Claims And Issues

Rescission of Health Insurance Policies in California.

     Rescission is a word used to describe cancellation in California.  In the law, including apparently in California, "rescission" is a claim or cause of action available to Insurance Companies.  Rescission is only available when persons applying for Insurance make a material misstatement in the application.  A material misstatement, in turn, in basic terms is one which induces the Insurance Company to issue a policy which it would not have issued, or to issue a Policy without a particular Exclusion which it would have included, or to charge a lower Premium than it would have charged, had it known the truth.  Rescission is usually regulated by Statute.

     In California, one Statute has recently been enacted that addresses the availability of rescission in the area of Health Insurance.  Effective January 1, 2008, "health plans" are required to pay medical care providers -- such as doctors and hospitals -- in advance.   This means that Health Insurance Companies in California which authorize treatment must pay the providers even if the Policyholder's-patient's Health Insurance Policy is rescinded later on.

     A second California Statute is on the way, apparently.  On Tuesday, January 29, 2008 the California Assembly unanimously approved an "anti-quota bill".  It now goes to the California Senate for consideration.  The new bill reportedly "would expand the scope of an existing state law forbidding insurance companies from tying any compensation for claims reviewers to their claims decisions."  The California bill reportedly targets "bonuses or incentive pay to any employees based on their decisions to cancel people's policies."   See Lisa Girion, "State Steps Up Scrutiny of Insurers" (Los Angeles Times Online, Wed., Jan. 30, 2008).

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"It's NOT the Subprime Collapse, Silly!": Allstate Reports 4Q Results.

     Allstate reports that in the Fourth Quarter of 2007, "unrealized losses from mortgage and asset-backed securities" cost it $502 Million or $502,000,000.00.  Allstate had to "write down" $82 Million on those investments.  To "write down" means to mark as worthless, in plain terms.

     Allstate also reported Catastrophe Claims totaling $472 Million or $472,000,000.00 in its 4Q in 2007.  The company reported $318,000,000.00 of that amount as due to wildfires in California in 2007.

     Allstate's net income for the 4Q fell 37.3%.  Allstate attributed its smaller income to Catastrophe Claims.  Not to its poor investment decisions.  Expect Premium Rate Increases in 2008.  Here is a Reuters Report on January 29, 2008 .  It mentions the figures posted here and attributes Allstate's lost income to Catastrophe Claims, too.  Here is  an Associated Press Report on January 30, 2008, the title of which is "Allstate Profit Drops 37% on Storm Losses".  This Associated Press report does not mention Allstate's poor investment decisions, only Allstate's reported Catastrophe losses.

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Condominiums Windstorm Self Insurance.

    In a little-noticed Insurance development in 2007, the Florida Legislature wrote laws that began to allow condominium associations and others to form self-insurance trusts.  In basic terms, participants in the new trusts pool their resources to provide a fund for the payment of certain damage claims.  The Legislature acted in response to the extreme upward spiral of Premiums for Homeowner's and other Property Insurance, and the total cancellation or nonrenewal of many of those kinds of Insurance Policies in Florida.

     On January 18, 2008, the Palm Beach Windstorm Self Insurance Trust issued its first windstorm policies.  The policies are reportedly the first windstorm policies of this kind ever to see the sun in Florida.

    The Palm Beach Windstorm Self Insurance Trust is a group of 58 condominiums and cooperative associations in Palm Beach County, Florida.  The results of its experiment with Self-Insurance Windstorm Insurance Policies will be watched closely, not only in Florida but across the United States wherever Catastrophes may occur, meaning just about everywhere.  See "Palm Beach County Condo Group Self-Insures" (South Florida Sun-Sentinel.com, Saturday, January 19, 2008).

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The Role of Insurance Costs in Rebuilding New Orleans.

    Leslie Eaton is a New York Times newspaper reporter who has covered the Gulf Coast after Hurricanes Katrina and Rita with insight.  She has turned what can be confusing statistics into useful analyses more than once.  Here is another informative report, as of Sunday, January 27, 2008 by Leslie Eaton, "So Many Places to Live, But So Far Out of Reach/New Orleans Faces a Housing Challenge" p. 15, col. 1 (New York Times Sunday Nat'l Ed., January 27, 2008).   

    The price of houses in New Orleans is reportedly slowed by the cost of Insurance, among other things.

    The State of Louisiana's "Road Home" program is also explained in the linked article.  Many homeowners in Louisiana have decided not to rebuild their houses since Hurricanes Katrina and Rita struck in 2005.  The State of Louisiana buys such houses and turns them over to the local government, such as the City of New Orleans.    The properties will be redeveloped or resold by the local government.  By at least one reported estimate, there are up to 20,000 "derelict" buildings in the City of New Orleans alone.

    The New Orleans Redevelopment Authority is the arm of the City of New Orleans that will redevelop or resell these derelict buildings in the city.    This government operation has had the responsibility "to deal with blighted properties" since long before the 2005 Hurricanes were given names.  Its results have been adjudged failures pretty consistently, it is fair to say from reading this news article.

     On a separate note from ownership, renting was the main means of occupation of homes in New Orleans before Katrina and Rita.  "Much of that housing was destroyed; many remaining properties need expensive repairs.  Construction and insurance costs have soared ...."

    At the current rate at which housing is being built or rebuilt, it is unlikely that there will be a New Orleans anytime soon that looks like New Orleans looked before August of 2005, if New Orleans ever looks like that again.

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Mississippi Hot Air Recycled by HUD Late on a Friday Afternoon.

Remembering that Insurance Companies have declined to pay many Homeowner's and other Property Insurance Claims resulting from Hurricanes along the Gulf Coast, and that Courts in some decisions have ruled in favor of some of the Insurance Companies' positions, these developments in Mississippi are of interest:

• Congress authorized $5,500,000,000.00 or $5.5 Billion in "hurricane recovery grants" on the condition that 50% should be spent for the benefit of low-income families hurt by the 2005 Hurricanes, Katrina and Rita.
• The State officials in charge of spending these Federal Taxpayer Funds in Mississippi have spent less than 25% of it to benefit low-income families hurt by the 2005 Hurricanes.
• Within that amount of spending, the State officials have debited an account for future spending on the poor of $100,000,000.00 -- taking it from another account which is also set up for future spending on the poor.  The officials issued a press release that moving these funds around means that they have "added" $100,000,000.00 worth of assistance for the poor who were caught in the wake of Katrina 3 years ago.  The newspapers published that as the lead or the headline in their "news reports" about this "development".
• Taking a page from the book of the people currently in charge of the Federal Government, the State officials in Mississippi insist that they need more money, much more money, from the Federal Tax trough.  The Mississippi officials want to build a new port, which will add jobs but those new (and temporary) jobs will not go to low-income people in significant numbers if past history repeats.   The State officials who have been gifted with Federal Taxpayer Hurricane Relief Funds are just not inclined to spend those funds on Hurricane Relief or to rebuild the port wrecked by the Hurricanes, as previously posted here.  The latest developments are reported by Leslie Eaton, "Mississippi to Use Some Hurricane Aid For Housing Program" p.A13, col. 3 (New York Times Nat'l Ed., Thursday, January 24, 2008).   

Bond Insurers, Balloons About Mortgages, Bailed Out?

    By any measurement the people who ran Bond Insurance Companies did a dumb thing.  For as long as they kept to what they knew, which is Insurance for municipal bonds, they received large profits and faced little risk.  Apparently they got bored.  Greed whispered to them in the night, sometimes in the day.  They could not rest content as they were.  They were forced, forced, to stray.

    They did not stick with what they knew.  They ventured into ventures of which they did not know.  Clearly they did not know.  Look at the results of their deeds.  Several Bond Insurance Companies lie in ruins according to the companies that rate their credit.

    Still, some of the persons that ran the Bond Insurance Companies deny the results of their actions.  There are such persons, still, who say that the credit agencies are cruel and filled with overweaning emotion that causes the credit agencies to mistakenly remove "AAA" from the credit ratings of Bond Insurers, and rate them "AA" or even "CCC" (junk) instead.

    The results should be the proof.  If the Bond Insurance Companies continue to tank, their credit ratings naturally should tank with them.  Their credit ratings should not be badly affected if their excusers are to be believed, and if it is true as they say that even though Bond Insurers wandered afield into subprime mortgages and CDOs, because, they say, Bond Insurance Companies do not face major financial difficulties since they pay on claims as they go, so to speak, and not all at once.

    Why, then, is there a move afoot by the New York State Superintendent of Insurance to cajole or plead with  banks and other financial institutions to  intervene and bail out the Bond Insurers?  See Vikas Bajaj & Jenny Anderson, "Next on the Worry List:  Shaky Insurers of Bonds" p. A1, col. 2 (New York Times Nat'l Ed., Thursday, January 24, 2008).

    If individual persons receive no protection who default on mortgages that were oversold to them in the first place, why is any protection contemplated for the comfort of persons who claimed they knew better then, caused a crisis, and claim now that they still know best?  This is what the New York State Superintendent of Insurance reportedly contemplates nonetheless.  It is reported that he is attempting to group together funds amounting to about $15 Billion for this purpose.    See Erik Holm and Jesse Westbrook, "N.Y. Regulator Pushes Banks to Rescue Bond Insurers (Update 3)" (Bloomberg.com, Thursday, January 24, 2008).

    Finally, any bailout of the undeserving who caused the problem that led to the bailout will take a little time to put together.  See Erik Holm, "New York Says Aid for Bond Insurers Will Take Time (Update 1)" (Bloomberg.com, Thursday, January 24, 2008).

    In the meantime, what bailout is contemplated by government officials for the homeless?  Or for the local governments who paid good Taxpayer money for the Premiums that the Bond Insurance Companies have spent on other things in other areas far from where Bonds do dwell?

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Allstate Provides some Documents to Florida.

            Slow Drip, Drip, Drip of Documents Planned While Appeal is Decided.

     The so-called McKinsey Report on insurance behavior in handling claims and increasing profits was among many, many documents subpoenaed by the State of Florida from Allstate.  History helps to understand.  See previous posts here as well as the brief summary below.

     With at least 60 days to respond to subpoenas served on it by the Florida Office of Insurance Regulation, Allstate on January 15 announced its decision not to provide documents.  Instead, Allstate filed 51 pages of objections that day.

     On January 16, the OIR suspended Allstate's certificate to do business by issuing any new Automobile Insurance Policies until it complied with the OIR subpoena.  On January 17, the OIR apparently entered a further order suspending Allstate's certificate for all new Insurance Premium business of any kind in Florida until Allstate complied with the supoenas.  That meant that Allstate could not collect new Premium money while its certificate was suspended.

     Allstate appealed this decision on January 17.

     On January 18, a Florida appellate court stayed the OIR order until the appeal was done.

    The latest development for now occurred on January 23, 2008.  It is now reported that one of Allstate's 51 pages of objections was that the McKinsey Report addressed  how to maximize profits for Allstate from handling Automobile Insurance claims rather than any other kinds of claims for losses such as Homeowner's and other Property Insurance claims.

    On Wednesday, January 23, 2008, Allstate produced some documents in response to the Florida subpoena even as Allstate pursues its appeal.  Allstate's limited production includes the seeming distraction of the McKinsey Report.  According to the news article, Allstate apparently plans to produce more documents in phases as it hopes for a favorable ruling on appeal.  See Anika Myers Palm, "Allstate Provides Documents to State" p. C1, col. 5 (Orlando Sentinel Central Florida Business Section, Thursday, January 24, 2008).  To be fair, the headline on this newspaper report should read, of course, "Allstate Provides Some Documents to State".

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Bond Insurance Companies Blew It.

"They lost their way out of greed."  Joshua Rosner, quoted on Bloomberg.com, Tuesday, January 22, 2008.

     The sad story of many Bond Insurance Companies overreaching their limits is capsulized in these few sentences:

By chasing the higher profits of CDOs while underestimating the risks, the bond insurers jeopardized their basic business: insuring municipalities against default. In practice, cities and states rarely default. That's because they can raise taxes to meet obligations or refinance their debts. The designers of CDOs don't have those options.

See the rest of this excellent news report by Christine Richard, "Ambac, MBIA Lust for CDO Returns Undercut AAA Success (Update 2)" (Bloomberg.com, Tuesday, January 22, 2008).

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QBE Insurance Group "Protects" Itself With "Derivatives Hedges".

    The good news to add to the headline of this post is that QBE reports that its major financial portfolio does not include "direct investments" in subprime mortgage schemes or CDO's in the United States.

    The bad news is -- besides as the above headline indicates, that QBE actually states that it is "'substantially protected through derivatives hedges'" --  that QBE in addition admits that it has "indirect investments" in those downgraded securities in the United States because it has investments in banks.  QBE refuses to elaborate, it is reported by Brett Miller, "QBE Says Its A$1.7 Billion of Equities Are Hedged (Update 2)" (Bloomberg.com, Wed., January 23, 2008).

    QBE Insurance Group Ltd. is Australia's largest Property and Casualty Insurance Company.

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Number 3 Auto Insurer Reports Progressively Plunging Profits, Premium Income.

     Progressive Corporation, the number 3 Auto Insurance Company in the United States behind State Farm and Allstate, reports that its 4Q profit in 2007 fell 41%.  Its share price has fallen 21% in a year.  It is the first of the 10 largest Insurance Companies in the U.S. to report Fourth Quarter 2007 performance.

     While Progressive is eliminating jobs and restructuring its internal organization to save money, Progressive is also spending money.  On the one hand, it terminated 341 employees in November and combined two units into one unit to sell Auto Insurance.  On the other hand, Progressive spent $8,200,000.00 or $8.2 Million on making its November job terminations and it just announced that for the next 16 years it will pay a total of $58,000,000.00 or $58 Million for the 'naming rights' to the baseball stadium where the current Cleveland Indians play baseball.

     These announcements and more are reported by Erik Holm, "Progressive Profit Falls 41% on Lower Premium Revenue (Update 3)" (Bloomberg.com, Wed., Jan. 16, 2008).

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"Sector Snapshot" -- Insurance.

    The New York Times "Sector Snapshot" for Insurance has just been published.  Here is a link to the Business Section where it appears Online:  Sector Snapshot, Insurance, New York Times Business Day - Online.  Once you are linked to the Business Section of The New York Times, go to The Times' "Sector" interactive graphic and click on the  hyperlink.  Hopefully, it will remain the graphic about "Insurance".  However, since based on past performance that link may be difficult to use, here is an embedded scan from the print edition:  Download sector_snapshot_insurance_new_york_times_natl_ed., p. B7, Saturday, January 19, 2008.rtf.

    The worst sector to be in is in the lower left-hand corner.  Note that recent downturns for Bond Insurance Companies Ambac and MBIA are reflected in the location of both companies in that area of this "Sector Snapshot".

    The best sector to be in is, obversely, the upper right-hand corner.  Note that the massive broker, Aon, is virtually alone there, and that it barely made it to that location itself.

    Life Insurance Companies as a group lead the marathon to present performances ahead of the "S&P 500 over the last year," while running behind over the last week.

    Property and Casualty Insurance Companies round out this "Sector Snapshot" with performances ahead of the "S&P 500 over the last week" but behind over the last year.

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Bond Insurance Companies Keep on Tankin'.

    Ambac Financial Group Inc. pioneered the territory of municipal bond insurance.  Ambac, until recently the second-largest Bond Insurance Company in the U.S., entered the field 37 years ago and became the first municipal bond insurer.   Unfortunately, Ambac also could not or did not stop itself from wandering into the unknown but alluring fields of CDOs and subprime mortgages.

    In 2007, Ambac reported its first annual loss, ever.  In the Third Quarter of 2007, Ambac reported its first quarterly loss, ever.  In the Fourth Quarter of 2007, Ambac reportedly lost $3,260,000,000.00 in a single quarter.

    Before 2007, Ambac had reported an increase in its profit in every year "for the past decade."  The cause of Ambac's first-ever losses in 2007?  In the Fourth Quarter of 2007, Ambac wrote down the value "of guarantees on subprime debt by $5.21 billion," according to Ambac's own statement.

    Subprime mortgages and related security vehicles drove Ambac over a financial cliff, and took many others with them.  Ambac's 2007 deficit for the year is now up to a reported $3,230,000,000.00 or $3.23 Billion loss.  See Christine Richard, "Ambac Reports Loss, Talks With 'Potential Parties' (Update 1)" (Bloomberg.com, Tuesday, January 22, 2008).

    In the meantime, ACA Capital Holdings, another Bond Insurance Company, is being run by the Maryland Insurance Department and has a "low 'junk'" credit rating of CCC.  However, ACA has obtained an extension from its creditors of 60 more days to resolve its finances.  ACA posted a loss of $1,004,000,000.00 or $1.04 Billion in the Third Quarter of 2007.  See this Reuters Report published in The New York Times Business Day Section of the National Edition, p. C10, col. 5, on Tuesday, January 22, 2008:  Extension for Troubled Bond Insurer".

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The "McKinsey Report": Behind Allstate's Subpoena Behavior?

    A Bloomberg news report published online on Tuesday, January 22, 2008 adds insight into exactly why Allstate would adamantly refuse to produce documents in response to subpoenas from the Florida Office of Insurance Regulation.

    According to the Bloomberg article, Florida officials and others are "anxious to get hold of a report by New York's McKinsey & Co., a business consulting firm."  Although it is unclear from Bloomberg whether the so-called "McKinsey Report" has ever seen the light of day, it certainly has been seen by Allstate officials, according to the article.   McKinsey was paid by Allstate to come up with claims handling practices that would assist Allstate in denying and delaying the payment of claims, and thus save Allstate money, so the article reflects.  Allstate allegedly used the McKinsey Report as the basis for Allstate's own "Claims Core Process Redesign" by which Allstate intended to reduce paying Bodily Injury Claims by as much as 20%.  See Victoria Slind-Flor, "Allstate, Microsoft, Google:  Intellectual Property (Update 1)" (Bloomberg.com, Tuesday, January 22, 2008).

    If any of those things are true, any one of them would provide very strong motivation to Allstate to keep anything like the "McKinsey Report" under wraps  -- even if that meant the certainty of offending the Florida Office of Insurance Regulation and the chutzpah to run the related risk that the Florida OIR may not be able to do anything about it.

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Bond Insurer Down, Taxes Up or Public Projects Down Too.

    In a development that reportedly foreshadows even greater costs for Taxpayers, the second largest Bond Insurance Company in the U.S. was recently downgraded.  Ambac Financial Group had a Triple A ("AAA") credit rating for a long time before its decisionmakers began to dabble a lot in subprime mortgages.  A AAA credit rating is necessary for any Bond Insurance Company to write Bond Insurance that covers, i.e., guarantees and backs up, bonds issued by States, counties and cities to raise revenue for public projects.

    Without a AAA credit rating, Ambac cannot write Bond Insurance because no-one will buy it.  Without Bond Insurance, local governments will be forced to use Taxpayers' money to pay higher costs to issue bonds, or they will be forced to put aside public projects such as building bridges and improving roads because there is not enough money to pay for them.

    An enviable choice?  Not so much.  A choice presented to local government decisionmakers, through no apparent fault of their own.  See Tomoeh Murakami Tse, "Insurer of Bonds Loses Top Rating" (washingtonpost.com, Saturday, January 19, 2008).

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Florida Court Lets Allstate Hold Docs and Gives State 10 Days: THE RULING.

    On January 18, 2008 Florida's First District Court of Appeal announced that it was setting aside a January 17 order of the Florida Office of Insurance Regulation.  The OIR order temporarily suspended the authority of Allstate and its subsidiaries to issue and collect Premiums for new Automobile Insurance Policies in Florida.

    The OIR order was issued as a sanction for Allstate's failure to produce documents subpoenaed by the OIR for a Hearing on Allstate's Insurance conduct in charging higher Premiums, canceling some Homeowner's and other Property Insurance Coverages, and nonrenewing others.  (Rather, Allstate and its subsidiaries used the 60 days between the time the subpoenas were served and the date of the scheduled Hearing to prepare 51 pages of objections, which they apparently filed on the day of the Hearing.)

    Allstate and its subsidiaries immediately filed an appeal.  The appeal resulted in the Florida appellate court's order.

    The Florida Court's ruling was more limited than newspapers have reported.  Here is the entire text of it, as the ruling appears on the Online Docket:
Appellants' emergency motion for immediate relief from immediate final order suspending licenses filed January 17, 2008, is granted. The January 17, 2008, Immediate Final Order issued by the Office of Insurance Regulation is stayed pending further order of this court. Appellee shall show cause within 10 days of the date of this order why the stay should not remain in effect pending a final disposition on the merits of the appeal.

Obviously, much more to come.  And soon.

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Florida Court Lets Allstate Hold Docs and Gives State Ten Days.

    Allstate took its withholding documents position to Florida's First District Court of Appeal.

    Three days ago, on January 15, Allstate withheld documents from the Florida Office of Insurance Regulation.  Allstate was served with a subpoena 60 days ahead of time to bring documents to an OIR Hearing on that date.  Instead, Allstate brought 51 pages of objections and no documents.  That averages out to writing nearly one page of objections per day before the Hearing, to be delivered at the Hearing, and an average of zero pages of document production.

     One set of subpoenaed documents related to the reinsurance Allstate bought to protect itself from future Hurricane Damages Claims and other CatClaims.  The other set of documents that Allstate held on to, concerns its CatClaims Model that it used to justify things like past Premium increases and Policy cancellations.  It apparently uses the same or a similar unauthorized CatClaims Model that other Homeowner's and Property Insurance Companies are using.

    Two days ago or the day after the document non-production, on January 16, Allstate's many Auto Insurance subsidiaries were suspended from writing future business in Florida by the Florida Office of Insurance Regulation.  Current Allstate Auto Insurance Policyholders would reportedly be unaffected.

    On January 18, the Florida appellate court lifted the OIR's ban on new Auto Premium money for Allstate in Florida.  The Florida appellate court gave Florida 10 days to prove why there should be a ban.  Julie Patel, "Court Lifts State Ban on Allstate" (South Florida Sun-Sentinel.com, Friday, January 18, 2008).  Changed on January 19, 2008 to this revised article by Julie Patel at Sun Florida-Sentinel.com, Saturday, January 19, 2008.

    No ruling was apparently made to address why documents do not see the light of day concerning Insurance issues that are so important to Florida.  Perhaps that too will be addressed some day.

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Some Bond Insurance Worthless, Merrill Says.

     Bond Insurance Companies are trying to retain, and in some cases to regain, the AAA credit ratings that allow them to be Bond Insurance Companies.  Without a AAA credit rating, investors vote for other guarantees that bonds will be paid off, than those offered by Bond Insurance Companies.  The two largest Bond Insurers are Ambac Financial Group Inc. and MBIA Inc.  Both are in the fray.  They and others invested heavily in junk mortgages and collateralized debt obligations, seeking higher returns at greater risks than were obtainable by insuring municipal securities which is the knowledge base of Bond Insurance. 

     There are many reactions to this adventure.

     Ambac has lost 93% of its market value since January 1, 2008.  In that same time, MBIA has lost 88% of its market value.  Shannon D. Harrington & Christine Richard, "MBIA, Ambac Bond Default Risk Exceeds 70%, Swaps Show (Update 1)" (Bloomberg.com, Friday, January 18, 2008).  The rapidly sickening financial condition and insurance fallout of these and other Bond Insurance Companies were discussed in a post here on January 1, 2008.

    States, counties, municipalities and other bond-issuing local government entities still need to raise revenue and so to issue bonds.  Many more bond issues are now offered without Bond Insurance.  For example, recent bond offerings without Bond Insurance include by the State of Florida for the Florida Turnpike System, and by the City of Columbus, Ohio "to fund federally mandated environmental upgrades."  Jeremy R. Cooke, "Chicago Leads Muni Borrowers; Sales Fall on Insurer Concerns" (Bloomberg.com, Friday, January 18, 2008).

     The New York State Insurance Superintendent announced recently that his Department is looking at limiting the types of debt that Bond Insurance Companies may be allowed to guarantee.  Erik Holm, "New York's Dinallo Examining Limits on Bond Insurers (Update 1)" (Bloomberg.com, Thurs., Jan. 17, 2008).

    Merrill Lynch also announced recently that it will totally write off $2,600,000,000.00 or $2.6 Billion in Bond Insurance protection "because it's worthless."  Mark Pittman, "Merrill Lynch Plans to Write Off ACA Bond Insurance (Update 1)" (Bloomberg.com, Thurs., Jan. 17, 2008).

   

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Baltimore Faces More Effects of Subprime, Foreclosures.

         This is an Update of a post that appeared here on January 10, 2008.

     In the wake of Baltimore's Mayor and City Council filing a lawsuit against Wells Fargo over the subprime-foreclosure crisis, Baltimore faces more effects of subprime mortgages and foreclosures.  Both subprime mortgages and their recently accompanying foreclosure lawsuits have also disproportionately affected women.

     Over the last  4 years, over 50% of foreclosures in the Belair-Edison neighborhood of Baltimore have reportedly involved homes primarily owned by women.

      50% is a figure that Baltimore knows all too well.  50% of the mortgages assumed by single women in Baltimore in 2006 were subprime mortgages.  Subprime mortgages largely account for the spam of recent foreclosure actions.  See John Leland, "Baltimore Finds Subprime Crisis Snags Women" (New York Times Online, Tues., Jan. 15, 2008).

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Florida to Allstate: No Doc Production, No Auto Insurance Production.

     Allstate is currently the 2nd largest writer of Auto Insurance in the State of Florida.  However, in the last 4 years, Allstate has dropped about 400,000 Homeowner's Insurance Policies and raised rates for the remainder.  The State of Florida served subpoenas 60 days ago for a 2-day Hearing scheduled to start on January 15, 2008.  Florida wants to know what the effects of reinsurance are on Allstate's Homeowner's Insurance performance.  Florida and many other States also want to know much more about an unauthorized CatClaims Computer Model used by Allstate and other Homeowner's Insurance Companies to justify their past rate increases and other industry conduct concerning Homeowner's Insurance, such as policy cancellations and nonrenewals.

    On January 15, 2008, rather than provide the documents, Allstate withdrew its pending request for a future rate increase and filed 51 pages of objections to the Florida subpoena.

    On January 16, 2008, the Florida Office of Insurance Regulation suspended Allstate's certificate of authority to write new Auto Insurance business and therefore prevented Allstate from collecting any new Auto Insurance Policy Premiums in Florida.  It is reported that the suspension will not affect  Policyholders under previously issued Allstate Auto Insurance policies in Florida.  See Anika Myers Palm, "Florida Cracks Down on Allstate/State Regulators Won't Let the Insurer Write New Auto Policies", p. A1, col. 5 (Orlando Sentinel, Thurs., Jan. 17, 2008).

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"Nuisance Suit": City of Cleveland Sues 21 of Largest Banks.

     The City of Cleveland has filed a lawsuit on the ground that foreclosures are a public nuisance under Ohio law.  The City has sued 21 of the largest banks in the country under a State Statute that makes available money damages on proof of a public nuisance.  Cleveland contends that the defendants "knowingly" caused a financial crisis for the City when they flooded the housing market with subprime mortgage loans to Clevelanders who would never be able to repay.  The suit was filed in Cuyahoga County Common Pleas Court.  See Christopher Maag, "Cleveland Sues 21 Lenders Over Subprime Mortgages" (New York Times Online, Sat., Jan. 12, 2008).

     What the newspaper article does not say, is that the chances of removal to Federal Court are very small.  First, Cleveland chose to sue under a State Statute, which would seem to bar "federal question jurisdiction".  Second, the one other basis for removal to Federal Court would be "diversity of citizenship".  It is a good bet that there is at least one of the reported 21 defendants which has the "same citizenship" as the Plaintiff City of Cleveland, Ohio.

     Cleveland's lawsuit is likely to remain in Cleveland's "home town".

     Another thing the newspaper article does not say is what the defendants' many Insurance Companies say about defending them.  When any reader of this post learns of the defendants' Insurance Companies' Coverage positions, please kindly drop a comment to this post.  Thanks.

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Florida Local Governments Invest, Florida State Officials Not So Much

    They were told that future problems were likely, even probable, if things kept on keeping on.

    The officials in Florida whose duty it was to see to it that the Taxpayer Funds of local governments which invested in a State-run pool were properly invested, were given notice that there would be problems if things stayed on the path they were on.  The investment pool in question reportedly provided guarantees to the local government investors that they could not lose their investment of hard-earned Taxpayer Dollars; at worst, they would break even.  That guarantee was based on the understanding, or the promise, that these Taxpayer Funds would be placed in risk-free investments and not in junk.  Unfortunately, despite the notice, the investment of Taxpayer Dollars from local governments continued to be placed in what is now rated as worthless junk.  See Aaron Deslatte, "Audit Flagged State Fund's Risks" p. A1, col. 2 (Orlando Sentinel, Thurs., January 3, 2008). 

    And now the investors are perhaps going to be given access to a little more of their money that, until the actions or omissions of other people, was totally accessible to them all.  See Aaron Deslatte, "Investment Pool May Free Up $2.7B" p.B1, col. 5 (Orlando Sentinel, Local and State, Fri., January 4, 2008).

    If local governments had placed their investment of Taxpayer Dollars into savings accounts, they would presumably have been federally insured against loss.  By analogy, when these local governments issue bonds to raise money, they also obtain Bond Insurance which protects the investor and so raises the credit rating of the local government bonds.

    Was there no similar protection here, when local governments and their Taxpayers are the investors?

     And when local governments and their Taxpayers are the unwitting victims of other people's greed?

    What were  the terms and provisions of the Bonds or Insurance that could and should have backed those investments or at least that would respond in cases such as now exist, involving harm resulting from those those investment decisions?

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Hearing Halted Abruptly, Little Testimony Today: Florida Insurance Performance Subprime.

    The Associated Press reports tonight in a copyrighted story that today's Florida Office of Insurance Regulation Hearing was halted abruptly "after just two hours".  The Hearing was originally scheduled for 2 days by the OIR to consider Allstate's requested rate hikes and its performance in previous very recent Insurance Premium rate hikes.  The Florida Insurance Commissioner and other Florida regulators are reportedly upset that Allstate did not provide the documents demanded by the State's subpoena for today's scheduled Hearing.

    "Severe sanctions" are in the picture, including possibly depriving Allstate of and its subsidiaries of licenses to do business in Florida.  Moreover, Allstate representatives will be brought back to a future Hearing, the Florida Insurance Commissioner is reported as saying on this Tuesday, January 15, 2008.  Brent Kallestad, "Frustrated at Allstate, Regulators Shorten Insurance Hearing" (Associated Press Report published by the St. Petersburg Times Online, Tues., Jan. 15, 2008).

Postscript on Wed., January 16, 2008:

It is reported on the front page of the Orlando Sentinel, above the fold as they say, that Allstate's objections were 51 pages long.  Further, Allstate told the  Florida Insurance Commissioner -- apparently as the scheduled Hearing began -- that it and its subsidiaries withdrew their request for a premium increase, thus providing a basis to argue that there is not a need for a Hearing but not addressing Florida OIR and Florida Senate concerns about Property Premium Increases otherwise.   See "Compiled From Wire Reports, Allstate Backpedals on Rates in Angry Session With State", p. A1, col. 2 (Orlando Sentinel, Wed., Jan. 16, 2008). 

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Insurance Issue: Do Property and Casualty Insurers Overcharge and Underpay?

    Together with  a number of other consumer organizations,  the  Consumer Federation of America recently released a report which has sent shock waves through the Insurance Industry.  The boldness of the new report is reflected in this 6-page Press Release by the CFA, entitled, "Insurers Maintain Record Profits in 2007 by Overpricing Policies and Underpaying Claims":  2008_INSURANCE_RELEASE_FINAL.pdf.  The report addresses the whole of the Property/Casualty Insurance Industry in 2007.  The Press Release provides this address to download the report:  www.consumerfed.org/pdfs/2008Insurance_White_Paper.pdf.

    This report has caused quite a stir, as might be expected.  See, for example, this Associated Press Report by Marcy Gordon, "Consumer Group Says Insurance Companies Overcharge, Underpay" published Online by the South Florida Sun-Sentinel.com, Thurs., Jan. 10, 2008; and see this report for another example,  by Tom Zucco, "Report:  Insurers Fleece Public/Consumer Groups Say Property Owners Pay Too Much, Get Too Little" (St. Petersburg Times Online, Fri., Jan. 11, 2008).

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Hearings, Oaths and Lawyers: Florida Insurance Performance.

     Floridians are set to soon witness many things about Insurance in a short time.

• During the week that begins on Monday, January 14, 2008, the Florida Office of Insurance Regulation is set to hold a 2-day Public Hearing for Allstate Insurance Company executives to make the case for Allstate to raise Homeowner's Insurance Premiums and other Property Insurance Premiums.  Allstate previously requested a rate hike of 42 percent.

• Governor Charlie Crist asked 3 prominent Florida trial lawyers to report by the end of January whether Florida could succeed in filing a lawsuit, possibly as a class action, against the Insurance Industry because Insurance Companies have not lowered their prices or have  kept their profits rather than reducing Premiums.

• Hearings scheduled to feature testimony from Insurance Officers under oath are scheduled to begin on Monday, February 4 and continue through Tuesday, February 5 at the behest of a newly made Florida Senate Select Committee on Property Insurance Accountability.  The newly formed Senate Committee reportedly has subpoena power.

• Reportedly, "[i]n parallel with the planned Senate hearings," Governor Crist and Kevin McCarty, the Director of Florida's Office of Insurance Regulation, "have issued subpoenas" of their own to some Insurance Companies for internal documents that may address the issue of whether there is "a conspiracy to keep rates high."

If the results of all these projects come in as scheduled, the next 3 weeks in Florida will surely be enlightening.  See Linda Kleindienst & Julie Patel, "Where Did Savings Go?  Insurance Executives Will Have to Tell Under Oath" (South Florida Sun-Sentinel.com, Fri. Jan., 11, 2008);   John Kennedy, "State to Take on Top Insurers Over Costs/Legislators May Require Executives to Testify Under Oath to Find Out Why Rates Did Not Fall Significantly" p. C1, col. 1 (Orlando Sentinel Central Florida Business, Fri., Jan. 11, 2008); Tom Zucco, "Report:  Insurers Fleece Public/Consumer Groups Say Property Owners Pay Too Much, Get Too Little" (St. Petersburg Times Online, Fri., Jan. 11, 2008); and Editorial, "We Need Answers on Home Insurance" (St. Petersburg Times Online, Sun., Jan. 13, 2008).

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Florida Laws and Hurricane Deductibles: Damages or Declarations.

     Florida has a lengthy statute which addresses Hurricane Deductibles. The Florida Statute, Sub-Section 627.701(4)(a), applies to policies issued or renewed on or after May 1, 2005. This effective date reflects the Florida visitation in 2004 of Hurricanes Charley, Frances, Ivan and Jeanne, and the 2005 visitation of Hurricane Wilma. This lengthy Florida Statute has now given rise to 5 lengthy Federal Court opinions. Any discussion of the statute and these cases is difficult, and a short discussion runs the risk of leaving out something important. This discussion will be kept as short as possible in this post in order to point out how the Florida Legislature and at least 5 Federal Court rulings in Florida have so far treated the recent use of Hurricane Deductibles.

     The Florida Hurricane Deductibles Statute requires certain language in specified pitch or points:

Any policy that contains a separate hurricane deductible must on its face include in boldfaced type no smaller than 18 points the following statement: THIS POLICY CONTAINS A SEPARATE DEDUCTIBLE FOR HURRICANE LOSSES, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU." A policy containing a coinsurance provision applicable to hurricane losses must on its face include in boldfaced type no smaller than 18 points the following statement: "THIS POLICY CONTAINS A CO-PAY PROVISION THAT MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU."

     Personal lines residential property insurance policies containing a separate Hurricane Deductible and that are subject to the Florida Statutes, must also comply with the following requirements of Sub-Section (4)(b) of Section 627.701:

Beginning October 1, 2005, for any personal lines residential property insurance policy containing a separate hurricane deductible, the insurer shall compute and prominently display the actual dollar value of the hurricane deductible on the declarations page of the policy at issuance and, for renewal, on the renewal declarations page of the policy or on the premium renewal notice.

These statutory provisions have caused a Hurricane of Judicial interpretation in 5 reported rulings by 3 Federal Judges. All 5 available rulings have been made in Federal Cases in the Southern District of Florida.

More Catastrophe Claims Move On to Arkansas, Illinois, Missouri and Wisconsin.

          Tornadoes struck all these States.  Wisconsin received
          its first Tornado in the month of January in 41 years.

     Tornadoes and floods swept away homes and commercial buildings across the Heart of the Nation early this week.  Catastrophes hit the States of Arkansas, Illinois, Missouri and Wisconsin.  As night follows day, Millions of Dollars in Catastrophe Claims will surely follow these Catastrophes which are reported on by Catrin Einhorn, "Unusual January Storms Strike Midwest, Killing at Least 6" p. A12, col. 1 (New York Times Nat'l Ed., Wed., Jan. 9, 2008).

     Earlier this same week, posts on this Web Log addressed Catastrophe Claims coming from California, Washington, Oregon, Utah, Colorado, Nevada and New Mexico.   This year of 2008 gives every appearance in the early going in January to be a year that just might be twisted, blown, burned and flooded to the point of overflowing with Catastrophe Claims.

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Baltimore Says Wells Fargo is the One That O's!

     The Mayor and the City Council of Baltimore, Maryland have sued Wells Fargo.  Their Complaint presents Wells Fargo and its Liability Insurance Companies with many Insurance Coverage Questions to address, there can be no doubt.

     In their Complaint, the Mayor and the City Council ask the United States District Court to enjoin the bank from charging higher home loan fees to Black people than to White people.  Many Black people in Baltimore paid higher and more fees under the bank's subprime loans which, by definition, are made to people who have less credit worth or lower credit ratings.  These people are high credit risks and more likely to default.

     Wells Fargo is alleged in the Complaint to have filed the largest number of foreclosures in Baltimore.  Here are some interesting numbers:  Around 50% of the Wells Fargo foreclosure filings in 2006 involved areas of the City with a Black population of over 80%.  Only 16% of its foreclosure actions in the same period involved White borrowers.  All these allegations are summarized in another insightful piece of news reporting and analysis by Gretchen Morgenson, "Baltimore is Suing Bank Over Foreclosure Crisis" p. A12, col. 5 (New York Times Nat'l Ed., Tuesday, January 8, 2007).

    The Damages claimed in the City's Complaint include damages allegedly incurred by Baltimore as a result of the bank's foreclosures, among other costs to the City:  lowered property tax revenues, higher expense for police and fire protection for neighborhoods flowing with foreclosures, and the costs of buying and rehabilitating properties left vacant as a result of the foreclosures.  The City alleges that between the First Quarter of 2007 and the Second Quarter of 2007, "foreclosure-related events" in Baltimore rose by 500% or by 5 times.

    A statistical analysis of foreclosure costs incurred by the City of Chicago and in Cook County, Illinois in recent years concluded that each foreclosure cost the government $34,199.00.  Baltimore alleges this analysis in its current Complaint for damages.

    Wells Fargo will certainly turn to its Liability Insurance Carriers for a defense and indemnification.  The Insurance Coverage Issues will be as enormous as the case itself.  And as enormous as other cases like it that are reported in the New York Times article linked on this post.

     Download here_Mayor_and_City_Council_of_Baltimore_v. Wells Fargo USDC Complaint Filed 01.08.08).pdf is a downloadable copy of Baltimore's Complaint as it was electronically filed with the District Court.  It contains embedded images of maps and census districts, which are part of the allegations in this Complaint.   Downloading and searching the electronically filed copy of this Complaint  may require much patience.  This  huge (39-page) Complaint was filed on January 8, 2008 by the Mayor and City of Baltimore v. Wells Fargo Bank, N.A. and Wells Fargo Financial Leasing, Inc., Case No. L08CV 062 in the United States District Court for the District of Maryland, Baltimore Division.

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Catastrophe Models, Catastrophe Prices ....

   They're Not Just Your Parents' Florida Premium Payment Any More.

     Computer models for Catastrophes have recently come under closer scrutiny everywhere in the United States.  No more so anywhere else than Florida.  The focus is not so much on the Computer screen as on what information is selectively input into the Computer that ends up on the screen -- and in some Insurance Companies' Rate Hike Requests:

    

State insurance regulators have questioned why the models used by insurers only look at the past five hurricane seasons -- years that were unusually active and destructive -- instead of a broader period when determining how to set their rates.
                               
                                   * * *

     And the National Association of Insurance Commissioners is investigating the models and the way insurers use them to come up with conclusions about risk.  Florida Insurance Commissioner Kevin McCarty, who is chairman of the association's property and casualty insurance committee, has promised to give the models special scrutiny as part of his effort to lower homeowners-insurance costs for Floridians.

Anika Myers Palm, "State, Insurers to Clash Over Pricing Model," Orlando Sentinel Central Florida Business p. 30, col. 6  (Mon., January 7, 2008).

More to come.

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California Postclaims Disability Insurance Underwriting Class Action Revisited.

    On December 4, 2007 California's Second District Court of Appeal certified this 20-page opinion for publication "following rehearing":  Ticconi_v. Blue Shield of California (Cal. 2d DCA Dec. 4, 2007).pdf.  On January 3, 2008 according to the Court's docket available online, the Court granted a petition for rehearing.  Rehearing is pending at this time.

    On December 4, 2007 the Second District issued a ruling in the Ticconi case in which the California Appellate Court reversed a Trial Court's Order that denied a motion to certify a Class Action.  The Plaintiff-Policyholder in that case, Mr. Augusto Ticconi, alleged that he applied for and received "a policy of short-term health and accidental insurance from Blue Shield Life.  Blue Shield Life markets such policies as temporary, 12-month coverage to individuals, such as college students or those changing jobs, who need insurance while they are waiting for permanent coverage."  The attached official opinion does not have page numbers.  This quote is taken from the bottom of the second page ("page 2") of the linked pdf of the California Appellate Court's official opinion.

    Allegedly after Mr. Ticconi presented more than $100,000.00 of medical bills to Blue Shield Life for payment under the Policy, Blue Shield Life rescinded the Policy on the ground of misrepresentations in the application.  Id. at "page 3".   However, Blue Shield Life did not attach the application to the Policy or endorse the application on the Policy as a California Statute required it to do.  For that reason, arguably it could not rely on the application as the source of any representations.   In essence, Mr. Ticconi alleged that Blue Shield Life did this sort of thing frequently enough to justify a Class Action concerning what amounted to "postclaims underwriting" of Disability or Health Insurance subject to California Statutes.

    "Postclaims underwriting of disability, i.e., health insurance ... is flatly prohibited" by the California Insurance Code, wrote California's Second District Court of Appeal in its original opinion in this case.  Id. at "page 8".

    As was noted at the beginning, the original opinion in this case is the subject of a rehearing which is pending at this time.

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California, Washington, Oregon Storms Send Catastrophe Claims to Colorado

     The storms that struck California, Washington State, and Oregon have traveled to Colorado, bringing with them avalanches, road closures, power outages, emergency shelters and, undoubtedly, Catastrophe Claims.  See "Mountain Storm Packs Punch, Promises More" by Tom McGhee & Manny Gonzales in The Denver Post Online (denverpost.com, Mon., January 7, 2008).

Postscript of Tuesday, January 8, 2008:
And to New Mexico and Utah as well.  Meanwhile, in Nevada, a canal wall broke flooding a residential area in Fernley.  It is reported that 300 homes have been damaged by the resulting flood and that 113 families were evacuated.  "Charter Bus Crash Kills 9 in Utah as Rain, Snow and Avalanches Batter Region," by Dan Frosch, p. A13, col. 1 (New York Times Nat'l Ed., Tues., Jan. 8, 2008).

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