Florida has seen its share of calamities, but an "epidemic of insurance claims" could shove the Sunshine State down a financial sinkhole even before the next hurricane hits.
Lawyers and "restoration companies" have teamed up to create a superstorm of lawsuits forcing Florida's home and auto insurers to either raise rates -- or leave the state. And, to the chagrin of insurance companies, their tactics are totally legal.
"This is costing the honest Floridian enormous pain," said former state Chief Financial Officer Jeff Atwater, who accepted a university post in June. Insurance premiums are "flying off the chart," he added, and all because "a few law firms, along with a few contractors, have found a way to make the most of this opportunity."
In the heavily populated Miami-Dade county of Southeastern Florida, where most of the assignment of benefits (AOB) claims come from, homeowners' insurance coverage for a modest house assessed at $300,000 is expected to nearly double to $8,000 a year by 2022.
Florida is a state where water damage is all too common, even without high winds and storm surge. Most of the damage in an average year is due to water leaks, because heat and humidity are more prevalent here than in nearly any other state. "Everyone uses their washing machines and dishwashers and takes showers all the time, and rooftop air conditioners run virtually year-round," said one Floridian.
Pipes often break in apartments after "snowbirds" have left for the summer and continue to leak until the damage spreads through an entire complex. By this point, mold has settled in, so walls have to be ripped out and replaced.
When these homeowners finally discover the water damage, their first impulse is to call a "restoration company" that comes in with fans, disinfectant and wrecking bars to tear out the bad walls before the mold spreads even further. The contractor hands them paperwork claiming the job can be completed within a week or two, if they sign on the dotted line.
The contractor says, "You don't even have to pay me. Just sign the AOB, and I'll get my money from your insurer."
Assignment of benefits is exactly what it sounds like. The insured homeowner signs over his or her claim for damages to the restoration company, which then negotiates a settlement with the insurer.
But in so doing, the insured homeowner forfeits all rights to negotiate with the insurance company, which now cannot even talk to the policyholder. The contractor can legally do whatever he wants, which in some instances inflates the claim.
According to Florida insurer Security First, the average water damage claim without an AOB is $6,700, while an AOB claim can more than double the cost to $13,750. If the contractor enlists an attorney, the claim can escalate to $26,000, said a private insurance company.
But even state-run insurer Citizens Insurance, which prevented many homeowners from losing their properties after 2005's triple hurricane season, is begging for mercy. Citizens Insurance has said it could handle the claims from a 1-in-100-year storm, but it's losing ground against AOB claimants. It had to tap into its surplus hurricane funds after losing $35 million last year in its personal lines account, which handles homeowners.
"Nonweather water loss claims with an AOB cost on average up to three times more than claims without an AOB," according to Citizens, and were "ripe for abuse" because the insurer doesn't have the right to look at the alleged damage before it's repaired.
Boca Raton, Florida, condo owner Gary Lipsic agrees. After his neighbor's washing machine flooded out his apartment in June, Lipsic had a restoration contractor come and take a look. The contractor asked him to sign an AOB to begin the work. With a water-damaged home in need of repair, he was at his most vulnerable.
But Lipsic called his insurance agent friend Brian Samberg of Southeast Insurance, who advised Lipsic not to sign, so he refused. The contractor did the work anyway, and submitted a mysteriously "signed" AOB document to Lipsic's insurer.
Lipsic's payment for the damage claim was delayed because his insurer didn't know whether to pay him -- or the contractor.
Are Florida lawyers and contractors actually soliciting claims and, if so, are they legitimate? According to a report by the Florida Office of Insurance Regulation, the frequency of water damage claims has gone up by nearly half in six years, while the severity has climbed by almost 30 percent.
In addition to getting homeowners to sign AOB claims, lawyers and contractors actively solicit claims, especially for damaged car windshields, which may or may not have actually been damaged, according to insurers.
"Lawyers send people to parking lots and car washes to get drivers to sign an AOB on an iPad," said Regional Manager Logan McFaddin of the Property Casualty Insurance Association of America (PCIAA). "We get more glass claims than any other kind, and we are billed for extraordinary amounts," she said. "Fraud in Florida is its own animal. It starts in Miami and works its way up the I-95 corridor. We have the worst litigation environment in the nation."
Florida's Tampa Bay area alone accounted for a third of these broken windshield claims, according to the Florida Justice Reform Institute. Often a "free steak dinner" is the lure, according to state Insurance Commissioner David Altmaier. "Policyholders also should be cautious of unsolicited vendors canvassing their neighborhoods offering something for nothing," warned Citizens Insurance.
The rise in claims appears to be lawyer-driven, and many of the claims appear to be from the same legal firms. "As of June 2017, 83 percent of claims submitted to Citizens Insurance had legal or AOB representation before the claim was even submitted to Citizens," said the state-run insurer. AOB "abuses" were concentrated in Miami, Palm Beach and Broward counties, but they're spreading to other parts of the state, the insurer said.
One factor that makes lawyers so aggressive in Florida is "one-way attorney fees," said Executive Director Lynne McChristian of the Center for Risk Management Education & Research at Florida State University. This measure was meant to help homeowners fight the big insurance companies by guaranteeing that the claimant (the homeowner) wouldn't have to pay legal fees.
But an AOB allows the contractor to "stand in the shoes" of the claimant, meaning they don't have to pay the legal costs, either. "They have hijacked the claim, and so can't lose," said McChristian. Any battle over damages that goes to court becomes an unequal fight that insurers don't even try to win. They simply pay the claim and charge more to their homeowner clients -- about 8 percent a year more, in many instances.
"Adding legal fees on top of a claim is a big part of the problem," said Bob Passmore, who handles policy issues for the PCIAA. "AOB is not necessarily bad unless you inflate the claim or make a claim for damage that didn't occur," he said.
What caused AOB claims to soar? Passmore blames it on the 12-year "hurricane drought" since 2005, which left contractors without enough work and lawyers with blank court calendars. They needed a new way to make money, and as a result AOB claims -- only 406 in 2006 -- are now hovering close to 30,000 a year, according to the Florida Office of Insurance Regulation.
"AOB has been on the books for years, but only recently were its vulnerabilities uncovered," Passmore said. "The lawyers and contractors are even hosting conferences on how to take advantage of it."
State officials, along with insurers, are waging a legislative battle to reform AOB because no one wants to destroy the concept. But Florida's version of AOB removes the insured homeowner from the loop before he or she can even talk to the insurance company. And the insurer is legally prevented from talking to him or her, because either a contractor or lawyer now owns the claim.
According to state officials and insurers, a better procedure is for the homeowner to hear what the insurer has to say about the claim and then let the insurance company make an offer. A legal remedy is always an option.
Commissioner Altmaier supports a bill he said would give more control to the consumer. The homeowner would read and revise any AOB document before signing, have the right to reverse the decision within seven days and be able to see exactly what the contractor charged the insurer. The bill failed to even get a hearing before the state senate's Banking and Insurance Committee.
The Florida Justice Association, which represents plaintiffs' attorneys, said on its website that the defeat of AOB legislation, which allowed "insurance companies to shirk their responsibilities and made it more cumbersome for homeowners" was one of its key achievements.
"The 'crisis' insurance carriers and others make up is an age-old Tallahassee trick -- raise rates, lower coverage, seek legislative ways to continue to abuse policyholders while never reducing rates. Rinse, wash, repeat and take huge profits to the bank," said Lee Jacobson, who represents the Florida Justice Association. "For the past six years, the insurance companies and their lobbyists have attempted, without factual evidence, to claim 'crisis.' It has only been through anecdotal and self-fulfilling 'data' they hold the keys to."
The Florida Association of Restoration Specialists also aided in preventing any attempt to change AOB. Its website urged readers to "Keep Assignment of Benefits and oppose any attack on homeowners and consumers rights."
Failure to change AOB prompted the Citizens Insurance board of governors to raise rates an average of more than 10 percent in Miami-Dade, the area with the largest percentage of AOB claims. It also made "major policy changes" to curb the rash of AOB claims, including trying to funnel people with water loss repairs into its own "managed repair program," which then points them to Citizens Insurance "vetted" contractors. Homeowners who don't comply have their damage claims limited to $10,000.
Florida's legal community responded angrily. "Water damage claims can often exceed $10,000," said partner Dean Makris of Makris & Mullinax, which specializes in insurance claims. "To think that homeowners will no longer be able to choose their own … contractor to complete the needed repairs to their home is absurd."