Note to Citizens: If you deny our claims, we will sue

Depopulation is the wave of the present at Florida’s Citizens Property Insurance Corp. Earlier this year, the state’s insurer of last resort announced that it had shed enough policies to bring the total number of policyholders below the 1 million mark. Citizens hasn’t seen numbers like this since 2006, according to Insurance Journal.

Cynics will wonder, then, how Citizens can pay its enormous litigation bill with so few paying customers. According to state Rep. Frank Artiles R-Miami, Citizens spent $21 million during the fourth quarter of 2013 fighting policyholders over denied claims.

Sinkhole claims are a particular pain point for insurer and insureds alike. It can take years to settle a sinkhole claim, and Citizens’ reluctance to pay carries a pretty big price tag. And the cost just keeps going up: In 2012, Citizens paid about $945,000 per month just defending sinkhole claim denials; by 2013, that bill had grown to $2.05 million per month.

In one glaring example, about 2,100 policyholders filed sinkhole claims more than two years ago. When Citizens refused to pay, the homeowners took the insurer to court. Defending those lawsuits costs Citizens more than $4.4 million every month. The insurer is spending $2,100 per month to deny each claim.

Sinkholes are an ongoing problem for homeowners, their insurers and the Florida legislature. Repairs can be costly, and Citizens says that policyholders are to blame, in part, for the high number of claim denials. As Citizens has it, policyholders collect on their insurance, use the money for something else and sell the property, letting the next owner deal with the damage. That new owner then files a claim for the same loss that the insurer had already covered.

Citizens is aware that its litigation costs are troubling, though, and it has a plan. We’ll get into the specifics in our next post.

Source: Miami Herald, “Citizens legal costs continue to climb,” Mary Ellen Klas, March 17, 2014

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