Note 13 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Commitments Disclosure [Text Block]

13. Commitments and Contingencies

The Company and its subsidiaries are parties to claims and lawsuits related to the normal course of business operations. When the Company determines that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Company’s financial exposure is recorded. Actual losses may materially differ from the Company’s estimates. With respect to our title insurance operations, this customary litigation includes but is not limited to a wide variety of cases arising out of or related to title and escrow claims, for which we make provisions through our loss reserves. See Note 6, Reserve for Title Claims, for further information. None of these claims and lawsuits, in management’s opinion, will have a material adverse effect on our Consolidated Financial Statements.

Litigation

The Company’s subsidiaries are parties to legal actions incidental to their business. As of March 31, 2024, management believed that the resolution of these matters would not materially affect our financial condition or results of operations.

Omega Employee Litigation

During the first quarter of 2024, one of the Company’s subsidiaries, Omega, became involved in litigation in the United States District Court for the Middle District of Florida. The case, instituted by a former Omega employee, alleges that the former employee was separated from Omega in a manner inconsistent with the Americans with Disabilities Act and the Florida Civil Rights Act. Omega has retained outside counsel and the Company believes that there is no merit to any claims being made against Omega. Therefore, the Company believes it is unlikely that the case will result in a material adverse effect on the Company’s consolidated financial statements.

Fednat Underwriters, Inc. Bankruptcy & Related Proof of Claim

As disclosed in a Current Report on Form 8-K filed by FedNat Holding Company (“FedNat”) with the SEC on December 12, 2022, on December 11, 2022, FedNat and certain of its wholly-owned subsidiaries, including FedNat Underwriters, Inc. (“FNU”), filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida in order to maximize value for all stakeholders. As part of the Chapter 11 process, FedNat will evaluate all strategic alternatives to maximize value for stakeholders, whether that be a reorganization of its business or a sale of its assets.

On January 26, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Order”) granting a motion from the debtors (including FNU) pursuant to Section 365(a) of the Bankruptcy Code authorizing such debtors to reject that certain Management Advisory Services Agreement dated and effective as of July 1, 2022 (the “Advisory Services Agreement”) between HGMA and FNU. Based on the Order, the Advisory Services Agreement was deemed rejected as of December 12, 2022.

Effective with the rejection of the Advisory Services Agreement, the Company will no longer earn compensation for the remaining duration of the agreement. On February 21, 2023, the Company filed a proof of claim for $609,771 of unsecured claims for compensation earned pre-petition pursuant to the Advisory Services Agreement. The Company also filed a claim for post-petition damages arising from the rejection of the agreement prior to its contractual end date.

On July 27, 2023, FNU and HGMA, amongst other parties, entered into a settlement agreement (the “Settlement Agreement”) addressing both claims identified herein. In the Settlement Agreement, FNU and HGMA agreed that the cumulative amount allowed for both proofs of claim was $1,109,771. This recoverable has not yet been recorded on the Company's financial statements as of March 31, 2024 in accordance with ASC Topic 450, Contingencies. On August 11, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order approving the Settlement Agreement. The total amount recovered for the proofs of claim is subject to successful execution of the Chapter 11 plan by FedNat and its affiliates, including FNU.

Leases

Right-of-use assets and lease liabilities related to operating leases under ASC Topic 842, Leases (“ASC Topic 842”), are recorded when the Company and its subsidiaries are party to a contract, which conveys the right for it to control an asset for a specified period of time. Substantially all of our operating lease arrangements relate to rented office space and real estate for our title operations. The Company is not a party to any material contracts considered finance leases. Right-of-use assets and lease liabilities under ASC Topic 842 are recorded as Lease assets and Lease liabilities, respectively, on the Unaudited Consolidated Balance Sheets.

The Company’s operating leases range in term from one to five years. As of March 31, 2024, the weighted-average remaining lease term of our operating leases was 2.1 years.

The Company’s lease agreements do not contain material variable lease payments, buyout options, residual value guarantees or restrictive covenants.

Most of the Company’s leases include one or more options to renew, with renewal terms that can extend the lease term by varying amounts. The exercise of lease renewal options is at our sole discretion. We do not include options to renew in our measurement of lease assets and lease liabilities as they are not considered reasonably assured of exercise as of March 31, 2024.

The lease liability is determined by discounting future lease payments using a discount rate based on the Company’s incremental borrowing rate for similar collateralized borrowing. The discount rate is calculated using estimates of capitalization rates and borrowing rates. As of March 31, 2024, the weighted-average discount rate used to determine our operating lease liability was 6.0%.

Lease expense included in general and administrative expenses on the Unaudited Consolidated Statements of Operations was $254,000 and $226,000 for the three months ended March 31, 2024, and 2023, respectively.

Future minimum rental commitments as of March 31, 2024 under these leases are expected to be as follows (in thousands):

Remainder of 2024	$	263
2025		155
2026		65
2027		48
2028		-
Total lease payments, undiscounted	$	531
Less: present value discount		(31	)
Lease liabilities, at present value	$	500