This begins a multi-part series examining the epidemic level of fraud in Florida’s property insurance market. It’s triggered by a recent USA Today article featuring commentary and research laying the blame on lax state enforcement.
The article referenced a study by the Office of Program Policy Analysis and Government Accountability (OPPAGA), published February 1, 2021, requested by Senator Jeff Brandes (R-St. Petersburg) and delivered to the legislature, titled: Several Factors Hinder Homeowner and Auto Glass Insurance Fraud Processing.
Both the article and the report provide support for my assertion that Florida’s property market is the most fraudulent insurance system in America. There are more bad actors, illegal and unethical behavior, and more consumer abuse than in any insurance system of any type in any state. (See Note #1 below)
That’s my contention—buttressed partially by dissent that is exclusively from profiteers of the status quo.
For the record, I disagree with the insinuation that the problem with fraud is only lax enforcement and thus other statutory changes aren’t needed. Enforcement is a quantum problem, no doubt. But so, too, are attorney fee’s which often predicate the abuse.
Few understand the level at which attorney fee’s can be a moral hazard, incentivizing some trial lawyers to skate on Bar rules regarding solicitation and other practices or even to break the law outright. (See NOTE #2 below).
This trickles downward to public adjusters who exploit their relationships with these attorneys as a means to circumvent statutory fee caps. This, in turn, trickles further to unregulated water mitigation firms, roofers, loss consultants and those who act like public adjusters but who aren’t licensed.
Through kickback systems, referral fees, intimidation, threats of lawsuits and basic greed, the attorney fee moral hazard cascades even further to plumbers, Condo Mgt. firms, homeowner associations, plumbing supply houses, and I’m sad to say, even to insurer employee’s and their agents.
USA Today quoted Senator Brandes saying, “These schemes have become so blatant that the judiciary is starting to take action”. A likely reference to RICO actions insurers initiate when left to fight the fraud on their own. By their very nature RICO suits are based on an allegation of a criminal enterprise, one that focuses on insurers. (See: Insurer’s Pursuing Fraud with RICO Suits.)
Quotes in the article from representatives of the Florida Association of Public Insurance Adjusters (FAPIA) are on the mark, particularly relating to “unlicensed activity.” Fact is, most gamers are breaking at least one law, sometimes as many as three. But violations aren’t reported and when reported they aren’t prosecuted.
Testament to the exploding nature of the problem is that fraud referrals more than doubled from 2014-15 to 2019-20, for a total of 8,392—all handled by the Division of Investigations and Forensics at the Department of Financial Services (DFS). This, according to OPPAGA.
The study revealed only 979 “cases” were initiated, 129 presented for prosecution and a meager 97 were convicted. Consider that this dreary prosecutorial success doesn’t even regard punishment which, in matters of insurance fraud, can be less than petty theft.
The predominant violation is the Unlicensed Practice of Public Adjusting (UPPA) which is clearly prohibited in Fs. 626.854(19), as follows:
No person, except an attorney at law or a public adjuster, may for money, commission, or any other thing of value, directly or indirectly: Prepare, complete, or file an insurance claim for an insured or a third-party claimant; Act on behalf of or aid an insured or a third-party claimant in negotiating for or effecting the settlement of a claim for loss or damage covered by an insurance contract; Solicit, investigate, or adjust a claim on behalf of a public adjuster, an insured, or a third-party claimant. (See NOTE #3 below)
Problem? As the old farmer used to say… “the big dog has no teeth!”
DFS needs more authority to enforce this and other fraud statutes. It can’t regulate (at least not very well) those it doesn’t license; roofers, water mitigation firms, contractors, and all those who sully neighborhoods with free roof signs and doorknob hangers as a first step to “…act on behalf of or aid an insured.” DFS can’t revoke their licenses, levy fines, or prosecute. Heck, it even has trouble enforcing investigatory subpoena’s for those it does regulate. (See NOTE #4 below)
That’s where “some” provisions of HB-717 come in. It’s a wide ranging proposal from DFS addressing many different issues. Not everyone agrees with all of its’ provisions (some insurers vehemently disagree, in fact) but, most recognize the importance of giving DFS better enforcement over violators; especially the minions illegally soliciting insurance claims. FAPIA supports HB-717 part of which expands the definition of solicitation to include advertising and marketing. This means DFS can issue Cease & Desist orders to violators and if they don’t cease & desist they can be fined up to $50,000.
That’s a big deal!
No worries about getting the DBPR (Department of Business and Professional Regulation) to act. No worries about an overworked states attorney with no time, evidence, or inclination to prosecute insurance fraud. Perpetrators either stop what they’re doing or pay the fine each time they ignore the DFS order.
Regardless of what else may be needed or that lawmakers may approve this session, HB-717’s fraud enforcement provisions will go a long way to stopping a lot of the street level abuse consumers are enduring. It would be nice if those fraud provisions and all the helpful provisions of SB-76 (HB-305) could find their way into the statutes.
Stay tuned for Florida’s Pyramid of Fraud PART II.
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NOTE #1: I’d love to hear from you but, before emailing me with a list of insurance markets you believe are more fraud engulfed than Florida’s property system or before you assert that our auto no-fault system is worse than our property system (something I might agree with in another blog) please take time to read the series of articles titled Collapse of an Evil Empire. There are X Parts (so far) beginning with Part I here.
NOTE #2: Read my article about the litigation which exploded beginning in 2015 (over 400%) and doubled between 2017 and 2019. It’s titled Litigation Reality Check and speaks of two attorney fee pots of gold that have caused lawsuits to spiral up, according to incontrovertible data from experts in such matters, through the first half of 2020 and beyond.
NOTE # 3: Fs-626.854 (19); Except as otherwise provided in this chapter, no person, except an attorney at law or a public adjuster, may for money, commission, or any other thing of value, directly or indirectly:
(a)Prepare, complete, or file an insurance claim for an insured or a third-party claimant;
(b)Act on behalf of or aid an insured or a third-party claimant in negotiating for or effecting the settlement of a claim for loss or damage covered by an insurance contract;
(c)Advertise for employment as a public adjuster; or
(d)Solicit, investigate, or adjust a claim on behalf of a public adjuster, an insured, or a third-party claimant.
NOTE #4: Still pending is the case filed in November of 2019 by DFS against numerous lawyers or firms, including Strems Law Firm and Contender Claim Consultants in an attempt to compel compliance with an investigative subpoena for records related to an investigation into possible violations of the Insurance Code. It’s my understanding the venue was moved from Leon County to south Florida where it now reposes. Case No.: 2019 CA 002792
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