What's the matter with Florida's home insurance market?
Examine the catalysts behind the Sunshine State’s property insurance quagmire.
The Florida homeowners insurance market is financially stressed. Florida domestic property insurers have reported losses for several years, and surplus decline is outpacing premium growth. As a result, Florida’s homeowners face year-over-year soaring premiums and fewer choices.
In 2021, the Florida legislature adopted some reforms to stabilize the market. However, the 2022 legislative session recently concluded without the enactment of additional reforms.
Homeowners insurance costs more in Florida than in most other states. In 2020, the premium for Florida homeowners insurance was on average $650 greater in Florida than in most other states for comparable coverage and was projected to be $866 greater than in most other states in 2021.
In addition, Florida insurers have experienced increased adverse loss reserve development since 2016. According to the Office of Insurance Regulation (“OIR”), property claims submitted in 2019 were $682 million more expensive at the two-year benchmark than initially reserved. In addition, reinsurance capital has contracted and become more expensive.
One principal reason for this financial instability is property claims litigation. In 2019, Florida accounted for 8.16% of all homeowners claims opened in the United States and 76.45% of all homeowners claims litigation filed against insurers in the U.S. And, hurricanes are not the reason. In fact, the majority of the litigated property claims are not catastrophe claims.
The claims litigation burden can be attributed to a combination of factors. The following are just a few:
One-way attorneys’ fees for policyholders
Litigants generally are required to bear their own attorneys’ fees and costs unless otherwise provided by statute or contract. However, section 627.428, Florida Statutes, directs courts to award attorneys’ fees and costs to prevailing policyholders in coverage litigation, even if the judgment is only $1 greater than the amount initially paid by the insurer. The purpose of the statute was to discourage insurers from contesting valid claims. Nevertheless, the empirical data indicates the statute has incentivized policyholders, their assigns, and/or their attorneys to litigate.
Assignment of benefits
An insured generally may assign their rights under a policy to a third party through an assignment of benefits (“AOB”). In AOB-related claims, insurers report that repairs often are commenced before a loss is reported, making it difficult for insurers to verify the cause of damage and determine the scope of coverage.
In addition, from 2013-2019 residential property claim litigation increased steadily, and AOBs helped drive the increase. AOB-litigated claims increased by over 25% during this time period.
This trend resulted in increased costs to insurers. For example, in 2015, a nonlitigated water claim submitted to Citizens Property Insurance Corporation cost an average of $5,857 while a litigated water claim cost an average of $33,918 — a 479% increase.
High court precedent adds to the burden
Florida Supreme Court precedent has contributed to the property claim litigation burden. In 2016, the Florida Supreme Court held that “when independent perils converge and no single cause can be considered the sole or proximate cause, it is appropriate to apply the concurring cause doctrine.” According to the OIR, this holding incentivized third parties, such as contractors, to solicit Florida policyholders to assign their roof claims because “a small portion of shingles that are damaged by a potentially covered peril could lead to the entirety of the roof being replaced.”
Further, in Joyce v. Federated National Co., the Florida Supreme Court approved of contingency fee multipliers in fee applications. The Court rejected the U.S. Supreme Court’s reasoning that contingency fee enhancement would make “the setting of fees more complex and arbitrary, hence more unpredictable, and hence more litigable.”
Data shows that there was a substantial increase in litigated non-catastrophe property claims after these opinions were issued.
Legislative solutions
AOBs: In 2019, the Florida legislature adopted section 627.7152, Florida Statutes, to address AOBs. The statute eliminated automatic one-way attorneys’ fees awards for AOB-related claims. The statute reduced the number of AOB-related case filings. Now AOB litigated claims are on the rise again.
Further, in 2021, the Florida Legislature adopted section 489.147 to address some unscrupulous contractor practices. The statute prohibited contractors from providing advice about policy provisions without a public adjuster’s license, offering incentives for making a roof claim, and distributing advertisements that encourage consumers to contact them for the purpose of making a roof damage claim. However, in July 2021, a federal court enjoined the provisions relating to advertisements on First Amendment grounds.
Attorneys’ Fees: In 2021, the Florida legislature created section 627.70152, which requires claimants to file a pre-suit notice of intent to initiate litigation with a settlement demand prior to suing a property insurer for coverage. The legislature also replaced automatic one-way attorneys’ fees awards in property claim litigation with a scale depending on the degree of the claimant’s success. In addition, the legislature amended section 624.424 to require insurers to annually report data about claims and claims litigation so that the OIR can evaluate claims and litigation trends.
The 2022 legislative session
During the 2022 regular session, the Florida Senate proposed additional reforms, including measures to stabilize Citizens (the state insurer of last resort) and to address the proliferation of roof claims, among other things. The bill died in the Florida House while the condition of the property insurance market continued to worsen. This year so far, two Florida insurers have gone into receivership.
Some Florida House members were skeptical about passing additional reforms in 2022 on the purported grounds that it would take 18 months to see the impact of the 2021 reforms on premiums.
According to CaseGlide, which tracks litigated claims in Florida, new claims litigation declined following the passage of last year’s reforms, except for in January 2022. However, litigated claims relating to AOBs, which declined following the 2019 reforms, are now at or around the crisis level that spurred the Florida Legislature to initiate AOB reform in 2019.
Further, some of the 2021 reforms have led to litigation. In January, a putative class action was filed against Citizens to recover the attorneys’ fees policyholders have incurred to comply with the pre-suit notice requirement of section 627.70152 prior to suing a property insurer for coverage. In addition, parties are litigating whether the pre-suit notice requirement applies to policies issued before the July 1, 2021, effective date.
The work of the Florida Legislature is not done. Governor DeSantis has said that he would welcome a special session if legislators convene one. This is an election year. Some say that much needed reform may be stalled until next year because of the election and not because of the time it takes to see the impact of the 2021 reforms.
Julie Nevins, partner at Stroock & Stroock & Lavan LLP in Miami, has been litigating complex commercial disputes for over 20 years. She handles a broad range of matters, including insurance coverage, bad faith, business torts, contracts, real property, outdoor advertising and intellectual property.
Lisa Pach, Special Counsel at Stroock & Stroock & Lavan LLP in Miami, has more than 25 years of experience as a litigator and trial attorney, including a longtime role as an in-house litigation coverage counsel at a large insurance company.
Opinions expressed here are the authors’ own.
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