Just over a week into the 2019 legislative session, insurance industry-supported bills aimed at reforming Florida assignment of benefits (AOB) abuse are making progress in the state legislature.
Lawmakers in the Florida House of Representatives and Senate have each advanced legislation that Florida’s insurance regulator, industry and consumers advocates say would help stem the tide of abuse that is spreading statewide and leading to higher rates for consumers.
And both bills tackle the number one issue that AOB reform advocates say is fueling the abuse: Florida’s one-way attorney fee statute.
Pressure from the state’s insurance regulator and new governor may be helping to move things along in what is now the seventh year the issue has been before state lawmakers.
“AOB abuse has an adverse impact on our consumers and directly undermines the ability of Floridians to have reliable insurance products available at affordable prices. I will remain a vocal proponent of measures that stem AOB abuse and protects consumers from the abusive tactics exhibited by bad actors who exploit Florida’s unique attorney fee structure,” Florida Insurance Commissioner David Altmaier said after the passage of a bill by a Florida House committee last week.
Florida’s new governor Ron DeSantis has weighed in on the issue at his first state of the state on March 5, saying, “There are areas where Florida can do better. I hope the Legislature passes legislation to reform the issue of AOB, which has become a racket.”
Telling reporters after his speech, as reported by the Sun Sentinel, DeSantis further commented on the need for AOB reform.
“I would like to see the abuses pared back,” the Sun Sentinel reported him as saying. “I think it’s going to drive insurance rates up. I think the fact that we’ve had bad storms lately, that is going to cause insurance rates to go up. This, I think, just fuels that, and I want to help the insurance market.”
The AOB problem in Florida stems from unlicensed water remediation and roofing contractors who have homeowners sign over their insurance policy rights in exchange for repairs to their homes. The contractors, typically working with an attorney, file inflated or fake claims, and then pursue lawsuits against insurers when those claims are disputed or denied.
Florida’s one-way attorney fee statute, which is blamed for driving AOB abuse, leaves insurers footing the bill for the inflated claims and the attorney fees if the insurer is found to have underpaid the claim by any amount.
The consensus among all stakeholders is that any reform must address the one-way attorney fee statute.
“The current one-way attorney fee statute incentivizes abuse and excessive litigation. OIR recommends narrowing the current one-way attorney fees statute relating to litigation involving an AOB agreement to disincentivize AOB abuse, while maintaining consumer protections,” Commissioner Altmaier told Insurance Journal.
The current remedy in the Senate supported by the industry and Altmaier was introduced by Florida Sen. Doug Broxson, an insurance agent who chairs the Senate Banking & Insurance Committee, before the 2019 session began on March 4.
Senate Bill 122 would continue to allow policyholders and beneficiaries to recover attorney fees under Florida’s one-way attorney fee statute but would have prohibited assignees from obtaining attorney fees.
SB122 was tabled at the Feb. 11 committee meeting after several committee members expressed concern over the bill. Sen. Jeff Brandes, a committee member who supports the legislation, successfully moved to postpone the bill with the hope that lawmakers could come to a consensus on how to move forward.
“There is no perfect bill to resolve [AOB] – this is a great attempt. We should support this bill. We should continue to hone and refine and work on this bill,” he said.
Which was exactly what lawmakers did. An amendment was added at the start of the legislative session that includes more consumer protections and a prevailing party fee structure as it relates to attorney fees. A few of the consumer protection additions in the amendment include:
- Limits AOBs between service providers and consumers under urgent or emergency circumstances by stating that if a consumer acts under urgent or emergency circumstances to protect property from damage and enters into an agreement with a service provider to stabilize, protect, repair, or improve such property, the service provider may only contract for, receive, or acquire in any manner from the consumer at such time the right to payment for the work necessary to stabilize, protect, and prevent additional damage to the property.
- Limits a post-loss AOB for homeowners in an emergency circumstance to $3,000 or 1 percent of the Coverage A limit
- Limits an AOB to $500 for auto policies for windshield damage
- Requires consumers to provide a copy of the AOB to the insurer within 3 business days after the AOB is executed.
- Allows the consumer to rescind the AOB within 14 days of execution, or at least 30 days after the execution if the service provider has not begun substantial work on the property.
The amendment would amend the Florida attorney fee statute to create a prevailing party fee shifting statue that gives the prevailing party – either the insurer or the service provider – in AOB cases the right to collect attorney fees and costs. The amendment defines prevailing party as the party which prevails on the significant issues of the case. However, the court may determine that there is no prevailing party in a case.
The amendment says that in determining if there is a prevailing party, the court must consider: 1. The issues litigated; 2. The amount of the claims by the service provider versus the amount recovered; 3. The existence of setoffs and counterclaims, if any; and 4. The amounts offered by either party to resolve the issues prior to or during litigation.
The prevailing party change to the attorney fee statute is designed to take away the incentive from contractors and law firms to sue the insurer, experts say.
Attorney Michael Packer, a shareholder with Marshall Dennehey Warner Coleman & Goggin in Florida and who has defended insurers in AOB cases, says SB 122 would be a “pretty sizable change in the way these cases are litigated.”
“It would definitely have an effect on cases getting filed and the willingness to negotiate,” he said. “Everything is stacked against the insurance company right now – this would level the playing field somewhat or at least create a situation where these service providers have something to lose if they are not reasonable.”
But Packer said the ultimate benefit of SB 122 is the consumer protections it provides.
“Ultimately what it means is we should start to get these invoices back to reasonable amounts that companies would charge if there was no insurance involved,” he said.
Altmaier released a statement after SB 122 passed the committee praising Sen. Broxson for his commitment to “bringing relief to Floridians who continue suffering from AOB abuse and the exploitation of Florida’s unique attorney fee structure.” He said the advancement of SB 122 is a win for consumers across the state.
“Addressing the AOB crisis will remain a top priority in the coming weeks and months. We must protect Floridians from the bad actors who seek to maximize profits at the expense of every policyholder in our state,” he said.
SB122 is on the March 18 agenda of the Florida Senate Judicial Committee.
Florida House Bill
The option that will be considered by the Florida House was filed by the House Civil Justice Subcommittee on March 6 and is now House Bill 7065.
The House bill also includes consumer protection provisions such as:
- Providing requirements for homeowners and auto policy AOBs that includes allowing consumers to rescind an AOB within seven business days of execution for homeowners and two calendar days for auto glass.
- Requires the service provider to give the insurer a copy of the AOB within three business days after the AOB has been executed or work has begun, whichever is earlier for homeowners and within one calendar day for auto-glass
- Requires the AOB include a written, itemized, per-unit cost estimate of services and, if the estimate includes water restoration services, provide proof that the assignee is certified by an entity that requires services to be performed according to a nationally-recognized standard.
The bill addresses attorney fees by requiring the service provider to give an insurer and the consumer prior written notice of at least 10 business days before filing suit on a claim.
It also states:
- The notice to sue may not be served before the insurer has made a determination of coverage according to the timeframes and requirements of current law. The notice must specify the damages in dispute, the amount claimed, and the pre-suit settlement demand, and must include an itemized, detailed written invoice or estimate of the work performed or to be performed.
- If the work includes water remediation services, the invoice must include proof the service provider is certified by an entity that requires repairs to be performed according to a standard approved by the American National Standards Institute.
- The insurer must respond to the notice in writing within the 10- day timeframe by making a settlement offer or requiring appraisal or other alternative dispute resolution.
- If the parties fail to settle and subsequent litigation results in a judgment, the PCB provides the exclusive means by which either party may recover attorney fees.
- The bill allows an award of attorney fees based on the difference between the amount recovered and the amount offered during settlement negotiations. To accomplish this, the bill defines the difference between the insurer’s pre- suit offer and the assignee’s pre-suit demand as “the disputed amount.”
Fees are then awarded based on a percentage of the difference between the judgment obtained and the settlement offer.
The House bill would allow insurance companies to offer a residential or commercial property insurance policy or comprehensive or combined additional coverage motor vehicle insurance policy restricting, in whole or in part, the assignment of post-loss benefits under certain circumstances.
An additional bill in the Senate that passed the Banking & Insurance Committee this week was SB 754, which just applies to windshield glass AOB abuse. If passed, the bill would prohibit motor vehicle repair shops and their employees from offering anything of value to a customer in exchange for making an insurance claim for auto glass replacement or repair. The bill does not address attorney fees, however.
Insurer trade group APCIA said it supports this bill, as the number of AOB auto glass lawsuits has skyrocketed from 400 in 2006 to 20,000 in 2016.
“Auto glass repair schemes are becoming another example of AOB abuse in Florida and this bill helps address this growing problem,” said Regional Manager of State Government Affairs Logan McFaddin.
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