Florida’s property insurers are losing money like nowhere else in America—and lots of it. In 2019 the industry wide net underwriting loss was $701 million. Through the second quarter of 2020 another $501 million vanished. That’s for one line of insurance in just one state.
Collectively the combined ratio year-end 2019 was 111%. That deterioration persisted at least through 2nd quarter 2020 at 129%. Every dollar coming in crosses path with $1.30 going out. (See: The Troubled Florida Market)
The one word that best describes this state of affairs is… “unsustainable!”
The one word that best describes the resulting rate increases is…“huge!”
Rate requests have been arriving in record numbers and range from 20% to 47%. For the first time ever SOLO counties–Seminole, Orange, Lake & Osceola–are in excess of the state average, with some receiving 40% to 65% depending on the carrier. (See NOTE #1 below)
In 2015 a Florida homeowner’s policy cost an average of $2,000. At today’s rate Floridians, who already pay among the highest premiums in America, will pay on average $3,250 by 2025–a 62.5% increase in 10 years. Again, it’s an average–some policyholders will see their rates more than double, even triple, during that time period. See: Sun Sentinel article.
Ask any agent. Carriers are frantic to reduce exposure–limiting policy language, non-renewing thousands upon thousands of policies, cancelling agency contracts and forcing more than 3,000 policies into Citizens every five business days.
What’s behind the carnage?
Litigation–frivolous, greed fueled and too often fraud based, litigation. It’s driving Florida’s property rates through the roof, insurers to desperation and homeowner’s to Citizens Property Insurance Company. (See NOTE #2 below)
Lawsuits are up 400% since 2015 and have doubled from 2017 to 2019 (45,000 to 92,000) and are on pace to exceed last year’s total. In fact, CaseGlide reports that September’s total of 4,918 increased from August which was 4,590—which is an increase of 28% from September of 2019.
An annual pace of close to 60,000 lawsuits, for just one line of insurance in just one state.
Litigated claims are 500% more expensive than non-litigated claims. Example: according to one large carrier, the average incurred loss on a litigated claim is $44,838 vs. $8,209 for non-litigated claims, a difference of $36,629. (See NOTE #3 below)
For a big scare, do the math: 60,000 claims that cost $36,629 more, equals almost $2.2 billion (with a “B”) a year, just for the litigated claims. And, guess who sees most that? Not the policyholder.
And according to testimony during the AOB hearings from Florida’s insurance commissioner, David Altmaier, insurance companies aren’t doing anything different. That is, they aren’t deserving of being sued any more now than before the litigation surge began.
Indeed in rate hearing after rate hearing carriers testified that they are being sued at startling levels and worse, that the notice of a lawsuit is often their first notice of a loss.
Cogitate on that a bit. In Florida insurance carriers are sued before it’s possible for a policyholder, a public adjuster, an attorney, ANYBODY to even know that a suit was necessary.
Isn’t that proof positive the suits are frivolous? Doesn’t it dovetail perfectly with Commissioner Altmaier’s testimony that insurers aren’t being sued due to any change in their behavior?
The Stick and Carrot
The Stick–In most every state except Florida, attorneys are more careful filing suits when there isn’t a clear reason to do so. That’s because, in most other states, they could wind up paying the winner’s attorney fees, as it should be. It’s called the “prevailing party” approach to awarding attorney fees and it works.
I like to call it a “stick.” File a suit anytime it’s warranted, no problem. But file an unwarranted or frivolous suit and you could wind up paying the other party’s fees. It’s a “stick” moving attorneys to exercise reasonable restraint.
Obviously, if you sue an insurance company before it has even received notice of a loss you have, well… jumped the gun a bit. To most lay persons, both jumping the gun and losing the suit, would meet the definition of frivolous.
In Florida there is no “stick”—not when you sue an insurance company. No penalty whatsoever, even if you lose, even if your frivolous case is dismissed. It’s called the one-way attorney fee. (See NOTE #4 below)
No wonder Florida insurers are being sued before being informed there’s a loss. Under Florida’s one-way fee approach, there’s no longer a “stick”–and the absence of any deterrent becomes a huge incentive.
Think about it. Why file a claim and give the insurer a chance to pay it, generously, promptly and hassle free? Sue first. Then, when the claim is paid, declare victory and collect your fee as reward.
The impact of the “stick” on frivolous litigation is proven by the 2019 Assignment of Benefits (AOB) reforms. The one-way attorney fee statute was changed as it applied to AOB cases. With the “stick” back in play, what happened? AOB suits dropped precipitously, as much as 57% depending on the carrier.
The Carrot—After every suit there’s a separate hearing to award attorney fees. Florida is the only state that does not follow the US Supreme Court standard regarding a fee multiplier—a concept that multiplies the normal calculation (reasonable rate x reasonable # of hours) by a factor of up to 2 ½ times. The rationale for the multiplier is irrelevant to this discussion, however you can see “Florida’s Rate Problem” for more. The point here is the US Supreme Court frowns on fee multipliers unless applied on a “rare and exceptional” basis. That’s the standard nationwide.
But, not in Florida. Here fee multipliers are increasingly requested and increasingly granted.
It’s the so called “carrot” that, combined with the one-way fee approach, is propelling Florida’s litigation nightmare. The first makes certain that insurers always pay and the other makes certain that they pay huge amounts.
The court case liberalizing the application of fee multipliers occurred in 2017. Lawsuits against insurers doubled over the next two years and cases of exorbitant attorney fee awards became even more common. (See Note #5 below)
A few startling examples: a $41,000 plumbing leak resulted in an attorney fee award of $1.2 million; repair costs of $25,000 yielded attorney fees of $415,495; and, in a settlement for $35,000 the court granted a multiplier of 2.01 and a payday of $702,927.15.
All paid by the insurers under the one-way fee approach.
Citizens fee multipliers are startling. Numerous awards five times or more above the policyholder indemnity. Since January of 2018 thru September of 2020 attorneys have received multiplier paydays exceeding the policyholder’s take by 491%, 1070%, 2036%, 511%, 528% and 1079%. (See Note #6 below)
Other than the beneficiaries of such a scheme, how can anyone argue that multiplied fee awards are anything other than huge dangling carrots incentivizing obviously frivolous suits–you know, like the suits filed before an insurer is even notified of a loss.
Cure the “stick and carrot” and you’ve gone a long way to curing Florida’s property insurance litigation problem, and its’ nationwide standing as the zenith of insurance fraud.
Here’s what lawmakers need to do:
1.) Apply the one-way attorney fee reforms of AOB to all property insurance lawsuits.
2.) Implement changes necessary to bring Florida’s use of fee multipliers in line with every other state and the parameters of the US Supreme Court.
Of course, there’s much more to be done, but…nothing will truly work unless we first replace the “stick” and remove the “carrot.”
NOTE #1: SOLO Counties accounted for 8% of All Lawsuits in 2013. Today in 2019 and through May of 2020 it’s up to 14%, an increase of 75%. Conversely the Tri-Counties accounted for 63% of all Lawsuits in 2013 and today, (through May of 2020) it’s down to 45%.
NOTE #2: While it’s true that reinsurance also rose in 2020 for some carriers by as much as 35%, it’s also true that reinsurance rates are impacted by the same litigation phenomenon’s afflicting retail insurers. See “Rising reinsurance costs presage ‘extraordinarily high property insurance rate…”
NOTE #3: one large carrier I’ve been in contact with shared that since 2007 it has had 11,371 litigated claims and 188,841 non-litigated claims. The average incurred loss on a litigated claim was $44,838 vs. $8,209 for non-litigated. Think about that: If the plaintiff attorney gets 35% (purely a guess on my part) that’s $14,000 per case x 11,371 litigated claims or $161 million, for just one company.
NOTE #4: See “Restoring Balance in Insurance Litigation—Curbing Abuses of Assignment of Benefits and Reaffirming Insureds’ Unique Right to Unilateral Attorney’s Fees”; page 1:
“What makes this arrangement particularly lucrative for attorneys are the ‘one-way’; attorney’s fees awarded to the attorney’s that represent prevailing service providers. Under Section 627.428, Florida Statutes, a prevailing party in a dispute with an insurer is entitled to his attorney’s fees and costs. The fees are ‘one way’ because insurers that prevail are not entitled to fees under the statute”
NOTE #5: See Contingency Fee Multipliers by the Florida Justice Reform Institute: “Florida courts now routinely award attorney’s fee awards which double or triple what attorneys would otherwise receive as fees under a typical billable hour arrangement.”
NOTE #6: For a CE presentation along the same lines as this article, presented by yours truly for the Florida Association of Insurance Agents (FAIA), go here. To download the power point go to Box.com here.
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