Will eliminating 'one-way fee shifting' reduce insurance litigation in Florida?
The elimination of one-way fee shifting will impact many first-party claims brought by homeowners that involve amounts less than $50,000.
In Florida’s SB 2-A and SB 4-A signed in December 2022, the legislature recently eliminated Florida’s one-way fee-shifting statute for first-party claims brought against residential and commercial surplus lines and admitted property insurers.
Under the former law, a court was obligated to award a reasonable fee in favor of the insured or beneficiary who settled or obtained a judgment in his or her favor against a property insurer. Both updated sections of the state’s insurance rules now state that “in a suit arising under a residential or commercial property insurance policy, there is no right to attorney fees …”
Clearly, something needed to be done since homeowner’s insurance claims in Florida accounted for just over 8% of all homeowners claims in the United States in 2019, but accounted for more than 76% of all litigation against insurers nationwide. That year was not an anomaly. Not surprisingly, the insurance industry reported losses of over $1.6 billion in Florida in 2020. In part, these losses were caused by this excessive litigation.
The legislature felt the need to react since the insurance picture was not likely to improve. In fact, six property insurers were declared insolvent in Florida in 2022. Policyholders also felt the impact of the insurance industry’s losses as they saw their premiums increase by 10% or more, and some policyholders had trouble securing insurance, turning to Citizens Property Insurance as their option of last resort. The question is whether the elimination of the one-way fee-shifting statute will decrease litigation in Florida.
The one-way fee-shifting statute was enacted to allow policyholders to retain competent counsel to sue their insurers. Under the one-way fee-shifting statute, a court may award a loadstar amount based upon the reasonable amount of hours times a reasonable billing rate. The court could then, under certain circumstances, also award a contingent risk multiplier. The difference in the amount of fee awards and the application of a contingent risk multiplier between state and federal court judges was dramatic, even though the law governing the loadstar amount is identical, with federal court judges awarding fees in the $300 to $400 range and state court judges often twice that amount to the same attorneys for handling substantially the same type of case. Thus, first-party litigation often began with the insurer seeking to remove a case, if it could, to federal court.
The elimination of the one-way fee-shifting statute will impact many first-party claims brought by homeowners that involve amounts less than $50,000. Most homeowners who have smaller claims may not be able to pay a lawyer’s hourly fee and limiting lawyers to a contingent fee will remove the incentive for lawyers to represent homeowners in these small-dollar cases. Further, the lawyer’s hourly or contingent fee will reduce the net recovery to the policyholder — money that they may need to repair their homes.
On the other hand, the large fee awards obtained by lawyers in these smaller cases was a real concern for the insurance industry — a concern that was amplified after the Supreme Court’s decision in Joyce that allowed judges to award a contingent risk multiplier of up to 2.5 times, in addition to the loadstar amount, even in those cases that were not rare and exceptional. Oftentimes the fee awards were far greater than the amount the policyholder recovered. However, in larger claims, the ability to collect a contingent fee should not prevent those cases from being filed.
Other state rules allow for legal fee recovery
The elimination of the one-way fee shifting statute, however, leaves at least another avenue for policyholder lawyers to recover their fees.
The Florida Rules of Civil Procedure and Statutes allow first party litigants to serve a proposal for settlement (PFS). Under the rule and Fla. Stat. 768.79 (the statute), a first-party litigant can still recover their attorney fees if the amount of the recovery against the insurer is 25% or more than the amount of the PFS. Under the rule, a PFS can be served 90 days after the complaint is served. The downside for the policyholder is for that time period, there is no other way to trigger a claim for fees. Further, a policyholder may have to “discount” the amount of their potential recovery by 25% to trigger their fee claim under the rule and statute.
However, the 90-day time period, if used wisely, should allow the litigants to conduct discovery that may answer questions that may have prevented the claim from resolving pre-suit. Further, many first-party suits do not involve a coverage issue, but rather a dispute over the cost and scope of repair. Thus, even reducing the policyholder’s cost of repair by 25%, should, in most cases, still leave the policyholder with sufficient funds to repair their property.
Another significant change in the new bill is that allows insurers to make joint PFS under the statute that is conditioned on the mutual acceptance of all joint offerees. This change may place additional pressure on homeowners to accept a PFS, since joint offers are typically unenforceable. Under the new law, since there are differences between the rule and the statute, lawyers should use care in whether to use the rule, the statute or both.
Under the new law, an acceptance of an offer of judgment under the statute or the payment of an appraisal award, does not constitute an adverse adjudication, essentially overruling a line of Florida cases holding otherwise. While the difference between an insurer’s appraiser’s final estimate and the appraisal award may be evidence of bad faith in a claim for extra-contractual damages under Fla. Stat. 624.155(1)(b), the new law does not explain how a policyholder will be able to bring a bad faith action when an appraisal is invoked, since the payment of an appraisal award is no longer an adverse adjudication. This change should also decrease litigation.
The new statute clearly states there is no right to attorney’s fees for litigation arising under a residential or commercial property insurance policy. Typically, the term “arising” has broad meaning and insurers should argue there is no right to attorney fees in first-party property bad faith actions based upon this language and the absence of another fee-triggering statute. On the other hand, policyholders may argue that a bad faith action is extra-contractual and in the absence of specific language in the new bill eliminating attorney fees for bad faith claims, they may still recover attorney fees in a successful bad faith action. Insurers should prevail on this issue since a bad faith claim still arises from an insurance policy.
Ronald L. Kammer is a partner with Hinshaw & Culbertson. Kammer has represented insurers throughout the United States for more than 40 years and is involved in many significant coverage matters including trials and appeals.
Opinions expressed here are the author’s own.
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