The Sunshine state is known for its beaches and real estate. However, recent events and trends may imperil these valuable elements. As the southernmost state, situated with the Atlantic Ocean to the east and the Gulf of Mexico to the west, Florida has its fair share of coastline. In fact, Florida possesses the most coastline out of all the contiguous forty-eight states. Both historically and contemporaneously, Florida disproportionately suffers from the disastrous effects of hurricanes due to its unique climate and geography. This poses issues for both homeowners and insurers. Homeowners struggle to adequately insure their property or find affordable rates, and insurers struggle to make a profit.
Insurers have been leaving Florida in droves—and I can’t blame them. For insurers to sustain their business, they simply must earn more than they spend. Given the increased frequency and severity of hurricanes impacting Florida, insurers are left with two options: (1) increase rates to offset costs, or (2) leave the unprofitable Florida market. Unfortunately for Floridians, many major insurers have selected the latter. Accordingly, Floridians are left with fewer options and higher prices.
However, these issues are not solely exacerbated by climate and geography. Many have speculated that frivolous lawsuits pertaining to insurance claims are to blame. Per Governor Ron DeSantis’s 2022 proclamation on the subject of property insurance, Florida accounts for 79% of the nation’s homeowners insurance lawsuits despite constituting only 9% of the nation’s homeowners insurance claims.
This disproportionate number of lawsuits certainly raises eyebrows. A possible explanation is fraudulent roofing claims. Under this scheme, a contractor prowls through a Florida neighborhood and knocks on homeowners’ doors. The contractor tells the homeowner that they noticed severe roof damage while perusing the neighborhood. Benevolently, the contractor offers to replace the roof—free of charge. The contractor asserts that they can do so by achieving waiver of the homeowner’s insurance deductible. All the homeowner must do is provide the contractor with an Assignment of Benefits (AOB). AOBs “transfer[] the insurance claims[,] rights[,] or benefits of your insurance policy to a third party.” The homeowner gets a free roof, and the contractors deal with the insurance company. What a deal!
However, this scheme is ripe for abuse, and many contractors have sought AOBs en masse. What exactly is the abuse, though? Who is harmed, and how does that harm manifest? Inevitably, after our hypothetical contractor obtains an AOB and communicates with the insurance company, a claims adjuster will eventually inspect the alleged damage to the roof. In most cases, the damage is either nonexistent or grossly exaggerated. Accordingly, the claims adjuster reduces the payout—if a payout is granted at all. The contractor, since they have legal power via the AOB, then disputes the payout. Subsequently, the contractor sues the insurer demanding the original amount sought. In isolation, this seems relatively trivial. Surely, large insurers can afford to defeat the claims of small contractors.
While manageable in isolation, this issue becomes much more daunting at scale. Insurers must decide whether to litigate a horde of claims or simply settle out of court. Litigating these claims may sound desirable, as it could deter frivolous claimants. However, such litigation can be impractical. When an insurer faces an onslaught of such claims, the costs of litigation may become prohibitively high. For example, within a six-day period in March 2023, plaintiffs-side law firm Morgan & Morgan filed 25,000 cases against Florida insurers.
This revolving door of AOB, claim, and settlement has led to a mass exodus of insurers and increased rates for the insured. Thus far, we have identified climate and geography as factors which increase costs and discourage insurers from providing a service. We have also identified frivolous lawsuits and the subsequent mass settlements as similar factors. So, what is the solution? How can, or has, Florida taken proactive measures?
State legislative inaction allowed these issues to gestate. Until recently, Florida law did not provide attorneys’ fees to prevailing insurers. Compare this to the Federal courts, where prevailing parties in certain civil actions are entitled to an award of reasonable attorneys’ fees.[1] Fortunately, as of March 27, 2023, Florida has taken action. In Florida House Bill 837, the legislature authorized courts to award attorney fees in certain declaratory actions.[2] Additionally, Senate Bill 2A prohibits AOBs on policies issued on or after January 1, 2023. Hopefully, these actions will reduce the volume and effectiveness of fraudulent insurance claims.
It is still far too early to predict the impact of this remedial legislation. However, three truths remain certain: Floridians are the victims of (1) Florida’s unique climate and geography; (2) frivolous claims facilitated by AOBs; and (3) state legislative inaction.
[1] See Villaneuva-Gonzalez v. Grainger Farms, Inc., No. 2:09-cv-716-FtM-36, 2011 WL 5834677, (M.D. Fla., Aug. 9, 2011) (holding that a prevailing party is entitled to an award of reasonable attorneys’ fees under the FLSA); see also Case v. Unified Sch. Dist. No. 233, No. 94-2100, 1996 U.S. Dist. LEXIS 14708*, (D. Kan., Sept. 6, 1996) (holding that a prevailing party is entitled to an award of reasonable attorneys’ fees under 42 U.S.C. § 1988).
[2] 2023 Fla. Laws ch. 15