Citizens Property Insurance Corp. facing possible $200M shortfall in litigation expenses

Citizens to the rescue — but for how long?

Despite attempts by the Legislature to reduce lawsuits and their related costs for property insurers, the state-run Citizens Property Insurance Corp. faces a potential $200 million shortfall in litigation expenses.

According to a presentation to be heard Thursday during Citizens’ Claims Committee meeting, a shortfall of $100 million to $200 million is projected over the course of the company’s current contract for litigation costs, which runs out at the end of 2026.

Any shortfall would be paid out of Citizens’ surplus, but spokesman Michael Peltier said it shouldn’t have a dramatic effect on rates in the future.

“Litigation already has a significant impact on rates,” Peltier wrote in an email. “This adjustment will not have a significant additional impact.”

Citizens’ board approved the contract for litigation expenses in December 2021 for five years at $500 million. Citizens uses 112 outside legal firms with about 1,000 attorneys to defend itself in litigation. The board has already approved $300 million in spending as part of the contract and the Claims Committee is scheduled to approve another $50 million during Thursday’s meeting.

Costs for litigation expenses under the contract started at $5.8 million for February 2022, but quickly shot up, reaching $10.4 million by October 2022, and peaking at $17.1 million for October 2023.

The increase in costs came despite Gov. Ron DeSantis signing SB 2A in December 2022, which eliminated assignment of benefits and removed one-way attorneys fees, factors insurers cited as part of the reason for ballooning claims costs. Those losses were driving skyrocketing rate increases, even as seven companies went bust in an 18 month-span, roiling the market.

But the number of pending lawsuits for Citizens has fallen since SB 2A took effect, dropping from 20,863 in December 2022 to 17,762 in January. Instead, the presentation points to a confluence of factors that have combined to keep litigation costs high.

The number of Citizens’ policies shot up in 2021 and 2022, leading to an increase in lawsuits before SB 2A was signed. The attorney rates for the new contract were higher than the prior contract, and it didn’t take into account the effect of future hurricanes or other strong storms.

“When estimating contract spends, our standard practice is to not include estimates based on impacts from weather given the extreme difficulty in predicting weather events/impacts of weather events. When we make these projections — as we did in 2021 — we make it clear that projections will change if a storm or series of storms hit.

Citizens estimates $118.5 million of the litigation expenses was tied directly to weather events, which falls within the range of the projected shortfall.

Another part of the law changes passed by the Legislature requires claims disputes with Citizens to go through administrative courts, rather than through the civil courts. Peltier said the company is continuing to monitor that change and its effect on litigation costs.