’04 Court Ruling Could Hurt Fla. P-C Industry
National Underwriter News
April 13, 2005
While Florida state lawmakers consider a raft of measures dealing with the record 2004 hurricane season, one particular item could make or break the property-casualty industry,
The legislators are considering a provision to reverse the effect of a 2004 Florida 4th District Appeals Court ruling that in effect requires carriers to pay total replacement costs for a destroyed home, even if flooding caused most of the damage.
"It is the most important property-casualty issue in Florida right now," said Sam Miller, president of Florida Insurers Council. "And if it is not handled appropriately, we will have massive rate increases."
In Mierzwa vs. Florida Windstorm Underwriting Association, the court ordered insurers to pay the full value of the homes destroyed by the hurricanes. Insurers argue they should pay for only that portion of the damage caused by wind.
"The court took a 100-year-old law that used to apply to fire to say that wind insurers can be held liable for flood damage if a home is totally destroyed," Mr. Miller explained. "We have never paid flood losses before and never collected a premium for flood losses before."
The court's ruling "is an incredible jump that will require incredible rate increases," Mr. Miller added.
Currently about 1,000 claims are being denied because they are based on flood damage. Carriers hope they will get a favorable ruling in another appeals district, which would then force the issue to the Supreme Court.
But Mr. Miller said that process could take more than a year, and so the insurance industry is seeking legislative relief. The House Insurance Committee approved the measure, but it was removed at the Budget Committee—an action Mr. Miller attributed to the efficacy of the trial lawyer's lobby.
"If we can get the legislature to reverse Mierzwa retroactively, we may or may not continue with the other legal stuff," Mr. Miller said. But a retroactive legislative reversal may not withstand court scrutiny, Mr. Miller opined.
Competing hurricane legislative packages are moving through both the House and the Senate.
David Reddick, state affairs manager for the National Association of Mutual Insurance Companies, said the hurricane bills "differ on several provisions, which have caused local lobbyists to observe that any final version will not be worked out until the last week of the session."
The legislature is set to adjourn May 6.