Consumer Advocate, Florida Trial Lawyers Concerned about Arbitration in Claims Disputes

Plaintiffs’ attorneys and the state’s insurance consumer advocate are pushing back on Florida insurers’ plans to require arbitration to settle more claims disputes. Some attorneys warned that the plans could lead to legal challenges and potentially more claims litigation.

“That’s going to be a real issue,” said Dan Rheaume, a trial attorney in Hollywood, Florida, who represents homeowners in claims disputes. “They’re taking away the insured’s day in court. There will be challenges to that.”

Rheaume was reacting to news that broke last week that the Florida Office of Insurance Regulation had approved an endorsement filing by American Integrity Insurance Co. The insurer will offer premium discounts if homeowners agree to mediation or binding arbitration, for new policies starting April 22 and for renewals starting June 21.

Other insurance companies’ leaders have said their firms are now considering similar endorsements as a way to help reduce the extreme amount of claims litigation that has plagued the industry in Florida for the past few years. One carrier’s executives met on the plan late this week, right after word spread about American Integrity’s approval.

But arbitration may not be in the best interest of policyholders, said Tasha Carter, the insurance consumer advocate at the Florida Department of Financial Services.

“I definitely think more and more insurance companies moving to include a mandatory arbitration clause in homeowners policies should be a concern for policyholders,” Carter said this week. “Arbitration could put policyholders at a disadvantage.”

Non-litigation solutions can eliminate some of the legal protections consumers now enjoy, including the right to trial by judge or jury, and, in most cases, appeals to a higher court, she said.

Carter said her office plans to scrutinize similar endorsement requests that other insurers may file with OIR in coming months, and may submit comments.

American Integrity’s out-of-court approach will work like this, according to the endorsement: If a homeowner initiates a dispute over the value of a claim, it should first go to mediation. The policyholder must request the proceeding within five days of the loss. American Integrity will pay the cost of the mediation, including the mediator’s fee.

If the two sides cannot agree on a mediator, the homeowner will pick one. If not, or if the parties cannot come to agreement during mediation, the dispute will move to confidential, binding arbitration.

The intent of endorsement wording, however, may leave some room for argument. After the mediation section, it states that “all disputes … between us and you,” including those based on breach of contract, “legal theories” and other matters, will be handled through arbitration.

If the two sides can’t agree on an arbitrator, which must be a lawyer or retired judge, then either party can ask the circuit court to appoint one. The insurer will pay the arbitrator’s fee and filing fee. But the company will not pay the insured’s attorneys fees, something Carter and trial lawyers have criticized.

“That can be expensive for the policyholder,” said Gina Clausen Lozier, of West Palm Beach, a former insurance attorney who now represents first-party claimants. She said that arbitration in claims disputes is being seen around the state as another method insurers are using to cut out attorneys’ fees and costs.

Rheaume agreed and said that the arbitration endorsement is another blow against consumers, who don’t usually have the deep pockets of insurance companies. Until last year, when the Florida Legislature devised a schedule that limits insureds’ attorney fees based on the difference in award and demand, Florida law had allowed most plaintiffs’ legal fees to be paid by the insurer if the policyholder prevailed in court.

“We can’t lose track of who that law was written for – it was meant to protect the consumers,” Rheaume said. “Now, little by little, it’s become a slippery slope and it has curtailed the ability to hire lawyers and get relief.”

Another question about the arbitration clause: In the rare instances when arbitration outcomes can be appealed, it’s unclear which court level would be appropriate. “Would you appeal to circuit court or the appeals court?” Rheaume asked.

To see how arbitration might work in claims disputes, insurers and policyholders might look to Collier County on Florida’s southwest coast. Judges there, after the Florida Supreme Court in 2020 urged courts to speed up their dockets, ordered most insurance claims disputes to first be sent to non-binding arbitration.

Rheaume said the jury is still out on the efficacy of the approach. Out of about 15 claims disputes that he has handled that have gone to arbitration, most have ended up in mediation or in court anyway. He noted that arbitration puts insureds in an awkward position, partly because it’s similar to a trial, but without a judge. The appointed arbitrators aren’t always familiar with property insurance case law.

He also said that insurance companies don’t appear to be taking arbitration as seriously as they do litigation, and have not brought in as many expert witnesses during the proceedings.

Binding arbitration, like that stipulated in the recent American Integrity endorsement filing, could be significantly different for both sides.

“If insurance companies add that to their policies, that’s going to be a real issue and I think it will cause more litigation,” Rheaume said.