DOI Investigating: Did Citizens Property Insurance Pay Bogus Claims?

May 13, 2005

Florida Office of Insurance Regulation officials are investigating 42 cases of suspected fraud in hurricane-related damage claims filed last year with Citizens Property Insurance Co., the state-run insurer of last resort.

DOI documentation doesn’t indicate how much money Citizens paid out in any of the suspect claims statewide, but 15 of the cases so far have been deemed serious enough to turn over to prosecutors for possible criminal charges.

According to the Miami Herald, only one of the cases being investigated is in Miami-Dade County, where none of last year’s four hurricanes hit and where allegations of fraud in another set of hurricane-related payouts — from the Federal Emergency Management Agency — have led to a congressional investigation.

The Herald said the likelihood that Citizens paid even a few bogus claims is particularly sensitive these days because the company wound up with a $516 million shortfall following last year’s hurricanes, and every insured home owner in Florida will get stuck with part of the tab. A special assessment equal to 6.8 percent of the yearly premium will be billed on household insurance bills starting this summer.

“I’ve got basically no confidence that Citizens knew what they were doing, and the people of Florida have been ripped off,” Sen. Ron Klein, D-Boca Raton, commented.

Klein and other legislators demanded an audit of the quasi-public insurance company in March after learning that Citizens had paid for tens of millions of dollars worth of damage in Miami-Dade, which escaped a direct hit in all four of last year’s hurricanes. The audit report is due this summer.

Citizens spokesman Justin Glover said the $516 million deficit stems almost entirely from payouts on legitimate claims. Even if all 42 investigations proved that policy holders defrauded the company for the total value of their homes – a worst-case scenario – “42 claims would not significantly affect the amount of the deficit,” Glover said.

In Miami-Dade, Citizens paid 6,422 claims in all, for more than $27 million, or roughly 2 percent of its statewide total. That’s similar to FEMA’s $31 million in payments to Miami-Dade homeowners and renters, which were nearly 3 percent of such payouts statewide.

FEMA’s Miami-Dade payouts have kicked up a political fury. Federal prosecutors have indicted 14 county residents for filing false damage claims with the agency. A congressional committee has launched an investigation into the agency’s spending.

FEMA’s payouts involved thousands of dollars sent to homeowners in Homestead, and other southern Miami-Dade communities, far from the strongest winds that hit when hurricane Frances came ashore 100 miles north of the county.

Geographic details of those FEMA payments were made clear when the agency reluctantly released a breakdown, by ZIP code, of where its money went. This week, Citizens officials refused a request under the Freedom of Information Act to disclose its own payments by ZIP code.

In a written statement, Citizens’ Chief Corporate Counsel Susanne Murphy wrote, “We are precluded from federal and state law from revealing personal or financial information relating to our policy holders.”

State Sen. Rudy Garcia, R-Hialeah, chair of the Banking and Insurance Committee, said that response is indicative of an organization that has lost its sense of mission. “I’m afraid Citizens believes that they’re not a quasi-public insurance company, they believe they’re just like the private guys.”

Garcia, who joined in the call for an audit of Citizens in March, also sponsored recent insurance reforms that include granting legislators the power to help appoint members of Citizens board of directors. Previously, the state’s Chief Financial Officer, Tom Gallagher, had the sole authority.

The bulk of the Citizens’ claims under investigation come from Florida’s West Coast and the Panhandle. Ten cases are in Escambia County, two of which have been referred to prosecutors. Seven investigations are under way in Charlotte County, four of which have been presented to prosecutors, DFS records show.

The vast majority of the claims Citizens paid in Miami-Dade are from the northern part of the county, where a combination of older houses and sustained winds over 50 m.p.h. led to minor structural damage, especially to roofs, Glover said.

“When those allegations first came out against FEMA, a lot of people jumped to the conclusion that if they have all these fraud cases, Citizens must have them, too,” Glover said.

But so far that has not proven to be the case, Glover said. The one suspicious Miami-Dade claim under investigation by insurance regulators has not been referred to prosecutors.

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