Florida Legislative Preview 2020: Industry Calls On Lawmakers to Reform Lawsuit Abuse

The Florida Legislature started its 2020 legislative session this week and lawmakers are set to consider a number of insurance-focused issues over the course of the 60-day period. At the top of the list for industry and consumer advocates are reforms to curb what they say are abuses of the state’s legal system that are hurting insurers’ bottom lines.

The issue is of particular importance to industry stakeholders in light of recent news about financial issues in the state’s insurance market.

Last session, the insurance industry scored a big win with the passage of property insurance reforms addressing the abuse of a policyholder benefit known as assignment of benefits (AOB) after seven years of failed attempts. While the reforms have already begun to curb the abuse that experts said was causing an insurance market crisis, its effects in the short term haven’t yet reached the balance sheets of Florida carriers who are still dealing with past inflated claims.

In his Tuesday “State of the State” address to the Florida Legislature, Governor Ron DeSantis thanked lawmakers for passing AOB reform and said the legislation has already led to lower rates for 44,000 policyholders of the state-run insurer, Citizens Property Insurance Corp. He urged Florida lawmakers to target other lawsuit abuses.

“The legal system is supposed to be used for redressing concrete injuries and disputes,” DeSantis said. “It is not a game and shouldn’t be used as such. Reforms such as AOB that improve the legal climate here in Florida are welcome.”

William Large, president of the Florida Justice Reform Institute, praised the governor’s remarks.

“As Governor DeSantis said, Florida’s legal system is supposed to address real injuries and disputes, not to be used as a game. Those games clog the courts and frustrate Florida’s growth,” he said.

The explosion of AOB claims over the last several years and other market forces, including excessive litigation and losses from Hurricane’s Irma and Michael, have created a hazardous financial environment for many insurers, according to Demotech, which rates 46 Florida-based carriers. As a result, Demotech said last week that many of Florida’s domestic insurance carriers face rating downgrades in the coming days and weeks.

Industry advocates and consumer groups are urging the Florida Legislature to pass legislation this year that would help the state’s private market, including reforms to the excessive litigation.

“Market factors such as Florida’s crumbling legal environment and lawsuit abuse have had significant consequences in the insurance marketplace and made it challenging for companies to maintain A ratings,” said Logan McFaddin, vice president of state government relations for the American Property Casualty Insurance Association (APCIA). “The Florida Legislature needs to implement meaningful reforms during the 2020 Legislative Session that reduce lawsuit abuse and restore fairness to Florida’s legal system. APCIA looks forward to working with lawmakers during the upcoming session to address these critical issues.”

Paul Handerhan, president of the Federal Association for Insurance Reform (FAIR), said two bills have been introduced, both sponsored by Senator Jeff Brandes, that would target first party litigation abuses. Senate Bill 914 would provide that for certain attorney fees awarded for claims arising under property insurance policies, the maximum fee a court may award is a lodestar fee and prohibit the court from considering contingency risk or using a contingency risk multiplier.

The other bill, SB 1634, would revise requirements for the civil remedy notice provided to insurers and the Department of Financial Services; delete a requirement for certain persons acting on behalf of an insurer to provide certain notice before scheduling a meeting or onsite inspection for certain purposes; and require named insureds to provide insurers with a specified notice as a condition precedent to filing suit under a property insurance policy.

Brandes who is a member of the Florida Senate Banking & Insurance Committee, also sponsored SB 924 that would target civil actions against insurers. That bill provides that in third-party bad faith actions against insurers, insureds and claimants have the burden to prove that an insurer acted in reckless disregard for insured rights which resulted in damage to the insured or the claimant, according to the bill summary. It also would require in these claims that insured or claimant actions or inactions are relevant in bad faith actions; provide that an insurer is not liable if certain conditions are met; and provide that an insurer is not liable beyond available policy limits as to certain competing third-party claims if it files an inter-pleader action within a certain time frame.

APCIA’s McFaddin said bad faith reform in Florida is a top legislative priority for the association this year.

“Florida’s legal climate is one of the worst in the country, and rampant lawsuit abuse fueled by some plaintiffs’ attorneys is dramatically driving up costs for consumers and businesses,” she said. “Consumers’ rights to seek legal action will remain protected, but it is past time to implement reforms that will reduce lawsuit abuse, curb frivolous tactics, and begin to restore fairness to Florida’s legal system.”

Another issue that the APCIA and other industry and consumer advocates will be focused on this year is reform for auto glass claims abuse. This scheme also uses AOBs but instead targets windshield claims where policyholders sign over their insurance benefits for quick repairs to attorneys or auto shops who turn around and sue the insurer in order to collect fees. According to a November report from the Florida Justice Reform Institute, there were 17,000 auto glass suits in 2017, up from about 400 in 2006. The number of suits peaked in 2017 with 24,000.

Last year, auto glass was removed during negotiations from the AOB reform bill that passed .

For this session, the industry backed a House bill that would have called for prohibiting motor vehicle repair shops and employees from offering anything of value to customers in exchange for making insurance claims for motor vehicle glass replacement and repair, but its sponsor withdrew it (HB 169) last week. A Senate version (SB 312) was voted down. Still, McFaddin says the industry will keep pushing for legislation to be passed this session.

“The Governor and Florida Legislature took steps last session to protect homeowners from AOB property scams, and now lawmakers have an opportunity to bring similar protections to Florida motorists,” continued McFaddin. “APCIA urges Florida lawmakers to put a stop to AOB auto glass abuse during the 2020 Legislative Session.”

FAIR is also hoping to see legislation regarding the Florida Hurricane Catastrophe Fund’s ratemaking formula, which it says does not adhere to required standards because its underlying catastrophe model results are unidentified and there is no way for peer review or audit of the FHCF’s Ratemaking Formula Report.

“The FHCF takes in nearly $100 million in premium a month from policyholders,” FAIR said in a statement. “Shouldn’t Floridians have the right to know exactly how the FHFC rate is calculated?”

FAIR said legislative action could require more transparency into the FHCF’s ratemaking process. “FAIR is asking state regulators and legislators to develop and pass balanced and meaningful reforms to provide relief to Florida’s policyholders.”