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Insurers Take Aim at State's Payout Law



For Scott White, whether Hurricane Ivan's storm surge or fierce winds destroyed his Gulf Breeze townhome is irrelevant. He just wants insurance money so he can rebuild.

He estimates rebuilding to newer, tougher building codes will cost about $300,000. So far, he's got $125,000-the most he can get under his flood policy-from the federally backed National Flood Insurance Program. But his wind insurer offered only $11,000, arguing the damage was caused by waves, not wind.

In the aftermath of last year's deadly hurricanes, most home-owners didn't pay much attention to whether winds or water battered their homes. But soon they might.

To insurance companies, what caused the damage and whether they should pay for it is a major issue-one worth going to court over, even one worthy of a lobbying full-court press in the Florida Legislature.

Insurers want to change the state's 106-year-old "valued policy law," which basically requires insurance companies to pay the full amount of an insurance policy if the property is deemed a total loss. They want to undo a 4th District Court of Appeal ruling requiring that companies pay the full amount of a policy to repair a home deemed a total loss, regardless of what caused the damage.

The appeals court decision is "bad law," said Sam Miller, executive vice president of the Florida Insurance Council. While it's possible that a court case could undo the appeals court decision, "we are trying desperately to get the Legislature to do that."

Miller said the industry hopes it can have the change made retroactively, to affect last year's hurricanes.

Measures making their way through the Legislature would change that law to allow insurers to pay only for their share of a loss. The would mean that if an adjuster determines that wind caused 60 percent of damage to a home and flood caused 40 percent, the insurers would pay accordingly.

Hundreds of hurricane victims, including White, hope no changes happen. Even under the current law, White, 52, faces paying thousands of dollars of his own money to rebuild his home, despite his two insurance policies.

White is taking his insurer, which he declined to identify, to court. "It's not like I can retire now," said White, a pilot. with the proposed changes,"the people of Florida are going to lose big," he said.

Legislators should make sure they don't create a large gap where homeowners are left paying from their own pocket when they thought insurance would cover their losses, said Steve Burgess, the state insurance consumer advocate. "That's what I'm afraid of,"he said.

The current debate stems from an appeals court ruling last year, handed down just months before Hurricane Charley became the first of four to hit Florida.

The case involved a Fort Lauderdale man, Zennon Mierzwa, who sued the Florida Windstorm Underwriting Association after 1999's Hurricane Irene. Though Irene's impact was slight compared with Charley, Ivan, or 1992's Hurricane Andrew, Mierzwa's house was deemed a total loss from both flood and wind damage.

He sued the windstorm association-a precursor to state-backed Citizens Property Insurance Corp.- to collect the limits on both policies, and eventually emerged victorious in appeals court.

After Ivan walloped the Panhandle, some storm victims turned to the Mierzwa case in making their claims.

Stuart Michelson, the lawyer who handled the Mierzwa case, has now teamed with Tallahassee attorney Scott Maddox-also chairman of the Florida Democratic Party-on a class-action case against Citizens. At a hearing scheduled in May, a Leon County judge will decide whether the Mierzwa precedent applies in 2004's hurricane claims.

For the Legislature to consider changing the law now "is an outrage," Michelson said. "It's welfare for big companies."

If the law changed to split payments between insurers based on damages, Michelson questioned how adjusters would even be able to tell what damage was caused by wind vs. floodwater. "It's anybody's guess," he said.

Insurers say not changing the law could mean that consumers collect two full payouts on their policies, or get a "windfall" from the storms, even if the damage is caused by something the company doesn't cover. In other words, the industry fears someone with a $200,000 policy on his home might collect $400,000, even if the overall damages are less than that.

"The Mierzwa thing opened up a whole, perhaps unintended, area of claims reimbursement," said Rade Musulin, an actuary and vice president with Florida Farm Bureau Insurance.

It could also mean a higher assessment this year by Citizens, which is facing an estimated $516 million shortfall in its windstorm account, Musulin said. Citizens is authorized to add occasional assessments to the insurance bills of all Florida homeowners to cover its losses from a catastrophe.

And if the law isn't changed, private insurers will have to take into account the potential for flood losses, which will "cause rates to go up like a son of a gun," Miller said.

It's a tough situation for legislators, but one that needs attention, said Rep. Dennis Ross, R-Lakeland, chairman of the House Insurance Committee.

If they don't address the valued policy law this session,"there are significant repercussions that could happen here to the market in the state of Florida," Ross said.

Still, Ross said he doubts any moves they make will be retroactive to take in claims from last year's storms. "It's a matter of us clarifying what the valued policy law was intended to mean," he said.