The Florida Office of Insurance Regulation approved several important changes to Citizens Property Insurance Co.'s homeowner policy that Citizens hopes will curtail the current litigation trend by insureds, assignment-of-benefit vendors and their attorneys.

Citizens, as well as other private insurers in the state of Florida, have seen a significant increase in property damage claims and lawsuits over the past few years. Many of these claims are brought under an assignment of benefits, or AOB, after repair work is done to the property. In changing the policy language, Citizens hopes to reduce the litigation and avoid additional increases to its policyholders' premiums.

The two most important changes are:

  1. Reasonable emergency measures: In case of a loss to covered property, policyholders are required to take emergency measures for the sole purpose of protecting the property from further damage. The reasonable emergency measures are limited to the greater of $3,000 or 1 percent of the Coverage A limit, unless the policyholder receives Citizens' approval in advance to exceed this amount.
  2. Loss reporting: Policyholders must give prompt notice to Citizens. But there may be no coverage for permanent repairs that begin before one of the following occurs: 72 hours after the loss is reported to Citizens, the loss is inspected by Citizens, or verbal or written approval is provided by Citizens.

Citizens and other private insurers that may seek similar changes in their policies are hoping this will provide them an opportunity to inspect the loss before the insured begins repairs. The recent trend in South Florida, as well as other areas of the state, has been for the insured to hire a third-party vendor, a contractor, plumber or water remediation company, assign the rights to the policy to the vendor and allow the vendor to make repairs to the home. Many times the insurer will not get notice of the loss until after the vendor completes emergency measures or permanent repairs. The vendor may submit an invoice to the insurer in the tens of thousands of dollars.

It is important for an insurer to inspect a loss and have the opportunity to evaluate the cause of loss and extent of the damages. When the policyholder discards the damaged property or makes repairs, the insurer is at a disadvantage.

In Florida, it is important to know whether a policy provision is a condition precedent or condition subsequent. A condition precedent is an obligation that must be performed before the insurance contract becomes effective. Failure to perform a condition precedent presumes the insurer was prejudiced. A condition subsequent, or a cooperation provision, requires the insurer to prove it was prejudiced.

Although insurers and their attorneys argue inspecting the damaged property is a condition precedent, several trial courts have held this provision to be a condition subsequent. It is hopeful that the new policy provisions will provide the insurer an opportunity to inspect the property. The new policy language is clear that there may be no coverage for permanent repairs if Citizens is not provided an opportunity to inspect.

We anticipate policyholders, public adjusters and their attorneys will argue these new provisions are onerous and that the reasonable emergency measures provision is unreasonable. The policyholder may argue that once emergency repairs commence, it is unknown what the final cost will be. Of course, the simple solution is to report the loss immediately and advise the insurer that reasonable emergency measures may exceed the policy limitations.

We believe these policy changes balance the policyholder's need to repair the property and the insurers' ability to inspect the loss. There is no question the new policy provisions will be litigated, and it will be crucial for attorneys to analyze the courts' decisions and how best to protect an insurers' rights.

Originally published by the Daily Business Review, July 8, 2016

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