IRC estimates Florida 3rd-party bad faith costs at $7.6B over 12 years
A majority of the additional claims costs attributed to rapid growth in the frequency of bodily injury liability claims.
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A new report from the Insurance Research Council (IRC) estimates that Florida’s third-party bad-faith legal environment added an average of $106 in claim costs to every insured vehicle in the state in 2017, and resulted in a total of $7.6 billion in additional claim costs over the past 12 years.
Rapid growth in BI liability claims
The IRC said that a majority of the additional claims costs could be attributed to rapid growth in the frequency of bodily injury (BI) liability claims, which it said was “prompted by Florida’s legal rules and standards for resolving allegations of bad-faith.”
The report, Third-Party Bad Faith in Florida’s Automobile Insurance System, 2018 Update, compared BI liability claim trends in Florida to trends in three other large no-fault states: New York, New Jersey, and Pennsylvania. The IRC said that the three comparison states rely primarily on administrative approaches to investigating and resolving allegations of bad faith on the part of auto insurance companies, and experienced relatively stable BI claim trends over the study period.
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The IRC said that its estimate of the effect of Florida’s third-party bad-faith environment on BI claim frequency and costs was based on the assumption that claim trends in Florida would have followed similar trends if Florida also had relied on an administrative approach to investigating and resolving allegations of bad faith.
‘Serious threat’
“The virtually unrestricted ability to file a third-party bad-faith lawsuit against an insurance company continues to pose a serious threat to Florida’s auto insurance system,” said Elizabeth A. Sprinkel, CPCU, senior vice president of the IRC. “The possibility of winning large bad-faith settlements and court judgments creates powerful incentives for potential claimants and their attorneys to file auto liability insurance claims that otherwise would not be filed.”
According to the IRC, a contributing factor in Florida’s growing problem with third-party bad-faith lawsuits is the apparent failure of the no-fault system’s tort threshold to limit access to reimbursement under the liability portion of most auto insurance policies. In other no-fault states, the IRC said, bodily injury liability claim frequency is relatively low because the system is designed to limit the number of liability claims that are filed. In exchange for limited access to liability-based compensation, claimants are provided ready access to no-fault reimbursement for lost wages and medical costs.
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Florida’s tort threshold, however, appears to have little or no effect on liability claim frequency, the IRC said. In 2017, Florida’s bodily injury claim frequency rate (1.06 BI claims per 100 insured vehicles) was higher than the claim frequency rate in 24 tort system states (states without no-fault coverage) and was significantly higher than the liability claim frequency rate countrywide (0.81 claims per 100 insured vehicles).
The IRC, a division of The Institutes, is supported by property & casualty insurance organizations.
Related: The art of bodily injury investigations
Victoria Prussen Spears, Esq., (vspears@alm.com) is associate director of FC&S Legal, editor of the Insurance Coverage Law Report, and senior vice president at Meyerowitz Communications Inc.