For the third time since 2019, the Florida Legislature has enacted broad property insurance reforms with the goal of stabilizing the insurance market and curbing litigation filed by unscrupulous contractors. The bill, S.B. 2D, creates a reinsurance program, amends certain prohibited advertisement practices for contractors, permits issuance of personal lines policies with separate roof deductibles, and reigns in property insurance bad faith litigation and litigation by assignees. In this article, we will focus on the statutory changes that affect the handling and litigation of property insurance claims.
No Attorney’s Fees for Assignees
The Legislature amended Florida Statutes Sections 627.428 and 626.9373 (surplus lines), which provide one-way attorney’s fee shifting to insureds that prevail in coverage litigation. The potential for recovery of attorney’s fees incentivized attorneys and contractors to litigate claims as a matter of course. In the first round of property insurance reforms in 2019, the Legislature established two-way attorney’s fee shifting in assignment of benefits (AOB) litigation against admitted carriers, depending on the amount recovered in relation to pre-suit settlement offers.
In the most recent reform package, the Legislature prohibited the assignment of any right to attorney’s fees, adding the following language to both Sections 627.428 and 626.9373:
In a suit arising under a residential or commercial property insurance policy, the right to attorney fees under this section may not be transferred to, assigned to, or acquired in any other manner by anyone other than a named or omnibus insured or a named beneficiary.
By removing the potential for statutory attorney’s fee shifting, the Legislature removed a significant incentive for attorneys and contractors to file unnecessary lawsuits, to over litigate, or to litigate in a manner that is disproportionate to the value of the dispute. After all, these contractors and attorneys are not the property owners whose property was damaged, but are instead professionals who target insurance claims to develop business.
In conjunction with amending Sections 627.428 and 626.9373, the law also amends Section 627.7152, the pre-suit notice statute for AOB litigation. The statute still requires assignees to give admitted insurers 10 business days’ notice before filing suit, but no longer provides a mechanism for attorney’s fee shifting.
Adjustment of Claims
Under Florida Statutes Section 627.70131, which also applies to surplus lines insurers, unless otherwise provided by the policy or by law, the insurer shall begin its investigation of the claim within 14 days after receiving proof of loss statements, unless the failure to begin such investigation is caused by factors beyond the control of the insurer. Section 627.70131(3)(b) now includes the additional requirement that “[f]or claims other than those subject to a hurricane deductible, an insurer must conduct any such physical inspection within 45 days after its receipt of the proof of loss statements.”
With respect to estimates created by the insurer, Section 627.70131 now provides:
(d) Within 7 days after the insurer’s assignment of an adjuster to the claim, the insurer must notify the policyholder that he or she may request a copy of any detailed estimate of the amount of the loss generated by an insurer’s adjuster. After receiving such a request from the policyholder, the insurer must send any such detailed estimate to the policyholder within the later of 7 days after the insurer received the request or 7 days after the detailed estimate of the amount of the loss is completed. This paragraph does not require that an insurer create a detailed estimate of the amount of the loss if such estimate is not reasonably necessary as part of the claim investigation.
Thus, if a policyholder requests a copy of an insurer’s estimate, the insurer must send a copy of the estimate within 7 days, or if the estimate is not yet competed, within 7 days after it is completed. But, an insurer need not create an estimate to respond to a request.
When paying or denying claims, insurers must set forth the basis in the insurance policy, in relation to the facts, for any payment, denial, or partial denial:
The insurer shall provide a reasonable explanation in writing to the policyholder of the basis in the insurance policy, in relation to the facts or applicable law, for the payment, denial, or partial denial of a claim. If the insurer’s claim payment is less than specified in any insurer’s detailed estimate of the amount of the loss, the insurer must provide a reasonable explanation in writing of the difference to the policyholder.
Attorney’s Fees to Insurers for Suits Dismissed for Lack of Pre-Suit Notice
In the second round of property insurance reforms, the Legislature established a procedure requiring pre-suit notice before a policyholder can file suit under a residential or commercial property insurance policy. Section 627.70152(5) provides that a court must dismiss without prejudice any claimant’s suit for which the required pre-suit notice was not given. The Legislature has now amended Section 627.70152 to permit courts to award to the insurer reasonable attorney’s fees and costs associated with securing the dismissal.
Presumption Against Attorney’s Fee Multipliers
There is no shortage of property insurance attorneys in Florida. Anyone who has driven through the state, turned on their television or radio, or opened their mail, has likely seen an advertisement by a property insurance attorney offering to work on a contingent-fee basis—“no recovery, no fee.” Yet, Florida courts have been routinely awarding attorney’s fee multipliers to prevailing policyholders that were represented on a contingent-fee basis. In Joyce v. Federated National Insurance Company, 228 So. 3d 1122 (Fla. 2017), the Florida Supreme Court found a contingency fee multiplier of 2.0 to be reasonable in a suit arising from a homeowner’s insurance claim. As a result of the contingent-fee multipliers, attorneys representing policyholders on simple disputes, such as residential water leak claims, have been awarded attorney’s fees at $800-1,000/hour.
The Legislature has now amended Section 627.70152(8), Attorney’s Fees, to include:
(c) In awarding attorney fees under this subsection, a strong presumption is created that a lodestar fee is sufficient and reasonable. Such presumption may be rebutted only in a rare and exceptional circumstance with evidence that competent counsel could not be retained in a reasonable manner.
Accordingly, there is still the potential that a court may award a contingent-fee multiplier, and there is still some level of arbitrariness when determining a reasonable hourly rate for an attorney that works predominantly, if not exclusively, on a contingent-fee basis. It is not clear yet what circumstances courts will find that warrant multipliers, but there is now at least a clear presumption against a multiplier, and the policyholder will bear the burden of rebutting that presumption.
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 Legislature has now created Section 624.1551 to address this issue by requiring a finding that the insurer breached the policy:
624.1551 Civil remedy actions against property insurers.-
Notwithstanding any provision of s. 624.155, a claimant must establish that the property insurer breached the insurance contract to prevail in a claim for extracontractual damages under s. 624.155(1)(b).
As a result of Section 624.1551, claimants can no longer file bad faith claims based only on a favorable appraisal award. Instead, the claimant will have to establish that the insurer breached the policy.
Except as otherwise provided, the statutory changes became effective upon being signed into law on May 26, 2022. The changes to Section 627.70131 discussed above will take effect on January 1, 2023. We anticipate that there will be challenges regarding whether the changes to the attorney’s fee statutes affect policies that were issued prior to the law taking effect.
The first two rounds of property insurance reforms appeared well intentioned, but did not go far enough in addressing the real issues—professional plaintiffs and laws that encourage litigation over reasonable resolution. The Florida Legislature is encouraging prompt and open adjustment of claims, while discouraging attorneys and contractors from abusing the insurance claim process. These reforms should have a positive impact on the property insurance market in Florida and should begin to reduce the amount of frivolous litigation that has been clogging the courts for many years. We will all have to wait and see whether yet another round of reforms is necessary.