Home Insurers in Florida to Try, Try Again for Assignment of Benefits Reform

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The push for assignment of benefits (AOB) reform in the 2019 Florida legislative session is in full swing, and the insurance industry and consumer advocates have pulled out all the stops to emphasize their contention that abuse of a policyholder benefit has led to a full-blown insurance crisis in the state.

Whether their efforts will be enough this year after six years of failed reform attempts remains to be seen. Lawmakers are weighing legislative options, but a bill backed by the industry has already stalled in the Senate Banking & Insurance Committee.

The industry isn’t giving up on reforming the state’s costly assignment of benefits (AOB) system; it’s the industry’s top issue in the 2019 session.

“We remain hopeful of the process and that members of the [Florida] Senate and House will work through the various issues that have been raised and will land on a piece of legislation that will be helpful for consumers and that actually address these issues,” said Michael Carlson, president of the Personal Insurance Federation of Florida (PIFF), which represents personal lines insurers in the state.

The AOB problem in Florida stems from unlicensed water remediation and roofing contractors who have homeowners sign over their insurance policy rights in exchange for repairs to their homes. The contractors, typically working with an attorney, file inflated or fake claims, and then pursue lawsuits against insurers when those claims are disputed or denied.

Florida’s one-way attorney fee statute, which the insurance industry, consumer advocates and the state’s insurance regulator agree is driving the AOB abuse, leaves insurers footing the bill for the inflated claims and the attorney fees if the insurer is found to have underpaid the claim by any amount.

“After six or seven years of this campaign to make changes and having looked at this issue from several different vantage points and a lot of data the industry has concluded this is an attorney fee-driven cottage industry,” said Carlson.

The current remedy supported by the industry and Florida’s insurance regulator was introduced by Florida Senator Doug Broxson, who chairs the Senate Banking & Insurance Committee. Senate Bill 122 would continue to allow policyholders and beneficiaries to recover attorney fees under Florida’s one-way attorney fee statute but would prohibit assignees from obtaining attorney fees.

In several meetings of the Senate Banking & Insurance Committee before the start of session, lawmakers saw AOB litigation and rate data from Insurance Commissioner David Altmaier and heard stories from homeowners who were victimized by AOB scammers.

They also listened to testimony by contractors who maintain that there is no pressing need for AOBs.

“The explanation that contractors have to obtain an AOB [and] they have to sue the insurance company in order to get paid does not seem to be reflected in the insurance complaint information we have available to us,” Altmaier told the committee on Jan. 22.

Altmaier said he supports SB 122 to control attorney fees that are the number one driver of AOB abuse, which in turn is driving up rates and reducing coverage for consumers.

“Many people will tell you this is an issue between insurance companies and trial attorneys – [but] at the end of the day this is really an issue that impacts Florida’s insurance consumers and at the moment it’s impacting Florida’s insurance consumers in adverse ways,” he said.

He noted 70 percent of the litigated claims Citizens Property Insurance Corp. experienced in 2018 had an AOB associated with them.

“It appears based on this information that the purpose of obtaining an AOB is for certain individuals in our marketplace is to obtain the benefit of one-way attorney fees and enter into litigation with our insurance companies,” he said.

Citizens, the state-run insurer of last resort, has borne the brunt of the AOB abuse. CEO Barry Gilway warned the committee that the issue is worsening statewide.

“It was primarily a south Florida problem until 2015 to 2016, but now it’s exploding across the state,” he said.

Gilway said the 8.2 percent rate increase Citizens requested for 2019 is far below what the insurer’s actual rate indication is because of costly AOB litigation. The insurer cannot request rate increases of more than 10 percent statewide because of the statutorily required glide path.

“What’s extremely important to understand is that while the increase we filed was 8.2 percent, the actual rate need – all driven by litigation … is 25.2 percent – that’s what we need,” he said.

Altmaier underscored the ramifications of the problem if it continues to be left unchecked.

“Rate increases are the best-case scenario consumers can hope for without resolution to this issue. We are hearing from many insurance company executives who claim the rate increases they receive are not enough to continue offering their products in our state,” Altmaier said.

Bill Status

Despite the testimony and agreement by lawmakers that something needs to be done, SB122 was tabled at the Feb. 11 committee meeting after several committee members expressed concern over the bill, with one referring to it as a “nuclear option.”

Sen. Jeff Brandes, a committee member who supports the legislation, successfully moved to postpone the bill with the hope that lawmakers could come to a consensus on how to move forward.

“There is no perfect bill to resolve [AOB] – this is a great attempt. We should support this bill. We should continue to hone and refine and work on this bill,” he said.

He emphasized to his fellow lawmakers that he believes something has to be done this year.

“What we are hearing is this is a pandemic that is slowly spreading across this state. This is not sustainable,” he said.

Broxson said SB122 was the 18^th bill filed since 2013 with 15 different banking and insurance chairs hearing the issue and zero legislation addressing the issue passed to date.

“We are going to deal with this issue this session – if we have to spend every committee meeting to vet this problem – we’re not going to hurry through this,” he told the committee at its first meeting Jan. 22. “We have got to own this issue once and for all.”

SB122 was not heard by the Senate Banking & Insurance committee’s meeting on Feb. 19 but was added to its March 4 agenda.

So, Will 2019 be the Year?

The industry says it is not giving up on reform.

“Despite the setback in [the Senate Banking & Insurance] committee, I think we have still have a better than even chance in getting meaningful reform passed this year,” said Carlson.

Logan McFaddin, Southeast regional manager of industry trade group APCIA, said there is frustration among the industry about what exactly lawmakers need to hear to make reform happen because the clear data from the state’s regulator, victim stories and contractor expertise are “just not resonating with current legislators.”

“For some reason it’s falling on deaf ears for certain legislators. I think that’s the most frustrating thing – it’s like what else can we bring to the table that’s really going to be telling enough to change their mind? It’s hard to put your finger on it to try to come to some sort of solution and strategy,” she said.

However, she said there is plenty of time during the 60-day session to find a compromise.

“I’m not ready to throw in the towel yet. And I don’t think the majority of the insurance industry is either,” she said.

There’s the possibility that reform options that have been considered during past sessions could be again this year, but the consensus among all stakeholders is that any reform must address the one-way attorney fee statute.

“The current one-way attorney fee statute incentivizes abuse and excessive litigation. OIR recommends narrowing the current one-way attorney fees statute relating to litigation involving an AOB agreement to disincentivize AOB abuse, while maintaining consumer protections,” Commissioner Altmaier said in an e-mail to Insurance Journal.

Altmaier said OIR will remain a vocal proponent of measures that increase consumer protection within the use of AOB agreements, monitor any legislation aimed at curbing AOB abuse and continue the fight to hold consumers harmless.

“We greatly appreciate Senator Broxson’s leadership on this issue and believe that the one-way attorney fee provision addressed in SB 122 should remain a central part of ongoing discussions,” he said.

Florida CFO Jimmy Patronis, who oversees the Department of Financial Services, will also continue the fight, telling lawmakers Jan. 22 that doing nothing this year is not an option.

“My job is to make sure we keep attention and pressure on this issue and that something gets done this legislative session because doing nothing is disrespectful, dishonorable to the citizens we serve because ultimately all that is going to do is drive up rates – right now if we do nothing it’s going to drive up rates,” he said.

In the meantime, Altmaier said agent communication with OIR, carriers and their customers is essential to stemming the abuse, particularly in the aftermath of major catastrophes like Hurricane Michael.

“We ask that agents continue communicating with OIR and DFS to express any concerns they may have so those concerns can be addressed as soon as possible,” he said. “Through our combined efforts, communication lines can be strengthened, and consumers can be better served and protected.”

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