Litigation from the abuse of assignment of benefits by third parties represented more than half of all Florida insurance litigation in 2017, and without a legislative fix those fueling the abuse will continue to get rich at the expense of insurance consumers, according to the Florida Justice Reform Institute (FJRI).
In a new report that underscores the need for AOB reform in the current Florida legislative session, FJRI states lawsuits against insurance companies that involve an AOB increased 58 percent between 2015 and 2017. FJRI said insurance lawsuits with an AOB rose from 82,263 in 2015 to 129,781 in 2017.
Contractors and attorneys are blamed for abuse of AOB’s, meant to be a policyholder benefit, by taking control of a homeowner’s policy, inflating water or roof damage claims, and then suing the insurance company when it disputes the bill.
The explosion of AOB litigation is not just isolated to the homeowners insurance space. The abuse of AOBs is also happening on the auto glass side. According to the Florida Department of Financial Services, in 2006, approximately 400 auto glass AOB lawsuits were filed against auto insurers. In 2016, nearly 20,000 lawsuits were filed.
The insurance industry claims Florida’s one-way attorney fee statute has fueled the abuse because it requires that insurers pay attorney fees if they are found to have underpaid a claim by any amount. The statute has created an incentive for an assignee to file suit against an insurer, the industry says.
FJRI, a nonprofit that advocates for judicial reform, agrees.
“Unquestionably, the cause of the AOB explosion is the no-risk proposition of attorney’s fees, enabled by Florida’s one-way attorney fee law and court cases that have extended it past its pro-policyholder intent,” FJRI said in its report.
FJRI noted that AOB litigation is unique in that it has developed in a very “patchwork way.” Almost all property insurance AOB litigation in 2016 occurred in the Tri-County region of South Florida – Miami-Dade, Broward and Palm Beach counties. On the auto glass side, the Tampa Bay area had an “outsized proportion” of AOB lawsuits, FJRI said.
FJRI said its research into the development of AOB litigation found there is no “meteorological or other explanation for why pipes are bursting in Miami or windshields are cracking disproportionately in Tampa Bay.”
However, the report says, attorneys and vendor alliances, as well as coaching and vendor recruitment by attorneys specializing in AOB litigation, has helped to fuel the abuse statewide. FJRI noted that about a dozen attorneys contribute to a quarter of all AOB litigation in the state. The result? Increased insurance rates for everyone, FJRI said.
“It matters because everyone pays more in insurance premiums to make a handful of lawyers and vendors very, very rich,” the report states.
The timing of when Florida’s AOB litigation began to increase also coincides “very closely” with Personal Injury Protection (PIP) reform passed by the Florida Legislature in 2012, FJRI noted in the AOB report.
The 2012 PIP reforms sought to clamp down on alleged abuse and fraud with auto insurance by imposing a cap of $10,000 for medical emergencies and a limit on non-emergency medical care to $2,500 for car accident victims. The reforms also excluded payments to chiropractors, acupuncturists and massage therapists, and required accident victims to report an auto-related injury and seek treatment within 14 days.
“Anecdotally, we know that many PIP lawyers took their business model and developed relationships with other vendors, such as water remediators and auto glass shops, then applied the PIP template – assignments that transfer the one-way attorney fee – to property and auto glass coverages,” the FJRI report states.
Lawmakers are currently debating several options to reform AOB, but the bill currently making headway in the Florida Senate, Senate Bill 1168, does not address the one-way attorney fee statute and is favored by the trial bar and water restoration contractors.
The Florida House has passed a bill the industry supports, House Bill 7015, but the Florida Senate has yet to act on it. The industry says it would be the most effective at reforming AOB because of provisions addressing Florida’s one-way attorney fee statute. Another bill addressing auto glass abuse, Senate Bill 396, would allow insurers to require inspections of windshield damage before an auto shop can do the repair or replacement. That bill was making progress through the Senate but hasn’t moved since Feb. 1.
FJRI said if the Florida Legislature passes a “strong AOB bill which addresses the heart of the problem, losses will stop inflating costs, which will put downward pressure on rates.” But it emphasized that outcome is dependent on what the final legislation looks like and how strong it is.
FJRI said reform helped curb PIP abuse and led to rate decreases on PIP rates – before PIP reform in 2012, more than 85 percent of rate filings had increases; after 72 percent resulted in decreases or no change. Reform, FJRI added, also worked to significantly lower both medical malpractice and workers’ compensation rates in 2003.
“You can’t predict the future accurately when a host of variables are introduced,” the FJRI report states. “What we do know is this: legal reform works.”
Read More: Florida Justice Reform Institute AOB Report