The Shifting Landscape Of Insurance: Unraveling The Bill's Impact

The Insurance Bill is undergoing significant changes to modernise the law and provide greater protection for policyholders. The changes will affect all insurance contracts, including consumer and business policies, and introduce new obligations for insurers.

Some of the key changes include:

- The introduction of composite insurance companies, allowing insurers to offer both life and non-life insurance solutions without requiring different licenses.

- The reduction of minimum capital requirements to set up an insurance company, enabling higher participation and entry of new players into the market.

- The abolition of charges over liability insurance proceeds, replaced with direct rights for third parties to sue a liability insurer if the insured is insolvent.

- The removal of the exemption for insurance contracts from the unfair contract term provisions in the Fair Trading Act.

- New duties on insurers to inform policyholders of their obligations and assist them in understanding insurance contracts.

- Changes to the policyholder's duty of disclosure and the insurer's remedies for breach of that duty.

- Time limits for notifying claims under claims-made policies will be enforced more strictly if insurers provide notice of the consequences of failing to notify claims within the stipulated period.

Changes to attorney fees

Florida's insurance market has undergone significant changes, with Governor DeSantis signing into law landmark revisions to the state's property insurance rules. These changes have had a direct impact on attorney fees, with the introduction of Senate Bill 2-A (SB 2-A) and House Bill 837 (HB 837) making notable amendments.

Senate Bill 2-A (SB 2-A)

SB 2-A eliminates one-way attorney's fees, meaning that if an insured party wins a court case against their insurer, the insurance company will no longer be responsible for covering their legal fees. This is a significant shift from previous legislation, where insurance companies were mandated to cover attorney's fees if there was a judgment or decree against them. This change will likely result in a decrease in litigation, as insured parties may now bear the financial burden of legal fees, potentially deterring them from pursuing legal action.

House Bill 837 (HB 837)

HB 837 made four significant changes to attorney fees:

• Removal of "One-Way Attorney's Fees": HB 837 eliminated one-way attorney's fees for lawsuits against surplus lines insurers, life insurers, and other groups. This means that law firms may need to find alternative ways to recoup their costs, and insured parties may find it more challenging to pursue legal action against insurers.
• Limits to Attorney's Fee Multipliers: HB 837 restricted the use of attorney's fee multipliers to cases involving "rare and unusual circumstances." This change may discourage attorneys from taking on complex or risky cases, as the potential rewards may not justify the time and costs involved.
• Recovery of Attorney Fees After a Total Denial of Coverage: HB 837 adjusted when one-way attorney's fees could be levied against insurance companies, limiting them to cases where there is a declaratory judgment action against an insurer after a total denial of coverage for a claim. This change could make it more difficult for insured individuals to find legal representation in insurance cases.
• Attorney's Fees Apply to New Civil Actions: While HB 837 did not eliminate plaintiff rights to attorney's fees entirely, it introduced conditions for their recovery. Plaintiffs must now meet specific criteria, such as recovering a judgment of 25% or more than the original settlement offer, to be entitled to reasonable costs and attorney's fees.

Prohibition of Assignment of Benefits (AOB)

An "Assignment of Benefits" (AOB) is an agreement that transfers the insurance claims rights or benefits of a policy to a third party. This means that once the agreement is signed, the third party has the authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the policyholder.

While AOBs have been commonly used in life and health insurance policies for many years, they have also become prevalent in homeowners' insurance claims by restoration companies and contractors. For example, if a homeowner has a pipe leak that causes water damage, they may call a restoration company to make repairs. If they sign an AOB, they are transferring their insurance rights to the company, allowing the company to file a claim on their behalf and be paid directly.

However, AOBs have been associated with increased costs for homeowners due to unnecessary litigation and fraud. In some cases, third-party vendors have sued insurance companies without the policyholder's knowledge, resulting in higher premiums and bills for the policyholder. To address these concerns, Florida passed legislation in 2019 that gave consumers the right to rescind fraudulent contracts and required that AOB contracts include an itemized description of the work to be done.

In December 2022, Florida's Senate Bill 2-A brought further changes, prohibiting the assignment of any post-loss benefits under any residential or commercial property insurance policies issued after January 1, 2023. This means that property owners with policies issued after this date cannot assign their insurance benefits to third parties. Homeowners with policies issued before 2023 are not affected by this change and can continue to use the AOB process.

Bad-faith claim elimination

Florida's insurance market has been criticised for being overly litigious, with homeowner claims accounting for 9% of all claims in the US, but 79% of insurance litigation. In response, regulators have eliminated the insured's ability to file a bad-faith claim based solely on the appraisal award or acceptance of judgment. This change is intended to prevent the excess costs incurred by insurers to defend against baseless bad-faith claims.

A bad-faith insurance claim is a claim made when an insurer does not behave in a fair and appropriate way when processing a claim. Insurers may have a number of duties to policyholders, including:

• A duty to investigate a claim properly
• A duty to defend if a policyholder had liability insurance that covered the claims arising against them
• A duty to indemnify, or pay settlement costs or court-ordered damages when a covered claim is made that the policyholder’s liability insurance covers
• A duty to settle if a reasonable settlement is on the table and protects the insured from out-of-pocket losses that could result from a lawsuit

In Florida, bad-faith litigation is likely to be pursued more actively against insurers following the elimination of one-way attorney's fees. This change means that if an insurer and an insured end up in court and the insured wins, the insurer does not need to pay for the insured's legal fees.

To make a bad-faith insurance claim, the insured must show the insurer acted improperly in handling their covered claim. This goes beyond simply making a mistake in denying a claim. The insurer must have acted unreasonably or egregiously in wrongfully denying coverage. In some cases, the insured must also prove the insurer acted intentionally, purposefully preventing the insured from getting the coverage they paid for.

In a bad-faith case, the insured could be entitled to compensation for:

• Any actual financial losses from the insurer’s bad faith refusal to process the claim in a timely and efficient manner
• Court costs and attorneys' fees necessary to hold the insurer accountable for bad faith
• Punitive damages to punish the insurer for its misconduct
• Statutory penalties imposed by legislation prohibiting unfair claims practices
• Interest on insurance money that should have been paid out but was improperly withheld
• Damages for emotional distress

Mandatory arbitration permitted

In the context of insurance, arbitration is an alternative to going to court over a business dispute. It involves a neutral third party recruited to settle the dispute. Arbitration is intended to be a cost-effective and speedy alternative to court litigation.

In Florida, mandatory binding arbitration provisions in property insurance contracts were introduced through Senate Bill 2A, which was signed into law by Governor DeSantis in December 2022. This bill allows property insurers to include mandatory binding arbitration clauses in their policies. However, there are certain conditions that must be met before an insurer can require a policyholder to participate in mandatory binding arbitration. These include:

• The mandatory binding arbitration requirements must be contained in a separate endorsement attached to the property insurance policy.
• The policy must include an actuarially sound credit or premium discount for the mandatory binding arbitration endorsement.
• The policyholder must sign a form electing to accept mandatory binding arbitration and must be notified of the rights they are giving up, including the right to a trial by jury.
• The endorsement must establish that the insurer will comply with the mediation provisions before the initiation of arbitration.
• The insurer must also offer the policyholder a policy that does not require mandatory binding arbitration.

If all of these conditions are not met, the insurance company cannot require the policyholder to participate in mandatory binding arbitration.

The inclusion of mandatory binding arbitration provisions in property insurance contracts offers policyholders a choice while encouraging a more cost-effective and efficient dispute resolution process. Arbitration can benefit both the insurer and the policyholder by providing a quicker and more affordable method to reach an agreement.

Changes to policy eligibility requirements

The bill also introduces new eligibility requirements for Citizens Insurance, which was created by the state of Florida as an "insurer of last resort". Citizens Insurance has become the largest property insurer in the state, and the new bill aims to curtail the taxpayers' increasing exposure to risk and reestablish Citizens as a residual market.

Under the new bill, private-market premiums for comparable plans must be 20% greater than those offered by Citizens Insurance for a policy to be eligible. This is a 5% increase on previous requirements. The bill also requires that personal residents must hold flood insurance covered by another insurer to qualify for a Citizens policy.

Frequently asked questions