Triple-I Weblog | Some Potential Sunshine for Florida’s Property Insurance coverage Market 

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 provision 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 truthful 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 might be, there’s a man-made catastrophe that has contributed considerably to destabilizing the market to regarding ranges: authorized system abuse. In apply, 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, unhealthy religion claims, and different unsustainable litigation traits. 

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

The issue was additional exacerbated by the abuse of project of advantages (AOB) agreements, which created a possibility for contractors to inflate prices. Consequently, 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 high of that, courts have had broad discretion to use price multipliers and may award 1.5-3 occasions the affordable lawyer price. 

Instances involving allegations of unhealthy religion additional compound an insurer’s publicity as a result of these instances might be pricey to defend and contain intrusive discovery, amorphous damages, and unpredictable juries. Unhealthy religion instances usually are not ripe (i.e., able to probably warrant judicial intervention) till there was a last willpower concerning protection and the harm quantity. Subsequently, insurers commonly 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 unhealthy religion actions. In different phrases, after resolving a declare by way of appraisal, insurers may nonetheless be left to defend a lawsuit for unhealthy religion. Some attorneys used this caselaw as a playbook to fast-track claims into unhealthy religion litigation by misusing the appraisal course of. 

The issue appears even worse whenever 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 house 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 serious insurance coverage reform, primarily tackling the issues with AOBs, unhealthy 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 beneath new insurance policies. Regardless of criticism from the plaintiffs’ bar, these reforms usually are not all “one-sided.” Just lately handed laws additionally ensures transparency and effectivity within the claims course of and encourages a extra environment friendly and more cost effective 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 steady residential insurance coverage market that permits higher shopper entry to reasonably priced protection. 

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