Gunn Law Blog

The increased use of non-standard forms in the personal lines market makes it more difficult for consumers to make an informed decision when purchasing insurance.  Consumers are no longer buying essentially the same scope of coverages.  Therefore, mere price comparisons are not a valid basis for making a decision to purchase.  If the reason the same model car costs less is that it has a six-cylinder engine, rather than the standard V-8, then the consumer should know this prior to purchase.  So too, if a homeowner's policy costs less because it limits or excludes coverages provided by a more expensive policy, then the consumer should know this prior to purchase.   Moreover, insurance, unlike automobiles, is purchased in the hopes that it will never be used.  Accordingly, there is no test-drive and no opportunity to trade in the insurance policy for the more desirable model once the event of loss triggers the need for its use.  Since policies are complex contracts that are difficult for many consumers to read and compare, it is important for regulators to provide oversight of the sales and marketing process to assure that it is fair and not deceptive.  Thus, there exists the need for transparency of coverage differences. 

Certainly, the need for increased oversight of personal lines marketing is concurrent with the erosion of the scope of coverage afforded under personal lines policies in areas of both property and casualty.  In Florida, the most glaring examples include the legislative enactments that have diluted the sinkhole coverages that were once mandated, and mold exclusions or separate reduced limits for mold damage.  Other examples include the exclusion of dog bite injuries altogether, or for "dangerous breeds." 

 A tremendous proliferation of restrictions by way of definition or exclusion has also been evolving in the policy forms.  Carriers are incorporating modifying definitions to the terms "occurrence" or "accident," in order to state the an assault and battery is not an occurrence.  The broad language, "arising out of," is being used in the context of assault or battery exclusions to preclude coverage for even the "innocent insured" who is sued for negligent supervision of fighting children.  The "criminal acts" exclusion is being similarly extended by the "arising out of" language to preclude coverage of innocent property owners for negligent security.  Such coverage limitations leave the consumer personally exposed and the injured victim without the ready access to a financial recovery, thereby defeating the public purposes insurance exists to promote.

I read with interest the National Underwriter's responsive article. The notion that the modern policy forms reflect a diverse marketplace designed to offer consumers options and flexibility of coverages completely misses the point.  Rather, the point is that it is difficult, if not impossible, for consumers to make a knowledgeable choice reflecting the qualitative differences among the variety of offered policies.  Typically, consumers are only told that the policy covers "multi-perils," wind-only, ex-wind, and has $X liability limits.  In fact, please take a look at the "Shop and Compare" insurance site sponsored by Governor Crist's office:  http://www.shopandcomparerates.com/HOCompareRates.htm.  There, you will be directed to basic criteria for an example of the average rates approved by county.  The information provided is purely dollars.  The provided disclaimer states:   

NOTE: THIS IS BEING PROVIDED FOR COMPARISON PURPOSES ONLY TO DEMONSTRATE THE IMPORTANCE OF SHOPPING FOR INSURANCE QUOTES. Insurance companies listed below may not be writing new business in all counties. Citizens Property Insurance Corporation is writing in all counties.

There is no further disclaimer regarding the "quality" of the coverage, such as: "Not all policies provide identical scope of coverage.  It is important to compare the actual policy forms and extent of coverages such as sinkhole, mold, dog bite liability, liquor liability, assault and battery, and other coverages afforded by each insurer when making a complete comparison.  Buying a policy at a reduced premium may be a reflection of a reduced scope of coverage."

NAIC needs to urge all state regulators to return consistency to personal lines so that the consumer is comparing an "apple to an apple" when comparing premium cost.  Where flexibility in the policy form is approved, there needs to be transparency afforded.  One such method of affording consumers transparency is to require a "materiality" disclosure of reduced coverage at time of underwriting.  For example, any deviation from the scope of coverage afforded by the ISO HO-3 form would require a Truth-In-Coverage Statement signed by the purchaser that specifically states in plain language the nature of a specific reduction in coverage from the HO-3.  This would be a condition of the regulator's approval of any non-standard policy form.  In this way, the consumer can make a knowledgeable choice to buy less coverage for less money.  (See e.g., Section 627.727 Florida Statutes (2009) which requires a written rejection/selection of underinsured motorists coverage signed by the insured on an approved form.).  Of course, insurers would continue to be free to promote "flexibility" by enhanced coverage that supports a higher premium quote that undoubtedly would be voluntarily disclosed to consumers to encourage the sale.

 

 

 Download Nova Cas. Co v. Santa Lucia

 

As the above Order just issued from the Middle District of Florida reflects, where the interests of the carrier and insured are aligned, the defense lawyer owes a duty of due care to both.  Where the interests of the carrier and the insured conflict, then the defense attorney's obligations, and associated duty of due care, flow uniquely to the insured.  Alternatively, when the interests diverge on an issue, the defense attorney may refrain from a given scope of representation .  The defense attorney must be ever mindful of any potential divergence of interest and comport his behaviors accordingly.  This behavior includes making a clear statement to the carrier where a pending issue creates a conflict and results in a unique duty to the insured, or where an issue arises that the defense lawyer cannot properly advocate for either (i.e., a coverage issue).

 

Here, the retaining insurer's and the insured's interests in minimizing any financial exposure to the plaintiff were clearly aligned.  The alleged settlement opportunity eliminated the insured's exposure and reduced the insurer's.  It is alleged that the defense lawyer's lack of due care resulted in this beneficial settlement opportunity being lost.  If proven, the only damaged party is the carrier, as the carrier paid its total limits and protected the insured.  There is no evidence that the defense attorney felt that he could not properly act in the best interests of both the insurer and insured in acting upon a settlement opportunity.  As such, his duties ran to both the insurer and insured in this context.

 

I am thrilled to see carriers assert that a lawyer undertakes a professional obligation when attempting to negotiate and document a beneficial settlement.  Further, that any breach of the duty of professional care in this regard is actionable for recovery of the lost settlement protection WITHOUT ANY SHOWING OF "BAD FAITH", UNFAIR ACTIONS OR DISREGARD FOR THE INTERESTS OF THE INSURER.

 

I believe that courts should embrace this position and expressly apply this same standard of due care to carriers, and get rid of any confusion that a connotation of "bad faith" has in a failure to settle case.

 

 

 

THE NON-DELEGABLE DUTY

On October 1, 2010, the Second District Court of Appeal issued an important and instructive opinion on the pleading requirements for asserting a claim for breach of non-delegable duties. Gunn Law Group and Gunn Appellate Practice successfully convinced the Second District Court of Appeal that the trial court erred by refusing to permit the plaintiff to amend his complaint to plead the breach of non-delegable duties and by thereafter granting summary judgment in the defendant's favor. In this case involving a slip and fall and the non-delegable duty of a premises owner, Judge Wallace authored a comprehensive and academic 22-page opinion with three principal and salient points: First, the non-delegable duty doctrine is applied to certain classes of duty and is not a separate and distinct claim that must be pleaded in a separate count. Second, under the facts of this case, the claim that the premises owner breached its non-delegable duties arose out of the same underlying facts and circumstances as the negligence at issue and, therefore, related-back for statute of limitations purposes. Importantly, the Court further held that amendment to assert a claim for breach of non-delegable duties was not necessary in this case in the first place because the pleading at issue alleged all of the elements necessary to plead a cause of action for the breach of non-delegable duties, notwithstanding the fact that the talismanic words "non-delegable duty" were not in the complaint. Third, the Court explained the nature of liability arising from a non-delegable duty, and clarified how that liability differs from vicarious liability.

The Court's opinion can be accessed at:

http://www.2dca.org/opinions/Opinion_Pages/Opinion_Page_2010/October/October%2001,%202010/2D09-3983.pdf

STATE FARM DENIAL OF RATE INCREASE UPHELD ON APPEAL

The First District Court of Appeal has affirmed the agency denial of State Farm's rate increases sought late last year.  The opinion will become final in 15 days, if no motion for rehearing is filed.

“We are very pleased with the District Court’s ruling, said Commissioner McCarty. State Farm knew, or should have known, that the filing it made was contrary to the Legislature’s intent and could not be approved. State Farm’s actions suggest that it intended to use the denial of the filing as a pretext for threatening to withdraw from the Florida Property Insurance Marketplace."

A complete history of the State Farm matter is found at the OIR website.

Just what this decision means for Florida's insurance consumers is uncertain.  State Farm represents a well-capitalized insurer in a marketplace where capital should be viewed at a premium.  If State Farm does exit Florida, then will that mean less choice for consumers, less solvency in our insurance system, and more of a burden upon the State's insurer, Citizen's?  The answer is almost certainly, yes.

Is this another step in the efforts of the major carriers (State Farm, Allstate, Farmers, AIG, Nationwide, and others), to mitigate their Florida risk and assert that rates are too low to stay?  Is the recent Surplus Lines Laws passed in 2009 a back entrance into the Florida market without the administrative limitations on coverage forms and rates?  Will major carriers exiting through the front door re-enter as their surplus lines subsidiaries via this back door?  The answers are almost certainly yes.

Regulators must be wary of allowing the established well-capitalized insurers to avoid the risk of Florida's marketplace, yet be in a position to reap the rewards clothed in the sheepskin of surplus lines coverage.

Stay tuned.

The Season Begins

We are officially in Hurricane Season 2009.

It is time to get out your checklists and prepare your business and home for the event of a windstorm.  Most importantly, get out your insurance policies and verify that you have the desired coverages and then put the policies in a safe place.  I recommend that you scan your policies, or at least your declarations pages, and store them electronically.  Send the images to a family member or a friend who can access the information for you if you are displaced by a storm.

One way to stay on top of the season is to subscribe to FEMA's alert system:  https://service.govdelivery.com/service/subscribe.html?code=USDHSFEMA_153

Most of all, stay safe!

Lee Gunn

Say No to Public Adjuster state study: HB 1495

Representative Janet Long of Tampa is introducing a bill seeking to have the State of Florida pay for a study of public adjuster practices.  We have many demands upon our state's resources.  Florida highly regulates the insurance industry, including the licensed public adjuster, as it must.  There is simply no basis for thinking that the state's limited resources need to be further depleted by another agency stepping in to police public adjusters.  What showing has been made that Florida's Office of Insurance Regulation is not providing any needed oversight and that your money should be spent on more agency investigation?  None.

Insurance policy review-new small carriers: Caveat Emptor

Spring has sprung in Florida.  Now is the time to review your policy(ies), update your inventory lists with any new purchases, and get your coverage updated, as needed.  Some of you may have received your, "State Farm is leaving notices", and be shopping for a new company.  Others may be considering a premium quote to see if rates are better now that we hear about more new companies entering the market.

When considering a move to a new "start up" Florida carrier, be careful of the size and solvency issues.  Last month Insurance Commissioner Kevin McCarthy told People's Trust Insurance Company, www.peoplestrustinsurance.com, to stop writing policies.  According to the Commissioner, the company wrote more policies that its ability to pay claims.  http://www.baynews9.com/content/36/2009/3/18/449903.html

Consumers can get some background and financial information about a potential insurer at the National Association of Insurance Commisioners' website:  https://eapps.naic.org/cis/ .

As you ready for the season, do consider the size and solvency of the insurer you select.  There may be state-sponsored protection for a failed carrier, but this protection is limited and likely to mean delay in any claim payments if your carrier is underwater after the storm.

The Reality of Requiring Regulations

A common cry from corporate America is that government regulation chokes corporate growth and reduces America's ability to compete in the global marketplace.  Recently, noted author Bill Black was interviewed by Bill Moyer.  Mr. Black provided his overview of how the deregulation of the financial markets from the late-1980's to now created the climate for the near collapse of the global financial markets.  If you have a moment, you may want to watch the interview:  http://www.pbs.org/moyers/journal/04032009/watch.html

What Black describes I believe to be reasonably accurate. Certainly, the underlying lack of creditworthiness is now obvious and reflects loan underwriting practices which were designed to approve loans doomed to fail. The incentive to write the loans was the up front fees. Since the lender never planned to hold the paper to maturity, there was no incentive to make responsible loans. Ultimately, the individual loans were bundled and sold as "derivatives" or "bonds" or "mortgage backed securities" to pensions, governments, and other global investors who believed that these were very safe investments. Some investors even bought "insurance" against default, thereby setting the stage for the near collapse of AIG's financial and insurance services companies.

Effectively, we stole from the rich at home and all over the world and lent to the poor who too often lied to get the loans. Both the knowing and unwitting participants to the fraud now reside in the mortgaged homes which are far nicer than their social productivity would have otherwise afforded them.  In order to maintain this artificial standare of living, taxpayers are giving more to the "poor" in the form of government backed loan forgiveness and restructuring. In the end, "free market capitalism" and "government deregulation" did more to socialize America's standard of living than Unions and FDR ever could have dreamt to achieve.

Of course, the recent robber barons who took their "commissions" from all of the transactions needed to improvidently move this wealth from rich to poor have taken their bonuses and sailed away with little accountability for their misdeeds. The hard-working, responsible citizens who saved their money and invested in these AAA-rated "safe" securities have lost much of their savings. These citizens played by the rules. They saved, lived within their means, and entrusted their money to pension managers and the "fiduciaries" at financial institutions. They told the truth about their income and used common sense when deciding how much to spend on homes and cars. These are the real leaders in our country. Regrettably, our elected leadership is doing little or nothing to hold the rule breakers accountable. Instead, too soon, these "ordinary citizens" will be taxed and see the dollar's value diminished by the inevitable inflation printing all of the promised money will bring. 

I have seen abuses of trust by the insurance indutry, but nothing as bad as what our financial system has done to injure our standing in the world as an economic leader or betray the trust of our citizens.  Our economic crisis is a sad reflection of why the inefficiences of reasonable regulatory controls is lesser than the evil of no effective regulation at all.  Thank goodness for the separate regulatory controls of the states' insurance commissioners.  They must remain ever vigilant to assure compliance with the sound reserve practices needed to have the money available to keep the promise of payment.

What happened in the financial markets is not right.  At least, we must learn from this most expensive lesson.