Florida’s Property Insurance Reform: The Impact on Carriers and Insureds in the State of Florida
Florida’s Property Insurance Reform: The Impact on Carriers and Insureds in the State of Florida
The Florida Legislature passed Senate Bill 2-A (“SB2A” or the “Act”), which was signed into law on December 16, 2022. The Act has the potential to significantly reduce litigation of first party property cases in the state of Florida. This article summarizes key provisions of the Act that carriers should be aware of in order to protect their rights as well as ensure compliance with the Act.
Summary of Key Provisions of the Act
- Bad Faith – Revises Florida’s Bad Faith Statute to eliminate the payment of an appraisal award or and the acceptance of an offer of judgment as a basis to file a bad faith action;
- Attorney Fees – The Act eliminates the right to attorney fees in residential and commercial suits;
- Claims Handling Deadlines – The Act amends several deadlines related to an insurer’s claims handling requirements;
- Notice of Claim – The Act shortens the time an insured has to file a claim and supplemental claim;
- Mandatory Binding Arbitration – The Act permits carriers to include binding arbitration provisions within its policies;
- Assignment Agreements – the Act eliminates Assignment of Benefits Contracts;
The Act eliminates an insured’s ability to file a bad faith action based solely on the payment of an appraisal award or the acceptance of an offer of judgment (by either party). Prior to this amendment, the payment of an appraisal award acted as an adverse judgment entitling an insured to file a bad faith action. Some background is important here. The usual scenario played out like this: lawsuit and Civil Remedy Notice (“CRN”) are filed at the same time; carrier invokes appraisal and subsequently pays the award; Plaintiff files a motion for fees and costs; carrier attempts to settle the fee claim, but for an additional sum of money, is told it can obtain a release of all bad faith claims; carrier settles both the fee and bad faith claims for an increased amount. Essentially, CRNs were (and arguably still are) being used as a type of extortion against carriers to procure a larger settlement, even where no legitimate basis for bad faith exists. The legal fees and costs of litigating a bad faith action are astronomical in comparison to a breach of contract action. There is much more discovery and many more issues. Plaintiffs know this, and a cost-benefit analysis usually proves it is more cost effective to settle fifty post-appraisal bad faith claims, rather than litigate one.
This scenario has played out in Florida for a long time. In fact, the legislature attempted to address the issue back in 2019, when it amended the Bad Faith Statute to include a safe harbor period that prohibited the filing of a CRN for a period of 60 days where appraisal was invoked before a CRN was filed. However, the statute did little to curb the abuse as most appraisals take longer than 60 days and most CRNs are filed before the carrier has had the chance to invoke appraisal. The Act’s amendments are a welcomed change to the bad faith statute, and seek to reduce post-appraisal bad faith litigation. It is a step in the right direction.
It should be noted, however, that the difference between an insurer’s appraisal estimate and the final appraisal award can be used as evidence of bad faith, if a bad faith action is later filed on other grounds. Further, if the carrier is found to have acted unfairly in its use of appraisal, the Act now allows the Office of Insurance Regulation (“OIR”) to revoke approval of the carrier’s appraisal forms, or prohibit the carrier from invoking appraisal for a period of time.
From a claims handling perspective, before claims enter litigation, it is important to evaluate whether appraisal is a viable option. Appraisal benefits both insurers and insureds in ensuring prompt resolution of claims, while also avoiding the filing of a CRN for a period of 60 days.
The Act now eliminates the right to attorney fees in residential and commercial property insurance suits. The Act took effect on December 16, 2022. It is unclear whether the Act is intended to apply retroactively to bar entitlement to attorney fees in suits involving claims filed under policies that were issued before the Act took effect. We expect the issue of retroactivity to be a hotly debated issue within the courts. If the Act applies retroactively, there is no entitlement to attorney fees in any suit filed after December 16, 2022. However, if the Act does not apply retroactively, the date of renewal of the policy must be after December 16, 2022 to bar entitlement to attorney fees and costs. Lastly, although 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.
Claims Handling Deadlines
The Act amends several deadlines related to an insurer’s claims handling requirements under Fla. Stat. 627.70131. This section goes into effect on March 1, 2023. Insurers should take important note of these changes:
- Reduces the amount of time to acknowledge communication from its insured from 14 days to 7 days, unless there are factors beyond the insurer’s control.
- Reduces the amount of time to begin its investigation after receipt of a proof of loss from 14 days to 7 days, unless there are factors beyond the insurer’s control.
- Reduces the amount of time to conduct a physical inspection after receipt of a proof of loss from 45 days to 30 days, if a physical inspection is required.
- Requires an insurer to produce any estimate generated within 7 days after it is generated. The Act removes the insurer’s requirement to notify the insured of the right to request the estimates, since the insurer now must produce all estimates that are prepared.
- Requires an insurer maintain detailed claim records of: (1) all claim communication, (2) any proof of loss received, (3) insurer’s requests for information; (4) any claim-related inspections; (5) any detailed estimates generated by the insurer; (6) beginning and end of any tolling periods; and (7) the insurer’s payment or denial of the claim.
- Reduces the amount of time to pay or deny any initial, reopened, or supplemental claim from 90 days to 60 days, unless there are factors beyond the insurer’s control.
The requirements of this section may be tolled: (1) during mediation or other alternative dispute resolution proceeding under the policy; or (2) if the insured or their representative fails to provide requested claims information within 10 days after such request. Any request for information must be sent at least 15 days before the deadline to pay or deny the claim.
From a claims handling perspective, the Act requires insurer’s evaluate claims much faster with the ultimate goal of providing a prompt claim determination to its insured. Insurers must quickly evaluate a claim and determine what information is needed from their insured to give it enough time to request information at least 15 days before the deadline to render a decision. It is critical that the insurer have adequate procedures in place to comply with the new deadlines.
Notice of Claim
The Act reduces the amount of time an insured has to file a claim or reopened claim from 2 years to 1 year. It also reduces the amount of time an insured has to file a supplemental claim from 3 years after the loss to 18 months. This is a welcomed change. In Florida, there could be hundreds of weather events that occur over a period of years to an insured’s property. Delayed reporting of a claim significantly reduces the ability of an insurer to adequately determine the cause and extent of the claimed damage. It also has the effect of reducing the chances of payment on a claim due to the failure of the carrier to determine the cause and extent of damages. The reduction in time to file a claim or supplemental claim should assist carriers and insureds in promptly adjusting claims, and having the potential to increase payment on claims, thus reducing litigation.
Mandatory Binding Arbitration
The Act permits insurers to include mandatory binding arbitration provisions within their policies if: (1) they are contained in a separate endorsement; (2) the insurer provides a premium credit or discount; (3) the insured signs a form accepting the provision; (4) the endorsement establishes the insurer will comply with mediation prior to initiation of arbitration; and (5) the insurer offers a policy that does not require arbitration.
Mandatory binding arbitration is a favorable tool to be used by both insurers and insureds to ensure prompt resolution of claims. It provides a viable alternative to litigation, which often causes lengthy delays and increased costs, leaving the insured to wonder when their claim will be resolved. Arbitration provisions will also provide immediate financial benefits to insureds looking to reduce premium costs, while preserving their right to have any dispute heard by a neutral party. For insurers, it provides the benefit of reducing the exposure to litigation. Insurers without mandatory appraisal provisions should evaluate whether mandatory binding arbitration provisions are a benefit it wishes to offer.
Assignment of Benefits
The Act eliminates Assignment of Benefits (“AOB”) contracts executed under a property insurance policy, effective January 1, 2023. Any attempt by a policyholder to assign any post loss insurance benefit after January 1, 2023 is considered void, invalid, and unenforceable. The Act puts the proverbial last nail in the coffin for AOB vendors in the state. For context, according to the Insurance Information Institute, there were roughly 1,300 AOB lawsuits in Florida in the year 2000. Three years later, the annual number increased to 79,000, and by 2018 there were roughly 135,000 AOB lawsuits through November – a staggering 70% increase in just 15 years. In many cases, insureds were largely unaware of the lawsuits being filed on their behalf. Most insureds became aware of the lawsuits only after their carrier notified them that one had been filed. AOB vendors were silently draining the coverage limits of insureds’ policies without ever notifying them of the cost of the work being performed or the repercussions of signing the AOB. The Act puts a stop to AOB abuse in the state, and as a result, puts more money back into the hands of insureds and reduces abusive litigation in Florida.
In summary, the Act takes positive steps to improve the insurance market in Florida for both insurers and insureds. It has the potential to significantly reduce abusive litigation by eliminating AOBs and the one-way fee shifting provision. The Act protects insureds’ rights by requiring insurers promptly and properly adjust claims, with the hopes of reducing disputes and potentially increasing payment of claims. If a dispute does arise, the Act affords Florida’s insureds the right to resolve those disputes through use of alternative dispute resolution methods, rather than lengthy and costly litigation. The Act has the ability to return Florida to a healthy insurance market, which ultimately means the potential for more options for insureds with reduced premiums.
 The Act includes several other provisions intentionally omitted from this article, as it falls outside the article’s intended scope.
 Factors outside the insurer’s control are defined as: (1) a state of emergency issued by the Governor, a breach of security, or an information technology issue; and (2) actions by the insurer or insurer’s representative that constitute fraud, lack of cooperation, or intentional misrepresentation.