Insurers Add Water Damage to Citizens Takeouts

TALLAHASSEE, Fla. – A Florida-based property insurer that was recently eliminating coverage for non-weather-related water damage from policies taken out of state-run Citizens Property Insurance Corp. has told agents and executives of Citizens that it will provide limited water damage coverage in planned takeouts in October and November.

In a phone call with a Citizens executive last week and in emails sent to insurance agents on Monday, Tampa-based Slide Insurance said that it would provide up to $10,000 in water damage coverage when renewing policies covering homes over 40 years old.

Monarch National Insurance also told the Citizens executive that it too would provide non-weather water coverage to takeout customers this fall. It’s unclear whether the company provided the coverage during earlier takeouts.

On Monday, Slide sent an email to insurance agents with links to “updated and revised talking points specifically tailored for” its October and November takeouts. Links in the email take users to a coverage worksheet stating that limited water damage coverage is provided for all dwellings, regardless of age.

The announcements followed a discussion during a Citizens advisory board meeting in September about companies that provide lesser – or no – non-weather-related water damage coverage compared to policies the companies obtain through Citizens’ depopulation program.

Unlike hurricane coverage for water damage caused by wind-driven breaches of homes, non-weather-related coverage pays out when damage results from malfunctions of hot water heaters, dishwashers, washing machines, or plumbing inside homes.

Slide’s announcement also followed the addition by the Florida Office of Insurance Regulation of language in authorizations for takeouts beginning this fall requiring companies to provide coverage “comparable” to Citizens coverage.

Slide, formed in 2022, took out far more Citizens policies than any of the other 21 companies participating in the depopulation program in 2023 and 2024. Through June, Slide took out 147,366 policies – or 36.1% of the 407,769 personal residential policies removed by all insurers. How many of the policies Slide took out covered homes more than 40 years old is unknown.

According to the Office of Insurance Regulation, the company has been approved to take out another 90,000 personal residential policies in October and November.

Last year, Slide sent hundreds of renewal offers to takeout targets that proposed raising premiums averaging 40% to 832% higher than Citizens’ premiums.

That prompted the Office of Insurance Regulation to create a rule capping allowable renewal offers at 40% above Citizens’ estimated renewal premiums.

Citizens stepped in after Slide directed the company to send 258,656 letters when it was approved to take out 100,000 Citizens customers in October 2023. The large request prompted Citizens to cap the number of letters at 20,000 or 30% over the number of authorized takeouts, whichever is lower.

Non-weather water damage coverage vs. hurricane coverage

Citizens caps non-weather-related water coverage at $10,000 unless policyholders agree to select a contractor from the company’s managed repair program. In that case, there is no cap.

Only a handful of insurers also operate managed repair programs. A majority of others limit non-weather water damage coverage to $10,000 for homes over 40, which the Office of Insurance Regulation accepts as complying with its orders requiring takeout companies to provide coverage comparable to Citizens’ for three years after those policies are removed.

In late September, a Slide spokesman acknowledged to the South Florida Sun Sentinel that the company eliminated water damage coverage completely for homes over 40 years old. Asked about reports that it excluded the coverage from its Citizens takeouts, the spokesman said, “Slide’s underwriting guidelines exclude water damage coverage for houses 40+ years old. This guideline is approved by the (Office of Insurance Regulation) and in our filed and approved coverage worksheet.”

In July, an agent sent to the Sun Sentinel a copy of a policy declaration that his client, a former Citizens policyholder who owns a 55-year-old home in Sunrise, received from Slide for his policy renewal that was scheduled to take place in July. The declaration showed that water damage coverage was excluded.

The Slide spokesman said his company wasn’t the only insurer participating in Citizens’ depopulation program that eliminated water coverage.

Reducing coverage ‘puts me in the hot seat’

Brian Hodgers, president of the Complete Choice Insurance agency in Davie and member of Citizens’ Market Accountability Advisory Board, told the board during its Sept. 18 meeting that companies were reducing water damage coverage by capping it at $10,000 or eliminating it altogether when they depopulated Citizens customers.

Hodgers didn’t reveal names of the companies during the meeting, but in an interview with the Sun Sentinel afterward, said that Slide was the only company he was aware of that eliminated non-weather water damage coverage completely from Citizens policies covering homes over 40.

“As an agent, I’m not pleased to be dealing with these types of things,” Hodgers told the Sun Sentinel. “When I see my clients getting lesser quality (coverage) and then they have a future claim, it puts me in the hot seat.”

Clients, he said, “are going to say, ‘Well, wait a minute. When I wrote that policy with you five years ago, you said I had unlimited water (coverage).'”

Responding during the advisory board meeting to Hodgers’ complaint, Virginia Christy, deputy commissioner for Citizens’ property and casualty division, said that the Office of Insurance Regulation had recently added language to authorizations for the next round of takeouts this fall reminding insurers of their requirement to provide “comparable coverage.”

The language also stated that insurers cannot require customers to pay additional premiums to get coverage comparable to what they were purchasing from Citizens.

That point is notable because a new state law bars any Citizens customer selected for takeout by one or more private market companies from remaining with Citizens if any of the companies provide an estimated policy renewal cost that comes within 20% of Citizens’ estimated renewal cost.

Because they eliminate a costly coverage element, renewal estimates for policies without non-weather water coverage would be more likely to fall within 20% of Citizens’ estimated renewal cost, increasing the likelihood that the policyholder could not return to Citizens.

Officials with Citizens and the Office of Insurance Regulation have not answered questions about what prompted the additional language in the authorizations.

Alexis Bakofsky, spokeswoman for the Office of Insurance Regulation, told the Sun Sentinel on Oct. 4, “OIR is monitoring this issue very closely. OIR has taken a number of steps to ensure that consumers are protected within the takeout process and is in close communication with Citizens to ensure this remains the case.”

In an email on Oct. 5, Citizens spokesman Michael Peltier said, “It is Citizens’ understanding that all policies offered during the October and November 2024 depopulations include, at a minimum, $10,000 of non-weather water coverage, although the comparable coverage worksheets may indicate otherwise. The cost of this coverage is included in the estimated premium provided to the policyholders and was used to determine if a policy remains eligible for Citizens.”

According to an internal Citizens email provided to the Sun Sentinel by a Citizens spokesman following a public-records request, Slide’s CEO Bruce Lucas told Adam Marmelstein, Citizens’ director of agency and market services, during a phone call on Oct. 1 that policies removed in October and November would include “at a minimum, $10,000 of non-weather water coverage.”

The CEO of Monarch Insurance, David Lockhart, told Marmelstein the same thing, the email said.

Marmelstein wrote in the email that he contacted both companies because their coverage comparison worksheets, which are posted on a depopulation page on Citizens’ website, indicated they eliminated non-weather water coverage for homes taken out of Citizens.

The CEOs of both companies, Marmelstein wrote in the email, said the language in their coverage worksheets reflected what they were approved by the Office of Insurance Regulation to provide to customers obtained “in the normal course of business.” They agreed to reduce “confusion” for agents and policyholders by rewriting the coverage worksheets to reflect what will be provided in takeout policies, Marmelstein wrote.

Monarch took out 36,900 policies through June and has been approved to take out 55,000 in October and November.

Asked by the Sun Sentinel last week whether it eliminates non-weather water damage coverage for any homes taken out of Citizens, a Monarch spokeswoman said that the company automatically replaces full water damage coverage removed from Citizens policies with $10,000 in limited water damage coverage.

Slide and Monarch have not yet responded to a follow-up question asking whether policies taken out in 2023 or 2024 excluded non-weather water damage coverage, and if so, whether the coverage will be added back to those policies.

Monarch and three other companies – American Traditions, Security First, and Trident – were listed on Citizens’ coverage comparison worksheets as answering “yes” to the question, “Is there a complete water damage exclusion?” Security First added, “Dwellings built in or prior to 1975 will have water damage excluded.” Slide responded, “No, unless your home is over 40 years old.”

Locke Burt, Security First’s chairman and CEO, acknowledged in an interview with the Sun Sentinel that the exclusion is part of his company’s underwriting guidelines but said Security First participated in only one round of Citizens takeouts last year and did not assume policies of any house over 40. So his company, Burt said, did not exclude non-weather water coverage from any of the policies it took out. Citizens data shows Security First took out 3,605 policies earlier in 2024 and have not requested any takeouts this fall.

American Traditions, which took out 5,787 policies last December and March, and Trident, a new company approved to take out 16,035 policies in November, did not respond to questions about their water damage coverage. Citizens did not immediately respond when asked if American Traditions and Trident were also questioned by Marmelstein about whether they are offering non-weather water coverage to takeout customers this fall.

Agent: Companies want to reduce water coverage

The coverage comparison sheets on Citizens’ website are also sent to customers with notices that their policies have been selected for takeout. Customers receive comparison sheets for companies that selected their policies, but Hodgers said he suspects that few read them.

“There’s no way they’re reading these things,” Hodgers said. “So it’s going to be a surprise when they get that water limit on that unfateful day when they put in a claim.”

Longtime South Florida insurance agent Robert Norberg, president of Lantana-based Arden Insurance Associates, says takeout companies can reduce their estimated renewal premiums if they are allowed to submit takeout offers with less coverage than Citizens provides. That makes it easier for a takeout company’s estimated premium to fall within the 20% threshold that bars policyholders from staying in Citizens, Norberg said.

Norberg, however, said that some private companies balance out limiting water coverage because their policies offer coverage levels that Citizens doesn’t provide. Examples include increased coverage for personal liability, which Citizens limits to $100,000, and coverage for screened enclosures that Citizens excludes. In addition, Citizens customers are subject to an assessment of up to 15% of their policy premium if Citizens depletes its claims paying ability after a series of catastrophic storms.

Norberg said insurers typically want to reduce non-weather water damage coverage when they can because in-home water breaches trigger the most common claims “especially in older homes that are prone to those types of things.”

Inflated water damage claims, in fact, touched off the current insurance cost crisis well before hurricanes Irma, Michael and Ian helped drive 10 Florida-based insurers into insolvency between 2019 and 2023.

As early as 2015, Citizens blamed increasing losses on costs of litigation that arose out of what it called fraudulent non-weather claims.

Contractors, plumbers and plaintiff attorneys, the company said, worked together to persuade homeowners to sign over the right to pursue their insurance claims. When insurers were notified of the claim, contractors had already gutted the room where the leak occurred and attorneys were quick to file lawsuits when insurers denied or underpaid the claim.

Citizens fought back in 2016 by capping emergency repairs at $3,000 or 1% of overall coverage without prior approval. That limit was quickly copied by private market insurers. In 2017 then-Insurance Commissioner David Altmaier approved Citizens’ request for authority to impose a $10,000 non-weather water damage cap unless homeowners agreed to select a contractor from Citizens’ new managed repair network.

Once again, insurers lined up for approval to impose their own $10,000 non-weather water damage caps and Altmaier allowed it without requiring them, too, to offer a managed repair network. Eventually, Altmaier and the state’s insurance regulators began approving complete elimination of non-weather water damage coverage as long as companies provided a way for customers to buy it back.

Later reforms limited assignments of benefits and barred plaintiffs attorneys from charging insurers for their legal fees when insurers agree to pay any amount over their initial claim settlement offer.

© 2024 South Florida Sun-Sentinel. Distributed by Tribune Content Agency, LLC.