Welcome to an insightful conversation with Simon Glairy, a renowned expert in insurance and Insurtech, with a deep focus on risk management and AI-driven risk assessment. Today, we dive into a high-profile lawsuit in Miami involving Zurich American Insurance Company and forced-placed builder’s risk insurance. Simon brings his extensive knowledge to unpack the complexities of this case, shedding light on the broader implications for commercial real estate, insurance practices, and borrower rights. We’ll explore the nuances of excessive premiums, communication breakdowns, legal claims, and what this could mean for the future of forced-placed coverage.
Can you walk me through the core issues of this lawsuit involving Zurich and the lender service firms in Miami?
Certainly. This case revolves around Marat Gokhberg and Steve Ostrovsky, who own a property in Miami Beach. They’re claiming that after their original builder’s risk insurance lapsed, the lender’s servicer, ELS Holdings, arranged for Zurich to provide forced-placed coverage without their input. The heart of their grievance is that this wasn’t just a stopgap measure—it came with a hefty price tag and a host of other problems. They’re alleging unfair practices, lack of transparency, and significant financial harm as a result of how this was handled.
What’s the deal with the premium costs they were charged, and why do they think it was out of line?
The plaintiffs were billed $54,987.66 for the builder’s risk insurance, which they argue is way above typical market rates for comparable coverage. Their position is that this premium wasn’t justified, especially since they weren’t consulted or given a breakdown of how the cost was calculated. They see this as exploitative, suggesting that the insurer and lender may have prioritized profit over fairness in setting the rate for a policy they had no choice in accepting.
Communication seems to be a big sticking point in this case. Can you explain what went wrong there?
Absolutely. Gokhberg and Ostrovsky claim they weren’t properly notified about the forced-placed insurance being applied to their property. There’s no evidence, according to their complaint, that Zurich or ELS Holdings provided clear communication or any solid reasoning for the charges. This lack of upfront dialogue left them blindsided, which they argue is not only unfair but potentially a violation of standard industry practices and legal requirements.
Beyond the insurance bill, what other challenges did the plaintiffs face as a result of this policy?
The fallout was pretty severe. When they tried to refinance their property, Zurich and ELS allegedly refused to cancel the forced-placed policy, even after the plaintiffs secured alternative coverage. This led to construction delays, accumulating interest, and a complete stall in their project. On top of that, they faced liens, penalties, and other financial burdens, which they attribute directly to the insurer’s and lender’s actions.
The legal claims in this lawsuit are quite extensive. Can you break down the key arguments they’re making?
Sure. The plaintiffs are alleging multiple violations, including breaches of the Real Estate Settlement Procedures Act, which governs how lenders and servicers handle certain financial transactions. They’re also claiming breach of contract and bad faith, arguing that Zurich and ELS didn’t act in their best interest. Additionally, they point to unfair trade practices under Florida law and negligence, essentially saying the defendants failed in their duty to act reasonably and transparently. They’re pushing for the court to recognize these as systemic issues, not just isolated mistakes.
Financially, they’re asking for a significant amount in damages. Can you tell me more about their demands?
Gokhberg and Ostrovsky are seeking over $1.2 million in damages to cover their losses and the harm caused by this situation. But it’s not just about the money—they also want the court to intervene by stopping Zurich and ELS from engaging in similar practices with other borrowers. They’re asking for a rescission of the insurance arrangement, aiming to prevent what they see as predatory behavior in the future.
There’s a specific issue with the policy language around cancellation. Can you elaborate on that aspect of the complaint?
Yes, the plaintiffs highlight a clause in Zurich’s policy that allegedly prohibits non-renewal of certain coverage, like wind protection, without the insured’s written consent. They argue that Zurich’s refusal to cancel the forced-placed policy after they obtained new coverage directly contradicts this language. They’re framing this as not only a contractual breach but also a violation of fairness and Florida law, pointing to a lack of accountability in how these policies are enforced.
What broader implications might this case have for the insurance industry, especially with forced-placed coverage?
This lawsuit could be a wake-up call for the industry. Forced-placed insurance, particularly in commercial real estate, is already under scrutiny for being opaque and sometimes exploitative. If the court sides with the plaintiffs, we might see stricter regulations around premium setting, borrower notifications, and cancellation policies. It could push insurers and lenders to adopt clearer, more equitable practices to avoid legal risks and maintain customer trust. The outcome may set a precedent that reshapes how these policies are handled nationwide.
Looking ahead, what is your forecast for the future of forced-placed insurance in light of cases like this?
I think we’re at a turning point. With increasing litigation and public attention on forced-placed insurance, there’s likely to be a push for more transparency and accountability. Technology, like AI-driven risk assessment, could play a role in creating fairer pricing models, but only if paired with stronger regulatory oversight. I anticipate insurers and lenders will need to rethink their approaches—focusing on communication and consent—to avoid similar disputes. We might also see legislative changes in states like Florida to protect borrowers from excessive costs and procedural missteps. The industry has a chance to evolve, but it’ll require proactive effort to balance profit with fairness.
