The number of licensed public adjusters in Florida increased from about 400 to over 2,500 as eight successive hurricanes in 2004 and 2005 hit the state and homeowners' claims abounded. Although Florida has been free of major storm damage for the past few years, activities of public adjusters have not abated. Specifically, there has been an increase in solicitation efforts by public adjusters to reopen claims for hurricanes in 2004 and to submit new and reopened claims respective to the 2005 hurricane season.
Florida's five-year statute of limitations has expired for losses related to the 2004 hurricane season and will expire in 2010 for damage claims relative to the 2005 hurricanes. However, some public adjusters have been encouraging homeowners to reopen old hurricane claims under the premise that a public adjuster can obtain more money from the insurer than was previously received by the policyholder. In some instances, valid reopened claims have been pursued. However, in other instances insurance companies have been required to expend more time, money, and resources to reopen and re-examine files, re-inspect properties, engage in dispute resolution procedures, and pay for the cost of litigation settlements and judgments on questionable reopened claims. In many cases, insurers have either been placed in the position to pay what they believe are illegitimate claims or deny and defend those claims and pay the increased adjustment, loss and defense expenses, which, in either event, serves to increase insurance premiums for all.
In convincing homeowners to retain their services, public adjusters can make several convincing arguments, such as indicating that they will charge less than an attorney to pursue a claim, and that there is no fee unless they effectuate a recovery. Free inspections for further damage are offered, as well as the handling of most of the claims work, so that the policyholder does not personally have to commit much in order to pursue the claim, especially at the earlier stages of the process. Most importantly, they can convince the policyholder that enough damage can be found in the property to pay the public adjuster's fee and still have enough left over for the policyholder to pay for repairs, should the policyholder decide to make them. This latter selling point is fueled by Florida law, which requires insurers to pay policyholders for the cost to repair or replace property even if the insured never intends to remediate the damage.
Further leveraging the damage recovery aspects of these claims is the fact that insurers are required by Florida law to pay for matching the repaired portion of property to its other undamaged portions. For example, an insurer may be obligated to pay to replace an entire tile floor if one tile is damaged and the replacement tile cannot be matched with the rest of the floor. This requirement applies regardless of the age of the original tile floor. Further, in any litigation, insurers sometimes face the prospect of being required to pay all of the attorney's fees and costs incurred by the insured if the insured makes any nominal recovery at all. These factors, as well as others, can weigh heavily upon insurers as they address even those claims considered questionable, or worse.
Legislative Remedies
Following Hurricane Wilma's devastation to Florida in October 2005, the state's then-Chief Financial Officer Tom Gallagher issued an emergency rule to prevent predatory practices by public adjusters. The rule temporarily limited their fees to 10 percent, required them to give consumers 14 days to rescind any contract with a public adjuster, and prohibited the demand or acceptance of any type of compensation by a public adjuster prior to the settlement of a claim.
In 2006, Florida passed a law to prevent public adjusters from engaging in activities that could be construed as a conflict of interest. The law included restrictions from participating in the "reconstruction, repair, or restoration" of damaged property that is the subject of a claim adjusted by the public adjuster. It also prohibited public adjusters from having a financial interest in any "salvage, repair, or any other business entity that obtains business in connection with any claim that the public adjuster has a contract or an agreement to adjust."
As a significant writer of property insurance in Florida, Citizens Property Insurance Corp. faced a large number of 2004 and 2005 post-hurricane claim demands that exceeded its claims handling capacity. In response, the Florida Legislature created the Task Force on Citizens Property Insurance Claims Handling and Resolution to recommend solutions.
The 2008 Florida Legislature adopted some of the task force's recommendations relating to public adjuster reform through an insurance legislative package that became effective on Jan. 1, 2009. The statutory revisions applied to all public adjusters, as well as to claims against all insurers in the state.
Public adjusters previously were permitted to negotiate and receive any amount of compensation for non-emergency claims, including a contingency fee in excess of 20 percent of the amount recovered from an insurer. However, the new law established a contingency fee cap that includes a 10 percent limit on state-of-emergency claims and a 20 percent limit on all other insurance claims. In addition, tighter restrictions were placed on public adjuster licensure requirements, including a provision mandating that all applicants pass the public adjuster exam, take continuing education courses, and complete a twelve-month apprenticeship before being licensed.
One of the more fundamental changes of the new legislation prohibits public adjusters from directly or indirectly soliciting an insured or claimant by any means except from 8 a.m. to 8 p.m., Monday through Saturday. Monetary loans or advances to a client or prospective client and the gift of any merchandise in excess of $25 also are prohibited. Even more importantly, the new law prevents public adjusters from soliciting or entering into a contract with a client until 48 hours after the precipitating claim event unless the contact is initiated by the insured or claimant.
These consumer protection provisions are viewed by many public adjusters as a violation of their constitutional right to freedom of speech and an unreasonable restraint on their ability to freely conduct business. In August 2009, three Florida public adjusting firms filed a complaint in Miami-Dade Circuit Court (East Coast Public Adjusters, Inc., et al v. Alex Sink, et al) seeking to prevent the enforcement of the 48-hour solicitation ban and the fee-limitation provision. The complaint alleges that the restrictions are a prior restraint on protected speech in violation of both the United States and Florida constitutions, are a violation of due-process rights, and are not rationally related to achieving a legitimate state interest. Ultimately, the three plaintiff firms seek a declaratory statement that the prohibitions are unconstitutional, and are requesting injunctions against the state. As of the writing of this article, the case is pending.
More Reforms in 2009
In 2009, the profession was further reformed by the restriction of public adjusters from accepting referrals in exchange for compensation from anyone with whom they conduct business (the payment of a referral fee to another licensed adjuster is an exception).
The 2009 law tightened the public adjuster apprentice licensing and qualification process by mandating that an applicant must pass a written test as a prerequisite to licensure. Applicants also must receive the designation of an Accredited Claims Adjuster — a certification that includes ethics training, instruction on the terms and effects of insurance contracts, and a general understanding of applicable Florida law. The new law further restricted public adjusting firms from employing more than 12 apprentices and supervising more than three apprentices simultaneously.
One of the more noteworthy requirements of the 2009 law called for a study — currently underway by the Florida Office of Program Policy Analysis and Government Accountability (OPPAGA) — to evaluate the degree of public adjuster involvement in recent claims. The report, which must be submitted to state executive and legislative leadership by Feb.1, 2010, is to include a review of relevant Citizens-related claims and other statistics involving public adjusters and their claim submission practices, and a review of applicable Florida laws and rules. It must also encompass a review of both catastrophe and non-catastrophe related claims, with a specific focus on new, supplemental or reopened catastrophe claims originating in 2009 but emanating from the 2004-2005 hurricane seasons.
In a related development, Florida Insurance Consumer Advocate Sean Shaw recently responded to numerous consumer complaints from Floridians who had reported stressful experiences with the process of insurance claim mediation, appraisal and litigation related to the 2004-2005 hurricane season claims. Shaw convened the insurance and home repair/remodeling industries in a roundtable format to explore how claims and resulting repair estimates are developed and what can be done to bring uniformity to these processes. Participants included insurance company representatives, catastrophe adjusters, Florida Home Builders Association representatives, and general contractors. As a result of those discussions, Shaw recommended the formation of a focus group to study the role of public adjusters in claim disputes.
While no public adjuster-related legislation yet has been proposed for the 2010 Florida session, the state's prior efforts appear to have manifested in heightened claim activities and increased loss expenses even during the recent calm storm seasons. The dynamics involving the rights of policyholders to recover on valid claims and those of public adjusters to represent those policyholders, as opposed to the burdens created on an already-fragile Florida property insurance system, promise to produce heated debate during the upcoming session. The OPPAGA study currently underway may identify the real effect of public adjuster activities upon the insurance industry.
While few would debate the merits of an open dispute resolution system that engenders quick and cost-effective settlements of valid claims, there are some obvious shortcomings existing under current law that promote claim amplification and recoveries which, in the long run, cost all Florida policyholders in the form of higher insurance premiums. Florida's 2010 lawmakers likely will be called upon to consider an appropriate balance that preserves individual rights while maintaining a healthy property insurance market.
Fred E. Karlinsky is a shareholder in the law firm of Colodny, Fass, Talenfeld, Karlinsky, Abate. Richard J. Fidei is a partner in the firm. Karlinsky may be reached in the Ft. Lauderdale office at 954-332-1749 or fkarlinsky@cftlaw.com. Fidei may be reached in the Ft. Lauderdale office at 954-332-1758 or rfidei@cftlaw.com. The firm, which also has offices in Tallahassee, specializes in insurance, legislative, regulatory and transactional law, commercial and civil litigation, governmental consulting and administrative law. Its litigation practice group handles commercial, civil rights, employment discrimination and child advocacy matters in both trial and appellate levels. More information is available at www.cftlaw.com.
Statute of Limitations
Florida's statute of limitations in regard to the time period in which lawsuits must be filed is not insurance-specific. The deadline for one party to formally file a lawsuit in order to preserve his right to pursue a claim against another party is applicable to any type of claim made within the state. If a party does not file a lawsuit within the deadline applicable to the type of claim involved, and there is no exception that would otherwise apply, that party loses his right to recover on the claim from the other party.
In Florida, the statute of limitations to recover a claim applicable to a written contract is five years. This would apply to all types of written contract claims, including a claim by a policyholder against an insurance company. The date on which the five years begins to run on the statute of limitations is the date of loss, which, in instances involving an insurance policy catastrophe claims, would normally be the date of the catastrophe. Certain legal concepts exist that may provide for an extension of the statute of limitations. Typically, public adjusters and any attorneys representing an insured are well aware of the time limitations that apply to the filing of a lawsuit against an insurance company in order to preserve rights to recover on a claim.
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