Behind the Insurance Price Rise

Florida’s property insurance market is nearing collapse. This crisis is not caused by the billion-dollar storms that regularly hit the state but by unscrupulous attorneys who demand excessive legal fees to litigate claims in court. These legal actions have only homeowners in the Sunshine state facing double-digit premium rate increases on property insurance policies.

Much of this fraud stems from contractors who exploit the state’s Adjustment of Benefit (AOB) provisions that were created to help consumers. The abuse starts when a homeowner signs over their rights to a dishonest third-party, giving them “direct control” and the ability to inflate claims “with unnecessary costs and fees.”

Suppose insurance companies refuse to payout at an overly inflated claim, the claim will then have to be settled by the courts. In that case, unscrupulous attorneys could then charge inflated attorney fees using court awarded contingency fee multipliers. These fees substantially raise litigation costs for insurance companies and incentivize them to pay early instead of challenging dubious claims in court.

Like most states, Florida statute allows courts to award attorney’s fee multipliers on top of standard fees if the attorney works on a contingency basis. As a result of a 1985 court case, the Florida Supreme Court allowed judges to adjust attorney fees anywhere from 1.5x to 3.0x. For this reason, attorneys working cases with a higher likelihood of failure can be awarded a higher multiplier as losing the case would result in them not being paid. The fee multipliers exist in addition to the federally recognized lodestar fees that are calculated by multiplying the attorney’s hourly rate by the number of hours worked on the case.

Additionally, Florida operates a prevailing party approach to the payment of legal fees. Under the prevailing party approach, the losing party is held liable for paying the winning party’s legal fees.

Fee multipliers on top of the prevailing party approach to paying litigation fees means small claims for often minor property damage can quickly snowball into significant payouts for attorneys if they win a case and convince the judge to award a fee multiplier.

A November 2020 case  highlights the significant amounts of money attorneys can request using fee multipliers. In this instant, an individual requested $422,000 in attorney fees for a claim only valued at $25,000.

While the claim was ultimately rejected, other insurance companies have not been so lucky. A 2019 case involved a claim of $35,000 and saw the court award $702,927 in legal fees awarded, more than 20 times the cost of the claim. This fee ultimately had to be paid by Citizens Property Insurance Corp., the state government’s insurer of last resort.

In total, the cost of litigating and paying legal fees cost Florida insurance companies $3 billion in 2019, an amount “equal to the cost of a Cat 3 hurricane every 12 months.” Unable to absorb these fees, the cost is then passed onto consumers through higher annual premiums that are quickly becoming unaffordable.

The severity of the problem facing Florida homeowners was highlighted by a recent report stating, “Climate-based catastrophic losses are no longer the top systemic threat to Florida’s residential” insurance market, instead litigation is.

While Florida’s insurance market is facing a litigation crisis, legislative relief could be on the horizon. Senator Jeff Brandes recently introduced SB 212 that would restrict judges’ ability to award fee multipliers, only allowing them “in rare and exceptional circumstances.” Additionally, the bill would create the presumption that “a lodestar fee is sufficient and reasonable” to cover legal costs.

For Florida’s homeowners who face an unprecedented rise in home insurance premiums, the passage of SB 212 cannot come soon enough. If the State legislature wants to ensure home insurance premiums remain affordable and unscrupulous actors cannot exploit the system, it should quickly pass SB 212 into law. Failure to do so will only harm the consumers in the Sunshine State who depend on property insurance to recover from storms and climate threats.

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