Florida’s hot housing market could go ice cold, leading to wider economic problems, if dramatic rises in property insurance rates continued unabated. That’s the opinion of many insurance agents and state legislators, and when a Republican-controlled government agrees with the private sector that regulations are needed to stem a problem, you know it must be serious.
Rates have increased anywhere from 20 to 50 percent in the past year, driven by what insurance professionals say are frivolous lawsuits stemming from damage caused by Hurricane Irma in 2017. Jason Levy, president of Professional Insurance Services in Tampa, wrote in an email to customers that “thousands” of the claims being filed that seek compensation for roof damage that appears to be related to general wear-and-tear “as opposed to damage with causes covered by peril insurance (including fire, lightning, windstorms, etc.).”
When the claims are rejected, Levy wrote, trial attorneys smell blood in the water and file lawsuits “with fee multipliers equal to two to three times the hourly rate for an average attorney. They are able to earn six-figure fees on a $10,000 settlement — none of which is shared with the policyholder.”
The huge payouts have created a domino effect that, according to the Florida Office of Insurance Regulation, will see Florida domestic insurance carriers continue to sustain heavy losses in 2021. The OIR said the industry’s collective loss this year is likely to be double that of 2019-2020. Such losses invariably get passed on to customers in the form of rate increases and could cause national carriers to pull out of Florida; as a result, Florida’s strong residential real estate sales market would be at risk of fizzling out.
The numbers truly are staggering — and seemingly unsustainable. In 2018, the OIR reported, claims cost insurers $418 million more than their loss reserves. In 2019, that number was $422 million.
In response, Bradenton Sen. Jim Boyd, the CEO of Boyd Insurance and Investment Services, has filed SB 76, a bill being debated today in Tallahassee that would reform the way that attorney’s fees are awarded in property insurance lawsuits. A summary of the bill’s proposed changes reads:
Attorney fees are awarded in actions arising under property insurance contracts according to the demand-judgment quotient. If the quotient of the judgment obtained by the claimant divided by the demand made by the claimant is:
- Greater than or equal to 0.8, the claimant is entitled to an award of attorney fees in the full amount.
- Equal to or greater than 0.2 but less than 0.8, the claimant is entitled to an award of attorney fees equal to the product of the incurred reasonable attorney fees multiplied by the demandjudgment quotient. For example, if the claimant obtains a judgment of $20,000 and the claimant’s demand was $40,000, the demand-judgment quotient would be 0.5. If the claimant’s reasonable attorney fees were $10,000, the attorney fees paid by the insurer would be $5,000, which is the product of multiplying $10,000 in attorney fees by the demand judgment quotient of 0.5.
- Less than 0.2, the claimant is not entitled to an award of attorney fees; however, the full amount of attorney fees may be awarded to the insurer if the claimant is an assignee.
“We think this is fair,” Boyd said during Thursday’s debate about the bill. “Attorneys should not be paid more than the claimant for the claim itself.”
Opponents of the bill argue that a reduction of attorney’s fees awarded to claimants would potentially hamper some claimants’ ability to pay any out-of-pocket costs.
The bill, Levy wrote, would also “reduce the statute of limitations for filing claims — meaning damage should be reported immediately, not three to five years after it occurs.” Homeowners would have up to two years to file claims related to hurricane damage.
Editor’s note: The Florida Senate passed Sen. Boyd’s bill, by a vote of 27-13, on April 7.