Although the weather has been blissfully non-eventful this hurricane season, the same cannot be said for the quagmire that is Florida's current property insurance market.
Florida is engulfed in a whirlwind of negative homeowners' insurance news. The latest contretemps revolves around a little-noted start-up in Ponte Vedra Beach called American Keystone Insurance Co. Licensed in 2007, the company was recently ordered into receivership for the purpose of liquidation. All policies were ordered cancelled effective Nov. 8, 2009. American Keystone primarily wrote homeowners', condominium unit owners', personal inland marine, and residential condominium association policies in Florida. It had approximately 7,800 policies in force at the time the order was issued.
Small potatoes, as The Godfather's Hyman Roth might say. Except for one thing. The man behind the curtain at American Keystone was Bill Griffin of Riscorp fame. The spectacular rise and fall of Riscorp in the early 1990s — the second-largest failure of an insurance company in Florida's history — left Griffin a multi-millionaire but also sent him to federal prison for orchestrating illegal campaign contributions at the company he founded. That felony conviction carried a lifetime ban on active participation in the insurance industry.
So how was he allowed to apparently initiate and finance this new insurance entity? The Office of Insurance Regulation (OIR) acknowledges that it knew from the beginning that Griffin had indirect ties to American Keystone — his son-in-law was listed on the articles of incorporation filed in October 2006 — and tried to "wall him off." The wall must have been paper thin. By the time American Keystone was ordered shut down a mere three years later, Griffin was a named director at the company with an 80-percent ownership stake.
The OIR estimates the company's current assets at a negative $12.3 million. Griffin is apologetic about this new company's failure. Indeed, he thinks the problem was that the law prevented him from playing a more direct and publicly active role. He told his hometown paper, the Sarasota Herald-Tribune, "I don't think this [the company's failure] would have happened if I had been involved."
The news does not get any better as we move up the food chain to the big boys.
Nationwide is the latest insurer to announce it is pulling back from our homeowners' market. In October, the company said it will not renew 60,000 policies next year. Nationwide was the eighth largest insurer in Florida at the end of 2008, with 129,000 policies and $25.6 billion in exposure, according to OIR records. Allstate has dropped hundreds of thousands of Florida homeowners' policies in recent years. The negotiations between OIR and State Farm Florida for the carrier's withdrawal from the state continue, with no agreement in sight.
Meanwhile, the under-funded, state-run Citizens Property Insurance Corp. remains Florida's largest homeowners' carrier, sweeping up policyholders like a Category 5 hurricane.
Speaking of Citizens, the company is denying Chinese drywall claims, then sending out notices to people who file such claims that their policies will not be renewed if the damage is not repaired within six months. Universal North America, the 12th largest insurer in Florida with about 105,000 policyholders, has taken a similar position. A homeowner in Hallendale Beach received a notice of cancellation in September after filing a claim. The letter said the cancellation was due to an "unacceptable condition — the dwelling was built with Chinese drywall, which has been shown to have adverse long-term effects on the plumbing and other dwelling components."
In a rather remarkable statement, OIR's Tom Zutell said of the Chinese drywall cancellations, "We are staying out of the fray at the moment."
Wasn't that part of the problem with the American Keystone tanking?
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