By Matthew Scarfone, Esq., Triple-I weblog contributor, and shareholder at Colodny Fass 

Florida presents property insurers with a singular set of things that have an effect on the provision and affordability of insurance coverage protection. The state boasts the third-largest inhabitants in America whereas concurrently enduring a higher-than-average quantity of pure disasters. It’s truthful to say that working a residential insurance coverage firm within the Sunshine State isn’t for the faint of coronary heart.

What’s behind the mounting disaster within the Florida authorized system?

However as damaging because the hurricanes may be, there’s a man-made catastrophe that has contributed considerably to destabilizing the market to regarding ranges: authorized system abuse. In apply, some persons are misusing instruments of the justice system to control outcomes and acquire windfalls. Insurance coverage carriers have paid a heavy worth in recent times as a result of elevated abuse of one-way legal professional charges, unhealthy religion claims, and different unsustainable litigation traits. 

Exploitation of one-way legal professional charges and unhealthy religion legislation has been particularly prevalent. Till lately, if a policyholder or third occasion sued an insurer and obtained any financial award, they have been entitled to get better all legal professional charges incurred within the litigation. This apply could have incentivized folks to dispute insurance coverage claims, no matter whether or not they have been justified.  

The issue was additional exacerbated by the abuse of project of advantages (AOB) agreements, which created a possibility for contractors to inflate prices. Consequently, a modest householders insurance coverage declare may result in a number of lawsuits by totally different assignees, every asserting a separate declare for legal professional charges. Manipulating this loophole inspired extreme claims and unreasonable calls for, forcing insurers to decide on between paying the inflated invoice or risking a prolonged trial the place the legal professional charges alone may exceed the declare quantity. On high of that, courts have had broad discretion to use payment multipliers and might award 1.5-3 occasions the affordable legal professional payment. 

Instances involving allegations of unhealthy religion additional compound an insurer’s publicity as a result of these circumstances may be pricey to defend and contain intrusive discovery, amorphous damages, and unpredictable juries. Unhealthy religion circumstances usually are not ripe (i.e., able to doubtlessly warrant judicial intervention) till there was a remaining willpower relating to protection and the injury quantity. Due to this fact, insurers repeatedly face the prospect of defending a foul religion case even after resolving the underlying dispute.  

Florida’s courts didn’t assist issues by ruling that appraisal awards—instruments designed to assist resolve disputes—may lay the procedural groundwork for unhealthy religion actions. In different phrases, after resolving a declare by way of appraisal, insurers may nonetheless be left to defend a lawsuit for unhealthy religion. Some attorneys used this caselaw as a playbook to fast-track claims into unhealthy religion litigation by misusing the appraisal course of. 

The issue appears to be like even worse while you quantify it. Based on the Florida Workplace of Insurance coverage Regulation (OIR), as of 2020, regardless of Florida solely accounting for 9% of all householders insurance coverage claims within the nation, it accounted for 79% of all home-owner insurance coverage litigation nationwide. Moreover, over the past decade, solely 8% of the $51 billion paid out by insurers went to claimants, but plaintiffs’ attorneys took dwelling 71%. In the meantime, eleven Florida property insurers fell into liquidation since 2017—5 of these occurring final 12 months alone. 

Legislators acknowledged want for pressing motion to assist curb prices of insurance coverage claims.

The Florida Legislature has responded to the rising disaster by passing a number of items of great insurance coverage reform, primarily tackling the issues with AOBs, unhealthy religion claims, and extreme charges.  For instance, the brand new legal guidelines remove one-way legal professional charges in property insurance coverage litigation, forbids utilizing appraisal awards to file a foul religion lawsuit, and prohibits distributors from taking AOBs underneath new insurance policies. Regardless of criticism from the plaintiffs’ bar, these reforms usually are not all “one-sided.” Just lately handed laws additionally ensures transparency and effectivity within the claims course of and encourages a extra environment friendly and more cost effective different to litigation.  

Whereas it’s too quickly to know precisely how current reforms will enhance the state’s insurance coverage market, there’s a sense of hope that these measures will lower the amount of property insurance coverage litigation and foster a extra viable and steady residential insurance coverage market that allows better shopper entry to reasonably priced protection. 

It might take time for these reforms to have a measurable impression on Florida’s property insurance coverage market. Nonetheless, insurers and policyholders alike must be optimistic that the market is headed in a extra sustainable route.