As more and more insurers are leaving Florida, going through liquidation and canceling policies, Gov. Ron DeSantis has signed legislation aimed at stabilizing the market, but many are wondering whether it will be enough.
It’s a property insurance crisis that’s left homeowners with fewer insurance options and tighter underwriting processes, while the high premiums and exodus of insurers have been largely blamed on fraudulent claims and the threat of weather-related damage.
The increased insurance premiums that state-backed Citizens Property Insurance Corp. has seen are a direct result of excessive litigation, the way Florida Justice Reform Institute president William Large sees it. He said the new law—which creates a $2 billion fund to help insurers pay potential hurricane damages and changes rules on coverage denials and attorney fees—will help curb abuses.
Large said some found a loophole in the system and took advantage of the original purpose of one-way attorney fee statutes meant to level the playing field for insurers.
“It was never meant for third-party vendors,” said Large. “Under these statutes, litigation is ‘risk-free’ because, if the plaintiff prevails against a defendant insurer, he or she can recover his or her attorney fees from the insurer. But, conversely, the insurer cannot recover fees if it prevails. As a consequence, the very existence of these statutes invites litigation over marginal disputed amounts, particularly by third-party vendors armed with the assignment of benefit agreements.”
Now, the new law prohibits the assignment of any right to attorney fees. The second issue the law addresses is the attorney fee multiplier.
“Such multipliers have been used to drastically increase attorney fee awards even in run-of-the-mill property insurance cases, spurred largely by the Florida Supreme Court’s concerning decision Joyce v. Federated National Insurance Co.,” said Large. “This legislation makes the multiplier similar if not identical to federal law, that they should be used in rare and exceptional circumstances.”
Joyce v. Federated National Insurance Co. held that a multiplier can be applied regardless of whether the lodestar amount represents a reasonable fee.
The bill also addresses first-party bad faith. The problem, Large said, was the interpretation of the civil remedy notice statute that turned every alleged breach of an insurance policy into a claim for extra-contractual damages before a breach was even found.
“This would correct the course set by some errant court decisions and confirm that, for an insurer to face a claim for extra-contractual damages under the statute, the insurer must have actually breached their agreement with the insured,” he said.
Fees Were ‘Meant to Be a Punishment’
Mintz Truppman insurance litigator Adrian Neiman Arkin is more skeptical. She said the effects of the law remain to be seen, since many major legislation changes over the last year have not yet come to fruition.
“Nothing they’ve passed in this last legislation will lower anybody’s rates. We saw the same behavior from the insurance company during the Personal Injury Protection crisis. They created all these laws and not once has my premium gone down due to any of the PIP laws that were passed,” said Arkin. “What we see is a pattern of insurance companies asking for various ways of relief, but what they’re really asking for is relief from not making as much in profit as they would like.”
Arkin said insurers will now have total control over what they do and don’t cover in their policies.
“Instead of having to rely on the reinsurance companies, they now are being reinsured by the state, and they can do that without having to pay the proper surcharges like some companies have to do,” said Arkin.
Although there are property insurance attorneys who take cases to make money from fees, Arkin stressed that’s not the norm.
“It happens a thousand times a day that an insurance company does not pay the claim of its homeowner. That doesn’t mean that the attorney prosecuting that claim is the bad guy,” said Arkin. “The attorney fee portions were meant to be a punishment to the insurance companies.”
Greenberg Traurig Fort Lauderdale shareholder Fred Karlinsky, however, felt this was an issue that needed to be addressed. The co-chair of Greenberg’s insurance regulatory and transactions practice group applauded DeSantis for signing the bill.
“Reform is necessary to curb the growth of fraudulent insurance claims and frivolous lawsuits, stem insurers’ financial losses, and provide relief to policyholders, who currently face higher rates and few insurance choices,” said Karlinsky.
‘The Houses They Do Not Like’
The highest-risk properties for insurers are those built prior to 1978 and with roofs older than 10 years, according to Whitney Dutton of The Dutton Group at Remax First in Fort Lauderdale.
“Those are the houses they do not like. It, unfortunately, happens to be the majority of all the homes in the East Fort Lauderdale area,” said Dutton. “My target market is that $400,000 to $800,000 house for first or second-[time] home buyers. Because of that price range, many of them have older roofs and are older built.”
Dutton said his customers usually pay very high premiums due to the risks of the market, and many who bought homes a few years ago saw insurance increasing 25% to 30% every year.
“For no reason, no claims, just because insurers are dropping out of the market,” said Dutton.
Those high premiums result in property owners getting priced out of their homes, and many insurance companies becoming defunct, believing they can’t make enough money in the state.
Citizens Insurance to the Rescue?
Dutton said state-backed Citizens, which is considered by many to be the last resort, generally picks up policyholders who are dropped by their property insurers.
Arkin said she believes Citizens doesn’t get enough credit.
“The state of Florida is not going out of business. There’s nothing wrong with Citizens,” said Arkin. “They’ve never been an overwhelmed company. It’s in good financial shape and always has been. What they don’t like is that the money doesn’t go to private individuals. It stays with the taxpayers. That’s what the legislatures are complaining about.”
With inflation running wild and hurricane season beginning, Arkin questions whether the law promises to do enough and noted it won’t be very effective if a hurricane strikes this year.
“I’m a little concerned about the fact that they’ve made the state reinsurance fund simply because it will get used instead of when the state of Florida really needs it. There are better ways to guarantee reinsurance,” said Arkin.
Whatever happens, Dutton said it’s crucial for insurance attorneys to prepare for the change.
“Most of the attorneys I know are operating within the law in the way that the legislation is written. Be prepared to pivot,” said Dutton. “It’s the same industry, but different ways to skin the cat, and now some of the lenders are pivoting from refinance work to home purchase. It’s going to be a little bit of an industry change.”