Insurance Law Alert

INSURANCE LAW ALERT

(October, 2013)

Potential Claims Against Insurance Agents Resulting

From Large Flood Insurance Increases on Homes in Florida

            In July, 2012, the U.S. Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012, which calls for the Federal Emergency Management Agency (“FEMA”) and other agencies to make a number of changes to the way the National Flood Insurance Program (“NFIP”) is run.  Key provisions in the legislation are resulting in dramatic increases in flood insurance premiums that are now impacting homeowners in affected areas across the country, including Florida.  The problem can be particularly vexing for home buyers who purchased homes in affected areas after in the summer of 2012 without knowing of the fact or impact of Biggert-Waters, with some unsuspecting Buyers stuck with dramatic increases in flood insurance premiums they were completely unaware of prior to buying their home.  Some new homeowners are seeing their premiums double, triple, quadruple, and more with no advance warning of the impending increase prior to purchase.

            So who do home buyers blame for not advising them of the fact and affect of Biggert-Waters?  Or as some devastated homeowners have argued, “who do I sue”?

            Insurance professionals, including Real Estate Agents and Insurance Agents, are justifiably nervous over their possible exposure to these angry homeowners.  The agents, who have their own Errors and Omissions insurance, have reason to fear a coming wave of lawsuits from Buyers who argue they have actionable claims against their Agents because they were not told of Biggert-Waters, nor that their insurance premiums could rise so dramatically. 

            Real Estate and Insurance Agents are arguing that they are as surprised as anyone else.  Some Real Estate Agents argue that they are not the ones quoting insurance, and are therefore not responsible, while the Insurance Agents claim that they are just placing coverage after the real estate transaction has already taken place.  The law is not so simple.

            Real Estate Agents may, depending upon the circumstances, have liability for misrepresentations (failure to disclose) concerning homes they sell.  Examples typically include failure to advise their clients of defects of which they knew or should have known, and that increased insurance rates are not such a “defect.”  Similarly, while Insurance Agents may argue that they “just place coverage”, they have duties to their customers which could arguably include being aware of a July, 2012 law that is having such a devastating impact upon homebuyers.  Real Estate and Insurance Agents have reason to be concerned over possible claims from homeowners that they should have known about Biggert-Waters, and so inform the unsuspecting homeowner before they bought a home in an affected area.  It appears that Real Estate Agents are well aware of their potential exposure since they changed their sales contracts in the summer of 2013 to alert Buyers that they may need to get a flood certification to obtain flood insurance so that they are aware of their potential premium cost before closing.  The new contract language actually makes a Buyer’s offer contingent upon obtaining flood coverage by a certain date at a price not to exceed a cap written into the Purchase and Sale Contract.

            The premium rate hikes resulting from Biggert-Waters are a minefield for the unwary home buyer.  Real Estate and Insurance Agents may have exposure to a homeowner who sees his or her flood insurance suddenly increase many fold.  If you believe that your Real Estate or Insurance Agent is responsible for the economic consequences of failing to advise you of dramatic insurance premium increases, contact Saady & Saxe, P.A. and speak to Dan Saxe.         

Daniel L. Saxe is a partner in Saady & Saxe, P.A., whose practice areas include malpractice claims concerning insurance agents and carriers. He can be reached at dan@saadyandsaxe.com or 813-909-8855.