This week there has been some buzz in the insurance industry media and Florida media about a new class action filing against Citizens Property Insurance Corporation, the state-sponsored property insurer of last resort in Florida, and Xactware Solutions, Inc. The case, Freitas v. Citizens Property Insurance Corporation, was filed in the Circuit Court of the 6th Judicial District, in Pasco County, Florida (Case No. 512012CA0799WS). The Freitas v Citizens Property complaint.pdf alleges that Citizens purchased the 360Value software from Xactware, and purportedly manipulated the software to inflate the replacement cost value of homes, thereby inflating the premiums charged. The proposed class is all Citizens policyholders who purchased a policy where Value360 was used to determine replacement cost. The sole claim alleged in the complaint is for violation of Fla. Stat. § 627.351(6)(a)(1), which sets forth the legislative purpose for the creation of Citizens, including that Citizens “shall strive to increase the availability of affordable property insurance in this state . . . .” The case also seeks injunctive relief requiring Citizens to stop using 360Value or modify its use so that determinations of replacement cost are more accurate.
According to Tampa Bay’s Channel 10, Citizens apparently has changed its practices in response to the lawsuit and is now allowing insureds to use their own estimates of replacement cost. Channel 10 also reports that the plaintiffs’ lawyers who filed this suit are planning to sue other insurance companies (not yet identified, except that Universal Property Insurance is mentioned in an article).
A couple thoughts:
- The Florida statute that is cited as the sole basis for the complaint against Citizens and Xactware appears to be a hortatory statute regarding the general purpose and intent behind the creation of Citizens as a state-created entity. Does this statute really create an enforceable legal obligation, let alone a private right of action that insureds can bring suit under? How does it create any basis for a suit against Xactware? How could it be the basis of a claim against a private insurer other than Citizens?
- Given that Florida has a valued policy law, assuming the allegations were true, why would an insurer encourage (or require) overinsurance? In the event of a covered total loss, a valued policy law requires payment of the full policy limit, and in that respect is intended to create a strong incentive for insurers not to allow overinsurance (and the moral hazard it creates). If Citizens is charging much more than appropriate for premiums, it also will be paying out much more for total losses.
In any event, given the attention this new filing is getting, insurers that use Xactware’s 360Value or other similar software should take a careful look at how they are using it in light of these allegations.