Tag Archives: Florida

I.I.I. Study: Florida’s assignment of benefits crisis is spreading – and is costing consumers billions of dollars

Ah, Florida. Home to sun-washed beaches, Kennedy Space Center, the woeful Marlins – and one of the costliest tort systems in the country.

A significant driver of these costs is Florida’s “assignment of benefits crisis.”

Today the I.I.I. published a report documenting what the crisis is, how it’s spreading and how it’s costing Florida consumers billions of dollars. You can download and read the full report, “Florida’s assignment of benefits crisis: runaway litigation is spreading, and consumers are paying the price,” here.

An assignment of benefits (AOB) is a contract that allows a third party – a contractor, a medical provider, an auto repair shop – to bill an insurance company directly for repairs or other services done for the policyholder.

The process is innocuous and common throughout the country. But as our report notes, Florida’s unique legal systems richly rewards plaintiff’s attorneys and vendors when they submit inflated bills to insurance companies and then file lawsuits when those bills are disputed.

Not just a few lawsuits. Lots of lawsuits. The numbers are staggering. There were roughly 1,300 AOB lawsuits statewide in 2000.  There were more than 79,000 in 2013, and nearly 135,000 through November 9, 2018, a 70 percent increase in just five years.

Inflated claims and massive volumes of lawsuits have the predictable result of driving up insurance companies’ legal costs. Insurers are forced to then pass those costs on to consumers. In the study, we estimate that Florida’s auto and homeowners policyholders have paid about $2.5 billion more for insurance over the past dozen years to cover the increase in legal costs.

That doesn’t even count the billions more in excess claim settlements that are at the heart of the problem.

Many of these inflated bills and lawsuits are driven by a select number of contractors and their attorneys. Florida insurance customers can protect themselves – and their fellow citizens – by being very cautious when signing away their benefits under an AOB.

Florida’s Department of Financial Services has published a “red flag” checklist for spotting fraudulent or abusive AOB solicitations. But the most important thing you can do is to talk to your agent before you sign anything!

To learn more about the crisis, download our report: “Florida’s assignment of benefits crisis: runaway litigation is spreading, and consumers are paying the price.”

Small Florida insurers survive hurricanes and “Judicial Hellhole”

Florida’s small P/C insurers have withstood losses from Hurricane Irma and a legal environment that’s dubbed a “judicial hellhole” by the American Tort Reform Association, a recent article in S&P Global Market Intelligence reports.

The financial ratings firm Demotech affirmed the financial strength of over 50 companies in late March, a decision found “encouraging” by the CEO of the state-run Citizens Property Insurance Corp, Barry Gilway.

Gilway said that Demotech’s March actions is evidence of the resilience that smaller carriers showed during a year in which Hurricane Irma caused insured losses of about $8.61 billion, according to the latest Florida Office of Insurance Regulation tally.

Florida insurers face both weather-related risk and costs stemming from litigation on non-weather-related water-loss claims with an assignment of benefits (AOB) and other legal matters.  To combat the AOB problem, Citizens has drawn-up changes in policy language, increased efforts to fight fraud and grew its managed repair program. In January, Citizens said it expects AOB and litigation costs would account for about 23 percent of its 2018 operating expenses, up from 16 percent in 2017 – an increase of $17 million.

The frequency and severity of water-loss claims over the past 2.5 years shows “extremely negative trends,” and that deteriorating trends have begun to spread northward within the state, said Gilway.

Citizens is reopening approximately 37 percent of claims related to Hurricane Irma as part of its ongoing work to help its policyholders, who have been frustrated by a shortage of contractors, the Insurance Journal reported. A spokesperson for Citizens said that it’s common for claims to be reopened, and that the majority of those reopened are non-AOB Irma claims.

Avoiding a bad faith lawsuit in Florida

Florida is unique in that it has no objective bad faith standard, defining it as more than “mere negligence” without calling for a showing of evil intent. As a result, carriers need to watch for common pitfalls to reduce costly bad faith awards.

On March 14 Gen Re is offering its clients a webinar called Navigating the Bad Faith Minefield. Here are some of the bad faith related problems specific to Florida the webinar intends to cover:

  • The unique problems posed by “time limit” demand letters and how a missed deadline and/or failure to meet a key term “open up” the policy limit
  • Bad faith in a clear-liability case with a likely judgment exceeding a policy limit. Do carriers have an affirmative duty to offer the policy limit in such cases, even in the absence of a demand?
  • The tender traps that might be used to “set up” carriers for bad faith. How should carriers respond when presented with a serious injury case that involves low limits?

 

Sinkholes and Insurance

It was hard to miss the recent Florida story of a sinkhole fatality. This tragic event made news headlines in part because  fatalities due to sinkholes are  such a rare occurrence.

The story also prompted questions about sinkholes and insurance coverage.

Over at Straight Talk, the Insuring Florida blog, a post by Lynne McChristian explains that Florida has a sinkhole law requiring every property insurer to provide coverage for “catastrophic ground cover collapse†.

This is defined as:

1. Abrupt collapse of the ground cover,
2. A depression in the ground cover clearly visible to the naked eye,
3. Structural damage to the insured building, including the foundation, and
4. The insured structure being condemned and ordered vacated by the governmental agency authorized to do so.

However, a separate  optional comprehensive sinkhole policy is needed to cover any other type of sinkhole damage.

Florida is one of only two states that require home insurers to offer sinkhole coverage. The other is Tennessee.  In other states most homeowners insurance policies exclude coverage for sinkhole damage.

The Insuring Florida blog has  further background info on sinkhole insurance here.

More  info on sinkhole claims  is in  the I.I.I. facts+stats on homeowners and renters insurance.