Florida mulls litigation curbs and reinsurance booster in special session

Florida’s state legislature will kick off its special session Monday (December 12) with legislation that would wipe out the assignment of benefits and one-way attorney fees which are blamed for turning Florida into a litigation hotbed and would additionally craft new state-backed reinsurance options.

The bill, launched simultaneously in both houses of the Florida legislature, is designed “to ensure policyholders in this state have access to quality, affordable private market property insurance,” authors said in preamble to the legislation’s impact study.

Florida’s assignment of benefits (AOB) provisions and statutes on one-way attorney fees are generally designed to assist policyholders in the pursuit of wrongfully-denied claims and protect them against legal fees in such lawsuits. Critics argue that contractors armed with AOB agreements and backed by an army of lawyers leverage the rule without risk of legal fees for losses. Florida ends up with an overwhelming majority of the nation’s lawsuits on a tiny minority of the nation’s claims.

Authors of the legislation cite both those litigation trends and the insurance industry’s catastrophic financial condition in justifying the bill. Domestic property insurers in Florida last saw a positive net income in 2016 and have racked up over $3 billion in net underwriting losses since, legislators said in the opening salvo of the justification. Claims outweigh initial estimate at an accelerating pace. Policyholders are likely to see 40% rate increases in the coming year.

Legislators are also considering matching sets of legislation on disaster relief and toll road relief. Some rival legislation concerning insurance has appeared in the Florida House of Representatives as well.

In the core stipulations of the primary legislation:

Florida will create a new optional reinsurance programme FORA, funded with up to $1 billion in taxpayer money, allowing insurers to buy reinsurance coverage for the two most damaging hurricanes of the season, all at what policymakers believe will be "reasonable" rates.

Coverage will cost between 50 and 65% rate on line depending on tier levels, which are tied to the Florida Hurricane Catastrophe Fund (FHCF) attachment point. Buyers qualifying for varied layers of FORA coverage can simultaneously qualify for participation in the $2 billion Reinsurance to Assist Policyholders (RAP) programme, initiated at an earlier 2022 special session.

On one of the most contested elements of the Florida legal framework, the bill will eliminate Florida's one-way attorney fee provisions for lawsuits stemming from any residential or commercial property insurance policy.

Florida will additionally eliminate all future assignment of benefits, "in whole or in part, of any post-loss insurance benefit under any residential property insurance policy or under any commercial property insurance policy issued on or after January 1, 2023."

The bill reduces the period during which policyholders may report a claim after an event from two years to one year for a new or reopened claim, and from three years to 18 months for a supplemental claim.

The bill likewise reduces the period under which insurers have to act following a claim, mostly notably a cut from 90 to 60 days for payment or rejection.

The bill grants a series of rights to the state regulatory authority OIR to supervise post-hurricane processes and penalise what it considers unfair practices on property appraisal.

Some changes will be coming for policies managed by the state insurer of last resort, Citizens Property Insurance Corporation (Citizens).

Policy holder eligibility will be tightened and all residential and commercial policyholders receiving an offer no more than 20% above the Citizens renewal rate will be ineligible to stay on at Citizens. Rates charged must be "actuarially sound" and must be higher for property that is not a primary residence.

The bill removes the glidepath rate limitations for any new or renewal personal lines policy for non-primary residences written on or after November 1, 2023, and sets the rate to no more than 50% above, but not less than, the established rate for Citizens which was in effect one year before the date of the application.

Citizens’ policyholders are required to add flood coverage in a programme rolling out through March 2027.

The bill additionally appropriates additional recurring funding from the Insurance Regulatory Trust Fund to the OIR for recruitment and staffing.

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