September 22, 2023

By Matthew Scarfone, Esq., Triple-I weblog contributor, and shareholder at Colodny Fass 

Florida presents property insurers with a novel set of things that have an effect on the supply and affordability of insurance coverage protection. The state boasts the third-largest inhabitants in America whereas concurrently enduring a higher-than-average quantity of pure disasters. It’s honest to say that working a residential insurance coverage firm within the Sunshine State isn’t for the faint of coronary heart.

What’s behind the mounting disaster within the Florida authorized system?

However as damaging because the hurricanes will be, there’s a man-made catastrophe that has contributed considerably to destabilizing the market to regarding ranges: authorized system abuse. In observe, some persons are misusing instruments of the justice system to govern outcomes and procure windfalls. Insurance coverage carriers have paid a heavy value in recent times because of the elevated abuse of one-way lawyer charges, dangerous religion claims, and different unsustainable litigation tendencies. 

Exploitation of one-way lawyer charges and dangerous religion legislation has been particularly prevalent. Till just lately, if a policyholder or third celebration sued an insurer and obtained any financial award, they had been entitled to get well all lawyer charges incurred within the litigation. This observe might have incentivized folks to dispute insurance coverage claims, no matter whether or not they had been justified.  

The issue was additional exacerbated by the abuse of task of advantages (AOB) agreements, which created a chance for contractors to inflate prices. Because of this, a modest owners insurance coverage declare may result in a number of lawsuits by completely different assignees, every asserting a separate declare for lawyer charges. Manipulating this loophole inspired extreme claims and unreasonable calls for, forcing insurers to decide on between paying the inflated invoice or risking a prolonged trial the place the lawyer charges alone may exceed the declare quantity. On prime of that, courts have had broad discretion to use charge multipliers and may award 1.5-3 instances the cheap lawyer charge. 

Instances involving allegations of dangerous religion additional compound an insurer’s publicity as a result of these circumstances will be expensive to defend and contain intrusive discovery, amorphous damages, and unpredictable juries. Dangerous religion circumstances are usually not ripe (i.e., able to doubtlessly warrant judicial intervention) till there was a remaining dedication concerning protection and the harm quantity. Due to this fact, insurers often face the prospect of defending a nasty religion case even after resolving the underlying dispute.  

Florida’s courts didn’t assist issues by ruling that appraisal awards—instruments designed to assist resolve disputes—may lay the procedural groundwork for dangerous religion actions. In different phrases, after resolving a declare by way of appraisal, insurers may nonetheless be left to defend a lawsuit for dangerous religion. Some attorneys used this caselaw as a playbook to fast-track claims into dangerous religion litigation by misusing the appraisal course of. 

The issue seems to be even worse while you quantify it. Based on the Florida Workplace of Insurance coverage Regulation (OIR), as of 2020, regardless of Florida solely accounting for 9% of all owners insurance coverage claims within the nation, it accounted for 79% of all home-owner insurance coverage litigation nationwide. Moreover, during the last decade, solely 8% of the $51 billion paid out by insurers went to claimants, but plaintiffs’ attorneys took dwelling 71%. In the meantime, eleven Florida property insurers fell into liquidation since 2017—5 of these occurring final yr alone. 

Legislators acknowledged want for pressing motion to assist curb prices of insurance coverage claims.

The Florida Legislature has responded to the rising disaster by passing a number of items of great insurance coverage reform, primarily tackling the issues with AOBs, dangerous religion claims, and extreme charges.  For instance, the brand new legal guidelines eradicate one-way lawyer charges in property insurance coverage litigation, forbids utilizing appraisal awards to file a nasty religion lawsuit, and prohibits distributors from taking AOBs below new insurance policies. Regardless of criticism from the plaintiffs’ bar, these reforms are usually not all “one-sided.” Lately handed laws additionally ensures transparency and effectivity within the claims course of and encourages a extra environment friendly and less expensive different to litigation.  

Whereas it’s too quickly to know precisely how current reforms will enhance the state’s insurance coverage market, there’s a sense of hope that these measures will lower the quantity of property insurance coverage litigation and foster a extra viable and secure residential insurance coverage market that permits higher shopper entry to inexpensive protection. 

It could take time for these reforms to have a measurable affect on Florida’s property insurance coverage market. Nonetheless, insurers and policyholders alike ought to be optimistic that the market is headed in a extra sustainable path.