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 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?
But 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 follow, some individuals are misusing instruments of the justice system to govern outcomes and procure windfalls. Insurance 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 traits.
Exploitation of one-way legal professional charges and unhealthy religion legislation has been particularly prevalent. Until just lately, if a policyholder or third social gathering sued an insurer and obtained any financial award, they had been entitled to recuperate all legal professional charges incurred within the litigation. This follow might have incentivized individuals to dispute insurance coverage claims, no matter whether or not they had been justified.
The downside was additional exacerbated by the abuse of project of advantages (AOB) agreements, which created a chance for contractors to inflate prices. As a consequence, a modest householders insurance coverage declare may result in a number of lawsuits by totally 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 may exceed the declare quantity. On high of that, courts have had broad discretion to use charge multipliers and might award 1.5-3 instances the cheap legal professional charge.
Cases 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. Bad religion instances will not be ripe (i.e., able to probably warrant judicial intervention) till there was a last willpower relating to protection and the harm quantity. Therefore, insurers commonly face the prospect of defending a foul 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 downside appears even worse while you quantify it. According to the Florida Office of Insurance 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. Additionally, during the last decade, solely 8% of the $51 billion paid out by insurers went to claimants, but plaintiffs’ attorneys took house 71%. Meanwhile, eleven Florida property insurers fell into liquidation since 2017—5 of these occurring final 12 months 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 foul religion lawsuit, and prohibits distributors from taking AOBs beneath new insurance policies. Despite criticism from the plaintiffs’ bar, these reforms will not be all “one-sided.” Recently handed laws additionally ensures transparency and effectivity within the claims course of and encourages a extra environment friendly and less expensive different to litigation.
While 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 client entry to reasonably priced protection.
It might take time for these reforms to have a measurable influence on Florida’s property insurance coverage market. Still, insurers and policyholders alike ought to be optimistic that the market is headed in a extra sustainable course.