“This vote was cast before these members ever stepped into this room” – Trial attorneys fail to slow advance of insurance reform bill during special session

Democrats and representatives of trial attorneys tried to block efforts to restrict lawsuits against insurance companies as the Legislature's latest special session opened Monday but failed during votes by two Senate committees.

They argued in vain against the premise of SB 2-A, an effort to limit the claims litigation against insurance companies that the bill's proponents blame for escalating premiums and the departure of insurers from the Florida market.

Democrats and trial attorneys argued the real problem is that insurers delay or shortchange claims, all but forcing customers to sue them.

Meanwhile, lawmakers gave no assurance that the measure would lower premiums in the near term.

The proposed insurance legislation would authorize $1 billion for a new reinsurance program to back insurance companies, on top of $2 billion authorized in another special session last spring.

The Senate bill as it stands gives the insurance industry some of its fondest desires, including a ban on what's called assignment of benefits agreements (AOBs) for property insurance, in which policyholders transfer their right to sue carriers to a law firm or a contractor. The argument is that these agreements encourage unnecessary litigation over frivolous or fraudulent claims.

The other target is Florida's one-way attorney fee. The Legislature approved this mechanism years ago to discourage insurers from low-balling claims and balance the scales for policyholders against wealthy corporate insurers. Basically, if a policyholder sues and gets awarded any amount above the company's settlement offer — even a relatively small amount — he or she could demand the insurer pay his or her litigation costs.

This, too, would be scrapped under the bill to "root out the cause of the frivolous litigation that's driving the costs up," according to Banking and Insurance committee chairman Jim Boyd, who represents parts of Hillsborough and Manatee Counties.

"We have got to get at that root cause, because it's costing all of us and our constituents more than they can afford," Boyd said.

Geraldine Thompson of Orange County complained that the bill would leave unsophisticated consumers at the mercy of insurance companies and does little to constrain those companies' misbehavior. Also, she said, it does nothing about high salaries paid to insurance executives of failing companies (see this report by the Tampa Bay Times).

"Until we deal with that in addition to our concerns about litigation, etc., we're really not solving the insurance problem," Thompson said.

DeSantis' involvement

The plaintiffs' bar, represented by the Florida Justice Association, had managed to defang similar legislation during the past several years but appears to be getting rolled during this special session, which opened Monday.

The difference?

"Gov. DeSantis wrote this bill and gave it to membership and said, 'This is what's going to pass,'" plaintiffs' attorney David Murray told the Phoenix following the Banking and Insurance Committee vote.

"I would say this vote was cast before these members ever stepped into this room," Murray said.

According to Boyd, 39 states lack the one-way attorney fee requirement; Florida would become the 40th if the bill passes. Florida accounts for 7 percent of insurance claims but 76 percent of insurance claim litigation nationally, he said.

Although the bill would forbid AOBs, it would allow either party to a claims lawsuit to recover its attorney fees if the other party rejects a settlement offer that a judge ultimately found was justified — which "I believe levels the playing field," Boyd said. The award would have to exceed the offer by at least 25 percent, however.

Trial attorneys and some private citizens complained that insurers have been abusing the insurance appraisal process in handling claims, sending one adjuster after another to inspect damage in order to delay paying claims.

Under Boyd's bill, the Florida Office of Insurance Regulation would be allowed to fine or suspend any insurer that does that. The bill would reduce the time granted insurers to pay claims, too.

Insurers, in turn, complain that parties wielding AOBs sometimes file suit before giving them a fair chance to settle claims. Moving those third parties out of the process — "That's the way insurance is supposed to work. The homeowner has a contract with the insurance company for a premium and if anything happens they're going to cover you. The lion's share of the time, that's what happens," Boyd said.

Bad faith

In addition, a policyholder no longer would automatically have a claim for bad faith if he or she forces the carrier to improve on an initial offer of settlement — instead, the customer would have to establish breach of contract.

People could be forced out of the Citizens Property Insurance Corp., the state-backed insurer of last resort, if a policy is available on the private market for less than 20 percent above the Citizens premium. They'd be blocked from insuring through Citizens under those same conditions. Residential Citizens policyholders would need to buy flood insurance if they live in a Federal Emergency Management Agency-designated flood zone.

A similar mechanism would discourage Citizens from insuring most second or vacation homes; owners would be kicked off Citizens if they can find a private-market policy for less than 50 percent above their Citizens' rate.

The idea, Boyd said, is to reestablish Citizens as "truly what it was meant to be, the insurer of last resort." Citizens has been picking up customers forced out of the private market to the point that it now is carrying 1.4 million policies — a trend would endanger the company's reserves if allowed to continue.

The legislation also would allow insurers to offer customers binding arbitration agreements to resolve claims disputes — but they'd have to offer cheaper rates in exchange.

During a separate special session in May, the Legislature used tax dollars to create a $2 billion reinsurance program to supplement the existing Florida Hurricane Catastrophe Fund, a longstanding state backed reinsurer, because of the unavailability of reinsurance on the private market.

The bill would create another temporary, $1 billion reinsurance fund that insurers could buy into. It'd be called the Florida Optional Reinsurance Assistance program for one-year only "help in in a crisis market," Boyd said.

This report first appeared on the website of the Florida Phoenix, a nonprofit news organization dedicated to coverage of state government and politics from Tallahassee.