New Insurance Laws Passed by The Florida Legislature Impact on Condo Associations and HOAs
Jon Lemole, Esq.:
Well, I want to welcome everybody today, and thank you for joining us. My name is Jon Lemole. I'm a partner at Tannenbaum Lemole & Hill. I'm joined today by my partner, Cindy Hill, and we have some distinguished guests, which I will introduce or actually let them introduce themselves in a second. Just by way of background, our firm is a full service community association firm. We handle general counsel representation for community associations as well as litigation. So our firm does both. Alan Tannenbaum and myself head up the litigation team where we handle covenant enforcement, collections, construction consulting, major repair, project consulting, construction litigation, construction defect litigation, turnover claims for any of your associations that are getting ready to or have recently gone through turnover. That's what I do. Cindy, why don't you tell us a little bit about what you do with our firm?
Cindy Hill, Esq.:
I'm Cindy Hill and I do general association representation. So your day in, day out, condominium homeowner association issues, that's what I address and I do it all day every day.
Jon Lemole, Esq.:
So I venture to say that there's not many things that are more vexatious to the management and operation of a condo association or HOA right now than insurance coverage. Within the last couple of years, it seems like there's been a perfect storm, and that is a pun very much intended, between spiraling premiums, non-renewals, hurricane claims, especially for community associations in southwest Florida. We've seen carriers pull up stakes. We've seen carriers make increasingly restrictive inspection demands. We've seen carriers requiring roof replacements on roofs with reasonable remaining life expectancy. Reinsurance rates have driven up premium costs exponentially. Property value is increasing. That's both a blessing and a curse. We've seen a tragedy in Surfside place a spotlight on building maintenance like it's never been placed before.
We've seen what some may believe is a runaway assignment of benefits regime, which drives out of control litigation against carriers and stress on insurance. And a series of devastating hurricanes have produced massive claims. We don't envy your position. You're dealing with a very stressful situation. Arguably with these concerns in mind, Florida legislature recently went into special session and produced what is supposed to be an insurance relief, some insurance relief legislation. So today we want to give you a very introductory overview of this new legislation. We have an hour, so this is going to be a very 30,000 foot view of this, but more importantly, we want to discuss how this new legislation affects you on the ground. Does it really help or is it just a bailout for carriers? And we want to provide you with some practical advice along the way to help you with your renewal efforts in making sound decisions when faced with potential claims as a lot of us are facing and have faced recently with the hurricane.
So we have a very distinguished panel. Cindy and I are going to not do too much talking today, so we're happy to sit back and let our distinguished panel here handle this. So carrying the ball today will be Dave McMahon who's a senior commercial advisor at Atlas Insurance. Mike Angers, who's a senior VP at Brown & Brown Insurance, and Kelly Fantetti who's a partner with Stockham Law Group. Stockham Law Group is a firm which focuses on first party insurance claims and litigations. Dave, why don't you start and tell us a little bit about what you do? And then we'll go to Mike and then Kelly.
Dave McMahon:
Hello and thank you. Welcome everybody. Appreciate the introduction, Dave McMahon with Atlas. Atlas Insurance has been around for 70 years, three divisions, the commercial, residential, and financial. In the commercial we serve hundreds of associations in the tri-county area of Manatee, Sarasota and Charlotte County and have a great staff that has over 100 years of experience and I rely on them. I might be the one in front of everybody, but quite frankly, they're the backbone of the business. Thank you. I'll turn it over to the next.
Jon Lemole, Esq.:
Mike, how about you? What do you do?
Mike Angers:
What I do. Well, Mike Angers. I've been doing condo association insurance for 27 years. That's all that I do. I'm with Brown & Brown. We have about 450 offices, I think 30 some in Florida. So I have a great pulse on the marketplace. So obviously you can see the gray hair here. That's from just years and years of working with associations, but we do it. We've been probably the largest writer of condos for the past 10 years in Florida.
Jon Lemole, Esq.:
Okay, thanks Mike. Kelly, can you tell us about Stockham Law Group and your practice?
Kelly Fantetti, Esq.:
Sure. As you mentioned before, our focus is almost exclusively on first party property issues. So we represent homeowners, business owners, condo associations, homeowners associations in claims against their insurance companies. If anything is improperly denied or underpaid, we deal with those and pursuing claims against the insurance company.
Jon Lemole, Esq.:
Okay, thanks. So Mike, let's start with you. We want to talk about how we got where we got and where we are in Florida and in particular with the Florida insurance market and property insurance market. So if you can talk to us a little bit about the storm that we're in, how we got here. Maybe you can tell us a little bit about the reinsurance process and some of the things that Citizens was facing, and kind of set up how we are where we are.
Mike Angers:
Yeah, definitely. Let me first start off by saying, please let's not shoot the messenger or messengers today, myself and Dave. We're just bringing the facts today. My insurance myself and not just associations are getting hit, but homeowners, anybody that owns property in Florida is getting hit. We're going to talk about associations today, but let you know that we feel free to, we've been doing this a long time. We understand this is a large budget item, so we both David and myself take that very seriously. So I want to make sure everybody understands because I hear things in the marketplace from my clients and it kind of bothers me sometimes that they really don't have an understanding of where we are and how we actually got here. The reality is this. Been doing this 27 years, the market goes up and down peaks and valleys. This is one of those big peaks and honestly, this is the worst peak that I've seen in 27 years, and I'm sure David will agree with that.
And it's getting worse by the day. Every day I open up my email, it's a little bit worse, but why is that? People say, I haven't had claims, we haven't got hit that hard in Sarasota, why are we being affected? What the heck's going on here? Well, the insurance companies are obviously doing many things. They protect you for the hurricanes and then they plan for that. What they did not plan for is all the lawsuits. So what's going on is if we all remember Irma in September 2017 hit. That went, came and gone, we dealt with the claims. Then all of a sudden we had an aftermath of a ton of claims, a lot of fraudulent roof claims probably two or three years after the fact. Carriers weren't ready for that. Since then, we've had continuous roof claims, fraudulent roof claims. And what I mean by that is to where there's people out there soliciting roofers, insurance agents, attorneys, engineers, hey, we can get you a new roof. Sign this assignment of benefits, we'll get it done for you.
Boom. They don't need it. It's not an insurable loss, it's just maintenance reserve, but they're going out and filing these million dollar claims. So all of a sudden the carriers are like, wait a minute, we weren't prepared for this. Okay, they're getting hit in the gut. Fast forward, all of a sudden, here comes Ian, this past year that was the final punch. So the carriers that were leaving the state already because of all these lawsuits, now it's just that final push. So people say, well, wait a minute. These people have been making money for years. Why are they leaving us? Think about this. If you're an investor in an insurance company and for every dollar you take in, you're paying out $2 and 50 cents. You can't make a business like that. So David's going to talk about some of the new changes that will hopefully help us.
It's not going to be a quick fix, which I'm sure he'll talk about, but until we get a hold on and these carriers are comfortable that they can come back and do business in not being sued left and right fraudulently, we're going to be in a tough boat. Where's that put us? So when the carriers leave the state, and we've been in this situation before, anyone that's been in Florida, I was born and raised here, we've been in this boat before. When the carriers leave the state, what do we got? We got Citizens, which is the state pool. State pool was formed. It was actually formed as the FWA back in '92 after Andrew. Then it became the JUA. It's now since I think 2002, I could be wrong on that date, it is now called Citizens, but they're out. Their setup is to provide temporary placement for people that can't find coverage elsewhere. Seven years ago, 10 years ago, tons of people were in Citizens. Then the market came back, the carriers came back and everybody left Citizens.
That was fine. But what we're seeing now, Dave and I talk all the time, is Citizens now when we need them, the state, a non-for-profit, unfortunately their guidelines are tougher than any carrier out there and they're actually declining people. So it's putting us in a very tough spot. Not only are they declining people, but the ones that they are looking at... Dave and I are coming in with these increases. I saw some of these comments before. What increases are you seeing? Shoot, I've seen anywhere from 25% to over 900%. Not only that, imagine Dave and I are having to go out there and deliver these increases the day before. We're not getting some of these numbers, so we need to get a fix to this. And Dave's going to talk about it himself, but I personally, the legislation is not going to do anything immediate for condo associations in my eyes, and Dave will talk about that.
I think it'll help out on the personal line side, but condos, it's going to be a long haul for all of us. So I know that was long winded, but that kind of sets the stage on where we are and then David can take it and tell you what the new legislation was and how that will help us out.
Jon Lemole, Esq.:
Mike, can I ask you though, before we go to Dave, can you talk a little bit about... Because it seems to me like a big component of the legislation is focused on the reinsurance market, and a lot of folks here may not understand what that really means. And how does the reinsurance market, or does the reinsurance market really drive a lot of the problems that we're facing? Is there an over-reliance on reinsurance carriers? And talk about maybe what's perceived to be the bailout via a reinsurance pool.
Mike Angers:
So let's think about this. You hear reinsurance. What is reinsurance? How does that work? So you may see a carrier, whether it be American Coastal, Centauri, Heritage or whoever on your policy for an association, but what you don't see behind the scenes is all the reinsurance. It's basically insurance for an insurance carrier. Let's just say in a typical loss like a Heritage or an American Coastal, their entire book of business may be through Ian gets hits, I'm just going to throw a number out there, a billion dollars. Out of that billion dollars, Heritage may only be on the hook for the first 5 million. The rest is shared between all these reinsurers. And they build these reinsurance treaties once a year, they negotiate them. And it's insurance for these insurance companies. What's going to happen here, Jon, is these reinsurance treaties are negotiated typically once a year, sometimes twice, but typically once, and it's typically somewhere around the beginning of the year.
So the rat that we've been feeling already that was just knee jerk, these are knee jerk increases and changes in terms and conditions. Once these reinsurers meet with these carriers and say, hey, we got killed last year with the hurricane. We got killed with all these lawsuits. We're in thousands of lawsuits from Irma still. Here's our offer going forward. Here's the cost of it. Here are the terms. And they give it to the insurance carriers, and that trickles through to us. Now we've got this new legislation that helps these carriers buy up to a billion dollars of reinsurance at a discounted rate, a billion dollars. I mean, realistically, that's nothing in the world of insurance in today's world. Think about it. I think, what are the numbers here in Ian? I'm hearing like $70 billion. So that fix that they're saying is a change in legislation that's going to help us, I don't see that doing anything.
Dave McMahon:
I'll just make a quick addition here. One thing that Mike and I talk about quite a bit is how it was too little too late for this particular crisis. In the past, in 2004 and five, after we had all those hurricanes, we were not only able to rely on Citizens, but the surplus, excess and surplus, the Lloyd's of London type markets to help support the risks that we insure. The problem with this one is the excess and surplus markets, they just walked away. They are frozen. They offer us nothing of value, and consequently we have to go to Citizens who's become more difficult to work with. So the combination of that reliance and when they made the decision not to participate in the market anymore, it really put us in a very difficult position in this crisis compared to the past. And part of it is, and again, too little too late, we know the lawsuit's going to be coming because of Ian. We still deal with them because of Irma years later. So years from now, net 2023, the rest of 2023, '24, we're going to see the lawsuits from Ian. And that tale of losses is something very difficult for the carriers to predict and is a part of the reason why they're basically have picked up the Santos and left.
Jon Lemole, Esq.:
One of the key aspects or main aspects of the new legislation is this $1 billion, and Mike, you hit on it a little bit, this $1 billion reinsurance pool. And based on the numbers that you were throwing out there before, Mike, it sounds like this is really a drop in the bucket. Is this going to have any impact really on rates on the ground for insurers? Or is this really just as some people said, a handout or a bailout for reinsurers?
Mike Angers:
No. I personally don't think it's going to have any effect at all. I mean, not even a smidge. And as Dave says, this problem, we've seen this coming. This didn't happen overnight. So I know that Dave's team lobbies, we lobby, and we actually have somebody on the board of directors at Citizens now. Nothing in the state or the legislation changes overnight, but it has me scratching my head that we are in this position. Dave and I are fighting on a daily basis. When I say fighting, I say fighting harder than I've ever fought in my 27 years to get the state pool, which was set up to help us in this situation to insure us, to insure something. Not a matter of get them a good rate, we just want to get them insurance and they're declining probably 50% of the risks that are out there.
And Dave will talk about the roofs and everything, but it's really tough to explain that to your client when their mission statement is to provide temporary housing to people in this type of environment. So everyone is frustrated. We're frustrated as agents because we are the front people trying to present this. We're trying to do the best job we can, but the tools that are out there as we are talking, all the carriers left. So now there may be only one carrier providing a quote, which is Citizens and the quote's astronomical with terms that are ridiculous
Dave McMahon:
That come days before the renewals do.
Mike Angers:
If it's Citizens... You want to hear something interesting? I was talking to the underwriter at Citizens, our underwriter, and she says she has about 50 submissions on her desk, 50 submissions that have an effective data one, one or prior that she's working. One, one. That was yesterday, that's 10 days into the policy. Citizens is overwhelmed right now and it's going to get worse because we're getting into what we call condo season. And Dave, I mean, it is overly frustrating that they're just not getting it.
Jon Lemole, Esq.:
So let's switch gears and talk about A, some of the provisions in the bill that relate to Citizens coverage because if I'm not mistaken, there are some new requirements, and what can we do? What can condo associations and HOAs do in this environment and in view of this new legislation? Dave, you want to tackle that?
Dave McMahon:
I think first and foremost, Mike introduced it with assignments and benefits. In one way attorney fees is the problem and I think stick with us on some of the minutia here of the bill, but I think everybody will be very interested in what Kelly has to say when it comes to talking about the assignments and benefits in one way attorney fees and whether it helps or not. You as an insurer, when it comes to some of the things that are going on, the $1 billion reinsurance pool, that might be nice, but keep in perspective the chaplain tower that went down, that was a billion dollar event. You can just imagine when we get hurricanes for 40, 50, 60 billion, it helps, but it's [inaudible 00:19:49] gesture in our opinion, what really needs to happen to create a more healthy market. But we'll take anything we can get and one billion reinsurance pool may help some of the emitted less financially secure people or carriers grab some additional money prior to building their tower of reinsurance that they need to protect them.
Reinsurance is just a shock absorber for these carriers that are not financially secure or do not have the financial wherewithal that you would typically see in other parts of the country. When it comes to some of the technicality, Citizens is requiring flood insurance now if you're a Citizen's policy holder. So if you're a residential policy holder for new policies with Citizens, if you're in a flood zone, you need to have a flood policy by April 1st. If you're entering Citizens for the first time and you're in a flood zone, you need to have a flood policy. If you are renewing with Citizens and you're in a flood zone, you will have to get a flood policy by July of 2023. For other zones, dependent upon the value of the property, they will glide path you in and require you to have a flood policy. So the question becomes was it wind or was it flood?
And at times there is a combination of damage, one by flood or one by wind, and Citizens is now going to require flood to manage that, their portion of the loss and they will manage the lesser portion of their loss dependent upon how the adjusters agree if it's a flood or a wind issue. Now, does it apply to condominiums associations? Not the master policy, but it does apply to the HO6 policy, the unit owners. If you have to get to Citizens, you'll have to go ahead and follow the path of what Citizens requires in terms of a flood policy. Now, further down-
Kelly Fantetti, Esq.:
Does that apply even if the unit owner is on the 25th floor?
Dave McMahon:
Great question. I would assume it would apply no matter what.
Kelly Fantetti, Esq.:
My reading of the bill is that there's no exceptions.
Dave McMahon:
That's right.
Kelly Fantetti, Esq.:
So it's kind of interesting the way that portion of the bill was written that these unit owners and these high-rise condos are going to have to have flood insurance.
Dave McMahon:
I think what it is, Kelly, it's the possibility that the building gets condemned because the erosion is so severe that you saw that on the East Coast with Nicole and that sooner or later if it did collapse because of the erosion on the beach, that when the corp engineers considering it's uninhabitable, you have to have a flood policy even if you're on the 10th floor. That's my gut when it comes to that, but I don't see an exception to that. They went ahead, and there was a time Mike and I dealt with this more in 2004 and five, and if there was a private carrier that was more expensive if you will, within a Citizens policy that you still had to go with a private carrier because Citizens was again, a last resort and you had a carrier that renewed you but at a higher rate than you can get with the state program. They don't want that. So basically they have a threshold of 20%. If the private market premium is within 20%, we cannot enter Citizens.
Again, comparable coverage. My feeling is Citizens will determine if that's comparable coverage, but if they are the last resort, a organization that had about 450,000 policies three, four years ago and are ballooning to 1.5 million finally by the end of this year, that's how dysfunctional the marketplace is. They don't want the business and they're going to have to figure out how to get rid of it, so they increase the threshold. If a private carrier gives you a renewal or a quote whatsoever, but it's more than Citizens but less than 20%, you have to take that quote.
Cindy Hill, Esq.:
Dave, there's a question in the chat that I think might be worth clarifying. One of the participants says, is flood insurance required by Citizens if you are not in a flood zone?
Dave McMahon:
If it's not in a flood zone, you will go ahead, and it's based upon insured property value and it will begin to phase in in 2024 through 2027. I do not know what the property valuation steer steps are. We talked about 500,000 plus, 50 plus, a million plus of property value. Then they'll go ahead and start demanding that you have a flood policy, but that's not until 2024.
Kelly Fantetti, Esq.:
My understanding is that at a certain point they're going to require every Citizens policy holder to have flood insurance regardless of flood zone, but it phases in slowly.
Jon Lemole, Esq.:
That is true.
Kelly Fantetti, Esq.:
So it's not going to be for several years until that kicks in for everyone.
Dave McMahon:
Yeah, there's a little bit of a budget.
Mike Angers:
And that's residential, Dave. I'm being clear, that's residential right now. That's not commercial residential which is the condo associations.
Dave McMahon:
Right.
Mike Angers:
So everybody's clear.
Dave McMahon:
That's correct. Thanks, Mike. Let's see here, what else? That was that behind. I think the biggest thing is, I think Mike and I continue to hammer this to everybody involved and that is what do you do? Right now I think everything we've provided you have no control of. So the question is what do you control if you're not an association board or even a unit, what do you control? And that is first understanding the history of the cycles. Understand that this history will soon pass like it did in 2004 and five. We have a lot to handle now, but it will take time. Cannot move this Titanic ship overnight. I don't anticipate, neither is Mike, anything will change in 2023. It's going to be a fight every day, every week, every month. Possibly in 2024 we see some stabilization if the reinsurers start to come back into the market or admitted carriers come back into the market.
But what you do control is the number one underwriting criteria, and that's roofs. You have to control roofs. That, regardless of a high rises or not, garden style communities two high rises, the roof is the number one underwriting criteria and they are demanding inspections. They're bringing the drones out to inspect. They're asking for updated reports, the engineers to give an inspection, roofing companies to give inspections. And you have to meet criteria of having a solid roof. And you've heard 15 years, you've heard 20 years. There is a lot to those dates, but they are becoming very severe in how they look at roofs and whether or not they will enter in an agreement to go ahead and insure you. Besides that, because of what happened in May or in the special session, we know the high rises have a burden now to be more well maintained, so they're asking for engineering reports.
Do you have an engineering contract with an engineering company? They're asking for more underwriting data on the concept of maintenance, not just the roofs. It could be the painting and water, it could be restoration. Anything and everything related to what was done in May in that special session, they are asking questions about. So you control maintenance, you control the roof, you control some of these investments and these are the things that Mike and I look for because we're trying to make you look good out there in the marketplace and we need every bit of information.
Jon Lemole, Esq.:
Hey Dave, let me ask you a question. Dave can I interrupt for a second? 'Cause you raised the issue of the safety legislation that was passed last year. I talk a lot about that. In fact, I did a presentation yesterday to a group of managers cams on the new legislation and one of the things I hear frequently obviously is that, oh my gosh, this is going to cost a lot of money to do these inspections and comply with this regime of milestone phase one, possibly phase two inspections. But can you flip it on its head and look at it as a blessing in disguise too? Because if you do those inspections and you do well and your buildings have a clean bill of health we'll say, after that phase one milestone inspection, do you think that that would affect underwriting rates for renewals? Is that a positive thing that will be looked at by carriers? I would think it would be.
Dave McMahon:
Yeah, it's definitely leaning that way. We thought when they provided mitigation reports, they were looking at increases or decreases based upon who you are at that address. It's even getting more intense granular underwriting. They are no longer flying at 10,000 feet saying this zip code we're going to have increases or decreases in rates. They are looking at building by building, association by association, what have you done? And unfortunately, I think kicking the can down the road for those associations that have done that, those days are over and you have to be on top of your game to go ahead and prove as they allocate capacity and they determine the rate, are you worth inuring? And if they don't look at those logs, maintenance logs, those engineering reports, those mitigation reports, they can say we're not offered insurance. And then the Citizens is going to be more strict and they're going to have the higher rate, there's no question about it over time. Right now they may be less expensive, but wait until Citizens catches up, they're going to get more expensive rather quickly.
Mike Angers:
Hey Jon, mind if I pigtail on that? I think that can go both ways because that inspection can help you out tremendously, but it could also hurt you. Obviously we all know these inspections are done by engineers. They're going to find issues just as Dave said, they're droning, they're getting more specific in a market like this and you're giving someone, an underwriter that's basically wanting to get out of off the risk anyway. They're basically teething. It's going to give them some ammunition to get off. So I'm being very cautious with those inspections if I [inaudible 00:30:18] because I don't want to hurt the association. There's going to be things in there, and remember this, here's somebody sitting at a desk, maybe everybody's got to know how the process works. There's somebody sitting at a desk with 1,000 at least applications on there. They've got enough business where they can pick and choose what they want, so they're just sitting there, yes, no.
So we want to help them try and get in yes column, but it just as easily we can get them in the no column with one of those engineers reports. If they look at them, they see something or I'm in inspection of the drones, oh my goodness, the drones, they're picking out the worst stuff on those drones. There's a little crack in a tile. I have a new roof two years ago and I've got cracks and they're saying, oh, we want a new roof or we want this. They are being so tough. So I think in the future it's going to help, but I'm also being cautious that it doesn't hurt my clients as well. So we have to. And I know David and I juggle that, it used to be mitigation forms weren't that important. You didn't want to get the new mitigation forms because they took away credits. Now you almost have to get them because you need them with Citizens. So there's a lot of underwriting and things that go on behind the scenes where we take the data you give us and we try and work with the carriers to make you look the best possible.
Dave McMahon:
Mike, don't you think it's probably the intensity of submissions are two to three times more difficult than they used to be four or five years ago?
Mike Angers:
I'd say they're 10 times as hard to get through right now. And it's again too, these guys are being tougher. Think to yourself, this what I was saying earlier, all the carriers left the state, so now we only have a handful. Well, where did all their business go? It went to the couple carriers that are remaining. So now their stacks are like this and they're cherry picking. And that's the reality of it. It's sad, but these guys can sit there and say, we only want the creme de la creme, so we have to make you look good. You have to make yourself look good. We don't want to make you not look good by sending in an engineer's report that may have, you'll look good in another year or two once you do these things. So it's a very fine line. Our job is very tough in the data that we have to give them right now. People think that, hey, just give us a proposal. The data that we have to provide Citizens is astronomical. Astronomical.
Dave McMahon:
One last comment. I'll give it back to Jon, I just want to make people understand this. A lot of question are asked. Dave, can we self-insure? Well, I don't know. Let's say the building's worth 20 million. I don't know how that association's going to come up with 20 million and then some, should there be multiple events. So a lot of times we hear questions of people getting creative or trying to get creative. The bylaws and docs, the Florida statute 718 box you in and they box you in for a purpose. Board of directors come and go, but there's standard things that need to be done on a regular basis and those are done by the bylaws and docs and the Florida statute and of course when we deal with a flood, NFIP, the professional flood insurance program. So it's not like you have a lot of leeway and that's done on purpose. I know you want, Jon, go ahead and take it from here. I know we have [inaudible 00:33:21]-
Jon Lemole, Esq.:
In the interest of time, I want to get to Kelly because in fact one of the comments in the chat is the elephant in the room is litigation and claims and litigation costs. And Kelly may be having a problem with her video, but hopefully she's there with audio. So one of the provisions as I understand it in the new legislation has to do with attorney's fees and claims litigation. So let's talk about that Kelly, and in particular there's some folks that are saying was is it retroactive? If I've got a claim now against my carrier, do I no longer have a right to recover attorney's fees? Take us through some of the legislative changes that are going to affect insured's rights.
Kelly Fantetti, Esq.:
You are correct, I am all of a sudden having an issue with my camera, so my apologies on that. Yes, this is a question I am getting a lot, is does the new legislation affect my claim? Now, it used to be traditionally in Florida, if you had to sue your insurance company to get your claim paid appropriately, if you recovered a dollar against your insurance company, they would have to cover your attorney's fees. They changed that a couple of years ago, I guess that was summer of 2021, they started requiring a pre-suit notice. So before you could sue your insurance company, you had to put them on notice that you were going to sue them and that had to include a demand for settlement. And that demand then became the bar that you had to meet at a trial in front of a jury in order to recover your attorney's fees. And there was this whole mathematical equation based on the percentage of the jury award versus the percentage of your pre-suit demand and the insurance companies pre-suit offer to determine what percentage of your attorney's fees would be covered. Then in the special session that we just had this year in December, they said, just kidding, we're going to get rid of attorney's fees altogether.
So the way that that is supposed to work based on the laws that our courts have set forth is your insurance claim is governed by the laws that are in place at the time that your insurance policy went into effect. So if there is a new law that goes into effect after your policy went into place, if they try to apply it to an existing policy then that is considered to be what we call retroactive. Things that are simply procedural in nature, for instance, this bill has requirements for how quickly they respond to communications, things like that, those may be arguably procedural and may apply retroactively. Things that are substantive rights such as your right to recover attorney's fees if you have to sue your insurance company, or your right to assign a portion of your benefits to a mitigation contractor, those are substantive rights. So those parts of the law definitely should not be applied retroactively to existing policies. Those should only apply to any new policies that are issued after these laws went into effect in December.
That said, I know of carriers that are already trying to apply those retroactively to things that are already in suit and already been litigated, so that isn't to say that the insurance company isn't going to try to argue that there is no right to attorney's fees on Ian claims. We'll see that shakeout in the courts the next couple of years, but the senator that sponsored the bill has said that he does not believe that the law should apply retroactively to Ian claims.
Jon Lemole, Esq.:
Are there any other provisions in the new legislation that affect insureds' rights? I know that there were some language in there maybe about assignment of benefits and burden shifting on claims. Can you talk about those, Kelly?
Kelly Fantetti, Esq.:
Yes. So as of January 1st of this year, insureds cannot assign benefits related to their claim to anyone else. So it used to be if you had a large water loss and you needed to get a water mitigation contractor in there right away, instead of having to pay that company directly and then submit all that to your insurance company, you could just say, hey contractor, I'm just going to sign this contract. I'm going to let you go after my insurance company directly, work it out directly with them and I'm going to take myself out of the process. There was good intent behind those assignment of benefits, and it was a way to allow the insureds to get the work they needed to be done at their home, especially in emergency situations without having them to come out of pocket significantly for these costs. Unfortunately, there were just abuses in that process as Dave and Mike referenced earlier, particularly on the roofing side. Where you had roofers taking assignment of benefits for roof replacements and not actually replacing the roof until they got a payout from the insurance company.
So these homeowners are sitting here with this leaking roof while their claim is in litigation on an assignment of benefits for two, three, four years and they can't do anything to control that. They have essentially lost control over what is going on with their own roof and their own property so that became very problematic. Also, the assignment of benefits gave the contractors the opportunity to kind of hold the insurance company's hostage. So whereas the normal course is you might go out and get several bids for the replacement of your roof and have some competitive advantage of choosing which roofer you want to do your property. Whereas these roofers, you're just, oh, okay, I don't need to get bids. I'll just sign this and you get paid by my insurance company and then they go to your insurance company and demand three, four, five times what the actual competitive market rate is. It became something where the insurance companies were really held behold into these assignment of benefit contractors in a lot of situations.
So it's one of those things where it was done with good intent, but became an abusive scenario. So the legislature has now said no more, we're not allowing that at all. So if you entered into an assignment of benefit contract before January 1st of this year, that should still be enforceable. If you try to enter into an assignment of benefit contract this year or anytime moving forward, it's not going to be enforceable against your insurance company.
Jon Lemole, Esq.:
Yeah, you have some information here about claims reporting and time limits on claims reporting. I would imagine that's pretty important, and probably more importantly because of that window that you now have. Investigation of your claim and your damage, there's a real spotlight on that so that you don't miss the boat. Can you talk a little bit about that?
Kelly Fantetti, Esq.:
Sure. The law did not use to articulate a specific timeframe for reporting an insurance claim. There was a timeframe for filing a lawsuit, it has always been five years, but there was never a timeframe for reporting. The policies always just said prompt notice or reasonable notice. Then after, I think it was primarily after Andrew, we were getting a lot of claims that were being reported three, four, five years down the road and then they were going straight into litigation because there wasn't any time for adjustment. So the legislature put into place at that point a three year limit for hurricane claims only. And so we operated within that three year limit for a while, and then I believe it was in the special session last year they changed that to two years for all claims, but they gave you three years for making supplements. And what a supplement was defined as is if you open a claim, you adjust it with your insurance company, and then once you start the actual repairs and you discover additional things you can resubmit that to your insurance company. They gave you three years for that.
They have now narrowed that window even further. In the most recent special session, you have one year to report all claims and 18 months to submit any supplements. So that may seem like a long time, a year and a half, but on a massive hurricane claim, especially on a condominium property or if you're a large home one, some people do not discover these damages for some time. Their roof may look like it's okay initially after the hurricane, and then a couple months later they realize it's leaking all over the place and they finally climb up there and realize, oh, I've got a lot of broken or missing tiles. So it may take some people some time to discover, but by the time it's investigated, you get engineers involved, you finally get a payout and then you start doing your repairs, a lot of times you're way outside of the 18 month time period. And so it's going to be really tight for a lot of people, and I think that is going to be one of the things that is going to hurt, that squeeze on the timeframe of making these claims to your insurance company.
Jon Lemole, Esq.:
So in a hurricane situation what we're saying is that time limit would be effectively measured from when the event happened?
Kelly Fantetti, Esq.:
It is from the date that the hurricane makes landfall in the state of Florida.
Jon Lemole, Esq.:
Okay. So then if you do have or suspect you may have hurricane damage going forward, you have a real interest in doing a thorough inspection investigation early on to ensure that you've captured all of the potential losses and damage that your community has incurred?
Kelly Fantetti, Esq.:
And we've been contacted by a number of condo associations, and I know that a lot of condo associations have taken on really high deductibles in the last couple of years to try to offset these premiums. So their hurricane deductibles are very high and they're thinking, oh, well, my damages aren't going to be above my deductible, so I don't need to report it. Report it. If you have any damage, report it because it may end up being worse than you initially thought and you are going to come outside of that one year window very quickly. So if there is anything going on at your property, report it, explore it, figure out exactly what's going on, because once you're outside of that one year it's going to be too late and you're going to be kicking yourself.
Jon Lemole, Esq.:
That's a very valuable piece of wisdom, Kelly. Let's in the next minute or two and then we'll do some question and answer. We've got a lot of stuff in the chat, but let me go back to Dave and Mike maybe 30 seconds each. To start with Dave, give us one takeaway here, in particular, what can associations do to put themselves in the best position to either get renewed or to control their renewal premium?
Dave McMahon:
I would say control the controllable variables, and that is really walking through and thinking about your property from a roof standpoint, from painting, from restoration, control what you can control and plan for it. The second thing is, and Mike and I don't see a white horse coming down with a few carriers saving the day. So you cannot have your head in the sand in this crisis, that's why you're on this Zoom call and I would say you have to plan out next year, two, three years in terms of what's really happening. Appraisals are going up. Rates are going up. This is not going to be settled in a year, maybe even in two years. Plan accordingly and control what you do so you can make us help you look good out there to the carriers that want to write your business. Mike?
Mike Angers:
Yeah, I would agree. I think the key is it's a lot of data. I know I'm causing a lot of managers and boards headaches asking for more data, but the more data we have on the roofs, updates, any kind of update information makes you look better. Obviously think about it, we're painting that picture for an underwriter sitting at the desk with thousands and thousands of applications. Yes, no pile and then they rate it up. You hear what are the rates going to be? I had somebody send me a table of rates today, hey, is this table right? No, I can't get my thumb on what the rate increases are. I know everyone that's a huge concern, I've seen a couple things pop across. What are my rates going to be? I don't know. They're going crazy. Citizens and the rest of the carriers, I don't know if we're going to get out of this if we don't fix the contractor's roof fraud. It's interesting, in May we had that legislation pass, I think it was bill 2(d) talking about putting the hammer on the people for contractor solicitation for roofs.
After Ian, the day after Ian I was out on Siesta and Longboat Key talking to some of my clients, and they had people soliciting, hey, I see Ian damage. Let's talk about a new roof. Let's talk. I went out to Siesta, they barely had any damage out there. I mean, I grew up on Siesta. So until we can curb that, the market is going to continue in the path that it's because that tale of all those lawsuits is building up. And as we know, anybody that's been in a lawsuit and Dave you see them every day like I do, it doesn't happen overnight. There's attorney's fees, there's investigations, and it's not just 10, 15, 20, you're talking thousands and thousands. Everybody wants something for nothing. They think the wind blows, they strike gold. That hurts us all. So-
Dave McMahon:
We have about five, 600,000 claims from Ian, I believe, but that's the right number. And you can just imagine the percentage that are going to be problematic from that to Mike's point.
Jon Lemole, Esq.:
Look, let's get to some questions with the time remaining. There's one here that Susan Brown asks about new roofs. I think the question is what is accepted as a new roof? Is it recoated roof or a new coating over the roof satisfy as new roof? Can anybody tackle that?
Dave McMahon:
Yeah, I think we smiled at the same time because this is one that we hear. Remember a coating in their eyes, and nothing against those that are doing this business. And at one time it was okay, but it's just not okay because they perceive it as a band-aid over an existing or an old roof that does not meet code. What Florida is recognized for is that new buildings meet code, and they're doing a darn good job. Well, you're putting a coating over an old roof system and that does not meet code and they're trying to get everybody to get to the code that they feel very confident in that that works.
Mike Angers:
Agreed.
Jon Lemole, Esq.:
Okay. There's a question, and maybe this is for you Cindy, there's a question about selecting an insurance agent and whether or not that can be done unilaterally by the president of an association. Maybe you can provide some perspective on what are good practices for a board in selecting an insurance agent or carrier and maybe being protected by the business judgment rule.
Kelly Fantetti, Esq.:
Well, as with any big business decision, the board should be making the decision. Now, it could be that an association, that the board could delegate to the president and specifically say at a meeting president, we want you to go out and research and choose our agent. But odds are that's not what's happened in this question. A board president, and candidly I see this with my volunteer boards, sometimes the president thinks that as the role of president they somehow have a higher power than the rest of the board members. But that's actually not accurate, the only real power the president has is to run meetings and even then the board can vote to have someone else run the meetings. So best protocol will be to have the entire board reviewing proposals from agents, interviewing agents and making these decisions. And these are very significant decisions. Not to put anybody down, but this is not a decision about who to hire to do the landscaping, which is also important, but these are very big decisions in terms of making sure that you're going to have coverage.
Which I've had a number of my associations after Ian come back and say, we trusted our agent, we signed onto this policy and then we found out we had this enormous deductible and we really didn't know. And I'm not blaming the agent in that scenario, everyone should be reading and asking questions and be involved with these decisions, but I'm using that as an example. The entire board really should be involved in these processes.
Jon Lemole, Esq.:
Mike, they're coming out to inspect your buildings because it's renewal time, talk about just some real practical things. I mean, you don't have time to maybe do a full maintenance protocol, but what are some just basic no-brainer type things that an association can do to give themselves a leg up here?
Mike Angers:
It's pretty simple. The idea is to try and make yourself look good, properly maintain your association. As Dave said earlier, the better you look, the better chances you are that you're going to be accepted. It's not a matter of rate difference, it's a matter of acceptance. The rates are the rates with these guys. It's a matter of being accepted and looked at that pile and put in the good pile. So whether it be just maintaining the exterior of it, painting on it, obviously the first question, Dave and you know this, and the first question we get ask is, when was your roof updated? Recoatings obviously don't count. Roof is number one, and then they go to the rest of the big updates, which is the plumbing and the electrical. So they just want to make sure that they're just not buying into a problematic associations. There's a lot of nice associations out there that do this, there's a lot that literally as we know it just will do whatever is necessary to keep the building standing. So you need to show them that you are one of the good associations and the budget is including in the way you reserve, so they just want to make sure you take care of the property.
Jon Lemole, Esq.:
Kelly, I got a question for you and maybe you covered this and I zoned out for a second, but given the new insurance fee provisions, is this going to put a real chill on associations wanting to pursue claims in litigation or even lawyers wanting to take on those claims? Provide some perspective on how this is going to affect that first party litigation where attorneys fees may not be available?
Kelly Fantetti, Esq.:
It will certainly put a chill, especially on smaller claims. So if you have a single family homeowner or condominium unit owner where there's less than $100,000 in damages in dispute attorneys will think twice about taking those claims. Especially because it used to be that we could get the insurance companies to pretty reasonably settle a strong claim quickly and then we don't need a lot of fee for that. We're getting it resolved for the insured, we can take the small claims and resolve them for the homeowner or the property owner fairly quickly. Now, the insurance companies are taking more and more of these all the way through to a trial. So if I'm considering taking a case, I have to consider I'm going to be working on this for possibly two years through a jury trial. If I'm taking it on a contingency fee, which is just a percentage of what the claim value is, as an attorney who has to feed my children and pay my mortgage, can I afford to take on this claim on a percentage? And the reality is by the time my percentage comes out, any costs and things of having to litigate this come out, there may not be anything left for the property owner to actually fix their property.
Even if I win, even if I get a jury to say, oh yes 100% of what you're asking for you deserve it. The homeowner may be left with nothing at the end of the day. So I do think there will be a significant chill, and that is what they wanted. They wanted to stop a lot of these lawsuits, but I think the people that get hurt here are the owners with the smaller claims for sure. I think the association claims the bigger things, those are still going to be able to be litigated where it's large enough to make it financially feasible. The smaller ones, people are going to get hurt.
Jon Lemole, Esq.:
Yeah, but you still have the same problem with the larger claims. If your claim value is, I don't know, just throwing a number out there $2 million, but at the end of the day, after paying your attorney's fees, you've got a much lower amount in your pocket and how do you get the repairs completely done? I understand the motivation is to reduce litigation and control litigation costs, but I think at the end of the day that may end up hurting, as you say, hurting insureds who have claims.
Dave McMahon:
Jon, and Mike and I talk about this and we don't disagree. It's going to be very interesting as the pendulum swung the other way to get to this point. Is there a chance in the future as they look at this to find a happy medium or some controllable arena to that? I don't know, but you make great points, Kelly did as well. I think it does put a lot of pressure on the insureds.
Mike Angers:
Jon, I got a question maybe for the attorneys real quick. And it's something that's going to happen, it's happening elsewhere, it hasn't happened to me yet thank goodness. Say you have an association that can't get full limits, can't get coverage, you got closings, you got board of directors that are sitting there, what do you all as attorneys... I know I had one that was really close. We had attorney involved, there was closings waiting to happen. This is going to happen. It's happening down south, I know Dave and I talked, it's going to happen where people either can't get coverage, can't get full limits, or the deductibles are over and beyond what's accepted. What are you all advising as attorneys for them? Because again, do I want to be the board if I don't have the proper insurance? What about the banks? What are the banks going to do? Are they going to fourth place coverage? What are you guys telling your clients and have you run into this? And if not, it's happening down south I know that because the bigger values down south, it's going to trickle up here because the capacity of these people, they only have so much that they can write. They're running out really quickly, so I'm just curious on your thoughts on that.
Cindy Hill, Esq.:
Well, I hate to say it, but everything that happens down south tends to be bellwether for what's coming our way. So thank you Mike for telling me that because if it's happening at that volume down in Miami area, it's definitely coming our way. There are no easy answers to that. And the reality is, if you can't get a carrier to write you coverage, well, you can't force them to write you coverage. So my general advice though, because I think we could talk another hour about this, is that the boards do need to be doing everything they can to show in the event that this becomes a problem they took reasonable steps to try to get coverage. That they've worked with their agent, that they've reached out, that they've tried to do what they can and they've documented they've tried to do what they can because again, you can't force an impossibility.
Dave McMahon:
I want to mention I just saw a real quick question regarding proposals from agents. I can't get proposals from agents. You won't. Your job as a board is to find the agent you want to work with and assign them to represent you. And I think that was mentioned earlier by interviewing an agent to go ahead to determine who you want to represent you because there's not enough carriers in the state of Florida to manage all the risk. It's only a small number of carriers. You're looking for experienced professionals like Mike, like myself, like the others that are out there that have years and years of experience dealing with these cycles and this stress. But it's not like you could get a phone book and start calling agents, that does not exist in Florida. Maybe it does up north, but not down here.
Jon Lemole, Esq.:
So folks it's 12:03, we'll probably hang out here for another five minutes or so to continue to go through some of these questions. You're obviously welcome to stay with us, but we recognize that some of you have other places to be. Dave, Kelly, Mike, are you guys okay for another couple?
Dave McMahon:
Absolutely.
Jon Lemole, Esq.:
So there's a question here about carports. My insurance rep told me some companies are not covering Carports. Who wants to take that one?
Dave McMahon:
All you, Mike.
Mike Angers:
Well, it's pretty simple. Think about it. They're trying to eliminate the risk. Most of the carports you see out there are like kites. They're open sided structures, they're the first things to go so a lot of carriers already have been excluding them. More carriers are jumping on that boat. So yes, it's going to be tough to find coverage for carports. You may be self-insuring for those in the future. It's been going that direction for a while.
Jon Lemole, Esq.:
There's another question here. So if a condo building is 17 years old and roofs last 30 or more years and we coat with a sealant, that doesn't change the life or add value as a maintenance issue?
Dave McMahon:
I think everybody's starting up get their arms around or maybe becoming more understanding that whatever the warranties are when it comes to roofs and the suggestion that it lasts as long as they do, is not a reality. All that it was done in the past under old laws, old permitting, not modernized to today's ordinance of law features that we feel from a construction standpoint serve wind loads better. So you have an older roof, if the warranty or the roofing company says it will last 30 years, I'd really question that. We haven't seen that. We see 15, 20 years at best when it comes to roofs, it's just a very severe weather pattern here. So when it comes to recoating, they don't recognize that as well. As I mentioned earlier, it applies to an older roof system. Maybe they'll change as new roofs become updated. Maybe that recoating could be a mechanism to extend it, but right now it's not seen that way.
Jon Lemole, Esq.:
Kelly, there's been a couple questions about controlling roof fraud, which I'm not exactly sure what the question is specifically directed at, but I would suspect that's really ties into the AOB, the assignment of benefits issue. That was a source of some real problems, right? With spiraling roof replacement costs?
Kelly Fantetti, Esq.:
Yes. Traditionally like I said, you had a more competitive bid market and that kept the cost of roofs down, and the insurance company wasn't quite so beholden. By eliminating the assignment of benefits, we are kind of getting back into that bid market for the roofs. The other thing that they tried to do is they tried to limit the roofer's abilities to solicit, knocking on doors and talking to people about their roofs and telling people to file insurance claims. But then there was a roofing company that filed a lawsuit for an injunction on that law because they said it violated the First Amendment rights of the business and they've actually been successful in that argument. So the legislature actually backed down on that in the most recent legislation.
Mike Angers:
It has me scratching my head here because through Irma we talked about all the roof fraud and in our area there was one big roofer, an insurance agent and an attorney working together. Obviously this new legislation was passed in May, Irma comes along the same roofer, the same insurance agent and so forth is out there doing the same thing. So I guess the question, and I'm pigtailing off of the other one is how are they going to put a stop to it? It continues to happen. Literally the day after the storm, same people that are in litigation with tons of litigation with the carriers are still doing it. These people are costing us all money. It's killing us. I just don't understand it.
Kelly Fantetti, Esq.:
And that's kind of the sad thing about the changes that were made, is the people caught in the crossfire are the property owners, and they weren't able to find a tailored solution to really go after the bad actors. So they just got rid of everything for everybody, and the people who aren't going to have the resources they need to fix their property are going to be the property owners and it's really unfortunate. So as I think it was Jon who mentioned before, maybe as things shake out we'll be able to revisit some of this and make a more tailored solution, but the way it is now, they've just eliminated everything for everyone.
Dave McMahon:
Killed it. Yeah, killed it.
Jon Lemole, Esq.:
Well folks, I want to thank everybody for joining us. I want to thank our presenters, Mike, David, Kelly, for giving us some really, really helpful information. Cindy, for giving us some perspective from the general counsel seat. As I said at the beginning of this, this has been recorded so if you want to replay it'll be available probably in about a week or so on our website. And our website is www.tlhlegal.com. You can also email, I know there were a lot of questions. We tried to get to some, we didn't get to all of them. If you still have some questions, you can email those to Michelle Colburn,
Dave McMahon:
Thanks, Jon, Cindy and Kelly.
