Pro Premium Finance Company

Florida Governor Rick Scott Signs Senate Bill 408 Into Law

Florida Governor Rick Scott signed Senate Bill 408 (SB408) into law on May 17, 2011.  The legislative intent of SB408 is to reform the unstable property insurance market and make several substantial changes to Florida's property insurance laws, addressing some of the issues that have resulted in increased costs.  The more significant provisions of the law impacting property insurance coverage in the State impose a uniform statute of limitations, limit sinkhole losses, change the holdback requirements on dwelling and contents coverage, restrict the statute of limitations on sinkhole and hurricane claims, and cap public adjusters' compensation.  The law does not apply retroactively, so the amendments generally will apply to new claims and suits as of the effective date.

These provisions are addressed below.

Statute of Limitations on Property Claims Generally

The statute of limitations on a property insurance claim runs from the date of the alleged breach of the insurance contract, which typically occurs on the date of the last payment or denial.  Insureds previously were able to extend this time by either submitting a supplemental claim or waiting years to report a claim.

SB408 amends Florida Statute §95.11, to apply a five-year statute of limitations from the date of loss for bringing an action for breach of a property insurance contract.  This change creates a date certain on which the statute of limitations will expire.

Time Limits for Hurricane, Windstorm and Sinkhole Claims

SB408 addresses the widespread issue of late reporting hurricane and sinkhole claims by placing a two-year statue of limitations on sinkhole claims and a three-year statute of limitations on windstorm and hurricane claims.

Effective as of June 1, 2011, a "claim," "supplemental claim," or "re-opened" windstorm or hurricane claim must be presented within three years after the hurricane first makes landfall, or after the windstorm causes covered damage.  An initial, supplemental, or re-opened sinkhole claim must be presented to the insurer within two years after the policyholder knew or reasonably should have known about the loss.

To eliminate ambiguity in the type of additional claim made after an initial claim has been paid or denied, the law uses the terms "supplemental claim" and "re-opened claim" interchangeably, as in "any additional claim for recovery from the insurer for losses from the same hurricane or windstorm which the insurer has previously adjusted pursuant to the initial claim."

Public Adjusters

SB408 limits public adjusters' fees for re-opened or supplemental claims to 20% of the claim payment. Fees for claims made more than one year after events that are the subject of a Declaration of a State of Emergency cannot exceed 20% of the claim payment.  Public adjusters are still prohibited from charging more than 10% of the payment of a claim for a State of Emergency event made within one year of the date of loss.

SB408 additionally prohibits public adjusters from making deceptive or misleading advertisements or solicitations, including statements or representations that invite a policyholder to submit a claim: (1) when the policyholder does not have covered damage to the insured property; (2) by offering monetary or other valuable inducement; or (3) by stating that there is "no risk" to the policyholder by submitting such a claim.  The law further prohibits public adjusters from using any logo or shield that implies, or could be construed to imply, that the solicitation was issued or distributed by a governmental agency or is sanctioned or endorsed by a governmental agency.

Effective January 1, 2012, all contracts with public adjusters must include the public adjuster's name and firm, business address, and license number, as well as certain other specified information.  All named insureds must sign the contract, and if all signatures are not available, the public adjuster must submit an affidavit, signed by all available named insureds, attesting that they have the authority to enter into the contract and settle all claim issues on behalf of the unavailable named insured(s).  An unaltered copy of the executed contract must be remitted to the insurer within 30 days after execution.

Public adjusters also must now include the following language on all written advertisements, in bold print and capital letters, and in a typeface no smaller than the typeface of the body of the text:

THIS IS A SOLICITATION FOR BUSINESS.  IF YOU HAVE HAD A CLAIM FOR AN INSURED PROPERTY LOSS OR DAMAGE AND YOU ARE SATISFIED WITH THE PAYMENT BY YOUR INSURER, YOU MAY DISREGARD THIS ADVERTISEMENT.

SB408 extends an insured's prompt notice obligations to his or her public adjuster, requiring the public adjuster to provide prompt notice to the insurer and to include their contract with the notice.  Public adjusters also are now required to provide a written estimate of the loss to assist in the submission of a proof of loss, to retain a copy of the estimate for at least five years, and to make the estimate available to the insurer, upon the insurer's request.

Public adjusters must ensure that insurers have direct access to the property and to the insured, and allow the insurer, upon 48-hours notice, to obtain all information necessary to investigate and respond to a claim.  A public adjuster may not act or fail to reasonably act in any manner that obstructs or prevents an insurer (or insurer's adjuster) from timely conducting an inspection of any part of the insured property for which there is a claim for loss or damage.  In the event that the public adjuster's unavailability delays the insurer's timely inspection, the public adjuster or the insured must allow the insurer access to the property without the participation or presence of the public adjuster or insured.  An insurer may not, however, exclude a public adjuster from attending in-person meetings with the insured.

Replacement Coverage and Holdbacks

Insurers previously were required to pay the replacement cost value of damage to a dwelling or personal property without reservation or holdback of any depreciation in value, regardless of whether the insured actually replaced or repaired the property.

Under SB408, the insurer now must initially tender payment for at least the actual cash value of a dwelling loss, less the applicable deductible.  Any remaining amounts necessary to perform repairs must be paid, but only as the work is performed.  Where a total loss occurs, however, the insurer must pay the entire replacement cost coverage, without holdback, under Florida Statute §627.702.

For personal property insured on a replacement cost basis, the insurer must offer two claim payment options:  The first requires the insurer to pay the replacement cost without holdback of depreciation, regardless of whether the insured replaces the property.  The second allows the insurer to limit the initial payment to the actual cash value of the personal property to be replaced and then tender payment for full replacement value once a receipt is provided by the insured.

Sinkholes

As indicated, several changes in sinkhole coverage, targeted to reduce fraudulent claims, have been enacted in this legislation.

Coverage for Sinkhole Claims

Although insurers must continue to cover sinkhole losses, SB408 allows an insurer to require a property inspection prior to the issuance of sinkhole loss coverage.  The law limits what constitutes a "sinkhole loss" to structural damage to the covered building, including the foundation, caused by sinkhole activity, and specifies five distinct types of damage that constitute structural damage, based upon standards contained in the Florida Building Code, or used in the construction industry.  For a policyholder to obtain benefits for a sinkhole loss, the structure must sustain one of the enumerated types of damages.

The law also authorizes insurers to restrict catastrophic ground cover collapse and sinkhole loss coverage to the main building as defined in the insurance policy.

Payment for Sinkhole Claims

In 2005, legislation was enacted that prevented insurers from holding back a portion of a claim payment, which resulted in policyholders receiving large checks, some of which were alleged to have been spent on unrelated expenditures.  SB408 restores an insurer's right to a holdback on structural claims.  Insurers now may pay the market cost of the damaged property first and the remaining repair cost only after the policyholder signs a contract to repair the damage.  The new law also requires that sinkhole damage be repaired in accordance with the recommendations made by the insurer's professional engineer.  If the repairs cannot be completed within policy limits, the insurer has the option to either pay to complete the recommended repairs, or to tender policy limits.

Sinkhole Claim Investigation

SB408 introduces a process for the investigation of a sinkhole claim: An insurer must determine whether the building has incurred structural damage caused by sinkhole activity.  If there is no structural damage, or if the cause of structural damage is not sinkhole activity, then there is no coverage.

Initial Inspection and Structural Damage Determination.   The insurer must inspect the premises upon receipt of a claim to determine whether there is any structural damage that may be the result of sinkhole activity.  The use of a structural engineer may be required to evaluate whether the insured building has incurred structural damage as defined by statute.
Sinkhole Testing Initiated by the Insurer.  The insurer must engage a professional engineer or professional geologist to conduct sinkhole testing where it is determined that structural damage exists and the insurer is either unable to identify a valid cause of the damage or determine that the structural damage is consistent with sinkhole loss.  If coverage is excluded under the policy, even if a sinkhole loss is confirmed, then the insurer is not required to conduct sinkhole testing.
Policyholder Notice.  The insurer must provide written notice to the policyholder, detailing what it determined to be the cause of damage and a statement of the circumstances under which the insurer must conduct sinkhole testing.  The insurer also must notify the policyholder of his or her right to demand sinkhole testing and the circumstances under which the policyholder may incur costs associated with testing.
Authorization to Deny Claim. The insurer may deny a claim where it is determined that there is no sinkhole loss.
Policyholder Demand for Testing.  The policyholder must demand sinkhole testing in writing within 60 days after receipt of a claim denial, if the insurer denies the claim without performing sinkhole testing and coverage would be available if a sinkhole loss were confirmed.

Where coverage for a sinkhole loss is found, the policyholder must file a copy of any sinkhole report prepared on his or her behalf with the County Clerk of Court before payment for the loss may be accepted.

SB408 also provides that where a policyholder accepts a rebate from any contractor performing repairs, coverage is void.

Neutral Evaluation of Sinkhole Claims

Neutral evaluation remains available to either party as an alternative for the resolution of disputed sinkhole claims.  The neutral evaluation must, however, at a minimum, determine: (1) cause; (2) all methods of stabilization and repairs, both above and below ground; (3) the costs for stabilization and repairs; and (4) all information needed to determine whether a sinkhole loss has been verified.  The neutral evaluation must render an opinion on all matters in dispute, and the neutral evaluator's report must be filed with the Clerk of Court.  The law also specifies that a neutral evaluator must be provided with information necessary to perform his or her duties, including reasonable access to the property and all reports prepared on behalf of the policyholder.

The parties must agree on a neutral evaluator within 14 business days.  If an agreement cannot be reached, the Department of Financial Services (DFS) shall appoint a neutral evaluator, who then has 14 business days to notify the parties of the date, time and place of the neutral evaluation conference.  The neutral evaluator is required to make a reasonable effort to hold the conference within 90 days after the DFS's receipt of the request for neutral evaluation. His or her report is due within 14 days after the neutral evaluation conference.

The law specifically provides that the neutral evaluation does not invalidate an insurance policy's appraisal clause, and an insurer's actions in neutral evaluations are not to be construed as a confession of judgment or admission of liability.

For more information about any of the topics covered in this issue of the Insurance Law Alert,

please contact:
A. Lizette Flores, Esq.
lflores@bressler.com