A bill aimed at decreasing insurance claims abuse in Florida has made it through the Florida House, and the industry’s hope for assignment of benefits reform now officially rests with the state Senate.
The Florida House of Representatives advanced House Bill 1421, sponsored by Rep. James Grant (R-Tampa) on Wednesday after approving the bill 91-26.
The legislation aims to curb assignment of benefits (AOB) abuse, largely with water loss claims, that the industry says is driving up litigation and property insurance rates. Key features of the bill include allowing a policyholder to rescind an assignment agreement for any reason within seven days of signing; requiring an assignee to provide a copy of the assignment agreement to the insurer within three business days after the assignment agreement is executed or the date of repair work begins; and requiring an assignee to notify the policyholder and the insurer that litigation against the insurer will be filed.
The bill also requires the Florida Office of Insurance Regulation to have insurers report data on trends in AOBs and related litigation.
But the most important part of the bill, according to the industry and consumer advocates, are the provisions addressing Florida’s “one-way attorney fee” system. Florida’s one-way attorney fee statute, designed to be a policyholder protection for those suing an insurance company, has been the main source of abuse, the industry says.
They claim the statute has been exploited by trial lawyers and vendors that obtain an AOB from a policyholder and litigate cases for substantial pay-outs because attorney fees will be paid by the insurer if the claim is found to have been underpaid by any amount.
The bill would chip away at incentives for third parties to sue insurance companies by awarding fees under a formula based on the judgement obtained by the assignee and the pre-suit settlement offer. Under this formula, attorney fees could also be awarded to the insurer, or possibly no one, depending on the amount of the judgment.
At a hearing for the bill on April 19, Rep. Grant called the provision a “meaningful two-way attorney fee provision.”
“We tried to ensure that there is some meaningful motivation for both sides to negotiate in good faith, come to a reasonable number, and mitigate some of the games that can happen on both sides of these cases,” he told the Florida House Commerce Committee.
Florida Insurance Commissioner David Altmaier said addressing the one-way attorney fee statute was critical to any AOB reform and said he doesn’t support a Senate AOB reform bill that doesn’t include an attorney fee fix.
“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 a Senate committee in early April. “We are concerned that any reform that doesn’t meaningfully address the one-way attorney fee statute will fall very short of being effective.”
Commissioner Altmaier has been vocal in the need for reforms, making it one of his top legislative priorities for the year. Altmaier said his office approved 73 percent of the rate increases filed by insurers writing property insurance in the state this year, and that rates will continue to increase for the foreseeable future without a legislative fix.
Florida’s insurer of last resort, Citizens, has seen a drastic increase in AOB litigation on water damage claims over the last five years, particularly in South Florida. This year it raised rates by 6.4 percent because of AOB abuse and saw a $27 million net loss, its first loss since 2005. The rest of the Florida insurance industry is also reporting an increase in AOBs and litigation and has stopped writing certain zip codes in addition to raising rates.
On Wednesday, Altmaier praised the passage of the Florida House bill saying, “This legislation makes significant progress in protecting Florida consumers from homeowners insurance rate increases fueled by rising litigation costs associated with an [AOB].”
And while the House legislation was not the preferred bill by the industry, industry groups are now rallying behind it over a Senate version that has been advancing, mainly because of the attorney fee provisions. Senate Bill 1218, introduced by Sen. Gary Farmer, leaves out any fix for attorney fees.
Commissioner Altmaier told the Senate Banking & Insurance Committee April 3 that “without that fix in this bill, we are opposed to the legislation.”
The industry is in full agreement, but is up against strong opposition from the trial bar on any legislation that includes attorney fee provisions, ensuring the passage of the House’s AOB bill will be a hard, and possibly fruitless, fight.
“The House’s action is a big step toward ending costly AOB abuse and protecting Florida’s homeowners and businesses,” said Edie Ousley, vice president of Public Affairs for the Florida Chamber of Commerce, which is spearheading the Consumer Protection Coalition. “With less than two weeks left in the legislative session, we urge the Senate to recognize the impact that AOB abuse is having on consumers’ wallets and approve the House bill before another year passes without protections for Florida families.”
R Street, a nonprofit, nonpartisan public policy research organization, also encouraged the Florida Senate to act and spoke in favor of the House bill.
“This is a carefully crafted, commonsense and measured bill that both protects consumers and removes incentives for the unnecessary litigation that is driving rate increases across the state,” said Christian R. Cámara, R Street’s Southeast region director. “Virtually everyone familiar with this issue, including the insurance industry, consumer groups, realtors, the state’s insurance consumer advocate, business groups, the Office of Insurance Regulation and even the Wall Street Journal’s editorial board, believe the state’s current attorney fee provisions are largely to blame for this crisis.”
The industry has been exceptionally active in lobbying the Florida Legislature for AOB reform this year after failed attempts over the last four years. Whether the unified front from the affected stakeholders will be the difference maker this time around remains to be seen.
“Skyrocketing litigation costs are a major problem and if we go another legislative session without a solution this type of abuse will only get worse and insurance costs could continue to rise,” said Logan McFaddin, regional manager for the Property Casualty Insurers Association of America (PCI). “We have an opportunity to enact meaningful reform to keep home ownership affordable and attainable for many Floridians.”
If nothing happens before session ends on May 5, many expect the Florida market will face a serious property insurance affordability and availability crisis.
“Time is running out for the Senate to take up this very important issue,” R Street’s Cámara said. “Should they fail to act, consumers will have someone to blame for the rate increases to come.”
- Florida Senator Alleges ‘Smear Campaign’ After Industry-Backed AOB Bill Stalls
- Top Florida Stories of 2016: The AOB ‘Insurance Crisis’
- Florida’s AOB Abuse by the Numbers: ‘Alarming Trend’ Reaches Crisis Point
- Florida’s Citizens to Lawmakers: AOB Reform Must be Passed in 2017
- Florida Fights Back Against Assignment of Benefits Abuse
- 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
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