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Understanding the Implications of the Heritage Market Conduct Study and $1 Million Consent Order Penalty


In a significant development, the Florida Office of Insurance Regulation (OIR) has completed a detailed market conduct examination of Heritage Property & Casualty Insurance Company. This study, which focused on Heritage’s handling of Hurricane Ian claims, culminated in a consent order requiring a one-million-dollar penalty. For policyholders and other stakeholders in the insurance sector, including public adjusters and restoration contractors, understanding the ramifications of this study and the subsequent consent order is important.

My first impression while reading the consent order was that “there is a new insurance sheriff in town.” Maybe my hope expressed in Is There a New Direction in Florida’s Insurance Oversight? Enforcing Long-Neglected Laws That Apply to Insurance Executives Who Have Bankrupted Insurers is a reality with Florida’s new Insurance Commissioner, Mike Yaworsky. This is the second significant regulatory act in two months, showing a possible trend that Florida’s regulators are back to enforcing insurance laws and not sweeping insurance company claims handling dirt under the rug.

The second impression brought me back to a day two years ago when public adjuster Tara Stone and I were invited to make presentations to Heritage’s claims department about claims ethics and obligations of good faith. Tara was a fourteen-year property insurance adjuster veteran on the insurance company side before starting Stone Claims Group a decade ago. She gave a very detailed explanation with examples of Florida’s ethical and claims codes from the viewpoint of a seasoned property insurance adjuster. I was captivated by her knowledge of claims ethics and her suggestions for Heritage property claims adjusters about how they should be taking actions to comply with these requirements. I previously wrote about Tara Stone’s leadership involvement with the Windstorm Network in Wind Damage to Flat Roofs—Prove It! – Tara Stone and The Windstorm Insurance Network Set Flat Roof Wind Damage Webinar.

If Tara Stone did such a great job teaching claims ethics, I am certain that many of you must be thinking, “Chip, you must have put them to sleep because those same Heritage property insurance adjusters got hit with a one-million-dollar penalty for unethical claims work a few months after you teaching them how to do to it right!” The promoted Heritage Claims Officer, Joe Powers, probably wishes he had invited somebody else from Merlin Law Group to teach his property insurance adjusters. I have a knack for costing insurance companies when I get involved, even if it is while trying to help them.

The point is that there are often two sides to a story, and one often goes unsaid. There are many well-meaning people working for insurance companies. Claims training about claims ethics is needed and must be culturally demanded by claims executives. When claims occur, that is the insurance company’s “moment of truth.” Claims handling performance must adhere to the law. I was happy to see that a claims executive like Joe Powers would invite a highly critical policyholder attorney to provide a presentation because I am certain he believed it would help those on his team. He invited a public adjuster who carries respect in the field to help shine a light on actions needed to comply with ethical requirements when the rubber meets the road. Few insurance companies ever do this. I give Heritage a gold star for doing so.

The other side is from those property insurance adjusters in the field and at their desks being given a daily dosage of manure from those who are looking to game and improperly profit from the system. There were numerous questions of real-life scenarios, which were astounding to me. One adjuster asked what to do when faced with dozens of claims by a roofer asking for $1200 a square for a shingle roof. The claim amounts were obviously improperly high. If not paid, the roofer would turn over the loss to an AOB attorney who would file suit. Heritage “won” most cases by paying what the adjuster would have originally paid the roofer, but it cost more because they paid the AOB attorneys and Heritage’s own attorneys.

I am not making excuses for Heritage claims conduct because Heritage certainly has problems more than just recited in the conduct study. I know of numerous situations where Heritage would nickel and dime roofers and restoration contractors.

My point is that it would be easy to be a repeater of this news. I want my readers to learn from events, think about the people they are dealing with and delve into the implications of what this means to them, whether as policyholders, public adjusters, restoration contractors, those working for the insurance industry or even if you are Steve Badger reading this on his royal throne thinking about how this order impacts his clients.

The Examination and Its Findings

The targeted market conduct examination by the OIR was specifically designed to review Heritage’s claims-handling practices during the aftermath of Hurricane Ian, focusing on the period from September 28, 2022, to February 28, 2023. The purpose of these examinations is to ensure that insurance companies comply with statutory and regulatory requirements and to protect consumer rights by ensuring fair and timely processing of claims. Earlier this year, I wrote about market conduct studies in “What is the History of Market Conduct Studies?” and “Do Market Conduct Claims Studies Effectively Regulate Wrongful Insurance Company Claims Practices?

The findings from this market conduct examination highlighted several areas of non-compliance by Heritage Property & Casualty Insurance Company, including:

  • Delayed Claim Acknowledgements: The company failed to acknowledge receipt of claim communications within the required 14 days in numerous instances.
  • Documentation Issues: Heritage was cited for not providing policyholders with the necessary documents containing adjusters’ names and license numbers during the inspection phase.
  • Adjuster Identification Failures: In many cases, subsequent communications with policyholders about their claims did not include the required adjuster identification details.
  • Payment Delays: The company did not pay or deny claims within the stipulated 90 days in several instances.
  • Interest Calculation Errors: There were numerous errors in calculating the interest owed on delayed payments.
  • Licensing Issues: Heritage used adjusters who were not properly licensed or appointed.

These violations indicate systemic issues in Heritage’s operations that potentially affected the rights and recovery processes for many policyholders impacted by Hurricane Ian.

The Consent Order

As a result of these findings, a Consent Order was issued on May 9, 2024. This order is a legal agreement between the OIR and Heritage, where Heritage agrees to specific sanctions and corrective actions. Key components of the consent order include:

  • Financial Penalties: Heritage agreed to pay a $1,000,000 fine and $10,000 in administrative costs.
  • Corrective Measures: The company must undertake specific actions to rectify the identified issues and improve their claims handling processes.
  • Monitoring and Compliance: Additional reporting and monitoring requirements were set to ensure compliance with the terms of the consent order.

Consent orders, and this one in particular, serve multiple purposes. They act as a punitive measure for past violations, a deterrent against future non-compliance, and a means to ensure better future performance in claims handling by Heritage. Heritage is warned that it could lose its charter to do business in Florida if it does not stop these actions.

The issuance of this consent order has several implications. For policyholders, the findings and the subsequent consent order assure policyholders that regulatory bodies like the OIR are actively working to protect their interests. It ensures greater accountability from all insurers regarding the timely and fair processing of claims. This action sends a clear message to other insurers about the importance of adhering to regulatory standards and the consequences of failing to do so. It emphasizes the need for all insurance companies to maintain rigorous compliance with insurance laws and regulations.

For Heritage, the consent order will necessitate a review and thorough overhaul of their claims handling procedures and internal controls. This may involve revising internal policies, investing in new technologies to ensure compliance rather than new software that just focuses on lowering payments, and retraining Heritage claims staff. I doubt I will be invited back to teach any retraining, but I would encourage Tara Stone to be given a second chance.

This consent order also sets a legal precedent that could influence how similar cases are handled in the future. It provides a framework for what insurance companies can expect if they fail to comply with Florida’s regulatory standards. One million dollars should get the attention of other insurance companies. My bet is that bad faith cases will be easier to prove against Heritage because there has already been a general business practice finding against it.

This also marks the first time since Kevin McCarty left office as insurance commissioner in 2016 that Florida’s top insurance regulator has done something significant to protect Florida’s policyholders from wrongful claims conduct. In Departing Words from outgoing Florida Insurance Commissioner, I quoted Kevin McCarty:

And while insurance companies blame shady contractors and attorneys, McCarty said insurers need to more quickly respond to customers with legitimate water loss claims so those customers don’t reach out to ‘fraudsters’ first.

Reflecting on McCarty’s words and my experiences with Heritage in and out of litigation, my guess is that part of the poor claims conduct may have been caused by Heritage property adjusters being so concerned about the shady and corrupt that they did not handle the legitimate and just with good faith claims conduct.

The findings from the OIR’s market conduct examination and the subsequent consent order are not just a wake-up call for Heritage but for the entire insurance industry. For my colleagues at Merlin Law Group, who advocate for policyholder rights not just in the courthouse but in the court of public opinion and the halls of legislatures and departments of insurance, these developments underscore the importance of vigilance and advocacy in holding insurers accountable. They also provide a strong foundation for legal arguments in disputes involving similar claims handling issues with other insurers.

Ultimately, the broader impact of this consent order will be seen in how it influences insurance practices across Florida and potentially other states. For now, it reaffirms the critical role of regulatory bodies in maintaining the integrity of the insurance market. The insurance industry claims culture must protect people by full and prompt payment. The insurance industry has made this promise, and it must show it can be trusted at its “moment of truth.”

Thought For The Day

You can’t go back and change the beginning, but you can start where you are and change the ending.
—C.S. Lewis