Florida Power & Light Class Action Opens Door to Insurance Subrogation and Future Storm Claims

A Miami judge’s certification of a lawsuit against Florida’s largest utility company as a $10 billion class action lawsuit, with damage claims from more than 4 million people who lost their lives. electricity during Hurricane Irma, could have significant repercussions for self-insurers and insurance companies in the years to come.

Miami-Dade Circuit Judge David Miller issued the order last month, noting that the plaintiffs had shown the case met all the requirements for a class action. The plaintiffs allege that Florida Power & Light was negligent and breached its contract with its customers by not fully preparing for the storm or by “hardening the system”, despite collecting a surcharge to do so.

“Plaintiffs do not claim that FPL is a hurricane insurer, and class status will not produce that result,” the judge wrote. “Instead, the plaintiffs are seeking class-wide management on a basic contractual issue” – if the utility failed to honor its promise to exercise due diligence at all times.

Judge Miller

Judges and legal experts said that with climate change and the consensus that storms are increasing in frequency and intensity, fewer businesses and utilities will now be able to claim the damage was simply an “act of God” that they could not have foreseen. For parts of the state, Irma in 2017 had weakened to a minor tropical storm, but thousands of customers continued to lose power, according to the plaintiffs in the FPL lawsuit.

Plaintiffs, like those in the FPL class, can succeed by showing the utility of gross negligence and reckless disregard for warning signs, as opposed to “ordinary negligence” which can be attributed in part to the will of Mother Nature, said Professor Joel Eisen. , from the University of Richmond Law School.

“I think there will be more such claims and many will succeed,” said Eisen, who studied energy law and policy.

The case, Heydi Velez et al v. Florida Power & Light, was the second in December in which a Florida court allowed thousands of claims for lack of storm preparation. In the U.S. District of the Northern District of Florida, a judge found that maritime law did not protect a bridge construction company, Skanska USA, from property damage claims and business interruption claims. Skanska officials should have been aware of an impending hurricane in 2020 and should have taken steps to better secure the construction barges before they broke loose and destroyed part of the Pensacola Bay Bridge and destroy waterfront properties, the judge said.

And while multinational Skanska and Florida Power & Light are largely self-insured, many smaller construction companies and utilities buy their coverage. They could face similar legal action if hurricanes continue to hit the Sunshine State and other coastal areas.

“It’s obviously a concern for utilities,” said Sally Roberts, director of US media relations for Marsh, the global insurance brokerage that counts a number of utility companies among its clients. .

“I imagine every utility is watching the FPL case closely,” said Robert Jarvis, a professor at Nova Southeastern University School of Law in Fort Lauderdale.

The class action lawsuit against FPL also means that insurance subrogation claims will now be part of the class. It could potentially save insurers the cost of having to pursue hundreds of individual claims to recoup what they paid in business interruption claims stemming from the 2017 hurricane, which left some Floridians without power. For days.

Similar actions against utilities could be on the rise. In Texas, 131 insurance companies filed a lawsuit earlier this month against power companies and the Texas Electric Grid Operator over widespread losses from a 2021 winter storm. More than 4 .5 million people lost power during the freezing weather, causing pipes to burst in many buildings and damaging property. Some 240 people have died and insurers have seen more than 500,000 claims filed for $10 million in losses.

Like the FPL and Skanska lawsuits, the lawsuit against the Electric Reliability Council of Texas (ERCOT) and Texas power producers alleges gross negligence – that the utilities knew of the storm’s potential but did not attend to it. not prepared.

While many property insurance policies in Florida exclude losses caused by power outages, some cover losses of refrigerated perishable items, said John Ruiz, lead class attorney in the FPL class action.

Ruiz’s name will ring a bell for many insurance companies. His Miami-based company, MSP Recovery, has filed other class action lawsuits against more than 300 auto insurers across the country, accusing them of failing to properly report primary payor status in no-fault car crashes. The omissions tied up Medicare and Medicare Advantage plans with billions of dollars in illegal costs, according to at least one of the MSP lawsuits.

The tort actions allege that 90% of no-fault auto insurers use the same software, produced by the Bureau of Insurance Services, which is part of Verisk Analytics. It consistently and incorrectly reports that Medicare should be the primary payer in many crashes, contrary to federal law, Ruiz said.

Ruiz

“If they’re aware of flaws in the software and haven’t done anything to fix them, it becomes intentional,” Ruiz said last month.

Verisk declined to comment on its software or the litigation.

Ruiz’s Florida Power & Light class action lawsuit puts him on the side of some of the same insurers he is currently fighting in the auto insurer lawsuits. The FPL action could end up recouping funds for the carriers, but could also potentially mean higher electric bills for Florida residents.

“If FPL loses, they’ll likely have to raise rates or cut promises to customers,” said Jarvis, a Florida law professor.

Florida Power & Light, which serves more than 11 million Florida residents, is a subsidiary of NextEra Energy. FPL notes in its December 2020 annual report that “due to the high cost and limited coverage available from third party insurers”, NextEra does not have property insurance coverage for “a substantial portion” of its transmission and distribution assets.

If storm restoration costs exceed storm reserves already set aside, FPL can recoup the costs through a customer surcharge, as approved by Florida regulators, the annual report explains. NextEra, which operates a captive insurance company, Palms Insurance, covers its directors and officers.

The class certification is the latest in a four-year legal battle over Hurricane Irma blackouts. FPL first asked a trial court to dismiss the case, then asked an appeals court to force the dispute to be heard by the Florida Public Service Commission. Florida Power lost on both attempts.

In Miami-Dade Circuit Court, utility attorneys argued that the company had no way of being sure that all outages for the proposed class had occurred as a result of the hurricane. But complainants pointed out that nearly 90% of FPL customers who experienced outages during the 2017 storm reported a “cause code” like Hurricane Irma.

Judge David Miller said the utility engaged in some cover-up about the cause of the power outages, which did not help its case.

“It stands to reason that FPL has identified the cause of an outage where it was able to restore power,” Miller wrote in the notice. “FPL, however, has now devoted most of its presentation to undermining the accuracy of its own records.”

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