A bill backed by the insurance industry to curb the abuse of Florida’s one-way attorney fee statute in assignment of benefit claims has stalled as lawmakers opted to instead advance what the insurance industry and the state’s regulator feel is a less effective measure.
The legislative maneuver sparked criticism by the Wall Street Journal of the Senate chair of the key committee, who in turn has accused the industry of mounting a “smear” campaign against her.
The industry setback came on Monday when the Senate Banking and Insurance Committee, chaired by Senate President Pro Tempore Anitere Flores (R-Miami, Monroe), left Senate Bill 1038 off its agenda. This bill, drafted by the Florida Office of Insurance Regulation with support from the state-run insurer Citizens Property Insurance Corp. and other industry groups, seeks to keep AOB consumer protections in place, but take away the incentive – the one-way attorney fee – that the industry claims is driving abuse by unregulated water mitigation, remediation and roofing contractors typically working with attorney groups.
The insurance industry had tempered its expectations of getting the legislation passed because of lobbying by trial attorneys and unlicensed contractors, who the industry says are inflating water damage claims and filing frivolous lawsuits. Under Florida’s current one-way attorney fee statute, 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.
“If you look at the trends of water claims over the last five years – it’s alarming,” Florida Insurance Commissioner David Altmaier told Insurance Journal in February. “Absent any kind of reforms to address those trends, we could be seeing rate increases of 10 percent a year just to keep up.”
Altmaier, who worked with the industry in drafting SB 1038 and has been outspoken against this abuse, said the one-way attorney fee statue provides an “extraordinary incentive for people to get into a dispute with the insurance company and inflate the claim so the company has to pay attorney fees.”
Altmaier told Insurance Journal in February that the goal of the OIR bill is not to remove the one-way attorney fee statute, which he said is a very important protection for insureds.
“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.”
OIR’s bill stipulated that attorney fees would not be awarded under the current statute “in favor of any person or entity seeking relief against the insurer pursuant to an assignment agreement.”
But the Senate Banking and Insurance Committee opted to pass on hearing the legislation at its committee meeting on April 3.
Instead, the committee pushed forward another bill targeting AOB abuse – SB 1218 – introduced by one of its committee members, Sen. Gary Farmer (D- Ft. Lauderdale). Farmer’s bill requires water damage remediation specialists to be contracted by the Department of Business and Professional Regulation.
Farmer’s bill also prevents insurers from prohibiting assignment agreements, but mandates that the policyholder and assignee deliver the agreement to the insurer (with conditions). It also allows policyholders to rescind an AOB under certain circumstances.
One caveat of the bill that the industry is not likely to support is a requirement that insurers cannot pass on legal costs to consumers if the company loses in court; the money would instead have to come out of the insurance company’s profits. An amendment to the bill would also keep insurers from requiring insureds use a particular vendor to make repairs or recommend vendors, an option the industry has explored to weed out “bad actors.”
Speaking before the committee on Monday, Altmaier opposed Farmer’s bill, claiming the ideas in it could be effective only if they are coupled with provisions addressing the one-way attorney fee statute.
“We believe that the major incentive to the abuse that we have seen over the past few years is the one-way attorney fee statute,” Altmaier told the committee. “We are concerned that any reform that doesn’t meaningfully address the one-way attorney fee statute will fall very short of being effective…without that fix in this bill, we are opposed to the legislation.”
In a scathing editorial in the Wall Street Journal, Flores was accused of keeping “a trial bar payday going for another year,” and for refusing to allow SB 1038 to be added to the agenda.
“That’s a remarkable political choice given that Sen. Flores’s South Florida constituents are paying increasingly high premiums thanks to AOB abuse,” the WSJ editorial stated.
WSJ added that Farmer, the sponsor of the committee-approved legislation (SB 1218), used to run Florida’s trial-bar lobby.
“Mr. Farmer’s bills would keep the attorney fee game going, among other bad ideas,” WSJ wrote. “Floridians had better hope a Category 5 hurricane doesn’t hit the state this year and hobble Citizens even more than their politicians have.”
Flores responded to Insurance Journal‘s request for comment with a statement saying the insurance industry is “smearing someone who has always fought for consumers because she won’t just do what they say.” Flores added that the industry is “pushing hard for a rival bill… [that] they themselves helped craft.”
Flores said that the industry-backed bill (SB 1038) “does nothing to guarantee property insurance rates will decrease, and it hinders consumers’ ability to protect themselves when insurance companies take advantage of them.”
“The Senate recognizes that there is abuse in the insurance system being driven by fraud, and I promised my constituents I would advocate for meaningful legislation that would protect their money and hold bad actors accountable,” Flores said in her statement. “If [SB 1038] would be amended to ensure that insurance rates will go down for some time as a result of passing that bill, this committee will be happy to hear it.”
Supporters of SB 1038 say they anticipated that getting the bill passed would be difficult despite the support of OIR and insurers.
“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,” said Barry Gilway, CEO and executive director of Citizens, in February.
Still, the insurance industry is urging lawmakers to reform the one-way attorney fee statute.
“Without addressing one-way attorney fees, lawsuits will continue to go up. At the end of the day, that costs homeowners more and makes the cost of homeownership more expensive,” said Edie Ousley, on behalf of the Consumer Protection Coalition.
“We’re still working to address attorney fees. We believe the data shows that is the real cost driver,” said Logan McFaddin of the Property Casualty Insurers Association of America (PCI). “It is clear that skyrocketing litigation costs are a major problem, and we encourage the Florida Legislature to support a bill that puts an end to AOB abuse.”
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- Florida’s Citizens Says AOB Abuse to Blame for Statewide Rate
- First Florida Bill Addressing AOB Introduced for 2017 Session
- Report: Florida Water Loss Claims up 46 Percent in 5-Year Period
- Citizens Posts Net Loss of $27M for 2016; Says Water Losses, AOB to Blame
- Citizens Seeks Florida Agents’ Help Fighting Water Claims Abuse
- Heat Is on Florida Lawmakers to Fix Assignment of Benefits Crisis