Florida Regulators’ Move to Oust Insurer Execs May Not Hold up in Court

Current and former leaders with Florida property insurers have had some strong reactions to state regulators’ recent efforts to oust company executives who previously helmed now-insolvent carriers. Some have called the unprecedented regulatory action unfair, misguided and impossible to substantiate, while others have said an accounting of Florida’s “revolving door” of insurance execs is long overdue.

The Florida Office of Insurance Regulation’s flurry of letters to seven property insurers and two health insurance firms may amount to little, however, if the companies decide to challenge the law that the removal actions are based on.

“Off the top of my head, I can think of at least four reasons why (Statute) 623.4073 is unconstitutional,” said Robert Jarvis, a law professor at Nova Southeastern University in Fort Lauderdale.

He pointed out that the 2002 law likely violates insurance company officers’ due process rights, which are guaranteed by the Florida and the U.S. constitutions. The bedrock documents establish a right to trial by jury and courts have held that no person may be deprived of property, including a job, without due process of law.

The Florida statute that bars insolvent carrier executives from hiring on with other Florida insurers has never been fully reviewed by any appeals court, Jarvis noted. Sawgrass Mutual Insurance Co. briefly raised the constitutional issue in a 2018 challenge to the state’s move to place the firm in receivership and bar its executives from the Florida insurance industry. But an appeals court merely upheld a trial judge on the matter and did not provide an opinion.

Two Florida-based insurance company officials told Insurance Journal that, as of late April, they have not decided if they will challenge the law or OIR’s actions in court, a legal move that would probably require first going through the state Division of Administrative Hearings.

The story about the OIR letters broke when the Tampa Bay Times reported on it in April. The article noted that OIR, under the direction of Insurance Commissioner Michael Yaworsky, began sending letters out to multiple insurance carriers in 2023, asking them to show how the executives were not responsible for the financial troubles of several now-insolvent insurers.

The agency provided Insurance Journal with 30 letters, follow-up notices and orders posted in the last 12 months. American Coastal Insurance received OIR removal letters on 12 officers–more than any other carrier. American Coastal, Florida insurance veterans will remember, was merged into United Insurance Holdings, the parent company of United Property & Casualty Insurance Co., in 2016 and remained a subsidiary insurer. When UPC was deemed insolvent in 2023, UPC rebranded itself as American Coastal and signed up several executives from UPC. Those executives named by OIR for removal from office include Robert Daniel Peed, known as Dan, the former CEO of United.

“Based upon Robert D. Peed having previously served as an officer or director of United Property & Casualty Insurance Company…, an insurer that became insolvent,” he may not serve in his current position at AmCoastal, one OIR letter notes.

If the insurers do not prove why the execs were not responsible and fail to remove them from the company, the carriers could face the loss of their certificates of authority, OIR explained. The named officers could be forced to leave the insurance industry or work in another state.

Several of the carriers have provided OIR with written responses, arguing against removal of their officers. But those responses are confidential until investigations are completed, an OIR spokesperson said.

American Coastal did not make Peed and the other officers available for comment. But the company did provide a statement to the news media:

“A confluence of natural disasters, from Hurricanes Irma, Laura, Delta, Michael and Zeta to Hurricane Ian led to the insolvency of United P&C. The actions of executives were not the contributing cause of the insolvency of United P&C, and they did everything in their power to return United P&C to profitability,” reads the statement.

Others in the Florida insurance industry said the officer-removal law, often called the “no-fly list” law, is ill-conceived. It makes it nearly impossible for executives to disprove that they were responsible for financial failures, especially in the wake of several years in which the industry blamed runaway litigation and fraudulent roof claims for a market that fell into crisis.

One industry heavyweight said that scrutinizing leadership of failed companies is long overdue.

“Some of the companies were formed and they didn’t really know the business,” said Barry Gilway, the former director and CEO of the state-created Citizens Property Insurance Corp.

Topics
Florida
Carriers