Anatomy of an Insurance Scam: Citizens Property, Florida Bar Detail a Florida Lawyer’s Alleged Fraud
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Before Florida Bar filed an ethics complaint against Coral Gables trial attorney Scot Strems, he was a household name in the insurance industry.
Strems is accused by the Florida Bar Association of “being at the forefront of a widespread campaign of unprofessional, unethical, and fraudulent conduct” across state insurers of millions. He is also facing an alleged class action lawsuit from former customers.
Strems has repeatedly denied any wrongdoing and is considered innocent as the Florida Supreme Court has not yet ruled.
But how did this alleged scam work based on the bar’s claims and what red flags should insurers be monitoring?
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Several insurers suspicious
A manager of a special investigation unit (SIU) for a large insurance company that preferred to remain anonymous said his team had known Strems for about four years and that each major insurance carrier had its own investigation into him.
And that investigator said that in a 20-year career, the Florida Bar’s complaint against Strems was the toughest he had ever seen.
The investigator said that a typical Strems case is usually based on water damage and often involves two types of claims – damage that appears exaggerated but based on a real-world event like a hurricane, and damage that appears to be fully manufactured. He said the trend lately has been to file an influx of hurricane claims before the statute of limitations ends.
“What I’ve observed with such claims is either the policyholders or the homeowners [who] are clueless and innocent because they don’t have a better word, or they may be somehow involved in the program, ”said the SIU manager. “And that’s not proven, but maybe getting a setback or a huge amount of money or whatever is guaranteed.”
While not exclusively, he said it often seems that homeowners in south Florida are familiar with the system, while those in cities in north Florida like Jacksonville are less affected – often older or not fluent in English.
In such systems, the SIU manager said that public adjusters or contractors who work with a law firm tend to go door to door in certain communities and asked homeowners if they would like a free inspection to see if they could Have damages that could form the basis of a claim. Telling them they don’t have to do anything or spend money can be a good idea.
“The homeowner thinks they have nothing to lose,” said the SIU manager. “But the person at the door has them sign a piece of paper, and that could be a caveat that they hire the law firm to represent them, something like that.”
“I haven’t hired anyone”
The SIU manager said he noticed this happened to Strems in many cases because they spoke to some homeowners who sued his insurance company but said, “I have no idea what you’re talking about. I haven’t hired anyone. “
He said his company was therefore not interested in tracking policyholders as the alleged fraud is being driven by the law firm, public adjusters and third party companies.
It seems to be a “numbers game” with Strems, according to the SIU manager.
“If you postpone or refuse something for too long, they will file a lawsuit immediately,” he said. “And they’re going to file so much lawsuit, and in my opinion it was so much stuff tossing on the wall to see what was stuck. … We would never consider throwing $ 500 to make it go away. We continue to be aggressive with them. “
And they’re not cheap claims, the source said, saying most are in the five- or six-digit range. And there are often multiple lawsuits for the same loss, one from Strems and one from a third party.
“We even joked that everything comes in pairs,” said the SIU manager. “If you call them to look at your roof, you will get a complaint about your roof and the leaking sink.”
But where it backfired for the company, he felt that many Florida SIUs were familiar with these alleged tactics and began to defend the lawsuits and emerge in mediations.
“They didn’t have the manpower to participate in all of the things they submitted,” said the SIU manager. “You didn’t show up at hearings. They would keep postponing exams under oath or mediation because we honestly called their bluff and they don’t have the staff to attend these things. “
Paul Handerhan is President of the German Insurance Reform Association, a national trade association whose board consists of representatives from insurance companies, public regulators, contractors, rating agencies, and plaintiffs and defense lawyers.
He stressed that the allegations against Strems were not yet proven and declined to comment specifically on them, but noted that they fall under a number of “extremely disruptive” tactics with which he is familiar.
According to Handerhan, understanding why this model is being used means looking back over a number of years – specifically, Hurricane Andrew in 1992.
Previously, most of the insurance market share was accounted for by national companies. But when the Category 5 storm caused massive losses and threatened policyholders with a major interest rate shock, things changed.
The state negotiated with reinsurers and eventually created the Florida Hurricane Catastrophe Fund as a “barrier or speed limit to slow rate increases from the private reinsurance market,” and asked insurers to buy a certain amount from the state.
Florida also stopped national companies from raising interest rates to the level they wanted and began gradually reducing their presence and separating work in the Sunshine State from their national business to reduce risk.
Handerhan said this left many policies with nowhere to go, so most ended up with the state’s residual insurance program now known as Citizens Property Insurance Corp. However, this meant a higher risk, so the state stimulated the private market by lowering the capital requirements for starting an insurance company.
But when Florida was unexpectedly hit by hurricanes within just a few weeks of 2004, many of these domestic companies went bankrupt and sought relief, such as switching to percentage deductibles instead of specific amounts.
“After all these storms there are a lot of third parties,” said Handerhan. “These are contractors, loss counselors, and people who made big bucks from that first storm: ‘This is a great way to make a living. ‘”
They began to take advantage of service cession agreements, Handerhan said, which enabled them to follow in the policyholder’s footsteps and sue on their behalf after offering to make repairs for free.
“The problem with this is, and maybe it’s ignorance, or maybe it’s more shameful, but they don’t make the homeowner aware, ‘Listen, if you file more than three insurance claims in a given amount of time you will become uninsurable.” “Said Handerhan. “So you have these contractors who feed on these policyholders to handle these claims. And I understand that we are in a capitalist society, people want to make money, but that has really disrupted the insurance market and adversely affected policyholders. “
This also attracted lawyers who focused on AOB cases, which Handerhan said made the problem worse.
“It’s so easy to find minimal damage on any roof in South Florida,” Handerhan said. “You said every single damage is hurricane damage and there is no way to refute it.”
This ultimately led to a law restricting the use of AOBs, which Handerhan said has reduced the litigation involved.
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But he suspects that it accidentally triggered a different type of process model.
“I can’t prove that, but anecdotally, I believe these contractors haven’t gone out of business. What they have done now is that they have just changed their pitch and business model, ”said Handerhan. “You go to the homeowner and say, ‘I can get you a new roof, but I need to introduce you to my favorite lawyer. And instead of me filing a lawsuit, he’ll be filing a lawsuit on your behalf, and when he gets the money he’ll give it to me and I’ll do your roof. ‘”
In Handerhan’s experience, only a small group of contractors, claims advisors and attorneys do this, but it is an issue that he believes needs legislation to be addressed.
“These contractors and claims advisors who are not licensed insurance professionals should not go to policyholders and tell them that they can help them with their insurance claims,” said Handerhan. “Everyone in the insurance industry, from the agent to the insurance company’s adjuster to the public adjuster, the insurance company and the customer service representative, must be licensed because insurance is complex and a small thing you do reacts to something else.”
Since the bar filed its complaint against Strems, the number of claims his company has made has decreased, according to the SIU manager.
“Instead of getting 50 a week, we get 20 a week, something like that. But it’s amazing that the company is still up and running, ”said the SIU manager. “If I were a young lawyer who graduated and tried to work hard in South Florida and I did in the firm, I would be out of there.”
Some Strems employees resigned after his suspension, while others continued to run the company, which changed its name to The Property Advocates on July 1. And the company is hiring, according to this LinkedIn post that says it is looking for a full-time lawyer.
According to SunBiz, Hunter Patterson serves as president of The Property Advocates, while Cecile Mendizabal is director, Christopher Narchet treasurer, and Orlando Romero secretary. They did not respond to a request for comment.
There could be more ethical cases as the SIU manager said Strems isn’t the only company that appears to have used this tactic.
He says a handful of Florida firms appear to be following a similar model. “I suspect, and I hope, that you will see the news of the Strems operation and that you may be deterred from continuing.”
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