January 7, 2018
By Ron Hurtibise, Contact Reporter
Will 2018 finally be the year that property insurers and trial attorneys agree on legislation aimed at curbing costly claims abuses and excessive lawsuits?
Insurers don’t sound too confident as they prepare for Tuesday’s start of the legislative session in Tallahassee. Several industry representatives say they won’t be surprised if another Florida session concludes with nothing to show on what most say is their most pressing issue.
Solutions have eluded lawmakers because two powerful political forces — insurers and trial lawyers — have fought each other to a standstill.
“I would love to see both parties come up with a work product that would pass the Legislature,” said Paul Handerhan, senior vice president for public policy for the Fort Lauderdale-based watchdog group, Florida Association for Insurance Reform. “Reforms are needed, and I’m hopeful but not overly optimistic.”
Consumers, not insurers or trial attorneys, will pay the price for another failure to enact reform. When costs increase for insurance companies, the companies pass those higher costs to homeowners in the form of higher rates.
This year, most South Florida homeowners will see increases of 5 percent to 15 percent thanks to the Legislature’s failure to enact reforms in 2013, 2014, 2015, 2016 and 2017.
Lawmakers set to take another stab at fixing insurance claims abuses
Insurers cited higher costs from claims abuses as they sought approval for rate increases throughout the year, and for the most part, the state Office of Insurance Regulation approved requested increases.
Insurers want to stop excessive lawsuits by repair contractors working under an affidavit called an assignment of benefits [AOB]. When homeowners sign the affidavit, contractors stand in their shoes when seeking payment from insurers for repair work.
Insurers contend that contractors and their attorneys, primarily from South Florida, abuse the system by submitting inflated invoices and filing suit when insurers deny or underpay them. The abuses drive up costs and rates, insurers say.
Thousands of such suits are filed each year. Insurers say attorneys are motivated by a state law allowing customers to collect legal fees from insurers if the suit results in an insurer paying any amount of money over its initial settlement offer. Under the law, insurance customers do not have to pay insurers’ legal fees if they don’t prevail in a suit — and that protection enables contractors and attorneys to file unlimited lawsuits while standing in homeowners’ shoes.
Attorneys counter that lawsuits would be unnecessary if insurers would simply pay fair costs for repairs. Too often insurers leave homeowners and contractors with no choice but to sue by failing to pay what’s necessary to return damaged homes to their pre-loss conditions.
In recent years, insurers and their allies in the Legislature have tried to enact laws barring homeowners from assigning claims without insurers’ permission. But trial attorneys and their allies blocked those efforts, and courts affirmed assignment rights.
Last year, insurers changed strategy by helping to write a bill that would prohibit third-party assignees from collecting legal fees from insurers.
That failed when Sen. Anitere Flores, R-Miami, powerful chair of the Senate Banking and Insurance Committee, refused to bring the bill up for debate.
Flores also refused to consider another bill, which passed the full House, that would have awarded legal fees according to a complicated formula. If enacted, contractors would get legal fees only if they win a settlement that exceeds a certain threshold, while insurers would collect legal fees from contractors if the settlement is less than or just a small amount more than insurers’ initial offer.
Both bills have been reintroduced this year despite remaining unacceptable to trial lawyers and despite insurers’ expectation that Flores won’t place either on her committee’s agenda.
Flores instead plans to open debate on a new bill, introduced by Sen. Greg Steube, R-Sarasota, that contains some reforms sought by insurers but one big one they say is a showstopper.
Among the elements considered friendly to insurers are requirements that contractors provide a written scope of work to be performed and that consumers be allowed to rescind assignments within seven days. Contractors would be required to notify insurers of assignments within seven days of execution or 48 hours after beginning nonemergency repairs.
Written cost estimates would have to be submitted. Contractors working under assignments would be barred from pursuing claims against homeowners, except for the deductible amount or cost of work performed before any cancellation of the assignment.
But the bill includes no restrictions on contractors’ ability to collect attorney’s fees and in fact would prohibit insurers from passing along to its customers the cost of those attorneys fees.
“Attorneys fees and costs paid by a property insurer … may not be included in the property insurer’s rate base and may not be used to justify a rate increase or rate change,” the bill states.
Flores said she knows this is as unacceptable to insurers as the bill barring contractors working under assignments from collecting attorneys fees is to trial attorneys.
“This is not a bill the insurance industry loves,” Flores said in an interview Friday. “I haven’t talked to them but I’m sure they hate it.”
She said she hoped the bill would serve as a starting point for negotiations during the session, ending with some form of compromise between the two extreme positions.
“This bill is a start down the compromise process. Let’s see what this accomplishes,” she said.
But Michael Carlson, president of the Personal Insurance Federation of Florida, is one of several industry representatives lining up against the bill. “If this is the Senate’s statement on how to reform AOB, then I am very doubtful anything positive is going to happen,” he said, adding the bill sidesteps the issue of claims abuses in favor of “punitive measures against insurance companies.”
Others organizations opposing the bill include state-run CItizens Property Insurance Corp., which expects to levy 10-percent rate increases indefinitely if no reform is enacted, the Property Casualty Insurers Association of America, and the Florida Property and Casualty Association.
William Stander, FPCA executive director, called the bill “a wolf in sheep’s clothing” that would “codify the problem into law” and cement the ability of lawyers and vendors to continue doing what they’re doing.”
But Dale Swope, president of the Florida Justice Association, a trade organization for trial attorneys, said insurers could avoid the issue by following some simple advice: “If they don’t cheat their customers, they’ll never have to pay a dime in legal fees.”