Florida lawmakers consider sweeping property insurance reforms

Florida Senate Bill 76, introduced by Sen. Jim Boyd (R-Bradenton), recently passed through both the Banking and Insurance Committee and Judiciary Committee during the current legislative session. It now must pass the Rules Committee before being taken to the Senate floor for a vote.

The bill provides sweeping reform of property insurance claims in the state of Florida. More specifically, it revises statutes that govern attorney fees, roof coverage provisions, notice periods for bringing claims, alternative dispute resolution, lawsuits involving property insurance policies, consolidation of legal actions and assignment agreements.

The bill is a response to data from the Florida Office of Insurance Regulations (OIR) suggesting that Florida domestic property insurers are likely to double their losses from 2019 to 2020.  According to OIR Commissioner David Altmaier, the increased severity of claims involving litigation is driving adverse reserve development, leading to high rate filings.

Related: Fla. Senate backs proposed legislation that could raise insureds’ costs

Litigation fees in play

While SB 76 addresses a number of issues, changes related to attorney fees are some of the most important to property insurance carriers. Currently, sec. 627.428, F.S., allows an insured to recover attorney fees if he or she prevails in a lawsuit against an insurer to enforce an insurance policy. Courts have broadly interpreted this statute to allow recovery of fees when an insurer ultimately settles the case before trial, which is commonly referred to as a “confession of judgment.”

Notably, SB 76 states that sec. 627.428, F.S., no longer applies to judgments or decrees entered by any court against a commercial or residential property insurer. Rather, insureds would now be required to provide the insurer with a 60-day notice prior to initiating litigation that includes a settlement demand and amount of attorney fees requested. Attorney fees would be awarded based upon a “demand-judgment quotient,” or a quotient calculated by dividing the judgment by the pre-suit demand.

Specifically, fees would be awarded as follows:

• If the demand-judgment quotient is greater than or equal to 0.8, the full amount of the incurred attorney fees may be awarded to the claimant.
• If the demand-judgment quotient is equal to or greater than 0.2 but less than 0.8, the attorney fees awarded to the claimant must equal the product of multiplying the incurred attorney fees by the demand-judgment quotient.
• If the demand-judgment quotient is less than 0.2, a claimant may not be awarded attorney fees; however, the full amount of attorney fees incurred may be awarded to the insurer if the claimant is an assignee.

Of note, this section does not prohibit attorney fees awarded pursuant to section 57.105, F.S., for unsupported claims, defenses, or delays, or pursuant to section 768.79, F.S., related to offers of judgment.

Within 30 days of receiving the 60-day notice, an insurer may send a written request to inspect the insured property. After the inspection, the insurer must conduct an internal review to evaluate the claim fairly and promptly. If the notice requirement is not complied with or the inspection is not permitted by the insured, an insurer may move to abate the action.

‘Rare and exceptional’ circumstances

SB 76 also addresses contingency fee multipliers, which can be awarded when calculating attorney fees.

The bill creates a strong presumption that a lodestar fee (computed by multiplying the number of hours reasonably expended on a case by a reasonable hourly rate) is sufficient and reasonable. The presumption may be rebutted only in a rare and exceptional circumstance with evidence that competent counsel could not be retained in a reasonable matter.

Currently, when determining whether a contingency fee multiplier is warranted, courts consider:

1. Whether the relevant legal market requires a contingency fee multiplier for a plaintiff to be able to obtain competent counsel;
2. Whether the attorney was able, in any way, to mitigate the risk of non-payment; and
3. Whether any of the factors of Fla. Patient’s Comp. Fund v. Rowe, 472 So. 2d 1145 (Fla. 1985) are applicable, particularly the amount involved, the results that were obtained, and the type of fee arrangement between the client and attorney. [Joyce v. Federated National Insurance Company, 228 So. 3d 1122 (Fla. 2017)].

In Joyce, the court held that there is no “rare and exceptional” circumstances requirement before a court can apply a contingency fee multiplier. SB 76 would put this analysis in line with the federal standard. [See Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010).]

Roof damage settlements

Another major component of SB 76 relates to the settlement of some roof claims on an actual cash value basis. There are currently two primary settlement options available when purchasing a homeowner’s policy: replacement cost (RC) and actual cash value (ACV).

RC is typically defined as the cost to repair or replace damaged property with materials of like kind and quality without any deduction for depreciation. On the other hand, ACV is defined as the cost to repair or replace damaged property with materials of like kind and quality, minus the cost of depreciation due to use, wear, obsolescence or age.

SB 76 allows for insurers to offer a policy that uses a roof covering reimbursement schedule to determine the amount of coverage for roofs ten years or older. This results in roof coverage for less than the replacement cost. The roof surface material type and age of the roof are used to determine the amount of coverage. However, the reimbursement schedule may not be applied if there is a total loss to a primary structure in accordance with valued policy law under sec. 627.702, F.S.

Insurance industry impact

SB 76 also amends sec. 627.70132, F.S., to state that a claim, supplemental claim, or reopened claim is barred unless notice of the claim is given to the insurer in accordance with the terms of the policy within two years after the date of loss. Currently, claims are barred only with regard to windstorm or hurricane claims if notice is not given within three years after the date of loss.  As all carriers and defense attorneys know, claims tend to spike near the end of the three-year reporting period.

While a number of other topics are addressed in SB 76, the foregoing would likely have the largest impact on the industry. The Senate Rules Committee chose not to vote on the bill and set it aside for further debate. It is expected that the bill will be voted on at the next meeting.

It must be noted that the corresponding House bill, HB 305, is drastically different than SB 76.   It does not include any attorney fees reform, the RC/ACV loss settlement provisions, or changes to the contingency risk multiplier.  As such, the likelihood of a compromise during this session is unlikely.

Pace Mawhinney (pmawhinney@kklaw.com) is a partner at Kelley Kronenberg, where he handles matters related to First Party Property Insurance Defense Litigation.

See also:

• Examining the insurance problem in Florida
• Court rejects claims of damages caused by insurer’s delayed payment
• Allstate accused of purposely driving up litigation costs on over 10,000 firms