2022 Florida Property Insurance Reform Part I:

The Contractor – Insured Relationship

As Florida insurers reach insolvency at alarming rates, the Florida Senate Appropriations Committee passes two new bills with the hope of stabilizing the struggling property insurance market.  Kelly Vogt, Partner at Clausen Miller in Naples, FL notes that “Senate Bill 2-D and 4-D were passed in direct response to Florida’s property insurance crisis, one that is comprised of rising premiums, policy non-renewals, insurer insolvencies, and an extraordinary rate of litigation.” Furthering Vogt’s point, David Altmaier’s April 2 letter to the Florida House Commerce Committee pointed to data showing over 76% of all homeowners’ lawsuits opened against insurers in the US in 2019 were in Florida.

What does this reform look like for Floridians and Florida insurers? Will Florida’s 7 million homeowners see any relief in premiums as a result, and if so, when?  Senate Bills 2-D and 4-D contain several provisions, which we will outline in this white paper series: “2022 Florida Property Insurance Reform.”

This paper will focus on three areas of the contractor-insured relationship that lawmakers believe are driving up the frequency and severity of property claims, fraud, and unnecessary litigation.  The areas to consider pertain to the following:

  • Contractors waiving the insured’s deductible
  • Contractor assignment of benefits and prevailing party fees
  • The implementation of roof deductibles

There is a provision in insurance policies that allows insureds to sign over their insurance claims to a third party, who may then pursue payment from the insurers on the insureds’ behalf.  This is called “assignment of benefits” (AOB).  “Third parties” can be public adjusters, contractors, and/or roofers performing (or alleging to perform) repairs on the insured’s property.  If the insurer and the assignee of benefits (contractor) do not agree, these claim-related disputes frequently lead to lawsuits with the contractor as the plaintiff and the insurer as the defendant.

While SB 2-D continues to permit insureds to assign their benefits to a contractor, it restricts contractor solicitation.  The first restriction is that contractors are strictly forbidden to waive or write-off the insurance deductible.  It is important to note that it is a third-degree felony for any contractor to waive a deductible.  This is considered insurance fraud.  The new bill now requires contractors to notify the insured in large, typeface writing that the insured is responsible to pay the deductible portion of the claim.  Forcing contractors to collect deductibles from the policyholder protects insurers against contractors inflating repair costs and writing-off the insureds’ deductibles, leaving insurers with an inflated bill.  Contractors can no longer solicit AOBs with the promise that the deductible will be waived. The inflation of roofing claims, in order to absorb deductibles, costs insurers more than fair market prices to indemnify.

Additionally, prior to SB 2-D, contractors suing insurers under the AOB have been allowed to recover their attorneys’ fees if they win; this part of the award is called “prevailing party fees.” While Florida homeowners (i.e., the insured) are still eligible to recover prevailing party fees, only if the policyholder files the lawsuit directly.  Attorneys’ fees can no longer be awarded to an assignee.

Finally, SB 2-D further confronts the issue of accountability to perform the roof repair and application of the deductible by allowing insurers to impose a “roof deductible.”  Essentially, insurers are now permitted to limit indemnity payments on roof claims to ACV (actual cash value) until evidence is provided that the insured has paid their deductible to the contractor.  The roof deductible may not exceed the lesser of 2% of the policy dwelling limits or 50% of the roof’s replacement costs, whichever is lower.

Contractors, however, are already devising ways to outwit this new deductible hold-back.  Within days of the passing of SB 2-D and 4-D, Florida roofing contractors began offering no-money-down financing options for the payment of a deductible.  Is it a loan, or is it a loophole?  Only time will tell.

Kelly Vogt of the law firm, Clausen Miller notes, “While the extent of the effects of the new legislation remains to be seen, the new protections aim to curb insurance abuse and lead to more pre-suit resolution of claims while protecting the interests of Florida homeowners.” 

In the subsequent parts of our “2022 Florida Property Insurance Reform” legal update, we will explain other key components of Florida’s reform including aging roofs and condominium safety reform.

Written by Janel Giarratano with contributions by:
Kelly Vogt, Clausen Miller
Charles Long, P.E. Forte Consulting and Investigations, LLC