Florida lawmakers are once again taking on quirky provisions of the state's insurance laws that have been blamed for ballooning property claims and a torrent of costly lawsuits.
Bills in the state's House of Representatives and Senate aim to reform Florida's laws covering assignment of benefits, or AOB, that allow property owners to sign over control of insurance claims to contractors as they start repairs. Although the practice does not typically harm covered homeowners, insurance companies say the structure of the laws encourages legal abuse in collecting inflated repair bills.
Proposals in both legislative chambers would change the law that forces insurers to pay for legal expenses whether they win or lose contractors' lawsuits filed to pay for their services. That "one-way" attorneys fees provision is intended to favor homeowners who want to challenge their carriers. With repair vendors assigned as insurance beneficiaries, a cottage industry of litigation generated by contractors and attorneys who specialize in this field to collect artificially bloated charges has sprouted up, critics say.
An excavator tears down a home damaged by Hurricane Michael in Panama City, Fla.
Forcing insurance companies to pay plaintiff legal fees even if carriers' payments are deemed fair has opened the law to abuse, according to James Lynch, chief actuary and vice president of research and education at the Insurance Information Institute. Florida's legal fee requirement is unique nationally, Lynch said in an interview.
"We've never seen a one-way loser pay when the defendant pays the plaintiff's legal fees no matter what the judgment was," he said.
The Senate bill, sponsored by Republican Doug Broxson, would award attorneys fees only if property owners, not assigned vendors, prevail in legal challenges over repair costs. A House bill introduced by Republicans Michael Caruso and Bob Rommel would revise the fee provision and restrict contractors in making claims against insurance companies.
The issue is no longer a dispute between insurance companies and lawyers, according to state insurance commissioner David Altmaier. As expenses soar from AOB litigation, the effects have begun to trickle down to policyholders, Altmaier told a Senate panel during a Jan. 22 hearing.
"At the end of the day, this really is an issue that impacts Florida's insurance consumers. At the moment, it is impacting Florida's insurance consumers in an adverse way," he testified.
Florida has enacted AOB reforms in recent years only to have lawyers find other areas to exploit. That means the latest reform effort has to be holistic, Lynch said.
"You can't really look at a line-of-business-specific solution," he said.
The Insurance Information Institute does not advocate for legislation.
Supreme Court test
Florida's AOB law as written is under judicial scrutiny, as the state's highest court has taken up an appeal to clarify whether insurance companies can place restrictions on signing over insurance benefits.
Justices will consider a ruling that upheld St. Petersburg, Fla.-based Ark Royal Insurance's denial of an AOB claim because the carrier's contract required the consent of all insured parties, including a property's mortgage holder. A couple whose home took on water in August 2016 signed over insurance payment authorization to Restoration 1, with whom the property owners contracted to remove water and mitigate damage, according to a brief the vendor filed in its appeal.
Restoration 1 then billed Ark Royal for $20,305.75, but the carrier declined the authorization and sent the homeowners a check for $2,612.12 with Restoration 1 as a payee. The contractor sued Ark Royal on grounds that Florida's regulator has repeatedly rejected such restrictions on assignment of benefits, but the trial judge sided with Ark Royal, and the Fourth District Court of Appeals upheld the ruling in September 2018.
In its Supreme Court appeal, Restoration 1 cited a conflicting Fifth District Court of Appeals ruling that rejected insurance contracts that attempted to impose a similar consent restriction on signing over insurance benefits.