Viewpoint: Florida Begins New Era with Major Property Insurance Reforms

For the fourth time since 2019, the Florida Legislature has enacted property insurance reforms aimed towards stabilizing a beleaguered insurance market. The bill, S.B. 2-A, creates a reinsurance assistance program, establishes additional oversight for insurers with high volumes of hurricane claims, and reforms many aspects of the claims process, including the timing for paying and adjusting claims. The reforms further eliminate one-way attorney fee awards to policyholders and ban assignment-of-benefits agreements. In this article, we will focus on the changes to the claim adjustment process and coverage and bad faith litigation.

In the first round of property insurance reforms in 2019, the Legislature established a pre-suit notice process and two-way attorney’s fee shifting in assignment of benefits (AOB) litigation against admitted carriers. In the second round of property insurance reforms, the Legislature established a procedure requiring pre-suit notice for policyholders. The second round of reforms also set stricter time limitations for giving notice of claims. In the third round of property insurance reforms, the Florida Legislature took a more direct shot at the problem and eliminated statutory attorney fee shifting in suits brought by assignees, created a statutory presumption against attorney’s fee multipliers, and established a requirement that claimants prove a breach of contract in order to prevail on a claim for statutory bad faith against a property insurer. The new fourth round of reforms is discussed in detail below.

No Statutory Attorney’s Fee Shifting in Property Insurance Litigation

The prior reforms attempted to curb frivolous and excessive litigation by establishing a pre-suit notice process and a sliding scale for attorney’s fee awards based on success in the lawsuit. But even with a diminished prospect for an award of attorney’s fees, policyholders still had the leverage of asymmetric litigation. Giving a litigation advantage to one party encourages more litigation.

The Florida Legislature has now eliminated the statutory attorney’s fee shifting in residential and commercial property lawsuits for both admitted and surplus lines carriers, adding the following language to both Sections 627.428 and 626.9373: “In a suit arising under a residential or commercial property insurance policy, there is no right to attorney fees under this section.” The fee-shifting statutes remain in effect for other types of insurance, and there is still potential that policyholders recover attorney’s fees through sanctions motions or proposals for settlement.

Adjustment of Claims

The new reforms reduce the time for insurers to issue undisputed payments. Section 626.9541, unfair methods of competition and unfair or deceptive acts or practices, has been amended to reduce the time for which undisputed payments should be made. Undisputed payments must now be paid within 60 days, down from 90 days, unless payment of the undisputed benefits is prevented by factors beyond the control of the insurer as defined in Section 627.70131(5).

The Florida Legislature also made further amendments to Section 627.70131, which will take effect on March 1, 2023. Changes include:

• Reducing the time from 14 calendar days to 7 calendar days for insurers to review and acknowledge receipt of communications, unless payment is made within that time or unless the failure to acknowledge is caused by factors beyond the control of the insurer.
• Reducing the time from 14 days to 7 days after the insurer received proof-of-loss statements for the insurer to begin such investigation as is reasonably necessary, unless otherwise provided by the policy or by law, or unless the failure to begin such investigation is caused by factors beyond the control of the insurer.
• Reducing the time from 45 days to 30 days after receiving proof-of-loss statements for the insurer to conduct a physical inspection of the property.
• Permitting insurers to use electronic methods to investigate losses. Such electronic methods may include any method that provides the insurer with clear, color pictures or video documenting the loss, including, but not limited to, electronic photographs or video recordings of the loss, video conferencing between the adjuster and the policyholder which includes video recording of the loss, and video recordings or photographs of the loss using a drone, driverless vehicle, or other machine that can move independently or through remote control. The insurer also may allow the policyholder to use such methods to assist in the investigation of the loss. An insurer may void the insurance policy if the policyholder or any other person at the direction of the policyholder, with intent to injure, defraud, or deceive any insurer, commits insurance fraud by providing false, incomplete, or misleading information concerning any fact or thing material to a claim using electronic methods. The use of electronic methods to investigate the loss does not prohibit an insurer from assigning a licensed adjuster to physically inspect the property.
• Requiring the insurer to send the policyholder a copy of any detailed estimate of loss within 7 days after the estimate is written by the insurer’s adjuster, removing the requirement that the policyholder first request a copy of the estimate.

Section 627.70131(4) has been amended to require insurers to maintain certain records, including dates of:

• Any claim-related communication made between the insurer and the policyholder or the policyholder’s representative;
• The insurer’s receipt of the policyholder’s proof of loss statement;
• Any claim-related request for information made by the insurer to the policyholder or the policyholder’s representative;
• Any claim-related inspections of the property made by the insurer, including physical inspections and inspections made by electronic means;
• Any detailed estimate of the amount of the loss generated by the insurer’s adjuster;
• The beginning and end of any tolling period provided for in subsection (8) of Section 627.70131; and
• The insurer’s payment or denial of the claim.

“Factors beyond the control of the insurer” means:

• The Office of Insurance Regulation issued an order finding that all or certain residential property insurers are reasonably unable to meet the time requirements of the statute in specified locations and ordering that such insurer or insurers may have additional time as specified by the Office.
• Actions by the policyholder or the policyholder’s representative which constitute fraud, lack of cooperation, or intentional misrepresentation regarding the claim for which benefits are owed when such actions reasonably prevent the insurer from complying with any requirement of this section.

This definition of “factors beyond the control of the insurer” is important because it is also used in the section requiring timely payment of claims. The reformed statute now requires coverage determinations within 60 days:

(7)(a) Within 60 days after an insurer receives notice of an initial, reopened, or supplemental property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay is caused by factors beyond the control of the insurer…. Any payment of an initial or supplemental claim or portion of such claim made 60 days after the insurer receives notice of the claim, or made after the expiration of any additional timeframe provided to pay or deny a claim or a portion of a claim made pursuant to an order of the office finding factors beyond the control of the insurer, whichever is later, bears interest ….

Accordingly, the exception to the interest payment requirement has been limited to instances where the Office of Insurance Regulation determined that there are factors beyond the control of the insurer. An insurer can no longer make that determination. However, the time requirements of Section 627.70131 are tolled if a policyholder or a policyholder’s representative fail to provide material claims information requested by the insurer within 10 days after the request, if the request is made at least 15 days before the insurer is required to pay or deny the claim.

The time requirements are also tolled during any statutory mediation proceeding of any alternative dispute resolution proceeding provided for under the policy.

Deadlines for Notice of Claims

The Florida Legislature has again amended Section 627.70132, which is applicable to both admitted insurers and surplus lines insurers and applies to claims arising from any peril. The amended statute reduces the time to report a claim or reopened claim from 2 years after the date of loss to 1 year. The time to report a supplemental claim is reduced from 3 years after the date of loss to 18 months.

Pre-Suit Notice Process

The parts of Section 627.70152 pertaining to attorney’s fees have been removed. The pre-suit notice and resolution process have otherwise been left intact.

Assignments of Benefits

At the end of 2022, assignments of benefits to service providers will be prohibited:

Except as provided in subsection (11), a policyholder may not assign, in whole or in part, any post-loss insurance benefit under any residential property insurance policy or under any commercial property insurance policy as that term is defined in s. 627.0625(1), issued on or after January 1, 2023. An attempt to assign post-loss property insurance benefits under such a policy is void, invalid, and unenforceable.

This prohibition will apply to admitted carriers only.

Breach of Contract Necessary for Bad Faith

Florida Statutes Section 624.155 permits claimants to file bad faith claims under first-party property insurance policies. Before a claimant can file a bad faith suit, the existence of coverage and the extent of damages, the amount of loss, must be determined. Over the past decade, numerous Florida courts have held that an appraisal award is a sufficient determination of coverage and amount of loss to permit a bad faith suit. Therefore, even if an insurer properly issued payment under the terms of the policy, and had not been found to have breached any part of the policy, it could still face a bad faith suit if an appraisal award resulted in any additional payment to the insured. Consequently, appraisals have become a popular tool for bad faith setups.

The Florida Legislature attempted to fix this issue in its third round of reforms, but the language in the new Section 624.1551 was too vague as to what it means to establish a breach of contract. The Legislature has now replaced Section 624.1551 with more precise conditions for asserting a bad faith claim against a property insurer:

624.1551 Civil remedy actions against property insurers.—

Notwithstanding any provision of s. 624.155 to the contrary, in any claim for extracontractual damages under s. 624.155(1)(b), no action shall lie until a named or omnibus insured or a named beneficiary has established through an adverse adjudication by a court of law that the property insurer breached the insurance contract and a final judgment or decree has been rendered against the insurer. Acceptance of an offer of judgment under s. 768.79 or the payment of an appraisal award does not constitute an adverse adjudication under this section. The difference between an insurer’s appraiser’s final estimate and the appraisal award may be evidence of bad faith under s. 624.155(1)(b), but is not deemed an adverse adjudication under this section and does not, on its own, give rise to a cause of action.

With this amendment, the Legislature has ended the “appraisal to bad faith” setup, and made clear a simple, reasonable proposition—an insurer that has abided by the terms of the insurance policy should not have to defend a bad faith suit.

Offers of Judgment

The Florida Legislature amended Section 768.79, the offer of judgment statute, to permit the making of joint offers that are conditioned on mutual acceptance. This amendment eliminates the “spousal loophole,” which allows spousal co-plaintiffs, and other closely related policyholders, to avoid offers of judgment conditioned on their joint acceptance.

Submission of Claims to Appraisal as a General Business Practice

The bill amends Section 624.418, which provides grounds for the suspension or revocation of an insurer’s certification of authority, to include instances where an insurer, as part of a general business practice, without cause, compels insureds to participate in appraisal in order to secure full payment of their claims. Appraisal is a mechanism for resolving genuine disputes over the amount of loss for a given claim, and the decision to invoke appraisal should be made based upon the facts and circumstances of a particular claim. This amendment to Section 624.418 should alleviate concerns about appraisal being used as a means for avoiding bad faith liability as a result of the breach of contract requirement added to Section 624.1551.

Flood Insurance is Encouraged

The Legislature amended the warning language required in homeowner’s insurance policies that do not provide flood coverage. Instead of advising homeowners that they “may also need to consider” flood coverage, the new disclaimer will advise policyholders that they “should consider” flood coverage.

Mandatory Binding Arbitration Endorsements Authorized

The new law creates Section 627.70154, which codifies that insurers can issue optional mandatory binding arbitration endorsements. The policyholder must sign a form electing binding arbitration, and the premium for the policy must include an actuarially sound discount for the mandatory binding arbitration endorsement. But, insurers must also offer the policyholder a policy that does not require participation in mandatory binding arbitration.

Effective Dates

These statutory reforms became effective upon being signed into law by Governor DeSantis on December 16, 2022, which means the changes apply to policies issued after that time. The amendments to Section 627.70131 take effect on March 1, 2023. Because the old laws will apply to policies that have already been issued, we anticipate a high volume of litigation on older claims, and of claims for damage from Hurricane Ian and Hurricane Nicole. Following the third round of reforms, we saw an uptick of litigation from assignees hoping to litigate under the older, more favorable laws.

Assignments of benefits will be prohibited on January 1, 2023, but this prohibition will likely only apply to admitted carriers.

Closing Thoughts

These reforms represent the most significant changes to Florida’s current Insurance Code since its inception in 1982. In particular, the elimination of attorney’s fee awards has been on the radar of the Office of Insurance Regulation for a number of years now. These insurance reforms benefit both policyholders and insurers. Policyholders will receive quicker claim decisions and payments, and insurers should eventually see fewer abusive lawsuits. The Florida Legislature is encouraging prompt and open adjustment of claims, while discouraging attorneys and contractors from abusing the insurance claim process. We believe these reforms will have a positive impact on the insurance market in Florida, but it will take at least a few years before we see the true impact of this legislation on the volume of property insurance litigation.