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Citizens Hurricane Mitigation Program Draws Suit

An “emergency” contract to a private vendor by Citizens Property Insurance to determine whether homeowners getting discounts for hurricane upgrades actually made the upgrades has drawn a lawsuit from a Georgia company that wants the business.

Citizens gives out more than $700 million in mitigation discounts, property insurance breaks to homeowners for hardening their homes against storm damage.

But the company said that a recent report from the private insurance industry found that 80 percent of the forms turned in by homeowners spelling out what work was done to upgrade the home were inaccurate on some level. If that held true for Citizens, it could mean the loss of hundreds of millions of dollars a year, the state-backed insurer says.

So the company issued a no-bid contract to a company called Inspection Depot to create a system for reviewing the applications for mitigation discounts. Citizens said it essentially didn't have time to do a lengthy bid process for the service or design the review system in house. So it hired the private contractor.

“The services provided by Inspection Depot simply enable Citizens to immediately move forward with the project without having to hire internal staff and incur expenses creating processes already available in the private market, or lose premiums that could easily exceed the overall cost of the program while a competitive procurement takes place,” Citizens spokesman John Kuczwanski said Wednesday.

But Georgia-based SagoTec claims there was no such emergency and Citizens should have bid the project out. SagoTec is a software firm that says it makes a product that could help Citizens do the reviews.

“Inspection Depot's got nothing better; we don't think it's as good as ours,” said Tallahassee attorney Rick Bateman, who is representing SagoTec in the lawsuit, filed in circuit court this month in Tallahassee. But ultimately, the company's claim is primarily that no emergency existed requiring the state-backed insurer to forgo the open bid process in awarding the contract.

“Is an emergency not giving somebody a credit on their homeowners policy?” asked Bateman. “This is politics as usual.”

But Citizens' Kuczwanski said the company did think it urgent to move quickly.

“Private insurers who have begun to root out fraud have found that homeowners who do not qualify for discounts simply decide to obtain insurance with Citizens,” Kuczwanski said.  “This ultimately places a greater burden on all Floridians and further supports Citizens' decision to move forward quickly and the need to take the lead among property insurers.”

Citizens also says SagoTec didn't avail itself of proprer administrative remedies, such as constesting the award of the contract to the company's Board of Governors.

The amount of the contract depends on how many actual inspections of homes are actually done based on what is turned up in the review. Citizens has set out $60 million for the project, but most of that will go to inspectors who will do physical inspections of property eventually, Kuczwanski said. Inspection Depot will get $25 per inspection.

For now, the contract has Inspection Depot gathering data and setting up a process for about 500 inspections, which Citizens will use to determine whether it needs to investigate further.

“While Citizens' actions may be setting a new standard in the industry, the program will utilize all qualified inspectors who will be required to complete the mitigation inspection using Citizens' requirements and standards,” Kuczwanski said. The full $60 million would only be spent if a decision is made based on the preliminary review to reinspect the company's 400,000 policies with mitigation credits.

4 Responses »

  1. "Emergency" contract??? $60 million??? No verifiable company history other than D&B???

    What a scam. These guys are absolutley right to sue Citizens on this. This is a political payback or something. Sounds very dirty to me.

    I wonder if the owner of this company had any ties to Crist.....

  2. ummm... last I checked, even though everyone always tries to put the state run title on Citizens, it is a Private Not-for-Profit Company. It is not state run. Is State Farm required to put out for competing bids? I think it is a bit odd that they didn't, just to get the best deal they could. But you can't sue a company because they didn't ask you to do the job for them. If that were the case, I have alot of companies that I need to sue because they didn't ask me in for an interview for a job they never posted but filled by other means!

    • Perhaps you should check again. CPIC was formed by the state legislature. It has the power to assess other, private insurers in the state. Read Fl Statute Section 627.351(6)(b)1 which states that "All insurers authorized to write one or more subject lines of business in this state are subject to assessment by the corporation...".

      So what happens when "all insurers authorized to write..." are assessed? Correct - the assessment is passed on to individuals. Check out your homeowners and auto insturance policies. They contain a line item stating exactly how much of your premium goes to CPIC.

      A tax is a tax is a tax - even if it's called an assessment. If you purchase insurance from a private entity in Florida you WILL pay this assessment; it's not voluntary.

      It may be non-profit, but it has "taxing" authority.

      • Good points, Larry.

        In addition, these assessments will grow bigger for each dollar that is taken out of Citizens surplus to pay for scams like this.

        Think about this...

        1) The legislature mandates wind mitigation credits and forces insurers including Citizens to double the discounts without adequate actuarial justification.
        2) Then they create a My Safe Florida Home program using taxpayer money to pay for inspections that give homewowners significant discounts on premiums that are already 40-50% lower than actuarially sound.
        3) Then they find out that many of the surveys are fraudulent, so they authorize $60 million of the already woefully inadequate Citizens reserves to re-inspect the surveys that are allowing the substantial discounts o premiums that are already 40-50% too low.
        4) Citizens has $400 billion in exposure and $3 billion in reserves. The next major hurrciane that blows through Florida will take out Citizens and the Cat Fund ad will bankrupt the state. The result will be an expansion subsidy paid by inland Citizens policyholders and by everyone else through massive assessments on every car, home, and business in Florida... for up to 30 years...for just one storm. Hope we don't have 2.

        This is the Charlie Crist methodology of property insurance in action. Absolutely nuts.