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REMBAUM’S ASSOCIATION ROUNDUP | The Community Association Legal News You Can Use

REMBAUM’S ASSOCIATION ROUNDUP | The Community Association Legal News You Can Use

  • Posted: Aug 14, 2023
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Jeffrey Rembaum, Esq. is a  Board Certified Specialist in Condominium and Planned Development Law and a community association lawyer with the law firm Kaye Bender Rembaum, in its Palm Beach Gardens office. His law practice consists of representing condominium, homeowners, and cooperative associations, developers and unit owners throughout Florida. He can be reached by email at JRembaum@KBRLegal.com or by calling 561-241-4462.

Guns in the Clubhouse: What Can a Community Association Do?

The right of the people to carry and bear arms without governmental infringement is a right which stems from both the United States Constitution and the Constitution of the State of Florida. The State of Florida recently adopted new gun legislation, effective July 1, 2023, which allows the everyday citizen to carry a concealed weapon without first obtaining a concealed weapons permit. This raises interesting questions for community associations such as, is the right to carry a concealed weapon absolute? Can a community association adopt a rule that prohibits the carrying of concealed weapons in the clubhouse or other common area facilities?

Before we get too far in our analysis, it is important to point out that the intent of this article is not to advocate for gun control or the right to carry. Rather, the intent of this article is to examine the rulemaking authority of a board of directors of a community association to prohibit concealed weapons in the clubhouse and other common areas. In short, is it possible for a community association to adopt such a rule? Yes, subject to the cautions and explanations explained below. Is the adoption of such a rule risk free? No!

As the starting point, in order for a board-made rule of this nature to have validity, we must examine whether it violates either the United States Constitution or the Constitution of the State of Florida. As to when constitutional protections apply within a community association, this is an interesting question. In prior cases, courts have found that recorded covenants restricting home ownership based on race will subject the covenants to a constitutional examination, and in the end, such covenants were deemed to violate the equal protection clause of the Fourteenth Amendment to the United States Constitution.

Another method by which courts may find application of constitutional protections to community associations is if there is significant governmental action associated with the community association. For example, an argument would exist that if a community association were built with federal monies, the covenants of such a community association would be subject to all the protections afforded by both the United States Constitution and the Constitution of the State of Florida. Often, multiple community associations that exist within a sprawling master association are built in community development districts (CDD). The CDD is a quasi-governmental entity established to govern and control what would otherwise be the common areas of the master association. The creation of the CDD allows many of the hard costs associated with the community’s build-out, such as the roads and drainage systems, to be immediately passed on to the first-time home buyers. By utilizing a CDD, long-term bonds can be issued, which are paid back through ad valorem tax obligations allowing the costs to spread out over a significantly longer period of time. As quasi-governmental entities, constitutional protections which limit powers of government would likely apply to CDDs. Therefore, should a CDD adopt rules to prohibit concealed weapons in the common areas, such a rule would likely be found to violate constitutional protections. However, the same analysis is not applicable if the community association itself adopted such a rule.

It should be remembered that courts have long held that owners give up certain individual rights and liberties when living in a community controlled by a community association. In 2002 the Florida Supreme Court held, in Woodside Village v. Jahren, 806 So. 2d 452 (Fla. 2002), that certain individual rights must be compromised when one chooses to live in a condominium association (and by analogy, in a homeowners’ association, too). But, on occasion courts have found that certain constitutional protections apply within a community association; however, such application is somewhat rare.

Thankfully, we do have some limited guidance. In 1989 the Florida Supreme Court held, in Quail Creek POA v. Hunter, 538 So. 2d 1288 (Fla. 2d DCA 1989), that neither a homeowners’ association’s recording of its covenants in the public records, nor the enforcement of its covenants in state court, created a sufficient nexus to evidence “state action” such that the First Amendment and the Fourteenth Amendment of the United States Constitution would apply. By analogy, such logic could be applied to defending the right of a community association to adopt a rule prohibiting concealed weapons in the clubhouse. Thus, there is no reason to believe that such arguments would not also apply to the application of the Second Amendment of the United States Constitution within community associations. That said, it would not at all be surprising for an owner to challenge such a rule; so, any association that adopts such a rule should be prepared to be a possible test case, which could have national implications associated with it.

Let us assume that the board understands and accepts such a risk and is ready to move forward to adopt a rule prohibiting the carry of concealed weapons in the clubhouse. Certainly, we recommend that counsel for the association be consulted prior to adopting these types of rules. For the purposes of our analysis, let us also assume that the community association at issue does not have a sufficient nexus to the federal or state governments that would, in and of itself, render such a rule unconstitutional. Under these circumstances, the analysis can then shift to the ordinary rulemaking criteria necessary to withstand judicial challenge, as follows:

      1. Does the board have the necessary rulemaking authority set out in the governing documents or by statute to adopt such a rule?
      2. Does the rule conflict with any rights afforded by governing documents of higher priority, whether they are considered express or implied rights?
      3. Is the rule reasonable? Reasonableness is difficult to define, but case law provides that the rule must be rationally related to a legitimate association objective. The rule cannot be arbitrary or capricious.
      4. Does the rule contravene existing laws or compelling public policies?
      5. Was the rule adopted in a procedurally correct manner that is provided by both the governing documents and existing law?

Of course, even if the association adopts such a rule, enforceability is an entirely different issue. Assuming the association is not using some type of full body scanner, then so long as the possessor of the concealed weapon does not brandish the weapon, and thus it remains fully concealed, no one will be the wiser. In addition, such a rule would not apply to certain individuals who have an absolute right to carry a concealed weapon, subject to very few limitations, such as an off-duty police officer.

As an aside, just because a person may not need to have a concealed weapon permit to carry a concealed weapon, this does not mean that the still-available concealed weapon permit does not have value. It certainly does when it comes to traveling outside the State of Florida to one of the many states, over 26, that have reciprocity with Florida, meaning that the other states recognize Florida’s concealed weapons permit. With that in mind, obtaining a concealed weapons permit may still make sense.

While a properly drafted rule prohibiting guns in the clubhouse stands a decent chance of validity, remember that even if your association

i) fully analyzes whether it has any type of federal governmental nexus which would provide for clear application of constitutional protections and such analysis is answered in the negative, ii) meets the rule adoption criteria listed above, and iii) consults with the association’s lawyer who helps draft such a rule, the association could still find itself as a defendant in a lawsuit seeking to have such a rule invalidated by the court.

DON’T LET THIRD PARTIES OFF THE HOOK! MAKE SURE YOUR GOVERNING DOCS DON’T THROW AWAY MONEY.

DON’T LET THIRD PARTIES OFF THE HOOK! MAKE SURE YOUR GOVERNING DOCS DON’T THROW AWAY MONEY.

DON’T LET THIRD PARTIES OFF THE HOOK!

MAKE SURE YOUR GOVERNING DOCS DON’T THROW AWAY MONEY.

Last week was a primer on how foreclosures generally work and how banks get off the hook when they get back a unit when they foreclose on an owner’s unit or home.  We learned that the banks are protected by the law because they only owe a few bucks to the association when they get title to the unit or home despite the fact that the owner owes a fortune to the association. That’s called a “safe harbor” and it’s provided to the banks because the banks claim that if you make them responsible for paying unpaid assessments, they simply won’t loan money to buy a condo or a home in an HOA.

But there is some good news……….suppose the bank does not buy the unit at their foreclosure sale and a third party winds up becoming the successful bidder and the owner?  What does that new owner owe the association if that unit owes thousands to the association in unpaid assessments?  And the answer under the law is EVERYTHING!  They owe it all.  Florida Statute 718.116 states:

Additionally, a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title.

So, when a bank forecloses on a unit, or when the association forecloses on a unit, the association hopes and prays that a third party purchases the property at foreclosure sale because that guy owes everything to the association.  UNLESS………………….

Remember last week that I said that some of you have language in your governing documents that allows the bank to get off the hook even though they would owe money to the association if they wind up foreclosing and owning the property?  Well…..some of you have language in your governing documents that allow third party purchasers off the hook if they buy the property at a foreclosure sale.  So…..even though the association gets lucky and a third party purchases the property at foreclosure sale, your own docs kill you and lets the third party purchaser off the hook.  They owe nothing.  Disaster.

So……over the past two weeks we learned that it is vital for the board to check their governing documents to make sure that neither the bank nor a third party purchaser is let off the hook should they purchase a unit or home in your community.  Make sure your docs don’t kill you.  If they do, amend them immediately!!!!!!

1099-K Confusion on the Horizon

1099-K Confusion on the Horizon

The American Rescue Plan Act of 2021 lowered the filing threshold for payment processors and credit card companies from 200 transactions or $20,000 to just $600 for 2022 — but the IRS delayed the effective date until 2023.
Because of this taxpayers that use credit card processors PayPal, Venmo and Zelle are going to be receiving a 1099-K for 2023 — even if they only have a few transactions. Worse yet, the IRS is going to be looking to match the income reported on these 1099-Ks to the tax returns filed by these taxpayers.

What can taxpayers do?

What can taxpayers do?
Start by letting the payment originators know to mark the payments that are not business related (should not be income and subject to tax) as personal on the chosen platform. If you end up picking up the lunch tab and being reimbursed through Venmo or Zelle be sure to remind your friends to mark the transaction as non-business. This also holds true for gifts, reimbursements, and other non-taxable payments.

At tax time be sure to share these documents, like all tax forms you receive, with your tax professional, so they can see that income reported on 1099-Ks is properly reported on your tax return.

One thing we as tax professionals are sure of is that these 1099-ks are going to generate a lot of confusion for taxpayers in addition to a lot of IRS notices that will need to be delt with long after the 2023 returns are filed.

Learn more on this week’s blog post:

https://www.rmsaccounting.com/2023/08/08/1099-k/

 

Find other fantastic articles and Accounting information:

 

 

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Simplify Your Accounts Receivable with These Proven Tips! by Condo Control

Simplify Your Accounts Receivable with These Proven Tips! by Condo Control

  • Posted: Aug 09, 2023
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We help condominiums and HOAs establish better processes so that they can operate more efficiently and effectively.

Simplify Your Accounts Receivable with These Proven Tips!

Struggling with managing accounts receivable in your condo or HOA? We’ve got you covered! Discover effective strategies to streamline your financial processes and ensure timely payments.
We’ve seen it for ourselves. We harnessed the best of technology to create software that streamlines and automates almost every aspect of community operations.
…………………………………………

There would be no Condo Control without Brian Bosscher. Brian had no professional property management experience, but he did understand the frustrations that plague condo communities after purchasing a unit in 2006. Looking to help improve operations, Brian joined his building’s finance committee immediately. He started volunteering on the Board of Directors as Treasurer the following year, and then became the Board President.

It was through volunteering that he learned about the challenges and roadblocks that property managers encounter on a day-to-day basis, and witnessed the inefficiencies that prevented them from reaching their goals. It was this experience that inspired Brian to build a long-term solution, and Condo Control was born.

How to simplify accounts receivable for your condo/HOA

When residents pay their fees or fines, these payments are documented under accounts receivable (AR). Vendor credits are also logged under AR. This element of accounting tracks the money coming into the corporation or association.

But like most things related to community finances, it’s much easier to talk about accounts receivable than manage them. Collecting payments is always a challenge because they come in at different times, and in different formats. Documenting this information is equally tedious and time consuming.

While we can’t eliminate this responsibility for you, we can suggest some ways to simplify the AR workflow for you and your team.

Table of contents

Regulate billing practices

Without structure, rules, or established expectations, anything goes. But spontaneity isn’t exactly ideal when you’re trying to get money from 200 owners. That’s why it is so important to implement consistent billing practices. Not only does this create a routine for you and/or your staff, but residents aren’t left wondering when they might receive their invoices or how they should make payments.

By creating a sustainable AR workflow, condos and HOAs will find that late payments become less common. By sending billing statements in the same format, at the same time each month, your residents become familiar with a routine. As a result, they’ll become more accustomed to making payments the same way at the same time.

Use electronic billing and online payments

Online banking has become almost ubiquitous in North America. Mobile apps make this option accessible to all age demographics, and the convenience cannot be overstated. So doesn’t it make good sense to offer online payment options to residents?

Not only does it make the payment process far easier for the people who live in the community, but it creates less work for you.

Teams that are still documenting accounts receivable payments manually are more prone to making mistakes. Between writing down payments, updating balances, and creating receipts, it’s understandable why someone might forget to fill in a field or add an extra “0.”

But even a small mistake can lead to bigger problems, and can even create conflict between residents and staff. Furthermore, time is wasted when someone has to go back and review the numbers.

Then there’s the issue of storing and locating physical records. Paper can easily be misplaced or lost, and aside from the obvious problems associated with losing documents, missing information can lead to costly compliance violations.

Electronic billing and online payments reduce manual data entry work for staff, and create records automatically. If you decide to use a cloud-based system, you’ll have the ability to access records from any computer. That way, you aren’t tied to the office.

It’s important to note that not every resident will want to make online payments. Your condo or HOA could install a secure lockbox so that you don’t have to arrange a meeting with these individuals to receive a payment on time.

Set up automations

With a digital AR system, you can also create automations to bypass some of the most tedious AR tasks. This typically includes email automation (late payment reminders, confirmation of payment) as well as sending out invoices.

Remove “information silos”

A cloud-based AR system ensures that anyone who needs access to accounts receivable information can get it, no matter where they are working from. Conversely, when team members have to wait for information because it is siloed off, it slows down the entire process.

Follow the process when collecting late payments

Inevitably, there will be residents who are consistently late with payments, or who avoid them altogether. Instead of having to figure out what to do next each time this happens, follow the condo or HOA’s rules/ procedures laid out in the governing documents.

Make sure all actions are in accordance with local laws. For example, you are probably required to give residents written notices and a reasonable amount of time to pay fees before more severe actions are taken.

Corporations/associations do have the power to pursue residents for unpaid fees, and to recover any legal expenses incurred while trying to collect money owed from delinquent owners.

These are some of the actions that communities are permitted to take while trying to secure outstanding fees:

  • Send the resident a notice of arrears
  • Apply interest to outstanding arrears after a certain amount of time has passed
  • Revoke the owner’s right to vote
  • Revoke a resident’s access to shared facilities
  • Contact collections
  • Contact legal counsel
  • File a Notice of Lien
  • Register lien

Conclusion

Accounts receivable is an ongoing responsibility that requires a great deal of time and resources. The less you and your team have to do by hand, the happier you’ll be.

It is recommended that condos and HOAs look into AR software to simplify and speed up workflows. The money you invest in this solution will be less than the costs associated with conducting this process manually. Not only can it help keep processes more consistent, but you will probably find that you make fewer errors.

Your time is valuable; spend it wisely.

 

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Having an Enrolled Agent (EA) can benefit you in several ways, especially when it comes to your tax-related matters.

Having an Enrolled Agent (EA) can benefit you in several ways, especially when it comes to your tax-related matters.

  • Posted: Aug 01, 2023
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Having an Enrolled Agent (EA) can benefit you in several ways, especially when it comes to your tax-related matters.

What can an Enrolled Agent Do for You?
Here are some of the key benefits of working with an Enrolled Agent:
*Tax Expertise: Enrolled Agents are licensed by the IRS and have expertise in all areas of taxation. They can help you with tax planning, tax preparation, and tax resolution.
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*Representation: If you are facing an audit or other tax-related issue, an Enrolled Agent can represent you before the IRS. They can help you understand your rights and responsibilities and work to resolve the issue in the most favorable way possible.
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*Communication: Enrolled Agents are skilled at communicating complex tax issues in a way that is easy to understand. They can help you navigate the often-confusing world of taxation and provide you with guidance and advice as needed.
Savings: Working with an Enrolled Agent can help you save money by identifying deductions and credits that you may have overlooked. They can also help you avoid penalties and interest by ensuring that your taxes are filed accurately and on time.
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*Convenience: Enrolled Agents can work with you remotely or in person, depending on your needs. They can also provide you with ongoing support throughout the year, not just during tax season.
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Having an Enrolled Agent on your team can provide you with peace of mind and confidence in knowing that your tax-related matters are being handled by a licensed and experienced professional.
RMS AccountingAll of the tax professionals at RMS Accounting are Enrolled Agents with over 75 years of combined experience helping taxpayers resolve tax problems and to pay the lowest tax allowed by law.
Want to talk to one of your tax professionals just give us a call at 800-382-1040.
Let’s illuminate our planet with the power of energy efficiency, one lightbulb at a time. Together, we can make a meaningful difference.

Let’s illuminate our planet with the power of energy efficiency, one lightbulb at a time. Together, we can make a meaningful difference.

  • Posted: Aug 01, 2023
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Lighting of Tomorrow is commited to providing our clients energy saving lighting solutions. We provide a complete service, so we can continue “lighting the way for a sustainable tomorrow”

Join us in making a simple yet impactful change for a brighter, greener future: switching to energy-efficient lightbulbs!

By embracing this small but significant action, we can collectively contribute to reducing our carbon footprint and preserving the environment. Energy-efficient lightbulbs, such as LED or CFL bulbs, consume significantly less electricity than traditional incandescent bulbs, translating into lower energy bills and savings in the long run. Not only will you be helping to combat climate change, but you’ll also enjoy longer-lasting bulbs that require less frequent replacement.

Let’s illuminate our planet with the power of energy efficiency, one lightbulb at a time. Together, we can make a meaningful difference.

Contact Us

1076 NW 53rd St, Fort Lauderdale, FL 33309

954.626.0267

info@lightingot.com

 

Lighting of Tomorrow is commited to providing our clients energy saving lighting solutions. We provide a complete service, so we can continue “lighting the way for a sustainable tomorrow”

 

 

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SuperHanger(TM) patented PVC Pipe Hanger System for Condo garages throughout Florida for over 30+ years.

SuperHanger(TM) patented PVC Pipe Hanger System for Condo garages throughout Florida for over 30+ years.

SuperHanger(TM) patented PVC Pipe Hanger System for Condo garages throughout Florida for over 30+ years.

brought to you by LEE Composites

These non-corrosive, non-metallic, Pipe Hangers, Rods, Nuts.
Both Condo maintenance personnel and plumbing/painting contractors need to know about our SuperHanger(TM) Pipe Hangers.

 

THE PERFECT SOLUTION FOR SUPPORTING YOUR PLUMBING

Steel Rusts, PVC and Fiberglass Don’t. “There’s no other pipe hanger like it!” Lee Composites, Inc. introduces the PVC Super Hanger™ pipe hanger system. The Super Hanger™ pipe hanger is comprised of all nonmetallic, corrosion resistant materials and maintenance free properties.

The patented Super Hanger™ pipe hanger design allows for ease of installation on both new and used pipe, structural strength for pipe loadings and sizes to support various pipe diameters. They come in multiple sizes and are ready for immediate availability.

Pipe Hangers (Super Hanger™ PVC & SuperClevis / SuperLoop FRP)
Lee Composites, Inc. introduces the PVC Super Hanger™ pipe hanger system. The Super Hanger™ pipe hanger is comprised of all nonmetallic, corrosion resistant materials and maintenance free properties.

 

SUPERCLEVIS™ FIBERGLASS PIPE HANGER

Lee Composites also offers the Fiberglass Super Clevis Hanger pipe hanger system.

The Super Clevis Hanger is constructed of injection molded glass fiber reinforced polyurethane. Sizes available for 1″ to 6″ pipe size.

Request Quote
SUPERLOOP™ FIBERGLASS PIPE HANGER

For larger pipes use Super Loop Hanger. The SuperLoop is available for sizes from 3″ to 16″ diameter pipes.

The Super Loop Hanger is great for industrial applications or commercial drainage pipes, where pipes sizes are considerably larger. The biggest advantage of using the Super Loop Hanger is that in any environment the Super Loop performs better than metallic counterparts, because of its rust-free properties.

Request Quote
We stock all sizes for immediately delivery.

 Bob Lee, President of Lee Composites Inc, has over 50 years of experience in the composites and plastics industry. Bob started his career with Dow Chemical Corporation after graduating from Georgia institute of Technology. As Vice President of a small emerging composite pultrusion, molding and fabrication company for 10 years he became widely recognized for his outstanding entrepreneurial and creative expertise.

– Bob Lee, President of Lee Composites
     info@leecomposites.com
    (281) 782-2877

 

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Preparing for Extreme Heat: The New Natural Disaster by Donna DiMaggio Berger of Becker

Preparing for Extreme Heat: The New Natural Disaster by Donna DiMaggio Berger of Becker

  • Posted: Jul 28, 2023
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Preparing for Extreme Heat: The New Natural Disaster

by Donna DiMaggio Berger / Becker

The word “hot” has many connotations: it can reveal anger when you say someone is “hot around the collar”; it can invoke personal appeal or desirability “he’s so hot”; it can refer to a disorganized person or situation, hence the description as “a hot mess”; and can also be used to describe an emotional issue or topic as a “hot button”. However, since the earliest of times, the word hot has been used to describe the temperature and we’ve been hearing this word a lot lately in many parts of the US given the ongoing heat waves. More than 61,000 people died in 2022 because of the heat waves that swept the European continent. We won’t know for some time how many US fatalities have occurred due to our extreme heat during the summer of 2023.

Extreme heat can cause dehydration, heat exhaustion, exacerbation of existing medical and mental health conditions, respiratory distress, and heatstroke. Dehydration can cause dizziness, fatigue, and muscle weakness. Heat exhaustion may result in heavy sweating, nausea, headache, rapid heartbeat, faintness, and muscle cramps. Extreme heat can more greatly affect people with underlying respiratory, cardiovascular and kidney disorders with extreme heat being tied to an increased risk of heart attacks or other cardiovascular events. Heatwaves have also been linked to diminished air quality in urban areas which can worsen respiratory conditions such as asthma. Lastly, extreme heat can impact mental well-being, leading to irritability, mood swings and difficulty concentrating, all of which can make communal living more stressful.

Dealing with extreme heat events in a multifamily building, especially for those on fixed incomes, can be challenging. What should your association board and management team be doing in response to an extreme heat event? Certainly, including preparation for heat waves into your emergency disaster plan is recommended. The following are some items you may wish to consider:

  • If your association has employees, work with counsel to review your employee guidebook particularly for employees whose work requires them to be outdoors. For those employees, you will want to be sure that they have access to plenty of water throughout the day to stay hydrated and replace fluids lost through perspiration. If those employees are required to wear a certain uniform that is not well suited to an extreme heat event, you should consider an alternate uniform for extreme heat event. You may also want to be confirm that your outside vendors who provide services outdoors have provided adequate water and protection from the sun for their workers.
  • Create shade around the building by using umbrellas, awnings, or strategically placed vegetation to reduce the impact of direct sunlight. Bear in mind that some of these shade additions may require advance membership approval.
  • Revisit any architectural control guidelines you have in place which may restrict or prohibit the use of fans on patios, balconies and lanais. Fans are used to circulate air and can create a cooling effect. Consider how curtains, blinds and blackout shades may reduce the temperature inside units particularly if a unit owner is not running the AC at reasonable temperatures. Allow people to close their blinds and/or their hurricane shutters during the day to block out direct
    sunlight and prevent heat from entering the living space.
  • Consider limiting daytime hours of play for outdoor tennis and pickleball courts as well as any other outdoor recreational areas when temperatures are soaring. Installing thermometers on the common areas may also help remind your residents about climbing temperatures.
  • Consider purchasing a whole building generator if you don’t already have one. In the event that increased electric demands during a heat wave cause a blackout or brownout that generator may save lives in your building. Naturally, a generator will also help in the aftermath of a windstorm which knocks out electricity.
  • Check in with your residents who may be living alone and dealing with physical or mental health challenges as well as economic burdens. These residents may not be running their A/C as often or at a
    temperature that is needed for their wellbeing. This is also the time to confirm that you have emergency contacts for your residents.
  • Reach out to local community organizations, social services, or government agencies that provide assistance during extreme weather events. They may offer cooling centers, fan distribution programs, or other resources for your residents.

The strategies your board and management team use in response to an extreme heat event depends, in large part, on your building’s location and infrastructure as well as the available monetary and personnel resources. However, there are some basic steps all associations can take to educate their residents about the dangers of extreme heat. The phrase, “we’re having a heat wave” doesn’t have to spell disaster in a well-prepared community.

For additional information please listen to my podcast conversation with Jane Gilbert, Miami-Dade’s Chief Heat Officer which can be found here.

 

 Donna DiMaggio Berger is a Shareholder with the Becker law firm, is Board-certified, is a Fellow with the College of Community Association Lawyers (CCAL) and is a keynote speaker and the host of the popular Take It To The Board podcast on association issues.

Donna DiMaggio Berger is a Shareholder in Becker’s Community Association Practice in Ft. Lauderdale, Florida. She is a member of the College of Community Association Lawyers (CCAL), a prestigious national organization that acknowledges community association attorneys who have distinguished themselves through contributions to the evolution or practice of community association law and who have committed themselves to high standards of professional and ethical conduct in the practice of community association law. She is also one of only 190 attorneys statewide who is a Board Certified Specialist in Condominium and Planned Development Law.

As Founder and Executive Director of Becker’s Community Association Leadership Lobby (CALL), Ms. DiMaggio Berger has led various community association advocacy initiatives, working with legislators and other public policymakers on behalf of those who live, serve, and work in common interest ownership communities. She has testified before the Florida Legislature regarding community association law and frequently appears on radio talk shows and in print media discussing these issues.

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Florida Insurance Journal Report: Claims Litigation Not Named as Major Factor in Florida Insolvencies

Florida Insurance Journal Report: Claims Litigation Not Named as Major Factor in Florida Insolvencies

  • Posted: Jul 28, 2023
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Head Scratcher? Claims Litigation Not Named as Major Factor in Florida Insolvencies

 

Despite years of complaints from Florida property insurers and some lawmakers that out-of-control claims litigation was destroying the industry, recent regulators’ reports about the reasons for insolvencies make little mention of the “L-word.”

The omission has prompted some head scratching and new questions by policyholder representatives.

“That’s ridiculous,” said Gina Clausen Lozier, a south Florida plaintiffs’ attorney. “You’d think with all the concerns about litigation in the last few years that would be number one on the list.”

The Florida Department of Financial Services’ Division of Rehabilitation and Liquidation posted its 2022 Annual Report in April. It recently caught the eye of advocates for homeowners, policyholders that have seen premiums spike in Florida while at least 10 insurers have become insolvent since early 2021. The R&L report’s page 7 lists “factors contributing to insolvency,” including:

  • Inadequate capitalization or asset deterioration
  • Improper management
  • Insufficient claim reserves
  • Rapid premium growth
  • Inappropriate transactions with affiliates or subsidiaries
  • Inadequate premium rates
  • Natural disasters or catastrophic losses
  • Change in business conditions
  • Reinsurance market issues.

Claims litigation, which industry supporters have often called the number-one reason for insurers’ financial troubles in Florida, and which led to major legislative reforms in the last five years, is not mentioned directly in the report. That suggests that insurance company leadership and corporate structure, not trial lawyers, are more to blame for mismanaging operations and failing to maintain adequate reserves, said Doug Quinn, executive director of the American Policyholder Association, a national, non-profit group that advocates for investigations into insurers’ claims practices.

“All of the finger-pointing and scapegoating at consumer fraud, excess litigation, and roofing scams are just to divert attention away from what’s really going on behind the scenes,” Quinn said. “There’s a lot of finger-pointing at outside parties, but failing at business is an inside job.”

A Department of Financial Services official, responding to questions from Insurance Journal, said claims litigation is a factor behind the factors listed in the report. The R&L annual report examined insolvencies from 2017 through 2022, including the liquidations of St. Johns Insurance Co., Avatar Property and Casualty Insurance, and Southern Fidelity Insurance, said Devin Galetta, communications director for Florida’s chief financial officer, Jimmy Patronis.

“While the words ‘claims litigation’ do not appear on that particular page, the reality is that during the period covered by these reports, 79% of the nation’s homeowners insurance lawsuits were filed in Florida while the state only accounted for 9% of the nation’s homeowner’s insurance claims,” he said in an email, citing an oft-quoted statistic compiled by the Florida Office of Insurance Regulation, based on data from the National Association of Insurance Commissioners.

“‘Claims litigation’ is a driving factor for many of the listed insolvency factors, including asset deterioration, insufficient claims reserves, inadequate premium rates, reinsurance market issues and changing business conditions,” Galetta said.

He added that litigation is not the only force behind recent insolvencies. “But it is a throughput that causes a wide variety of disruptions to the insurance market as initial estimates of a storm’s cost continue to increase for months or years after a storm makes landfall, due to litigation costs.”

Other factors include sharply rising reinsurance prices and inadequate premium levels, which are included in the report.

The spike in reinsurance rates in the last three years reflects excessive claims litigation as much as anything, said Kevin Comerer, a consultant and registered lobbyist with Rubin, Turnbull & Associates, in Tallahassee. He was previously legislative director for a major Florida property insurer. Comerer noted that reinsurers have pulled back from the Florida market and have raised prices in large part because litigation soared between 2018 and 2023.

“You were seeing losses in year two and three that were equal to or greater than year one after a hurricane, and that was all because of an explosion of roof claims and lawsuits,” he said.

The R&L annual report isn’t the only regulatory document that doesn’t emphasize litigation as a driving force.

The division is required by state law to produce port-mortem reports each time an insurer is deemed insolvent. The division’s website lists insolvency reports only through 2019, but Galetta provided initial reports for four insurers that went out of business in 2022 and 2023: United Property and Casualty Insurance Co.; FedNat Insurance; Weston P&C; and Southern Fidelity.

In two of those reports, for FedNat and for Weston, claims lawsuits, litigation and attorneys fees were not listed.

“Despite significant capital infusions in 2020 and 2021, FNIC’s surplus as regarding to policyholders continued to decline,” the 7-page FedNat report notes. “Additional factors included poor operational results, limited access to additional capital, and a jeopardized financial stability rating.”

For Weston, the division said weather events played a significant role.

“The company had insufficient assets or reinsurance to pay potential claims to policyholders during the 2022-2023 Atlantic Hurricane season,” the report said. “Despite actions taken by Weston to improve its financial condition, including a Capital Management Plan and Risk Based Capital Plan, Weston’s surplus as regards policyholders continued to deteriorate and ultimately led to the company’s referral for delinquency proceedings.”

For United and Southern Fidelity’s delinquency proceedings, lawsuits were named as one contributor.

“UPCIC’s losses over multiple years affected its surplus,” the United report noted. “The large percentage of litigated claims drove up its costs. The $140 million reserve deficiency related to Hurricane Ian in September 2022 resulted in the company’s referral to the Department for delinquency proceedings.”

Florida insurance defense attorneys, carrier executives, industry lobbyists and prominent legislators in recent years have also pointed to assignment-of-benefits agreements as a major problem, leading to wildly inflated roof and water-damage claims and unnecessary litigation. The Florida Legislature in 2019 approved measures to limit AOBs. In 2022, lawmakers barred one-way attorney fees in AOB litigation, then outlawed AOBs altogether.

Only the Southern Fidelity insolvency report lists AOBs as a factor.

“Litigated claims related to Assignment of Benefits claims drove up costs in 2014-2015,” the report reads. “Losses from Hurricane Ida in 2021 are projected to exceed the top of the company’s catastrophe reinsurance tower. Ultimately, Southern Fidelity’s failure to secure a reinsurance program for the 2022 hurricane season and the late development of reserves for Louisiana claims exhausted the remaining surplus which resulted in the company’s referral for delinquency proceedings.”

Quinn and others have maintained that litigation has played a smaller role in financial losses than industry leaders have said, and intricate corporate structure and “profit shifting” are more to blame. At the May 2022 Florida special session on insurance reform, several Democratic lawmakers, including then-state Sen. Gary Farmer, D-Broward County, said that a number of companies had diverted profits to managing general agencies, leaving the actual insurance companies with inadequate reserves.

Quinn suggested the DFS reports bear that out with their references to “inappropriate transactions with affiliates or subsidiaries.”

“Properly managed and reserved companies do not go under,” Quinn said.

Industry advocates have strongly disagreed, noting that most insurers would not deliberately bleed themselves dry. Instead, they have argued, under the perfect storm of Florida statutes and court decisions that evolved over the last two decades, claims lawsuits and fraudulent roof claims became a cottage industry that exploded as some plaintiffs’ attorneys took advantage of prevailing-attorney fees and fee multipliers.

Thank You to the Cohen Law Group for sending us this article.

At Cohen Law Group, It’s About Justice!

“It’s About Justice” is more than a slogan. It is our firm’s mantra. The motto was developed by our founder, Harvey V. Cohen. We are aggressive, zealous advocates for our clients’ rights. Our commitment to our clients is evident by our prompt reply to all phone calls and our 24 hour availability through our phone answering service.

Effective legal representation requires experience and dedication to protect the rights of those who have entrusted us with their legal options and rights. Cohen Law Group has successfully represented many Florida residents throughout the years in various legal matters.

 

 

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