How Senate Bill 76 Protects the Insurance Industry from Excessive Awards

Posted in Legal Alerts on August 10, 2021

The Florida property insurance market is teetering on the edge of collapse just as the state is starting to recover from the COVID-19 pandemic. After years of increased litigation and fraudulent claims, the majority of insurance companies in the state have had to raise their rates to consumers, tighten up their underwriting guidelines, deny coverage for new applicants, and stop renewal of non-profitable businesses just to stay afloat. There has been an increase in consumers and businesses seeking the state’s property insurance, Citizens, as its rates have only increased slightly as a result of statutory requirements. Even without a major storm in 2020, insurers lost $1.5 billion from water damage and roof fraud as well as costly litigation awards. Insurance companies are now feeling hopeful as Bill 76, recently passed by the Florida Legislature on April 30, 2021, was signed by Governor Ron DeSantis.

Some of the problems the insurance companies would like to see addressed include the extreme discrepancy between financial awards to homeowners and the legal fees paid to their attorneys. This in turn has caused insurance rates to skyrocket for consumers. Statistics show the pressure the insurance market has been under for the past few years. There has been a flood of lawsuits against insurers, primarily roof-damage related, that required insurers to pay $15 billion in damages and legal fees since 2013. Out of that $15 billion, only eight percent went to property owners. A whopping 71 percent of the payout paid consumer attorneys’ fees and 21 percent covered insurers’ defense fees. Trial lawyers received $10.65 billion compared to Floridians with property damage who only received $1.2 billion.

Another driving force in this market is fraud. There have been thousands of lawsuits related to roof replacements that may or may not be needed. Contractors have been found to go door-to-door through neighborhoods urging property owners to let them inspect their roofs. If they find the smallest leak or issue, they will pressure the property owner to obtain a total roof replacement at the expense of their insurer. This contributes significantly to the number of lawsuits heading to court against insurance companies.

Bill 76 is an attempt to address the issues currently plaguing the Florida homeowner’s market. After going through both houses, and under pressure from trial attorneys, the bill has been revised significantly from its original form at the start of this legislative session. A section that had removed an attorney fee multiplier was taken out of the bill. The multiplier awards plaintiff attorneys 2 to 2.5 times their normal hourly rate in all property insurance cases, which can force insurers to settle for higher amounts before going to trial. Sections were also removed that allowed insurers to offer an actual cash value (or depreciated claim settlement) for roofs built over 10 years ago. 

The bill does include some important objectives that will help prevent fraud including:

  • Roofers and their representatives will no longer be able to make “prohibited advertisements” to encourage property owners to file a roofing claim.
  • Roofers will no longer be able to offer anything of value for performing a roof inspection, or offer to look at an insurance policy or file a claim.
  • Contractors will have to submit a detailed cost estimate of the labor and materials required to repair a home before doing the insurance claim work.
  • If the above are violated, there will be a $10k fine for each violation.

Other important objectives were passed in Senate Bill 76 that will help curb rate increases, including:

  • The one-way attorney fee statute, which makes the recovery of attorneys’ fees contingent upon obtaining a judgment for indemnity, will be replaced.
  • Insureds will now only have two years to file a claim from the date of loss which is reduced from the previous three years.
  • Plaintiffs will be required to file a written pre-suit demand a minimum of 10 days prior to filing a lawsuit against their insurance company. Insurers will also be able to offer mediation or other forms of dispute resolution after receiving the pre-suit demand that can help avoid litigation.

While not all sides are happy with the significant changes that have been made to the original bill, Senator Jeff Brandes states that the bill is “a 40 percent solution for what is needed in Florida to potentially bend the cost curve. Hopefully it (Senate Bill 76) stabilizes rates.” Florida Governor Ron DeSantis recently signed the bill and therefore the law will go into effect on July 1, 2021. For insurance companies, it may take longer to see a change in their losses and a decrease in litigation.