New Florida AOB insurance law likely to slash attorney fees

A new Florida law to curb alleged fraud by contractors could create collateral damage for lawyers by slashing attorney fees in insurance litigation — and all just in time for hurricane season.

Before May 23, contractors could enjoy a one-way attorney fee privilege. It meant win or lose, they wouldn’t be liable for attorney fees if they sued an insurer to collect insurance benefits that homeowners had assigned to them in exchange for doing repairs.

Insurers, meanwhile, weren’t entitled to fees — until Florida Gov. Ron DeSantis signed House Bill 7065 into law.

The former David-and-Goliath-esque statute was designed to look out for the policyholder, considered to be at a disadvantage compared with high-powered insurance professionals with corporate counsel and significant funds in their arsenal.

But critics — led by pro-insurance groups — cried foul. They claimed the statute had exacerbated abuse through inflated repair costs and excessive lawsuits over assignment of benefits, or AOB, which were created to speed up repairs, shield consumers from exploitation and save them from having to chase claims.

Now, under the new law, homeowners can still use the one-way statute to file lawsuits against insurers, but they can’t transfer that right to contractors through AOB agreements — a provision that critics says disincentivizes contractor attorneys.

And there’s another change: The law includes a new formula for third-party cases to decide which side, if any, is entitled to attorney fees after a judgment.

Related: Florida Supreme Court justices to take up ‘AOB’ insurance fight

‘No guard rails’

Tallahassee attorney Anna Cam Fentriss represents licensed contractors through the Florida Roofing and Sheet Metal Contractors Association and Florida’s Association of Roofing Professionals and was glad of the change. Fentriss feels that while a homeowner, or “the little guy,” typically needs less risk in litigation against giant companies, there’s no reason contractors couldn’t duke it out.

What’s the new formula?

The insurer is entitled to fees if:

The difference between the judgment and pre-suit settlement offer is less than 25% of the disputed amount.

Neither party is entitled to fees if:

The difference is more than 25% but less than 50% of the disputed amount,

The assignee is entitled to fees if:

The difference is at least 50% of the disputed amount.

(A provision in House Bill 337 signed May 24 sent this formula into immediate effect)

“You’re transferring that benefit from an unsophisticated party to a sophisticated party, and that creates a type of imbalance that you absolutely should not have and shouldn’t encourage,” Fentriss said.

AOB is one avenue for third parties to collect payment from insurers, allowing them to legally stand in a policyholder’s shoes. But Fentriss claims many of her members have never heard of AOB as it wasn’t widely used until a cottage industry emerged among water-damage restoration and roofing contractors.

“Some of these contractors out there, and sometimes with the help of attorneys, they really push it,” Fentriss said. “And there’s nothing, no guard rails to stop them, as long as they have that one-way attorney fee, because they can put forth anything.”

Now, contractors might have to charge lower rates to homeowners or accept less money from insurers to avoid going to court and risking attorney fees.

Critics say by curbing attorney fee awards, the new law forces contractors to choose between doing quality work and chasing payments to stay afloat.

Tampa restoration contractor David Sweet, who regularly testifies as an expert witness in insurance suits, said many of the lawsuits end in judgments and settlements—a sign of their merit, Sweet suggests.

“When an insurance company tells you that they’re losing lots and lots of money in litigation expenses, what did they really just say?” he said. “They’re actually losing almost all of their cases.”

But Liz Reynolds, regional vice president of state affairs for the National Association of Mutual Insurance Companies in the Southeast, says AOB litigation is so prevalent that some insurers first learn of claims only after they’re hit with contractor lawsuits. That’s why Reynolds hopes the new legislation will reduce lawsuits in Florida, a nationwide outlier in attorney fee privileges, thanks to the former win-or-lose award provision for contractors.

“No other state has a one-way attorney fee statute, and assignment of benefits are being used in other states,” Reynolds said. “Now you would have to have a more egregious situation to have the insurer pay the attorney fees for the assignee.”

But California attorney Edward Cross disagrees.

Cross has represented disaster-recovery and restoration contractors since 1997, and says he’s noticed an “unfriendly” environment for contractors “as the insurance industry and its partners grow increasingly aggressive in driving down prices.”

But even so, Cross, who doesn’t handle AOB cases in Florida, believes California has done well without a one-way attorney fee statute.

“I have always subscribed to the school of thought promoted by President George H.W. Bush— that the loser in litigation should pay the other side’s attorney fees,” he said.

Related: State Farm Florida asks judge to shield assignment of benefits info

Even more litigation?

But some observers aren’t sure the new law will have the desired effect. In fact, some expect the opposite.

Policyholders attorney David Graham of David Graham Insurance Lawyers in Jacksonville, for instance, suspects the new attorney-fee provision could lead to even more litigation.

“I think, ultimately, any smart attorney is going to work around that by representing the policyholder directly,” Graham said.

But William Stander, who heads multiple insurance trade groups, including the Florida Property and Casualty Association, applauded the change.

Stander advocated for the rollback of one-way fees for vendors, particularly those doing water-damage mitigation, which created a cottage industry and what he said spawned “no-risk litigation” for contractors.

“They should have some skin in the game, and not be able to sue in the sense of throwing darts at a wall and hope something hits,” Stander said.

Whatever happens, contractor Ken Larsen said he’s tired of what he considers an unnecessarily adversarial industry when compared to the rest of the U.S. and the world.

“It is astounding to most others contractors in our industry in Australia, Europe and elsewhere,” Larsen said. “Why on earth do we do battle like this on every insurance claim, to the point where it’s hard feelings and companies going broke?”

Related: Floridian consumer advocacy group FAIR announces nationwide expansion