Florida’s insurance industry will apply significant pressure on lawmakers to pass assignments of benefit (AOB) reform in the upcoming legislative session as consumers face rate increases and a looming coverage availability crisis due to serious and costly abuse of the policyholder benefit.
While the industry seems to finally have reached a consensus on what is fueling the widespread AOB abuse and how to fix it, the question of whether the Florida Legislature will agree to act on the industry’s recommendations remains to be seen.
The Florida Office of Insurance Regulation (OIR) and Citizens Property Insurance Corp., as well as other stakeholders, banded together with Florida lawmakers to introduce legislation for the 2017 session, which begins on March 7.
The goal of a bill introduced Feb. 17 is to keep the assignment of benefits consumer protection in place, but take away the incentive that the industry claims is driving the abuse by assignees, who have included, unregulated water mitigation, remediation, and roofing contractors working with attorney groups.
The unanimous feeling is that Florida’s one-way attorney fee statute is the main driver of the problem. Under Florida’s current law, policyholders suing their insurer over a claim dispute can recover their attorney’s fees if the insurer is shown to have underpaid the claim, by any amount.
The industry says third party contractors and attorneys have been abusing the policyholder benefit, particularly for water losses, to inflate claims and fees.
“Is there an incentive in the market currently that entices people to abuse the system? We think that the answer is yes,” Florida Insurance Commissioner David Altmaier said in an interview with Insurance Journal. “The logical step, in our opinion, would be to take that incentive out of the marketplace.”
However, Altmaier emphasized that doesn’t mean eliminating the one-way attorney fee statute altogether.
“That is a very good statute for an insured – we think it should stay in place FOR insureds,” Altmaier said. “We think that it was not intended to apply to anybody other than insureds. So, we think that a good first step is to look at whether we can clarify the intent of that statute and make sure that it remains intact for insureds, but isn’t able to be abused by folks that are not the insured.”
A bill drafted by OIR with input from industry stakeholders, such as Citizens, would do just that by defining the term “assignment agreement” and “prohibiting certain awards of attorney fees to certain persons or entities in suits based on claims arising under property insurance policies.”
Introduced by State Senators Dorothy Hukill and Kathleen Passidomo on Feb. 17, Senate Bill 1038 also seeks to instill specified conditions for assignment agreements to be valid. The bill stipulates that an assignment agreement will not be valid unless it meets the following conditions:
Agreement is in writing and is executed by all named insureds
Allows insureds to rescind the assignment agreement within seven business days without penalty
Requires the assignee to provide a copy of the assigned agreement to the insured no later than three business days after the agreement is executed
And includes a written, itemized, per-unit cost estimate of the work to be performed by the assignee.
Other stipulations of the bill include: prohibiting certain provisions in an assignment agreement; specifying requirements for an assignee or transferee; and requiring an assignee to meet certain requirements as a condition precedent to filing suit under a policy.
If passed, the bill would become effective July 1, 2017.
Industry groups praised the bill presented by OIR, saying its true purpose is to protect consumers.
“The bill addresses what we believe is the true cost driver in the homeowners’ marketplace: the use of the ‘one way’ attorney fee law by third parties who have no interest in the underlying insurance claim except to profit from it,” said Michael Carlson, president of the Personal Insurance Federation of Florida. “The bill would prohibit third parties from using this attorney fee law while protecting the rights of homeowners to sue their own insurers and seek attorney fees under the law. The bill includes several other important pro-consumer provisions designed to facilitate more transparent and faster handling of claims which have been assigned.”
Altmaier said increasing frequency and severity of water claims underscores the importance of legislation getting passed this year.
“If you look at the trends of water claims over the last five years – it’s alarming,” said Altmaier. “Absent any kind of reforms to address those trends, we could be seeing rate increases of 10 percent a year.”
Legislators have failed to address the abuse for the last several years. Citizens CEO and Executive Director Barry Gilway said the issue in previous years was due in part to the industry being out-lobbied, but also the industry wasn’t working together to fix the abuse. He says that is no longer the case.
“What I expect from the industry is exactly what is happening right now,” Gilway said. “It’s a problem for everybody so the industry is getting behind [fixing] it.”
Altmaier said if another year goes by without reform, Florida consumers will face serious insurance affordability issues.
“At the end of the day, that is the bottom line – we want to make sure insurance products remain affordable for insurance consumers,” he said.
OIR’s support has been crucial to getting the industry on the same page. Altmaier said OIR and the industry have worked closely to make sure that everyone agrees on the fix from an insurance standpoint.
The goal now is to tell that story to the Florida Legislature.
“We’re working very hard to make sure that we tell a very good and very data driven story. We want to rely as little as possible on anecdotal evidence of bad actors and things of that nature and just present a very fact based, data-driven story of what we believe is taking place in the marketplace,” Altmaier said. “Couple that with a solution that is very surgical in nature…and makes sure that it keeps intact the ability for insureds to assign their benefits, for them to use third party contractors…That’s the end game for us.”
Still, even with OIR’s backing, it won’t be easy.
“It’s going to be a hard battle,” Gilway said. “Let’s face it, the trial bar is extremely powerful and there’s absolutely no question they are going to fight this hard. They are going to fight anything that in any way, shape or form impacts their ability to take on vendors as clients and eliminates any possibility for them to get fees.”
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