Effective Claims Resolution Starts Well Before Any Loss. What These Carriers and Brokers Had to Say

Gregory DL Morris | Risk & Insurance

Carriers, brokers, and claims management firms all stress clarity, communication, and collaboration as keys to successful claims resolution.

All carriers and brokers encourage their insureds to read and understand their policies. Claims resolution relies on all the work after that. 

At best, when a claim occurs it is swiftly paid and insureds understand their policy language and feel protected by it. In the worst cases, insurers and insureds spar over what is and isn’t covered. Disagreements can spiral into litigation, leaving all parties frustrated. 

While some claims issues arise out of different understandings of policy language, often the disagreement about the claims process itself. 

“Often the issue is not a dispute about whether or how much a loss is covered or not,” said Kimberly R. Vaughn, vice president of claims experience and customer analytics at Amerisure. “There is agreement between the policyholder and the carrier about that. Rather the issue is the claims management process. That could range from how expeditiously the claim is being handled to whether to settle or go to trial.”

Consequently, carriers will want to make sure they begin conversations about the claims process early on in their relationships with clients. More clarity, in Vaughn’s experience, can lead to better outcomes. 

Start Claims Management Today

Effective resolution strategies starts early — often even before a claim is filed. During the underwriting process, prospective insureds and their brokers should be meeting with folks on the carrier-side to understand how the claims management team will operate if a loss occurs. 

“It starts during underwriting, when our underwriters and claims professionals meet with the prospective insured and its broker to understand the insured’s business, loss history and risk management approach – and to discuss our hands-on claims proposition,” said Beth Diamond, group head of claims at Beazley.

Kimberly R. Vaughn, vice president of claims experience and customer analytics, Amerisure

“It is often during those early meetings that we discuss logistics around claims notification, selection of defense counsel, partnership throughout the claims process, and other key interactions. It is important for us to hear from the insured about what has worked, and what has not, in its past claims experience. These early discussions set expectations, including ensuring the claims process fits the needs of the individual insured.”

“Walking clients through our claims process before losses are incurred, and sharing pre-loss risk aversion practices, help both insurer and insured navigate complexities once a loss arises,” added Anthony Vidovich, chief claims officer for general insurance at AIG.

“Strong pre-loss relationships help our technical claims handlers work together with risk managers to respond to first notices of potential or actual losses and enable fair and prompt resolution. Outside of claims, loss prevention teams are available to our underwriters and insureds.”

The differences in claims resolution are as numerous as there are losses. Insureds will need to understand how claims management teams from different departments will manage their claims upfront. 

From a claims perspective, there are definitely opportunities among brokers, insureds, and carriers to walk through the process in advance of a claim, said Robert Romeo, senior vice president of healthcare and casualty claims at Berkshire Hathaway Specialty Insurance, “so that the first contact is not when the world is on fire. That walk-through is the opportunity to set expectations on all sides, to understand the who and the how.”

That starts with the broker at inception or renewal, Vaughn explained. “We ask brokers about the goals of the prospect and about their history of losses and claims. A lot of forms are fairly standard across the industry, so what makes the difference is the personality of the carrier and how it meshes with that of the insured.”

What to Do When a Dispute Arises

Despite best efforts on the part of insurers, clients will still bring forward claims disputes. When that happens, it is often possible to pull things out of the fire so long as you make communication a top priority.

Anthony Vidovich, chief claims officer of general insurance, AIG

“You have got to communicate. It is unwise to assume that all parties have the same information and analysis, so you have to communicate constantly. And everyone needs to remember that while there may be differences of perspective, ultimately you are all on the same team,” Vaughn said.

By and large, policy language is written to be as clear as possible about what is covered and what is not, Max Koonce, chief claims officer, Sedgwick, said. The onus is on the claim professionals to demonstrate their expertise. Collaboration between departments has proved effective as a workers’ comp adjuster may have a different perspective than those working in the general liability or property spaces. 

“Lines of business also vary greatly,” said Vaughn. “Claims management in workers’ comp is very different from the way it works in general liability or property. What matters is how to try to prevent conflict in the first place, and how to resolve it quickly if it does arise.”

Claims managers from different departments can also share what they’ve found effective for a particular industry. An approach, Koonce said, has worked well for Sedgwick. 

 “It begins with the individual examiners and case managers, and their ability to ask different questions … Together they have such a depth and breadth of experience across sectors of the economy, from health care to retail to manufacturing. It’s important to know what has worked for similar companies,” said Koonce.

“Where things get into questions is when there are events that we’ve never seen before. That can be an individual situation in a specific claim, or it can be a broader issue, such as business-interruption during the pandemic. That question of policy language has been predominantly settled by the courts in favor of the insurer, although not interpreted in the same manner by many insureds.”

As with most organizations, there are also intervention steps when early signs show a claim becoming difficult. “It begins with the examiners,” said Koonce. “When they deem things are not going down the amicable path, they elevate those concerns to the manager who brings in additional resources.”

“An early sign of trouble is when we receive a policy limit demand in a venue that is notoriously adverse to the defense and/or insureds,” said Rob Riccobono, senior vice president, North American Claims Group, for Allied World.

“The insurance industry can’t pay policy limit demands every time, as this drives up the cost for the insured, so our approach is to analyze the facts and circumstances of the claim and try and have an open dialogue with the policyholder about the merits of the claim and our litigation/settlement strategy,” Riccobono said.

“Additionally, we ensure that the defense counsel is communicating with the insured by providing regular updates,” he added.

Data Steps In 

While the relationship management piece of claims management seems more art than science, Koonce noted that the hard science of data processing has become a highly effective tool for heading off trouble.

“In today’s business we try to catch things at entry. We use predictive modeling, machine learning, and Big Data analysis. There are triggers that are immediately pushed forward to the examiners with ready reference to resources.”

Data processing is particularly effective in workers compensation claims, Koonce added.

“There can be a run-of-the-mill injury, and then something in the course of treatment, or prescriptions, or the return-to-work plan is not on track.”

If a claim does end up in court, data analysis may just be an insurers’ saving grace. “We all know that claims become exponentially more expensive once things have gotten to court,” said Koonce.

“That is another situation where data analysis is so important. We have data to predict possible outcomes, and resources to avoid litigation.”

What to Do When a Claim Goes Awry

Despite all the collaborations and interventions, some claims seem destined for litigation.

While such collaboration certainly facilitates claims resolution in most cases, it is inevitable that complications arise. “In the life of claims there are friction points,” Romeo noted philosophically.

Max Koonce, chief claims officer, Sedgwick

“We are big believers in having direct discussions and hashing things out. In my experience most of the friction points are the result of a lack of information, or a difference of perspective. Reasonable minds can have different ideas. But even so, there is usually an opportunity for mutual agreement.”

Some of those differences of opinion arise from policy language. “I am not an underwriter,” Romeo explained, “but from a claims perspective, I can see that in crafting policy language it is difficult to contemplate every situation. At BHSI both underwriting and claims talk about risks and about what we expect to see before we write a risk. That way, when claims come, it is something we anticipated and priced for.”

To reduce friction rooted in policy language disputes Vaughn recommends employing an underwriting team that is committed to understanding each insured’s specific business. That way, they can hopefully stem future disagreements over wording. 

“It is important for our underwriters to understand the specific insured’s business,” Vaughn noted, not just that type of company or industry. “That means understanding the possible sources of disagreements. At Amerisure, our underwriters have a close relationship with our claims group.”

Notably, Romeo includes brokers in the relationship with customers.

“Involvement of brokers runs the gamut,” he said. “Sometimes a broker only does periodic check-ins, or provides the original notice of a claim, but others are actively engaged with underwriters and our mutual customers, the insureds. That can include planning strategy or selecting counsel.”

Speaking for his company, and not necessarily all carriers, Romeo stated, “we welcome that broker participation. They have a seat at the table, and we are happy to have their expertise and perspective. Third-party claims administrators are also part of the team approach. They definitely fill a need and provide a service.”

Most broadly Romeo reiterated that it’s important to remember the mutual goal of insureds and carriers: “When there is some question on coverage, that is where we need discussion. It is usually possible to work through a loss,” rather than deny a claim outright,” Romeo said. 

“Every claim is an opportunity for us to work with our insureds. The goal of every claim is for the insured to get the outcome that is mutually beneficial.”

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 experts@adviseandconsult.net.

Insurers, Consumer Groups Telling Different Stories About Smoke Damage Claims

Jim Sams | Claims Journal

Insurers and consumer advocates are conveying conflicting messages as both try to focus public attention on smoke damage claims.

Mercury Insurance issued a press release Friday warning that an unidentified California public adjuster has been duping homeowners into submitting fraudulent smoke and ash damage claims by promising to recover “thousands of dollars.”

That announcement follows a report released last week by Consumer Watchdog that accused some insurers of using “illegal coverage limitations” to deny claims for smoke damage caused by wildfires. State Insurance Commissioner Ricardo Lara held an “investigatory” hearing in Oakland to “explore solutions,” according to a report by the San Jose Mercury News.

The consumer group’s report resulted in a sympathetic story by the newspaper that opened with the experience of a homeowner who said she received a $1,100 check for $200,000 in smoke damage to her home when the CZU Lightning Complex Fires tore through the Santa Cruz Mountains.

Mercury Insurance’s press release, on the other hand, portrays greedy public adjusters that canvas door to door, passing out flyers and even advertising on banners streaming behind airplanes in order to persuade policyholders to file phony claims.

“When we checked on our insureds to see how we can help them and make sure we fulfill our promise of being there for them, many were unaware a claim was filed on their homeowner’s policy,” said Pete Galassi, Mercury Insurance special investigations unit manager, according to the press release. “Some professional entities don’t care about the harm they can do and will use trickery to take advantage of law-abiding homeowners in vulnerable situations.”

Mercury said one public adjusting firm has submitted “a large number” of fraudulent smoke and ash damage claims. Some were filed by homeowners who do not speak English and didn’t know what they were signing, the insurer said.

Mercury didn’t identify the public adjusting company that committed the misdeeds described in the press release. Company spokesman Kyle Reuter said the carrier intended the release to be taken as a public service announcement. He said the insurer cannot comment on any “legal matters.”

One Southern California public adjusting firm makes no secret about its efforts to drum up business. California Recovery Group posts video testimonials on its website, in which customers talk about the flyers they received from the company.

In one testimonial, an elderly woman, sitting next to a man who presumably is here husband, holds up a check. She says she waited for months before responding to a California Recovery Group flyer, but is glad she finally did.

“I thought at first it might be a scam but it’s not,” the woman says. “Now we can get our house cleaned in ways that may help our health, which has suffered ever since the fires.”

Not all customers are so happy. According to the Better Business Bureau, consumers filed six complaints about California Recovery Group in the past three years. One of the complainers said a man soliciting door to door persuaded his wife to sign a document when he stepped away to take a call. A few days later he received notice that an insurance claim had been filed. He said the company took advantage of his wife and “put him off” when he tried to terminate the claim.

The Better Business Bureau website says that California Recovery Group terminated the claim after being notified about the complaint. The other five complaints against the company were similarly resolved.

The bureau’s website shows that California Recovery Group averaged a five-star rating in customer service reviews.

And the business appears to be growing. California Recovery Group began doing business in Nevada last year after a brief kerfuffle with the state regulators, according to a report by 4 News, an NBC affiliate.

The television station reported last August that California Recovery Group had been mailing postcards to homeowners after wildfires struck the area, warning them about the damage that can be done by smoke and referring them to a website. The Nevada Division of Insurance told 4 News that the owner of the company, Argen Youseffi, cannot operate in Nevada because he was not registered with the state.

The television station updated the story a month later to report that Youseffi had registered the business in Nevada. He did not immediately return a call by the Claims Journal on Friday.

Matthew J. Smith, executive director of the Coalition Against Insurance Fraud, said in an email that both the consumer and insurer perspectives of smoke damage claims are legitimate. He said many smoke damage claims are proper, but Mercury’s experience shows that there is also potential for abuse.

“We have received multiple reports of solicitations being made by attorneys and smoke remediators trying to convince policyholders to make claims where they did not believe (or allegedly realize) they had any smoke damage claim,” he said. “Additionally, many of these result is no remediation ever being done but simply trying to receive payment by the insurer and then use the claim payment for other purposes.”

He said the coalition has offered to serve as a facilitator to bring stakeholders together to develop reasonable limits on smoke damage claims, potentially based on the amount of elapsed time from the fire occurrence and distance from the fire border.

“Our goal would be to build some consensus to equally protect consumers who have valid claims, while recognizing the need to make sure fraudsters and scammers do not raise policyholder premiums through exploitation of these types of smoke claim losses,” Smith said.

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 experts@adviseandconsult.net.

Managing Construction Claims Risk In The Age Of Gen Z And The Great Resignation

Tim Soefje | Freeman Mathis & Gary

Construction and design professional firms that ignore how to effectively manage their workforce during this Great Resignation and post-Covid remote-work era will likely experience a significant increase in professional liability and construction defect claims.

In late 2021, the nation’s “quit rate” reached a 20-year high and hasn’t really slowed down. Surprisingly, some studies of the “Big Quit” put professional and business services at historic rates of almost 4 percent, only slightly below food service and retail industries.

Turnover rates among the design team or the general contractor side of construction can have devasting impacts on errors in development of the plans and specification, project scheduling, and onsite relationships that avoid lawsuits before they happen. For decades, we’ve known that an inexperienced workforce or under-staffing is a major contributing factor in construction-related lawsuits.

This exposure may only increase during the Great Resignation as the oldest of Generation Z (those born between 1997 – 2012) start graduating from college and professional schools just as their Millennial (born between 1981-1996) colleagues begin moving into senior management roles. Gen Z will become the largest generation to date (estimated in the U.S. at 86 million, as compared to the 72 million Millennials).

“Businesses should prioritize understanding Gen Z to maintain engagement with future employees and customers — developing a strong “Plan Z,” according to the global accounting firm EY. “The world is changing faster than ever, and this digitally native and globally conscious generation . . . is prepared to adapt to the rapidly transforming environment. Numerous other studies confirm these findings, including the Deloitte Global 2022 Gen Z and Millennial Survey, now in its 11th year.

So, how can the construction and design professional industry mitigate its risk against liability during period of high turnover and a changing workforce, especially when widely held belief persists that these two younger generations lack the construction industry’s historic commitment to excellence, attention to detail, and job stability?

Dispel The Gen Z And Millennial Myths Among Upper Management

First, design professionals and the construction industry must make a commitment to dispel the popular myths among the public about their Millennial and Gen Z workforce, especially among senior management.

Millennials are not lazy. Numerous studies debunk this popular myth.

The HR Policy Foundation found that far from being lazy, more than two-thirds of companies surveyed reported their Millennial employees immediately made significant contributions because of their drive to innovate and superior ability to use technology.

In the same study, almost 70 percent of the Millennials reported they would work well beyond what was required of them to help their employer’s success if they felt like they were being challenged by interesting and meaningful work.

Nearly one-third of Generation Z consider themselves the “hardest-working generation” in the workforce, according to The Workforce Institute at Kronos Inc. report titled, Meet Gen Z.

According to the University of Michigan annual Monitoring the Future survey, high school seniors claim to be willing to work overtime at rates more than their Millennial peers, at levels that are on par with Americans in Generation X (born 1965–1980).

Whether this willingness to work overtime continues as Gen Z ages remains to be seen. Unfortunately, numerous also studies show that Gen Z is experiencing an exhaustion level never before seen. More than a third of current high school students are sleeping less than six hours a night. Future supervisors will need to understand this change in sleep schedules to manage against risks made by physically and emotionally exhausted workers on a construction project or job site.

Additionally, there will be difficulty in managing the current disconnect between current senior manager opinions in the construction industry of what constitutes a good employee and Gen Z’s expectations. For example, Gen Z workers will demand far greater control over their work schedule than any prior generation. More than one-third say they won’t tolerate being forced to work when and where they don’t want to or being denied the vacation days they request. Such data signal that significant conflict is just around the corner as the number of Generation Z in the workforce grows.

Reward A Firm Commitment To Excellence

To thrive in the next decade, successful construction, architectural, engineering, and design firms must establish a top-to-bottom, relentless pursuit of excellence that rewards every employee at every phase of the contract, design, and build phase of construction for their contributions to the company.

For example, historically, the mundane task of developing and reviewing construction contracts is the first step to protecting the company. The contract establishes the clear scope of services, assigns liability, and addresses issues such as indemnity. Often the contracts are one-sided in favor of the owner or contractor.

Too often, in the rush to get started on a new project, senior management fails to place sufficient emphasis on and pays little recognition of employees involved in the time-consuming and mundane task of contract review. It is, however, exactly this detailed contract review and understanding of the contract before the project starts that provides the company’s first line of defense when something goes wrong.

Millennials and Generation Z can be particularly effective in developing and reviewing contracts involving new, innovative project delivery methods, especially those that may involve innovative technologies and processes little understood by older management.

Going forward, construction industry professionals must make a committed effort to explain to their Millennial and Generation Z workforce how risk management processes at every level fit into the overall goals and success of the company. Those that do will be surprised by the creative and excellent results obtained from their younger workforce.

Strive To Inspire

We have long known that claims frequency and severity is directly related to how experienced and tenured a construction company or design team on project is. The Great Resignation has turned the old system of growth from within on its head.

To achieve long-term, sustainable success, construction industry professionals and companies must deliver early opportunities for meaningful participation by and contributions from their Millennial and Gen Z workforce if they hope to retain talent long-term.

The next generation of workers come from a “connected” generation that values collaboration, teamwork, and social opportunities over money. It is more imperative than ever that supervisors and upper management demonstrate a genuine interest in their younger workers careers, families, and personal lives. Generation Z especially has developed a unique ability to ferret out anything and anyone “fake.”

Numerous investigative studies have found that Millennials rank base pay as the most important factor in selecting and staying in a job, just as the other three generations do. A paycheck, however, simply doesn’t motivate this new generation of workers like it may have done past generations.

According to a recent study by Psychology Today more than 70 percent of Millennials say that they want economic job security, but they are not motivated by it. Today’s Millennials are motivated more when they believe they are making a difference in an organization for which they are proud to work rather than simply receiving a paycheck.

According to EY’s 2021 study, money is an even less important factor for Gen Z. Between 2020 and 2021, “making money” declined in importance and was eclipsed by this generation’s desire to “be the best” and “make a difference.” This runs contradictory to the popular myths of a slacker generation.

A study by Fails Management Institute (FMI) revealed that companies that spent the time to inspire their younger workforce by clearly communicating the company’s vision, and employees’ roles in it, saw a 25-percent increase in retention of their younger employees.

Innovative companies should re-evaluate old job descriptions and develop new policies that encourage younger workers to create value for their employers in traditional and non-traditional ways. Companies have found success when they actively seek ways to put Millennials and Generation Z in charge of projects, no matter how small, and explain how those leadership roles translate into advancement within the company.

Numerous studies, for example, have established that smart companies are empowering younger workers to take the lead in the company with things such as community outreach and volunteerism, including paid time off. The traditionally boring construction industry may be surprised to learn that one study revealed that 56 percent of Millennials will not accept a job from a company that bans social media related to the job, especially opportunities to promote the company. In some circumstances a small company could solve two problems by enlisting younger employees to run its social media.

For Millennials, respect doesn’t automatically come with age, experience, or job title; it has to be earned. They want to work for a company that listens to everybody’s point of view.

There also can be significant returns by providing the younger workforce a seat at the table and getting their input on the decision before it is made. Companies’ senior management must be prepared to explain the factors and thinking that went into a company decision, and how it benefits everyone.

Mentorships are highly valued by Millennials and Generation Z, who truly do want to learn the ropes.

Research is finding that Generation Z members in particular fear their education didn’t prepare them for workplace activities such as negotiating, networking, confident public speaking or working long hours. Nor do many of them feel prepared to resolve work conflicts or be managed by another person.

In one national survey of the Gen Z members who are starting to graduate from college, 92 percent believe that they have not developed the necessary social skills to succeed. These skill sets are important in every profession, but especially in architecture and engineering firms where the relationships with colleagues and clients often define a firm.

It is universally agreed that more training reduces the number of professional liability claims. Companies in the construction industry that implement ongoing training and education programs will be rewarded with more loyalty among their Millennial and Gen Z workforce.

Finally, companies that fail to consider ways to change their work environments, team configurations, and incentives to inspire their youngest workforce will continue to find themselves facing high-turnover, low morale, poor performance, unhappy clients, and a corresponding increase in professional liability and construction defect claims.

Remote work is not going away. It’s here to stay. Companies must develop internal procedures and system to connect young workers working remotely with senior, experienced mentors to avoid mistakes that could be avoided with regular, in-office contact and communication.

Four Immediate Steps To Take

Fortunately, construction companies and design professional firms can implement a few simple steps to address these new problems.

First, resist the trend to speed up. Slow down and focus on what is important. Reinforce for Millennials and Generation Z that within reason, the company values the tortoise over the hare if that is what is required to achieve excellence. This will be even more critical where a project has significant turnover on a project. Additionally, time must be built into the schedule.

Second, sign a solid contract. Create a company culture that establishes a clear message that contracts that protect the company are a priority. Younger workers should be rewarded, not criticized, when they ask more senior staff member or an outside attorney to get involved in the contract review of a non-standard contract or a particular phase of the project itself.

Third, involve Millennials and Generation Z workers in the negotiations of new, innovative project delivery systems where the old lines of responsibilities and indemnity may be blurred. This is especially true if the project involves innovative technology where the Millennial and Generation Z may have an advantage.

Younger workers asked to provide meaningful contributions and made to feel like they are a part of emerging technology and opportunities in the industry will be more like to stay on board, gain experience, and eventually grow to become the company’s future leaders.

Fourth, make sure that projects are properly insured. We live in a litigious society. Mistakes are going to happen just like they always have. A company can reward its own young workforce for a culture of excellence, but it will not prevent lawsuits arising when other companies on the project do not.

The more we learn about Millennials and Generation Z in the workplace, especially in the complex and high-risk construction industry, the more we learn that construction industry professionals and managers must be willing to re-examine antiquated ideas of seniority and archetypes of what makes a “good employee” if they want to manage professional liability and construction risks in the future.

Companies need to think beyond a one-size-fits-all approach to managing people. For example, it’s not just work from home or work in-office.

Managers and project leaders need to dig deeper to understand why some segments within Gen Z and Millennials thrived remotely while others didn’t and understand how that will affect that worker’s contribution to a specific construction project’ success.

Construction industry professionals and companies that develop and implement a long-term strategy for managing their Gen Z and Millennial workforce in this post-Covid environment by embracing their new perspectives and approaches to loyalty through development, recognition, and trust will experience unrivaled success and a corresponding decrease in construction-related claims. Those that do not, likely will not survive in this post-Covid business world.

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 experts@adviseandconsult.net.

Missouri Takes A Stand On Depreciation

Alycen A. Moss and Dakota Knehans | Property Insurance Law Observer

On June 28, the Missouri Court of Appeals upheld a lower court’s decision finding Lexington Insurance Company (“Lexington”) breached its policy with homeowner Cynthia Franklin. Franklin’s home has sustained damage in a May 2016 storm for which she submitted a claim with Lexington. Lexington utilizes a two-step adjusting process in which it first determines the ACV of a covered loss and issues an ACV payment. Then, if an insured requests additional reimbursement for repair and replacement costs over the amount previously paid, Lexington assesses the appropriateness of payment. In processing Franklin’s claim, Lexington withheld over $5,000 in actual cash value, citing to “depreciated labor costs.” Lexington, in a letter dated July 7, 2016, explained that Franklin could recover “applicable depreciation for dwelling/building items” if she submitted paid repair invoices. After completing additional repairs, Franklin failed to forward any invoices or receipts. The claim was then closed by Lexington in October of 2017.

In February 2018, Franklin sued, arguing that the policy itself was silent as to whether labor depreciation was included in the actual cash value of a claim, and as such she was entitled to recover the withheld amount. In his deposition, the desk adjuster for Franklin’s claim testified that he was unaware that the field adjuster had subtracted depreciated labor costs before suit had been filed, and if he had known, he would have requested correction from the adjuster and issued a higher ACV.

Bearing in mind this testimony, and citing to law around the country regarding policy ambiguity, the lower court and the Missouri Court of Appeals held that Lexington’s two step adjustment process meant Franklin was not required to elect between ACV and replacement costs. Further, in determining whether labor depreciation was included within the definition of depreciation allowed to be subtracted from the base ACV, the Court of Appeals agreed with the lower court that the policy’s failure to explicitly include labor depreciation within its definition of “depreciation” meant the insurer could not include it. Considering the policy’s silence and Lexington’s typical practices, the Court held Franklin was entitled to recover the withheld amount.

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 experts@adviseandconsult.net.

Goodbye Courtroom? Florida Citizens Wants Claims Disputes Heard by Admin Judges

William Rabb | Insurance Journal

By this time next year, Citizens Property Insurance policyholders and assignees of benefits could see their claims disputes decided, not in county or circuit courts, but by administrative judges who work for a Florida state agency.

The Citizens Board of Governors on Wednesday voted to move ahead with a policy endorsement that would allow the insurer or the insured to send claims disputes to the state Division of Administrative Hearings, known as DOAH. Both parties would not need to agree to the DOAH venue.

The 30 judges at DOAH now handle a range of issues, including child support cases, mental health hearings, and disputes brought by businesses over state agency rules or over penalties assessed for violating regulations.


The Citizens’ plan would allow for faster resolution of claims disputes, which would benefit Citizens as well as policyholders, Citizens’ general counsel, Tim Cerio, told board members. Crucially, the endorsement also would cap plaintiffs’ attorney fees at about $200 an hour, with no fee multipliers, which ultimately could save the insurer thousands of dollars each year in legal costs.

Citizens will file for the endorsement soon, officials said. The Florida Office of Insurance Regulation will decide if it should be approved.

It’s all part of Citizen’s effort to reduce litigation expenses, which are spiraling as the carrier’s policies continue to soar – topping 1.2 million policies in force by year’s end, officials said. Citizens has about 19,000 claims lawsuits pending and is planning on spending as much as $100 million on legal defense costs this year.

Some Florida plaintiffs’ lawyers quickly questioned the wisdom of utilizing administrative judges to handle insurance claims disputes.

“I don’t see the upside on this for policyholders, unless they’re offered some type of exchange,” such as higher coverage limits or reduced premiums, said attorney Michael Redondo, of Miami, who said he has about 100 cases pending against Citizens.

Redondo (Linkedin)

Limiting attorney fees will reduce the number of lawyers who are willing to take on Citizens cases, which could hurt policyholders’ ability to obtain a fair judgment or settlement, he said.

He argued that Citizens could save much more by avoiding unnecessary litigation and accepting reasonable settlement offers more often. He noted that in one South Florida claim, he has repeatedly offered to settle for about $5,000. His fee would have been about $1,500. But Citizens would not settle and is going to trial next week on a relatively minor issue..

The litigation could ultimately cost Citizens more than $40,000 in defense fees and perhaps more in plaintiffs’ fees, he said.

Citizens spokesman Michael Peltier said that claimants’ lawyers often argue that the insurer should settle sooner or pay claims faster. But many claims in Florida have been proven to be fraudulent or exaggerated and have to be litigated.

“We have an obligation to policyholders to pay the ones that need to be paid but to investigate those that don’t,” he said.

Moving cases to the administrative arena would reduce the resolution time frame, from an average of about 430 days in the court system to 100 or so days at DOAH, partly because DOAH does not face a backlog of lawsuits, Cerio said.

The agency may have plenty of bandwidth: A state government website notes that in fiscal year 2019-20, the division saw some 6,300 requests, an 11% decrease from the previous year. And many DOAH requests are referred to mediation. Florida’s court system, on the other hand, has seen more than 4,500 lawsuits filed per month against the largest 16 insurance carriers, according to CaseGlide, a litigation management software firm.

But the perceived efficiency of the Division of Administrative Hearings could change quickly, Redondo countered.

“Trust me, if they dump 60,000 claims disputes into DOAH, DOAH’s resolution time will go up – way up,” the attorney said.

And DOAH decisions, in most cases, could still be appealed to an appeals court.


DOAH officials appear to be on board with the idea.

“The Division of Administrative Hearings will fairly and quickly resolve legal disputes for Citizens Property Insurance and its insureds—whatever form that dispute may take—as it does for countless other governmental entities in Florida,” reads an email from the acting head of DOAH, Judge Brian Newman.

Cerio told the Citizens board that DOAH officials said the agency could set aside some judges to hear only insurance claims and it has the statutory flexibility to hire more if the need arises. The Legislature at some point could also be asked to provide funding for more administrative judges and staff, Citizens’ Board Chairman Carlos Beruff said.

Because Citizens is a quasi-government entity that was created by the Florida Legislature, it likely has the legal standing to move claims cases to DOAH, said Stephen Rosen, a retired administrative law judge for DOAH who handled workers’ compensation disputes. Adjustments to state law and funding could easily be made by lawmakers, if needed, he said.

Other Florida insurers, as private companies not chartered by the state, would not have the DOAH-litigation option. Some carriers have taken other steps to avoid the court system. At least have begun offering binding arbitration in claims disputes in exchange for lower premiums.

DOAH is in something of a state of flux at the moment. Peter Antonacci was chief judge and administrator of the division for less than 18 months before Gov. Ron DeSantis last week named him to head the new Office of Election Crimes and Security. Newman was named acting chief of DOAH, but it’s not certain he will remain in the position.

The administrative law judges are all lawyers but some may have little experience in insurance matters. Rosen suggested that an expanded roster should include judges with expertise in claims disputes.

Legal costs have become one of the biggest issues, not just for Citizens but for most carriers in Florida’s distressed property insurance market, helping to drive several insurers into insolvency.


At the board meeting Wednesday, Citizens’ President Barry Gilway reviewed the dire state of the market, due in part to litigation expenses. He noted that in the first quarter of 2022, Florida’s 52 property insurance companies posted $154 million in losses. That followed a combined $1.2 billion negative net income for 2021 and negative $1.8 billion for 2020.

Gilway said those numbers should be looked at against the Florida private insurance market’s total surplus of about $4 billion, based on reports from Standard & Poor’s, a financial rating firm.

“The market is really losing 25% to 35% of its surplus every single year,” he told the board.

The losses have caused not only insolvencies, but have prompted a number of insurers to stop writing in Florida, to drastically reduce coverage areas, and to limit the age of roofs they’ll cover. It’s all led to “incomprehensible” growth rates for the insurer of last resort, Gilway noted. “The company is three times the size it was 28 months ago.”

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 experts@adviseandconsult.net.