Changes to property insurance and reinsurance signed into law on May 26 create the Reinsurance to Assist Policyholders program (RAP), which is backed by $2 billion and seeks to assist insurance companies in obtaining reinsurance.
Attorney fee awards in assignment of benefits cases are eliminated to reduce fraud schemes, which former Deputy Insurance Commissioner Lisa Miller believes is one of the main contributors to skyrocketing costs.
The law also forbids insurers from refusing to cover homes with a roof younger than 15 years old solely because of the age of the roof.
On May 26, 2022, Florida Gov. Ron DeSantis concluded a special session designed to address soaring costs by signing into law expansive changes to property insurance and reinsurance. Insurers must acknowledge denying homeowners coverage solely based on the age of their roof in some cases will be forbidden. The state backed RAP program will hopefully alleviate some of the burden felt by property insurers when obtaining reinsurance. Changes to the attorney fee structure and new requirements for bad faith claims are expected to bring down the costs of litigation and market costs.
Here are some of the major changes set forth within the legislation that insurers should be aware of:
BEFORE: Limited state assistance to insurers in obtaining reinsurance.
- NOW: Creation of the RAP program which authorizes a $2 billion reimbursement layer of reinsurance for hurricane losses directly below the mandatory layer of the Florida Hurricane Catastrophe Fund (FHCF). Eligible insurers are required to participate in the program. This will hopefully keep reinsurers in Florida and lower reinsurance premiums, but insurers need to be sure to comply with RAP requirements.
BEFORE: Homeowners could sign over the benefits of a claim to contractors.
- NOW: Prohibits assignment of the right to obtain attorney fees with respect to property insurance policy. This applies to property insurance lawsuits brought by vendor assignees against authorized insurers and surplus lines insurers. This change will hopefully prevent or reduce fraud such as “roofing schemes” by eliminating the ability to collect attorney fees in these types of cases. These schemes have been a major factor in driving up litigation costs.
BEFORE: Old attorney fee structure greatly increased the cost of litigation and insurers could not obtain attorney fees and dismissal due to a failure to provide the required notice of intent to initiate litigation.
- NOW: Presumption that in property insurance cases, attorney fee awards based on the Lodestar methodology are sufficient and reasonable. Attorney fee multipliers will only be awarded in “rare and exceptional” circumstances. A defendant insurer may obtain attorney fees and costs associated with securing a dismissal without prejudice for failure to provide the required Notice of Intent to Initiate Litigation at least 10days before filing a suit. This change will lessen the amount of attorney fees awarded in most property cases and help lower the ballooning litigation costs. The 10-day rule will hopefully prevent frivolous and fraudulent litigation.
BEFORE: No rule forbidding insurers from denying a policy based on the roof being less than 15 years in age.
- NOW: Prohibits an insurer from refusing to issue or refusing to renew a homeowner’s policy for a residential structure with a roof that is less than 15 years old solely because of the roof’s age. Insurers must know this provision is effective on or after July 1, 2022. Penalties for such denial are unclear at this time.
BEFORE: Expansive bad faith law that did not require showing of breach of contract.
- NOW: Requires a claimant to establish a property insurer breached the insurance contract in order for the claimant to prevail in a bad faith claim for extracontractual damages under §624.155(1)(b). Bad faith claims should be fewer and harder to prove as a result.
BEFORE: Insurers were not required to perform a physical inspection of the property within 45 days, and were not required to notify policyholders of their right to receive a detailed loss report within seven days of the request or completion of the report.
- NOW: Property insurers must conduct any physical inspection of a claim within 45 days of receiving proof of loss statements, except for hurricane claims. Insurers must also notify policyholders of their right to receive any detailed report generated by an insurer’s adjuster that estimates the amount of the loss within the later of seven days after the policyholder requests the report or the completion of the report. This requirement will force insurers to be timely with inspections and reports to consumers.
Florida’s insurance market has experienced soaring costs which have forced some insurers to leave the state and others to become insolvent. Fraudulent and frivolous claims have left insurers on the hook for more money than the damage is worth. Hopefully the new laws addressing these issues will lessen the financial strain felt by Florida insurers and consumers, and encourage property insurers and reinsurers to remain in the Florida market.
We will continue to track how this new legislation affects the industry. If you have any questions about these changes and how they impact your business, please contact: