The History and Demise of Florida Laws Protecting Policyholders When Insurers Act Wrongfully

Michael A. Cassel’s law review article, Senate Bill 2-A: The Laws It Changed and Its Impact on Past, Present, and Future Claims, 1 provides an in-depth analysis of the legislative changes introduced in Florida, focusing primarily on the modifications to Florida’s attorney fee statutes and bad faith statutes within the context of property insurance policies. I last highlighted Cassel in Florida Replacement Cost and Actual Cash Value: A Study by Michael Cassel. The current law review article begins with a historical overview, detailing the longstanding consumer protections in Florida insurance law and the pivotal role of attorney fee statutes in safeguarding policyholders.

Florida’s original attorney fee statute, enacted in 1893, allowed policyholders to recover reasonable attorney fees from insurance companies, a measure aimed at leveling the playing field between consumers and insurers. This statute underwent several iterations, culminating in section 627.428, which mandated that courts award attorney fees to policyholders who prevailed against insurers. This statute was pivotal in discouraging insurance companies from contesting valid claims and ensuring policyholders were not unduly burdened by legal costs when seeking rightful insurance benefits.

Legislation in 2021 marked the beginning of significant changes. A bill introduced a requirement for a pre-suit Notice of Intent to Initiate Litigation, aimed at reducing frivolous lawsuits by necessitating that policyholders provide insurers with an opportunity to resolve disputes before litigation. Despite these changes, the core protections of the attorney fee statute remained intact until the introduction of Senate Bill 2-A.

Senate Bill 2-A – passed during a special legislative session in December 2022 – brought profound changes to the attorney fee statutes. The bill effectively eliminated the longstanding statutory right to attorney fees for policyholders in suits against their property insurance carriers, except in cases where fees are awarded under section 57.105 or section 627.70152, which involve sanctions for unsupported defenses. This shift means that Florida policyholders must now bear their own legal costs, potentially dissuading many from pursuing legitimate claims due to the financial burden of litigation.

The article highlights the rationale behind these legislative changes, citing statistics and industry claims about the high volume of litigation in Florida’s property insurance market. Proponents of Senate Bill 2-A argue that the reforms were necessary to curb excessive litigation and reduce the financial strain on the insurance industry. However, Cassel underscores the potential adverse effects on policyholders, particularly those with smaller claims who may find it economically unfeasible to seek legal redress without the assurance of recovering attorney fees.

Senate Bill 2-A introduced significant changes to the Civil Remedy statutes governing bad faith actions. Historically, the Civil Remedy statutes allowed policyholders to sue insurers for bad faith conduct, with the requirement that a Civil Remedy Notice be filed, giving the insurer 60 days to cure the alleged violations. The bill, however, amended these statutes to require an adverse adjudication by a court of law before a policyholder can pursue a bad faith claim for extracontractual damages. This means that appraisal awards or settlements through offers of judgment no longer suffice to establish bad faith, significantly raising the bar for policyholders seeking to hold insurers accountable for bad faith practices.

The article critiques these changes, arguing that they tilt the balance in favor of insurers and undermine the original intent of the Civil Remedy statutes to protect consumers from unfair insurance practices. Cassel emphasizes that the attorney fee statute was a crucial tool in ensuring that policyholders could afford to challenge insurance companies that wrongfully denied claims or engaged in other bad faith practices. By removing the automatic right to attorney fees, Senate Bill 2-A places a significant financial burden on policyholders, particularly those with limited resources, who may now be deterred from pursuing valid claims due to the prohibitive cost of litigation. This shift, Cassel argues, fundamentally alters the power dynamics between insurers and policyholders, skewing it heavily in favor of insurers.

The legislative changes could lead to a reduction in the accountability of insurance companies, potentially resulting in more instances of bad faith conduct going unchallenged due to the increased difficulty and cost of pursuing legal action. Cassel points out that the historical purpose of the attorney fee statute was to level the playing field by discouraging insurers from engaging in delay tactics or unjustifiably denying claims. Without the threat of having to pay the policyholder’s attorney fees, insurance companies may feel emboldened to act in bad faith, knowing that many policyholders will be unable or unwilling to bear the financial burden of litigation.

Furthermore, the article highlights that Senate Bill 2-A’s amendments to the Civil Remedy statutes exacerbate these concerns. By requiring an adverse adjudication in court to pursue bad faith claims for extracontractual damages, the legislation raises the bar for policyholders to hold insurers accountable. This new requirement means that even if a policyholder prevails in an appraisal or through an offer of judgment, they cannot proceed with a bad faith claim unless they obtain a court judgment. This change, Cassel argues, adds another layer of complexity and expense to the process, further discouraging policyholders from seeking redress.

Cassel also discusses the potential implications of these changes on smaller claims, which are often filed by low-income policyholders who are already at a financial disadvantage. The attorney fee statute was particularly important in these cases, as it ensured that attorneys could take on smaller claims without the risk of not being compensated. With the elimination of this statute, attorneys may be less inclined to represent policyholders with smaller claims, leaving these individuals without adequate legal representation and recourse.

Moreover, the article points to the broader impact on the insurance market in Florida. Cassel suggests that while the legislative changes may result in a short-term reduction in litigation, the long-term consequences could be detrimental to consumer protection. Without the deterrent effect of potential attorney fee awards and bad faith claims, insurers may adopt more aggressive claims denial strategies, knowing that the risk of being held accountable has diminished. This could lead to an overall decline in the quality of insurance services and an increase in consumer dissatisfaction.

Cassel finally critiques the legislative process that led to the enactment of Senate Bill 2-A. He notes that the changes were driven by a political agenda favoring the insurance industry, as evidenced by the significant campaign contributions from insurers to key legislators. This, he argues, raises questions about the impartiality and fairness of the legislative process, suggesting that the interests of policyholders were not adequately represented.

This is an excellent legal article about the history of Florida’s attorney fee statute and its demise. Cassel’s analysis of a Florida policyholder’s inability to be properly compensated if an insurer wrongly denies a claim is accurate. In Superstorm Sandy May Help Change New Jersey Court View on Recovery of Attorneys’ Fees, Larry Bache explained why attorney fees statutes are needed against insurance companies that deny their own customers claims:

The reasoning is simple to understand: When a policyholder suffers property damage, it is difficult to restore their property if attorneys’ fees are deducted from the recovery. Hence, a fee statute provides a policyholder with the opportunity to recover those fees against the insurance carrier that underpaid or wrongly denied their claim.

How can anyone disagree with that?

Thought For The Day

Without strong consumer protection laws, markets can’t function effectively. Consumers need to know that they’re protected from faulty products and fraudulent practices.
—Robert Reich

1 Michael Cassell, Senate Bill 2-A: the Laws it Changed and its Impact on Past, Present, and Future Claims, 36 St. Thomas Law Rev. 1, (2024).