In December, Florida Gov. Ron DeSantis and the state’s legislature responded to Florida’s troubled property insurance litigation environment by enacting a substantial reform package. The provisions in SB 2A are designed to discourage frivolous and expensive insurance litigation that has been driving up the costs of property insurance for everyone in the state. In 2020, Florida accounted for 79% of homeowners’ insurance lawsuits nationwide while accounting for only 9% of the nation’s homeowners’ insurance claims. Some of the important reforms included will:
1. Eliminate Unfair Plaintiff-Only Attorneys’ Fee Awards
Florida’s property insurance industry has been plagued by abusive and unnecessary litigation driven by the pursuit of attorneys’ fees. One-way attorneys’ fees allowed only plaintiffs to recover their costs if they prevailed in their case, not prevailing defendants. This made lawsuits for alleged breaches of insurance policies nearly risk-free for plaintiffs and incentivized countless lawsuits, which increased costs to insurers and Florida taxpayers. SB 2A addressed these harmfully skewed incentives by amending Florida law to explicitly preclude these types of attorneys’ fees in the underlying claim.
2. Prevent Claims Against Insurers for Fabricated Policy Breaches
Another area where excessive litigation arose, unbalancing Florida’s property insurance market further, was claims against insurers for acting in “bad faith” or unreasonably refusing to honor an insurance policy. But instead of being used to address misconduct, as Florida’s bad faith law is intended to do, plaintiffs’ attorneys began to expand the law by crying bad faith for even the smallest-dollar deviation from a submitted insurance claim. SB 2A went a long way in addressing these abuses by raising the standards for a bad faith lawsuit to be filed. Before a bad faith lawsuit can arise, it is now necessary for a court to first determine that an insurer breached the insurance contract.
3. Prohibit Third Parties from Hoarding the Rights to Policyholders’ Claims
According to a 2019 ILR blog, Floridians have paid $1.6 billion more for insurance over the past decade than consumers in other states, thanks to the state’s unique assignment of benefits (AOB) law. AOB is when a policyholder signs over their rights (insurance benefits)—often to a home improvement contractor in exchange for their services. The contractor provides their service, then charges inflated rates in order to seek higher payments from the insurance provider. If the insurer objects to the exorbitant costs, they can then be sued by the third party. This deliberate inflation of claims and expensive litigation contributed to rising property insurance costs for everyone. Starting this year, SB 2A has prohibited these third parties from collecting and exploiting policyholder rights in property insurance policies.
In addition to these important reforms, the new law will also improve efficiency and lower costs by encouraging earlier notification to insurers of insurance claims, faster settlement of lawsuits, and use of the quicker and more cost-effective arbitration process. ILR and its state partners applaud these reforms, which will move Florida in the right direction to improve its lawsuit climate.