Written by Matthew Scarfone, Esq. , a contributor to the Triple-I Blog and a contributor to Colodny Fass
Florida offers property insurance companies a unique set of factors that affect the availability and affordability of insurance coverage. The state has the third largest population in America while at the same time enduring an above average volume of natural disasters. It is fair to say that operating a home insurance company in the Sunshine State is not for the faint of heart.
What’s behind the mounting disaster in Florida’s legal system?
But as destructive as hurricanes can be, there is one man-made disaster that has destabilized the market to alarming levels: abuse of the legal system. In practice, some people misuse the tools of the justice system to manipulate outcomes and get a windfall. Insurance companies have paid a heavy price in recent years for an increase in one-way attorney fee abuse, bad faith claims, and other unsustainable litigation trends.
The exploitation of one-way attorney’s fees and bad faith law was particularly widespread. Until recently, if a policyholder or a third party sued an insurance company and received any monetary reward, they were entitled to recover all attorneys’ fees incurred in the litigation. This practice may have motivated people to dispute insurance claims, regardless of whether they are justified.
The problem has been exacerbated by the abuse of waiver of benefit agreements (AOB), which has created an opportunity for contractors to inflate costs. As a result, a modest homeowners insurance claim can lead to multiple lawsuits by different assignees, each asserting a separate claim for attorneys’ fees. Manipulating this loophole encouraged excessive claims and unreasonable demands, forcing insurers to choose between paying an inflated bill or risking a lengthy trial where attorneys’ fees alone could exceed the amount of the claim. Furthermore, courts have wide discretion to apply fee multipliers and can award 1.5 to 3 times reasonable attorneys’ fees.
Cases involving allegations of bad faith compound an insurance company’s exposure because those cases can be costly to defend and involve intrusive discovery, amorphous damages, and unpredictable juries. Bad faith cases are not ready (i.e. ready to justify judicial intervention) until there is a final decision on coverage and amount of damage. Therefore, insurers are regularly faced with the prospect of defending a bad faith case even after the underlying dispute has been resolved.
Florida courts did not help matters by ruling that appraisal awards — tools designed to help resolve disputes — can lay the procedural basis for acts of bad faith. In other words, after a claim has been resolved through appraisal, insurers can still be left to defend a bad faith lawsuit. Some lawyers have used this case law as a playbook to speed up claims in cases involving bad faith through abuse of the appraisal process.
The problem looks worse when you quantify it. According to the Florida Office of Insurance Regulation (OIR), as of 2020, although Florida accounts for only 9% of all homeowners insurance claims in the country, it accounts for 79% of all homeowners insurance claims nationwide. Additionally, over the past decade, only 8% of the $51 billion paid out by insurers has gone to claimants, but plaintiffs’ attorneys have gone home with 71%. Meanwhile, 11 Florida property insurance companies have gone into liquidation since 2017 — five of which happened in the last year alone.
Lawmakers have recognized the need for urgent action to help curb insurance claims costs.
The Florida Legislature has responded to the growing crisis by passing multiple pieces of important insurance reform, primarily addressing problems with AOBs, allegations of bad faith, and excess charges. For example, new laws eliminate one-way attorney fees in property insurance claims, prohibit appraisal awards from being used to sue in bad faith, and prohibit sellers from taking AOBs under new policies. Despite criticism from the plaintiffs’ union, these reforms are not all “one-sided”. Recently passed legislation ensures transparency and efficiency in the claims process and encourages a more efficient and less expensive alternative to litigation.
While it is too early to know exactly how recent reforms will improve the state’s insurance market, there is a sense of hope that these measures will reduce the volume of property insurance claims and promote a more viable and stable home insurance market that will allow greater consumer access to coverage. affordable.
It may take time for these reforms to have a meaningful impact on the Florida property insurance market. However, insurers and policyholders alike should be optimistic that the market is moving in a more sustainable direction.