Insurance is all about risks and rewards. Consumers, property owners, businesses and professional firms try to cover their risks by purchasing appropriate coverage — property and casualty, liability, health, windstorm, flood, health, malpractice, and errors and omissions (E&O) policies.

At the same time, insurers strive to offer coverage at competitive rates, while guarding against fraudulent claims and unexpected risks that could result in their own financial losses. It’s a high-stakes industry where a devastating hurricane, a medical malpractice claim or a bad faith lawsuit could lead to a multi-million dollar payout by an insurance company. 

Brenton N. Ver Ploeg and Hugh Lumpkin

Meanwhile, new perils and risks are emerging in Florida for both policyholders and insurers in areas like cybersecurity and social media. The federal Affordable Care Act (also known as Obamacare) has reshaped the nation’s health insurance landscape, and coverage-related cases in many insurance fields are winding their way through the state and federal court systems.

“Because insurance affects almost everything, attorneys need to follow these cases, both for themselves and their clients,” says Brenton N. Ver Ploeg, founder of Ver Ploeg & Lumpkin, P.A., a Miami firm that represents individual or business policyholders. 

Here is a look at some of the emerging trends and key cases affecting Florida’s insurance market.

South Florida’s recent surge in residential and commercial development is increasing the number of lawsuits filed over construction and design problems. 

“One of the hot insurance coverage issues is who will ultimately be responsible for paying construction defect claims, says Ron Kammer, partner-in-charge of Hinshaw & Culbertson’s Coral Gables office and national leader of the firm’s insurance practice. “Over the next year, we will continue to see more cases refining what is covered under a commercial general liability policy and what is not covered.” 

Kammer, who has been involved in several construction defect cases, says the Florida Supreme Court has issued different rulings in the cases. “That lack of clarity has resulted in a surge in litigation,” he adds. “Hundreds of cases have been filed by major builders seeking to recover money from their subcontractors and the insurers for those subcontractors. Some of those suits also claim that the subcontractors’ insurers also had an obligation to defend the contractor as an additional insured.” 

Ron Kammer

Jeffrey M. Liggio, a partner at Liggio Benrubi, P.A., in West Palm Beach who handles bad faith claims and insurance litigation, says both builders and property owners should pay close attention to these cases when planning a residential or commercial construction project, since some contracts may exclude coverage for defects caused by a subcontractor. 

“A business or homeowner should look closely at the contracts between the general contractor and the subs, making sure that if anything does go wrong their insurance will provide coverage for damages,” Liggio says. “This area is really a minefield for owners and contractors, as you may not know if you have coverage until after the problem has already occurred.”

Disputes over insurance coverage may also occur when a home or commercial property suffers damage from concurrent causes, such as windstorm and flood during a hurricane. Determining responsibility for coverage — and payment of the claim — can be become even more tangled if the damage would not have occurred without a design or construction defect. 

Since the Third District Court of Appeal’s 1988 decision in Wallach v. Rosenberg, Florida has followed a limited version of the concurrent cause doctrine, says Ver Ploeg. That means the claim would be covered by an all-risk policy as long as at least one of the causes is covered. 

However, the Florida Supreme Court is now reviewing a 2013 ruling by the Second District Court of Appeal in Sebo v. American Home Assurance Co. that may change that long-standing doctrine. The case revolved around damage to Sebo’s home in Naples, which had water leaks during rainstorms due to apparent construction defects and suffered major damage from Hurricane Wilma in 2005. The owner had an $8 million homeowner’s policy that insured against all risks. 

American Home Assurance Co. (AHAC) investigated the claim and denied coverage for most of the losses in 2006. After a series of lawsuits and several settlements, a jury ruled in favor of Sebo — a decision that was appealed by the insurer. “The Second District reversed the award and sent the case back for trial,” said Ver Ploeg. “In doing so, the appellate court stated that the different doctrine of proximate cause should be applied in this case.” 

In brief of amicus curiae for the supreme court on behalf of United Policyholders, a nonprofit organization for consumers, Hugh Lumpkin, partner, Ver Ploeg and Lumpkin, noted that the efficient proximate cause doctrine requires a fact finder to determine the cause of an insured’s loss. “That doctrine introduces nebulous tort concepts into an insurance contract,” he wrote. “The Second District abandoned Wallach in favor of the efficient proximate cause doctrine without any compelling justification.” 

Cyber security is a growing concern for Florida businesses and insurers, with major cases winding their way through the courts. The key issue is whether a traditional commercial general liability policy provides coverage for cyber liabilities, according to Kammer. “Some states have gone one way while others have not,” he says. “Now, many insurers are putting in exclusions to make sure there is no coverage for those types of losses.”

In response to that trend, some insurers have begun offering policies that are specifically designed to protect against losses resulting from a cyber attack, Kammer says. This is a new area of insurance law with only a few reported decisions nationally regarding what may or may not be covered.

“Given the frequency that businesses are experiencing cyber security issues, this will be a hot area nationally and in Florida,” Kammer says. “Businesses need to review their general liability policies; otherwise, they may face unintended exposures. If a company’s confidential records are disseminated via a cyber exposure, the case has the potential to involve significant damages.”

Kammer also advises attorneys, accountants, doctors and other professionals to review their errors and omissions (E&O) coverage every year. “We are seeing premiums go up for all professionals,” he says. “But these policies are not created equally. Read them carefully, and remember that a little lower premium could have a dramatic impact on the protection you are purchasing.” 

Fred Cunningham

Fred Cunningham, founding partner at Cunningham Whalen & Gasparin in Palm Beach Gardens, believes there will be more litigation related to health insurance in the next few years. “There are ongoing questions about coverage and claims under Obamacare, and there will be more litigation over mental health problems,” says Cunningham, a board-certified trial attorney who focuses his practice on serious personal injury, insurance company coverage and bad faith litigation. “I’ve seen cases where insurance companies have denied the need for in-patient treatment, despite the recommendations of their own physicians.”

Another issue for consumers is the portability of insurance benefits when changing jobs — an issue covered by the Health Insurance Portability and Accountability Act of 1996. “We have a long-standing class action suit against Florida Blue for denying individual coverage to individuals who had prior coverage,” Ligio says. Several motions in the case are now pending in Palm Beach County Circuit Court. 

Ligio adds that many Americans were hoping that the passage of Obamacare would reduce disputes over coverage of preexisting conditions, failure to pay claims or the improper cancelation of policies. “But based on our practice, insurers are still looking for reasons to deny medical claims, such as saying a generic drug is sufficient, rather than covering a more expensive prescription drug, “ Ligio says. For example, Ligio is representing a patient with a serious illness who took out a supplemental policy to pay for needed medication. “The insurance company sent him a letter canceling his policy because he had ‘similar coverage’ under Obamacare,” Ligio says. “The issue we are litigating is whether that similar coverage provision applies to insurance polices that are not at all similar in terms of benefits.” 

Jeffrey Liggio

Insurance companies are asking outside counsel to assist them in more pre-suit evaluations, says Susan R. Kent, an attorney at Vernis & Bowling of Palm Beach, P.A. whose practice includes insurance coverage and litigation matters, primarily on the defense side. “One of my roles is to help in that evaluation process and now increasingly that process begins even before they enter pre-suit negotiations.” 

Kent adds that insurers are increasingly tailoring their litigation strategies to gather specific facts, rather than taking a broader  approach,” she says. “For example, they may want to know what an MRI showed or what a surgeon did or didn’t find during a procedure. This leads to a more focused discovery, and assists them in resolving the case sooner without the risks or expense associated with going to trial.”

Another timely issue is the increasing ability of defense firms to explore the relationships between plaintiffs’ attorneys and the doctors treating their clients, Kent says. “In a Tampa case, a court ruled that details regarding the referral relationship is discoverable, despite the fact that that information was historically regarded as being protected from discovery under the attorney-client privilege.”

As far as new trends, social media is playing a bigger role in litigation. Social media postings can reveal what a claimant is doing and can help play a role in determining the validity of a claim, Kent adds. “One young lady posted photos on Facebook that contradicted her testimony about what she could and could not do after an accident, and we downloaded that information before she removed it from her Facebook page. Of course, social media postings work both ways, and can also favor a plaintiff in a suit.”

While more than 95 percent of cases are resolved pre-trial, insurers are still more than willing to try cases involving fraudulent claims, Kent says. “When independent witnesses testify under oath to facts which are significantly different than those reported by a claimant, insurers are very willing to try those cases.” 

With a large stream of bad faith lawsuits, consent judgments and insurance fraud, Florida is one of the industry’s least popular states. “The Florida insurance market is generally perceived by the industry as a pro-policyholder jurisdiction,” says Ron Kammer. “That makes it more challenging for some insurance companies in the state and makes it more costly for the state’s citizens to obtain insurance.”

For example, many insurers have created special units to investigate potentially fraudulent automobile, healthcare and homeowners claims. “As a lawyer, my experience has been that South Florida jurors recognize a fraudulent claim and have been very fair in their treatment of these types of issues,” Kammer says.

Another reason that insurers don’t like the Florida marketplace is the large number of consent judgments, says Brenton N. Ver Ploeg. If the insurance company won’t defend a claim, a defendant can sign a consent judgment with the plaintiff, protecting his or her interest, while allowing the plaintiff to file a much larger claim against the insurance companies. For insurers, that means a potential $50,000 policy exposure could suddenly become a multi-million case. 

But the biggest concern for insurers are the hundreds of bad faith lawsuits filed each year in the state. In the past 15 years, plaintiffs’ attorneys have become more attuned to insurers’ treatment of the clients, so more bad faith cases are being filed, says Fred Cunningham. 

“The increase in cases is also attributable to insurance companies not paying claims as promptly as they should or not meeting the terms of a settlement.” Cunningham adds that the number of bad faith filings also correlates with the economic cycle. “During the recession, there were fewer complaints about the delayed payment of claims,” he says.

In his 27-year career, Cunningham has handled a number of noteworthy cases, including the first bad faith case without a settlement demand letter by the injured party (Snowden v. Lumberman’s Mutual Insurance Company, 2001). 

More recently, Cunningham represented the estate of Judge Stephen D. Levine who was killed in a traffic accident by a drunk driver with a $10,000 policy from United Automobile Insurance Company. “The insurer offered to pay but sent an overly broad release form with the check for the policy,” he says. The case went to trial, resulting in a $6.8 million verdict for the plaintiff that was affirmed by the Third District Court of Appeal in 2011. “I am very proud that we won the case, which sent a message regarding the bad faith handling of the claim.” 

South Florida Legal Guide 2015 Financial Edition