TALLAHASSEE -- Citizens Property Insurance Co. will be raising its rates for the third time next year and the proceeds will cover more than claims:
They’ll also pay attorneys’ fees — now averaging an estimated $2 million each month — as policyholders battle over getting their claims paid.
Between January 2011 and June 2013, Citizens has spent more than $16 million on lawyers from 177 different law firms who have successfully challenged the state’s largest insurance company on behalf of policyholders. Citizens collects $2.2 billion in annual premiums and has an administrative operating budget of $205 million.
The data was compiled by the state-run insurer at the request of Rep. Frank Artiles, R-Miami, a licensed general contractor and appraiser who has been one of the Legislature’s most vocal critics of Citizens. He and several plaintiffs lawyers estimate that Citizens has spent a comparable amount on defense attorneys’, with total litigation costs exceeding $30 million a year, but the company does not have that data available.
"How can you ask me to increase my premiums when you are wasting away my premiums in litigation?" asked Artiles, who wants the Legislature to force Citizens’ board of directors to keep the company’s legal costs in check. "How can you function as a board when you cannot control your costs?"
The issue presents another prickly management question for the state-run insurer of last resort: should the company continue its aggressive policy of rejecting claims and battling disputes in court, or should it cut its losses early and pay more claims to avoid the costly legal fees.
Citizens Chief Executive Officer Barry Gilway told the company’s board of directors at its meeting on Friday that the company is undergoing an internal study to get a handle on its litigation costs.
He said that 87 percent of all new litigation since January has come from Miami-Dade, Broward and Palm Beach counties and that 56 percent of those claims allege water losses. Many water losses are denied, he said, because Citizens only covers sudden and accidental water damage, not long-term leakage.
“The comprehensive review that we are doing is how do we get our arms around the significant increase in water damage losses,” he said.
Citizens spokesman Michael Peltier said part of the surge in lawsuits since 2010 results from disputes over sinkhole claims.
“We have found that the environment has changed,’’ he said, noting that in many cases mortgage companies are refusing to turn over money paid on a claim to all the parties entitled to it and so Citizens gets sued.
“We are taking the time to go through and systematically determine what our litigation costs are and how it compares with what it was in the past,’’ he said. “We’re responding to a situation in the market and were trying to figure out if we’re responding to it in a cost effective manner for our policyholders or not.”
Artiles believes the increase in water damage claims is the result of cast iron pipes failing in many older South Florida homes — losses that he believes Citizens should cover.
But attorneys’ who make their living battling Citizens attribute the rise in litigation to a 2010 change in the Citizens policies. The board that year removed a clause that required that homeowners to hire a third party appraiser when there is a dispute over the claim. Citizens replaced it with a provision that allows Citizens to decide what should be appraised, not the policyholder.