Effective Dates Key to Special Session Reforms
The Florida legislature has released its multi-faceted proposals for reforming Florida’s property insurance market. The proposed legislation includes temporarily expanding available capacity from the Florida Hurricane Catastrophe Fund, incentivizing loss mitigation through windstorm protective devices, increasing regulatory oversight for distressed insurers, and curbing Florida’s litigation crisis by rebalancing attorneys’ fee incentives.
To effectively address Florida’s litigation problem, the legislature must be careful to avoid leaving a litigation “tail” that could cause the problem to become worse over the next two to three years before it shows signs of improvement. This point is made by the Second District Court of Appeal’s recent affirmation of three trial court rulings related to the implementation of 2021’s Senate Bill 76. The 2nd DCA affirmed lower court rulings in Security First Insurance Company v. Stokely, Security First Insurance Company v. Peyton, and Security First Insurance Company v. Fields. By affirming the lower court rulings, the 2nd DCA essentially confirmed that the litigation-oriented reforms in Senate Bill 76 apply only to policies that have renewed after the effective date of the new law.
The 2nd DCA did not issue written opinions explaining its position. However, it referenced Menendez v. Progressive Express Ins. Co., Inc., 35 So. 3d 873 (Fla. 2010) in denying appeals by the insurer. Menendez provides that legislative changes related to attorneys’ fees apply only on a prospective basis unless the legislature evidences an intent otherwise. The Menendez court reasoned these types of changes are substantive in nature, and the substantive laws of Florida are incorporated into a contract as they exist when the contract is entered. Therefore, unless the legislature declares an intent for a change to take place immediately, it will affect insurance policies only as those policies come up for renewal after the change’s effective date.
The Menendez case and the three recent Security First determinations mentioned above show that legislative changes affecting attorneys’ fee provisions often do not apply immediately to future claims or future litigation. Instead, those changes might apply only to policies renewed after a new law’s effective date, and then only to claims occurring under those new policies and resulting in subsequent litigation.
These recent actions regarding SB 76 can be contrasted with the Fourth District’s April 20, 2022, decision in Total Care Restoration a/a/o Annie Griffiths v. Citizens Property Insurance Corporation. The Total Care Restoration case involved a challenge to the 10-day notice requirement established by the 2019 legislative reforms pertaining to assignments of benefits. In Total Care Restoration, the court found that the 2019 legislation related to assignment agreements and not to the insurance policies themselves. Therefore, the court found that the AOB reforms took effect for assignment agreements entered into after the effective date of the new law.
The legislature’s inclusion of attorneys’ fee reforms in proposals for the special session reflect a goal of reducing property insurance litigation in Florida. As has been well-publicized, Florida has about 8-9% of the countrywide property insurance claims but nearly 80% of the countrywide property insurance litigation. The legislature can take a step toward rectifying this concern through an effective rebalance of the incentives to bring claims litigation. However, the legislature should pay careful attention to the desired effective dates of the reforms. For any of the reforms that can be construed as related to insurance policies, a failure to specify that the reforms apply immediately to claims or litigation after the new law’s effective date will leave a litigation tail of at least one year and up to three years before the effects of 2022 reforms will be seen. This in turn will delay the potential effectiveness of the reforms and lead to a continuation of the elevated losses and loss adjustments expenses that have contributed to current market concerns.