FOCUS ON FLORIDA Insurer Ratings in Jeopardy? AOB Insurance Litigation Workersâ€™ Comp Legislative Update
March 5, 2018 • Vol. 96 No. 5 • Focus on Florida
Florida 4 Fraud, Lawsuit Abuse Earns Florida No. 1 Spot on ‘Judicial Hellhole’ List 6 Attorney, Vendor AOB Lawsuits Top Insurance Litigation in 2017: FJRI Report 8 Florida Workers’ Comp Legislative Update: First Responder Benefits In, Other Changes Out 10 Demotech Holds-Off on Affirming ‘A’ Ratings for 16 Florida Insurers
ATTORNEY, VENDOR AOB LAWSUITS TOP INSURANCE LITIGATION IN 2017
FLORIDA WORKERS’ COMP LEGISLATIVE UPDATE
14 Florida Supreme Court Ruling to Have Big Impact on Duty to Defend Construction Cases 16 IBHS in Florida Announces Leadership Changes, Focus for 2018 18 Patriot National Files for Chapter 11 Bankruptcy Protection
10 DEMOTECH HOLDS-OFF ON AFFIRMING ‘A’
RATINGS FOR 16 FLORIDA INSURERS
12 Florida Fraud Round-Up • Florida Disaster Fraud Team Investigation Leads to False Claim Arrest • Florida Construction Co. Owner Accused of $700K Workers’ Comp Scam • Florida Physician Arrested for Theft of $64K in Insurance Checks • Florida Construction Company Owner Arrested for $1.8M Workers’ Comp Scam • Miami Roofing Company Owners Arrested for Workers’ Comp Fraud 17 People
18 PATRIOT NATIONAL FILES FOR
CHAPTER 11 BANKRUPTCY PROTECTION MARCH 5, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 3
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| News & Markets
Fraud, Lawsuit Abuse Earns Florida No. 1 Spot on ‘Judicial Hellhole’ List By Amy O’Connor
lorida’s number one Judicial Hellhole ranking for 2017 from the American Tort Reform Foundation (ATRF) is unlikely to be an achievement the state will celebrate any time soon. Quite the opposite, according to business groups like the Florida Chamber of Commerce, who say the ranking is further evidence that Florida’s current legal climate is having a negative impact on the state.
“Lawsuit abuse in Florida is an increasingly serious and expensive problem, and it just keeps getting worse. On average, it translates into a $3,400 ‘tax’ for Florida’s families each year, due to increased lawsuit abuse costs,” said Mark Wilson, president and CEO of the Florida Chamber. The nonprofit ATRF, based in Washington D.C., Judicial Hellholes program, in place since 2002, identifies and documents places where judges in civil cases “systematically apply laws
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and court procedures in an unfair and unbalanced manner, generally to the disadvantage of defendants,” the report states. Using content from the American Tort Reform Association’s (ATRA) real-time monitoring of “Judicial Hellhole” yearround activity, the goal of the program is to “shine a light on imbalances in the courts and thereby encourage positive changes by the judges themselves and, when needed, through legislative action or popular referenda,” ATRF said. The report says that the Florida Supreme Court’s liability-expanding decisions and “barely contained contempt” for the lawmaking authority of legislators and the governor has repeatedly led to the state’s inclusion in the report. But in 2017 it was enough for the state to rank as the number one Judicial Hellhole — the first time since the program started 16 years ago — and knock California down to number two. While the report calls out the state’s high-court’s plaintiff friendly majority, which shrunk in 2017 from 5-2 to 4-3, it puts the real blame on plaintiff’s lawyers — dubbed an aggressive personal injury bar in the report — which it says are tarnishing the state’s judicial reputation. ATRF’s report says several liability cases and ongoing abuse of the system made it so that for the first time in the report’s 16-year history “enough shade has been cast on the Sunshine State to rank it as the nation’s worst Judicial Hellhole.”
Florida Supreme Court Medical Liability Claim Decisions
In 2017, the Florida Supreme Court made decisions on four medical liability cases that the ATRF said undercut patient safety, protected lawyers’ fees, allowed higher damage awards and invalidated a law intended to reduce litigation. The first case from January 2017, Charles v. Southern Baptist Hospital of Florida, the high court found that a 2004 INSURANCEJOURNAL.COM
amendment to the Florida Constitution that provides patients with a right to access adverse incident reports supersedes a federal law that says these reports are confidential. ATRF says the ruling is concerning because it discourages doctors from sharing information the broader medical community can use to limit mistakes and increase the quality of patient care. At the same time the Florida Supreme Court issued this decision it found that the legislature could not maximize recoveries for injured patients by limiting attorney fees in malpractice claims against public hospitals in the case of Searcy, Denney, Barnhart & Shipley v. Florida. Over the summer, in a decision that was not seen as a surprise, the high court invalidated the state’s reasonable limit on noneconomic damage awards in medical liability cases in its 4-3 decision in the North Broward Hospital Distric v. Kalitan case. The report says in this ruling the court sided with the state legislature and governor in finding Florida’s medical malpractice insurance crisis never existed and, even if it did, it was over. The final decision the Judicial Hellhole report cites came in November in the case of Weaver v. Myers that refers to patient privacy in medical malpractice cases. The court invalidated a 2011 state law enacted to “place plaintiffs and defendants on level ground when initially evaluating the merits of medical malpractice allegations and thus encourage settlement of valid claims without the need for litigation.” The report says the high court court’s majority opinion suggesting defense counsel might ask doctors to share patient information beyond the scope of the specific
malpractice allegations was made on “wholly speculative grounds.”
ATRF called out ongoing fraudulent and abusive litigation practices, as well an aggressive personal injury bar in South Florida, as another factor behind the state’s number one Judicial Hellhole ranking. In addition to fraud related to the state’s personal injury protection (PIP) system, the report cites the major uptick in assignment of benefits (AOB) abuse over the last several years. PIP, which provides policyholders up to $10,000 for medical expenses stemming from auto accidents no matter who is at fault, was reformed by lawmakers in 2012 in an attempt to stem abuses from lawyers and medical providers such as chiropractors and medical clinics. But the reforms weren’t successful in eliminating all abuse of the PIP system. A major fraud sting by the Broward County
“Enough shade has been cast on the Sunshine State to rank it as the nation’s worst Judicial Hellhole.”
Sheriff’s office last September resulted in the arrest of six personal injury lawyers who were alleged to have paid two truck drivers, auto repair employees and others to solicit “unsuspecting vehicle accident victims,” the report states. In total, authorities say those who participated in the scheme received more than $1.5 million in kickbacks from fraudulent PIP claims in 2015 and 2016, and the FBI is now investigating. But, the state’s AOB problem, which involves third parties such as contractors and attorneys who are assigned a policyholder’s rights and sue the insurance company over denied or disputed claims, has become an even worse situation. The report states AOB claims have skyrocketed over the past decade, from 405 filed in 2007 to more than 28,000 in 2016, with the lawsuits “overwhelmingly” concentrated in Palm Beach, Broward and Miami-Dade counties. ATRF blames the state’s trial bar, citing a Wall Street Journal editorial that said Florida’s courts “have turned a blind eye to the abuse and insurance costs are pre-
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| News & Markets
Attorney, Vendor AOB Lawsuits Top Insurance Litigation in 2017: FJRI Report By Amy O’Connor
itigation from the abuse of assignment of benefits by third parties represented more than half of all Florida insurance litigation in 2017, and without a legislative fix those fueling the abuse will continue to get rich at the expense of insurance consumers, according to the Florida Justice Reform Institute (FJRI). In a new report that underscores the need for AOB reform in the current Florida legislative session, FJRI states lawsuits against insurance companies that involve an AOB increased 58 percent between 2015 and 2017. FJRI said insurance lawsuits with an AOB rose from 82,263 in 2015 to 129,781 in 2017. Contractors and attorneys are blamed for abuse of AOB’s, meant to be a policyholder benefit, by taking control of a homeowner’s policy, inflating water or roof damage claims, and then suing the insurance company when it disputes the bill. The explosion of AOB litigation is not just isolated to the homeowners insurance space. The abuse of AOBs is also happening on the auto glass side. According to the Florida Department of Financial Services, in 2006, approximately 400 auto glass AOB lawsuits were filed against auto insurers. In 2016, nearly 20,000 lawsuits were filed. The insurance industry claims Florida’s one-way attorney fee statute has fueled the abuse because it requires that insurers pay attorney fees if they are found to have underpaid a claim by any amount. The statute has created an incentive for an assignee to file suit against an insurer, the industry says. FJRI, a nonprofit that advocates for
judicial reform, agrees. “Unquestionably, the cause of the AOB explosion is the no-risk proposition of attorney’s fees, enabled by Florida’s one-way attorney fee law and court cases that have extended it past its pro-policyholder intent,” FJRI said in its report. FJRI noted that AOB litigation is unique in that it has developed in a very “patchwork way.” Almost all property insurance AOB litigation in 2016 occurred in the Tri-County region of South Florida – MiamiDade, Broward and Palm Beach counties. On the auto glass side, the Tampa Bay area had an “outsized proportion” of AOB lawsuits, FJRI said. FJRI said its research into the development of AOB litigation found there is no “meteorological or other explanation for why pipes are bursting in Miami or windshields are cracking disproportionately in Tampa Bay.” However, the report says, attorneys
“It matters because everyone pays more in insurance premiums to make a handful of lawyers and vendors very, very rich”
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and vendor alliances, as well as coaching and vendor recruitment by attorneys specializing in AOB litigation, has helped to fuel the abuse statewide. FJRI noted that about a dozen attorneys contribute to a quarter of all AOB litigation in the state. The result? Increased insurance rates for everyone, FJRI said. “It matters because everyone pays more in insurance premiums to make a handful of lawyers and vendors very, very rich,” the report states. The timing of when Florida’s AOB litigation began to increase also coincides “very closely” with Personal Injury Protection (PIP) reform passed by the Florida Legislature in 2012, FJRI noted in the AOB report. The 2012 PIP reforms sought to clamp down on alleged abuse and fraud with auto insurance by imposing a cap of $10,000 for medical emergencies and a limit on non-emergency medical care to $2,500 for car accident victims. The reforms also excluded payments to chiropractors, acupuncturists and massage therapists, and required accident vicINSURANCEJOURNAL.COM
tims to report an auto-related injury and seek treatment within 14 days. “Anecdotally, we know that many PIP lawyers took their business model and developed relationships with other vendors, such as water remediators and auto glass shops, then applied the PIP template – assignments that transfer the one-way attorney fee – to property and auto glass coverages,” the FJRI report states. Lawmakers are currently debating several options to reform AOB, but the bill that gained the most traction in the Florida Senate, Senate Bill 1168, does not address the one-way attorney fee statute and is favored by the trial bar and water restoration contractors. The Florida House has passed a bill the industry supports, House Bill 7015, but the Florida Senate has yet to act on it. The industry says it would be the most effective at reforming AOB because of provisions addressing Florida’s oneway attorney fee statute. Another bill addressing auto glass abuse, Senate Bill 396, would allow insurers to require inspections of windshield damage before an auto shop can do the repair or replacement. That bill made some progress early in the session but has since stalled. FJRI said if the Florida Legislature passes a “strong AOB bill which addresses the heart of the problem, losses will stop inflating costs, which will put downward pressure on rates.” But it emphasized that outcome is dependent on what the final legislation looks like and how strong it is. FJRI said reform helped curb PIP abuse and led to rate decreases on PIP rates – before PIP reform in 2012, more than 85 percent of rate filings had increases; after 72 percent resulted in decreases or no change. Reform, FJRI added, also worked to significantly lower both medical malpractice and workers’ compensation rates in 2003. “You can’t predict the future accurately when a host of variables are introduced,’’ the FJRI report states. “What we do know is this: legal reform works.” INSURANCEJOURNAL.COM
Source: Florida Justice Reform Institute MARCH 5, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 7
SOUTHEAST | News & Markets
Florida Workers’ Comp Legislative Update: First Responder Benefits In, Other Changes Out
By Heather Byrer Carbone
fter two high-profile Florida Supreme Court cases threatened to significantly impact workers’ compensation rates in Florida in 2016, many insurance industry experts anticipated quick legislative action in 2017. But, because of conflicting bills in the House and Senate, the 2017 session closed without any major changes made to the state’s workers’ compensation statute. Now, with the 2018 session set to end soon, it is looking unlikely that changes will come this year either. However, one bill related to workers’ compensation benefits for post-traumatic stress disorder is making progress through both legislative chambers. The two cases that upended Florida’s workers’ compensation system refer to Castellanos v. Next Door Company, et al., and Westphal v. City of St. Petersburg. In Castellanos the Florida Supreme Court held that a nearly 13-year-old law relating to workers’ compensation attorney fees — Florida Statute 440.34 — was unconstitutional as it did not allow judges of compensation claims to determine the reasonableness of attorney’s fees awarded. Additionally, the court found that injured workers were entitled to up to 260 weeks of temporary indemnity benefits, as opposed to 104 weeks, which had been
the law since the 1994 statutory changes. Because of concern that costs would rise in workers’ compensation claims as both claimant’s benefits and attorney’s fees increased, the National Council on Compensation Insurance (NCCI) almost immediately proposed a 19.6 percent rate increase. Ultimately, the Florida Office of Insurance Regulation (OIR) approved a lesser increase of 14.5 percent, which took effect on Dec. 1, 2016. But surprisingly, just a year later in November 2017, Florida Insurance Commissioner David Altmaier ordered a statewide decrease of 9.8 percent in the workers’ compensation rate. This was attributed to a reduction in claims frequency, safer workplaces and increased use of automation. Additionally, the data used to calculate rates included only a portion of the claims that occurred after the Westphal and Castellanos cases were decided. For that reason, some experts still forecast rate increases after additional claims data is compiled for fiscal year 2017, which would include more claims impacted by both Supreme Court decisions. Before the 2018 session began, many again considered workers’ compensation attorney fee reform a high priority, but at this point in the session, it appears that no substantive changes are likely to be enacted. This may be attributable to the workers’ compensation rate decreases noted in late 2017, and it could be a sign, at least presently, that this issue is no longer as pressing to the business and insurance industry as it initially appeared to be in 2016. Additionally, the legislature may face
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challenges with drafting a constitutionally acceptable law limiting reasonable attorney’s fees for claimant’s counsel that will conform with the holding in Castellanos.
First Responder Workers’ Comp Benefits
With the 2018 session set to end on March 9, the workers’ compensation bills that have the best chance at becoming law relate not to limiting attorney’s fees, but to increasing mental health benefits for first responders with PTSD. Under current Florida law, injured workers are not entitled to workers’ comp benefits for mental or nervous injuries, which include PTSD, unless physical trauma also occurs. This means that should a first responder encounter a traumatic incident that triggers PTSD but is not physically injured, the workers’ compensation claim is not compensable. First responders and their families have argued under current law that they are often forced to stay on the job, even when they are not medically fit to work because of PTSD. Lawmakers have been working to increase workers’ compensation benefits for PTSD treatment for first responders without requiring that physical trauma accompany the injury. There have been several bills sponsored this session attempting to expand these benefits, but
at this point, the most likely to pass is HB 227. This bill proposes that workers’ comp benefits for PTSD would be compensable for first responders, even without an accompanying physical injury, so long as they witness a sufficiently traumatic event in the course and scope of their employment, are diagnosed by an authorized treating psychiatrist, and must claim or provide notice of this manifestation of PTSD injury within one year of witnessing the qualifying event. Additionally, HB 227 does not limit permanent psychiatric impairment benefits for first responders to 1 percent and is not subject to apportionment relative to pre-existing conditions. The changes also require employers to educate new hires on mental health. Concerns have been raised that this bill may have a significantly negative fiscal impact for state and local governments. CFO Jimmy Patronis put out a statement on Feb. 26 disputing a report by the Florida League of Cities, the state association for cities, towns and villages of Florida, that he said overestimated the cost the bill could have on lost wages and the amount of disability first responders would receive, among other data. He said analysis by the Division of Workers’ Compensation determined the cost the legislation would have on local governments would amount to .8 percent (low severity) to 1.58 percent (high severity) of the current budgets of the largest users of the Florida Municipal Insurance Trust, administered by the Florida League of Cities. As of Feb. 26, the bill had cleared the House Government Accountability Committee unanimously. The companion Senate bill was set to be heard by the Appropriations Committee on Feb. 27. Heather Byrer Carbone is a shareholder in the Jacksonville, Fla., office of Marshall Dennehey Warner Coleman & Goggin. She is certified by the Florida Bar in workers’ compensation and has nearly two decades of experience handling workers’ compensation matters. She may be reached at (904) 358-4225 or firstname.lastname@example.org. INSURANCEJOURNAL.COM
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dictably soaring.” The scheme has also carried over to the auto repair side in what is called auto glass AOB abuse because of claims related to cracked windshields. This abuse of the AOB system is mostly happening in the Tampa area, but also occuring at high rates in South Florida. ATRF said these cases are filed by fewer than a dozen lawyers who appear to work with a small number of auto glass shops. With reform efforts repeatedly being killed by the “powerful plaintiffs’ bar,” the situation is unlikely to be resolved anytime soon.
“Leave it to South Florida law firms to turn a natural disaster into a class-action lawsuit,” the Judicial Hellhole report states, referring to a September 2017 lawsuit against Florida Power & Light Company on behalf of all of its customers after Hurricane Irma hit. The suit, filed by an individual, blames the power company for outages after the storm and alleges that the power company “failed to adequately prepare for the storm and otherwise mismanaged funds it received through a rate increase for preventative tree-trimming.” Soon after, the City of Coral Gables also filed a suit over power outages and slow response times. A spokesperson for
FPL called the litigation frivolous.
ATRF: Outlook Dim for the Sunshine State
The report concludes by saying that Florida “shows little inclination to make a much needed course correction.” Bipartisan legislative majorities catered to the trial bar last year in defeating bills to address contingency fees in workers’ compensation claims, curtail AOB and PIP fraud, and reformed the medical malpractice system. “So significant reforms face a steep climb in the state legislature,” the report says. In addition, with three of the Florida Supreme Court’s judges reaching mandatory retirement age next year, there is set to be a showdown over who is appointed to take their place and decide the new balance of the court. Ultimately, business groups say, the report’s findings about Florida are an indication that lawmakers need to take action. “At a time when we’re trying to lower the cost of living on Florida families, this isn’t good news for home and auto owners and their insurance rates. At a time when we’re trying to lower the cost of doing business in Florida, including reducing workers’ comp rates, this isn’t good news,” Florida Chamber of Commerce’s Wilson said.
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SOUTHEAST | News & Markets
Demotech Holds-Off on Affirming ‘A’ Ratings for 16 Florida Insurers By Amy O’Connor
company that rates many Florida property/casualty insurers believes the hurricane losses and assignment of benefits litigation during 2017 could affect some insurers’ financial ratings. Ratings company Demotech says it will wait until it has analyzed year-end financial information, revised business plans and operating agreements for 2018 for more than a dozen Florida property insurers before deciding whether to affirm or downgrade their financial stability ratings (FSRs). The Ohio-based company that rates more than 50 Florida insurers expects, however, that the combination of 2017
catastrophe losses and assignment of benefits litigation, as well as other recent changes with the potential to impact insurers, could lead to ratings downgrades for several companies. In a FSR update released Feb. 9, Demotech affirmed the ‘A’ ratings of more than 35 Florida domestic insurers and kept the ‘A’ ratings of 16 others in place but did not affirm them (see charts). Demotech said the 35 affirmed companies had submitted the necessary financial information, including anticipated year-end financial results, and made other relevant information available to Demotech for it to confidently affirm their FSRs. The 35 affirmed insur-
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ers had also been subject to ongoing review and analysis by Demotech, the company said. For the remaining 16, Demotech has indicated it will wait until after it receives their March 1 year-end filings to evaluate their FSR and potentially issue downgrades. Demotech President Joseph Petrelli told Insurance Journal the ratings company has agreed it will not make any ratings decisions on these 16 Florida insurers, which currently have ‘A’ ratings, until it has reviewed each company’s finalized yearend 2017 financial statements, revised business plans and operating agreements for 2018. “The companies that have not yet been affirmed have told us that their year-end statement
will look a certain way, but they are concurrently doing things to make changes to their business model or improve their financials,” Petrelli said. Bob Warren, client services manager for Demotech, said the firm will take a complete look at the impact of the recent tax law changes, risk-based capital (RBC) requirements from the National Association of Insurance Commissioners on each individual company, and each company’s business plan revisions and operating agreements to improve their financial status going forward. “It doesn’t mean that the other companies that we did not affirm were not giving us this info or they were ignoring us – we have had ongoing converINSURANCEJOURNAL.COM
sations with these companies and were getting their projections for year-end,” Warren said. “We just weren’t certain what it would look like and are waiting to see what the filings are on March 1.” Petrelli said Demotech does expect some of the 16 companies could be downgraded if they are not taking actions to mitigate current issues impacting Florida insurers. The most significant of those issues right now is AOB litigation and the effect it is having on insurer reserves and loss ratios. “They have made commitments to us about what they are going to do – including cash infusions, changing of their business model or extra reinsurance – to maintain their rating,” Petrelli said. Petrelli said some of the 16 companies are more at risk than others and need to do more to avoid a ratings downgrade, but he noted Demotech expects all 16 will make some changes in an attempt to maintain their current ‘A’ rating. “There is a big difference between a company being financially stable and a company having an ‘A’ rating. These sweet 16 need to do something to show us that their assertions [to us] have been met. As long as they do that they will be fine,” Petrelli said. “If they haven’t shown us their assertions – or proof of assertions – there could be revisions.” Warren said Demotech closely monitored each Florida insurer throughout 2017, and while Hurricane Irma did bring significant losses to the insurance industry it was primarily a reinsurance event so there weren’t any big surprises for companies financially. INSURANCEJOURNAL.COM
He said when it comes to AOB, Demotech is concerned that some individual insurers still look at it as a regional problem and may not be reserving appropriately or getting adequate rate to manage losses. Petrelli said insurers with that mentality could have problems down the road. “If someone is telling us they think they are immune to AOB and it is not influencing them, we want to see evidence of that because we think it is a statewide issue and statewide problem,” he said. He also noted that at this point, any AOB fix that comes from the Florida Legislature will not be enough to convince Demotech that it will no longer be an issue for insurers given how active the Florida judiciary has been at overturning other legislative decisions. “We don’t think [a legislative solution] counts until the Supreme Court affirms it – it will be challenged immediately,” he said. “We will make no mitigating decisions on the impact of AOB until such time the Florida judiciary affirms the law.” For the most part, however, Demotech says Florida insurers have been taking action with policy endorsements, inserting rules in their claims procedures, not appointing agents in territories they do not want to do business in, and also raising rates. This has helped most of the companies it rates to remain solid. “Despite the damage inflicted by Mother Nature and the Florida judiciary, the overall financial stability of Florida-focused property insurers reviewed and rated by Demotech remains intact,” Demotech said.
Florida Insurer Financial Stability Ratings Company
American Coastal Insurance Company
American Platinum Property & Casualty Insurance Company
American Strategic Insurance Corp.
ASI Assurance Corporation
ASI Home Insurance Corporation
ASI Preferred Insurance Corp.
Auto Club Insurance Company of Florida
Avatar Property & Casualty Insurance Company
Bankers Insurance Company
Capitol Preferred Insurance Company
Castle Key Indemnity Company
Castle Key Insurance Company
Edison Insurance Company
Federated National Insurance Company
First Community Insurance Company
First Protective Insurance Company
Florida Family Insurance Company
Florida Peninsula Insurance Company
Frontline Insurance Unlimited Company
Gulfstream Property and Casualty Insurance Company
Heritage Property & Casualty Insurance Company
Homeowners Choice Property & Casualty Insurance Co
Lakeview Insurance Company
Monarch National Insurance Company
Olympus Insurance Company
Progressive Property Insurance Company
Safe Harbor Insurance Company
Southern Fidelity Insurance Company
Southern Fidelity Property & Casualty, Inc.
Southern Oak Insurance Company
St. Johns Insurance Company, Inc.
TypTap Insurance Company
United Property & Casualty Insurance Company
Universal Property & Casualty Insurance Company
US Coastal Property & Casualty Insurance Company
Weston Insurance Company
White Pine Insurance Company
FSR Unaffirmed (as of Feb. 2018)
American Integrity Insurance Company of Florida, Inc.
American Traditions Insurance Company
Anchor Property and Casualty Insurance Company
Cypress Property & Casualty Insurance Company
Florida Specialty Insurance Company
Modern USA Insurance Company
Omega Insurance Company
People’s Trust Insurance Company
Prepared Insurance Company
Safepoint Insurance Company
Security First Insurance Company
Tower Hill Preferred Insurance Company
Tower Hill Prime Insurance Company
Tower Hill Select Insurance Company
Tower Hill Signature Insurance Company
Universal Insurance Company of North America
MARCH 5, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 11
FOCUS ON FLORIDA
Florida Disaster Fraud Team Investigation Leads to False Claim Arrest
| Fraud Round-up
A Florida man was arrested late last year after he was caught lying to his insurance company in an attempt to file a false insurance claim for vehicle for damage allegedly caused by Hurricane Irma, according to a statement from Florida CFO Jimmy Patronis and the Department of Financial Services’ Disaster Fraud Action Strike Team (DFAST). Claude Milhomme filed a claim on Sept. 12, 2017, with his insurance company stating water damage to his vehicle caused by Hurricane Irma in the amount of $225 for a diagnosis, after hours fee and storage fee. The Department’s Disaster Fraud Action Strike Team received a tip Oct. 9, 2017, suspecting fraudulent activity regarding Milhomme’s claim. As a result, state investigators took a closer look into Milhomme’s claim and it was discovered that Milhomme’s vehicle was inspected at an auto repair shop located in Georgia on Sept. 7, 2017. The inspection and diagnostic tests revealed that Milhomme’s vehicle was mechanically inoperable due to overheating which resulted in a blown head gasket prior to Irma’s landfall on Sept. 10, 2017.
Milhomme was arrested Nov. 2, 2017, without incident at the Palm Beach County Jail on one count of fraudulent insurance claim by falsely stating a material misrepresentation of facts. This case was set to be prosecuted by the Palm Beach County Office of the State Attorney, 15th Judicial Circuit. The Department’s anti-fraud strike team consists of three teams working in areas heavily impacted by Hurricane Irma including South Florida, MiamiDade and Monroe counties; Southwest Florida, including Lee and Collier counties; and Central Florida, including Polk and Orange counties. They are insurance fraud investigators with specialized knowledge of property/casualty and workers’ compensation fraud, and trained to ensure that law-breakers are prosecuted to the fullest extent of Florida law. CFO Patronis is working directly with dedicated prosecutors housed within each of the respective State Attorney’s Offices.
Florida Construction Co. Owner Accused of $700K Workers’ Comp Scam A Florida construction company owner was arrested in December after allegedly providing fictitious information when applying for workers’ compensation
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insurance coverage to obtain a lower premium, according to a statement from Chief Financial Officer Jimmy Patronis. Maria Cristina Romero Zelaya, owner of Miochosis Construction Inc., is accused of illegally avoiding paying more than $700,000 in premium payments and leaving her employees uninsured and vulnerable to workplace injuries, the statement says. After receiving a tip that Zelaya may have falsified information, from Aug. 2, 2016, to Aug. 2, 2017, Department of Financial Services (DFS) investigators determined Zelaya cashed hundreds of payroll checks through local money service businesses totaling more than $5 million. The checks were found to be for various types of construction work that she is alleged to have withheld from her insurance company and were not covered by her workers’ compensation insurance policy. Zelaya reported to her insurance underwriter that her company’s annual payroll was $200,000 and her company provided plastering and stucco services only. Based on this information, DFS reported her workers’ compensation premium was $26,622. DFS said if Zelaya had not withheld her company’s true annual payroll and work description, the amount of her premium would have been $733,549. Zelaya was arrested by DFS Division of Investigative and Forensic Services (DIFS) investigators and later transported to Duval County Jail on Dec. 7, 2017. She was charged with knowingly concealing payroll, scheme to defraud and acting as an unlicensed money transmitter. This case will be prosecuted by the Assistant State Attorney Joe Licandro of the Duval County States Attorney’s Office. If convicted, Zelaya could face up to 60 years in prison. “When companies lie to obtain cheaper, inadequate workers’ compensation policies, staff or property owners are left vulnerable to covering sky-high medical costs if a worker gets injured on the job, and free markets are disrupted by scammers who can underbid their legitimate INSURANCEJOURNAL.COM
competitors,” said CFO Patronis. Patronis is a member of Florida’s Cabinet and oversees the Department of Financial Services.
Florida Physician Arrested for Theft of $64K in Insurance Checks
A Florida healthcare practitioner has been arrested on charges of forgery, uttering, scheme to defraud, and grand theft after allegedly stealing $64,436 in insurance claim monies from his business partner, according to a statement from the Florida Department of Financial Services. Renoir Cadet, a licensed healthcare practitioner holding a certified Chiropractic Physician’s Assistant license, is accused of stealing the money from his partner at Image Chiropractic, located in Cape Coral, Fla. After receiving a tip of alleged fraud, Division of Investigative and Forensic Services (DIFS) investigators opened an investigation. As a result, investigators learned Cadet had been receiving additional insurance checks and not reporting them to his business partner. After receiving the checks, Cadet would then forge his partner’s signature, as the checks were made out him, and deposit them into Cadet’s personal account without his partner’s knowledge or consent. In total, Cadet deposited an estimated $64,436 into his personal account. Cadet was arrested Jan. 10, 2018, at Image Chiropractic and booked into Lee County Jail without incident. Cadet has been charged with 76 counts of forgery and uttering along with one count of scheme to defraud and grand theft. Bail has been set at $70,000. This case will be prosecuted by the Lee County State Attorney’s Office and if convicted, Cadet could face up to 30 years in prison.
Florida Construction Company Owner Arrested for $1.8M Workers’ Comp Scam A construction company owner in Jacksonville, Fla., has been arrested following a workers’ compensation fraud investigation, according to a statement
from Florida Chief Financial Officer Jimmy Patronis. Jeovane Felizardo, owner of JJF Construction Services LLC, used various local money service businesses to cash checks in an alleged attempt to illegally conceal his total payroll from his workers’ compensation insurance provider to avoid higher premium costs, the investigation by the Florida Bureau of Insurance Fraud found. Investigators discovered that Felizardo provided false payroll totals to his workers’ compensation provider and misrepresented his employee’s class codes. Felizardo reported his total payroll to be $76,799 when signing up for his policy. Based on the declared payroll amount and the reported employee class codes, Felizardo’s insurance company determined the premium for his workers’ compensation policy to be $24,894. After further investigation by the Bureau of Insurance Fraud, investigators found that Felizardo cashed a minimum of 540 checks from April 16, 2016, to April 16, 2017, all issued by contractors doing business with JJF Construction Services totaling $5,929,534. The contractors confirmed that the checks issued were only to cover labor costs and not any material costs associated. Felizardo’s failure to accurately report payroll and class codes to his insurer resulted in a gross underpayment of insurance premiums, the statement said. Had the actual amount of Felizardo’s payroll and proper class codes been reported to his worker’s compensation provider the resulting premium rate would have been $1,841,137, a difference of $1,816,243. Felizardo was arrested Jan. 12, 2018, at his place of residence and transported to the Duval County Jail without incident. Felizardo has been charged with workers compensation fraud and scheme to defraud. This case will be prosecuted by Joe Licandro of the Fourth Judicial Circuit State Attorney’s Office. If convicted, Felizardo could face up to 60 years in prison.
Miami Roofing Company Owners Arrested for Workers’ Comp Fraud
Owners of a Miami roofing company have been accused of concealing nearly $1.2 million in payroll on their workers’ compensation policy renewal application in an alleged attempt to illegally lower their premium costs, according to Chief Financial Officer Jimmy Patronis. Jose Esmelin Martinez and Uzziel Isaias Jaramillo, owners of Esmelin Corporation aka as Esmelin Roofing Contractor (ERC), were arrested following an investigation with Patronis’ Division of Investigative & Forensic Services that determined they underreported their payroll by a significant amount. The investigation discovered Martinez and Jaramillo had reported an annual payroll estimate of $60,000 on their application for workers’ compensation coverage. Based on their estimated payroll, their premium was determined to be $14,051. Investigators identified $288,263 in cashed payroll checks during ERC’s policy period at multiple money services businesses located within the South Florida area. After further investigation, ERC was found to have received at least $1,248,416 for their labor costs — exceeding the estimated annual payroll that was previously given to their insurance provider when applying for workers’ compensation coverage. Had the actual amount of payroll been reported to their workers’ comp provider, the resulting premium rate would have been set at $278,209, a difference of $264,158. Martinez was arrested Jan. 18, 2018 and Jaramillo was arrested on Jan. 25. The men were transported to Dade County Jail without incident. Both Martinez and Jaramillo have been charged with workers’ compensation fraud, grand theft and organized scheme to defraud. This case will be prosecuted by the Office of State Attorney Katherine Fernandez Rundle of the 11th Judicial Circuit State Attorney’s Office. If convicted, Martinez and Jaramillo could face up to 60 years in prison.
MARCH 5, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 13
FOCUS ON FLORIDA
| News & Markets
Florida Supreme Court Ruling to Have Big Impact on Duty to Defend Construction Cases
By Elizabeth B. Ferguson
recent case out of the Florida Supreme Court will likely have a big impact on the duty of insurers to defend Florida construction cases. The case, Altman Contractors, Inc. v. Crum & Forster Specialty Insurance Company arises out of a declaratory judgment action filed in the Southern District of Florida: Case No.: SC16-1420 (Fla. 2017). Altman Contractors served as the general contractor on a high-rise condominium project. Crum & Forster Specialty Insurance insured Altman during the project under a series of commercial general liability policies. From April 2012 to November 2012, Altman received multiple notices of construction defects under Chapter 558, Florida Statutes, following completion of the project. Included in the Chapter 558 Notices, the owner claimed property damage to the building. Chapter 558 lays out a process for the resolution of construction defect claims prior to litigation and is in fact a condition precedent to filing suit on such claims in Florida. In January 2013, Altman tendered to Crum for defense and indemnity of the 558 Notices. Crum denied, arguing the 558 Notices were not a “suit” as defined in the policies. Altman then hired its own counsel to defend the 558 Notices. In May
2013, Altman received a supplemental 558 Notice, bringing the total number of construction defects claimed to over 800. In August 2013, Crum hired counsel to defend Altman against the claims under a Reservation of Rights, maintaining the position that the Chapter 558 Notices were not a “suit” under the policy. Altman objected to the counsel assigned by Crum and requested its existing counsel be hired to continue to defend the claims. Altman also demanded Crum reimburse it for the fees incurred since tendering to Crum in January 2013. Crum denied Altman’s requests. Eventually, Altman resolved the claims without Crum’s involvement and prior to suit being filed. After settling the claims, Altman filed a declaratory judgment against Crum in the Southern District of Florida on the issue of Crum’s duty to defend and indemnity to Altman. The Southern District sided with Crum, ruling that the Chapter 558 Notices did not meet the definition of “civil proceeding” under the policies and therefore granted Crum’s summary judgment. Altman then appealed to the Eleventh Circuit, who certified the following question: Is the notice and repair process set forth in chapter 558, Florida Statutes, a “suit” within the meaning of the commercial general liability policy Crum & Forster issued to Altman?
becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply. We may, at our discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result.” The policy further defined “suit” as “a civil proceeding in which damages because of ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ to which
‘We can expect the Altman ruling to be cited in every demand for defense and indemnity from insureds moving forward.’
The Crum & Forster policy language stated, “We will pay those sums that the insured
14 | INSURANCE JOURNAL | FOCUS ON FLORIDA MARCH 5, 2018
this insurance applies are alleged.” The policy language defining “suit” included: • An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or • Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.
The Florida Supreme Court’s review of the Chapter 558 process found it did not qualify as a “civil proceeding” under the policy, arguing participation was not mandatory and there was no adjudication. However, it ruled the Chapter 558 process does qualify as a form of “alternative dispute resolution,” noting the Chapter 558 process was intended to allow the parties a chance to reach a settlement or perform repairs in lieu of a lawsuit. And, as a form of “alternative dispute resolution,” the Florida Supreme Court held the Chapter 558 process meets the definition of a “suit” under the policies. In light of the question presented, the Supreme Court did not have to go the next step to the issue of whether the Chapter 558 Notices specifically trigger the duty to defend and indemnify under the policy. But, as the Supreme Court ruled the Chapter 558 Notice was a “suit” under the policy, we can expect the Altman ruling to be cited in every demand for defense and indemnity from insureds moving forward. Justice C. Alan Lawson also issued a separate opinion, concurring in part and dissenting in part that requires note. Looking back at the policy, Lawson notes the duty to defend only arises as to “suits” for “bodily injury” or “property damage,” but there is no duty to defend suits for “which this insurance does not apply.” Arguing construction defects are not covered by the policy, it is Lawson’s opinion there would not be a duty to defend the Chapter 558 Notices. Although he does concede that in the Chapter 558 Notices in the instant matter, the owner included claims for “property damage to the build-
ing,” which would arguably be covered. Elizabeth B. Ferguson is a shareholder in the Jacksonville, Fla., office of Marshall Dennehey Warner Coleman & Goggin. A member of the firm’s Professional Liability department, she has 15 years of experience in the arena of construction litigation, representing
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MARCH 5, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 15
SOUTHEAST | News & Markets
IBHS in Florida Announces Leadership Changes, Focus for 2018
he Insurance Institute for Business & Home Safety (IBHS), headquartered in Tampa, Fla., has promoted Anne D. Cope, Ph.D., P.E., to senior vice president of Research and chief engineer. Cope has assumed leadership of IBHS’ multimillion-dollar research agenda to make homes and businesses stronger against multiple natural hazards, and now also oversees the FORTIFIED Home program. Cope, who joined IBHS in 2009, assumes leadership of IBHS’ team of scientists and engineers from Timothy Reinhold, Ph.D., P.E., who retired in December 2017 after several years in the position. Also promoted were: Tanya BrownGiammanco, Ph.D., to vice president, Research; Fred Malik to vice president, FORTIFIED Programs; Chuck Miccolis to
vice president, Commercial Lines; and Murray Morrison, Ph.D., to vice president, Research. During 2018, the Anne Tanya BrownChuck Murray FORTIFIED Home Cope Giammanco Miccolis Morrison team will focus on post-Hurricane hurricanes, high winds, and high winds Harvey recovery efforts by launching the and hail. The FORTIFIED Home team will FORTIFIED Home-Hurricane program in also work with the roofing industry this coastal Texas and by recruiting and training evaluators and builders. IBHS also will year to share and encourage adoption of its continue efforts to scale the program in techniques. Alabama, Oklahoma and North Carolina. Cope’s team will be analyzing weather FORTIFIED Home is a set of engineerand damage data from 2017 hurricanes and ing and building standards designed to fires to examine how these extreme weather events impacted structures of various help strengthen new and existing homes against specific natural hazards, including designs and code standards.
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16 | INSURANCE JOURNAL | FOCUS ON FLORIDA MARCH 5, 2018
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Ashley Casey, owner of Brightway, The Casey Agency in St. Augustine, Fla., has purchased a Brightway store in Palm Coast, Fla., making him the latest multi-unit owner with Brightway Insurance. The new agency has been rebranded to Brightway, The Casey Agency. According to Brightway President, Talman Howard, Casey is among the top 10 percent most successful store owners at Brightway based on sales. Casey’s first agency in St. Augustine, Fla., opened in May 2008. He is one of nine Brightway multi-unit owners. Brightway, The Casey Agency offers customized home, condo, renters, auto, flood, RV, motorcycle, boat, ATV, umbrella and business policies from numerous insurance brands including American Colonial, Bankers, Nationwide, Progressive, Safeco and Travelers. Brightway Insurance is a national property/ casualty insurance retailer selling through a network of franchised independent stores throughout the country. Willis Towers Watson has appointed Fred Zutel as Corporate Risk and Broking (CRB) market leader for Florida, where he will focus on delivering the company’s property/casualty insurance broking services to clients across the state. Zutel will be responsible for driving overall CRB growth strategy, value proposition and talent acquisition efforts in the market, which includes offices in Miami, Ft. Lauderdale, Palm Beach, Tampa, Lake Mary, Gainesville and Jacksonville. Miami-based, Zutel joined Willis Towers Watson as a senior vice president in 2015 and since 2016 has led the company’s CRB business in South Florida. He reports to Doug Pera, CRB Atlantic South region leader. The company also announced a series of regional appointments to its Florida operations who will report to Zutel. Vincent Zollo has been appointed account executive in Miami where he will serve clients across a range of industries. Zollo is a 20-year insurance industry veteran who joined the company from Marsh USA where he was a senior vice president. Pamela Shimono has been appointed account executive in Miami where she will drive new business development and work with clients across all industries. Shimono is a 15-year insurance industry veteran who joined the company from Aon where she served as vice president.
Debra Stevens has been appointed account executive in Miami serving construction clients. She is an 18-year industry veteran who joined the company from Coastal Construction Co. where she served as insurance manager. Kimberly McGee Coffin has been appointed account executive in Tampa where she will focus on serving health care clients. McGee Coffin joined the company from Wells Fargo Insurance Services, now USI Insurance Services, where she was vice president within the firm’s national health care team. Lauren Vidal has been appointed producer in Miami, further strengthening the company’s presence in the health care sector. Vidal joined the company from Arthur J. Gallagher & Co. where she was a producer. Jonathan Perrillo has been appointed producer in Miami where he will work to further enhance the company’s presence across key industries, including construction, real estate and surety. Perrillo joined the company from Brown & Brown where he served as a commercial insurance specialist. Norbert Fernandez has been appointed senior broker where he will develop and place innovative coverage solutions for clients across all lines of business. Based in Miami, he is a 20-year insurance industry veteran. Fernandez joined the company from Brown & Brown where he was as an account executive. Appalachian Underwriters Inc. has hired Marketing Representative Vianka Mambuca to the Sanford, Florida, office. She will focus on agent relationships in Central and Northern Florida counties. According to Carrie Bay, Marketing director, Florida is a huge market for the company and the addition of Mambuca will give the company opportunities to form relationships with agents and grow. Mambuca’s insurance career began over 20 years ago, consisting of agency sales and management, property/casualty underwriting, and executive duties for an admitted Florida carrier. Most recently, she served as agency development manager working with more than 300 Florida agents. Appalachian Underwriters is an insurance wholesaler specializing in workers’ compensation, commercial specialty, personal lines and brokerage. MARCH 5, 2018 FOCUS ON FLORIDA | INSURANCE JOURNAL | 17
SOUTHEAST | News & Markets
Patriot National Files for Chapter 11 Bankruptcy Protection
n accordance with a previously-agreed restructuring plan with lenders, Patriot National Inc., an insurance technology and outsourcing firm, has officially filed for chapter 11 bankruptcy protection and reorganization. The chapter 11 filing was made Jan. 30 in the U.S. Bankruptcy Court for the District of Delaware by the company and its direct and indirect U.S.-based subsidiaries. The move was expected. In November, the Fort Lauderdale-based company announced a restructuring support agreement (RSA) with its lenders, Cerberus Business Finance LLC and its affiliates, and TCW Asset Management Co. LLC., which have agreed to acquire the financially troubled firm. Patriot National’s financial woes came to a head in mid-November with the announcement that its largest workers’ compensation customer, Guaranteed Insurance Co. (GIC), would be placed in receivership by Florida regulators. The companies were mutually owned by founder, majority stockholder and former CEO Steven Mariano, who resigned from Patriot National last summer. GIC held an estimated 10 percent of Patriot National’s stock and accounted for 60 to 70 percent of its business. GIC provided alternative market workers’ compensation insurance in 31 states, with 8,600 active policies in force as of Nov. 13, including 1,250 in Florida. Under the liquidation order of Florida regulators, all GIC policies were cancelled effective Dec. 27. The company’s recapitalization under the RSA and the bankruptcy plan include a new lending facility. The plan will provide the capital structure needed to revitalize operations and funds to grow the business, according to John Rearer, CEO of Patriot National. According to the bankruptcy plan: • Employees will continue to receive all wages in the ordinary course of business
• Broker commissions will be paid in the ordinary course of business • Carrier customers can be assured of uninterrupted service and payments in accordance with the terms of their current agreements • Vendors will continue to be paid going forward pursuant to existing terms The company intends to complete its restructuring and emerge from bankruptcy in the second quarter of 2018. Rearer said that during chapter 11 and beyond, the company intends to operate its business in the “ordinary course with limited impact” on customers. Shortly after Florida regulators took over GIC, Patriot National filed a forbearance agreement with the Securities and Exchange Commission that said it would be laying off 250 employees, representing approximately one-third of its workforce. After the company emerges from bankruptcy, Cerberus and TCW will convert a portion of their claims under the financing agreement in consideration for 100
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percent of the new equity to be issued in Patriot National and the subsidiaries under the plan. All existing equity interests in Patriot National and its subsidiaries will be extinguished, and Patriot National will no longer have any affiliation with its founder and former CEO Mariano. “In cooperation with our lenders, we have taken a significant step in securing the future of Patriot National. Through this process we will reduce our debt, improve our liquidity and strengthen our financial condition, creating a more competitive company no longer bogged down by the historical relationships with and receivership of the Guarantee Insurance Company,” said Rearer. One of Patriot National’s subsidiaries, Patriot Underwriters Inc., is a national program administrator that underwrites and services workers’ compensation insurance for insurance companies. Another affiliate of Patriot National, Ashmere Insurance Co., is being acquired by New York-based Bedrock Insurance Group Holdings. Ashmere is a workers’ compensation insurance carrier licensed in 15 states. INSURANCEJOURNAL.COM
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We Protect the American Dream Homeownership is the American Dream.St.Johns customers are homeowners, who have worked hard to realize their dreams. Our customers entrust us to insure what is dearest to them; their homes, their families and their futures. We believe every St. Johns customer deserves the peace of mind that comes with achieving the American Dream. St. Johns Insurance Company offers homeowners insurance in the states of Florida and South Carolina.
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