Sunday, December 16, 2018

Puerto Rico insurance industry hinders recovery with unsettled claims

By on August 17, 2018

Editor’s note: The following originally appeared in the Aug. 16-23, 2018, issue of Caribbean Business.

Hurricane Maria disrupted nearly every aspect of daily life for millions of Puerto Rico residents as it exposed the fragility of the island’s infrastructure. However, one industry that received the most criticism for its alleged inefficiency during the historic storm’s aftermath was insurance. Almost a year after the catastrophe, this sector still has thousands of pending claims.

The matter represents a severe blow not only to individuals, but also to the island’s entire economy, where thousands of businesses remain closed due to a lack of liquidity, awaiting payment from their insurers.

Although the Insurance Code of Puerto Rico empowers the Insurance Commissioner’s Office (OCS by its Spanish initials) to serve as a mediator between policyholders and their insurer, and even fine companies that violate regulations, the commissioner’s efforts do not seem to have served as motivation for these companies to assume their responsibilities regarding their clients.

According to OCS data, 272,000 claims were pending in June with the insurance companies operating on the island. So far, these companies have assumed $3.47 million in claim payments, as well as 80,206 closed cases for which a check had not been issued, with about 25 percent of these cases under reconsideration, which means the number of payment requests could rise even more.

In February, Insurance Commissioner Javier Rivera Ríos announced six insurers had been issued a combined 2,587 fines for a total of $2 million. The Insurance Code statutes cited were for violations of Section 27.162, which includes subsection 1, stipulating that the “investigation, adjustment and resolution of any claim shall be made in the shortest reasonable period of time within the first 90 days after said claim has been submitted to the insurer”; and subsection 3, which provides that the “commissioner may require the immediate resolution of any claim at any time if he or she deems the same has been unduly and unfairly delayed or deferred.”

Among the companies fined were such recognized insurers as Triple-S Property, Mapfre Praico, Mapfre Pan-American, Cooperativa de Seguros Múltiples, Caribbean American, Multinational and Universal.

In April, the commissioner warned insurers not paying claims that they were jeopardizing their authorization to operate on the island if the thousands of cases still pending were not resolved soon.

At the time, Rivera Ríos’s office was investigating property insurance companies that still had pending claims related to key sectors of the island. The commissioner even called on these companies to immediately settle these cases or risk having their license to operate in Puerto Rico suspended. However, these companies seem to have ignored the threats from the government’s highest authority on insurance matters.

“He could certainly take a more aggressive role than he has taken thus far; right now, he has issued some fines on some insurance companies but those are tied up in administrative proceedings. The fines are not final,” explains Weisbrod, Matteis & Copley (WMC) Partner José Nieto, who runs the firm’s recently opened Puerto Rico office (see related story p. 11). “What is going to happen from now on is that people are going to be aware of their rights.”

Nieto made a comparison with Hurricane Georges, a category-3 hurricane, which cut straight across Puerto Rico in 1998.

“It was not as much devastation, but back then people got what they were given and that was it. Now you see that a lot of people are just going bankrupt. They are leaving the island by the thousands. I know of businessowners who were not able to wait until their claims were handled, and they just closed down their businesses and left the island. Once we get going and people become more aware, I don’t know if the insurance companies will continue to get away with what they are now doing.”

…In Florida too?

Contrary to what one may think, the delay in disbursement of insurance claims is not exclusive to Puerto Rico. In the state of Florida, which just two weeks before the passage of Hurricane Maria across Puerto Rico also directly experienced the onslaught of Hurricane Irma, the insurance industry also sustained a severe blow in the form of an avalanche of claims, a large number still pending to be resolved.

According to data from the Florida Office of Insurance Regulation (Floir), in June, nine months after Irma, state policyholders filed a combined $1 billion in insurance claims.

At the state level, 978,767 claims have been registered so far, of which 823,733 are residential claims. Irma’s passage through the peninsula caused an estimated $9.7 billion in losses for the insured.

However, Floir data indicate that about 91 percent of the claims related to Irma have been resolved, with Central Florida, Brevard, Lake, Orange, Osceola, Seminole and Volusia counties having had the greatest number of claims resolved at 93 percent, whether paid or denied.

On the other hand, Miami-Dade and Broward counties in South Florida have registered the lowest number of cases resolved, or 80 percent and 85 percent, respectively. In Miami-Dade, there is an estimated 24,508 unresolved claims, while Broward had 1,802 claims pending in June.

“Insurance commissioners are typically useless,” explained Gary Thompson, one of the top policyholder lawyers in the United States, who recently joined Weisbrod, Matteis and Copley, a boutique law firm specializing in disaster recovery that set up offices in Puerto Rico.

“I would say 90 percent of the insurance commissioners in America [the U.S.] are not advocates for policyholders. They are just more focused on the bureaucratic aspects of insurance, making sure companies set the right reserves and the right accounting, and that tax documents are filed. But when it comes to claims, the office of the commissioner is typically a dead-letter office.”

The lawyer punctuated his statement with the caveat that there are exceptions, such as Florida, Montana and Maryland, where every once in a while, someone comes along who stands up for policyholders.

“I have not seen anything ever on the level of the devastation in Puerto Rico. And the insurance in both the law and on the books is very similar to Florida law—it really hasn’t been developed through case law yet because they haven’t had this type of event ever. So, being able to help with that, especially given our level of success in Florida and other areas of the country, is really important,” says Meghan Moore, who recently joined WMC after 15 years representing corporate and individual policyholders during her days as partner with Ver Ploeg & Lumpkin in Miami.

“That was in Florida, that was the same law, and we basically had to develop the case law by taking those cases to court. I think what you are going to see from our firm is a commitment to go to court, to see the cases all the way through, and we just won’t compromise,” Moore explained in reference to Florida’s Bad Faith Law, which allows persons to sue an insurer if they believe he or she acted in “bad faith” by refusing to settle or when defending a claim.

Moore stressed the importance of claimants searching for legal counseling before confronting these insurance companies.

“It is incredibly important to encourage people to get counsel, to get expertise as much as anything to document their claim properly, so they can start repairs. Once you have it documented, you can go ahead and start repairs, resume your business and not be concerned that you are going to be leaving something on the table. To be able to do that with a firm on a contingency basis, where you have the human resources, there is a tremendous benefit,” stated the expert, who indicated that Puerto Rico has seen an enormous number of cases where people simply give in to a lowball offer out of plain desperation.

The Florida Legislature created Floir in 2003 to “be responsible for all activities concerning insurers and other risk-bearing entities, including licensing, rates, policy forms, market conduct, claims, issuance of certificates of authority, solvency, viatical settlements, premium financing and administrative supervision, as provided under the insurance code….” However, unlike in Puerto Rico, where the insurance commissioner is appointed and responds directly to the governor, in Florida, the commissioner is appointed and reports to the state’s Financial Services Commission, which comprises the governor, attorney general, chief financial officer and commissioner of agriculture.

In addition, Florida’s insurance code does not have the power to impose fines on insurance companies that are not fulfilling their contractual obligations with their clients as the Puerto Rico Insurance Code. However, the state of Florida does provide individuals legal subterfuge for their claims.

In Florida, anyone can sue his or her insurance company for breach of contract. If the claim is properly preserved and the insurer has acted improperly in the handling of your claim, you may be able to sue your insurer for bad faith. Recovery is usually available against your insurer for damages arising from the insured event, including out-of-pocket expenses and attorney’s fees.

–Executive Editor Philipe Schoene Roura contributed to this story.

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