By John Haughey
The Center Square
July 5, 2019 – noon
It took nearly a decade but with the start of the new fiscal year on Monday, a long-awaited, hotly debated insurance reform law goes into effect and could be tested as soon as this hurricane season.
House Bill 7065 was passed by the House, 96-20, and Senate, 25-14, during this year’s legislative session, and signed into law by Gov. Ron DeSantis on May 23.
The bill’s adoption ended seven years of failed attempts to reform the state’s Assignment of Benefits [AOB] statute, which insurers and state officials say spurred an explosion of lawsuits that contributed significantly to rate hikes of up to 36 percent for many of Florida’s 6.2 million property insurance policyholders over the last half-decade.
“I thank the Florida Legislature for passing meaningful AOB reform, which has become a racket in recent years,” DeSantis said in a statement. “This legislation will protect Florida consumers from predatory insurance practices.”
AOB agreements allow property insurance policy holders to sign away, or assign, benefits in insurance policies. The law allows policyholders to trade those benefits in exchange for “upfront work” in an emergency.
The controversial component of Florida’s AOB statute was its “one-way” attorney fee provision, which required insurers to pay legal costs even when they win in court. Critics contended the one-way fee clause “incentivized” attorneys to file AOB lawsuits as a “can’t lose” business practice.
HB 7065, however, removed the litigative incentive from the state’s “one-way fee” AOB provision by only allowing policyholders – not attorneys or third-party contractors – to collect the one-way attorney fee in an AOB agreement.
Under the new law, insurance companies can legally sell AOB-free policies. Carriers can offer three tiers of policies – those allowing policyholders to assign their benefits; those restricting assignments; and those blocking an assignment whatsoever.
Attorney fees under the new law are awarded on a sliding scale to the winning party in a suit, depending on the size of awards as compared to pre-lawsuit settlement offers.
Even though it does not go into effect until July 1, the new law has already produced a dividend for about 67,000 Citizens Property Insurance policyholders who will pay lower insurance rates this year than they did in 2018.
Citizens, the state-backed insurer of last resort, agreed to lower a proposed 8.2 percent 2019 increase to 4.7 percent to reflect projected savings fostered by the AOB reform law.
According to Citizens, the 67,000 ratepayers who will see insurance rates decrease in 2019 because of HB 7065 include nearly 44,000 of its 435,000 residential policyholders.
In a June 14 memo to insurers, the Florida Office of Insurance Regulation [OIR] said no form or rate filings are required to comply with the new AOB provisions.
The OIR said insurers can notify policyholders of the new AOB provisions without filing a notice unless they choose to modify policies “to provide, for instance, a designated location for the receipt of assignment agreements.”
If so, insurers must file a policy form change and have it approved by the OIR, similar to the way they must do with rate changes.
The OIR and state’s Financial Services Commission will assess the effectiveness of the AOB reform from information provided in an “insurer data call” in February 2020 and again in 2022.
“While we appreciate that nine months after the passage of the bill may not be sufficient time to recognize the full impact of the act on rates and rate indications, collecting preliminary data to evaluate the potential impact of the Act is a valuable exercise,” OIR’s memo states.
What the new law does:
• Defines “assignment agreement” and establishes requirements for the execution, validity and effectiveness of agreements.
• Prohibits certain fees and alter-policy provisions related to managed repairs in an AOB agreement.
• Transfers pre-lawsuit duties under the insurance contract to the assignee and shifts the burden to the assignee to prove any failure to carry out such duties has not limited the insurer’s ability to perform under the contract.
• Requires each insurer to report specified data on claims paid in the prior year under assignment agreements by Jan. 30, 2022, and each year thereafter.
• Allows an insurer to make available a policy prohibiting assignment, in whole or in part, under certain conditions.
• Revises Florida’s one-way attorney fee statute to incorporate an attorney fee structure in determining the fee amount awarded in suits by an assignee against an insurer.
• Requires service providers give an insurer and the consumer prior written notice of at least 10 business days before filing suit on a claim.