60 percent spike in Florida home insurance rates without benefit-assignment reform
AOBs are nothing new and, in most cases, nothing to be troubled over. They allow policyholders to sign over contractual benefits to a contractor, who takes care of dealing with the insurance company to file claims for work performed. But in recent years, unscrupulous water-extraction companies and other vendors have found ways to exploit quirks in state law to file scads of AOB lawsuits. According to Department of Financial Services data, the number of AOB lawsuits filed in Florida grew from just 405 in 2006 to more than 28,000 in 2016.
Surveys from the Florida Office of Insurance Regulation show the problem — initially limited mostly to South Florida — is both spreading and intensifying. Insurers’ water losses have been growing at a rate of 42.1 percent per year. Last year, 17 percent of water claims made use of AOBs, up from 12.8 percent two years earlier, and AOB claims are generally at least 85 percent more severe than those without an AOB.
The problem is obvious, but there’s disagreement over what to do about it. The insurance industry has focused on Florida’s “one-way attorneys’ fee” law, which they say gives incentives to file abusive lawsuits. The law allows plaintiffs’ attorneys to bill hours directly to a losing insurer if the final settlement is any amount more than the initial offer. They are “one way” because insurance companies can’t collect attorneys’ fees when they win.
Last year’s House-passed legislation to repeal the “one-way attorneys’ fee” for lawyers who represent AOB contractors went nowhere in the Senate, which is also the likely fate of a similar bill filed this year by state Sen. Dorothy Hukill. Senate Banking and Insurance Committee Chairwoman Anitere Flores has made clear she won’t bring Hukill’s bill to a vote unless it is paired with mandatory rate rollbacks.
Instead, Flores’ committee has passed a bill by state Sen. Greg Steube that would make some relatively modest changes to the AOB process and bar property insurers from including attorneys’ fees and costs in their rate filings. Steube’s bill is opposed by the Personal Insurance Federation of Florida and other insurance trade associations.
Under legislation sponsored by state Rep. Jay Trumbull and passed by the House Jan. 12, a formula would be established that would award attorneys’ fees based on the disparity between a final judgment and the insurance company’s pre-litigation offer. Depending on the size of the difference, fees could be awarded to the plaintiff, the insurer or to neither party.
With the Senate showing little interest in taking up the House’s bill, the chambers may again be at loggerheads. But the state can’t afford another year of inaction. Credit rating agencies already have put a number of Florida insurance companies on notice because of the AOB crisis. Under guidelines set by Fannie Mae and Freddie Mac, a wave of rating agency downgrades could put thousands of mortgages across the state into technical default.
Without reform, the Florida Office of Insurance Regulation also projects that homeowners premiums will rise an average of 29.5 percent statewide over the next five years. Rate hikes of more than 50 percent and even 60 percent are expected not only in South Florida’s Broward and Miami-Dade counties, but in Northeast Florida’s Clay and Duval counties and even in Central Florida’s Orange, Seminole and Osceola counties.
As I lay out in a new policy study for the R Street Institute, lawmakers can break this impasse by recognizing where there is common ground. Policyholders should get seven days to rescind an assignment of benefits, to address situations where they feel pressured. Assignees should detail the scope of the work to be performed and show they are certified to perform it. If Trumbull’s attorneys’ fee proposal remains too controversial, it could be scaled back to keep the legislation’s formula, but eliminate the fee-shifting element that would sometimes see insurers’ fees paid by the losing plaintiff.
Florida’s insurance market showed this past year that it can survive a storm of the century. What it can’t survive is more political dysfunction.
Image credit: Jakub Krechowicz
