Through the Roof

A major problem for the insurance industry—and for homeowners

PITCHED ROOF: In Florida, hundreds of thousands of roofs have been replaced since Hurricane Irma, whether they needed to be or not, insurance industry leaders claim.

Now that Sandra Clemento looks back on it, she realizes she’s part of the Florida property insurance industry’s $1 billion problem.

She knew the 19-year-old tile roof on her Pelican Preserve home in Fort Myers needed repairs. So when the 72-year-old single woman got the knock on her door from a roofing contractor asking if she’d like a free inspection, she wasn’t shocked when he came back with photos of broken roof tiles. But she was shocked by how much the work ultimately cost—slightly more than $91,000 for a new roof.

When the roofing contractor told her he could make sure her property insurance paid to replace the roof, Clemento responded the way nearly every Florida property owner answers when presented the same offer: She thanked the contractor and told his crew to get to work replacing her roof.

But if she’s being totally honest, she doubts Hurricane Irma damaged her roof enough to justify forcing the insurance company to replace it. She understands she bears responsibility for maintaining the house built in 2001 that made it through several hurricanes and nearly two decades of Florida wear and tear. “My internal voice would tell you I didn’t think it was right,” Clemento says. “I would say, yes, as a homeowner I should have had more responsibility.”

Like many Florida roof replacement claims closed last year by insurance companies, Clemento’s claim blamed Hurricane Irma three years earlier for the damage. Clemento said she never had any leaks, never experienced any problems after the September 2017 storm. But she took the salesman up on the offer to have her roof replaced. “I thought that the whole process was slimy,” she says, looking back on the experience.

In Florida, hundreds of thousands of roofs have been replaced since Irma, whether they needed to be or not, insurance industry leaders claim. The hurricane, Florida’s biggest catastrophe since state leaders changed the rules governing property insurance in 2011, triggered more than 1 million property claims totaling more than $17 billion in insured losses, including more than 909,000 residential property claims for the storm that touched nearly every part of the state.

While the property damage claims from Irma and other hurricanes since have mounted, a bigger trend is proving more costly for Florida insurance companies. Nothing has hit the industry harder than the spike in roofing replacement claims and lawsuits led to collect from insurers. Over the past two years, the cost of claims with litigation were nearly double those without litigation, and lawsuits have continued to pile up, said Florida Insurance Commissioner David Altmaier. “These don’t appear to be normal roofing claims,” Altmaier told Florida lawmakers earlier this year.

The biggest driver of insurance company payouts in recent years is from an increase in Florida lawsuits, up more than 210% last year to 85,007 from the 27,416 led in 2013. In Southwest Florida’s Lee and Collier counties, that increase is even more dramatic, up more than 1,258% from 469 in 2013 to 6,370 in 2019, the most recent year available.

 

More than any other disaster-prone state, Florida property owners are paying the cost of insurance lawsuits. Fraker estimates that about $866 of a Florida property owner’s insurance premium this year will go toward paying litigation costs, up 78% from $487 in 2019. “The number one thing we have to do is bring down the number of lawsuits,” says Sen. Kathleen Passidomo of Naples.

The spike in litigation that began in 2016 comes as a result of Florida laws that give property owners more time and more coverage for storm damage than other states, and court rulings that opened the door to more damage claims, Fraker said. Damage done after Florida landfalls by Hurricanes Matthew, Irma, Michael and Sally certainly contributed to the payouts by insurance companies during the period. But Fraker said those storms don’t explain why insurance litigation costs in Florida are significantly higher than any other state vulnerable to catastrophe, such as Louisiana, Texas and Mississippi.

 

In 2019, insurance litigation costs consumed 17% of all Florida property premiums, nearly three times the U.S. average of 6%, and more than three times the costs in Texas, the next highest state, according to Fraker’s analysis.

The increase in lawsuits is following an increase in roofing contractors going door to door to solicit business, said Tasha Carter, Florida’s insurance consumer advocate. She said her office in the Division of Financial Services has received numerous complaints about door-to-door solicitors swarming neighborhoods. The salespeople represent roofing contractors, working with lawyers and public adjusters, who offer property owners gift cards if they allow a roof inspection and the promise of a new roof paid for by their insurance company once damage is found, Carter said.

Fort Lauderdale lawyer Scott Strems is facing a lawsuit from Citizens Insurance Property Company accusing him of participating in a scheme, which included a public adjuster and a contractor, to submit millions in fraudulent insurance claims. The lawsuit claims the scheme included improper collaboration among the parties to solicit business from homeowners, submission of fraudulent claims and filing harassing lawsuits to pressure payment.

A separate Lee County investigation is focusing on a door-to-door push last year made in one neighborhood of seniors just before the three-year deadline passed in September to file initial claims for Irma damage, Carter said. Property owners received gift cards if they allowed a roof inspection, and one public adjuster, one contractor and one lawyer were all tied to the claims led in the neighborhood with 15 different insurance companies. “This was a way for the community, the homeowners, to receive new roofs,” she says, declining to offer more details about the ongoing investigation.

That’s what Clemento said happened in her Pelican Preserve neighborhood in Fort Myers. A number of neighbors got the same pitch she did from roofing contractors and a new roof, courtesy of their insurance companies. She said the cost of her roof job ballooned from nearly $60,000 estimated on the initial permit for the job to $91,041.63, which included repairs needed after a worker left a hole in her ceiling.

“I used to sort of look at my insurance company as the enemy,” Clemento says. “But I eventually looked at them as an idiot. Why would you keep paying for this?”

In an interview, Lee Haight defends his aggressive approach to earning roofing business and his work teaching other contractors how to promote their services. “We’re in America, sir. I’ll fight for my American dream,” he says. His Facebook page includes a video of a homeowner punching him as he tries to pitch his “no roof left behind campaign” in one neighborhood.

Haight said insurance companies—“the ruling 1%”—are trying to make him and other blue-collar business owners out to be villains because they don’t like paying legitimate property claims for damaged roofs. Haight said his business identified numerous Southwest Florida homes last year with real storm damage that property owners didn’t even realize was covered by their insurance. “These roofs were compromised. They were damaged,” he says.

Haight doesn’t buy the claim that roofing contractors are out there promising consumers “free roofs” or charging insurance companies to replace roofs that don’t need it. “No big roofing company makes that promise,” he says. “The insurance company spends so much money brainwashing people that they’re a good neighbor, and they’re not.”

The solicitation, knocking on doors in a neighborhood, is the common thread in a number of cases insurance companies argue provide proof that some contractors, adjusters and lawyers are breaking the law in Florida. A “runner” knocks on a door with a gift card for the property owner and identifies roof damage in an inspection requiring a new roof. The salesperson asks the property owner to sign documents on an iPad or electronically, agreeing to hire a contractor, retain a lawyer and to transfer insurance benefits to them.

As the billions in covered losses after Irma became apparent, that solicitation practice became more common, and could have violated numerous Florida laws governing public adjusters, soliciting legal business and handling insurance claims.

“You have no idea how much money is involved,” says Locke Burt, a former Florida senator who helped rewrite state insurance laws after Hurricane Andrew in 1992 and now runs Security First Insurance.

Until recently, the rules in Florida for property insurance gave policyholders up to three years to file a storm damage claim, and require full replacement of a roof if 25% of it needs repair. The rules also favor lawyers, who can make insurance companies pay their legal bills in settlements for policyholders, and in some cases double their fees if they can show it’s a complex case. In February 2019, a Florida court awarded lawyers $712,677 in legal fees … while their client, the policyholder, received $35,000.

Florida’s property insurance rules have meant homeowners don’t have to pay to replace a roof if they can claim storm damage or for any lawsuit challenging an insurance company’s decision on a claim. The rules also provide an incentive for some lawyers to take on property owner cases against insurance companies that have their own army of lawyers.

Altmaier said he believes some roofing contractors have teamed up with lawyers and adjusters to generate business from homeowners they persuade to replace their roofs with little or no cost to them. “I think there’s a lot of anecdotal evidence that would seem to support that that type of behavior is happening,” he says.

The jump in lawsuits is not the result of insurance companies scheming to cheat consumers, said Altmaier, whose office investigates complaints against insurers. “So far, our findings do not indicate that we have any systemic, market-wide approach by insurance carriers that they are lowballing claims or things of that nature,” he says.

The growing number of lawsuits is not good for Florida property owners, Carter said. “It’s not what’s in the best interest of the homeowner. It’s what’s in the best interest of the adjuster, contractor and lawyer.”

Kelly Roofing included a post on its website advising “when repairs will entitle you to a new roof.” The headline, “1 broken shingle or tile = a new roof,” is what caught Altmaier’s attention.

“There’s no such thing as a free roof. Somebody’s paying for it,” says Lisa Pate, executive director of the Florida Roofing and Sheet Metal Contractors Association.

As a trade group representing about 800 Florida roofing contractors, it may seem odd that Pate and others in the industry are aligning with insurers to fight the door-to-door soliciting used by some roofers trained by lawyers on how to pitch property owners. But Pate said the practice has given her industry a bad reputation. “There’s been some consumer harm done,” she says.

A series of changes adopted by the Legislature are designed to help insurance companies by restricting legal fees, limiting when someone other than a property owner can pursue a damage claim and shortening the time property owners have to file a storm damage claim. But some proposals insurance companies pushed didn’t pass, including forcing homeowners to pay more to replace older roofs.

“The system needs to be practical, responsible and it should work,” says Passidomo, a Senate leader and chair of the Rules Committee.

Carter said she supports other changes in Florida’s property insurance law that will be more helpful to property owners, including making them the first point of contact for damage claims, allowing them to receive all claim payments and to arrange for incremental payment as contractors satisfactorily complete work. “It allows the policyholder to stay in control of their claim,” she says. Even with the property insurance reforms adopted this year, Altmaier said he expects more insurance companies to ask his office for additional increases in annual premiums. Last year, his office approved 55 of the 105 requests made for increases of 10% or more.

“This is what consumers are going to be facing if these conditions continue going forward,” Altmaier says. “We’ll ultimately get to a point where insurance rates, not a lot of people can afford it, or we’re going to see a lot of carriers just say, ‘Florida is not the place for us to do business.’”

HIT THE ROOF: More than any other disaster-prone state, Florida property owners are paying the cost of insurance lawsuits.

‘FREE ROOF’ FREE FALL

It’s all part of an aggressive effort by a growing industry of roofing contractors and lawyers who are pulling in billions of dollars from claims and lawsuits, insurance companies argue. Some roofing contractors and lawyers work together, sending solicitors door-to-door through neighborhoods offering property owners a “free roof” and the legal muscle to force insurance companies to pay for it.

“I can’t tell you how many times the salesman told me they have more lawyers than roofing contractors to get people new roofs,” Clemento says.

Since 2013, lawyers collected the lion’s share of awards paid by insurance companies for lawsuits filed on behalf of Florida policyholders. While property owners received slightly more than $1 billion of the $15 billion paid out, their lawyers filing the cases collected more than $10.8 billion, or nearly three-fourths of all payments made by insurers, according to one analysis.

The property damage claims and litigation costs led to more than $1 billion in underwriting losses last year for the dozens of insurers who issue policies in Florida, marking the fifth straight year in losses for an industry that makes up about 3% of the state’s economy.

Florida’s property insurance market “is in a free-fall collapse, as in not viable,” says Guy Fraker, the analyst who identified the litigation trends and other problems facing the industry in an analysis commissioned by advocates for property insurance reform. Continued underwriting losses will mean insurers will leave the state, reducing coverage options for property owners and putting more pressure on the state-run Citizens Property Insurance Company to cover properties in hurricane-vulnerable Florida, Fraker argued. Some insurers already have pulled out of the Miami area and some counties around Orlando. “This is a real meltdown,” he says.

Citizens, considered the insurer of last resort for Florida property owners who can’t find coverage, is experiencing a surge of new customers as a result, said president and executive director Barry Gilway. Citizens is projected to insure 630,257 Florida property owners this year, a 43% increase over the 440,406 customers it served when Irma struck in 2017.

Florida property owners got their first glimpse of the fallout this year when their insurance premiums jumped by as much as 30%, or up to $1,300 for a premium that last year cost $1,000. And those increases are expected to continue, perhaps to the point where an annual premium of thousands of dollars will make homeownership unaffordable for many. “We’re going to reach a point where our consumers cannot afford their premiums,” said Sen. Doug Broxson of Pensacola, who backs changes in state law to help the insurance industry.

 

AGGRESSIVE SALES TACTICS

Walking down Gulf Shore Boulevard in Naples while broadcasting on Facebook Live, Lee Haight tells his followers, “You have to get your pitch game up.”

The roofing contractor works a side business out of Naples, Sky Diamond University, that teaches other contractors how to promote their services online, on social media and through door-to-door marketing. With beach-front mansions in the background, Haight used Facebook Live to promote a Miami marketing seminar he hosted for roofing contractors and others.

In the video on his Facebook page, he shows his followers how he fearlessly chases every potential lead, even in the wealthy Port Royal neighborhood where, he noted, average home values exceed $8 million. He stops a man in a red Ferrari to make his point.

“Nice car, brother,” Haight says as he leans into the Ferrari’s open window, and then launches into a pitch for roofing business. “We’re replacing a roof in the neighborhood and we wanted to make sure that you’re not somebody who completed illegal repairs. There are a lot of contractors that didn’t address the hurricane damage to the tile correctly. Have you had your roof checked?”

The driver responds, “Yes, we’re all set.” Haight presses on. “You’re all set? Is it a concrete tile?” The driver brushes him off and drives away.

“That’s what we call a Ferrari pump fake,” Haight tells his followers as the potential client drives away. He notes this is an example of the boldness needed to earn more business as a contractor, that ability to knock on any door, approach anyone, no matter how rich they are or where they live, to persuade them that they should hire you to replace their roof or for any project.

It’s exactly the kind of solicitation that some state and industry leaders argue has cost insurance companies billions.

“Is this the only way we can sell roofs?” asks Mike Silvers, a roofing contractor in St. Petersburg for nearly four decades who argues against aggressive soliciting tactics. “I think not. I know not.”

 

Photo Credit: Getty; Courtesy WINK News, Courtesy Security First Florida Corp.