Another Florida Insurer Adds Binding Arbitration Endorsement Amid Losses

William Rabb | Insurance Journal

Heritage Property & Casualty Insurance Co. reported more losses for the first quarter of 2022 and a spike in its combined ratio. But company officials said Friday they are taking aggressive steps, including rate increases, policy changes and tightened underwriting requirements, to improve the Florida-domiciled company’s financial profile.

The Friday earnings call for the publicly traded Heritage came the same day that the carrier filed notice with the Florida Office of Insurance Regulation that it would cut the eligibility age of metal, slate and tile roofs from 25 to 15 years for new homeowner policies, beginning June 1. A number of Florida insurers, including Heritage, have aleady reduced the age of covered shingle roofs to 10 years, but this may be one of the first filings to tighten requirements on metal and tile, which are generally expected to last for decades.

The conference call also came two weeks after Tampa-based Heritage filed for an endorsement requiring binding arbitration for claims disputes, beginning July 1 for new and renewing homeowners policies.

“Given the turbulent state of the market, rampant with fraud and abuse, we are proposing changes that will control exploitation,” reads a memo accompanying the April 26 filing with OIR.

The filing came two months after OIR surprised many in the industry when it approved an endorsement from American Heritage Insurance Co., offering arbitration in exchange for a premium discount for policyholders. But Heritage, facing weather losses and spiraling litigation expenses, appears to be taking it a step further, with no mention of a trade-off.

“If you and we fail to agree on whether there is coverage for the loss, either party may, in writing, demand arbitration,” the Heritage endorsement reads. “An arbitration award shall be binding upon the parties as the issue of coverage and all damages and benefits due and owing under the policy.”


Both parties must pay for their respective arbitrators and experts. If the chosen arbitrators cannot reach agreement, the matter will go to a chief arbitrator, paid for by Heritage, the endorsement notes. The insured and the insurer will pay their own attorney fees and policyholders will not be able to recover the legal costs from the insurer, as is currently allowed by statute for some claimants who prevail in litigation.

Heritage homeowner policies, like most insurers’ policies, already call for non-binding mediation and an appraisal panel to help settle disputes before litigation. But the arbitration clause is new, according to the OIR filing. The regulatory agency has not indicated if or when the endorsement will be approved.

Insurance groups have embraced the idea of more arbitration as a way to avoid costly litigation, and more carriers are expected to file similar endorsements in coming months. The special session of the Florida Legislature, which meets May 23-27, also is slated to consider ways to expand the use of arbitration.

Policyholder attorneys and consumer advocates have expressed concern, arguing that arbitration does not follow the rules of court and can take away homeowners’ right of appeal and due process.

The Heritage earnings call did not mention the new arbitration endorsement. But company officials did name other steps the company is taking to stem losses.

“We will continue to seek rate changes commensurate with our cost of doing business,” Heritage CEO Ernie Garateix said. “We are committed to proactively and appropriately raising rates to offset higher loss costs and taking actions to improve our profitability throughout the year.”

“We will consider all options,” Chief Financial Officer Kirk Lusk said.

The company’s first quarter 2022 financial results show a $31 million loss, a big increase over this time last year, but less red ink than the $49 million loss in the fourth quarter of 2021. The combined ratio also shot up, to 129.5% for Q1 2022. That’s significantly worse than the 107.7% reported in Q1 2021 and the profitable 93.2% reported for the last quarter of last year.

Financial analysts on the call wondered about Heritage’s unusually large amount of catastrophe losses this year. The company reported net accident year weather losses of $64 million – double the prior year’s Q1 results. The weather losses included $45 million in catastrophe losses, despite no hurricanes so far this spring.

Lusk said the losses were due to six significant weather events, most of them in Florida, in January. Heritage also writes in six Southeastern states as well as other states.

Heritage’s Q1 2022 financial report also shows that it has continued to pull back from the trouble-plagued Florida market, shedding almost 18% of its policies in the state and about 15% of its totaled insured value there.

Across its book of business in all states, Heritage also has seen an average premium increase of 21%, company leaders said.

The financial results, posted a few days before the earnings call, did not soothe Wall Street. Two investment research firms, Zachs Investment Research and, last week downgraded the Heritage stock from a “buy” rating to a “hold.” The stock price closed Friday at $3.72 per share, down sharply from a week before, when the preliminary financial results were posted.

Since the end of March, the stock price has lost half its value, according to Yahoo!Finance and other stock trackers.

Heritage continues to enjoy an “A, exceptional” financial stability rating from the Demotech rating firm.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Arbitration Clauses Should Work For You, Not Against You

Jihee Ahn | Harris Bricken

Most people who are (luckily) not familiar with litigation believe alternative dispute resolution (or “ADR”) clauses in their contracts are essentially boilerplate language that’s recycled again and again in every contract. However, well-drafted ADR clauses can not only give you a huge advantage if an issue comes up, they may also cause your counterparty to back away from litigation completely. If done right, arbitration clauses should work for you, not against you.

Backing up – ADR provisions usually state that if an issue or dispute arises, the parties need to first work in good faith to find a solution, mediate, and/or arbitrate before or instead of filing a lawsuit. And our team of litigators agree: the ADR provisions we’ve been seeing in recent years are getting more creative and sometimes, more difficult to abide by for our clients. Unfortunately, we’ve seen some clauses that are really awful for our clients in that it requires a process that can be dragged out for years before an arbitration proceeding or lawsuit can even be filed. This is a problem because arbitration clauses should work for you if done right. Some common examples we’re seeing are:

  1. The provision requires that the parties try to resolve any disputes on their own. Sometimes, we see language like “in good faith” to indicate the parties shouldn’t be using this as a delay tactic, but that kind of language is vague and very hard to enforce. Other times, we see language indicating how long the parties need to do this, but it can vary from 30 days to as long as 1 year – and trust us, if you’re not making much progress on working through your issue in 30-60 days, the chances of you making much more progress in 1 year is slim to none. Our recommendation here: if you’re going to include this step, make sure a short timeline is included.
  2. The provision requires that if the parties can’t resolve the issue on their own, they’re required to mediate. In one of the most egregious examples, a client brought me a contract that required him to mediate 3 separate times before he could file a lawsuit. Remember, mediation can be a great option, but it can also be expensive. A mediator also has no authority or power to make parties settle – the best a mediator can do is get the parties to see as much common ground as possible, see the flaws in their positions, and realize that settling the case early (but at a discount) may still make the most economic sense. Our recommendation here: again, if you’re going to include this step, make sure you’re not committing yourself to numerous mediations and make sure the forum, steps for initiation, etc. are all spelled out.
  3. The provision requires arbitration but is super vague on the mechanics of the arbitration. Arbitration is also a great option to consider instead of initiating a public lawsuit, but arbitration can also be a very expensive process. In arbitration, you’re not only paying for attorney time, you’re also paying for arbitrator time (and additional costs to the forum that’s running the arbitration, which typically does include an initiation fee). Our recommendation here: make sure the agreement spells out exactly how to initiate an arbitration, where it’s going to be held, how many arbitrators you’re going to use, etc.

The bottom line is, don’t skirt over the ADR clause when drafting your contracts. Nobody wants to think about their business or partnership going awry in the future, but the more you consider how you’re going to handle potential disputes down the line, the more you’re protecting yourself and potentially saving tons of money down the line. And because we’re increasingly seeing ADR provisions that are designed to make the process confusing and impractical, it’s more important than ever to make sure your ADR clauses work for you, not against you.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Successful Arbitration of International Construction Disputes

Randall F. Hafer | Kilpatrick Townsend & Stockton

Kilpatrick Townsend’s Randy Hafer recently presented on the topic of “Successful Arbitration of International Construction Disputes” at the 2022 Risk Management in Underground Construction Conference. As tunneling projects get larger and more complicated, the issue of risk becomes more important. The Risk Management in Underground Construction Conference helps stakeholders navigate the latest approaches to risk management. Issues covered during the conference include: contracting practices, geotechnical baseline reports, funding and insurance, risk registers, and guidelines and best practices.

Here are Mr. Hafer’s key takeaways from his session:

  1. In terms of industry sectors, disputes arising from construction/engineering and energy historically generate the largest number of ICC international arbitration cases – in 2020, almost 40% of all filings. Preliminary 2021 statistics show a lower number of filings than 2020 but a sharp increase in the average amount in dispute. These are turbulent times for the construction industry, and many projects around the world have been and continue to be affected in some form by delays, disruption and cost overruns.
  2. Arbitration is by far the preferred method for resolution of international claims and disputes. Advantages of arbitration include: • Party autonomy – you have a significant say in who decides your dispute, how the proceedings are conducted, and the schedule. • Decision-makers who know the industry – probably the most significant attribute next to enforceability. You can have arbitrators who not only know construction but have an understanding of the particular type of project and issues at the heart of your dispute. • Speed – the goal is to complete the arbitration process in 18-24 months, much quicker than is typical in litigation, especially complex litigation. • Confidentiality – the proceedings are private. • Finality – very limited grounds for appeal. Good result or bad, it’s effectively over and you and your people can go back to business. • Enforceability – under the New York Convention, which the vast majority of countries in the world have signed, your award generally can be enforced in the country where you opponent and its assets reside.
  3. International arbitration procedures and practices are different in many significant ways from litigation and even domestic arbitration. It is very important that you seek the counsel of an experienced practitioner in such matters.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Save Expense by Arbitrating Construction Dispute? Not Always.

Earl K. Messer | Taft Stettinius & Hollister

One of the basic rationales for including a mandatory arbitration clause in a construction contract is to save time and expense. You arbitrate the matter, win or lose, and you’re done, right? Well, not always. A recent Ohio case is illustrative.

In Darren Zeck v. Smith Custom Homes & Design, LLC, the appellate court describes the frustrating facts for anyone who had hoped that the time and expense to resolve the matter would end with the conclusion of the arbitration proceedings. Smith, as contractor, and the Zecks, as homeowners, entered a contract for Smith to remodel the Zecks’ home. That contract contained a standard mandatory arbitration clause. So, they arbitrated. The arbitrator issued what seemed like a very thorough decision, weighing all the facts and contract provisions, and made an award to Smith in the amount of $13,704.99.

Typically, the next and final step would be for the winner to take the simple step of asking a court to confirm the award, making it a final judgment. Smith did that. But the Zecks opposed confirmation and asked the court to vacate the award in part. They argued that the arbitrator had “exceeded her powers,” which is one of the statutory grounds in Ohio to vacate an arbitration award. The Zecks argued that the arbitrator had made the mistake of double-counting Smith’s overhead and profit and that by doing so, she had exceeded her powers as an arbitrator.

The court disagreed and confirmed the award in favor of Smith. At this stage, Smith undoubtedly hoped it was done with this yet again. But it had no such luck. The Zecks appealed. Thus, more time and expense had to be spent on this dispute.

The well-settled law in Ohio and elsewhere is that “a reviewing court cannot reject an arbitrator’s findings of fact or interpretation of the agreement simply because it disagrees with them.” It would seem like an arbitrator’s ruling on what overhead and profit a contractor is entitled to is just the kind of matter an arbitrator has to determine in order to make an award. Nonetheless, the Zecks argued that the arbitrator exceeded her powers by making that determination, as if that determination was something not related to the contract that was the whole basis of the arbitration.

Needless to say, the appellate court rejected the Zecks’ arguments and also upheld the arbitrator’s decision. Courts are not permitted to second guess those matters within the scope of an arbitrator’s powers, which includes determining the facts, interpreting the contract, and interpreting the law, exactly as the arbitrator here did. The finality of arbitration is one of its key values.

The lesson? Arbitration awards are not always final. Sometimes they have a second life in the courts, even when they are ultimately upheld.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

With Florida Rulings, Will More Insurers Require Arbitration in Claims Disputes?

William Rabb | Insurance Journal

A decision handed down Thursday by the Florida Supreme Court, along with a recent ruling by state regulators, could give insurers another tool that could be used to stem the tide of claims litigation.

In AirBnB Inc. vs. John Doe, the court overturned a Florida appellate court decision and essentially found that an arbitration clause in a contract was binding and that the arbitrator, not a court, can decide when a claim should be handled outside of a courtroom.

The case had little to do with property insurance: The original plaintiffs, given a fictitious name by the courts to protect their identities, had sued AirBnB after hidden cameras were discovered in the vacation rental home in Longboat Key, Florida. The contract with AirBnB required that claims be settled by binding arbitration. The couple objected, arguing that the wording of the contract’s arbitration clause wasn’t clear on who decides which disputes must be arbitrated.

The March 31 court opinion came a month after the Florida Office of Insurance Regulation gave approval to a filing by American Integrity Insurance. The carrier, one of the largest property-casualty insurers in the state, had requested approval for a mandatory arbitration and mediation endorsement in homeowners multi-peril policies, starting April 22 for new business and June 21 for renewals.

The approval signals a major shift in OIR’s longstanding view on arbitration, sources said.

“All disputes, including disputes arising out of or related to this agreement, between us and you, or any additional insured, omnibus insured, other person making a claim under the policy, or an assignee of post-loss benefits … shall be exclusively and finally resolved through confidential binding arbitration,” American Integrity’s approved endorsement language reads.

Taken together, the court ruling and the OIR approval could give a green light to more insurers seeking to use arbitration as a way to reduce claims litigation and legal costs, attorneys and insurance industry insiders said Thursday. At least a few other Florida insurance companies are now considering following American Integrity’s lead and filing their own arbitration endorsements.

“It is encouraging to see the Florida OIR approve an arbitration endorsement as another means of addressing the rampant litigation causing Florida’s property insurance market crisis,” said Logan McFaddin, vice president for Florida government relations at the American Property Casualty Insurers Association. “Given this development, it would not be surprising to see more insurers consider filing for an arbitration endorsement to curb litigation and help rein in costs for consumers.”

Arbitration is generally seen as much less expensive for the defense side. Proceedings are faster than litigation and usually cannot be appealed to a higher court, which can take years and can burn through extensive legal fees.

A number of Florida P/C insurers already require that some claims be decided by appraisal, usually when the amount of losses is in dispute. But arbitration can take it a step further, said Joseph Mackey, an insurance defense attorney with Marshall Dennehey in Jacksonville.

“If insurance companies had arbitration provisions instead of appraisal provisions in their contracts, I think it would cut down on claim litigation because arbitration is more ‘ironclad’ than appraisal, from what I can tell,” Mackey said in an email. “In other words, if these claim disputes went to arbitration, I think the question of both damages and coverage could be considered and it would be less likely that plaintiffs could challenge a final arbitration award.”

The American Integrity endorsement provision makes it clear that arbitration would not preclude lawsuits brought over alleged bad faith actions by the insurer, or lack of action on claims when it is clear that payment is due, as spelled out by Florida law. The endorsement wording does address attorneys’ fees, something Florida insurers have said are driving unprecedented litigation expenses in the state.

“The parties agree that the award of attorneys’ fees and costs under … the binding arbitration agreement do not include payment for attorney time and costs incurred during the arbitration proceeding,” it reads.

The American Integrity vice president whose name is on the filing could not be reached for comment Thursday.

The Supreme Court opinion in the AirBnB case did not name the liability insurer for AirBnB, nor did it indicate the potential compensatory and punitive damages involved. The case has been in the news for more than five years and has gained fame around the country.

The Texas couple in 2016 had rented the home in Longboat Key through AirBnB. After discovering that videos had been made of them, the couple alleged that property owner Wayne Natt had “secretly recorded their entire stay in his unit, including some private and intimate interactions,” the high court explained.

News reports said other cases came to light, and the voyeurism had gone on for years. The couple argued that AirBnB had failed to warn them of previous invasions of privacy at other properties and failed to ensure that the Longboat Key house was free of recording devices.

In response to the couple’s lawsuit, AirBnB filed a motion in the circuit court to compel arbitration. The court in Manatee County granted the motion and stayed the lawsuit. The plaintiffs appealed, arguing that the terms of service in the contract with AirBnB did not make it clear that only an arbitrator could decide if the matter was meant for arbitration.

Florida’s 2nd District Court of Appeal agreed with the spied-upon couple and concluded that the rental agreement contained “an arguably permissive and clearly nonexclusive conferral of an adjudicative power to an arbitrator, found within a body of rules that were not attached to the agreement, that itself did nothing more than identify the applicability of that body of rules if an arbitration is convened.”

But the state Supreme Court, in the opinion written by Justice Ricky Polston, found that AirBnB’s terms of service incorporate by reference the rules of the American Arbitration Association, which expressly delegate arbitrability determinations to an arbitrator.

“The agreement clearly and unmistakably evidences the parties’ intent to empower an arbitrator, rather than a court, to resolve questions of arbitrability,” the justice wrote.

The high court remanded the case to the district court of appeals for further proceedings in keeping with the opinion.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email