Law Impacts Policies IssueD After January 1, 2023
Today, Florida Governor Ron DeSantis signed sweeping property insurance reform bills into law. The new legislation effectively ends one-way attorneys' fees, invalidates assignments of benefits under policies issued after January 1, 2023, and limits an insured’s ability to bring a bad faith action against an insurer without winning a breach of contract lawsuit. For the most part, these changes, including the elimination of one-way attorneys' fees, will be effective for policies issued after the bill's signing today. The highlights of the insurance reforms are detailed below.
One-Way Attorneys' Fees
Previously, under Florida law, an insurer was required to pay an insured’s legal fees if the insured prevailed in the litigation. Under this framework, as long as an insured obtained a judgment greater than any amount of the insurance proceeds originally paid by the insurer—even $1—the insured would be entitled to recover attorneys’ fees. In first-party coverage disputes specifically, an insured would often file a lawsuit in instances in which the dispute was simply over the scope of damages. As such, insureds were often able to leverage larger settlements using the attorneys’ fees statutes. This practice, along with Florida’s use of fee multipliers, caused litigation fees to skyrocket and greatly contributed to the insolvency of many insurance firms. However, as of December 16, 2022, the new legislation flatly bans one-way attorneys’ fees in insurance claims litigation.
Assignment of Benefits Changes
The legislation invalidates any assignment of benefits under any residential or commercial property insurance policy issued on or after December 16, 2022. We are looking into whether this applies to surplus lines carriers.
Bad Faith Actions
Now, an insured can no longer pursue a bad faith claim against an insurer until after a court has ruled that the insurer was in breach of the insurance agreement. This new law supersedes judicial precedent in Florida that has held that an insurer's liability for coverage and the extent of damages—and not necessarily an insurer's liability for breach of contract—must be determined before a bad faith action can become ripe. Previously, the parties’ settlement via the appraisal process or the acceptance of a proposal for settlement were both sufficient ways to establish the existence of liability and extent of the insured's damages as a condition precedent to filing a bad faith action against the insurer. Thus, this new legislation limits some of the avenues that were previously available to insureds to pursue a bad faith action.
Arbitration
Insurers can no longer require an insured to arbitrate under an insurance policy unless the arbitration provision is presented to the insured in a separate policy document, explained to the insured thoroughly, and the insured is given a discount on their premium in exchange for agreeing to the arbitration clause. The insured must also sign a separate document agreeing to any binding arbitration clause. This change arguably only applies to admitted carriers.
Shortened Time Frame for Notice of Loss
Rather than two years, insureds now only have one year after the date of loss to file a new or reopened claim. Additionally, supplemental claims must be filed within eighteen months instead of the prior three-year deadline.
Timing Changes for Insurers
Admitted carriers no longer have ninety days to make a coverage determination, and instead must now issue a decision to pay or deny a policyholder's claim in sixty days or less, unless there are circumstances outside of the carrier's control, which is also now defined by the new bill. Admitted carriers must also acknowledge the claim and communicate with the insured within seven days of receipt of the claim, instead of within fourteen days, and inspections must be completed in thirty days or less, including after a hurricane event.
These timing changes appear to only apply to admitted carriers as the bill deletes the section of the statute that makes it applicable to surplus lines carriers. The only exceptions to these deadlines are in cases of a declared state of emergency or cyber-attack; however, the Florida Office of Insurance Regulation has the right to extend any of these deadlines as needed.
Appraisals
The legislation also allows for additional regulatory watchdog measures for insurers who use the appraisal process to delay or deny claims. Insurers acting in this manner may have their certificate of authority suspended, and also may be publicly named in the Florida Office of Insurance Regulation website as a violator.
Reinsurance Updates
The law provides a new layer of reinsurance funded by the state. It creates the Florida Optional Reinsurance Assistance Program (FORA). FORA will be administered by the State Board of Administration. It permits eligible insurers (as defined by the statute) to purchase reinsurance coverage under FORA.