Historic Florida Insurance Reforms Under SB 2-A

In what has been hailed as much-needed reform to the Florida insurance market, Governor DeSantis signed into law landmark revisions to Florida's property insurance rules on Friday, December 16, 2022.

In what has been hailed as much-needed reform to the Florida insurance market, Governor DeSantis signed into law landmark revisions to Florida's property insurance rules on December 16, 2022.[1] The Florida Legislature passed Senate Bill 2-A (SB 2-A) quickly and without amendment.[2]

Among other reforms, SB 2-A eliminates one-way attorney's fees, banishes assignments of benefits (AOBs), allows for mandatory binding arbitration clauses in policies, requires a final judgment or decree of an adverse adjudication to have been rendered against the insurer before the filing of a bad faith action, and reduces the deadline for policyholders to report a claim.[3] Specifically, SB 2-A provides for the following:

• The elimination of attorney's fees. SB 2-A provides that the one-way attorney's fee provisions of Fla. Stat. §§ 627.428, 626.9373, and 627.70152 are not applicable in a suit arising under a residential or commercial property insurance policy.
  • Prior to the enactment of SB 2-A, Fla. Stat. § 627.428 (applicable to admitted carriers) and Fla. Stat. § 626.9373 (applicable to surplus lines carriers) mandated an award of attorney's fees if there was a judgment or decree against an insurer and in favor of any named or omnibus insured or named beneficiary.
  • Prior to the enactment of SB 2-A, Fla. Stat. § 627.70152 defined reasonable calculation of attorney's fees in a suit arising under a residential or commercial property insurance policy not brought by an assignee.
  • To Note: Though SB 2-A eliminates one-way attorney's fees, it reinstates application of the offer-of-judgment statute to civil actions arising under a residential or commercial property insurance policy.
     
• The banishment of AOBs. SB 2-A prohibits the assignment, in whole or in part, of any post-loss insurance benefit under any residential property insurance policy or commercial property insurance policy issued on or after January 1, 2023.
   
• The allowance of mandatory binding arbitration clauses in policies. SB 2-A allows a property insurer to include mandatory binding arbitration clauses in its policies, but the insurer may not require a policyholder to participate in mandatory binding arbitration unless specified conditions are met. These conditions include that the insurer must also offer a policy that does not have a mandatory binding arbitration clause and that the insurer must provide an appropriate premium discount in exchange for the rights ceded by the policyholder.
   
• The requirement for a final judgment or decree of an adverse adjudication against the insurer prior to filing bad faith litigation. SB 2-A provides that bad faith litigation for failure to settle a property insurance claim may not be filed until after the insured has established, through adverse adjudication by a court, that the insurer breached the insurance contract, and a final judgment or decree has been rendered against the insurer. Acceptance of an offer of judgment or payment of an appraisal award do not suffice, though the difference between an insurer's appraiser's final estimate and the appraisal award may be evidence of bad faith.
   
• The reduction of the claim filing deadline. SB 2-A reduces the deadline for policyholders to report a claim under the policy from 2 years to 1 year for a new or reopened claim, and from 3 years to 18 months for a supplemental claim.

However, Insurers should be aware that SB 2-A amends the so-called prompt pay laws found under Fla. Stat. § 627.70131 (effective March 1, 2023) as follows:

• Reduces the time for insurers to pay or deny the claim from 90 to 60 days.
  • Note that in the case of a state of emergency, cyberattack, or computer system failure, the bill allows the Florida Office of Insurance Regulation (OIR) to extend the 60-day period up to 30 additional days.
• Reduces the time for insurers to review and acknowledge a claim communication from 14 days to 7 days.
• Reduces the time for an insurer to begin an investigation from 14 days to 7 days.
• Reduces the time for an insurer to conduct a physical inspection from 45 days to 30 days.
• Requires insurers to, within 7 days of assigning of an adjuster, notify the policyholder that he or she may request a copy of any detailed estimate of the amount of the loss generated by an insurer's adjuster, and send any detailed estimate of the amount of the loss to the policyholder within 7 days after the insurer received the request or 7 days after the detailed estimate of the amount of the loss is completed.
• Requires that the insurer's claim records include various parts of the claim investigation and their dates.
• Specifies insurers and policyholders may use electronic methods to investigate the loss.
• Provides that the "prompt pay" requirements are tolled:
  • (1) during the pendency of certain alternative dispute resolution procedures; or
  • (2) upon the failure of a policyholder to provide material claims information requested by the insurer within 10 days after the request was received if the request for such information was made within the first 45 days after notice of the claim.

Additionally, SB 2-A sets forth provisions that address anticipated shortages in the reinsurance market, strengthen the regulatory authority of the OIR, and encourage the purchase of flood insurance:

• The Florida Optional Reinsurance Assistance (FORA) Program. SB 2-A creates the FORA program for the 2023 hurricane season, which creates an optional hurricane reinsurance program that insurers can purchase at "reasonable" rates.
• Regulation of Insurance in Florida. SB 2-A authorizes the OIR to subject any authorized insurer to a market conduct examination after a hurricane under certain conditions relating to property insurance claims. SB 2-A also authorizes the OIR to extend the 30-day coverage period for policies of insolvent insurers by an additional 15 days if the OIR reasonably believes that market conditions are such that the policies cannot be placed with an authorized insurer within the 30-day period.
• Flood Notice (effectively immediately). SB 2-A amends the mandatory flood insurance notice by requiring it to be part of the declarations page and revising the content of the notice to encourage purchase of flood insurance.

The amendment also increases the eligibility threshold for Florida's insurer of last resort.

The information in this document is provided for general informational purposes only and may not reflect the current law in the jurisdiction. No information contained in this document should be construed as legal advice from Clyde & Co US LLP or the authors, nor is it intended to be a substitute for legal counsel on the subject matter. No one should act or refrain from acting on the basis of any information included in, or accessible through, this document without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.