Policies’ Arbitration, AOB Endorsements are Unconstitutional, Florida Lawsuit Claims

By | May 19, 2022

Recent moves by two Florida insurers to limit litigation and restoration expenses – and regulators’ approval of those policy endorsements – have met with a constitutional challenge from contractors. One Florida law professor said the suit is likely to see some success in court, but only on a technicality.

And the broader tenets of the complaint could soon be rendered moot, depending on what steps the state Legislature takes when it meets next week in a special session on the property insurance crisis.

The lawsuit filed in Tallahassee this week charges that Florida Insurance Commissioner David Altmaier exceeded his authority when his Office of Insurance Regulation approved an arbitration endorsement this year for American Integrity Insurance Co. and a restriction on assignment-of-benefits agreements filed by Heritage Property & Casualty Insurance Co.

The policy changes strip policyholders of their rights to seek remedy in court and deprives contractors of the benefits of AOBs, which are ensured by statue and by court decisions, the suit argues.


“Commissioner Altmaier has been interviewed on occasion and he stated that the Office of Insurance Regulation can assist where the Legislature fails – a rather mystifying statement that disregards the traditional notion of separation of powers in our system of state government,” reads the complaint.

The suit was filed by Boca Raton attorney Joshua Alper and the Washington-based Center for Constitutional Litigation, a law firm that assists trial lawyers in appeals and constitutional challenges. The plaintiffs are Restoration Association of Florida, which represents contractors who specialize in water damage remediation, and Air Quality Assessors Inc., an Orlando mold assessment firm.

American Integrity created quite a stir when it was approved for the binding arbitration provision for homeowners policies in February. The endorsement offers homeowners discounts on premiums if they agree to settle claims disputes in mediation. If that doesn’t work, the disputes would go to binding arbitration.

Now, other insurers are considering similar endorsements as a way to avoid the high cost of litigation, which carriers have repeatedly said is out of control in Florida. Heritage Insurance, in fact, in late April filed for an even tougher endorsement, one that requires arbitration for most claims disputes and would not be optional.

That endorsement has not been approved by OIR, and is not mentioned in the Restoration Associates lawsuit. But Alper said that if the Heritage arbitration section is approved, his team will consider including it in the suit.

Another Heritage policy change was approved by OIR in March and is the subject of the complaint. The professional services exclusion states flatly that Heritage will not reimburse contractors, engineers, inspections or other professional services ordered by the policyholder. That presumably means that the carrier will only reimburse the insured.

Another approved exclusion section notes that the policy won’t cover services unless Heritage approves the contractor ahead of time. Both clauses violate Florida law, the complaint charges.

“AOB rights cannot generally be divested by an insurer through policy language,” the lawsuit reads, citing “an unbroken string of Florida lawsuits over the past century holding that policyholders have the right to assign such claims without insurer consent.”

The American Integrity endorsement, as approved by Florida regulators, will also confuse policyholders, the plaintiffs argue. It states in only one section that state law allows homeowners to sue in court over unfair claims practices.

But attorneys on both sides of the insurance divide, along with a Florida law professor, said the suit stands little chance of succeeding on the constitutional issues. Previous court decisions have repeatedly held that insurance policies are contracts and insureds don’t have much say on the terms, explained West Palm Beach attorney Gina Clausen Lozier, who has represented policyholders.

Other court opinions have upheld arbitration requirements in insurance policies, said Ashlyn Capote, a New York insurance attorney. Last December, for example, the U.S. District Court for the Middle District of Florida, in Cypress Cove at Suntree Condominium Assn. v. Certain Underwriters at Lloyd’s London, dismissed a suit by the policyholder, upholding arbitration under the circumstances of the case.

“A state-sanctioned arbitration requirement is different from you and me deciding to go to arbitration,” Alper said.

In the Restoration Association suit, only on one argument is likely to succeed, said Robert Jarvis, who teaches constitutional law and contract law at Nova Southeastern University in Fort Lauderdale. The complaint points out that the two insurers’ policy filings were not notarized, which would have certified that they complied with the Florida Insurance Code.

“Assuming this fact is true, the case can (and should) be decided on that ground alone,” Jarvis said in an email Wednesday.

Courts generally avoid deciding constitutional issues until they have to, and Leon County Circuit Court Judge Angela Dempsey will probably do that here since she can decide the case on the notarization argument, Jarvis said. But at some point, the constitutional question may come up again, in Leon County or another court, he said.

On that angle, the case is likely to be dismissed. The arbitration endorsement did not violate state law, so the insurance commissioner’s approval of it did not violate the state constitution’s separation, Jarvis said.

“The Florida Supreme Court has made it clear that consumers can waive their economic rights so long as they do so knowingly,” the professor said.

The high court, in a case involving attorneys fees in medical malpractice claims, noted that economic rights can almost always be waived. The right to remain silent, under the Fifth Amendment to the U.S. Constitution, for example, is often waived.

“Given this language, I tell my students when I teach Article 1, Section 26 (of the Florida Constitution) that one would have to look very hard to find an economic right that cannot be bargained away,” Jarvis explained. “A person could not agree to become a slave, because slavery is against Florida’s public policy, but that’s how extreme things would have to be for a public policy argument to succeed. Clearly, choosing to pay a lower premium for reduced insurance coverage is not extreme enough—not even close.”

On the question of confusion to the policyholder, the law professor suggested that a judge may find that the policy language could be clearer, but so could lots of wording in the English language. A plaintiff could still argue that they did not fully understand the arbitration clause, but American Integrity may be betting that few consumers will be able to show that didn’t know what they were signing.

Of course, the Legislature at its special session next week could render the lawsuit moot by approving statutory changes that allow more arbitration requirements in insurance policies. Sources have said that is one key issue that Senate lawmakers and Gov. Ron DeSantis are considering.

American Integrity and Heritage may have strong answers to the the lawsuit complaint, Laura Pearce of the Florida Association of Insurance Agents wrote in a blog Thursday.

“However, I also can’t help but wonder if this lawsuit might prompt the Legislature, during the special session, to further consider the issues raised in the lawsuit and to craft legislation to clarify that these policy changes are options that should be provided to consumers to help reduce property insurance premiums,” she wrote.

Topics Lawsuits Florida Claims

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