Florida Insurance Reform Special Session 2 – This Time Means Business

By Benjamin Stearns
Carlton Fields

Jan 30, 2023

Between 2017 and 2022, 11 property & casualty insurers domiciled in Florida were declared insolvent and placed into liquidation. In an attempt to restore stability to the marketplace, Governor Ron DeSantis issued a proclamation on April 26, 2022, calling the Florida Legislature into special session to reform Florida’s Insurance Code. While the ensuing May special session yielded significant changes, including amendments designed to reduce fraudulent roof claims and to curtail the use of Assignment of Benefits (AOB) agreements and the award of attorneys’ fees, it was widely believed that the reforms did not go far enough. Support for this viewpoint was readily found in the number of carriers voluntarily choosing to cease writing policies in Florida, as well as the skyrocketing number of policies held by the state-created “insurer of last resort,” Citizens Property Insurance Corporation.

In response, the newly elected President of the Florida Senate, Kathleen Passidomo, and Speaker of the Florida House, Paul Renner, issued a proclamation on December 6, 2022, calling a second special session on insurance in less than a year. Whereas the May special session may be described as taking “half-steps” on certain drivers of market instability, such as AOBs and the so-called “One-Way Attorneys’ Fee Statute,” the December special session took full strides when it enacted Senate Bill 2A. The legislature eliminated the One-Way Attorneys’ Fee Statute and banned AOBs for claims under policies issued on or after January 1, 2023, in addition to a number of other reforms.

The following discusses the reforms adopted by Senate Bill 2A. Although there is more to do, these reforms should go towards stabilizing the market and creating the conditions necessary to attract new well-capitalized insurers to the Florida market and perhaps driving rates down over time.

Elimination of Statutory One-Way Attorneys’ Fees

While the May legislation tinkered with the One-Way Attorneys’ Fee Statute, the December bill simply deletes the statutory provisions authorizing the award of attorneys’ fees to insureds that prevail in litigation against their property insurer. If it was not clear enough, the bill inserts language into the statute that plainly states, “[i]n a suit arising under a residential or commercial property insurance policy, there is no right to attorney fees under this section.” (emphasis added to newly adopted language).

Prohibition of Assignments of Benefits

The December bill prohibits policyholders from entering into AOB agreements for any post-loss insurance benefit under a residential property insurance policy or a commercial property insurance policy issued on or after January 1, 2023. Any such agreements are void and unenforceable.

Bad Faith Claims Against Property Insurers

The bill prohibits an insured from bringing a bad faith claim against a property insurer unless and until, a named insured, omnibus insured, or a named beneficiary has obtained a final judgment against the insurer establishing that the insurer breached the insurance contract. Acceptance of an offer of judgment or the payment of an appraisal award does not constitute a sufficient adverse adjudication so as to support a bad faith claim.

Restrictions on Insurer-initiated Appraisals

The bill authorizes the Florida Office of Insurance Regulation (OIR) to suspend or revoke an insurer’s certificate of authority if the office finds that the insurer has compelled insureds to participate in the appraisal process in order to secure full payment or a claim settlement so frequently it appears to constitute the insurer’s general business practice.

The bill also authorizes the OIR to withdraw approval of property insurance forms that contain an appraisal clause or to issue an order prohibiting the insurer from invoking appraisal for up to two years, based on the same finding.

In addition, the bill requires the OIR Property Insurer Stability Unit to include on a semiannual report the name of any insurer that was the subject of a market conduct examination that found a pattern or practice of one or more willful unfair insurance trade practice violations with regard to the insurer’s use of the appraisal process, as well as a summary of the findings of the market conduct exam. The office must also publish on its website a list of all such insurers along with links to the related market conduct exam reports.

Additional Market Conduct Exams Triggered by Hurricane-Related Claims

The bill provides that property insurers may be subject to an “additional” market conduct examination after a hurricane if the insurer:

Is among the top 20% of insurers based on the ratio of hurricane-related claims to the number of property insurance policies in force;
Is among the top 20% of insurers based on the ratio of consumer complaints made to the Department of Financial Services to hurricane-related claims;
Has made significant payments to its managing general agent since the hurricane; or
Is identified by the office as necessitating a market conduct exam for any other reason.

An additional market conduct examination pursuant to the new statutory language must be initiated within 18 months after the landfall of a hurricane that results in an executive order or a state of emergency issued by the governor. Such an examination must also include an exam of the insurer’s managing general agent.

Claims Data Maintenance and Reporting

The bill requires property insurers to maintain records, including dates, of the following claims data:

Any claim-related communication between the insurer and the policyholder or policyholder representative;
The insurer’s receipt of the policyholder’s proof-of-loss statement;
Any claim-related request for information made by the insurer to the policyholder or policyholder representative;
Any claim-related inspections of the property made by the insurer, including physical inspections and inspections made by electronic means;
Any detailed estimate of the amount of the loss generated by the insurer’s adjuster;
The beginning and end of any tolling period during the pendency of any mediation or other alternative dispute resolution proceeding; and
The insurer’s payment or denial of the claim.

The bill requires insurers to include the following information on their quarterly supplemental reports to the OIR:

Number of claims opened each month;
Number of claims closed each month;
Number of claims pending each month; and
Number of claims in which either the insurer or the insured invoked any form of alternative dispute resolution, and specifying the form used.

Reduced Time for Policyholder to Provide Notice of a Property Insurance Claim

The bill reduces the time period for a policyholder to provide notice to its insurer of a property insurance claim from two years to one year after the date of loss. In addition, the bill reduces the time to provide notice to the insurer of a supplemental claim from three years after the date of loss to 18 months post-loss.

Reduced Time Periods for Required Insurer Actions – Acknowledge Claims, Begin Investigations, Send Copies of Estimates, and Pay Claims

The bill requires an insurer to review and acknowledge a claim within seven calendar days of receipt. Prior law had imposed a 14-day time limit. The bill similarly reduces the time within which an insurer must begin an investigation of a claim after receiving a proof-of-loss statement from 14 days to seven days. In addition, the bill requires an insurer to conduct any physical inspection associated with a claim investigation within 30 days of receipt of the proof-of-loss statement, down from 45 days.

The bill authorizes insurers to use “electronic methods” to investigate losses. Permitted electronic methods may include “any method that provides the insurer with clear, color pictures or video documenting the loss, including, but not limited to, electronic photographs or video recordings of the loss, video conferencing between the adjuster and the policyholder, which includes video recording of the loss, and video recordings or photographs of the loss using a drone, driverless vehicle, or other machines that can move independently or through remote control.” The bill also authorizes an insurer to void a policy if the policyholder or his or her agent, commits insurance fraud by providing false or misleading information concerning a claim.

The bill requires insurers to send a copy of any detailed estimate of the amount of a loss to the policyholder within seven days of completion of the estimate by the insurer’s adjuster. Prior law only required such estimates to be sent to policyholders upon their request. The bill eliminates the requirement for a request, and simply directs insurers to share the estimates automatically.

Lastly, the bill reduces the time for a property insurer to pay or deny a claim or portion of a claim from within 90 days of receipt of notice of the claim to 60 days, unless the failure is caused by factors beyond the control of the insurer. Similarly, undisputed amounts of partial or full benefits owed under first-party property insurance policies must now be paid within 60 days, unless payment is prevented by factors beyond the control of the insurer. Claims or portions thereof paid 60 days or more after receipt of notice are subject to interest at the rate set forth in Section 55.03 of the Florida Statutes, with such interest beginning to accrue as of the date of notice of the claim. The bill defines “factors beyond the control of the insurer” to include certain events, such as a state of emergency, security breach, or “information technology issue,” if they are recognized as such by an order issued by the OIR. In addition, actions by policyholders and their representatives that constitute fraud, lack of cooperation, or intentional misrepresentation regarding a claim may qualify as a factor beyond the insurer’s control.

The bill tolls all of the above-described time periods upon the failure of the policyholder or policyholder representative to provide material claims information requested by the insurer within 10 days after the request was received. The tolling period ends upon the insurer’s receipt of the requested information. In addition, such tolling applies only to requests sent by the insurer at least 15 days before the insurer is required to pay or deny the claim or a portion of the claim, which, as described above, must take place within 60 days of receipt of notice of the claim.

Changes to the Required Homeowner Claims Bill of Rights

The bill makes changes to the notice of the “Homeowner Claims Bill of Rights” that property insurers must provide to insureds in accordance with the changes made by the bill described above. Such changes include notice that the insured has the right to receive a copy of any detailed estimate of loss within seven days of its completion, and the right to receive payment or denial of a claim within 60 days of notice to the insurer, as well as the right to receive interest on any later paid portion of a claim.

Mandatory Binding Arbitration Endorsements

The bill authorizes property insurers to include provisions in their policies providing for mandatory binding arbitration of property insurance claims so long as:

The arbitration provisions are contained in a separate endorsement attached to the property insurance policy;
The premium that a policyholder is charged for the policy includes an actuarially sound credit or premium discount for the mandatory binding arbitration endorsement;
The policyholder signs a form electing to accept the endorsement. The form must notify the policyholder of rights surrendered in exchange for the premium reduction, including the right to a trial by jury;
The endorsement establishes that the insurer will comply with the mediation provisions of Section 627.7015 of the Florida Statutes, before initiating arbitration; and
The insurer also offers the policyholder a policy that does not require mandatory binding arbitration of claims.

Joint Offers of Judgment

With regard to breach of contract actions, the bill explicitly authorizes property insurers to make a joint offer of judgment or settlement that is conditioned on the mutual acceptance of all the joint offerees.

New, More Restrictive Requirements on Eligibility for a Citizens Policy

The bill imposes a higher required rate differential on premium offerings in order for a property risk to be eligible for coverage from Citizens. Previously, if a residential property risk was offered a policy by an authorized insurer providing comparable coverage to that offered by Citizens, but only at a premium that was more than 15% greater than that offered by Citizens, the risk was eligible to obtain a policy from Citizens. The bill raised the premium threshold for eligibility, such that risks are now ineligible for a Citizens-issued policy unless they are only offered comparable coverage by an authorized insurer at a premium that is at least 20 percent greater than that offered by Citizens. This change applies to commercial and residential risks.

In addition, the bill also imposes the 20% premium offer threshold on policies up for renewal with Citizens. Previously, once a risk had obtained a policy issued by Citizens, it could hold on to that policy unless it received an offer for comparable coverage at a premium that was equal to or less than that offered by Citizens. Now, policies up for renewal will no longer be eligible to renew with Citizens if they are offered a policy with a premium that is within 20% of that offered by Citizens, in line with the requirements for initial eligibility.

The bill also deleted language that made previous Citizens policyholders that had accepted a takeout offer from a private insurer within the previous 36 months eligible for a Citizens policy if the private insurer raised the policy rate in excess of the rate increases permitted for Citizens policies in the coming years, as described in more detail below. Instead, the bill subjects all risks, regardless of recent coverage with Citizens, to the premium thresholds described above with regard to eligibility.

Restrictions on Rates Charged by Citizens

The bill requires rates for coverage provided by Citizens to be “actuarially sound . . . and not competitive with approved rates charged in the admitted voluntary market so that [Citizens] functions as a residual market mechanism to provide insurance only when insurance cannot be procured in the voluntary market.”

Existing law prescribes certain caps on Citizens’ rate increases in the coming years, with a 12% rate increase cap for 2023, 13% in 2024, 14% in 2025, and 15% in all subsequent years. Existing law also provides that Citizens’ rate increases shall cease for any line of business it writes upon the implementation of actuarially sound rates.

Once Citizens achieves an actuarially sound rate, the bill adds language to require that any subsequent rate filings it makes not be competitive with approved rates in the admitted voluntary market for each commercial and personal line of business it writes.

However, the bill provides that the above-described rate increase limitations do not apply with regard to personal lines policies covering nonprimary residences. Instead, new or renewal policies issued on or after November 1, 2023, to cover nonprimary residences may not be charged a rate that is more than 50% above the established Citizens rate that was in effect one year before the date of application. The bill also prohibits such policies from charging a rate that is less than the established Citizens rate in effect one year before the application date.

The bill defines a “primary residence” for purposes of the above as a “dwelling that is the policyholder’s primary home or is a rental property that is the primary home of the tenant, and which the policyholder or tenant occupies for more than nine months of each year.”

Flood Insurance Requirements for Properties Covered by Citizens

The bill requires personal lines residential risks to be covered by a flood insurance policy issued by an insurer other than Citizens in order to be eligible for a Citizens property insurance policy. The bill conditions this requirement according to a schedule tied to the value of the insured property, such that the requirement to obtain flood insurance is imposed:

On January 1, 2024, for property valued at $600,000 or more;
On January 1, 2025, for property valued at $500,000 or more;
On January 1, 2026, for property valued at $400,000 or more;
On January 1, 2027, for all other personal lines residential properties.

The bill also requires all personal lines residential policyholders whose property is located within a “special flood hazard area” as defined by the Federal Emergency Management Agency to have flood coverage in place at the time of initial policy issuance for all new policies issued by Citizens on or after April 1, 2023. Renewal personal residential policies covering properties in such areas and issued on or after July 1, 2023, are subjected to the same requirement.

However, policyholders whose Citizens policies do not provide coverage for the peril of wind are not required to purchase flood insurance as a condition of maintaining their Citizens policy.

The flood insurance required to qualify for Citizens eligibility must meet the coverage available from the National Flood Insurance Program or the requirements Section 627.715(1)(a)1., 2., and 3 of the Florida Statutes.

Creation of the Florida Optional Reinsurance Assistance Program

The bill created the Florida Optional Reinsurance Assistance Program (FORA Program), to be administered by the Florida State Board of Administration (SBA). The FORA Program permits insurers participating in the Florida Hurricane Catastrophe Fund to purchase reinsurance coverage from the state of Florida. The FORA Program is divided into four “layers” of coverage, with the total amount of reinsurance that may be sold through the program capped at $1 billion.

To participate in the FORA Program, eligible insurers purchasing reinsurance in layers one through three must execute a FORA reimbursement contract by April 15, 2023. Insurers purchasing reinsurance coverage in layer four must execute a contract with the SBA no later than May 30, 2023. Reinsurance coverage sold through each layer is subject to different terms, including terms related to payouts and rates. Participating insurers may purchase coverage in more than one layer, if they so choose.