Florida Senate Bill 2A was signed into law, amending Florida Statutes § 624–27, by Governor Ron DeSantis in December 2022 to stabilize Florida’s property insurance market.[i] The legislation eliminated two big expense factors: one-way attorney fees, and assignment of benefits. Prior to the law’s reform, Florida law required that insurance companies pay their policyholders’ legal fees when they successfully sued the insurer over a residential or commercial property insurance claim, but not vice-versa. This created an imbalance in legal costs benefiting the lawyers more than the injured. The bill also eliminated the assignment of benefits (“AOBs”)—a standard practice in insurance where property owners transfer their rights in their insurance claims to contractors who then work directly with insurers.[ii] Moreover, the bill now permits insurers to include binding arbitration provisions. The new legislation will significantly reduce abusive litigation, which will ultimately return Florida to a healthy insurance market with reasonable rates.[iii]
Florida’s Office of Insurance Regulation states, “Florida accounts for nearly 80% of the nation’s homeowners’ insurance lawsuits, yet only 9% of all U.S. homeowners’ insurance claims are filed within the state.” In 2021, Florida witnessed 100,000 lawsuits with claims totaling $7.8 billion in damages. In contrast, the remaining 49 states had a combined caseload of 24,000 with only $2.4 billion in damage claims.[iv] Between 2020 and 2021, Florida’s homeowner’s insurers collectively incurred net underwriting losses of more than $1 billion. In 2022, six insurance companies conducting business in Florida became insolvent, driving some out of the state, and leaving others to limit the policies sold within the state.[v]
As a requirement to obtain a mortgage, mortgagees require that the applicant insure their property. For Florida residents currently pursuing a mortgage, it is crucial that there are not only Florida-based property insurance companies willing to insure them but also offer the policyholders premium benefits. In the wake of many insurance companies becoming insolvent in 2022, the cost to secure coverage has risen, leaving homeowners uninsured and vulnerable to a multitude of potential losses.
From 2003–2018, Florida saw a 70% increase in AOB lawsuits. Homeowners faced with property damage are solicited with AOBs by vendors and attorneys who promise convenience in repairs and claim filings. However, this practice has attracted fraudulent activity since these entities undertake superfluous and costly work which goes unquestioned once legal proceedings are initiated.[vi] Bill 2A makes any AOB agreement executed after January 1, 2023, void and unenforceable.
Another purpose of Bill 2A is to eliminate one-way attorney fees, thus disincentivizing trivial lawsuits, which will bring down the cost of property insurance for homeowners. The reasoning behind one-way attorney fees was to safeguard policyholders from incurring legal expenses when suing their insurance company. Nevertheless, the law was continuously abused by contractors and attorneys who would file lawsuits to receive legal fees rather than make homeowners whole again. The question then becomes, when can homeowners begin to reap the benefits of these amendments? “[A]lthough the Act eliminates the right to attorney fees, carriers will likely see an increase in litigation of current pending claims and/or claims not yet filed on policies that pre-date the Act.” Unlike the AOB provision, this section of the statute remains unclear on whether it is applied retroactively, and therefore it is expected that this issue will be hotly debated within the courts.[vii]
In additional efforts to curtail vexatious litigation, the bill now allows providers to include a binding arbitration clause in their policies. As of 2023, the state Division of Administrative Hearings will hear and decide most Florida property insurance claims. For instance, Florida Citizens Property Insurance Corporation (“Citizens Corp.”), now one of the largest insurance carriers in Florida, expected legal defense costs to top $100 million in 2022; however, now Citizens Corp. anticipates noteworthy savings in legal fees and expedited case resolutions with their inclusion of the arbitration clause.[viii]
With Florida Legislature’s regular session looming near, many wonder whether that will entail new plans that extend the passed legislation to include auto insurance claims, and liability and personal injury claims. These proposals have trial attorneys squirming and insurance companies ecstatic. Excessive litigation leads to a rise in premiums, and Florida has been ranked the most expensive state for property and automobile insurance in the last two years. Though many insurance carriers are thrilled with a potential expansion of the recently passed legislation, it will take years until they notice a reduction in their litigation costs.[ix] However, homeowners can now rest assured that carriers will feel more inclined to issue policies in Florida and that they will be offered affordable rates.
[i] Fla. Stat. §624–27 (2022).
[ii] See Triple-I: New Florida Law Has Potential to Reduce Insurance Costs, Bus. wire (Feb. 16, 2023, 11:51 AM), https://www.businesswire.com/news/home/20230216005668/en [hereinafter Triple-I].
[iii] See Robert Barton & Allan Rotlewicz, Florida’s Property Insurance Reform: The Impact on Carriers and Insureds in the State of Florida, JD Supra (Dec. 16, 2022), https://www.jdsupra.com/legalnews/florida-s-property-insurance-reform-the-1269772/ [hereinafter.
[iv] See Robert P. Wax, Florida Passes Law to Encourage Arbitration of Property Insurance Claims, Am. Bar Ass’n (Feb. 14, 2023), https://www.americanbar.org/groups/litigation/committees/alternative-dispute-resolution/practice/2023/florida-passes-law-to-encourage-arbitration-of-property-insurance-claims/.
[v] See Triple-I, supra note ii.
[vi] Id.
[vii] See Barton, supra note iii.
[viii] See William Rabb, Florida Citizens’ Endorsement Now in Effect: Disputes to be Heard by Admin Judges, Ins. J. (Feb. 6, 2023), https://www.insurancejournal.com/news/southeast/2023/02/06/706063.htm.
[ix] See William Rabb, Trial Lawyers Push Back Against Florida Plan for More Insurance Tort Reform, Ins. J. (Feb. 15, 2023), https://www.insurancejournal.com/news/southeast/2023/02/15/707966.htm.
