With incumbent Republican Governor Rick Scott being challenged by his immediate predecessor, former Florida Governor Charlie Crist—formerly a Republican, then an Independent, and now a Democrat—many Crist Administration initiatives are surfacing to frame the early campaign dialogue, with insurance-related issues included among them.
Florida’s Response to National Flood Insurance Revisions
In spite of several years of dormant hurricane seasons, the cost of property insurance is a constant source of concern in Florida. Several years ago, property insurance rate pressure arose from a historically unprecedented increase in the number of sinkhole-related losses, fueled, many in the industry argued, by an aggressive group of public adjusters leveraging favorable provisions in then-existing Florida law permitting significant recoveries even for minor property damage. Recently, rate stability has been threatened by the 2012 passage of the Biggert-Waters Flood Insurance Reform Act (“Biggert-Waters”), the ripple effects of which could ultimately disrupt Florida’s fragile, but expanding, real estate market.
Records show that Florida property owners account for 37 percent of all National Flood Insurance Program (“NFIP”) flood insurance policies and paid four times more in premiums into NFIP than they have received in flood loss payments. Florida’s most notable response to Biggert-Waters came in October 2013, when the State joined Louisiana in filing an amicus brief in support of a Mississippi lawsuit against the U.S. Department of Homeland Security and the Federal Emergency Management Agency (“FEMA”) requesting a halt to Biggert-Waters’ newly enacted rate increases.
On September 26, 2013, the Mississippi Insurance Department, on behalf of affected Mississippi homeowners, filed a lawsuit seeking declaratory and injunctive relief against the Department of Homeland Security and FEMA over FEMA’s implementation of Biggert-Waters. Mississippi seeks an order enjoining rate increases until after an affordability study provided for in Biggert-Waters has been completed and presented to Congress. Florida, Alabama, Louisiana, and Massachusetts have filed amicus briefs in support of Mississippi in this lawsuit.[i]
Mississippi argues that FEMA’s actions are arbitrary and capricious under the Administrative Procedure Act (“APA”), which governs federal agency procedure. Under the APA, if an agency fails to consider the requisite criteria in taking some action, that action is by definition arbitrary and capricious. Mississippi claims that by failing to complete the Biggert-Waters mandated affordability study, FEMA could not have possibly relied on the criteria that Congress intended for it to consider in implementing flood rate increases.[ii] Therefore, Mississippi argues that FEMA’s implementation of the Biggert-Waters rate increases is arbitrary and capricious, and that the agency should be enjoined from proceeding with the increases.
FEMA has moved to dismiss the Mississippi complaint. The agency argues that Mississippi lacks standing to sue on behalf of its citizens because, under Massachusetts v. Mellon, 262 U.S. 447 (1923), a state cannot sue the federal government in order to protect its citizens from the operation of federal statutes.[iii] FEMA further argues that it lacks the authority to delay implementation of Biggert-Waters because the plain language of the law does not condition rate increases on the completion of any study, and that even if the study was complete, FEMA would not be required to rely on it in imposing the legislatively mandated rate increases.[iv] In addition, FEMA asserts that the court cannot compel the agency to complete the affordability study under Biggert-Waters because the law authorizes FEMA to conduct the study only through the National Academy of Sciences, which informed FEMA it could not complete the study within the required time.[v] Lastly, FEMA argues that the court lacks jurisdiction to review FEMA’s failure to complete the study because studies are not “agency action” under the APA, and courts cannot compel an agency to take action that is not considered “agency action.”[vi]
The court issued an order stating it would take FEMA’s motion to dismiss under advisement on January 6, 2014, and held a hearing on whether to enjoin the Biggert-Waters flood rate increases on January 27, 2014. It has not yet ruled on either issue as of the date this article was completed.
The recently enacted 2014 spending bill prevents FEMA from raising rates on properties that would otherwise be subject to rate increases due to remapping, but this delay will be lifted when the bill expires at the end of the fiscal year, September 30, 2014.[vii] Also, on March 4, 2014, the House of Representatives passed a measure to roll back certain provisions related to the Biggert-Waters rate increases. This bill is different from a bill previously passed in the Senate, so the Senate and House will need to work out a mutually agreeable roll-back measure.
Meanwhile, in October 2013, the Florida Office of Insurance Regulation (“OIR”) issued Informational Bulletin OIR-13-03M/67KB, offering guidance to insurers in an effort to restart a private flood insurance market in Florida. In addition to outlining insurer options on setting private market flood rates, the OIR reiterated that any offering of flood coverage must satisfy federal mortgage requirements. Admitted Florida insurers are not required to offer a private flood product, although coverage may be offered under a stand-alone allied lines insurance policy, as an endorsement to an existing property insurance form (such as a homeowners insurance policy form or dwelling policy form) or by incorporation into a property insurance policy as a covered peril.
In its Informational Bulletin, the OIR also cautioned that writing primary flood insurance on a statewide basis will affect assumed catastrophe risk of the flood writers. As a result, companies desiring to provide that coverage—whether as an endorsement to a homeowners policy or as a stand-alone allied lines policy—will need to demonstrate the financial capacity to assume this risk by providing a plan of operation and financial projections to the OIR.
On a parallel course that began prior to the commencement of Florida’s 2014 Legislative Session, Senator Jeff Brandes and Representative Larry Ahern introduced identical bills (SB 542/HB 581) in their respective legislative chambers that would provide alternatives to rising NFIP rates—albeit at substantially reduced coverage levels. The bills would allow policies to be written in a largely deregulated environment and provide surplus lines insurers with the ability to offer flood coverage in Florida. As the beginning of the 2014 Legislative Session drew closer, the Senate version has stalled after concerns surfaced over its seeming lack of consumer protection measures and perceived ambiguity of what constitutes a “market-based rate.”
This bill would authorize four options for insurers interested in writing flood. Flood rates may be established using the existing rate review process in section 627.062, Florida Statutes. For flood rate filings made before July 1, 2024, an insurer may utilize three additional options for the development of rates (Flood coverage rates developed under the three additional provisions are subject to section 627.062(1), Florida Statutes, which requires that rates shall not be excessive, inadequate, or unfairly discriminatory):
- A rate filing that is exempt from the filing and review requirements of sections 627.062(2)(a) and (f), Florida Statutes;
- Individual risk rating; and
- If the insurer obtains the written, signed consent of the policyholder, it may use a flood coverage rate that has not been approved by the OIR.
Some are even debating whether Florida should take the dramatic step to self-insure for flood losses, but action on this initiative during the Legislative Session is highly unlikely. Regardless, there will be much more debate during the Legislative Session on the merits of efforts to provide an environment in Florida for the privatization of flood coverage, all geared toward maintaining a level of rate stability in the face of impending increases in flood insurance rates under Biggert-Waters.
Citizens Insurance Clearinghouse
The Florida Governor and Legislature have focused over the last several years on efforts to reduce the state’s exposure to catastrophe loss assessments from two of its public facilities, Citizens Property Insurance Corporation (“Citizens”), Florida’s state-run “insurer of last resort,” and the Florida Hurricane Catastrophe Fund, Florida’s state-run reinsurance entity. These efforts have included broad property insurance reform and the implementation of steps to encourage the depopulation of Citizens.
Most recently, the state has implemented a 2013 law designed to further reduce the policy count in Citizens Property Insurance Corporation.
Known as the “Clearinghouse,” the new mechanism is designed to give participating insurers the opportunity to quote coverage for prospective personal lines property insureds before they are placed with Citizens. Standards apply as to the pricing of the private market alternative and the obligation of an insured to accept that coverage. The Clearinghouse was launched in January 2014, with four private market insurers initially participating in the process.
With its statewide exposure reduced by aggressive private market depopulation efforts during the past couple years, Citizens announced just days after the Clearinghouse launch that its policy count had dropped below 1 million for the first time since 2006. Citizen’s CEO, Barry Gilway, predicted that this number could drop even lower with effective insurer participation in the Clearinghouse and more private market depopulation efforts.
PIP Insurance
While many Floridians characterize the threat of catastrophe-driven policy assessments as “Hurricane Taxes,” the statewide escalation of insurance premiums related to Personal Injury Protection (“PIP”) auto insurance scams has been coined a “Fraud Tax.” In fact, PIP fraud in Florida has dwarfed workers’ compensation-related fraud by nearly three to one, according to the Florida Division of Insurance Fraud. The issue was documented by the National Insurance Crime Bureau, which rates several Florida cities among the top in the nation for questionable claims. While PIP represents roughly two percent of Florida’s collected insurance premium, motor vehicle accidents account for nearly 50 percent of all fraud referrals, the Florida Office of Insurance Regulation reports.
One of only 10 states in America that has a PIP law, Florida enacted significant PIP reform through the passage of HB 119 in 2012. Key cost containment provisions of the law included dollar limitations or outright prohibitions against the recovery of first party PIP benefits for certain non-emergency treatment by chiropractors, acupuncturists and massage therapists.
Shortly after passage, the new law was subject to litigation seeking to enjoin enforcement of certain cost containment provisions. This lawsuit was brought by chiropractors, acupuncturists and massage therapists who alleged the PIP reforms have unconstitutionally restricted motorists’ right of access to the courts by eliminating previously available benefits without affording injured victims access to another appropriate remedy. See, Myers v. Kevin M McCarty, 125 So.3d 333 (1st DCA 2013).
Initially, the trial court in this case entered an injunction against enforcement of HB 119 reforms, thereby disrupting insurer implementation of the new law. However, on appeal, the Florida First District Court of Appeal (“DCA”) reversed the injunction late in 2013, ruling that the Plaintiffs lacked standing to bring the access to courts constitutional challenge. By separate order, the DCA reinstated a previously entered appellate court stay of the trial court’s injunction; accordingly, the cost containment provisions of HB 119 are now fully in effect.
Nevertheless, without a ruling on the merits on the constitutional issue, the DCA left open the possibility of future challenges to the new law. In fact, the plaintiffs have filed a Notice of Appeal to the Florida Supreme Court based on the constitutional issues raised. As a result, some insurers are reluctant to begin imposition of the cost containment measures permitted by HB 119 because of concerns about court rulings that may affect the validity of the new law.
For the second consecutive year since HB 119 was enacted, the Florida Legislature has taken up bills that would repeal No-Fault in favor of mandatory property damage and bodily injury liability coverage. However, in moving from PIP to a full tort system, legislators will reopen debate on a variety of issues, including what is already a large population of uninsured drivers in Florida and the impact that mandatory medical insurance under the federal Affordable Care Act may have on the delivery of adequate treatment to victims of motor vehicle accidents in the state.
Florida’s regular Legislative Session began March 4, 2014 and, unless otherwise extended, runs through May 2, 2014.
[i] Brief for Florida et al. as Amici Curiae Supporting Plaintiffs, Mississippi Ins. Dept. v. Department of Homeland Security, No. 1:13-cv-379 (S.D. Miss. Nov. 11, 2013).
[ii] Id. at 2,3, 22, 25-29.
[iii] Defendant’s Motion to Dismiss at 11-13, Mississippi Ins. Dept. v. Department of Homeland Security, No. 1:13-cv-379 (S.D. Miss. Nov. 18, 2013).
[iv] Id. at 13-14.
[v] Id. at 15-18.
[vi] Id. at 18-24.
[vii] H.R. 3547, 113th Congress at Sec. 572.