By Matthew Scarfone, Esq., Triple-I weblog contributor, and shareholder at Colodny Fass
Florida presents property insurers with a singular set of things that have an effect on the supply 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 observe, some persons are misusing instruments of the justice system to govern outcomes and procure windfalls. Insurance coverage carriers have paid a heavy worth 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 regulation has been particularly prevalent. Till not too long ago, if a policyholder or third get together sued an insurer and obtained any financial award, they have been entitled to get well all legal professional charges incurred within the litigation. This observe might have incentivized individuals 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 possibility for contractors to inflate prices. Because of this, 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 charge multipliers and might award 1.5-3 instances the affordable legal professional charge.
Circumstances involving allegations of unhealthy religion additional compound an insurer’s publicity as a result of these circumstances may be expensive to defend and contain intrusive discovery, amorphous damages, and unpredictable juries. Unhealthy religion circumstances usually are not ripe (i.e., able to probably warrant judicial intervention) till there was a ultimate dedication relating to protection and the injury quantity. Subsequently, insurers repeatedly 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—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 even worse whenever you quantify it. In response to 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 home-owner insurance coverage litigation nationwide. Moreover, over the past 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 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 eradicate 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 below 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 less expensive 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 allows better shopper entry to reasonably priced protection.
It might take time for these reforms to have a measurable influence 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 route.