In the background, behind all of the noise over property insurance in Florida, ratings and company failures, a battle continues to be waged over some of the legal reforms implemented during the May special session of the Florida legislative.
In particular, the topics of attorney fees and assignment of benefits (AOB) are not yet settled, as a legal dispute over the new law (SB-2D) instigated by contractors has now gone to the appeals court.
The contractors claim that the law that restricted their ability to claim for attorney fees, unfairly penalises them and makes their job more challenging, or even untenable.
Legal fees, particularly in relation to an assignment of benefits (AOB), where the rights to an insurance claim are signed over to a contractor or other party, have been a significant source of claims amplification and social inflation in the Florida property insurance market, with some estimates suggesting a a significant percentage of hurricane industry losses in recent years are down to the AOB issue and attorney related fee payments.
So, for the insurance and reinsurance industry this is a key legal reform and one that if reversed would put Florida back to where its industry sat in April, before the vaunted special session reforms were passed.
It’s been said many times, by us and other sources, that the special session reforms were not significant or far-reaching enough to make a real difference to the insurance and reinsurance market in Florida.
But these measures related to AOB and attorney fees were perhaps the most critical piece of the package, that at least put the state on the right footing to begin reducing that burden on claims.
A constitutional challenge to the law in question was dismissed in a Leon County court in August, but now a challenge has been filed by an Orlando based contractor and so it will go to the appeal court.
Interestingly, when the original challenge was dismisses, it was not because of the constitutionality of the law, rather about who was named as defendants.
So this new challenge directly focuses on whether the law is constitutionally fair, stating that if contractors cannot recover attorny fees, or prevailing party fees, from the insurance companies in question, making it impossible for a contractor to pursue its rights and leaving them holding the bill for any additional costs in an AOB assigment.
Another of the reform laws, SB-4D, is also facing a challenge at this time, which appears to be over the roof replacement limits, another area that has cost the insurance and reinsurance industry dear over the last decade.
If either, or both, of these challenges are successful, it will set Florida’s property insurance market back to where it was pre-reforms, it seems.
So it’s critical for the insurance market there that they pass, as any return to previous legislative regime would only serve to further reduce reinsurance market appetite for the risk there, adding further impetus to the likelihood of another challenging reinsurance renewal for Floridian carriers in 2023.