This past Wednesday, Florida Governor, Ron DeSantis, announced that he will be signing new legislation into law focused on curbing what insurance carriers refer to as an epidemic of abusive litigation by repair contractors seeking compensation under property policies. In recent years, insurance carriers have voiced complaints about contractors abusing the assignment of benefits (“AOB”) system by accepting work from policyholders, only to then perform excessive repairs and inflate the charges. Those in favor of the new legislation argue that such practices have led to increases in coverage litigation and insurance premiums. The new bill has already been passed by the Florida Legislature and will be effective as of July 1, 2019.
The primary force that has been driving the influx of AOB litigation has been the “one-way” attorney fee rule, requiring insurance carriers to pay an assignee’s litigation costs associated with a coverage action, regardless of the outcome of the dispute in court. The new bill requires the courts to utilize a formula that may result in a fee award in favor of the assignee, the insurer, or neither party, based on the comparison of the pre-suit settlement offer, the pre-suit demand, and the difference between the ultimate judgment and pre-suit settlement offer. If the difference is less than 25% of the disputed amount, the insurer will be entitled to attorney fees; if the difference is 25% to 49% of the disputed amount, neither party will be entitled to attorneys’ fees; and if the difference is 50% or more, the assignee is entitled fees. It is worth noting that the new change does not apply to first-party property actions.
Advocates of the new legislation argue that it levels the playing field for insurance companies who are often-times left litigating against commercial companies in AOB situations instead of individual consumers, who the one-way fees rule was designed to protect. Opponents of the new legislation are concerned that it may be the first move in doing-away with the one-way fee provision in other contexts.
The new bill requires an assignee to provide an insurance company with notice of intent to file suit, and restricts the assignee from serving formal suit papers until the insurer has a opportunity to render a coverage determination within the statutory time frame. The insurer is then required to respond within 10 days with a settlement offer, demand for appraisal, or alternative resolution. Proponents of the new bill believe that the new pre-suit requirements will curtail “gotcha” situations in which insurers become subject to suit before having the opportunity to conduct their own investigations. Opponents of the new bill believe that the new pre-suit requirements place unfair burdens on contractors that will discourage them (especially smaller contractors) from accepting certain repair work.
The bill also creates a situation in which insurers will be permitted to offer policies that cannot be assigned, so long as prospective policyholders are provided with clear notice of the restrictions and are offered assignable policies with the same coverage. If an insurer decides to sell both types of policies, the restrictive policy must cost less than the non-restrictive policy, and the insurer must advise its policyholders of available coverage options at least on an annual basis.
The new bill also calls for an assessment of the effectiveness of the new reforms. Beginning on January 30, 2022, insurers will be required to submit annual reports to Florida’s Office of Insurance Regulation accounting for each “residential and commercial property insurance claim” paid under an AOB agreement in the preceding year. The idea is that such assessment will assist the Florida Legislature with deciding whether or not they will need to implement additional measures focused on curtailing the abuse of the AOB system.
The foregoing is a summation of an article published by Jeff Sistrunk from Law 360 on April 25, 2019. To view the full article, please access Law 360 directly.