South Florida property owners can expect property insurance rates to increase because the Florida Legislature failed to enact laws to curb abuses by contractors and trial attorneys, two insurance industry trade associations are saying.
In a statement released as the session drew to a close last week, the Florida Property & Casualty Association blamed Sen. Miguel Diaz de la Portilla, R-Miami, chairman of the Senate Judiciary Committee, for failing to bring up a bill that would have “prevented a handful of vendors and their lawyers from stealing homeowners’ insurance policy rights and using them to pad their own pockets.”
“Now, as a result, even without a hurricane making landfall, property insurance rates are set to skyrocket for all Floridians while a small group of greedy vendors and their lawyers get rich. Florida deserves better,” the association said.
Diaz de la Portilla, in an interview Monday, shot back at the insurance industry, saying he brokered a compromise bill intended to rein in abuses. But the industry “showed their true colors,” he said, by rejecting the compromise because it did not eliminate the ability of homeowners to assign benefits of their policies to third-party contractors.
“There’s no question there are issues and different causes to those,” Diaz de la Portilla said, “including insurance companies underpaying claims, refusing to pay claims and basically being really good at taking insurance premiums and not paying when there’s a loss.”
The dispute stems from a practice known as assignment of benefits that typically begins when a homeowner suffers a burst pipe or other plumbing emergency and calls a contractor to dry out the home and repair the damages. The contractor requires the policyholder to sign over the benefit of their insurance claim as a condition of starting work without a large upfront payment, then stands in the policyholder’s shoes when billing the insurance company.
If the insurance company rejects the claim or fails to pay the contractor’s full invoice, the contractor sues the insurance company and names the policyholder as co-plaintiff.
The Property & Casualty Association, in its statement, claimed the abuses are driven by “a handful of vendors and lawyers … stealing homeowners’ insurance policy rights and using them to pad their own pockets.”
Another statement, by the Personal Insurance Federation of Florida, quoted executive director Michael Carlson as saying, “To say that we’re disheartened on behalf of our policyholders is an understatement.”
“It’s discouraging and troubling that lawmakers have once again failed to crack down on AOB abuse in the face of mounting evidence that the problem is hurting a growing number of Florida’s homeowners,” Carlson said.
Several insurance companies have reported plans to increase premiums next year because of higher claims costs stemming from assignments of benefits and related lawsuits. State-run Citizens Property Insurance Corp. said it foresees hiking policy rates in South Florida by 10 percent a year indefinitely unless reforms are enacted. If not for a state law limiting Citizens from raising rates more than 10 percent each year, the company would be seeking increases in the tri-county region between 166 percent and 190 percent for non-wind, non-sinkhole coverage.
Before the legislative session began in January, the insurance industry mounted an aggressive public relations campaign to support a bill sponsored by Sen. Dorothy Hukill, R-Port Orange, that would have prevented lawyers from collecting attorneys fees when litigating assigned claims.
Insurers argue that trial attorneys propelled the increase in claims abuses over the past decade because of a state law that allows policyholders to recover attorneys fees if a lawsuit results in an insurance company settling a litigated claim for more money than originally offered. The law also protects policyholders from having to pay attorneys fees if the insurance company wins.
In addition, Hukill’s bill required notification to insurance companies within 72 hours of an assignment, required advance approval by insurance companies of any invoice exceeding a contractor’s original written estimate and originally imposed a $2,500 cap on emergency repairs made prior to inspection by insurance companies.
Assignments would have been voided if the 72-hour notification rule wasn’t met or if a contractor submitted an invoice that exceeded the initial estimate, unless the insurance company approved.
With several weeks left in the session, Diaz de la Portilla convened a meeting in Tallahassee with representatives of trial attorneys, insurers, repair contractors and public adjusters.
After hearing the various sides’ concerns, Diaz de la Portilla introduced several amendments to a bill he had filed earlier in the session. With the amendments, his bill would have required state licensing of water damage repair contractors, required contractors to give homeowners written estimates of repair work, required notice of assignments to insurance companies within five days and limited referral fees often paid by plumbers to contractors. Contractors with assignments also would have been barred from placing liens on policyholders’ properties to ensure payment.
But one of the sticking points for the Florida Property & Casualty Association, according to its statement, was that “Sen. Diaz de la Portilla’s bill would have cemented AOB abuse into place, preventing any further attempts to stop this abusive practice.”
In an interview, William Stander, executive director of the Florida Property & Casualty Association, said that statement referred to a provision in Diaz de la Portilla’s bill stating that “nothing in this section prohibits the use of post-loss, partial assignments in homeowner’s insurance claims.”
Diaz de la Portilla countered that courts in Florida have long upheld the rights of policyholders to assign claims benefits to contractors and providers. “It’s not accurate to say my bill would recognize the validity of [assignments]. Courts have already done this for 100 years.”
Diaz de la Portilla’s bill was advanced by three committees and awaited a hearing on the floor of the Senate during the legislature’s final two weeks. But then “I got word from lobbyists that they were working on keeping it from coming to the floor,” he said.
Bills are selected for floor votes by “the Senate president, the rules chair and the folks who set the calendar,” he said.
The Senate president is Andy Gardiner, R-Orlando. Sen. David Simmons, R-Longwood, is chairman of the Rules Committee.
The Florida Association for Insurance Reform is disappointed that no reforms emerged from the state legislature, said FAIR senior vice president Paul Handerhan. FAIR participated in Diaz de la Portilla’s stakeholder meeting and supported his compromise bill over Hukill’s, Handerhan said.
“Ultimately the only person who’s going to pay a price is Florida’s consumer,” he said. “There are going to be rate increases. The first might go [into effect] this summer. That’s real. That’s happening and will continue to happen.”