Citizens Under Fire for Contracts

Over the summer, a newspaper reported that Citizens had signed off on 33 contracts worth $49 million without seeking competitive bids. The South Florida Sun-Sentinel did a review of contracts over $25,000 and found that Citizens had used exemptions in state law to hire companies to process policies, provide software, and manage claims.

In late 2009, Citizens was sued by a Georgia software company after the insurer awarded a no-bid contract potentially worth up to $60 million to a Jacksonville company to re-inspect homes that received wind mitigation discounts. The court case is still pending, but the controversy forced Citizens to scale back the initial contract and to ask for new bids for the overall contract.

The revelations prompted a political backlash because Citizens — which has 1.2 million policyholders — continues to ask for rate hikes to make the carrier more financially sound.

Atwater demanded that Citizens turn over to him detailed information on its contracts. He warned the carrier that if it failed to take "appropriate actions" then state lawmakers would.

In late August and early September, Citizens turned over hundreds of pages of information to Atwater on all contracts handed out from January 2008 to July 31, 2010, that were worth more than $25,000 or where the carrier did not solicit outside bids.

Wallace stated in a September letter that Citizens had approved some 145 contracts that met that criteria and that 96 of them were competitively bid or were under government contract, 31 had expired, 16 were sole-source contracts, one was an emergency contract, and one was exempt from bidding.

"This data shows an overwhelming and clear trend that supports the use of competitive procurements even when an exception exists," Wallace wrote.

Wallace pointed out that Citizens has revised its purchasing policies three times since 2006, but that the company was going ahead and reviving a working group to look at procurement issues.

However, Sink said that Citizens needs to go even further. In addition to the planned change in how it hands out emergency contracts she wants the company to post all of its contracts online, as state agencies do.

"Given the public nature of Citizens' mission, it is important for the public to be able to see the contracts entered into by Citizens, and how Citizens is spending its money," wrote Sink.

Rate Hikes Approved

Despite the backlash over its contracts, Citizens has won permission from state regulators to raise both its homeowners' and commercial rates next year. These approvals mark the second successive year of rate hikes for the carrier following the freeze imposed by lawmakers from 2007 until 2009.

Insurance Commissioner Kevin McCarty in late September approved an overall rate hike of 10.3 percent for homeowners and a 9.2 percent rate hike for comprehensive mobile home coverage. In both instances, Citizens had requested a slightly lower rate hike than the final rate approved by the regulator.

In October, McCarty approved rate hikes of 9.9 percent for commercial non-residential properties located in high-risk areas near the coast, 11 percent for condo associations located in high risk areas, and 8.1 percent for commercial residential policies located throughout the state.

The rate hikes for homeowners' policies outside of the high-risk coastal areas will take effect on Jan. 1, 2011; rates will go up for the high-risk account areas and commercial policies on Feb. 1.

Citizens' annual rate hikes for policyholders are capped at 10 percent by state law. However, the cap does not apply to other charges, including a surcharge paid to the Florida Hurricane Catastrophe Fund.

Even though there have been no hurricanes for five years, Citizens is still considered overexposed. Additionally, Citizens has seen large increases in the number of claims associated with sinkholes and other non-catastrophic losses.

As part of his order approving homeowners' rate hikes, McCarty ordered Citizens to change its procedures regarding sinkholes. McCarty told the carrier to submit a new rate filing by late December that would require an inspection for sinkhole exposure before new sinkhole policies are issued.

Case Heads to Supreme Court

Another potential issue that could affect Citizens in the next few months is a court case related to the insurer's purported immunity from lawsuits.

A divided appeals court in October shot down a request by Citizens to dismiss a bad faith lawsuit filed by San Perdido Association, which had previously fought over the payment it received from Citizens for damages from Hurricane Ivan in 2004.

Citizens asked both the trial court and the First District Court of Appeal to throw out the lawsuit, asserting that it had sovereign immunity because it was created by the state. The trial court judge disagreed and the appeals court ruled by a 2-1 vote that it would not automatically throw out the bad faith lawsuit before the trial court had decided the merits of the case.

More importantly, the court also asked the Florida Supreme Court to weigh in on the case, citing conflicts with other rulings.

A spokesperson for Citizens called the matter "strictly a procedural issue" as to when certain court motions can be made. However, the ultimate ruling could lead to more litigation against Citizens.