TALLAHASSEE (CBSMiami/AP) — A class action lawsuit has been filed against state-backed Citizens Property Insurance Corp. Florida homeowners involved in the suit claim the state-run insurer is systematically overvaluing properties in order to raise premiums.

Plaintiffs in the suit claim Citizens used a software system called 360Value to inflate the replacement cost of their homes, causing their premiums to skyrocket by more than 100 percent.

“Our motivation in establishing an accurate replacement cost valuation is to protect our policyholders and make sure they can restore their home after a catastrophic loss,” Citizens’ spokeswoman Christine Ashburn said Tuesday. “Any assertion to the contrary is simply wrong.”

Joe Freitas, who is from New Port Richey, is the individual named as plaintiff on behalf of the others in the class action. The plaintiffs are represented by attorneys Mark Beausoleil of Fort Lauderdale and Shane McClelland, who works for a Houston law firm.

The suit said Freitas purchased his home in September for $109,000, slightly below a $117,000 appraisal from his mortgage company, which required property casualty coverage. The premium with Citizens was $917. However, 30 days after closing, Freitas was told by his insurance agent that Citizens would not insure his home for less than $236,700, doubling the premium to $1,846 annually.

“It changed the way we were going to live our lives,” Freitas, 44, said at a news conference in front of the Old Capitol.

Freitas, a service technician for the Icee Corporation, said he tried to talk with Citizens, but was told that Citizens did not accept appraisals and followed the figures provided them by the company’s software program.

Sen. Mike Fasano said independent appraisals came back at about half of the amount Citizens claimed.

Ruth Lauro, 82, also from New Port Richey is also among customers suing the insurer.

Lauro said Tuesday that she isn’t sure how long she’ll be able to remain in her home of 33 years after a $69 increase in her monthly insurance premium. Nearly half of the increase was for flood insurance, which went from $400 to $800 annually. Lauro’s only income is a $637 Social Security check each month.

“Never had a puddle where I live,” Lauro said. “They really did me in good.”

“Ms. Lauro came to our office over a month ago, devastated,” Fasano, R-New Port Richey, said.

“Hundreds and hundreds are in similar situations,” said Fasano, whose district includes Freitas and Lauro. “This unfortunately and sadly is a way for Citizens and the private companies to raise rates without having to get approval from the state.”

Florida requires insurers to receive approval on rate requests from the Office of Insurance Regulation.

Created by the Legislature in 2002, Citizens was designed to provide insurance to homeowners in high-risk areas and those who cannot find coverage in the private market. It was largely an offshoot of an underwriting association formed by the state in the aftermath of Hurricane Andrew in August 1992. Instead of being the insurer of last resort as originally intended, Citizens has become the largest insurer of homes and business in Florida with nearly 1.5 million policy owners. If the company were to fail, virtually anyone in Florida with insurance would be assessed to make up the losses.

Sam Miller, vice president of the Florida Insurance Council, an industry group, said a major judgment against Citizens resulting from Tuesday’s suit would likely result in a statewide assessment on all homeowners, motorists and business owners.

Meanwhile, Freitas heads back to work and Lauro goes home with her fingers crossed.

“I just hope things work out,” she said.

(TM and © Copyright 2012 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2012 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)

Comments (6)
  1. ConcernedCitizen says:

    Sam Miller is trying to use scare tactics to get people against this law suit. Just look at how much money these insurance companies have made since the 2005 hurricane season. If they were investing our premiums better, they wouldn’t have lost so must when the economy went sour. Also look at what their CEO’s make. I moved here 6 years ago because I thought Florida might be a nice place to live, warm in winter. But, what I’ve found it is run by some of the most corrupt agencies, politicians and companies in the country. Maybe 2012 will be a good year if the Mayans are right and most of Florida will simply disappear into the ocean.

  2. OtownPR says:

    I’m sorry, my message didn’t show correctly…

    The bad thing about the whole thing is that they are trying to establish that Citizens is corrupted. This is not just a Citizens issue. Every company does the same thing. Just go out there and get quotes and you will see that every quote will have different insured amounts. The only way this gets resolved is by having just one system determining fair values.

  3. AnotherCitizensProblemChild says:

    We have had similar problem with Citizens. They have sent us three letters on different dates canceling our insurance. We have hired independent appraisar to calc replacement cost, which was considerably less than Citizens’ value. The cost of construction is way down as contractors need work.

    Another point I would like to make is this article is not well researched, as the purchase price and mortgage appraisal have nothing to do with insured price. Insurance appraisal is to rebuild, it has nothing to do with purchase price for land and house.

  4. Byron says:

    we and I’m sure many other people are in the same boat with this insurance company. they recently raised our rates again and tell us they are covering less. we have a covered patio on our house which is part of the house; now they clain they will not cover this. also they have a very high replacement cost on the house and I’m sure can be rebuilt alot less.
    if anyone has any information how to put this insurance company back in line, please let me know.

  5. Vicki says:

    I have been a replacement cost appraiser for the insurance industry for 24 years. Most people do not truly understand the difference between Market Value/Market Appraisal and Construction/Replacement Cost Valuations. In the insurance industry, the market value of the home (or what it is “worth”) is irrelevant. The insurance company is not going to “buy” you a new home they are going to “rebuild” your home.

    The construction market is a Global Market, in which wood, steel and concrete costs have all risen over the last four years while US market values have declined. The easiest way to confirm this is to go to your local Home Depot or similar store and ask the Pro Desk how much a 2″x4″ wood stud, bag of concrete, and steel rods have increased.

    Also the idea that construction costs have declined because contractors need the work is not a valid argument. There may be some contractors who have reduced their pricing and may even work for “free” while trying to stay in business, but this is not a sustainable state. Also, when the insurance company is paying the bill, these contractors will absolutely charge full overhead and profit, and the insurance companies have to plan for this in their replacement cost estimates.

    The best way to understand the difference between Market/Appraisal values vs. Replacement/Reconstruction costs is to understand it is similar to buying a suit “off the rack” at a store, and possibly even on sale vs. going to a custom tailor, picking your material and having the suit made to your specifications. The costs are going to be very different.

    1. Byron says:

      what is the best way to find a true cost to rebuild the dwelling? if you have the cost by say a certified company, what wont citizen’s accept this, instead their cost are some what doubled, in the case above.

      is there not some help in sorting insurance matters? I only just recieve from citizens listing additional items not covered anymore and my renewal just came in with $3,000.00 increase for one year!! my monthly payment for insurance alone will be in the area of 900.00 a month. who can cantinue paying these prices!! any advise short of saling my house would be great.

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