCGOWAN15430.indd 1

14 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

Other Cases

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| News & Markets

Hurricane Fund Financially Sound, Ready for Storm Season

By Gary Fineout

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should have $17.4 billion available for the Atlantic hurricane season that starts June 1.

This marks the first time the fund has more money than needed to pay out if storms racked the state.

The financial health of the account nicknamed the “Cat Fund’’ is important to Floridians regardless of where they live. The state can impose a surcharge on most insurance policies — including auto insurance policies — to replenish the fund if it runs out of money. Some critics have called the surcharge a “hurricane tax.’’

The fund was created after Hurricane Andrew ravaged a densely populated area of South Florida in 1992. It offers insurance companies backup coverage at prices usually lower than those in the private market.

It was designed to help keep private insurers from leaving Florida. Every company selling homeowners insurance in the state is required to purchase coverage which it can tap into after insurers reach a certain level of damages.

Twice a year Wall Street firms and financial advisers calculate how much money the fund needs — and how much it could borrow in the event of a catastrophic storm. The latest estimates show that it should have $400 million more than its obligations for 2016. The fund could also borrow up to $7.5 billion after a hurricane.

Anne Bert, the acting chief operating officer, said this would give the fund “flexibility’’ in case it wanted to save some of its cash for the next hurricane season.

The fund balance has grown because Florida hasn’t been directly hit by a hurricane since Wilma lumbered across the state 11 years ago.

The fund has also purchased $1 billion of backup insurance, or reinsurance as it is known, to help cover any losses. This has drawn scrutiny from some critics who say this could drive up prices for private insurers also seeking reinsurance.

Copyright 2016 Associated Press.

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FOCUS ON FLORIDA

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$2.46B Citizens Risk Transfer Program Approved for 2016 Storm Season

F

lorida’s Citizens Property Insurance Corporation’s Board of Governors has approved a $2.46 billion risk transfer program as the state heads into the 2016 hurricane season, the insurer said in a statement.

By unanimous vote, Citizens’ Board approved a package that includes traditional reinsurance and capital market risk transfer “to protect policyholders and eliminate the risk of assessment on all Florida policyholders in the event of a catastrophic storm or series of events,”

Citizens said.

The state’s insurer of last resort said that combined with its $7.4 billion surplus and protection from the Florida Hurricane Catastrophe Fund, Citizens has assets available to handle a 1-100 year storm along the coast and still have the finan-

18 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

cial stability to handle a second 1-16 year storm.

“This risk transfer package represents a well-reasoned approach to protecting Citizens policyholders and Citizens’ surplus,” said Chris Gardner, chairman of Citizens’ Board of Governors. “We have a responsibility to all our stakeholders to protect the significant gains Citizens has made over the past several years.”

The company said the 2016 risk transfer program responds to Citizens’ smaller footprint by shifting multiyear coverage down from

higher levels and lowering the threshold at which the coverage would be tapped.

The program also provides coverage for commercial non-residential properties not covered under the Florida Cat Fund. Citizens now insures 490,000 policyholders, down nearly 20 percent from the 590,000 policyholders it covered in June 2015.

The board authorized Citizens’ staff to spend up to $204 million for the 2016 risk transfer program, down from $283 million spent in 2015 for $3.9 billion in risk transfer coverage.

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Florida Business Owner Faces Felonies in $1.8M Workers’ Comp Fraud Scheme

A

n owner of a Florida construction company is facing charges of workers’ compensation fraud and grand theft, according to the Department of Financial Services.

Maira Chirinos, owner of Tocoa Builders Inc. in Pompano Beach, allegedly misrepresented information regarding Tocoa Builders’ operations, employees and payroll when applying for a workers’ compensation policy.

DFS, which operates under the direction of CFO Jeff Atwater, began investigating

Chirinos for violating a “stop work” order. Stop work orders are issued when companies are found to be in violation of workers’ compensation laws.

The initial investigation provided authorities with information that exposed Chirinos’ larger scheme of allegedly falsifying information to avoid paying for an adequate workers’ compensation policy. As a result, a second investigation was opened, led

by DFS’s Bureau of Workers’ Compensation Compliance and Division of Insurance Fraud.

Investigators discovered

that Chirinos allegedly lied when obtaining a workers’ compensation insurance policy from Madison Insurance Co. to cover Tocoa Builders. She did so by grossly underreporting the company’s payroll, number of employees, and day-to-day operations.

During the dates represented on the policy paperwork, more than $11 million in payroll checkers were cashed, far more than the $76,000 reported.

Chirinos allegedly used a

Broward County money service business to cash her company’s payroll checks; a common method of circumventing workers’ comp statutes.

As a result, Chirinos was allegedly able to avoid more than $1.8 million in workers’ comp premiums.

Chirinos was arrested in April and charged with workers’ comp premium fraud and grand theft, both of which are first degree felonies.

35+ years’ experience 30 with Demotech, Inc.

20+

years’ experience with Demotech, Inc.

DEMOT16707.indd 1

20 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

35+

years’ experience 10 with Demotech, Inc.

5/21/16 9:35 AM

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UnitedHeartland.com/Difference United Heartland is the marketing name for United Wisconsin Insurance Company, a member of AF Group.

All policies are underwritten by a licensed insurer subsidiary of AF Group.

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| News & Markets

How Florida Statute Encourages Injured Workers to Bypass the Workers’ Comp Act

By Jake A. Tover

U

nder Florida’s Workers’ Compensation Act, where an injury occurs within the course and scope of employment, workers’ compensation is the exclusive remedy for an employee’s recovery against his or her employer. The legislative intent of the Workers’ Compensation Act is to assure the quick and efficient delivery of disability and medical benefits to injured workers. However, in exchange for this quick and efficient access, injured workers effectively give up the right to bring certain tort actions against their employers.

This has led to many questions as to the constitutionality of the Workers’ Compensation Act, as is evidenced by the recent case challenging the Act’s constitutionality, Stahl v.

Hialeah Hospital. Ultimately, the Florida Supreme Court discharged its jurisdiction in that case, so Florida’s workers’ compensation law — for the time being — is here to stay. In an effort to get around limitations inherent in workers’ compensation claims, injured employ-

ees are instead attempting to bring tort actions against their employers for on-the-job injuries and the recent Supreme Court decision could lead to an increase in these tort action suits.

There are a number of different reasons for an injured worker to want to circumvent the workers’ compensation process. One of the most obvious reasons is that pain and suffering is not recoverable for workers’ compensation claims. Generally speaking, workers’ compensation only covers certain benefits, such as medical procedures, wage loss and disability. Thus, an injured employee’s recovery can be limited under workers’ compensation.

Florida Statute 440.11(b) provides an injured worker the opportunity to bring a tort claim against his or her employer, despite an injury occurring within the course and scope of employment.

The statute requires that an employee prove by clear and convincing evidence that an employer: (1) knew that a worker’s injury was virtually certain to occur, (2) that the employee could not have known of the potential risk of injury because it was not apparent, and (3) that the employer purposefully concealed that danger. Failing to prove any of those elements will prevent the statute from applying, making it an incredibly tough standard to satisfy.

To fulfill the “virtually certain” standard, a plaintiff must show that a given danger will

22 | INSURANCE JOURNAL | FOCUS ON FLORIDA JUNE 6, 2016

result in an accident every time, or almost every time. As a result, this standard has been nearly impossible for injured workers to overcome. This hasn’t stopped injured employees from attempting to file tort actions, however, and the unique language of the statute has led to much uncertainty as to what injuries can be brought as workers’ compensation claims.

One example of a case was Boston ex. Rel. Estate of Jackson v. Publix Super Markets, Inc., (Fla. 4th DCA 2013), where a Publix employee was killed when a co-worker accidentally backed his trailer up and hit the employee. It was later learned that the backup alarm on the tractor trailer wasn’t working for months, and that Publix knew of that.

The 4th DCA found that there was a lack of prior similar accidents, and that, while the lack of a backup alarm on the tractor trailer certainly increased the risk of an injury occurring, it did not make the employee’s injury “virtually certain” to occur.

Similarly, in R.L. Haines Const., LLC v. Santamaria, (Fla. 5th DCA 2014), a construction worker was killed when struck by a falling metal column. The employee’s wife brought a wrongful death suit

against the employer, under Florida Statute 440.11(b). In this case, the general contractor ordered work to resume on a column after the epoxy securing the column’s anchor bolts had cured for only 44 hours, instead of the required 72 hours. The court ultimately found that while the general contractor’s conduct was egregious, the employee’s death was not “virtually certain” to occur as a result of that conduct.

One would assume that attorneys representing injured workers would avoid Florida Statute 440.11(b) unless an employer’s conduct was blatant enough to warrant its use, but this has not been the case.

Courts are continuously flooded with cases in which the “virtual certainty” of an employee’s injury is highly debatable.

In light of the decision in Stahl v. Hialeah Hospital, workers’ compensation will continue to be the sole remedy for an injured employees’ recovery against his or her employer for the time being. Thus, due to the obvious financial advantages that tort claims provide over workers’ compensation claims, injured workers will continue to embrace Florida Statute 440.11(b), despite its uncompromising nature.

Jake A. Tover is an attorney in the Fort Lauderdale office of Kelley Kronenberg, focusing on P&C claims. He can be reached at (954) 370-9970 or jtover@ kelleykronenberg.com.

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