Contingency fee multipliers expected to be discussed during property insurance special session
Florida trial lawyers and “contingency fee multipliers” will be under a spotlight when lawmakers convene May 23-27 for a property insurance special session.
In his proclamation, Gov. Ron DeSantis cited statistics that show Florida, with just 9% of property insurance claims, generates 79% of the nation’s homeowner insurance lawsuits.
“Florida citizens are seeing the effects of this higher litigation in their rising premiums,” DeSantis wrote.
But Sen. Gary Farmer, D-Ft. Lauderdale, says insurers are to blame for routinely denying claims. A trial lawyer, Farmer says any reforms should directly benefit consumers.
“In short, we must protect homeowners in Florida by calling a special session to address our state’s property insurance crisis, and the only way to effectively do so is to ensure that insurers are held accountable to their obligations to their customers,” Farmer said.
DeSantis’ proclamation limits the session to property insurance, reinsurance, the Florida building code, the Office of Insurance Regulation, appropriations, and “civil remedies.”
Mark Friedlander, chief spokesman for Insurance Information Institute, recently told WBUR’s “On Point” that “bands of unscrupulous roofers, going door-to-door, soliciting claims,” are largely to blame.
Contractors persuade homeowners to sign over benefits and sue the insurance company if coverage is denied, Friedlander said. Insurers settle rather than risk trial because plaintiffs’ attorneys can be awarded fee multipliers, Friedlander said.
“They’re paying out these frivolous lawsuits by the thousands,” Friedlander said. “That’s what’s driving the problem of the major losses for property insurance companies in Florida.”
In the past year, 100,000 property insurance-related lawsuits were filed in Florida courts, Friedlander said.
“We analyzed this across the country, and no other state had more than 900 property claim lawsuits filed,” he said. “It’s just a completely out-of-control situation.”
The industry claims that since 2013, insurance companies made $15 billion in payouts in Florida, with less than 10% going to homeowners, and 70% to attorneys. Four insurance companies were declared insolvent in the past five years.
Florida homeowners are losing coverage, and Citizens Property Insurance Corporation, the state-run insurer of last resort, is growing by 5,000 policies a month.
At the end of March, Citizens had 801,341 policies, up from 570,000 one year ago. President and CEO Barry Gilway predicts that Citizens will exceed 1 million policies by the end of 2022.
Farmer is skeptical about insurance industry claims.
“First it was sinkholes, then it was AOB [assignment of benefits], whatever boogey man you chose,” he said. “I think consumers are at a real disadvantage because of antitrust exemptions, so much of the data is protected and not available to the public.”
Reforms lawmakers approved in 2021 have only been on the books for less than six months, but appear to be working, Farmer insists. For the first time, plaintiffs in insurance disputes are required to file a pre-suit notice, Farmer said.
“The little data that we do get shows that lawsuits are on the decline because of the legislation we enacted in 2021,” he said.
Nobody disagrees that homeowners are feeling the crunch.
A Cape Coral homeowner with a leaking roof told “On Point” that her annual premium for a 1,600-square-foot home is $2,700, up from $800 in 2017. In early May, she received a nonrenewal notice.
Sen. Jeff Brandes, R-St. Petersburg, was among the first to demand a special session.
“Let me tell you, my friends and neighbors are all seeing their rates doubling and tripling,” Brandes told WBUR. “It’s not going to be long before people are paying more for their property insurance than they are for their mortgage.”
Brandes referred to a Florida law that requires insurers to replace a roof when damage reaches or exceeds 25%. Better incentives would get homeowners to work cooperatively with insurers, Brandes said.
“And that’s by allowing actual cash value on claims, dealing with potentially higher deductibles, and allowing more flexibility for insurers to write other types of products, versus a full replacement cost of the roof,” he said.
Brandes also called for “ending the fee multiplier and moving it back to the standard of 49 other states and the federal government.”
Last year, Brandes filed SB 212 to do just that.
The measure would have established a legal presumption that “the lodestar fee is sufficient and reasonable,” in claims arising from property insurance disputes.
“Such presumption may be rebutted only in a rare and exceptional circumstance with evidence that competent counsel could not be retained in a reasonable manner,” the bill stated.
SB 212 never received a hearing.
Brandes’ language appeared briefly in the reform package — SB 76 by Sen. Jim Boyd, R-Bradenton — but the provision was removed in final negotiations.
Gov. DeSantis signed the measure on June 11, 2021. Among other things, the legislation changed eligibility requirements for Citizens and reduced the deadline for filing most claims to two years from the date of loss.
The legislation requires plaintiffs to file a pre-suit notice at least 10 days before filing a lawsuit against an insurer. The notice must include an estimate of the demand, the attorney fees and costs demanded, and the amount in dispute. It prohibits pre-suit notices from being filed before the insurance company determines coverage.
Not long after the legislation went into effect on July 1, Chief U.S. District Judge Mark Walker granted an injunction against enforcing a portion of the law that targeted door-to-door solicitation by roofers.
It calls for banning written or electronic communication that “encourages, induces, or instructs someone to contact a contractor or public adjuster for the purposes of filing an insurance claim for roof damage.”
Judge Walker agreed with the plaintiff that the provision violates First Amendment rights.
House leaders have been reluctant to pursue additional reforms until the full impact of the previous legislation is known, when policies have had time to renew.
The special session will put fee multipliers back in play.
Florida courts have long awarded attorney fees to homeowners in property insurance disputes under the theory that homeowners are at an inherent disadvantage.
In Bell v. U.S.B. Acquisition Co. Inc., 734 So. 2d 403, 411 (Fla. 1999), the Supreme Court said fee multipliers “level the playing field between parties with unequal abilities to secure legal representation.”
Brandes said his 2021 legislation was inspired by a dissent that Chief Justice Charles Canady issued in William Joyce et. al v. Federated National Insurance Company, No. SC16-103 (Fla. Oct. 19, 2017).
The majority opinion by former Justice Barbara Pariente stated, “We reaffirm our adherence to the use of contingency fee multipliers in this State and make clear that there is not a ‘rare’ and ‘exceptional’ circumstances requirement before a contingency fee multiplier can be applied.”
In his dissent, Justice Canady took issue with an expert witness who testified that the plaintiffs would have had difficulty finding competent counsel without a fee multiplier.
“The majority’s decision underscores the need here for a full re-examination in a future case of our multiplier jurisprudence,” Canady wrote.
But Farmer, who has been active in the Florida Justice Association, considers fee multipliers an important tool to protect consumers.
Farmer said fee multipliers are rarely applied and only when the plaintiff prevails.
“The issue I’m going to bring up over and over again during the special session is that they only award them when the insurance company denies or underpays a claim,” Farmer said. “There has to be a financial disincentive for insurance companies to [improperly] deny a claim.”
Consumers who are seeing their premiums triple would benefit more through direct subsidies, Farmer said.
“The state could ease the burden there by going into the CAT fund [hurricane catastrophe fund] or Citizen surplus, to provide a refund, or at least a rate freeze,” he said.