New Florida Legislation Enacted Addressing Property Insurance Crisis
By Michael J. Raudebaugh
At the end of a special session called to address the growing insurance crisis within the state, the Florida Legislature passed two bills, Senate Bill 2-D and Senate Bill 4-D, that were signed into law by Governor DeSantis on May 26, 2022. The new legislation is directed toward the conditions developing within Florida’s insurance market that prompted the call for a special legislative session in the first place, including rising premiums, carrier insolvencies, and the high rate of property insurance lawsuits. The short- and long-term effects of the legislation are uncertain, but insurance carriers and their counsel must be aware of these changes and how they will alter the property insurance landscape moving forward.
Senate Bill 2-D
Senate Bill 2-D’s provisions are intended to assist carriers and insureds by stabilizing the reinsurance market, incentivizing homeowners to retrofit their property against hurricanes, limiting the use of attorney fee multipliers, and imposing disincentives on assignment of benefit contracts.
1. Reinsurance Assist Program
In an effort to shore up the reinsurance market and provide premium relief to consumers, the bill allocates $2 billion to a newly-created reinsurance fund, the Reinsurance to Assist Policy (“RAP”) program. The RAP fund intends to provide eligible property insurers access to a low-cost reinsurance pool, backed by the State of Florida, for catastrophic losses where private reinsurance is unavailable. The bill also requires any carrier enrolled in the RAP program to file a supplemental rate filing in the hope that discounted reinsurance rates will be passed onto homeowners in the form of reduced premiums.
2. Attorney Fees
The bill further assists carriers by revising how courts may award prevailing party attorney fees in property insurance lawsuits. SB 2-D amends Section 627.70152, Florida Statutes, to allow for an award of attorney fees to a carrier if a lawsuit is dismissed due to an insured’s failure to file a notice of intent to initiate litigation. This offers an additional incentive for carriers to challenge pre-suit notices before filing a responsive pleading. The bill also changes how courts are to calculate fee awards by creating a “strong presumption” that the lodestar fee is sufficient and reasonable, which may only be rebutted “in a rare and exceptional circumstance with evidence that competent counsel could not be retained in a reasonable manner.” If this change is applied as intended, the current scheme of awarding contingency risk multipliers to attorney fee awards should all but disappear. This would undoubtedly provide a significant reduction in the amount of a carrier’s total fee exposure in the event of an adverse judgment.
3. Assignment of Benefit Contracts
Perhaps the most significant immediate change made by SB 2-D relates to assignment of benefit contracts. The bill amends Section 627.7152, Florida Statutes, which governs assignment agreements. It first expands the definition of “Assignment agreement” to include the assignment of post-loss benefits for “inspecting, protecting, repairing, restoring, or replacing” insured property, while specifically excluding public adjuster fees. The bill maintains the requirement for assignees to provide the insurer with a pre-suit notice of intent to initiate litigation, but removes the ability of assignees to recover attorney fees and costs except through Section 57.105, Florida Statutes. In effect, it prevents assignees from recovering prevailing party attorney fees in litigation. This statutory change has such a profound effect on the economics of assignments that a lawsuit has been filed by two restoration companies that rely heavily on assignment agreements, Restoration Association of Florida, Inc. and Air Quality Assessors, LLC, challenging the new law on equal protection and due process grounds.
4. Hurricane Retrofitting
Senate Bill 2-D also attempts to assist homeowners affected by the insurance crisis. One path is through $150 million allocated to the My Safe Florida Home Program, which offers two-to-one matching grants to homeowners for hurricane retrofitting. Eligibility for the program is reserved to homes with an insured value of $500,000 or less, located within certain regions of the state susceptible to wind-borne debris, and where the building permit application for initial construction was made before January 1, 2008. The bill also prohibits carriers from refusing to issue or renew coverage solely based on the age of a property’s roof if the roof is less than 15 years old or if the roof is determined to have at least 5 years of useful life remaining. Carriers are also now permitted to offer a policy with a separate roof deductible of up to two percent of the policy’s dwelling limit or 50% of the cost to replace the roof, whichever is lower. This opt-out roof deductible, however, does not apply in the event of a total loss, damage caused by a hurricane, or damage requiring the repair of less than 50% of the roof.
5. Bad Faith
Finally, SB 2-D imposes an additional requirement for insureds in bad faith lawsuits. The bill creates Section 624.1551, Florida Statutes, which requires a claimant to establish that the carrier breached the insurance contract to prevail in a claim for extracontractual damages. This provision does not appear to alter the conditions precedent necessary to file a bad faith action, but rather creates a specific element that must be established by plaintiffs before recovering damages in a bad faith suit.
Senate Bill 4-D
The other bill passed by the Florida Legislature, SB 4-D, is less broad in scope but could have a significant impact on roof claims. The bill amends the Florida Building Code to allow for repairs to more than 25% of a roof if the rest of the roof was built, repaired, or replaced in compliance with the requirements of the 2007 Florida Building Code. This proposed change was already being reviewed by the Building Commission, but SB 4-D fast tracks its adoption. Finally, SB 4-D creates increased inspection requirements for condominium buildings. This change appears to have been made in direct response to the deadly June 2021 condominium collapse in Surfside, Florida.
Learning Point: The new laws generated by the Legislature’s special session and enacted by Governor DeSantis are sure to impact all facets of an insurance carrier’s operations within Florida, from reinsurance to litigation. The breadth and scope of the changes are such that one can only speculate as to their long-term effects on the broader insurance market. What is certain is that carriers will need to rely on competent counsel to navigate the new framework to ensure that they are on the leading edge of developing strategies to maximize the beneficial impact of these new laws.