LAW ALERT: Another Massive Overhaul To Florida’s Property Insurance Laws Including A Major Shift In Rights To Attorney’s Fees
December 19, 2022
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Important Law Alert From Luks and Santaniello, LLC.
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In a special session, the Florida Legislature took major steps in attempting to overhaul Florida’s property insurance market, pushing through at lightning speed SB 2A. On December 16, 2022, Governor Ron DeSantis signed into law SB 2A while visiting Fort Myers, an area well-known for the recent devastation of Hurricane Ian. Along with SB 2A, Governor DeSantis simultaneously signed SB 4A, which was aimed at providing much needed support for recovery efforts in Florida communities affected by Hurricane Ian and Hurricane Nicole.
SB 2A takes serious strides towards stabilizing Florida’s property insurance market in the long run, including staunching the rate of carriers exiting the State or declaring insolvency, and ultimately looking to create an environment to attract capital and new options for insurance consumers.
SB 2A is consistent with the legislature's recent attempts to curtail first party property claims and litigation and immediately came into effect on December 16, 2022, unless otherwise noted. The anticipated impact of SB 2A will be more significant than prior bills as it wholly eliminates the long standing claimant-friendly one-way attorney’s fees statute for suits arising from residential and commercial property insurance claims. The bill expressly provides that the one-way attorney fee provisions of sections 627.428, 626.9373, and 627.70152 are not applicable in a suit arising under a residential or commercial property insurance policy. The bill also removes provisions regarding attorney fees relating to the alternative procedure for resolution of disputed sinkhole insurance claims.
There still remain avenues for a court to award fees to a “prevailing party” after a dispute is adjudicated, including giving some bite back to the use of Offers of Judgment. Notably, the bill reinstates application of the civil offer of judgment statute to civil actions arising under a residential or commercial property insurance policy and allows joint offers of settlement in property insurance litigation contingent on acceptance of all joint offerees.
The use of Mandatory Binding Arbitration endorsements is a new tool being offered to insurers. The bill provides conditions whereby a property insurer may include mandatory binding arbitration in its policies. The insurer may not require a policyholder to participate in mandatory binding arbitration unless specified conditions are met and an appropriate premium discount is offered; the insurer is required to also offer a policy that does not have a mandatory binding arbitration clause at a higher premium.
SB 2A also significantly tightens deadlines under the “prompt pay laws” for insurers to process claims, including but not limited to, reducing the time insurers have to pay or deny the claim from 90 to 60 days, shortening the time for insurers to respond to claim communications from 14 down to 7 days, and reducing the time for the insurer to conduct a physical inspection from 45 days to 30 days. The bill also reduces the deadline for policyholders to report a claim under the policy from 2 years to 1 year for a new or reopened claim, and from 3 years to 18 months for a supplemental claim.
The bill decidedly prohibits the assignment, 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. Whereas previously multiple lawsuits for the same underlying insurance claim were being filed by various contractors or services providers, remediation companies, and/or policyholders themselves, this change will help reduce the overall number of suits filed for the same claims.
With regard to Citizens Property Insurance Corporation, the bill revived a plan to require Citizens’ policyholders to switch to a primary market carrier if that carrier’s premiums are no more than 20% higher than Citizens’, upon renewal. It further requires Citizens’ policyholders to purchase and maintain flood insurance, with an implementation period over the next 4 years. The bill provides a timetable for phasing in the requirement, with more expensive properties needing it first, by March 1, 2024. All policies would need flood insurance by March 2027, regardless of the property’s elevation or location.
In line with other recent changes to Florida’s insurance property laws, SB 2A further bars bad-faith claims until after a court has decided that the insurance company breached the policy contract.
The bill also provides the OIR with greater oversight and authority to suspend insurers certificates of authority, levy fines, and name or publicly shame carriers who abuse the appraisal process with such regularity as to be a general business practice. The purpose is to prevent insurers from using appraisal to underpay claims or delay resolution.
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A synopsis of these and other notable new laws are as follows:
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Senate Bill 2A, An Act Relating to Property Insurance
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§ 626.9373 Attorney’s Fees. This Section relates to claims against surplus line insurers. The recent amendment wholly eliminates any rights or claims for attorneys’ fees in suits arising under a residential or commercial property insurance policy under this section. We anticipate that elimination of the one-way fees statute will lower the amounts needed to settle cases (since fees don’t have to be incorporated into the negotiation) and that the use of Danis offers and proposals for settlement will be more impactful.
§ 627.428 Attorney Fees. This amendment completely removes the right to attorney’s fees in suits arising under residential or commercial property insurance policies under this section. The amendment also removes language that would award attorney’s fees under section 57.105 and section 627.70152 under residential or commercial property insurance policies.
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§ 215.5552 creating the Florida Optional Reinsurance Assistance Program (“FORA”). Administered through the State Board of Administration (“SBA”), this is a new layer of state-funded reinsurance, at significantly discounted rates from the private market. Establishment of FORA would provide coverage starting at the FHCF’s attachment point, currently at about $8.5 billion for the industry, and would cover up to $5 billion in losses below that. Rates would range from 50% to 65% lower than private reinsurance market rates. It would be funded with $1 billion in state funds and from premiums paid by participating insurance companies. This is in addition to the Reinsurance to Assist Policyholders (“RAP”) fund, established at the May special session, which would continue for at least another year. This aims to curb the soaring rate of carrier insolvencies seen in recent years.
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§ 624.1551 Civil Remedy Against Property Insurers: Section 624.155 of the Florida Statutes currently permits claimants to file bad faith claims under first-party property insurance policies. However, the existence of coverage, extent of damages, and the amount of loss must be determined before a claimant can file a bad faith suit. Notwithstanding any provision of section 624.155, section 624.155(1)(b) now requires a named or omnibus insured or a named beneficiary to establish through adverse adjudication by a court of law that an insurer breached the insurance contract and a final judgment or decree has been rendered against the insurer in order for the claimant to prevail in a bad faith claim for extra-contractual damages.
Most notably, revisions to the this section add that acceptance of an offer of judgment under section 768.79 or the payment of an appraisal award does not constitute an adverse adjudication under this section; setting out in express terms principles carriers previously had to litigate through the Courts. Although the difference between an insurer’s appraiser’s final estimate and the appraisal award may be evidence of bad faith, it is not deemed an adverse adjudication under this section and does not, on its own, give rise to a cause of action.
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§ 624.3161 Market conduct examinations. Authorized Insurers in Florida may be subject to additional market conduct examination after a hurricane if the insurer:
- Is among the top 20% of insurers based upon a calculation of the ratio of hurricane-related property insurance claims filed to the number of property insurance policies in force;
- Is among the top 20% of insurers based upon a calculation of the ratio of consumer complaints made to the department to hurricane-related claims;
- Has made significant payment to its managing general agent since the hurricane; or
- Is identified by the office as necessitating a market conduct exam for any other reason.
All relevant criteria under this section and section 624.316 shall be applied to the market conduct examination under this subsection. The examination must be initiated within 18 months after the landfall of a hurricane that results in an executive order or a state of emergency issued by the Governor. An examination of an insurer under this subsection must also include an examination of its managing general agent as if it were the insurer.
§ 624.418 Suspension, revocation of certificate of authority for violations and special grounds. This section provides authority for the OIR to suspend or revoke the certificate of authority of an insurer if, in its discretion, it finds that the insurer has engaged in activity with such frequency to indicate a general business practice, without cause, of: 1) refusing to pay proper claims, 2) compelling insureds or claimants to accept less than the amount due them, 3) causes insureds or claimants to employ attorneys or bring suits in order to secure full payments or settlement of claims, or 4) compelled insureds to participate in appraisal under a property insurance policy in order to secure full payment or settlement of such claims.
This implies some recognition of allegations that carriers have abused the appraisal process to circumvent claims adjustment obligations, underpay claims, or delay resolution.
§ 624.424 Annual statement and other information. Additions were made to subsection 10(a) regarding quarterly supplemental reporting by insurers, specifically items 9-12 were added as follows:
9. Number of claims open each month.
10. Number of claims closed each month.
11. Number of claims pending each month.
12. Number of claims in which either the insurer or insured invoked any form of alternative dispute resolution, and specifying which form of alternative dispute resolution was used.
These additional requirements highlight the OIR’s efforts to obtain a better and more complete picture of the insurance industry for consumers, stakeholders, regulators and the public as a whole.
§ 626.9541 Unfair methods of competition and unfair or deceptive acts or practices defined. Sweeping changes were made to the time allowed for insurers to adjust and pay or deny claims, reducing the period from 90 days to just 60. There are allowances for the OIR to extend the time in states of emergency, or other factors beyond the control of the insurer as further defined in §627.70131, such as a cyber-attack or other computer system failure. This would certainly leave carriers under pressure to maximize efficiency in the adjustment process and secure additional manpower to meet the shortened deadlines.
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§ 627.351 Insurance risk apportionment plans. Effective January 1, 2023, under specific circumstances Citizens would have the ability to consolidate its three financial accounts (for personal lines, coastal, and commercial) into one, known as the Citizens account. This would allow the corporation to access its entire surplus to pay claims and would limit potential surcharge or assessment on policyholders to a single surcharge of up to 15% as approved by the board of governors, if the corporation runs a deficit. The Bill further provides procedures if the board of governors determines that a projected deficit would exceed the amount to be recovered through surcharges, allowing emergency assessments to be levied over several years.
The Bill also requires Citizens’ policyholders to switch to a primary market carrier if that carrier’s premiums are no more than 20% higher than Citizens’, upon renewal, for policies that renew on or after April 1, 2023. One of the main reasons Citizens’ is the largest carrier in Florida is that its premium increases are limited by law.
The Bill provides a mandatory requirement that Citizens Insureds obtain and maintain flood insurance from another insurer, except for policies already in place which do not provide coverage for the peril of wind. Additionally, policyholders who make a claim for water damage under a Citizens policy expressly hold the burden of proving the damage was not caused by flood.
An amendment was made to subsection (6)(s) regarding the liability and immunity of Citizens Property Insurance Corporation, simply to remove language holding the corporation liable to policyholders and beneficiaries for attorney’s fees under section 627.428 in breach of contract actions and actions for benefits under a policy.
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§ 627.3511 Depopulation of Citizens Property Insurance Corporation. Amended the basis for which insurers writing personal lines residential and commercial residential property coverage are not exempt from emergency assessments collected from policyholders; now pursuant to s. 627.351(6)(b)3.e., instead of 627.351(6)(b)3.d.
§ 627.3518 Citizens Property Insurance Corporation policyholder eligibility clearinghouse program. Effective January 1, 2023, changes to subsection (5) reiterate that policyholder applicants for new coverage are not eligible to obtain a policy with Citizens if there is an offer of coverage from an authorized insurer through the program at a premium that is at or below the eligibility threshold established in section 627.351(6)(c)5.a. Essentially, if a new applicant can obtain a comparable policy from an authorized insurer at a premium of no more than 20% over that of a Citizens’ policy, they will not be eligible for coverage with Citizens.
§ 627.410 Filing, approval of forms. Additions were made which require the office to reexamine an insurer’s property insurance policy forms containing appraisal clauses if a market conduct examination of a property insurer reveals that the insurer exhibited a pattern or practice of one or more willful unfair insurance trade practice violations with regard to its use of appraisal. The office may withdraw approval of the forms or issue an order prohibiting the insurer from invoking appraisal for up to two years.
§ 627.7011 Homeowners’ policies; offer of replacement cost coverage and law and ordinance coverage. An insurer issuing a homeowner’s policy that does not provide flood insurance coverage must include on the declarations page, instead of just within the policy documents, a statement for the insured on considering the purchase of flood insurance. The form language has also been revised to emphasize that flood damages are not covered and policyholders should consider obtaining additional flood coverage.
§ 627.70131 Insurer’s duty to acknowledge communications regarding claims; investigation. Effective March 1, 2023, insurers will be required to respond to any received claim communication within 7 days, instead of the previously required 14 days. Insurers also must begin an investigation within 7 days of receipt of a proof-of-loss statement, instead of the previously required 14 days. An insurer must inspect a property within 30 days, instead of the previous requirement of 45 days, of receipt of the proof-of-loss statements for all property claims; the amendment removes an exclusion previously noted for claims subject to a hurricane deductible.
SB 2A also includes a new subsection allowing insurers to use electronic methods to investigate claims, such as: electronic photographs or video recordings, video conferencing with the adjuster and policyholder, use of drones or other machines that move independently or by remote control. An insurer may void the policy if the policyholder or any other person at the direction of the policy holder, 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. Insurers are not prohibited from assigning a licensed adjuster to physically inspect the property despite now being permitted to inspect through electronic methods. Insurers are now required to provide a policyholder with a copy of any estimate generated by the insurer’s adjuster; however, insurers are not required to have its adjuster prepare an estimate.
Additionally, an insurer must now maintain claim records which include dates of claim-related communications, receipt of a proof of loss statement, any claim-related request for information, any claim-related inspections of property including both physical and electronic, any detailed estimate generated by the insurer’s adjuster, the beginning and end of any tolling period provided in subsection 8*. An insurer now has 60 days from the reporting of a claim, instead of 90 days, to either make payment or issue a denial, unless the failure to pay is caused by factors beyond the control of the insurer.
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*Subsection 8 provides guidance as to when the requirements of this section are tolled:
- During the pendency of any mediation proceeding or other alternative dispute resolution provided for in the insurance complaint. Tolling period ends upon the conclusion of the proceeding.
- Upon failure of policyholder or representative to provide material claims information requested by the insurer within 10 days after the request was received. Tolling period ends upon the insurer’s receipt of the requested information. Tolling in this paragraph applies only to requests sent by the insurer to the policyholder or a representative of the policyholder at least 15 days before the insurer is required to pay or deny the claim or a portion of the claim.
§ 627.70132 Notice of property insurance claim. A claim or reopened claim is barred unless notice is provided to the insurer within 1 year (instead of 2) after the date of loss. A supplemental claim is barred unless notice of the supplemental claim is given to the insurer within 18 months (instead of 3 years) after the date of loss.
§ 627.70152 Suits arising under a property insurance policy. SB 2A now excludes references and provisions that relate to attorneys fee awards as well as suits brought by assignees, as both are now prohibited.
§ 627.70154 Mandatory binding arbitration. This is a new statute which provides that a property insurance policy may not require that a policyholder participate in mandatory binding arbitration unless all of the following apply:
- Requirements are contained in a separate endorsement attached to policy
- The premium charged to policyholder includes an actuarially sound credit or premium discount for the endorsement
- Policyholder signs a form electing to accept mandatory binding arbitration – form must notify policyholder of rights given up in exchange for discount, including but not limited to the right to trial by jury.
- Endorsement establishes that an insurer will comply with the mediation provisions set forth in section 627.7015 before the initiation of arbitration
- The insurer also offers policyholder a policy that does not require participation in mandatory binding arbitration
§ 627.7074 Alternative procedure for resolution of disputed sinkhole insurance claims. SB 2A removes the exception that makes evidence of an offer to settle admissible to prove liability or absence of liability for the claim or its value. SB 2A also removes reference to an insurer’s liability for attorney’s fees under 627.428.
§ 627.7142 Homeowner Claims Bill of Rights. Effective March 1, 2023, SB 2A changes what the Bill of Rights has to state, with regard to previous amendments (i.e. now have to acknowledge communication within 7 days instead of 14 days, and insurer is required to provide a copy of its adjuster’s estimate if one is created; and claim decision must be made within 60 days of reporting).
§ 627.7152 Assignment Agreements. SB 2A states that the assignment agreement must be executed under a residential or commercial property insurance policy and issued between July 1, 2019, and January 1, 2023, for the following provisions to apply. SB 2A also includes a provision stating that 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 or commercial insurance policy 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. Insureds are no longer able to assign a claim to a roofing company or contractor after January 1, 2023.
§ 627.7154 Property Insurer Stability Unit; duties and required reports. SB 2A includes an addition that the bi-annual report from the insurer stability unit shows the name of any insurer that is the subject of a market conduct examination that found the insurer exhibited a pattern or practice of one or more willful unfair insurance trade practice violations with regard to its use of appraisal. The insurer stability unit must also publish on the office’s website 1) a list of all such insurers that fall into the above category, as well as 2) a link to the market conduct reports regarding such insurers.
§ 631.252 Continuation of Coverage. This section provides an exception to the rule that the 30-day coverage continuation period cannot be extended in any event; now, the period can be extended if the office determines, based on reasonable belief, that market conditions are such that policies of residential property insurance coverage cannot be placed with an authorized insurer within 30 days and that an additional 15 days is needed to place such coverage.
§ 768.79 Offer of Judgment and Demand for Judgment. In breach of contract actions, property insurers can now make a joint offer of judgment or settlement that is conditioned on the mutual acceptance of all the joint offerees. This is a key change in the ability for insurers to enforce offers of judgment to policyholders, as suits are often filed by co-owners of a Property, including spouses, or held under a trust.
Implications. Governor Ron DeSantis signed this bill reforming Florida’s property insurance laws on December 16, 2022, effective immediately (unless otherwise noted). We anticipate that as a result of this new law first party property claims and litigation will be reduced; however, it is possible that the claims and litigation that do remain involve more legitimate cases. As such, offers during the NOI process will be very important.
Questions? Luks and Santaniello, LLC.'s First Party Property practice group will continue to monitor and provide updates regarding developments in the applications of these new laws. For questions or further assistance with your Florida matters, please reach out to our First Party Property practice group.
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Fort Myers
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Fort Myers
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Fort Lauderdale
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Fort Lauderdale
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