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 may be, there’s a man-made catastrophe that has contributed considerably to destabilizing the market to regarding ranges: authorized system abuse. In apply, some individuals are misusing instruments of the justice system to control outcomes and procure windfalls. Insurance coverage carriers have paid a heavy value lately because of the elevated abuse of one-way legal professional charges, unhealthy religion claims, and different unsustainable litigation tendencies.
Exploitation of one-way legal professional charges and unhealthy religion regulation has been particularly prevalent. Till not too long ago, if a policyholder or third celebration sued an insurer and obtained any financial award, they have been entitled to get well all legal professional 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 task of advantages (AOB) agreements, which created a chance for contractors to inflate prices. In consequence, a modest householders insurance coverage declare might result in a number of lawsuits by completely different assignees, every asserting a separate declare for legal professional 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 legal professional charges alone might exceed the declare quantity. On prime of that, courts have had broad discretion to use price multipliers and might award 1.5-3 instances the affordable legal professional price.
Instances involving allegations of unhealthy religion additional compound an insurer’s publicity as a result of these circumstances may be pricey to defend and contain intrusive discovery, amorphous damages, and unpredictable juries. Unhealthy religion circumstances aren’t ripe (i.e., able to probably warrant judicial intervention) till there was a last dedication relating to protection and the harm quantity. Subsequently, insurers repeatedly 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—might lay the procedural groundwork for unhealthy religion actions. In different phrases, after resolving a declare by appraisal, insurers might 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 seems to be even worse while you quantify it. In keeping with the Florida Workplace of Insurance coverage Regulation (OIR), as of 2020, regardless of Florida solely accounting for 9% of all householders 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 residence 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, unhealthy religion claims, and extreme charges. For instance, the brand new legal guidelines remove one-way legal professional 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 aren’t all “one-sided.” Just lately handed laws additionally ensures transparency and effectivity within the claims course of and encourages a extra environment friendly and less expensive various to litigation.
Whereas it’s too quickly to know precisely how latest 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 larger client entry to reasonably priced protection.
It might take time for these reforms to have a measurable impression 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 course.