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Florida Aims to Rebuild Homeowners Market with Reform Law

Property Homeowners Catastrophe

More people are making claims on their homes in Florida than in any other state. Unfortunately, The Sunshine State leads not only in population growth but also in soaring homeowners insurance rates and claims litigation. Those trends have combined to create widespread turmoil in Florida’s property insurance market that the State is now seeking to quell with a reform package. On Dec. 14, 2022, Florida Governor Ron DeSantis signed property insurance reform bill Senate Bill 2-A into law. The new law seeks to cut down on lawsuits while mandating that insurers process and pay claims faster, but property owners will also have to take a more active role. This means partnering with knowledgeable wholesale brokers able to provide guidance on how the reform law impacts property owners will be more important than ever.

 

GUEST CONTRIBUTOR: Michelle Diverio, Esq. is a Shareholding Partner with the law firm of Lydecker LLP. Located in the Miami office, Mrs. Diverio serves as coverage and trial counsel for first and third-party property claims, including bad faith litigation, water/fire/theft/fraud investigations, assignment of benefits, and windstorm claims. Mrs. Diverio litigates insurance disputes involving high-exposure commercial and homeowner losses and bad faith issues in both State and Federal court. Mrs. Diverio’s practice involves all aspects of pre-suit, appraisal, trial, and appellate litigation, and she has successfully handled thousands of lawsuits with a wide range of damages exposures. Mrs. Diverio is a member of many attorney organizations in Miami Dade County and is barred to practice law in the United States Court of Appeals for the Eleventh Circuit, United States District Court, Middle District of Florida, United States District Court, Southern District of Florida, New York, Alabama, and Washington D.C. GUEST CONTRIBUTOR Richard J. Lydecker, Esq. is a Senior Partner with the law firm of Lydecker LLP. The firm’s founding partner, Richard has a diverse and extensive background in the general practice of civil litigation, mainly concentrating in the areas of complex commercial litigation, professional liability, construction, first-party property, Bad Faith litigation, maritime, and insurance coverage. Prior to Mr. Lydecker’s career in civil practice, he was a Senior Major Case Bureau Prosecutor in New York with an outstanding record of success in trying high-profile cases. Before accepting his appointment to the District Attorney’s Office, Richard was an attorney at a prestigious Wall Street, N.Y. law firm. Mr. Lydecker is a member of many attorney organizations and admitted to the Florida Bar, New York Bar, Dade County Bar Association, American Bar Association, United States District Court of New York, and Southern District of Florida. 

FLORIDA’S TURBULENT MARKET

Elevated homeowners insurance premiums come amid continued population growth in catastrophe-exposed coastal areas and alongside rising home values that have increased insurers’ exposure to hurricanes and other disasters. However, the biggest challenge is man-made— the increase in frequency and severity of litigated claims. Florida alone accounts for more than 75% of homeowners’ lawsuits but only around 7% of claims, according to State regulators.1

Florida insurance carriers lost more than $1.6B in 2020 alone thanks in part to excessive litigation, reinsurance costs, and natural catastrophes. Source 10

The comprehensive reform package enacted in December seeks to create a more sustainable homeowners insurance market by reining in what the State considers frivolous litigation, reducing the rapidly growing exposure for state-backed insurer, Citizens Property Insurance, and helping make Florida a more attractive home for private insurers as well as new residents.

Among other actions, Senate Bill 2-A eliminates one-way attorney fees for property insurance claims; mandates that insurers pay claims faster; and eliminates assignment of benefit agreements, which allowed policyholders to sign over claims to contractors. It also sets tighter deadlines for both policyholders and insurers in order to speed up the claims and payment process.

BUILDING A NEW FOUNDATION

Florida Governor Ron DeSantis called the law the most significant property insurance reform bill in recent history. The law aims to stabilize the property market, which saw a half dozen insurers become insolvent in 2022 and others halt writing property business in the state completely. While the nation’s top five homeowners insurance carriers dominate coverage in the rest of the country, they account for just 15% of the Florida market, according to AM Best.2 The effect can be seen in soaring premiums. Florida’s average annual premiums have risen above $4,200, more than triple the national average. Florida’s average premium was $3,181 in 2021 and $2,505 in 2020.3 Rising rates have prompted a flood of homeowners to seek coverage from state-run insurer, Citizens Property Insurance.

The law also seeks to reduce reliance on Citizens,4 whose policy count more than doubled to 1.18 million as of February 10, 2023, from roughly 543,000 policies in force at 2020 year-end.5 Citizens’ market share is more than 50% higher than any private insurer operating in Florida. The state-run insurer also has more than 20,000 open lawsuits pending along with a legal defense budget of around $100 million annually.6

As of April 1, 2023, the reform law requires homeowners to buy private insurance if the cost of those options is no more than 20% higher than Citizens. New or renewal non-primary residence policies must be charged rates not less than the previous year’s Citizens rate and no more than 50% above.7 The law also requires Citizens’ policyholders to obtain flood insurance on a phased-in basis. All homeowners’ insurers must include on the declarations page of the policy a notice stating that losses caused by flood are not covered and encouraging the insured to obtain separate flood coverage.

n 2019, Florida’s ratio of lawsuits opened to claims closed without payment was 8 times higher at nearly 28% than the next highest state, Connecticut, which had a ratio of 3.4%. Source 10

NEW MARKET RULES

Senate Bill 2-A includes a variety of measures to stem the rising tide of claims litigation while also requiring insurers and property owners to act faster. The main requirements include:

Assignment of Benefits

The law prohibits the assignment of benefits, whether in whole or in part, under any commercial property insurance policy from January 1, 2023. Previously, policyholders could hand over benefits to roofers and other contractors, which while convenient, often resulted in lawsuits against insurers. However, the change puts more of the onus on the insured to perform their own inspection rather than waiting for contractors to do so.

One-way Attorney Fees

The increase in litigation stems in large part from the fact that the previous law made it easier for plaintiffs’ attorneys to collect legal fees from insurers. Before the reform, insurers had to pay the legal fees of clients who successfully sued even if those fees far exceeded the settlement, which incentivized lawsuits. Under the new law, each party is responsible for payment of their own attorney fees.8

Bad Faith Litigation

Previously, bad faith lawsuits enabled plaintiffs to obtain judgments in excess of policy limits. Under the reform,
before a plaintiff can bring a bad faith lawsuit, they must obtain a legal ruling that the insurer breached the insurance contract and obtain a final judgment or decree against the insurer. Acceptance of an offer of judgment or the payment of an appraisal award will no longer constitute an adverse adjudication. However, the difference between the insurer’s appraisal award and the appraisal award can be used as potential evidence of bad faith.

Shorter Deadlines for Claims & Estimates

SB 2-A shortens the deadline for policyholders to report a claim from 2 years to 1 year and from 3 years to 18 months for supplemental claims. According to the Florida Insurance Consumer Advocate, insurers have reported that claims filed close to the deadline are often fraudulent.9 This change also puts an increased burden on property owners to be more diligent about performing timely inspections after a severe weather event.

The insurer must also send the insured a copy of any estimate of the loss amount within 7 days after the estimate has been generated. The insured will not be required to request a copy of the estimate to obtain it. The Homeowner Claims Bill of Rights must be amended to include this new right. The new requirement became effective on March 1, 2023.

Expanded Claims Records

As of March 1, 2023, the already existing duty to maintain a record or log for each claim was expanded. An insurer will have to maintain claim records, including dates of claim-related communications, receipt of a proof of loss statement, any request to the insured or their representatives, any inspection of the property, any estimate, the beginning and end of any tolling period, and the payment or denial of the claim.

Expedited Claims Handling

In order to promote the prompt payment of claims, carriers face shorter claims handling deadlines. Effective March 1, 2023, the timeframe to issue payment or deny a claim is reduced from 90 to 60 days. An insurer can only extend the timeline if the state Office of Insurance Regulation allows it, but for no longer than 30 days following the declaration of a state of emergency, a cyberattack, or an information technology issue. An extension may also be granted if the actions of the insured or their representative constitute fraud, lack of cooperation, or intentional misrepresentation preventing the insurer to comply with the deadline.

In addition, the timeframe to begin an investigation or review and acknowledge a communication is reduced from 14 to 7 days, and the time allowed to inspect a property is reduced from 45 to 30 days. This applies to hurricane claims, and the law also specifies that insurers may use electronic methods to investigate damage.

BOTTOM LINE

Florida’s property insurance reform law marks a sea change toward a more balanced legal environment. While removing incentives for claims litigation, the law mandates that insurers and property owners move more quickly when it comes to claims. Moving ahead, property owners will need to fully understand how the new law impacts their policies and risk management responsibilities. Working with knowledgeable wholesale brokers that understand the marketplace and the impact of SB 2-A on the claims process can help ensure property owners obtain the right coverage for their unique risk. Contact your local CRC Group producer today for more information.

CONTRIBUTORS

  • David Gilfillan is CRC Group’s Chief Claims Officer and one of the most experienced and respected claims executives in the insurance industry. He partners with executives, brokers, agents, and insureds to analyze claim coverage and related issues, providing valuable insights and facilitating favorable resolutions.
  • Ari Shapiro is CRC Group’s Director of Claims Advocacy. In this role, he works with CRC Group’s business partners to help facilitate resolution on a wide variety of claims including D&O, E&O, EPL, CGL, Cyber, and Property. After graduating from the University of Chicago Law School, Ari spent many years as an insurance-coverage attorney before moving into a senior claims role.

END NOTES

  1. Property Insurance Stability Report, January 1, 2023, Florida Office of Insurance Regulation. https://floir.com/docs-sf/default-source/property-and-casualty/stability-unit-reports/january-2023-isu-report.pdf?sfvrsn=27217354_2
  2. Best Commentary: Florida insurance reforms, AM Best, Dec. 20, 2022. https://news.ambest.com/NewsContent.aspx?refnum=246946
  3. Extreme fraud and litigation causing Florida homeowners insurance market’s demise, III, June 23, 2022. https://www.iii.org/press-release/triple-i-extreme-fraud-and-litigation-causing-floridas-homeowners-insurance-markets-demise-062322
  4. Governor DeSantis signs two bills to support disaster relief and help stabilize Florida’s property insurance market, Florida governor’s office, press release, Dec.16, 2023. https://flgov.com/2022/12/16/governor-ron-desantis-signs-two-bills-to-support-disaster-relief-and-help-stabilize-floridas-property-insurance-market/
  5. Policies in Force, Citizens Property Insurance, https://www.citizensfla.com/policies-in-force
  6. Addressing Florida’s property/casualty insurance crisis, Insurance Information Institute, February 2023, https://www.iii.org/sites/default/files/docs/pdf/triple-i_trends_and_insights_florida_pc_02152023.pdf
  7. Senate Bill 2A, Florida Insurance Consumer Advocate. https://www.myfloridacfo.com/division/ica/2022propertyinsurancechanges
  8. Senate Bill 2A, Florida Insurance Consumer Advocate. https://www.myfloridacfo.com/division/ica/2022propertyinsurancechanges
  9. Senate Bill 2A, Florida Insurance Consumer Advocate. https://www.myfloridacfo.com/division/ica/2022propertyinsurancechanges
  10. NAIC Data: Florida Property Lawsuits Total 76% of Insurer Litigation in U.S., Insurance Journal,  April 14, 2021. https://www.insurancejournal.com/news/southeast/2021/04/14/609721.htm
Property Homeowners Catastrophe