NON-DECISION ON AOB–Not as Bad as it Sounds!

Despite its previous decision to review the case, on Monday July 29th  Florida’s Supreme Court  reversed itself, announcing it would NOT answer the question of whether insurers could use policy language that required approval of AOB’s by “All Named Insureds.”  

“All Named Insureds” includes, “additional insureds and mortgagees.”  Under the correct assumption that mortgagee’s won’t approve AOB’s, most believe that policy language requiring their permission would nail the AOB coffin shut–even without the recently enacted reforms which, in their own way, pretty much did the same thing. (See Note #1 below)

The court case (Restoration 1 vs. Ark Royal) was the “belt & suspenders”–a fallback in case the legislative reforms didn’t pass or were rendered ineffective.

Fatefully, the courts statement  blames its’ change of heart on the legislative reforms: “Because we conclude that the new legislation addresses on a going-forward basis the issue before us…accordingly we dismiss this review proceeding.” (See Note #2 below)

Noteworthy is that all three of Governor DeSantis’s new appointee’s voted to hear the case and the existing, predominantly liberal majority, did not.  So, it’s still possible, albeit remote, that the court could someday rule on portions of the reforms without leaving the industry the “All Named Insureds” language to “fallback” on.

Still, it isn’t as bad as it sounds.  Some say that if the court had ruled on the issue it could’ve ruled against the use of the “All Named Insureds” language. I’ve talked to some who prefer the courts’ non-decision because it leaves room for the “All Named Insureds” language to be used in filing AOB restrictive policies permitted by the reforms.

Sounds complicated, but… it highlights one question stemming from line 303 of the reform bill,  HB-7065: When will insurers begin offering new policies that restrict the policyholders ability to sign an AOB?

Remember, the reform bill specified a handful of requirements for offering a policy that restricts use of AOB’s, as follows: 1) the insurer must continue to make available the old non-restrictive form; 2)  the new AOB restrictive policy must be available at “a lower cost” than the old non-restrictive policy, and; 3) an 18-point warning  and a signed rejection is required. Selling or offering the new policy is optional and the old policy only needs to be made available, not necessarily offered.  (See Note #3 below)

One key element here is that about six carriers, including Ark Royal, already use the “All Named Insureds” language. This, due to the OIR’s previous decision to allow “use and file” form changes to eliminate a temporary filing backlog.  Going forward those carriers rates could be a benchmark for new policy form filings that restrict AOBs.

Still, even with a rate benchmark, industry pundits believed most carriers were not likely to offer an AOB restrictive policy because they didn’t have specific language they thought the OIR would approve.  (See Note #4 below)

And there it is–the Supreme court’s non-decision improves odds that the OIR would accept the “All Named Insureds” language currently used by Ark Royal (and others) and not disapproved by the Supreme Court.

In a nutshell: insurers could use the Ark Royal “All Named Insureds” language, which the Supreme’s did not specifically approve because it has been approved, though not specifically, in the reforms of HB-7065.

That, and the fact that Ark Royal and a half dozen other carriers now have the necessary experience, both procedural and actuarial, to support using the “All Named Insureds” language, is why I say the Supreme Court’s non-decision …

…is not as bad as it sounds.

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NOTE #1: I have not talked to anyone that does not believe AOB is dead if mortgagee’s must approve before any benefits can be validly assigned to a 3rd party. In fact, the prediction that such a provision would effectively end AOB was a prime argument for those 3rd parties who opposed the idea during legislative debates.  Numerous vendors have confirmed this to me in person or in emails as well.

NOTE #2: The origin of the Supreme Courts’ decision not to review AOB began when a state appeals court upheld insurance policy language barring policyholders from signing assignment of benefits agreements without the approval of co-insureds, including financial institutions holding mortgages on the property. The ruling, written by Judge Alan Forst for a unanimous three-judge panel of the 4th District Court of Appeal in 2018, contradicted a finding by the 5th District reached in December 2017. Ark Royal was one of a few carriers with a policy form that already had the “All Named Insureds” restrictive AOB language, having implemented such during the OIR’s temporary certification process.  See the following for more:

Ark Royal Case, Supreme Court Rules not to hear – Court Statement for reversing decision to review case; Restoration 1 v. Ark Royal

Ark Royal Case: Restoration 1 v. Ark Royal – Supreme Court Case regarding the “All Named Insureds” Issue with AOB.

Ark Royal Case: Supreme Court Halts Review of Controversial AOB Case – By P&C 360 regarding Restoration 1 v. Ark Royal in the “All Named Insureds” dispute.

Ark Royal Case: Supreme Court Pulls out of Insurance Dispute – From News Service of Florida by Jim Saunders, regards Restoration 1 v. Ark Royal “All Named Insureds” dispute

NOTE #3: Specifically, HB-7065 states “..an insurer may make available a policy that restricts in whole or in part an insured’s right to execute an assignment agreement…if… the insurer makes available to the insured or potential insured at the same time the same coverage under a policy that does not restrict the right to execute an assignment agreement…”.  For specific wording on all requirements to offer an AOB restrictive policy read, beginning on line 303, here.

NOTE #4: The OIR has provided an Informational Memorandum (OIR-02-19) to guide carriers in responding to various aspects of the new law.  It’s helpful on issues like approval of signed rejections and so forth.  But, it didn’t address what specific language AOB restrictive policies should use.  Other questions are: where do carriers who haven’t sold an “All Named Insureds” policy obtain actuarial data necessary to develop a lower price which, according to the OIR memo, must be approved?  And, how do they project savings (if any) from the many other reform unrelated to offering an AOB restrictive policy?

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