“What’s Past is Prologue!”

The ink from Governor DeSantis’s signature on HB-7065 wasn’t even dry when some of Florida’s worst trial lawyers began perverting reform benefits into billable hours.

Two days after the Legislature adopted HB-7065 (April 24), Harvey Cohen, the self-described “Johnny Appleseed of AOB”,   posted a YouTube video imploring his unscrupulous minions to quickly send him all their AOB cases. This, in an apparent attempt to squeeze in more suits before July 1, the effective date of the new law.

What a schmuck!

Too bad he didn’t know about Section 23 of HB-337 which passed after HB-7065 and which DeSantis also signed, the day after he signed HB-7065.  Beginning on line 1,368,  Section 23 of HB-337 changes the effective date for the one-way attorney fee portions of HB-7065, making the new restrictions effective when the Governor signed the bill which was May 23rd…not July 1st.  

Whoops!

Almost immediately Cohen’s now infamous video was pulled down.  Just for kicks, you can still watch it, here.  You can also read all of HB-7065 including paragraph (10) which modified the one way attorney fee statute (line 242).  (See Note #1 below).

CFO Jimmy Patronis, a prime advocate for the reforms, lead the statewide chorus of objections regarding Cohen’s video and, by implication his seminars. “This is ridiculous” he said, “…and EXACTLY why I advocated for AOB reform. These lawyers are looking out for their bottom line, not for Floridians, and are WHY your insurance rates go up.”  (See Note #2 below)

Since the AOB reforms passed I’ve been contacting various relevant parties including insurance carriers, agents, members of various trades and professions like roofers, water mitigation firms, public adjusters, plumbers and attorneys.  This, to better understand what the post-reform marketplace might look like.

Harvey Cohen didn’t return my phone call but, reconnaissance from his recent seminars seem to confirm that AOB, as it has been used in the past, is likely a thing of the past.  AOB’s are not prohibited under the new law. However, new AOB requirements and new restrictions on one-way attorney fees, make the use of AOB’s far less likely in the future.

According to reports from those attending Cohens’ post reform seminars, including a prominent adjuster, Dr. Gary Rosen (See NOTE #3 below), the new model includes vendors getting homeowners to sign up with attorneys in lieu of public adjusters. Instead of calling a public adjuster, call an attorney who can help with the loss and also file a suit on behalf of either the homeowner or the vendor.

Remember, under HB-7065, if there is no signed AOB, there are no changes to the application of the one-way attorney fee statute. Attorneys, or at least Cohen, is indicating he will charge a 25% fee vs the 20% maximum allowed for a public adjuster.  According to Dr. Rosen, Cohen explained the advantages (from his perspective) to hiring an attorney over a PA–one being that the 25% fee (in his case) can potentially be recouped in the suit leaving the policyholder with zero out-of-pocket.  You can see Gary Rosen’s entire email describing his thoughts on the post-reform environment here.  (See Note #3 below)

Anyway, that’s my report on what “some” lawyers might be doing.  What about AOB vendors?

One roofer I’ve been dealing with, who had several consumers locked into AOB’s with cancellation fees as high as $15,000, decided to drop his case(s) thus, in effect, cancelling or allowing the cancellation of, the AOB’s. Hopefully this is a trend for the hundreds of consumers whose damage is not being repaired and who can’t talk to their insurance company without paying an exorbitant cancellation fee to a vendor.

I believe the approach of  “neighborhood blue tarping”, where AOB’s are solicited from entire subdivisions and secured by the placement of blue tarps, may not be sustainable in the future either.  HB-7065 specifically allows homeowners to “rescind” an AOB “…at least 30 days after the execution of the agreement…if the assignee has not begun substantial work on the property.” I believe most would agree that merely placing a blue tarp on a roof is not considered “substantial work on the property.”

And, what about water mit firms?

At least one water vendor has embraced the post AOB reform environment by purchasing a Service Master franchise.  Others may try to follow suit but, the abusers with hundreds of AOB lawsuits to their credit and the high profile insurance haters will find the going quite tough, I believe. (See Note #4 below).

It remains to be seen what might happen to the exorbitant referral fees paid by some water vendors to plumbers.  You may know that these fee’s were often in the $1500 range and could be as high as $2500 by one report. The referral fee (paid in cash) was too easily recouped via an inflated invoice the insurer was eventually forced to pay.  I suspect this practice may subside to some degree.    HB-7065’s restrictions on what constitutes a valid AOB and on the one-way attorney fee statute, make payment of invoices inflated by such hefty amounts far less likely.  Look for plumber referral fees to gradually go down and, perhaps, someday, become a thing of the past.  It’s also possible, indeed likely, that future legislation will prohibit referral fees altogether.

Now for the premier post reform question, the one I get asked the most.

As provided  on line 303 of HB-7065 when will insurers begin offering new policies that restrict the policyholders ability to sign an AOB?

The bill specifies only two material requirements for offering a policy that restricts use of AOB’s: 1.) the insurer must continue to make available the old non-restrictive form, and 2.);  the new AOB restrictive policy must be available at “a lower cost” than the old non-restrictive policy.  Note: selling or offering the new policy is optional and the old policy only needs to be made available, not necessarily offered.  An 18-point warning  and a signed rejection is required, however. (See Note #5 below)

My research reveals that most carriers are not likely to offer an AOB restrictive policy any time soon, if at all.

Here’s why.

First, the OIR approval process could be difficult, even problematic.  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, what price do insurers charge for the new policy?  Where do they get the actuarial data necessary to develop that lower price which, according to the OIR memo, must be filed and approved by the OIR.  Especially since most carriers haven’t sold such a policy before?  How do they project savings under the new law? What specific language do they use? And most of all, how do you predict the success trial lawyers might have at undermining the new law?

The questions above may all have answers but, there’s one, even more compelling reason that “most” carriers won’t be offering the new AOB restrictive policy form.

Sometime this summer Florida’s new, more conservative supreme court, will address the “all named insureds” issue.  If the court rules as many think it might then there’s little need to risk the expense of filing for a new AOB restrictive policy form.  Carriers can simply use the same language requiring approval from all named insureds before an AOB is valid.  Let’s face it, no lender will approve of policy proceeds being assigned to a third party via the previous AOB approach that so often resulted in lawsuits, unrepaired damage or shoddy workmanship.

Most everyone I’ve talked to believes AOB is dead if the mortgagee 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 remediators who opposed the idea during legislative debates.  (See Note #6 below)

In summary: most carriers will not be offering new AOB restrictive policies until after the Supremes rule on the mortgagee issue  And, if insurers win that case, they will be able to cure the majority of their AOB problems without the expense and risk of a new form filing. That’s my opinion, of course.

For now, the long awaited, much needed and industry celebrated AOB reform bill will become entirely effective July 1 and, it will materially change the landscape of AOB in many ways, some foreseeable, many not.

Here at Johnson Strategies we’ll continue to opine on new developments if for no other reason than to act as an early warning system to protect the gains from HB-7065 and/or any subsequent decisions by the supreme court.

Important:  shortly I’ll publish a complete compendium of the entire AOB issue dating back to March of 2013 and concluding with this blog.  Any new postings in my online library regarding AOB will be found under a new library heading, “AOB-post 2019 reforms.”

Keep an eye out for this new hard copy compendium on AOB titled “Past is Prologue.”  It should be published and available to everyone later this summer and will contain all relevant information, my blogs, all the relevant studies, reports, articles and more regarding Florida’s AOB crisis.

Congratulations to all those who fought the good fight to remove this scourge from Florida’s residential property insurance system.

#end##

NOTE #1: Some have opined the provisions of HB-337 regarding the effective date may be flawed and thus don’t actually accomplish the intended result.  A moot point in my book.  We’re only talking about a span of eight weeks or so.  As long as there’s a chance of an earlier effective date regarding the one-way attorney fee statute attorneys like Harvey Cohen aren’t going to file AOB suits that could result in paying an insurers’ attorney fees.  Why else would Mr. Appleseed take down his video?

NOTE #2: CFO Patronis wasn’t the only one who criticized Harvey Cohens’ video and his last call for AOB suits.  Read the article in FLAPOL regarding it being “despicable” and “shameless”.   Or, my favorite in the Sunshine State News, an article by Nancy Smith.

NOTE #3: Gary Rosen appears to be a responsible and well educated professional, so I used him as a reference in this article.  I have never met Dr. Rosen but, he’s extremely well published, a PhD. and a licensed  adjuster.  You can learn more about Dr. Rosen’s impressive qualifications and experience here.

For what it’s worth, Senior Vice President for Public Policy at FAIR (Federal Association for Insurance Reform) Paul Handerhan, who also lobbies for FAPIA (Florida Association of Public Insurance Adjusters), emailed me that he does not believe the approach Cohen is suggesting is sustainable, implying it will have little impact on the business of public adjusting.

NOTE #4:  The owner of Tallahassee based Bone Dry Restoration now advertises an affiliation with Service Master.  This is more significant than it might appear.  For one, Service Master is not a user of the AOB approach. Secondly, the owner of Bone Dry, Jeff Grant, has been a spokesman for, and officer of, FLARS (Florida Association of Restoration Specialists). A previous FLARS spokesperson and corporate officer also purchased a franchise after repudiating the use of AOB’s.  All good fauna to protect the gains provided by HB-7065 in the future.

NOTE #5: 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 # 6 : 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, contradicts a finding by the 5th District reached in December 2017.

There are a few carriers with policy forms that already have restrictive AOB language (allowed by the OIR’s temporary certification process) and, for the most part, they are the ones participating in the suits that have now arrived at the Supreme Court.

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