JACKSONVILLE, FLA. — Many Florida homeowners are feeling the effects of a hardening insurance market. Rates are rising, underwriting requirements are tightening and in some places insurance policies are becoming more difficult to obtain.
While the hard market is affecting Homeowners insurance rates throughout the country, the rapid increase in litigation cases against insurance companies and in Assignment of Benefits repair scams in Florida are driving even higher premiums and negatively affecting the availability of certain coverages in the insurance market. For some, this means skyrocketing premium and skinnied-down coverages. For others, it means seeking coverage from Citizens Property Insurance Corporation. In 2020 alone, Citizens, the insurer of last resort in Florida, added more than 100,000 policies to its book—a 23% increase.
To address the problem that led more than 100 insurance companies to request rate increases in Florida last year, Florida Senator Jim Boyd (R – Bradenton) introduced SB 76.
SB 76 broadly aims to reduce the frequency and cost of property insurance litigation and to make Homeowners insurance more affordable and more widely available across Florida.
As one of the largest Personal Lines agencies in Florida and a Florida-based company, Brightway Insurance serves hundreds of thousands of Florida homeowners, so any legislation we support must have our customers’ and policyholders’ best interest at heart; therefore, we have made the decision to support SB 76.
While we expect further Senate committee review and anticipate the Florida legislature will refine specific language in the bill, we want to make sure our partners and customers understand the changes that are currently being proposed.
PROPOSED CHANGES TO PROPERTY INSURANCE CLAIM NOTICE REQUIREMENTS
- Currently, an insured person in Florida is not required to give prior notice of a claim under a Property insurance policy (except for claims related to hurricane or windstorm damage) to his or her insurer before initiating a lawsuit and may file such a lawsuit any time within five years of suffering a covered loss. For claims related to losses caused by hurricanes or windstorms, notice must be provided to the insurer within three years of the date the storm first made landfall or caused the covered damage.
SB 76 proposes a standardized notice period for Property insurance claims of two years, regardless of the type of claim. If an insured suffers a loss, all he or she must do is notify the insurer that a loss has occurred and initiate the claim resolution process within two years of the date of loss.
We believe this is a commonsense solution that benefits all stakeholders. This empowers insurers to more accurately predict costs and account for them in a more timely manner. This predictability will lead to efficiencies and reduced costs for insurers that can be passed along to insureds by way of lower premiums. Individuals suffering covered losses still have two years to provide notice of the claim to their insurers.
- SB 76 also creates a second new notice requirement; namely, a notice that the insured must send to the insurer before filing a lawsuit under a Property insurance policy. At least 60 days before filing suit, the potential claimant must send a notice to the insurer providing certain details about the Property insurance claim. During the 60-day notice period, the insurer will have an opportunity to inspect and investigate the claim, and may prevent the proposed lawsuit from moving forward if the insured does not allow the insurer to exercise its inspection rights. The insurer is strictly barred from filing any suit against the insured during this 60-day period, and once the 60-day period expires the insured may file any lawful civil action deemed necessary to enforce his or her rights under the Property insurance policy.
We support this proposal. Like the other newly imposed notice requirement, this 60-day period will not prejudice the insurer or insured unfairly, and we are optimistic it will allow all parties to avoid costly litigation. If no amicable or mediated solution is found within 60 days, the insured has recourse to all the same rights that were available at the start of the waiting period, and the insurer is strictly prohibited from taking any action against the insured during this same time. We believe the potential benefit -- a material reduction in Property insurance claim litigation – outweighs any inconvenience caused by a 60-day delay.
PROPOSED CHANGE TO CALCULATION OF ATTORNEYS’ FEES
- SB 76 proposes to limit the prevalence of “contingency fee multipliers” by shifting the burden of proof regarding when these multipliers will be awarded. A contingency fee multiplier is a mechanism by which the amount of attorneys’ fees is doubled, tripled, etc. in the final attorneys’ fee award. This is intended to compensate the claimant’s attorney more handsomely for taking on meritorious cases that the attorney may not have taken if the award was calculated using a standard rate for attorney’s fees (referred to as the “lodestar” fee, please see https://www.insurancejournal.com/news/southeast/2021/02/24/602511.htm for a more detailed explanation of this concept). While contingency fee multipliers were originally conceived to provide more people with access to legal representation, there is evidence that plaintiffs’ attorneys now regularly use the threat of a contingency fee multiplier as leverage with carriers in negotiations, regardless of the actual merits of the suit or the necessity for the multiplier.
The change proposed by SB 76 is subtle and essentially seeks to overturn a prior Florida Supreme Court case that removed a requirement that contingency fee multipliers would only be awarded on a rare and exceptional basis. The presumption codified by SB 76 (that the contingency fee multiplier is not necessary “unless competent counsel could not be retained by the claimant in a reasonable manner”) will discourage courts from applying a multiplier in Property insurance claims unless there is clear and compelling evidence from the plaintiff that they exhaustively tried and failed to secure counsel in a reasonable manner.
- The second change relates to how the payment of attorneys’ fees amount may be reduced based on the final judgment amount. For instance, if a claimant files suit alleging $100,000 in damages, and the final judgment in claimant’s favor is for $75,000, the demand-judgment quotient is 0.75 ($75,000/$100,000). This quota is used to determine whether the plaintiff will be entitled to have the defendant insurer pay all or a portion of the plaintiff’s legal fees. The exact amounts proposed are:
- If the demand-judgment quotient is greater than or equal to .8, the multiplier is 1.0 (full attorneys’ fees awarded)
- If the demand-judgment quotient is between .2 and .8, the percentage of attorneys’ fees paid by the insurer is multiplied by the demand-judgment quotient itself. In the example above, the insurer would be required to pay 75% of the plaintiff’s attorneys’ fees
- If the demand-judgment quotient is less than .2, the multiplier is zero (attorneys’ fees will not be awarded)
All the proposed changes to litigation procedure and attorneys’ fees described above are meant to reallocate costs away from consumers and insurers. A recent study found that of the $15 billion that went to litigated Property insurance claims in Florida since 2015, claimants (insureds) only received 8%, while 71% went to plaintiffs’ attorneys and 21% went to defense attorneys. Clearly, attorneys are the primary beneficiaries of the current order. Setting aside the more technical elements of SB 76, we strongly support its goal of shrinking the total cost of litigation and ensuring that a larger percentage of the total amount paid pursuant to these policies is paid directly to the insureds.
PROPOSED CHANGE TO CALCULATION OF ROOF REPLACEMENT AND REIMBURSEMENT COSTS
- Currently, insurers must offer Homeowners policies that provide roof replacement cost reimbursement. Insurers may also offer Homeowners insurance policies with roof surface reimbursement schedules (also referred to as “actual cash value” or “ACV”) approved by the Office of Insurance Regulation, but this type of coverage is optional. SB 76 proposes to remove the consumer’s option of replacement cost reimbursement for roofs that are at least 10 years old.
Some Floridians have faced challenges obtaining affordable Homeowners insurance on the private market because of the roof replacement cost reimbursement requirement. This has led to an unexpectedly high number of people turning to Citizens for coverage.
SB 76 amends the current rule requiring reimbursement cost coverage be offered to all insureds to provide instead for the use of a roof surface reimbursement schedule to limit coverage in a Homeowners insurance policy. The roof surface reimbursement included in SB 76 provides for full replacement coverage for any roof surface type less than 10 years old. For roofs 10 years old or older, the roof surface reimbursement schedule must provide for repair, replacement and installation based on the annual age of the roof surface type, subject to the following minimum reimbursement amounts (as amended/modified by the Office of Insurance Regulation):
- 70% for a metal roof type
- 40% for a concrete tile and clay tile roof type
- 40% for a wood shake and wood shingle roof type
- 25% for all other roof types
Unlike the previous sections that represent clear steps in the right direction, this section of SB 76 will have varying effects on Florida homeowners. Permitting insurers to offer only actual cash value policies for older roofs may lead to reduced premiums and allow carriers to offer policies to more people, many of whom are targets of opportunistic attorneys and roofing companies who prey on homeowners.
However, as currently written, this aspect of SB 76 will limit consumer choice because many insurers will choose to not offer any replacement cost policies for older roofs. This will also leave some Florida homeowners with older roofs with imperfect coverage. Therefore, we are optimistic that state lawmakers will address these issues as they debate the bill so that it can provide a win for homeowners and insurers.
Overall, SB 76 represents a step in the right direction at a time when action is clearly needed to stabilize the current market. We support the bill and are hopeful that lawmakers will pass the bill to combat the litigation issues that are causing insurance rates to rise across the state, leading carriers to restrict their underwriting guidelines and pushing more homeowners to seek coverage from Citizens.
Next steps *Updated March 15*
The Senate Banking and Insurance Committee passed the bill favorably Feb. 2, and the Senate Judiciary Committee passed the bill favorably March 9. At the time of publication, the bill is under reference review in the Senate Rules Committee. If it passes, the bill will be put to vote on the Senate Floor. A similar bill has been proposed to the House of Representatives.
For more on the effects of rising litigation and AOB abuse and what smart homeowners should do, read Why is the cost of my Homeowners insurance going up?.
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