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FLORIDA BILLS OFFER BROAD ATTACK ON INSURANCE COSTS: LEGAL FEES, AOBS,
REINSURANCE

By William Rabb | December 11, 2022

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BeyondWords

After years of what some insurers have labeled half-measures, Florida lawmakers
appear to be on the cusp of delivering “historic” and “transformational” reforms
that would end one-way attorney fees, banish assignments of benefits and offer
state-backed reinsurance at a discount.

House Bill 1A and Senate Bill 2A were posted late Friday, just three days before
a special legislative session that begins today. The bills were met with
widespread applause from insurance industry leaders, attorneys and consultants.



“The proposed legislation sends a strong message that Florida is serious about
stabilizing the property insurance market and creating an environment to attract
capital and create more options for Florida’s insurance consumers,” the Florida
Association of Insurance Agents said in a statement.

After nine insurer insolvencies in the last three years and spiking premiums
across the state, the bills aim to tackle the major cost drivers, including the
incentives behind what insurers have dubbed runaway claims litigation. They also
would address other cost factors and provide some consumer protections that
would force insurers to pay or deny claims more quickly, to be more judicious
about demanding the appraisal process in claims disputes, and face new scrutiny
from regulators.

An attorney who represents property owners said the proposals take away
policyholders’ rights and eliminate longstanding safeguards designed to level
the playing field between insureds and well-heeled insurance companies.

Here’s a look at the bills’ proposed changes:

Mandatory Flood Insurance for Citizens’ Insureds

The measures would require policyholders of the state-created Citizens Property
Insurance Corp. to also purchase flood insurance. The bills provide a timetable
for phasing in the requirement, with more expensive properties needing it first,
by March 1, 2024. All policies would need flood insurance by March 2027,
regardless of the property’s elevation or location.


Johnson

The idea was discussed in the Capitol in the mid-2000s but never gained
traction. Now its time has come, said Scott Johnson, a longtime insurance
consultant and educator who recently broached the possibility of reviving it.

“I was surprised that’s in the bill now,” Johnson said Sunday.

He has argued that insureds who receive payouts on water losses after a storm
are less likely to file suit over whether the damage was from wind or
floodwaters, which could help reduce Citizens’ staggering litigation defense
costs.

“Most of the people in Citizens are probably candidates for flood insurance and
it’s really just a prudent way to make sure claims can get paid, because in the
end, a lot of those claims were not wind claims, they were flood claims,” said
Fred Karlinsky, an insurance defense attorney and lobbyist for the industry.

The 20% Rule

The bills also revive a plan that would essentially force Citizens’
policyholders to switch to a primary market carrier if that carrier’s premiums
are no more than 20% higher than Citizens’, upon renewal. Citizens’ premium
increases are limited by law – the main reason the insurer has become the
largest carrier in Florida, with some 1.2 million policies in force.

A similar provision was included in SB 1728, which was approved by the state
Senate in the regular 2022 legislative session. The bill died when the House did
not approve it before the 60-day session came to a close.

The new bill also would allow Citizens to combine its three accounts (personal
lines, coastal and commercial) into one. That would let Citizens access its
entire surplus to pay claims and would limit the potential surcharge or
assessment on policyholders – from one charge per account to a single surcharge,
if the corporation runs a deficit.

Expansion of Arbitration

The bills would codify what a few insurers have already adopted: binding
arbitration clauses. Insurance carriers would not be allowed to require
arbitration as an alternative to litigation unless it is clearly explained in a
separate policy endorsement, the insured is offered a premium discount in
exchange, and the policyholder signs a form accepting the clause.

One-way Attorney Fees

On the biggest cost drivers, insurers have said for years, is Florida’s
claimant-friendly one-way attorney fees statute, which requires insurers to pay
the plaintiffs’ legal fees if the carrier loses in court. The law has been in
effect, in one form or another, since 1893, and is more akin to the English rule
of law, according to a legislative staff analysis of the newly drafted bills. In
2016, a famous Florida Supreme Court decision underscored the legitimacy of the
practice. That, along with fee multipliers, have caused fees to explode in
recent years and has been the incentive behind Florida’s out-of-control claims
litigation industry, insurance advocates have said.

HB 1A and the nearly identical SB 2A address legal fees head-on, stating flatly
that the one-way attorney statute shall not apply to insurance claims
litigation. A court could award fees to the prevailing side after a dispute is
adjudicated, the bill’s sponsor explained in a Senate committee meeting Monday.

Assignments of Benefits

The bills also would prohibit AOBs for residential and commercial claims, a move
that a growing number of insurance executives have called for. Assigning
benefits to restoration companies is one of the biggest cost escalators because
it gives contractors an unnatural incentive to inflate estimates and scope of
repairs, critics have said. And when insurers balk at the claims, the assignees
are often quick to sue.

Bad-faith Litigation

For years, insurance defense attorneys have argued that Florida’s statutes make
it too easy for plaintiffs to file bad-faith actions against insurers, long
before a case has been fully adjudicated and even if claims have been paid. The
special session bills would bar bad-faith claims until after a court has decided
that the insurance company breached the policy contract.

Faster Action on Claims

The proposed legislation would cut the time allowed for insurers to pay or deny
claims, from 90 days to 60. The Florida Office of Insurance Regulation could
extend the time in states of emergency or if the insurer suffers a cyber attack
or other computer system failure.

The bills also reduce the time that insurers have to review and acknowledge a
claim communication, from 14 days to a mere seven. Inspections would have to be
done in 30 days, even after a hurricane. All of that could force insurers to
hire staff to meet the new demands, or at least to become more efficient.

Insureds also would have less time. Instead of two years, as was required in
2021 legislation, policyholders would have only one year after the date of the
loss to file new or reopened claims. For supplemental claims, the deadline would
be shortened from three years to 18 months.

More Regulatory Scrutiny

Lozier

Insurers that unjustly compel claimants to turn to the appraisal process could
have their certificates of authority suspended, face fines from the OIR, and be
publicly named and shamed on the OIR website, the bills note. The staff analysis
of the bills did not explain what prompted the section, and its inclusion
surprised some industry insiders.

Insurers have said the appraisal process can provide a fair method method to
determine the cost of damage to a property, with the use of three independent
appraisers. But a plaintiffs’ attorney said that some property insurers have
abused the process by underpaying a claim, then immediately invoking the
appraisal route, which delays resolution and adds expense for insureds.

“This practice ignores the obligation to adjust the loss with the insured and
instead allows an insurance company to avoid its duties to try and resolve the
claim,” said Gina Clausen Lozier, a plaintiffs attorney in West Palm Beach. “The
appraisal process often requires an insured to incur additional costs for
appraisers and an umpire which may have been unnecessary if the insurance
company had taken the opportunity to properly adjust the claim with the
insured.”

Karlinsky said he didn’t know if appraisals had become such an issue. “I think
the Legislature wants to put some guardrails around things and we understand the
need to do that,” said Karlinsky, who, as a registered lobbyist, has represented
almost two dozen insurers in recent years.

Under the bill, OIR also would have new authority to require more information in
insurers’ quarterly reports, which currently includes policy counts, premium
written and exposure by county. Many insurers have claimed that such data is
considered “trade secrets,” leaving an incomplete picture for stakeholders,
regulators and the public, critics have said. Regulators also would be able to
subject insurers to a market conduct examination after a hurricane, the bills
note.

The legislation, if signed into law, also would provide OIR with an extra $1.76
million per year to hire new staff to keep up with its new responsibilities. The
move may address concerns that some lawmakers expressed at the May special
session, that OIR was understaffed and was not aggressive enough in bird-dogging
struggling insurance companies.

Low-cost Reinsurance

Crucially, the FAIA leadership and others said, SB 2A and HB 1A would provide a
new layer of state-funded reinsurance – at a significant discount from what the
market offers. Reinsurance prices for Florida property carriers have soared by
more than 80% in recent years and are expected to rise again in 2023, according
to market reports and the bill analysis. Those costs have been a significant
factor behind several recent insolvencies, troubled carriers have said.

The bills would establish the Florida Optional Reinsurance Assistance Program,
or FORA. The coverage would begin at the Florida Hurricane Catastrophe Fund’s
attachment point, currently at about $8.5 billion for the industry, and would
cover up to $5 billion in losses below that. Rates would range from 50% to 65%
lower than private reinsurance market rates. It would be funded with $1 billion
in state funds and from premiums paid by participating insurance companies.

The less-extensive Reinsurance to Assist Policyholders (RAP) fund, established
at the May special session, would continue for at least another year.

FAIA President Kyle Ulrich said the new program will help stabilize the Florida
property insurance market. Karlinsky said lawmakers are using the tools they
have, but that the FORA plan may not go far enough.

What the Bills Don’t Address

Somewhat surprisingly, the measures do not address two elements that public
officials and insurers have said are crucial to putting the brakes on claims
litigation and outsized loss adjustment expenses: limits on public adjusters,
and on ways to make it easier for insurers pay actual cash value, as opposed to
replacement value, for damaged structures.

Florida’s chief financial officer, Jimmy Patronis, and others have said that
southwest Florida was practically overrun with public adjusters just days after
Hurricane Ian damaged thousands of homes in the area, and he called for slashing
fees that adjusters can charge and for more prosecutions of those who violate
the law.

“Florida’s problem won’t be completely solved until you get public adjusters out
of there,” Johnson said.

The actual-cash-value issue was partly addressed in May, when lawmakers revised
statutes that had required full replacement of roofs when only small parts were
damaged.

Boyd at the May special session (AP Photo/Phil Sears)

The Session

The new bills, some of the first to be considered by the newly elected 2023
Legislature, were said to have been drafted by House and Senate leadership, with
input from the Florida governor’s office. But industry insiders pointed out that
state Sen. Jim Boyd, R-Bradenton, the longtime chair of the Senate Banking and
Insurance Committee and an insurance agent himself, is the sponsor of SB 2A and
likely crafted most of the bill language.

Boyd was instrumental in crafting the two bills that moved quickly through the
May special session. And if next week is anything like that session, the bills
will see few changes in committee or on the floor. With Republicans having a
larger majority now than in May, the measure are expected to sail quickly
through the chambers, with a final gavel as soon as Wednesday.

Both chambers convene today at 10:30 a.m. and Senate committee meetings start at
noon.

The FAIA cautioned stakeholders not to expect an immediate improvement in
insurers’ finances or a rapid drop in insurance premiums. Karlinsky noted that
whatever reforms are passed this week, they will probably be challenged in court
by contractors and trial lawyers, a process that could take a few years to
resolve.

“I would applaud the Legislature and the governor for trying to fix something
that has been plaguing Florida citizens for too long, and hopefully this will
stem the tide of some of the ills we have faced for many many years,” Karlinsky
said, calling the proposed legislation “pretty transformational.”

Top photo: New Florida Senate President Kathleen Passidomo, in a March photo.
(AP Photo/Wilfredo Lee, File)

Topics Florida Reinsurance

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WRITTEN BY WILLIAM RABB

Rabb is Southeast Editor for Insurance Journal. He is a long-time newspaper man
in the Deep South; also covered workers' comp insurance issues for a trade
publication for a few years.

LATEST POSTS:

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 * Categories: Southeast NewsTopics: florida insurance crisis, Florida special
   session on insurance
 * Have a hot lead? Email us at newsdesk@insurancejournal.com

FEATURED COMMENT

 * December 12, 2022 at 1:11 pm
   Vox says:
   Like or Dislike:
   8
   2
   
   Can anybody out there name a state, any state, where the legislature has
   turned the market around to the extent that the dismal Florida market
   demands?. I’m sorry, but I am just forlorn about the ability of government to
   rein in a dragon like the one which befell Florida. If you let things get out
   of hand for too long, it becomes very difficult to try to bring control to
   it, short of measures that are downright punitive. Examples abound the world
   over.
   
   

LATEST COMMENTS

 * December 15, 2022 at 2:30 pm
   FL Analyst says:
   OK - I will concede this is true for everything minus the PA curbs, but the
   shorter Claims processing window is a more significant concession than one
   may think (i.m.o.). The ... read more
   
 * December 15, 2022 at 2:17 pm
   FL Analyst says:
   (Update: the reforms in the bill do not apply to Auto)
   
 * December 15, 2022 at 12:10 pm
   Mark E. says:
   Ms. Rozier's comments are an exact example of the problem, but she's refusing
   to say that she's a big part of that problem. Policyholders, spurred on by
   unscrupulous contract... read more
   


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