By Matthew Scarfone, Esq., contributor to the Triple I blog and shareholder at Colodny Fass
Florida presents property insurers with a unique set of factors that affect the availability and affordability of insurance coverage. The state has the third largest population in America and is also affected by an above-average number of natural disasters. It’s fair to say that running a home insurance company in the Sunshine State is not for the faint of heart.
What is behind the mounting disaster in Florida’s legal system?
But as damaging as hurricanes can be, there is one man-made disaster that has played a major role in destabilizing the market to worrisome levels: abuse of the legal system. In practice, some people misuse tools of the justice system to manipulate outcomes and win big wins. Insurance carriers have paid a heavy price in recent years due to the increasing abuse of unilateral attorneys’ fees, malicious claims, and other unsustainable litigation.
The exploitation of one-way attorney fees and bad faith laws is particularly rampant. Until recently, policyholders or third parties who sued an insurer and were awarded a sum of money were entitled to recover all attorneys’ fees incurred in the litigation. This practice may have prompted people to contest insurance claims, regardless of whether they were justified.
The problem was further exacerbated by the abuse of benefit assignment agreements (AOB), which gave contractors the opportunity to increase costs. As a result, a modest homeowners insurance claim could result in multiple lawsuits from different assignees, each asserting a separate claim for attorneys’ fees. Manipulating this loophole encouraged excessive claims and improper claims, forcing insurers to choose between paying the overcharged bill or risking a lengthy litigation where legal fees alone could exceed the amount of the claim. In addition, the courts have broad discretion in applying fee multipliers and can award 1.5 to 3 times the reasonable attorney’s fee.
Cases involving allegations of bad faith further exacerbate an insurer’s risk as these cases can be costly to defend and involve intrusive discoveries, informal damages and unpredictable jury trials. Malicious cases are not mature (ie, ready to possibly warrant legal action) until a final decision on coverage and the amount of damages has been made. As a result, insurers regularly face the prospect of defending a bad faith case, even after the underlying dispute has been resolved.
Florida’s courts did not help matters, ruling that valuation awards — tools used to resolve disputes — could provide the procedural basis for malicious acts. In other words, after a claim is settled by assessment, insurers may still be defending a bad faith claim. Some attorneys have used this jurisprudence as a playbook to expedite claims through misuse of the evaluation process in bad faith litigation.
The problem looks even worse when quantified. According to the Florida Office of Insurance Regulation (OIR), as of 2020, although Florida accounts for only 9% of all homeowner insurance claims in the state, it accounted for 79% of all homeowner insurance litigation statewide. Additionally, over the past decade, only 8% of the $51 billion paid out by insurers went to plaintiffs, yet plaintiffs’ attorneys took 71% home. Meanwhile, 11 property insurers in Florida have gone into liquidation since 2017 — five of them in the last year alone.
Legislators have recognized an urgent need for action to contain the cost of insurance claims.
The Florida Legislature has responded to the growing crisis by passing several important insurance reforms, primarily addressing the problems of AOBs, malicious claims and excessive fees. For example, the new laws eliminate unilateral attorneys’ fees in property insurance disputes, prohibit the use of valuation premiums to file a bad faith claim, and prohibit providers from adopting AOBs in new policies. Despite criticism from the plaintiffs’ representatives, these reforms are not all “one-sided”. Recent legislation also ensures transparency and efficiency in the claims process, promoting a more efficient and less expensive alternative to litigation.
While it’s still too early to know exactly how recent reforms will improve the state’s insurance market, there is hope that these measures will reduce the volume of property insurance disputes and promote a more viable and stable home insurance market that gives consumers better access to affordable ones Cover.
It may be some time before these reforms have a measurable impact on the Florida property insurance market. Still, insurers and policyholders alike should be optimistic that the market is moving in a more sustainable direction.
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